A Trojan Horse for International Trade Negotiations?

Competition Policyin the WTO and FTAA:

A Trojan Horse forInternational Trade Negotiations?

ISBN: 0-88627-350-1 August 2003

CAW 567

By Marc Lee and Charles Morand

Competition Policy in the WTO and FTAA:A Trojan Horse for International Trade Negotiations?

By Marc Lee and Charles Morand

ISBN: 0-88627-350-1August 2003

Acknowledgements

The authors would like to give special thanks to Scott Sinclair for his insightful comments on thefirst draft of this paper. This paper also benefited from comments made by Ellen Gould, Marc-André Pigeon, Dave Primack, Jessie Smith, and Gauri Sreenivasan. The content, opinions, and anyerrors in this paper, however, are those of the authors, and do not necessarily reflect the views of theCCPA.

About the Authors

Marc Lee is an economist in the BC office of the CCPA. He has authored numerous publicationsfor the CCPA, including Inside the Fortress: What’s going on at the FTAA Negotiations, The Future ofIndustrial Policy in a Globalizing World: What are the Options? and In Search of a Problem: The Futureof the Agreement on Internal Trade and Canadian Federalism. He has an M.A. in Economics fromSimon Fraser University.

Charles Morand worked with the CCPA as a student intern. He is currently in graduate school atthe London School of Economics.He has a B.A. in Georgraphy from the University of BritishColumbia.

CANADIAN CENTRE FOR POLICY ALTERNATIVES410-75 Albert Street, Ottawa, ON K1P 5E7tel: 613-563-1341 fax: 613-233-1458email: [email protected]://www.policyalternatives.ca

Table of contents

Summary ................................................................................................................................... 1

1. Introduction........................................................................................................................... 3

2. Bait and Switch: What’s at stake in competition policy negotiations ........................... 5 What is competition policy? ........................................................................................................................ 5 Competition policy goes global .................................................................................................................. 7 Competition policy and the public sector ................................................................................................. 9 Concerns for Southern countries ............................................................................................................. 11 Don’t believe the hype ............................................................................................................................... 12

3. From Doha to Cancun: Competition policy at the WTO .............................................. 14 WTO and competition policy .................................................................................................................... 14 The Road to Doha ....................................................................................................................................... 15 What’s on the table .................................................................................................................................... 16

4. From the NAFTA to the FTAA: Competition policy in the Americas ........................... 19 NAFTA and competition policy ................................................................................................................. 19 South America and the Caribbean ........................................................................................................... 20 FTAA negotiations ....................................................................................................................................... 21

5. Conclusion .......................................................................................................................... 24

Appendix 1: National competition policy regimes ............................................................ 26 Canada ......................................................................................................................................................... 26 United States ............................................................................................................................................... 27 European Community/E.C. ........................................................................................................................ 28 Competition Policy in the South ............................................................................................................... 29

Appendix 2: Bilateral and plurilateral competition arrangements .................................. 30

References ............................................................................................................................... 31

Competition Policy in the WTO and FTAA 1

When World Trade Organization Ministers gatherin Cancun in September 2003, they will decidewhether to proceed with full negotiations on com-petition policy (one of four “Singapore issues”) aspart of the Doha Round. Competition policy isalso a negotiating area in the proposed Free TradeArea of the Americas. This paper provides an over-view of competition policy, which has a long his-tory at the national level in industrialized countries,and the elevation of competition policy to the inter-national level as part of trade negotiations.

At first glace, competition policy appears tobe an uncontroversial contribution to good gov-ernance. Competition policy has historically beenconcerned with reining in the excessive marketpower of large corporations as manifested in car-tels, restrictive business practices, and abuses ofmarket power. Whereas international trade agree-ments to date have focused on restricting the ca-pabilities of governments, competition policycould be seen as an important tool for regulatingthe private sector at the international level. Thisis of particular interest given a wave of cross-bor-der mergers and acquisitions in the 1990s.

In the context of globalization, however, com-petition policy is intimately connected with thepolicy pillars of liberalization, deregulation andprivatization, known as the “Washington consen-sus” or neoliberalism. The push for competitionpolicy as part of international trade agreementshas come from rich countries. It is seen as a meansto ensure the market access of their large corpo-rations. It is also viewed as facilitating the processof cross-border M&As, which currently must ne-gotiate separate regulatory hurdles in differentcountries.

