*{TRADING TO COMPETE AND COMPETING TO TRADE
- A BIAC Discussion Note on the Interaction between Two Policy Fields -

Introduction}

1. Trade officials are experiencing a challenging decade in the 1990s. No sooner had they
laboured to complete the Uruguay Round than a series of complex trade policy linkages were
proposed for the new WTO's agenda. As a result, trade interactions with environment, labour
standards and competition are now being analysed and debated in the OECD and other
international fora prior to being discussed at the WTO. The issues are generally not new, but
increasing trade liberalisation combined with the fast pace of globalisation has raised certain
questions about whether, and if so how, the WTO or other international organisations should
take account of these distinct policy objectives in international markets. This paper provides
BIAC's views on what is perhaps the most challenging -- and important -- linkage for
international business: trade and competition.

2. The topics of convergence and comity in international markets are a central focus of
competition policy in all leading industrial countries, and the OECD is to be commended for
according it a high level of attention. Although there have been several attempts to deal with the
international trade effects of certain restrictive business practices including notably, but not
exclusively, cartels, the present climate has resulted in a number of conflicts which have been
difficult to resolve and which demonstrate the desirability of, if not need for, broader
engagement. BIAC believes the OECD should build on its voluntary recommendations and
previous analysis of this complex field to develop a foundation for increasing cooperation and
possibly, in time, a framework for multi- or plurilateral accords. In this regard, BIAC welcomes
the OECD's initiative to study the issue of market contestability.

*partie=titre Key Issues *partie=nil

3. The trade/competition policy interface involves a range of business situations and
arrangements which may be increasingly common in a globalised economy, but which present
government officials with some very sensitive issues. As background for discussion, the
following is a brief description of certain examples.

4. Horizontal agreements: The clearest examples of this type of arrangement affecting
cross-border trade and competition are export cartels. In this case, a number of large producers
from one country may enter into an agreement which sets prices or output levels for foreign
markets. While domestic cartel behaviour may be illegal under most national competition laws,
governments have been or may be tempted to "turn a blind eye" towards cartels which have their
main effect outside national borders. Such arrangements may even be acceptable to the importing
governments if they are part of a voluntary export restraint (VER). Still, export cartels may
have anti-competitive effects on the importing market(s), and on the exporting market(s) for
those companies that are not party to the agreement. The situation becomes less clear if, for
example, a number of small and/or medium-sized producers enter into an agreement to reap
efficiency gains in export markets which they would not have by themselves. Such arrangements
may not have anti-competitive effects in the global, regional or even large foreign national
markets, but they may cause trade frictions with smaller countries. The current difficulty for
national government officials is that the domestic or international effects of such cartels may be
interpreted and/or enforced differently leading to trade frictions.

5. Vertical agreements: These arrangements describe special and sometimes exclusive
relationships along the production-distribution chain, such as between manufacturers and
retailers or material providers and assemblers. Generally, such agreements can have anticompetitive
effects if exclusive dealing and other restrictive arrangements unduly restrict market
entry by domestic or foreign products and/or result in artificial price maintenance. On the other
hand, vertical agreements (e.g., through franchising) can also increase competition by
facilitating market entry for products or by fostering efficiencies which result in greater
horizontal competition. Similar to horizontal arrangements, the determination of whether vertical
agreements are pro- or anti-competitive, may be a matter of different interpretations by both
companies and governments, leading to trade frictions.

6. A related issue to both horizontal and vertical arrangements involves the trend for firms
to enter into joint ventures/strategic alliances for research and development, production,
marketing and distribution of a product or service. While such arrangements can generally be
considered pro-competitive if they produce efficiency gains, they may also be anti-competitive
if, as a result of the agreement, the parties to an alliance are able to exercise excessive control
over a product or service market. Here again, different interpretations may lead to trade
frictions.

