The Interaction between Trade and Competition
Policy: the Perspective of the Australian Competition
& Consumer Commission
Hank Spier
General Manager
Australian Competition and Consumer Commission
Board of Foreign Trade
Taipei
Seminar on
International Trade Policies
after the WTO Singapore Ministerial Conference
2 May 1997
Introduction
There is little doubt that considerable impetus for ongoing growth in international
commerce stems from trade liberalisation. The lowering of trade barriers, combined
with improvements in international communication, technology and transportation,
have led to increasingly interdependent and trade-exposed economies. The realisation
of the opportunities presented by a competitive global marketplace for the world’s
consumers, producers and service providers has maintained the momentum for
governments and business to continue the push for trade liberalisation.
The changes in the global trade framework that have resulted from trade liberalisation
have, in turn, impacted upon competition policies and competition regulation the
world over. Competition policies and regulation have themselves impacted upon the
effects of trade liberalisation. The close and complementary relationship between
trade and competition policies is founded on the similarity of their objectives: both
trade and competition policy aim to enhance welfare through the provision of a more
efficient allocation of resources, whether it be by lowering governmental barriers to
trade or through promoting competition.
It is now widely recognised that competition law and policy can complement the
advancements made by trade policies in achieving open and accessible markets.
The crux of the relationship between trade and competition policies is that, in an
environment where firms are increasingly organising their operations on a global
scale and where trade barriers between nations are falling, firms are more exposed to
the regulatory systems and business practices that exist in different countries. Trade
policy is not sufficient, on its own, to deal with the frictions that result. By
incorporating, in appropriate circumstances, the application of competition principles
to the policy mix, balanced and desirable outcomes can be achieved more readily.
I would like to take this opportunity to discuss this interaction of trade and
competition policies from an Australian perspective, and the sorts of issues that arise
from the interaction of trade and competition policies for a national competition
authority like the Australian Competition and Consumer Commission.
The Australian Policy Focus
In recent times, microeconomic reform has taken centre stage in Australia.
In the 1970s and 1980s, many of the policies that inhibited international transactions
were relaxed, and the Australian economy was exposed to increased international
competition through, for example, reductions in tariff protection. With many such
trade reforms having already occurred or at least being set in train, the focus of policy
attention has switched from the traded sector to the non-traded sector.
The non-traded sector is not only important to the Australian economy in itself; it is
also seen as a crucial supplier of inputs to the traded sector. Both policy makers and
regulators in Australia recognise that it is critically important to ensure that those
trade-exposed sectors of the economy have competitive input markets, so as to be able
to compete internationally. In this way competition policy is directed to supporting
and complementing trade and industry policy objectives.
An illustration of this shift in focus of competition policy can be found in the
Commission’s approach to merger control.
Australian merger analysis focuses on whether the proposed transaction would have
the likely effect of substantially lessening competition in a substantial market in
Australia. The nationality of the acquiring company is not a relevant consideration in
Australian merger law. However, the role of imports in providing a competitive force
in Australian markets is an important consideration.
The Commission’s merger review processes reflect the profound changes which
continue to occur in international trade and commerce, through rapid growth in
international trade and increasing globalisation of commerce. Domestic producers are
exposed to international competition in domestic markets and are forced to seek
greater efficiencies in production, distribution and management so as to be able to
compete in overseas markets. There is also increasing pressure on domestic firms to
be innovative to keep ahead of, or just to keep up with, rapidly evolving technologies
and new products.
The Commission has continually placed a very high emphasis on the role of imports
in its assessment of merger cases. The Commission will not oppose mergers where
there is a significant, sustained and competitive level of imports, and it is in the tradeexposed sector that firms will be exposed to sustained and significant import
competition. Import competition is therefore viewed as a relevant critical constraint
on the ability of merged firms to exercise market power. [ Pursuant to s 50(3)(a) of
the Trade Practices Act 1974 , the actual and potential level of import competition
must be taken into account in determining whether an acquisition would be likely to
have the effect of substantially lessening competition in a market.] Indeed since the
change in the mergers test in 1993 from one proscribing acquisitions that are likely to
create or strengthen dominance in a market, to one proscribing acquisitions that are
likely to have the effect of substantial lessening competition in a market, in some 30
or more cases the role of imports has been either critical or highly relevant in the
Commission not opposing the merger.
