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Public Interest Advocacy Centre (PIAC)
While the objectives of trade liberalization are intimately tied to the potential economic benefits that will be provided to individual consumers in signatory nations, there sometimes appears to be some ambivalence on the part of WTO proponents to the idea of making such consumers a focal point of policy promotion. For example, the recent Canadian government response to the Report of the Standing Committee on Foreign Affairs and International Trade, Canada and the Future of the World Trade Organization(1), concentrated almost exclusively on extolling the national benefits from the producer standpoint, highlighting the development of export markets, entrepreneurial success, and jobs. These are important national goals, but the relentlessly producer perspective of the report tends to obscure other key potential advantages of freer trade that might serve to earn the WTO some increased public standing.
The reluctance to make the WTO mission relevant to the ordinary consumer is puzzling, as public support for and confidence in the WTO is hardly at the high water mark. The desirability of multilateral trade agreements, negotiated through the WTO, is an issue which has taken on a public profile that now cannot be contained within the usual fora for resolution of intergovernmental conflict on commercial issues. The WTO process, as well as the surmised results of that process, has attracted global opposition from a wide variety of public non-commercial interests.
The influential American organization, Public Citizen, describes the WTO process in its Citizens’ Guide to the World Trade Organization as:
“A global system of enforceable rules is being created where corporations have all the rights, governments have all the obligations, and democracy is left behind in the dust.”(2)
This theme echoes no less vociferously in some Canadian non-commercial circles:
“Because of the way trade agreements are negotiated, it is not surprising that the results reflect a myopic preoccupation with the interest of large corporations and the virtual indifference to societal goals such as environmental protection, democratic processes, workers rights or cultural diversity. The WTO purports to be an economic constitution for the planet it is written by and almost entirely for the worlds largest corporations”.(3)
Consumers International (CI) representing 247 organizations in 111 countries has called upon the WTO to reconsider the action needed to achieve its original goals and to ensure that consumer rights are given equal status with business interests.(4) CI went on to recommend that no move be taken to negotiate international competition rules until consultations have been complete with the relevant UN bodies, principally UNCTAD and civil society organizations(5) , and until there is a clear commitment to the paralled commitment to implement effective consumer policy in the process.
However, as we later note, Consumers International is not reticent about making recommendations concerning mechanisms for controlling international anti-competitive and restrictive business practices that must be incorporated into any future multilateral competition agreement. This reflects the usual flexibility that consumer representatives are obliged to demonstrate . If the WTO is, in fact, making “an economic constitution for the planet”, based on a competitive model, it is best that this constitution incorporate the historical lessons learned by consumer advocates as to how to make it work.
It is interesting to observe that the WTO itself has begun to define its identity and its role in a more populist fashion, presumably seeking some distance from the transnational corporate mind set that has been ascribed to it by its opponents. The WTO web site now highlights the benefits of choice to consumers enhanced by free trade, as well as the resultant downward pressure on price:
Look around and consider all the things that would disappear if all our imports were taken away from us. Imports allow us more choice- both more goods and services to choose from, and a wider range of qualities .Even the quality of locally produced goods can improve because of the competition from imports.
…..The WTO’s global system lowers trade barriers through negotiation and applies the principle of non-discrimination. The result is reduced costs of production (because imports used in production are cheaper) and reduced prices of finished goods and services, and ultimately a lower cost of living(6).
Whatever the collateral problems caused by a liberalized multilateral trading process, this uncomplicated prose from the WTO has probably nailed down the important objectives of the free trade process for the ordinary consumer better than a boxcar of testimonials from happy multinationals. If the WTO can’t provide choice and market efficiency for the citizens of its signatory nations, there seems little point in investing political or ideological capital simply to make the world safe for exporters.