There are two broad concerns that arise inthe transition from competition policy from the

national to the international level. The first is thatthe scope of competition policy will be extendedto public sector enterprises rather than the typi-cal private sector focus at the national level. Boththe WTO and the NAFTA already contain com-petition provisions designed to limit the capabili-ties of public enterprises. These are being invokedby the US to challenge Canada Post and the Ca-nadian Wheat Board. If new competition disci-plines are equally applicable to the public sector,they may be used to further attack and under-mine public sector monopolies (e.g. public healthinsurance) and state enterprises (e.g. Crown cor-porations).

Second, competition policy may further re-strict the capacity of governments to engage inpublic interest regulation and industrial policies.New provisions may be used to challenge regula-tory approaches to protect the environment, torestrict foreign ownership in certain sectors, topromote local content, or to foster the develop-ment of “national champions.” New competitionprovisions would undercut these policy tools tothe advantage of large foreign corporations seek-ing better market access. This would be highlyproblematic for poor Southern countries or forsmaller industrialized countries like Canada.

Neither the FTAA or WTO negotiations areconsidering the creation of a new internationalcompetition authority. Rather, they seek to har-monize the scope of what national or regionalcompetition authorities would be obliged to sanc-tion. Proponents of multilateral competitionpolicy view these negotiations strategically as in-cremental steps towards a more complete agree-ment in the future.

The Cancun WTO Ministerial will be a keydecision point, as WTO Members must decide

Summary

2 Canadian Centre for Policy Alternatives

on whether to proceed with competition policyas a full-fledged negotiating item. Many South-ern countries do not support competition policynegotiations, and to the extent that they do, areseeking broad provisions of “special and differen-tial treatment.” Without an explicit consensus,competition policy will advance no further thanthe discussions to date.

The key demandeur of competition policy atthe WTO, the EU, is seeking the establishmentof core principles that must be adhered to by com-petition authorities. The most controversial is aproposed principle of “non-discrimination,” aninnocuous-sounding term that in practice couldprevent countries from shielding domestic com-panies from the actions of large global compa-nies, as well as inhibit policies to spur the growthof domestic companies.

Less controversial is a proposed ban on “hardcore” cartels (those that engage in international price-fixing, bid-rigging and market sharing arrange-ments). Such arrangements do harm poorer coun-tries. However, there is no proposed ban on exportcartels that have long been used by rich countries toextract profits at the expense of poorer countries.

The draft FTAA text on competition policycontains a number of alarming provisions thatpoint to how far-reaching competition policy canbe. Provisions are likely to be equally applied toboth public and private sectors, which would placegreater restrictions on public enterprises. The draftalso contains new language that makes it a vehi-cle for pushing deregulation by ensuring that pub-lic interest regulations would have to be “pro-com-petitive” and not impair access to markets or the“conditions of competition.”

The draft FTAA chapter is heavily bracketed(many areas of disagreement), and will be revisedover time. There may not be an FTAA, and ifthere is, the competition policy chapter may bedropped in the push to complete negotiations.Nonetheless, there is much in this chapter for civilsociety actors to keep abreast of.

Ultimately, there is a danger that the negotia-tions promote an unattainable textbook carica-ture of competitive markets that is biased againstalternative policy approaches. Competition inmany instances is not a substitute for strong do-mestic regulation in the public interest, or for theutilization of public enterprises as industrial andsocial alternatives. The history of competitive mar-kets (or "real-world capitalism") suggests astronger role for the public sector than permittedwhen competition is prioritized.

As a result, competition policy can be viewedas a "Trojan horse" in current international tradenegotiations: it looks appealing, but once insidecould turn out to be a means of letting the invad-ers in. At the national level, competition policy isan important element of the architecture of cor-porate governance. But countries need to be ableto determine for themselves whether they need anational competition policy, and if so, what typeof competition policy is appropriate. The legiti-mate concern of Southern countries about thegrowing market dominance of large global com-panies is not addressed in either the WTO andFTAA negotiations. If anything, the competitionpolicy negotiations further the interests of globalcompanies.

Ultimately, the global economy needs a mul-tilateral body to address some of the really sub-stantive issues with regard to the dominance ofglobal corporations, and global mergers and ac-quisitions-something that is not on the table ineither the FTAA or WTO negotiations. In thecurrent political climate, however, such a formu-lation is wishful thinking, although the recentspate of corporate scandals in the US could beginto roll back a tide that has been obsessed withrestricting the public in favour of the private.