As the internationalisation of trade and commerce has reduced the concern of the
Commission at the level of domestic concentration of industries in the trade-exposed
sector, the focus for merger policy has increasingly been directed to the non-traded
sector.
Merger regulation, particularly in service and infrastructure industries, is critically
important to ensure the trade-exposed sector of the economy has competitive input
markets. The Commission’s focus in respect of mergers therefore centres on
deregulating infrastructure industries. This is particularly important from an
Australian perspective in light of the reforms, restructuring and reviews currently
under way or recently completed in areas like the energy sector, primary industry,
transport, communications and the financial services sector. In this way, the
Commission has a role to play, through the implementation of competition policy, in
encouraging the development of an environment in which firms in the trade-exposed
sector are able to enhance their international competitiveness.
This is just one aspect of the interaction between trade and competition policy in
Australia.
Complementing Trade Policy with Effective Competition Policy
There is a more problematic aspect arising from the interrelationship of trade and
competition policy. It is widely acknowledged that the effects of trade liberalisation
and efforts to lower governmental barriers to trade can be defeated by private barriers
to trade that may exist, whether through inadequate competition laws or ineffective
enforcement. For instance, while the lowering of trade barriers facilitates import
competition in a domestic market, an anti-competitive arrangement in, say, the
distribution sector of that market, can prevent the imports from reaching consumers or
result in significant price increases.
This can have repercussions for trade policy, if, for instance, claims of unfair market
access policies generate some form of trade retaliation, like anti-dumping measures or
countervailing duties.
With this in mind, it becomes clear that sound and effective competition law
enforcement can ensure that the benefits of trade liberalisation are fully realised.
Further, the interaction of trade and competition policy is not limited to
complementarity. Competition policy is being increasingly mooted as a "solution" to
trade policy "problems", [ Kazanjian J, "Competition Law and Trade Policy: Honk if
you love Competition Policy", Canadian Competition Record , Sep 1993, 71.] given
that trade policy can restrict and distort competition.
Government-imposed trade measures generally restrict or distort competition in world
markets. Such barriers may include tariffs, non-tariff barriers (such as standards or
technical requirements), voluntary import expansion schemes and voluntary restraint
agreements (now illegal under World Trade Organisation rules). These measures
should continue to be the subject of international trade negotiations under the auspices
of the WTO and other fora. However, there might be some added value in evaluating
such measures against competition principles as well.
There is an attractive simplicity in the proposition that competition policy can solve
trade policy problems, and one should not overlook the complexity of the relationship
between trade and competition policies when considering this issue. Even
jurisdictions with a strong commitment to competition principles exempt certain anticompetitive practices that can distort trade flows (such as export cartels and
agricultural marketing boards). Nonetheless, in certain situations, competition
solutions are able to resolve trade problems. Probably the strongest legal and
economic case for a competition law solution to a trade law problem, and the one with
which Australia and New Zealand have some familiarity, arises in the anti-dumping
context. [ Ibid, 74.]
An illustration of the application of competition policy principles to trade policy
problems is the abolition of Australia’s and New Zealand’s anti-dumping laws (as
between the two countries), such that dumping issues are now treated under the
restrictive trade practices provisions of their respective competition legislation.
Competition laws have thus been extended to relevant anti-competitive conduct
affecting trans-Tasman trade in goods. [ See the Trade Practices Act 1974 (Cth), s
46A, and the Commerce Act 1986 (NZ), s 36A. Changes to judicial procedures have
also been made to facilitate the operation of these new laws.] This is likely to be more
conducive to economic efficiency and favourable consumer outcomes. [ Fels A,
"Competition Policy and Law Reform in the Asia Pacific Region", 6 (1996)
Australian Journal of Corporate Law , 144.] This solution underscores the fact that a
cooperative approach in the implementation of competition policy can assist in
achieving trade policy objectives.