However, even the halcyon model of consumer benefits proposed by public relations of the WTO is predicated on the existence of robust competition for the provision of goods and services. Without a workably competitive market in a signatory country, consumers in that country may have their prices and choices fixed or limited by private constraints in the form of anti-competitive business conduct. This conduct may consist of national industries conspiring to shut out a foreign market entrant, or behavior by the market entrant itself that insulates it from the rigors of competition. The latter result might eventuate through abuse of a market dominant position, or, perhaps more likely, through arrangements of comfort with a national government. In the latter case, while the needs of the exporting industry and the government may be met through opening up market access to that industry or business, the consumer benefits of freer trade are effectively sabotaged.
The control of private commercial anti-competitive conduct in the multinational trading context should not be something relegated to the status of a possible trade agreement refinement that is without immediate resonance beyond national borders. For one thing, the decade of the 1990’s has seen the popularization and deployment of a technology, the Internet, with the potential to take the globalization of commerce to the level of the individual consumer. Electronic commerce, enabled by the Internet, allows individual citizens to trade in products and services previously restricted by logistic and regulatory barriers. However, there is no assurance that the technology itself can overcome anti-competitive conduct. As a recent OECD study noted:
“Many e-commerce products benefit from non-rivalry (one person’s consumption does not limit or reduce the value of the product to other consumers), network externalities (each additional user of a product increases its value to other users), and increasing returns to scale (unit costs decrease as sales increase). These factors create an environment where producers may seek to engage in practices that permit them to establish themselves as the, or part of the, de facto standard. This can hinder innovation and competition.”(7)
A recent policy statement by the Trans Atlantic Consumer Dialogue (TACD) was even more specific:
“In the area of data networks, it is essential that policy makers protect consumers against monopolistic and anti-competitive practices. Increasing returns and network effects lead to problems when dominant firms use market power to exclude rivals or limit the ability of rivals to develop products that are interoperable. Practices of bundling products, technological tying of products, or other techniques can reduce competition and lead to high prices, reduced consumer choice or lower quality. There are particular concerns for those elements of networks that provide user interfaces for consumers, including default menus for electronic commerce and selection of editorial content. Policy makers should use appropriate competition policy and regulatory remedies to ensure that consumers have open platforms for network access, and that private control over network bottlenecks are not used to exercise control over essential network navigation tools or content.”(8)
Without a harmonized and cooperative framework of global competition enforcement, the prospect of effective policing of cross-border anti-competitive conduct in electronic commerce is somewhat remote.
In our view, the establishment of international competition policy by multilateral agreement should be an essential objective of any regime of WTO trade arrangements. We would note that the obstacles to the negotiation of such an agreement have been frequently emphasized. In contrast, the principles of consumer welfare in the international marketplace which would be advanced by the same, have been overlooked or brushed aside by the opponents. We would also suggest in the current polarized environment surrounding multilateral trade discussions, that such an agreement may have the effect of polishing the significantly tarnished lustre of multilateral trade agreements with an increasingly hostile public.
In this paper, we will discuss the benefits to consumers of the establishment of international competition policy by agreement. In addition, we will attempt to deal with some of the key issues and concepts associated with the implementation of a multilateral competition policy agreement including common standards and resolution of disputes.
Consumers International notes that:
“The relationship between competition policy and consumer protection policy is based on two elements:
An essential purpose of competition policy is to enhance consumer welfare in the aggregate. This goal can be realized by the accomplishment of two objectives:
Notwithstanding frustration with the emphasis by some competition authorities upon the efficiency of markets over consumer protection issues, world consumer organizations have regarded competition law as an important line of defense against objectionable business practices. Accordingly, the establishment of genuinely competitive international trade markets is an ideal that contains initial appeal for consumers in general. As the president of CI recently noted:
”…Both trade and competition, through their ability to promote innovation, choice, high quality and good prices have been welcomed and promoted by consumer groups. Effective open markets give people power through their consumption choices. In addition, economic growth, which provides greater resources for consumers to exercise choice, is also welcomed, though the consumer movement attaches great importance to the broader implications of economic growth particularly its equity (that is all consumers should be able to benefit at least to the extent of being able to meet their basic needs) and sustainability.”(11)
This optimistic outlook towards the benefits of a competitive market drives the consumer enthusiasm for the transplant of domestic competition law into the international trading arena. There is an operative assumption that, in the absence of anti-competitive behavior, competition can encourage product innovation, consumer choice, and efficiency of delivery in a multilateral framework.