In the meantime, there is reason for skepticismabout the current international negotiations.Given the realpolitik of international trade nego-tiations, the pitfalls loom large while the prospec-tive gains seem remote.


1. Introduction

The nature of the negotiations on competi-tion policy, however, suggests cause for concern.Transported to the international level, competi-tion policy occupies the same ideological terrainof liberalization, privatization, and deregulationthat is so problematic in modern internationaltrade agreements. Competition provisions in theWTO are likely to reinforce corporate rights andmarket access themes embodied in the GeneralAgreement on Trade in Services (GATS), theAgreement on Trade-related Investment Measures(TRIMs), and other parts of the WTO Agree-ments. In other words, competition policy couldpotentially become yet another tool for pryingopen markets—whether the markets of develop-ing countries, activities provided by the publicsector or state enterprises, or specific industriesgiven special treatment for public policy reasons.

This type of framework for international com-petition policy has some serious implications.There are a number of reasons why competitionpolicy rules in the WTO or FTAA should be re-sisted by Canadians and developing countries:

• they will be used to attack and underminepublic monopolies (e.g., public health insur-ance) and state enterprises (e.g., Canada Postor the Canadian Wheat Board);

• they limit the scope for national industrialpolicies, particularly in the South;

• they threaten regulatory approaches used topromote local content (e.g., in cultural in-dustries) and to restrict foreign ownership(e.g., in the telecommunications industry);

• they reinforce other proposals that public in-terest regulation not “burden” corporate in-terests and be “pro-competitive”; and

Competition policy is a new area of internationaltrade negotiations, though one with a long his-tory in national contexts. Negotiations on com-petition policy have been included in the proposedFree Trade Area of the Americas (FTAA), sched-uled to be wrapped up by January 1, 2005. Com-petition policy is also one of the “Singapore Is-sues” included in Doha Round of the World TradeOrganization, launched in November 2001.

This paper provides an overview of competi-tion policy and its interaction with internationaltrade rules, and what is at stake in the WTO andFTAA negotiations on competition policy. At theCancun Ministerial in September 2003, WTOmembers will decide by consensus whether com-petition policy will become a full-fledged negoti-ating item on the Doha agenda. This paper seeks,first, to inform civil society actors and develop-ing country governments so that they can influ-ence this critical decision and other internationaltrade negotiations on competition policy. It is alsointended to enable Canadians to influence theirown government to better defend Canadians’ sig-nificant interests in this arena.

At first glace, competition policy appears tobe an uncontroversial contribution to good gov-ernance. Competition policy has historically beenconcerned with reining in the excessive marketpower of large corporations as manifested in car-tels, restrictive business practices, and abuses ofmarket power. Whereas international trade agree-ments to date have focused on restricting the ca-pabilities of governments, competition policycould be seen as an important tool for regulatingthe private sector at the international level. Thisis of particular interest, given a wave of cross-bor-der mergers and acquisitions in the 1990s.


• they will be administratively costly and diffi-cult for Southern countries, yet fail to addresstheir most serious concerns, such as the mar-ket power wielded by transnational corpora-tions.

Ultimately, there is a danger that the negotia-tions promote an unattainable textbook carica-ture of competitive markets that is biased againstalternative policy approaches. Competition inmany instances is not a substitute for strong do-mestic regulation in the public interest, or for theutilization of public enterprises as industrial andsocial alternatives. The history of competitive mar-kets (or “real-world capitalism”) suggests a strongerrole for the public sector than permitted whencompetition is prioritized.

As a result, competition policy can be viewedas a “Trojan horse” in current international tradenegotiations: it looks appealing, but once insidecould turn out to be a means of letting the invad-ers in. Thus, it is important for citizens and civil

society actors to get a handle on what competi-tion policy is, and what its promise and pitfallsare.

The next section takes a critical look at therhetoric and reality of competition, as a back-ground to competition policy, then sets out theissues involved in competition policy’s transitionto the international level. Section 3 looks at com-petition policy in the WTO with a review of whatis on the table for the current Doha Round. Sec-tion 4 looks at competition policy provisions inthe NAFTA, then provides an analysis of the draftFTAA text on competition policy. The final sec-tion summarizes the findings and argues againstthe inclusion of competition policy in interna-tional trade agreements. Two appendices are alsoprovided to give interested readers more informa-tion on national competition regimes in Canada,the U.S., the European Community and theSouth (Appendix 1) and on international coop-eration agreements related to competition policy(Appendix 2).