However, it should be observed that this solution was facilitated by the fact that there
was a convergence in business practices between the two countries, as well as in
competition legislation - New Zealand having previously adopted competition
legislation substantially similar to that in Australia.
I will return to the issue of convergence in competition laws later in this paper.
A Cooperative Approach to Dealing with the Interaction of Competition and
Trade Policy
The interaction between trade and competition policies is obviously complex. Despite
their complementarity, there are manifest differences that complicate their
coordination. Trade policy issues are entwined in complicated domestic and foreign
politics. [ Kazanjian, op. cit, 76.] Nevertheless, whilst trade policy is a difficult area
politically, the administrative and legal implementation of trade liberalising decisions
is relatively simple, since governments generally have only to remove or
quantitatively reduce barriers to free trade. [ Fels, op. cit., 145.]
There are also constitutional and institutional differences between the implementation
of trade and competition policies. Trade and competition decision-making processes
are usually separated and are not necessarily coordinated: whereas competition policy
may give more weight to consumer interests and judicial review, trade policy tends to
favour producer interests and domestic problems are more likely to be resolved at the
expense of foreigners who are not sufficiently represented in the trade policy-making
processes. [ Petersmann, "International Competition Rules for the GATT-MTO World
Trade and Legal System", Journal of World Trade , 27 (1993) 6, 37.]
Although coordinating the two policies is difficult, one must not neglect the
advantages of doing so, which is achieving the desired outcome of any trade and
competition policy maker - a more efficient allocation of resources and enhancement
of individual and social welfare.
International cooperation in achieving a balanced and coordinated approach to trade
and competition policy will greatly assist the desired outcome. This is because
effective competition policy and trade liberalisation are mutually reinforcing, and for
so long as one is hampered, realising the full effects of the other is unattainable.
International cooperative engagement in competition law and policy by a competition
regulator can have significant and positive effects on trade policy. It is worth
mentioning some of the benefits for trade policy that can flow from international
cooperative engagement by a competition law enforcement agency.
As mentioned before, sound and effective competition law enforcement can ensure
that the benefits of trade liberalisation are not defeated by the imposition of private
barriers to trade. Similarly, liberalised and open trade can complement competition
law enforcement by reducing the problems that competition laws are designed to
address. As the above discussion of Australian merger control illustrated, imports or
the potential for effective import competition in a traded goods sector can constrain
the exercise of unilateral or coordinated market power in the domestic market. The
level of constraint will vary depending upon the limitations imposed on imports.
Similarly, export enhancement, import substitution, and any matters relating to the
international competitiveness of any Australian industry are to be regarded as public
benefits when the Commission makes its evaluation whether an otherwise anticompetitive merger results in such a benefit to the public that it should be allowed to
take place. [ Trade Practices Act 1974 (Cth), s 90(9A).]
On the other side of the coin, there is a recognition that differences which may arise in
the regulation of anti-competitive conduct across borders can lead to distortions to the
trading system. In this respect, it should be noted that many jurisdictions tolerate
certain anti-competitive conduct or promote competition laws and policies that
discriminate in favour of domestic firms thus imposing inefficiencies on the
international marketplace. Although tolerance of anti-competitive behaviour that
gives a country an advantage in export markets may appear rational at a domestic
level, it may have a collectively welfare-deteriorating outcome. [ Productivity
Commission , International Cooperation on Competition Policy , Report 96/15,
AGPS, Canberra, 1996, 26.]
A policy solution to this is the extraterritorial application of competition laws by one
country over firms in the jurisdiction of another. This will go some way in eliminating
anti-competitive practices and contribute to a more efficient resource allocation, but at
the same time raises legal, political and administrative difficulties. [ Fels, op. cit.,
149.] For instance, differences of opinion as to the jurisdictional reach of competition
rules can lead to judicial action (such as courts declining to assist in a foreign
discovery process), or through legislation "blocking" enforcement of foreign
competition laws, or "claw-back" legislation giving a right in certain conditions to
reclaim damages awarded by foreign courts for breaches of foreign competition laws.