It is not an economic cure-all, however. Globally, and domestically, competition seems less able to promote universal access to important products and services or to prevent significant market segmentation. Any agreement on competition policy should not impede national efforts to address those issues provided such efforts are non-discriminatory in effect. For example, in telecommunications, the national subsidization of network access is specifically permitted with a non-discriminatory proviso under the terms of the Reference Paper setting out the Regulatory Principles (adopted by most signatories to the WTO agreement on Basic Telecommunications Services).
As well, a competitive market is not necessarily an end state goal shared by all stakeholders in the multilateral trading system. As Julian Edwards of CI has noted:
”…Consumers believe in and support competition but believe it must be both promoted and regulated – it does not occur naturally in most markets”. (12)
Industry stakeholders are usually more interested in winning any competition rather than seeing it flourish. Some of the very corporate steps lauded by shareholders and grateful employees to increase international market share may be subversive of competition and consumer welfare in general. Thus, it makes little sense to promote free trade between governments by touting the consumer welfare benefits of genuine competition, while the tools are lacking to ensure to enforce private restraints on competition.
Consumer groups and organizations in countries which have developed extensive consumer protection in competition laws have been largely critical of the lack of efforts to date to enhance consumer rights in the multilateral trading process. The impatience with the WTO process stems both from the lack of competition protection worldwide, (outside of ant-dumping restraints) and the relative silence of trade agreements on issues such as consumer access, product safety, and quality. As discussed elsewhere in this paper, there is a fear that any agreement on competition law would import the lowest common denominator of standards for sanctioning anti-competitive behaviour.
Whatever the level of skepticism that may be present in developed countries concerning harmonization of competition policies, there is perhaps even greater initial inertia working against this idea in the developing countries. This is not surprising. Notwithstanding the acknowledged efficiency gains brought about by the market tool of competition, studies have not shown an empirical link between the presence of competition policy in the law of a country and its development prospects.(13)
Moreover, developing countries may be reluctant to adopt competition policies that may result in the squeezing of the profitability of prominent national businesses by foreign competitors and the attendant affects upon the employment in such businesses.
However, it may well be that the adoption of liberalized trading under the WTO has established an incentive to adopt competition policies. One commentator has noted the following:
“The liberalization of the economies that has taken place in most developing countries may accelerate the process of adoption of competition laws. Most developing countries have dismantled, to a large extent, interventionist measures and are growingly exposed to restrictive practices and the abuse of market power by foreign investors and export suppliers”.(14)
Developing countries must be concerned with the possible development of international cartels in a free trade environment which allocates national markets among participating firms or international export cartels which may conspire to fix prices and output across national markets. In fact, international competition law may be necessary to attain some of the goals which are inherent in the promise of globalization of trade markets. These include:
As well, firm global standards for anti-competitive behaviour, with effective sanctions for their breach, should reduce threats from miscreant industries to relocate to jurisdictions more tolerant of such conduct.
While there may be increasing recognition by all countries of the desirability of competition policies, the differing stages of development of such policies and the economies of potential signatory nations must also be recognized. However, the objectives associated with enforcement of global competition laws will not be met by widely differing national competition policies.
An agreement within the WTO on broad principles of competition policy would have to include a commitment to establish a national competition law regime which contains common elements recognized as necessary to both promote the efficient working of markets and to advance consumer welfare.
