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News Release

New International Initiatives Needed on Antitrust Policy

November 20, 1997

Contact:    Edward M. Graham    (202) 328-9000
    J. David Richardson    (202) 328-9000

Washington, DC—A number of recent US trade disputes, especially high profile conflicts involving Japan and other Asian countries, raise issues related to competition policy-private business practices that may restrict competition in the relevant market and thus block US exports or direct investment. These disputes have covered semiconductors, automotive parts, and photographic film and paper. However, the rules of the World Trade Organization (WTO) do not cover private business practices that might be trade restrictive.

In addition, the recent merger between Boeing and McDonnell Douglas nearly caused a major rift between the United States and the European Union. The two took very different views on the impact of the action on competition in the global market. Again, there were no international rules that could govern the outcome.

Global Competition Policy by Edward M. Graham and J. David Richardson proposes a series of actions that might be taken by the WTO in the future to address such issues:

  • That the existing WTO consultative procedures be enlarged and streamlined so that relevant authorities, especially including those from competition enforcement agencies, can consult on the problem and possible remedies if a country believes that private practices in another country restrict trade. Graham and Richardson argue that consultations should be required if a WTO member requests them.
  • That mergers and acquisitions likely to have substantial cross-border effects be mandatorily notified to the WTO and thus subjected to the consultative procedures.
  • On most matters, the countries involved should consult in the spirit of "positive comity": the substantive issues are investigated and, where appropriate, remedial actions are implemented by the nation where the private practices take place, taking into account the interests of the complaining country.
  • That the WTO implement general prohibitions on cartels. All nations with competition laws already have such prohibitions and there is a high degree of convergence among national standards.
  • One exception would be for declining industries, where there is scope for concerted actions to reduce capacity in a way that is both fair (e.g., so that no particular region would suffer from drastic employment cuts) and efficient (e.g., so that high cost capacity is reduced first).
  • That the WTO adopt national treatment standards for foreign controlled enterprises. Competition issues often turn on whether a market is "contestable", i.e., whether new, non-incumbent (including foreign) firms can enter the market. Government measures that discriminate against foreign firms can reduce the contestability of the relevant markets and create trade disputes.
  • That all WTO member countries be required to pass and enforce competition laws. Not all countries have such laws.

Graham and Richardson propose the implementation of these initial steps through a new agreement on Trade-Related Antitrust Measures (TRAMs) in the WTO. Further steps might be taken in the future. The authors' policy proposals rest on several analytical conclusions about competition policy:

  • The main goals of competition policy are not to protect the interests of individual firms, nor even to foster competition per se, but rather to promote both efficiency (the most effective use of resources) and fairness. These goals are generally consistent with those of trade policy, which also seeks to maximize output via efficient use of resources subject to fairness constraints.
  • How best to achieve these goals under specific circumstances is not always clear, even from a theoretical perspective. One consequence is that substantive standards for competition policy are not equivalent in those countries having competition laws. Another consequence is that many areas covered by competition law are subject to a "rule of reason", i.e., many business practices that might hinder competition are neither per se legal nor illegal but rather depend upon circumstances and intended outcome. "Best practice" in competition policy has evolved considerably over recent decades, especially in the United States.
  • This lack of clarity makes it difficult for nations either to "harmonize" their competition policies (i.e., to implement common substantive and enforcement standards) or to negotiate common rules at a supranational level. While there is a high degree of consensus on what issues should be covered by competition policy (e.g., cartels, monopoly, vertical arrangements, predatory practices, merger and acquisition regulation, etc.), there is no consensus on what specific rules should govern these issues.
  • In spite of these difficulties, there is a compelling case for greater international cooperation. Tensions over trade restrictions that are created by private business practices, including some that operate in tandem with governmental regulations, are likely to grow as the world economy becomes further integrated.