[ Early Australian legislative responses to extraterritorial application of foreign laws
were the Foreign Proceedings (Prohibition of Certain Evidence) Act 1976 (Cth) and
the Foreign Antitrust Judgements (Restrictions on Enforcement) Act 1979 (Cth), later
repealed and supplanted by the Foreign Proceedings (Excess of Jurisdiction) Act 1984
(Cth).]
Australia has, in recent years, avoided jurisdictional conflicts. Most countries appear
to approach extraterritorial application pragmatically, considering that success in
extraterritorial application of competition laws is hard to achieve without, for
example, having the cooperation of the foreign government or the ability to access
information relevant to the matter at hand. [ Productivity Commission, op cit, p 21.]
The importance of a cooperative approach is also evident when one considers the
issue of compatibility of differing national business and economic systems.
Whilst recognising that business systems will remain different for cultural, social and
political reasons, and that any reduction in such diversity is neither possible nor
desirable, some partial harmonisation of business systems between trading nations is
necessary. [ Fels, op. cit., 147.] The growth in international commerce, the rise of the
multinational enterprise, and the increasing cross-border exchange of information,
capital and technology have reduced to some extent some of the differences that firms
face when competing in the international marketplace. Although the international
trading system may never see the sort of supranational marrying of competition and
trade policies that exists within the European Union, it would benefit from an
increased application of competition principles and the enhanced market access that is
likely to follow.
Consequently, there is good reason to argue for supporting cooperation in competition
law enforcement and policy from a trade policy perspective. Such cooperation can
contribute to the realisation of the benefits of trade liberalisation and diminish the
costs of trade and investment that might otherwise occur. In addition, the potential for
trade disputes can be reduced when the perception that a country is taking advantage
of weak competition laws or law enforcement for trade protection purposes is
removed. [ Productivity Commission, op. cit., 26.]
It was inevitable that there be multilateral consideration, in some form or another, of
the linkages between trade and competition policy. International recognition of the
interlinkages occurred at the recent Ministerial Conference of the World Trade
Organisation (WTO) in Singapore in December 1996. At the Conference, Ministers
agreed to establish a WTO Working Group to study issues raised by Members relating
to the interaction between trade and competition policy, including anti-competitive
practices. This is the first time that a multilateral body has been charged with
examining the links between trade and competition policy, and the Working Group is
expected to make recommendations to Ministers on adopting international rules on
trade and competition policy by the next Ministerial Conference of the WTO in two
years. [ The Hon. Tim Fischer MP, Deputy Prime Minister and Minister for Trade,
Media Release - Five Days of Talks, Five Years Plus of Progress (December 13,
1996).]
The immediate challenge for competition law enforcement agencies like the
Commission is to promote and safeguard open and competitive global markets for the
benefit of the world's consumers and producers. This can be done most effectively if
there is a level of cooperation between the agencies. In an interdependent world, the
objectives of competition agencies will never be met without some form of
cooperation between them.
Less directly related to trade policy, but an equally important reason for cooperation
between agencies nonetheless, is that the growth of global commerce has meant that
there are more competition issues which transcend national boundaries and are unable
to be dealt with domestically by any one country; for example, international market
sharing agreements, export cartels, restrictive practices in fields which are
international by nature (such as air or sea transport), anti-competitive mergers
involving multinational corporations, and the abuse of a dominant position on several
major markets. Further, various transactions may have occurred offshore even though
they have an effect on domestic markets; for example, offshore mergers or anticompetitive agreements between exporters. Competition authorities have a prime
interest in cooperating to solve any competition problems that might arise from these
transactions, as this will enhance the effective enforcement of domestic competition
rules and at the same time promote freer trade flows.
An increasingly important rationale for international cooperative engagement by the
Commission is that in some countries actions against anti-competitive practices can
be less rigorous than others and result in economic and trade distortions. In addition,
anti-competitive practices tolerated in one country may result in reduced access
opportunities to its markets, even though foreign firms could provide additional
competition which would be beneficial to the consumers of that country. Developing
countries in particular have an interest in ensuring effective controls on anticompetitive behaviour. In the absence of appropriate domestic rules, these countries
may be at risk of being subject to extraterritorial application of other countries'
competition laws, or being exposed to anti-competitive conduct by foreign firms.