In his address to the Institute of International Economics in Washington D.C. in November of 1997, entitled Competition Policy and the Trading System: Towards International Rules in the WTO, the Honourable Sir Leon Brittan set out a very useful list set of features which would provide the skeletal structure for the process requirements for any WTO Competition Agreement. These include:
We would also add to Sir Leon’s summary the following additional process provisions:
The principle of non-discrimination, referred to by Sir Leon, is, of course, the prism through which all WTO based agreements must shine. According to the previous WTO Director-General :
“It was this core principle of non-discrimination which did much to reduce power politics in trade relations, by guaranteeing members equal access to the security of the rules irrespective of their size and level of development.”(17)
However, even obtaining international consent to the adoption of a common framework or a set of procedures for domestic enforcement of competition in harmony with the above, does not guarantee implementation of a desirable agreement. There are significant issues associated with the establishment of standards that are difficult to resolve.
The setting of standards associated with the competition law regimes that would be required in any multilateral competition agreement is obviously a matter of some importance to consumers. There is concern that current national competition law standards in the negotiations process would migrate to a minimum level. This is buttressed by the fact that potential signatories may not currently possess a competition policy. As Sir Leon Brittan states:
“It is sometimes suggested that this means the speed is set by the slowest train.”(18)
However, it is important to note that over 70 countries have now implemented competition law(19). As well, as the comprehension grows in developing countries that freer trade may not bring benefits without the market discipline of competition law, there is an accompanying realization in developed countries that the effectiveness of their domestic competition policy may be limited by its ability to manage the extra- territorial effects of anti-competitive behavior.
The limitation of competition laws, as a result of their domestic reach, is evident in the case of export cartels where, absent an effect on the exporting country, its competition authority may have no jurisdiction to control such cartels. Developed countries have generally ignored or often even encouraged export cartels whose activities affect other countries. Developing countries “have found it difficult to cope with these, and the cooperation of the developed countries in investigating and discovering such practices have been lacking”.(20)
In the result, many countries have developed bilateral arrangements to enable co-operation in the curtailment of anti-competitive behaviour. The OECD 1995 Revised Recommendations Concerning Cooperation between Member Countries on Anti-Competitive Practices Affecting International Trade calls for member countries to:
While co-operation and exchange of information have assisted both in the enforcement procedures and acceptance of common definitions of sanctioned conduct, there remains much antipathy to the application of competition law policies of other countries. Several countries have enacted blocking statutes in response to over aggressiveness in the enforcement of anti-trust laws.(21)
It is our view that, although there may be no consensus on competition policy concepts and definitions existing at present, it is difficult to imagine that there is a sovereign interest in maintaining an inability to move against matters such as tied-selling, bid rigging, exclusive dealing, price fixing, and output restraints. In addition, as one commentator has observed:
“The international co-ordination of competition policies in order to act against anti-competitive practices of global suppliers may be one of the most significant achievements for developing countries.”(22)
We would strongly oppose the implementation of an agreement regime that would simply allow a nation to define for itself what the undesirable practices are. We believe it would be preferable to adopt rigorous standards requiring anti-competitive provisions with limited specific case by case exemptions, if need be, rather than a loose web of potential obligations which can easily be circumvented by national legislation and practice. Our views on this point are less influenced by the problems in arriving at consensus definitions of misconduct than by the mischief inherent in creating a patchwork quilt of rules . This latter development would be more likely to bring certainty of evasion than of enforcement.
The delegation of such a critical drafting exercise to the individual signatory nation increases the risk of unequal treatment in a supposedly harmonized regime . It is important to note that, in some WTO matters, problems of treaty application involving settled language are already coming to the fore. A recent academic study has commented on the problems of applying treaty language, found in the WTO Agreement on Basic Telecommunications Services:
“On another view, less often heard, the words of an international treaty do not have the same meaning for all signatories especially when the language of the treaty is the first language for some and a second language for others. The interpretation of the agreement will also be coloured by differing cultural assumptions, about the role of government, its relationship with industry, the importance of national institutions, and the forms of regulation. These assumptions are part of the general political and economic culture, and not specific to telecommunications. However, telecommunications cannot operate outside the culture, any more than manufacturing or transport can do. This could be called a cultural view of the agreement.”(23)
Taking one jump beyond the problems of treaty interpretation of a single set of definitions to rationalizing a process that allows country-specific definitions of standards is a recipe for irrelevancy .