7. *partie=titre Abuse of dominant positions: *partie=nil A major concern in national (or regional) competition
policy is the actual (or potential) abuse of market power by dominant enterprises. Such abuse
could be manifested, for example, by a large company using predatory pricing to drive its
smaller competitors out of a particular market. The potential for abuse is a significant
consideration in the scrutiny of mergers to determine whether they could result in excessive
market power or its exercise. The interpretation of what constitutes a dominant position, or a
particular abuse of such a position, can be a matter of a considerable complexity in a domestic
market. The issue is even more complicated if the alleged abuse involves foreign or international
markets. In this case, different approaches of analysis, interpretation and/or means of
enforcement among the various competition (and trade) authorities can lead to considerable
friction.

8. *partie=titre Public involvement: *partie=nil A broad area of potential trade conflicts involve government actions which pose risks to domestic or foreign market access. Such state involvement might include
certain trade measures (e.g., VERs, etc.) or competition-related actions such as sanctioning
public or regulated private monopolies, creating favourable conditions for state-owned
companies, providing subsidies and other state aid to local private companies, giving preferential
consideration for government procurement, tolerating restrictive business practices, etc. These
are particularly difficult issues for trade and competition officials because such public
involvement is generally considered to be a sovereign prerogative and the necessity or
desirability of government participation in the economy is clearly a matter of local interpretation.
Yet significant public participation can clearly restrict market entry and competition from
companies without the benefit of such support, and also create tensions among trading partners.

*partie=titre Principal Challenges for Policy Makers *partie=nil

9. The above examples serve as a general description of some of the main issues
confronting policy-makers and businesses. From this brief survey, there are clearly a number of
key policy problems which must eventually be addressed in any multilateral (or plurilateral)
solution to the trade/competition policy interface. For the most part, these issues are welldocumented
by the OECD and various experts.

10. *partie=titre Problems of jurisdiction: *partie=nil Questions of jurisdiction, as well as the parallel issues of moderation and restraint, underly much of the debate on the interaction between trade and
competition policies. The issue involves both the application of national competition policies to
foreign situations or actions which have an impact on local competition, as well as whether, and
if so how, trade and competition officials should take each others' policy objectives into
consideration. The OECD has already undertaken considerable analysis and held numerous
discussions on this issue. Moreover, the 1986 OECD Recommendations have proven effective in
promoting consultation between its Members on issues of bilateral concern. However, BIAC
believes that the current trend in international economic relations is for increasingly complex
issues which will require further cooperation on jurisdiction among sovereign states. The 1995
OECD Recommendation, which strengthens Member countries' endorsement of comity and
offers the CLP Committee as a facilitator in conciliation, is a very positive contribution.

11. *partie=titre Problems of interpretation: *partie=nil Many of the examples mentioned above pose problems as a
result of differences of interpretation between competition authorities, or between competition
and trade officials. The OECD's efforts to promote mutual understanding and convergence in
Members' competition policies have made and are making an invaluable contribution to better
cooperation in the field. Similarly, discussions of important issues within OECD's Working
Group on Trade and Competition are undoubtedly making progress in promoting better
understanding between policy fields. BIAC believes the OECD should continue to strive for a
common understanding of basic core principles for use on issues involving trade and competition
policy. The "Indicative Checklist for the Assessment of Trade Policy Measures" appended to the
1986 Recommendation on areas of potential conflict between competition and trade policies
provides a good foundation for common understanding. However, the resolution of future
problems would benefit from further agreement on certain core criteria for the application of
competition policies.

12. *partie=titre Problems of approach: *partie=nil Related to the need for better mutual understanding of the issues addressed by competition and trade officals, there are also clear frictions which result from the
basically different approaches used in the two policy fields. BIAC believes that the OECD
should build on its previous work on this issue with a view towards furthering understanding, if
not eventual implementation, of common approaches to situations involving both trade and
competition concerns.