2. Bait and Switch: What’s at stake in competition policy negotiations

porate merger and acquisition activity and the for-mation of “trusts” (a 19th century term for “car-tels”). These laws were deemed necessary to pro-tect a growing capitalism from its own worst ex-cesses.

Today, many national governments, throughtheir competition authorities, enforce laws andadministrative rules to maintain fair competitionin the marketplace. These provisions apply to theprivate sector, relating to three broad areas (seeBox on next page for a glossary of terms):

• collusive agreements between companies (in-cluding cartels), that involve anti-competitivepractices such as big-rigging, raising prices bylimiting production, and splitting up markets;

• abuse of dominant market position, where aleading company uses its advantage to driveout competitors through practices such aspredatory pricing, limiting access to essentialfacilities, or tied selling; and

• regulation of mergers to prevent excessivemarket dominance that affects other compa-nies or consumers.

Each of these areas calls for a legitimate roleof the state in the regulation of the marketplace.They are by no means the only tools available, asstates may opt for less competition and more regu-lation as an alternative strategy, or to keep a cer-tain sector within the domain of the public sec-tor. The scope of competition policy ultimatelyreflects political decisions about how to organizeand regulate economies, and this will differ de-pending on size of economy, level of development,the specific sector, and other particular circum-stances.

Competition policy emerged more than a cen-tury ago in response to concerns about marketpower, and a range of abusive practices by domi-nant businesses. It remains an important policytool for governments. This terrain is shifting, how-ever, in the face of globalization. Deregulation andtrade liberalization are increasingly seen as themeans by which competition will be ensured. Thepush to harmonize global rules on competitionseeks to further entrench this perspective.

This section reviews the issues involved incompetition policy discussions at the internationallevel, as a prelude to looking at the specifics ofthe FTAA and the WTO negotiations in the nextsections. First, we look at what competition policyis and how it has found its way onto the globalnegotiating table.

What is competition policy?

Competition policy is a subject area that is moreoften the terrain of government bureaucrats andcorporate lawyers than the general public. Atheart, it embodies a simple, but far-reaching,premise: competition is good. However, compe-tition policy means different things to differentpeople. Discussions about competition policy ininternational trade agreements are very differentfrom the traditional notions of competition lawin national economic contexts.

The first competition laws (or anti-trust laws)were pioneered by Canada (1889) and the UnitedStates (1890) in response to concerns about theexcessive market power—and the resulting eco-nomic and political influence—obtained by a fewexceedingly large conglomerates. These lawsemerged during a period of unprecedented cor-


People of the same trade seldom meet together, even formerriment and diversion, but the conversation ends in aconspiracy against the public, or in some contrivance toraise prices.

—Adam Smith in The Wealth of Nations

Competition policy covers a number of areas. Below isa list of common practices and formations that are ofconcern from a competition policy perspective. Thesepractices may or may not be permitted depending onthe jurisdiction.

Monopoly: A situation where one company is the onlysupplier to a market. Unless regulated, monopoliesare free to raise prices, reduce production and takeother measures to maximize profits.

Oligopoly: A situation where only a handful of compa-nies supply a market. They may or may not collabo-rate to attain the equivalent of monopoly profits.

Cartel: A situation where a number of companies coop-erate to control a market in a manner similar to theway a monopoly would. Members of a cartel canagree to fix prices, split markets along geographiclines or by market segment, and engage in bid-rig-ging. The term “hardcore cartels” is often used to re-fer to illegal international cartels as opposed to ex-port or import cartels that are legal in some juris-dictions.

Mergers and acquisitions: A takeover of one companyby another, or a merger of two or more companies.Such actions can be “horizontal,” within the sameindustry, or “vertical,” involving upstream or down-stream activities.

Abuse of dominant market position: This includes a vari-ety of anti-competitive practices to entrench themarket dominance of a company, such as predatorypricing to keep new entrants out or drive them outof business, pre-emptive control or purchase of keyinput sources or distribution facilities.

Price fixing: The act of a cartel to coordinate prices inthe marketplace, rather than having prices deter-mined by competitive pressures.

Bid-rigging or collusive tendering: This involves attemptsby a cartel to coordinate the submission of bids fora contract in a manner that a specific, previously-determined member of the cartel makes the mostattractive bid and therefore wins.

Resale price maintenance: A situation where the manu-facturer fixes the price at which the distributor mustsell, rather than allowing the distributor to set itsown margin.