This does not mean that the country specific context would be expunged when the signatory nation crafts its law to comply with a competition treaty standards. It does mean that objectives behind the national statutes must find congruency throughout the competition law regimes of signatory countries.
We would also submit that, within the procedural framework earlier suggested, there must be substantive requirements for prohibited anti-competitive offenses that go beyond issues of nondiscrimination against foreign suppliers used and the so- called “hard-core cartel” offenses.(24)
It is vital that any agreement on competition policy touch upon the entire scope of competition issues, not simply those that are of interest to business. This means conduct such as misleading advertising and abuse of dominant position should also be included to ensure that ordinary citizens of signatory countries obtain the full benefits and protections of competition law.
While establishing a core of common principles and rules of competition law to be internationally required may be difficult, the mechanism for enforcement of such rules may prove even more troublesome. Competition law usually lies at the heart of a national policy for commerce. An assessment of a country’s competition law regime as inadequate or discriminatory may have profound consequences to the commercial treatment of particular national industries and their political base in the country. Signatories with a long history of enforcement or anti-trust laws such as the United States are also loathe to have their regime potentially picked apart by the WTO dispute settlement body.
There are two ways that may work to resolve this impasse. The first involves the establishment of set of common standards through the negotiation process as discussed earlier. The second acknowledges that there may have to be a transition period prior to full operationality of mandatory enforcement of competition agreement provisions.
To the latter end, the Competition Bureau of Canada has advanced possible policy options that may increase the readiness of signatory countries to attorn to WTO oversight of their obligations under any WTO agreement regarding competition law.
The Bureau has first proposed building on the OECD 1995 Recommendations Concerning Co-operation Between Member Countries on Anti-competitive Practices Affecting International Trade by including the principles of positive comity. This would involve the notification of one signatory country by another of the fact that the complaining country believes anti-competitive practices are being carried out in the other country affecting commercial relations in the complainant. The notification would be accomplished by a request that a remedy be sought by the relevant competition law authorities.
Secondly, the Bureau proposes an approach to potential remedies which is, in effect, a blend of cooperation and pressure for compliance. The latter element is contained in the establishment of a two stage process to deal with disputes as to whether domestic competition law conforms to the obligations of a multilateral agreement on competition. The Bureau has termed this remedies proposal a Competition Policy Review Mechanism (CPRM) which is similar to the existing Trade Policy Review Mechanism (TPRM).
The first stage of the CPRM involves the attempt to resolve problems at a Council which would be responsible for preparing a report on the competition law of the country under review. The Council would also refer any matter which has not been resolved to a panel of experts formed under the direction of the Council. This group of experts would undertake their own analysis and issue a report as to whether the complaint is well founded. The report would only address whether the conduct in question constituted a barrier to market entry and whether the competition law in the offending member country could be used to address the problem. The panel’s decision and any recommendation would not be binding. However, both the Council and the experts report would be published.
We understand and support the rationale behind these suggestions made by the Competition Bureau and believe that some form of the Bureau’s proposal may be implemented to provide a useful transition to full scrutiny and implementation in the same fashion as other WTO Trade Disputes. In our view, the critical consideration in designing a resolution process to deal with complaints concerning the adequacy of a particular signatory country’s competition law regime is that ultimately the enforcement mechanisms are only hortatory. This means that a negative finding against a country will result in change only if the government of the offending nation is convinced of the rectitude of the negative finding, or is concerned with the negative repercussions on bilateral or multilateral relations if the finding is ignored.
To deal with the first element of suasion, we have suggested the establishment of a Competition Commissioner, who would not just play a referee’s role, but would also be engaged in actively informing relevant national officials of possible mechanisms of compliance, as well as attempting to resolve informal and formal complaints. Even in the current WTO process, the priority is to settle disputes, not to make rulings. The presence of a permanent WTO official, with appropriate administrative support, focused on competition issues, could engender more support and confidence in his or her pro-competitive admonitions than those that might emanate from appointed panels. When a dispute cannot be resolved, the Competition Commissioner’s findings are likely to present a more persuasive record of substance for national compliance either before or after second stage confirmation.
