Proposed WTO Competition Policy Agreement

In the lead-up to September’s Ministerial Meeting in Cancun, much of the opposition to the so-called Singapore Issues (or new issues) has focussed on attempts to kickstart negotiations on a multilateral investment agreement at the World Trade Organization (WTO).

The European Union (EU) and Japan are leading the charge to expand WTO coverage to include a package of new agreements on investment, competition policy, transparency in government procurement and trade facilitation.

A number of actual or proposed bilateral and regional agreements, such as NAFTA and the Free Trade Area of the Americas already contain sections on competition policy.

But many Third World governments continue to resist further WTO expansion to draw in yet more issues into the international arena hitherto subject to domestic policymaking. Despite all the hype about how the WTO work programme set at Doha (the “Doha development agenda”) would address the concerns and needs of the Third World, there is no evidence to support this.

At the Singapore 1996 WTO Ministerial Meeting, a Working Group on the Interaction Between Trade and Competition Policy was established with a focus on clarifying: core principles including transparency, non-discrimination and procedural fairness, and provisions on “hardcore” cartels (i.e., cartels that are formally set up to fix prices, rig bids, or engage in other forms of anti-competitive practices among competitors); ways of handling voluntary cooperation on competition policy among WTO member governments and support for progressive reinforcement of competition institutions in developing countries through capacity building.

The Doha Ministerial Declaration stated that negotiations on the Singapore Issues “will take place after the Fifth Session of the Ministerial Conference [Cancun] on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations”.

Officials from many Southern governments continue to emphasise that there remains no “explicit consensus” on these issues, and that only further study on these subjects should continue in the working groups set up in Singapore. However, the EU, Japan and a number of other industrialised countries continue to behave as if a decision had been taken to negotiate an agreement. With under a month to go before Cancun, recent EU and Japanese papers propose that all four Singapore Issues will be treated as part of the Doha single undertaking, with negotiations scheduled for conclusion by 1 January 2005.

The EU-led agenda on competition policy at the WTO has little to do with addressing the explosion of mergers and acquisitions of transnational corporations (TNCs) which have seen the consolidation of political and economic power and control in the hands of a few companies and increasing abuse of market power. Instead it would limit policy options of countries in the global South so that European corporations can break into new markets. And enforce domestic competition laws (possibly backed up by the WTO’s Dispute Settlement regime) so that TNCs can operate in markets on the same basis as local firms.

While claiming to address “anti-competitive” practices, the proposal ignores the issue of the creation of monopolies or dominant positions in national markets through TNC mega-mergers and takeovers. On the contrary, it provides another path along which to expand monopoly corporate capitalism.

The EU’s main objective for this agreement is to “reinforce and support the process of trade and investment liberalisation through commitments by countries to transparent and non-discriminatory competition policies”. The EU and Japan want to apply core WTO principles such as national treatment, most-favoured nation (MFN) and non-discrimination to any agreement on competition policy.

In the face of continued opposition, some soft-selling of the idea is now going on. In July the Chairman of the WTO Working Group on the Interaction between Trade and Competition Policy, Frederic Jenny, said that three options were emerging on the issue for Cancun. These are: to negotiate a legally binding WTO agreement; to negotiate a non-binding “soft agreement”; and to continue clarifying the issues instead of launching negotiations. However, the last two options could well spell simply a more politically palatable way of progressing a competition policy agreement at the WTO.

New Zealand trade and investment analyst Bill Rosenberg comments: “The large industrial economies had effective protection from competition long after their industry took root, through explicit or informal rules, or from being first into a market. That greatly helped their development. They are now proposing to kick away the ladder they used, to prevent other countries from ascending it. The effect in the long run is to lessen competition.”

Between 1950-73, during its rapid industrial and economic development phase, the Japanese government intervened to support local enterprises, directing investment, restricting market competition, and encouraging various cartel arrangements and mergers among domestic firms so that they could compete against Western companies’ might. South Korea followed a similar path of strong intervention and lax competition policy as it industrialised. Under a WTO competition policy agreement, such policies would no longer be options for governments which wished to build up stronger domestic firms.

India’s former Ambassador and Permanent Representative to the GATT, Bhagirath Lal Das writes that “a developing country may like to give special treatment to its domestic trading firms in the matter of taxation, use of domestic distribution channels, etc, while denying these advantages to the foreign trading firms. The proponents of the Singapore issues in the WTO would particularly target these and other similar flexibilities available to the governments at present”.

In early August, the 79 countries of the ACP group (Africa, Caribbean and Pacific) released a statement on the Singapore issues stressing that “WTO Members have not reached a common understanding on how any of these issues should be dealt with procedurally or substantively in a multilateral context.”

They affirmed that most ACP states “do not have the capacity to meaningfully negotiate these issues, as we grapple with the implementation of existing WTO rules and, especially, taking into account, the expanded work programme after the Doha Ministerial”.

They cited the lack of evidence for the benefits of negotiations on the Singapore issues, their scarce resources and limited capacity in this area as objections to the start of WTO negotiations in these areas.

At an earlier workshop on the WTO in April 2003 in Arusha, Tanzania, trade officials from fifteen African countries restated their opposition to the new issues and questioned whether the WTO is the appropriate arena for any global rules on competition policy:

“Our understanding of competition policy, from the development perspective, is that there is a need for government to assist and promote local firms so that they can be viable and develop despite their present relative weakness, so that they can successfully compete with foreign firms and their products.

“The opposite interpretation, advocated by the developed countries, is the market access approach, i.e. that foreign firms should be granted the right to effective equality of opportunity to compete equally with local firms in the local market, and governments would be prohibited from giving preferences or assistance to local firms. They invoke the WTO’s non discrimination principle to make this argument.

“If negotiations begin, it is likely that the developed countries’ market access approach may eventually win out, due to their higher negotiating capacity and influence. There could then be a competition agreement in WTO that would oblige our governments to give almost total freedom and market access rights for foreign firms and their products and services, whilst local firms would not be able to receive assistance or subsidies and many of them may not survive.”

The proposed agreement could open up another front against public services which have monopoly positions, in the name of upholding competition. The EU has advocated “the application of competition law on the same basis to private and public undertakings”, and wants limits on the ability of governments to exempt some sectors from competition policy. Seen alongside pressures to commercialise, deregulate and privatise public services through agreements such as the General Agreement on Trade in Services, it seems clear that a competition policy agreement at the WTO could provide another tool for corporations to take over everything from postal services to healthcare and water.

A binding agreement on competition policy at the WTO could lock countries into establishing new competition authorities or adjusting existing domestic competition regimes into a “one-size-fits-all”, WTO-consistent global policy. While burdening them with compliance costs such as creating new competition agencies and laws which may not be appropriate to their local contexts (not to mention overloading trade officials with a set of new and complex issues), it would prevent governments from using the same kinds of tools and flexibility to choose appropriate policies for their situations which the proponents of this agreement themselves have used in various stages of industrial development.

As TNCs continue to freely and aggressively expand their global and national power through mega-mergers and takeovers, how are we to understand a proposed global agreement which could prevent governments from approving mergers of local firms in order to resist a total TNC takeover (and indeed to survive), or in applying other policies which support local firms? This agreement is a close cousin of the attempted resurrection of a multilateral agreement on investment at the WTO. It’s another corporate steal.

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