Levels of International Cooperation
There are a variety of levels of international cooperative approaches to competition
regulation. At one extreme, it may involve information exchange, while at the other, it
may involve a convergence of competition laws. Along the spectrum of cooperation
sits a variety of other possibilities including the provision of technical assistance, the
conclusion of bilateral agreements, and mutual recognition of antitrust judgements.
Given the different sorts of approaches that competition regulators can be involved in
when dealing with competition problems arising from multinational anti-competitive
activity, the Commission has found discussion in multinational fora, from APEC to
the OECD, helpful in not only laying down what are the most mutually beneficial
forms of cooperation, but also in providing a framework for the "rules of the game"
for international cooperation.
With the WTO now considering the interaction of trade and competition policy, and
the adoption of international rules, it is likely that this organisation will play a central
role in progressing discussions on any convergence of international competition rules.
This issue of convergence is important and topical since a number of countries,
particularly in the Asia-Pacific region, are in the process of developing their
competition law regimes.
Convergence
Convergence in competition laws is desirable because it ensures trading nations are in
a position to reap the benefits of trade liberalisation. [ Jenny F, "Domestic
Competition, International Trade and Economic Development", International
Business Lawyer , Vol 23 No 10, Nov 1995, 474.] Convergence requires not only
some adoption of common principles, but also some form of consensus on an
effective set of enforcement procedures to give effect to those principles. Such an
approach recognises that some economies have inadequate competition laws or
ineffective enforcement.
There are a plethora of problems associated with developing some international
competition model, not least of which is the varying national approaches to
competition policy. For instance, in the European Union, the principle function of
competition rules has been to further integration and are thus concerned more with
private restraints of trade between Member States. Therefore, EU competition law has
focused on vertical trade restraints (which form the most obvious obstacles to
interstate trade) unlike other national systems which concentrate on horizontal
restraints between competitors. [ Gerber, "The Transformation of European
Community Competition Law" (1994) Harvard International Law Journal , 98, 111.]
Another problem is that there can be so many different exemptions from competition
legislation (eg. in relation to cartels) as to make identification of common positions
quite difficult. [ In addition, approaches to merger control differ from country to
country, although this difference is arguably not a significant source of trade
restrictions.]
With respect to the question of convergence of enforcement procedures, some basic
issues would need to be addressed. It would be essential that a framework be
established which provides for transparent administration of the law - otherwise
achieving universality in enforcement could prove too difficult. In addition, it would
be appropriate that there be some form of judicial review, and private action by
parties with legitimate interests be made available. Furthermore, the differences in
national penalty regimes for breaches of anti-competitive conduct would need to be
resolved.
It is best to approach the issue of convergence by identifying and building upon
commonalities of competition laws. There appear to be some basic competition
principles that can be universally agreed upon and which could form the foundation
for convergence. In particular, national and international articulations of competition
principles seem to reflect wide agreement that there should be prohibitions of cartels
(eg. price fixing, market sharing), resale price maintenance and anti-competitive
boycotts. [ Fels, op. cit., 150.]
Approaches to convergence can be measured against trade principles. Regarding a
most favoured nation approach, one would anticipate that a strong case could be made
for the adoption of the approach that any competition law should not treat one nation
better or worse than any other. Moreover, there should be equal national treatment
principles, that is, foreign firms should be treated in the same way as domestic firms. [
Ibid.]
I would like to now turn to a cooperative approach with which the Commission is
accumulating some experience - the formulation of bilateral agreements in relation to
the application of competition laws.
Bilateral Agreements
The difficulties of concluding effective multilateral agreements on competition law
enforcement and policy have been long recognised despite many attempts to give the
issue momentum. [ As early as 1927, the League of Nations discussed control on
restrictive business practices. Subsequent efforts were made under the auspices of
various international institutions including the Havana Charter for an International
Trade Organisation, the GATT, the Council of Europe, UNCTAD, and the OECD. In
1993, a Draft International Antitrust Code was submitted by a group of academics to
the GATT Secretariat, but appears to have met a lukewarm reception.] Apart from the
European Union which has an effective harmonised competition policy regime in
place, regional agreements on competition law are usually severely constrained in
scope and content by national sovereignty considerations. In order to progress
cooperation in competition law and policy, countries have increasingly been
establishing bilateral arrangements between competition agencies as a means of
formalising cooperation. These agreements are not only valuable in themselves in
lessening the impact or possibility of differences between the parties in the application
of their competition laws, they also provide a more conducive environment from
which to expand cooperation.