Our recommendations for improvements to the suggestions of the Competition Bureau include the following:
1. Minister of Public Works and Government Services Canada 1999 Catalogue No. E2-195/1999.
2. ISBN 158231-000-9
A Citizen’s Guide to the World Trade Organization Everything You Need to Know to Fight for Fair Trade, July, 1999
3. CCPA monitor October 1999 page 5
4. Consumer Rights and the Multilateral Trading System – What needs to be done before a Millennium Round? Consumers International June, 1999.
5. In July 1999, a statement from the member organizations of the International Civil Society strongly opposed a millennium round of comprehensive WTO trade negotiations. The statement, contained the following language:
“The Uruguay round agreements have functioned principally to prise open markets for the benefit of transnational corporations at the expense of national economies; workers, farmers, and other people; and the environment. In addition, the WTO system rules and procedures are undemocratic un-transparent non accountable and have operated to marginalize the majority of the world’s people.”
This statement contained a petition calling for moratorium on further negotiations that would expand the scope and power of the WTO it bore the names of over 1,000 non governmental organizations throughout the world.
6. 10 benefits of the WTO trading system http://www.wto.org
7. The Economic and Social Impact of Electronic Commerce OECD 1999 p.21
8. TACD doc no. com1-1999, April 1999
9. Competition and the Consumer – Trade Briefing paper No. 5 August 1999 Consumers International
10. Antitrust Overview – Charles E.. Mueller Antitrust Law and Economics Review
11. Address of Julian Edwards Consumers WTO symposium on Trade and Competitive Voting Geneva September 1999
12. Ibid at 5
13. UNCTAD 1997, Empirical evidence of the benefits from applying competition law and policy principles to economic development in order to attract greater efficiency in international trade and development
14. Carlos Correa, Competition Law and Development Policies Zurich Symposium on Issues of Competition Law – July 1999
15. The requirement for transparency as part of the principles of international competition law policy has two major themes:
Dr. Peter Eigen, Chairman of Transparency International, recently noted:
“Corruption in its essence undermines free competition. Grand corruption is all pervasive, in particular in the international arena. It distorts competition, destroys open markets, perverts economic governance and has become one of the most severe barriers to trade and development. In fact, it has to be classified as “restrictive practice” on a par with other competitive practices that are the more customary subject of competition policies”.
To this end, the recent OECD Anti-Corruption Convention is instructive and should be incorporated by reference into any multilateral competition argument. The efforts on the part of the OECD are motivated not only on the basis of serious moral and political concerns, but also with respect to the distortion of international competitive conditions. Corruption free enforcement of competition policy fosters confidence on the part of the international community and would-be investors.
16. Competition Policy and the Trading System: Towards International Rules in the WTO, Institute of International Economics, Washington, DC, November, 1997
17. Address of Renato Ruggiero March 4, 1998 Brooking Institution Forum “The Global Trading System; a GATT 50th Anniversary Forum
18. Ibid at # 10. Brittan does not agree with this characterization of the WTO, however.
19. Competition Policy Public Welfare and the Multilateral Trading System The Quest for Balance, International Centre for Trade and Sustainable Development, address of Miguel Jimenez Pont, WTO/World Bank Symposium on Competition Policy and the Multilateral Trading System: A dialogue with Civil Society, Geneva, September, 1999
20. Ibid at # 9
21. Options for the Internationalization of Competition Policy, Competition Bureau, May 10, 1999
22. Ibid at # 9
23. Implementing the WTO Agreement: Chronological or Cultural Difference, Nico Roehrich, Mark Armstrong, Honolulu, Hawaii, Pacific Telecommunications Council Conference, January 25, 2000
24. See OECD Council Recommendation of March 25, 1998.