Refusal to deal: This involves dominant suppliers thatrefuse to sell their product to a potential purchaser,typically unless the purchaser agrees to a numberof conditions (such as price maintenance).

Exclusive dealing: A situation where a producer gives adistributor a local or regional monopoly on theproduct for sale.

Differential pricing: A situation where a dominant com-pany sets different prices in different markets in or-der to extract the maximum prices from consum-ers.

Tied selling: A situation where a producer requires thedistributor to purchase more than what it wants (i.e.,being forced to buy certain software bundled withthe purchase of a computer).

Predatory pricing: Where a dominant supplier or suppli-ers sell their product at a very large discount or be-low cost in order to drive a competitor out of busi-ness. Alternatively, a supplier could be selling inter-mediate goods to a competitor at excessively highprices to achieve the same end.

Transfer pricing: This involves the setting of prices forgoods sold between a parent company and a sub-sidiary, usually in order to avoid taxes on profits inhigher tax jurisdictions, while paying them in low(or no) tax jurisdictions.

A competition policy glossary

Source: Based on UNCTAD 1996.


Competition laws are one aspect of corpo-rate governance frameworks by which the stateregulates private sector activity. Because large com-panies can take actions that can have negative—even if unintended—consequences for theeconomy as a whole (such as the failure of a bank)or that impact on other economic actors and con-sumers (such as the abuse of a monopoly posi-tion), there is a need for many different tools toregulate the behaviour of corporations. (Chang2002) Competition alone is not sufficient to makethese protections, nor is the promotion of com-petition through competition laws and authori-ties.

Competition laws exist at the national level,with a few regional exceptions, such as the Euro-pean Union and the Caribbean Community. Ap-pendix 1 provides an overview of competitionregimes in Canada, the U.S., the E.U., and theSouth. Competition laws are a subset of compe-tition policy, which in the broadest conceptionincludes all forms of government policy, laws andinstitutions that affect competition in markets.Thus, competition policy in the context of glo-balization encompasses neoliberal policies such astrade liberalization, loosening restrictions on for-eign investment, deregulation, and privatizationof state enterprises.1 These measures expose do-mestic producers to foreign competition, which,in theory, increases competition and leads to lowerprices for consumers, greater efficiency, andstronger economic growth.

Competition policy goes global

This juncture of competition policy, globalizationand international trade agreements is riddled withpitfalls. Southern countries and industrialized

countries alike need to be cautious about compe-tition policy negotiations, and should not assumethat the issues under the purview of national com-petition laws are merely being transported to theinternational level. While international negotia-tions on competition policy hold out the prom-ise of disciplining abusive practices by increasinglyconsolidated transnational companies, this prom-ise is not likely to be realized amid the realpolitikof the WTO or FTAA.

To the extent that large transnational com-panies wielding global market power can be dis-ciplined, it is by the actions of large powerful stateactors like the U.S. or the E.U. And in these places,the architecture of competition laws is already inplace, although there are ebbs and flows to inves-tigation and enforcement, depending on the po-litical leanings of a given administration. For ex-ample, the Bush administration’s decision to dropefforts inherited from the Clinton administrationto break up Microsoft suggests a shift to a morelaissez-faire approach. Heaps of international co-operation agreements among the principal com-petition authorities have been negotiated and arein place, thereby facilitating information-sharing,coordination of investigations, and merger re-views, if mutually desirable. Thus, there are fewincremental gains to be had on this front for thoseconcerned about growing global corporate power.

The more likely scenario is that competitionpolicy rules will further reinforce the rights of trad-ers and investors at the expense of governmentsand citizens. International trade agreements havesteadily eroded the capacity for democratic deci-sion-making to implement and enforce publicinterest regulations, to provide public services, andto place conditions and restrictions on foreigninvestment. Competition policy at the interna-

1 At the international level, competition policy also interfaces with anti-dumping policies and intellectual prop-erty rights. However, these aspects of competition policy are not on the table for the competition discussionstaking place at the international level, although they are being addressed to a limited extent at other negotiatingtables. We do not consider them in this paper.


tional level would add another layer of corporaterights that privilege market access, while limitingthe policy options available to governments.