13. *partie=titre Problems of dispute resolution: *partie=nil The OECD has already undertaken considerable analysis
of this issue, and has attempted to provide a mechanism to diffuse conflicts from the
extraterritorial application of competition laws through various instruments, including the 1986
(and 1995) Recommendations referred to previously. While the Recommendation concerning
cooperation between Member countries on restrictive business practices affecting international
trade has been an effective outlet for notification and consultation among competition authorities,
the provisions for conciliation have (apparently) not been tested. The important question is
whether international economic relations would benefit from a better procedure for the
arbitration of disputes between governments in the trade/competition interface. Possibly in time
the WTO can play a role. For the immediate future, voluntary consultation through the OECD
seems more likely to be effective.

*partie=titre Proposals for Discussion *partie=nil

14. There have been a number of proposals made for improving the interaction between trade
and competition policies. For example, in 1993 a group of experts prepared a far-reaching
"Draft International Anti-trust Code as a GATT-MTO-Plurilateral Trade Agreement", which
was presented to and discussed with members of the OECD CLP Committee. Many interesting
ideas were also suggested and discussed at the 1994 OECD Roundtable on New Dimensions of
Market Access in a Globalising World Economy. Most recently, the European Commission
Group of Experts submitted an interesting report on "Competition in the New Trade Order:
Strengthening International Competition and Rules".

15. The OECD Committees on Trade and Competition Law and Policy have been continuing
to discuss ways and means of improving cooperation and understanding between their respective
fields, and OECD Ministers gave new impetus to this work at their 1995 Council Meeting.
BIAC agrees that it is necessary to take some concrete steps and provides below four proposals
for OECD Ambassadors' consideration.

16. The OECD should continue its efforts to promote convergence in the implementation
of Member countries' competition policies. Because national differences in the application and
enforcement of competition policies may be significant obstacles to meaningful international
cooperation, further progress on convergence must be considered a priority for the OECD.
BIAC has participated in many of the discussions on this complex topic with the OECD
Competition Law and Policy Committee, particularly the important work on merger control
procedures, and we would be pleased to contribute to even greater efforts in this area.

17. Since exemptions from domestic competition laws can be a significant source of trade
frictions, the OECD CLP Committee could seek to develop a common understanding of
minimum criteria for the existence of such exemptions and state restraints. Such a
"checklist" would thus extend beyond local efficiency considerations to include issues
concerning the potential impact on competition both in domestic and foreign markets. An agreed
set of considerations may serve to pre-empt future conflicts or, at a minimum, provide support
for the initiation of positive comity procedures.

18. The OECD could further study the relationship between barriers to entry and
effective competition. An important goal of strong, national antitrust enforcement is consumer
welfare. This goal is best served by markets which are not blocked or otherwise distorted by
private or governmental restraints of trade. Thus, while the chief goal of antitrust is not market
access by foreign competitors, open markets and consumer welfare are distinctly related. BIAC
recommends that the OECD CLP Committee study this relationship together with the Trade
Committee in the context of its market contestability project.

19. As a corollary to this recommendation, the OECD could consider how certain
competition principles might be used in the determination of whether trade measures should
be applied. Although this issue may be addressed in the market contestability project, the
OECD CLP Committee should also study the matter, possibly through the analysis and
discussion of test cases under the 1986 Recommendation for cooperation between Member
countries in areas of potential conflict between competition and trade policies.

*{Conclusion}

20. BIAC supports the OECD's work to promote international cooperation on the linkage
between trade and competition policies. The international business community clearly has a
strong interest in the success of these efforts because if, as a speaker at a 1994 OECD
Conference on Market Access said, "firms trade to invest and invest to trade", it is even more
true that firms trade to compete and compete to trade.

21. The issues are admittedly very complex for both governments and business, involving
sensitive questions about sovereign rights and private business conduct. However, OECD
Member governments and business recognised long ago that competition does not stop at
national borders -- a fact which is even more true today as a result of the continuing
globalisation process.

22. It is therefore crucial that international economic relations eventually encompass a
framework for resolving conflicts between competition and trade policies. The OECD includes
the major trading nations of the world, all 25 of which have competition laws. BIAC believes the
OECD should thus bear a primary responsibility for building on its past work in this area to
develop effective means for dealing with this important policy challenge. As the officially
recognised consultative body representing the OECD business community, BIAC is fully
prepared to participate in this process.