Agreements initially followed the pattern of OECD recommendations, providing for
notification, exchange of information, coordination and consultation. [ Ham A,
"International Cooperation in the Antitrust Field and in particular the Agreement
between the USA and the EC Commission", (1993) CMLR 571 at 575.] More
recently, a greater cooperative approach has been taken in the drafting of bilateral
competition cooperation agreements. What is interesting about the approach currently
being taken in the negotiation of these agreements (eg. USA/European Community,
Australia/New Zealand) is the tendency to include not only a traditional comity
provision, by which each party is required to consider the important interests of the
other in certain circumstances, but also provision for positive comity, by which one
party can request that the other initiate an investigation or enforcement proceedings
for anti-competitive behaviour in the latter’s territory where the former’s interests are
adversely affected. The commitment implied in these agreements is not to act
unilaterally unless all the means provided by comity have been exhausted. [ European
Commission, Competition Policy in the New Trade Order: Strengthening
International Cooperation and Rules , Brussels, 1995, 19.]
By way of example, the Australian Competition and Consumer Commission and the
New Zealand Commerce Commission signed a cooperation and coordination
Agreement in July 1994 under which the two agencies agreed to exchange a variety of
information as well as provide enforcement assistance.
Using the Australia/New Zealand agreement as a basis (which itself was loosely based
on the USA/EC Agreement), the Commission negotiated a similar arrangement with
Chinese Taipei. The Chairpersons of the Commission and Taipei’s Fair Trade
Commission exchanged letters in September 1996 confirming the signing of the
Arrangement between the two parties. The Arrangement included provisions for both
traditional comity and positive comity. At the moment, the Commission is concluding
negotiations with the United States Department of Justice and Federal Trade
Commission on a bilateral agreement for enforcement assistance in antitrust matters,
again containing provisions for traditional comity and positive comity.
Challenges for the future
Given the common interest in preventing anti-competitive activity, countries should
be encouraged to ensure that they have in place an adequate set of competition rules
and that these are effectively enforced. Competition law enforcement agencies should
avail themselves of the opportunity to increase mutual dialogue, understanding and
cooperation. It is the Commission’s experience that bilateral agreements have an
important role to play in increasing cooperation between enforcement agencies,
particularly to facilitate information exchange, to address jurisdiction conflicts and to
assist in enforcement.
Competition law enforcement agencies should take advantage of an increasingly
cooperative climate in order to carry out their respective competition policy
objectives, and more comprehensive and systemic forms of cooperation should be
pursued.
It is not beyond the imagination that some sort of plurilateral framework can be
developed within which the varying forms of growing cooperation can take place.
This is not a new idea - a European Commission Group of Experts proposed in 1995 a
building block approach involving a deepening of bilateral agreements and
development of a plurilateral framework which would develop and expand its
coverage progressively through a domino effect. [ Ibid.] The plurilateral framework
might involve elements already incorporated within bilateral agreements, to which
would be added a set of minimum appropriate competition rules, a binding positive
comity instrument and an effective dispute resolution mechanism. Such a mechanism
has more chance of success if it involves the multilateralisation of an already
successful cooperative approach. Continuing discussions on convergence in fora like
the WTO should be encouraged and supported.
Ultimately, the progression of international cooperation in competition law and policy
will depend upon the commitment of governments as well as their enforcement
agencies. At this stage, cooperation is growing, and the fact that there is discourse on
further minimising differences between competition regimes is indicative of further
enhancement of the level of cooperation. This will ultimately serve to assist the
Commission as well as other enforcement agencies in achieving their domestic
competition policy objectives, and at the same time enhancing international trade
access.