One reason why competition policy is beingput on the table is the perception that formal com-mitments to market access in trade agreementsare hindered by practices by governments andbusinesses inside the border. As emphasized bythe World Bank, trade liberalization per se is notsufficient to ensure competition. After liberaliza-tion of government measures, the next bottlenecksto market access are domestic industrial arrange-ments, many of which are deemed to be the legacyof socialist governments or wrong-headed at-tempts to protect the domestic market. (WorldBank 2002)

The rhetoric of competition can serve as asmokescreen for the real economic interests thatstand to benefit from specific types of changes.For example, the U.S. has long wanted to ensurebetter access to the Japanese market, and evenlaunched an unsuccessful WTO challenge to thisend. Competition provisions will be supportedby the U.S. or E.U. to the extent that they facili-tate market access for their corporations beyondexisting levels. This is tied to investment liberali-zation, as constraints on foreign investors, by theirvery nature, limit market access and favour do-mestic corporations. As Vautier et al. (2002) write:“A contestable market spanning more than onecountry requires both freedom of internationaltrade and freedom of movement for foreign di-rect investment and national treatment for for-eign investors in the host country.”(p. 4)

Another impetus for competition policy is dueto the increasing cross-border movements ofgoods, services, and investments by transnationalcorporations (TNCs). There is a desire to harmo-nize procedures in the wake of a 1990s boom incross-border mergers and acquisitions (M&As).From a 1992 trough of $79 billion, the value ofcross-border M&As grew to spectacular heightsover the 1990s, and hit a peak of $1.1 trillion in

2000. The value of these M&As in 2000 repre-sented 77% of total FDI inflows of $1.5 trillion.(UNCTAD 2002a: tables B1 and B7) Compa-nies have found M&As to be an effective route toquickly gaining market share in overseas markets,without the start-up costs involved with settingup facilities and distribution networks. M&Ashave been viewed by transnational corporationsas the primary means of expanding global net-works of production. (Evenett, Lehmann and Steil2000)

But prospective global giants have found theregulatory hurdles emanating from different com-petition regimes annoying, due to their compli-ance costs and time requirements. Such concernscame to a head in July 2001, when the E.U.blocked a proposed merger between two U.S.companies, General Electric and Honeywell. Thedeal was already approved in the U.S., and wouldhave been the largest merger ever between twoindustrial companies. The E.U. objected to themerger on the grounds that the combined entitywould have anti-competitive implications for theaerospace products and industrial systems mar-kets. Writing for the European Commission,Giotakos et al (2001) note that “the combinationof the leading aircraft engine maker with the lead-ing avionics/non-avionics manufacturer wouldcreate/strengthen a dominant position in variousrelevant markets in which the merging compa-nies are active.”

Such games of international brinkmanship arerare, and generally reserved for the most power-ful state players. Nonetheless, the frequency andsize of mega-mergers, and the potential for majorfrictions, served to focus attention on developingmore coherent competition policy rules and pro-cedures at the international level. This has becomea hot topic for the International CompetitionNetwork, a loose network of officials from na-tional competition authorities, which recentlyreleased a report on the “costs and burdens ofmulti-jurisdictional merger review.” (ICN 2002)


One interim response is for more and better co-operation agreements among competition au-thorities as a step towards a more harmonized mul-tilateral regime. A summary of some internationalcooperation agreements is provided in Appendix2.

Competition policy and the publicsector

Despite the admonitions of free market funda-mentalists, there is a great deal of “interference”by governments that affects competition in themarket. Fundamentally, the state creates the con-ditions within with businesses act through allmanner of laws and regulations to protect thepublic interest.

In addition, a wide variety of services are pro-vided either directly through the public sector, orunder the auspices of non-profit organizations orstate enterprises. These public services account for15-25% of the economies of OECD countries(OECD in Figures 2002) and in the majority ofcases they are publicly-sanctioned monopolies.

Publicly-delivered services and state enter-prises (such as Crown corporations) have histori-cally been created and maintained for a numberof purposes:

• where social and environmental objectives,such as universal access and minimum qual-ity standards, are more important than mar-ket prerogatives;

• where service delivery is more efficientthrough a public monopoly, as is the case forhealth insurance, and public works, such assewage disposal and water delivery;

• where price stability and long-run planningare essential, as is the case in electricity gen-eration, transmission and delivery; and

• where state interventions are desirable to bol-ster the market power and incomes of small

producers, as with the Canadian Wheat Boardand agricultural marketing boards.

While policy fashion in recent decades hasmoved to privatize public services and state en-terprises, or to open them up to competition, theystill maintain a strong presence and firm publicsupport.

Moreover, the record of public services andstate enterprises in terms of “efficiency” looks quitegood in the wake of attempts to impose competi-tive models in areas that traditionally were treatedas “natural monopolies.” Pro-competitive re-regu-lation has been the mantra in industries such aselectricity, telecommunications, and water. Suchefforts have a spotty track record, and in someinstances have led to massive problems.

In telecommunications, for example, compe-tition amid the bubble economy of the 1990s ledto huge over-investment in fibre-optic infrastruc-ture, based on wildly optimistic assumptionsabout growth prospects. The ensuing crash hitnew providers (like Vancouver’s 360 Networks,which filed for bankruptcy protection) and equip-ment suppliers (like Nortel, which saw its stockvalue plummet and has had to lay off thousandsof workers). (For a colourful account, see Kalba2002)

In electricity, the results have been disastrous.Higher prices for consumers, both residential andindustrial, has been the result of privatization andpro-competitive restructuring. The Ontario gov-ernment recently abandoned its move to market-based pricing after prices jumped substantially.The Alberta government paid consumers millionsof their own tax dollars prior to an election toshield itself from criticism about skyrocketingpost-deregulation prices. In the most egregiouscases, market manipulation has been the result,as in the California energy crisis of 2000-01.Through a series of trading schemes, with col-ourful titles like “Get Shorty” and “Death Star”,companies like Enron (prior to its spectacular


collapse after accounting frauds came to light)were able to manipulate the electricity market,drive up prices for consumers, and garner the com-pany billions of dollars in revenues. (King et al2002)

Imposing a competitive model is not appro-priate in certain areas. There is a great danger thatan international competition policy regime wouldaim to increase competition for its own sake with-out consideration of the democratic choices madeby governments to defend and promote alterna-tive approaches. At the very least, attempts willbe made to blunt the effectiveness of state enter-prises as alternatives to capitalist ones.

State trading enterprises are also likely to beattacked under global competition rules. The re-cent decision by the U.S. to challenge the Cana-dian Wheat Board under WTO rules highlightssuch concerns. The CWB is a single-desk mo-nopoly that purchases wheat and barley fromWestern Canadian farmers for sale on interna-tional markets. The government essentially usesthe CWB to create market power (read: higherincomes) for farmers who would otherwise be atthe mercy of global agribusiness. In this sense,the CWB is a counterweight to the market powerof a handful of dominant corporations in the ag-ricultural sector, and is an alternative to the lav-ish subsidies provided to farmers in the U.S. andthe E.U. (Murphy 2002) Competition policy atthe international level could sharpen the U.S. at-tack by providing new legal bases of challenge inthe name of open competition.

Agriculture in general is a special economicarea, as it is about the provision of a basic neces-sity of life, with the vast bulk of production allo-cated to domestic markets. Various forms of col-lective action, such as cooperatives, marketingboards, and state trading enterprises, have beendevised to better the lot of farmers—the weakestlink in the supply chain—most of which wouldgo against the spirit of competition policy. Yet,most international discussions about agricultural

trade rules have focused on restricting farm policyand governments, not the transnational compa-nies that exercise enormous market power fromthe plantation to the supermarket.

Government actions on a number of otherfronts would also conflict with competition rules.These include:

• Restrictions on foreign investment. Global com-petition policy rules would reinforce invest-ment liberalization efforts in other parts ofthe “trade” agenda. Since market access inmany sectors entails freedoms to invest andacquire domestic companies, rules that pre-vent or restrict such actions would be deemed“anti-competitive.”

• Ownership restrictions. In key areas of theeconomy, a country might find it in its inter-est to keep out or restrict foreign competi-tors. Telecommunications, energy, banking,and other vital services, even though runthrough the private sector, should not beforced open to foreign competition, in thename of market access.

• Domestic or local content rules. In Canada, forexample, content rules support the develop-ment of a domestic cultural industry distinctfrom the dominant entertainment industryof the U.S. In markets dominated by U.S.players, there may not seem to be a competi-tion issue based on a traditional competitiontest, but the problem is the crowding outCanadian voices. From a competition policyperspective, the presence of Canadian con-tent and “shelf-space” requirements could beconstrued as anti-competitive vis-à-vis U.S.industry.

Because competition policy is so expansive inits scope, it clashes with attempts by governmentsto increase standards of living by carving out sec-tors of the economy from market competition,and putting in place public interest regulations


that govern markets when there is competition.Protecting such widespread heresies against themarket at the negotiating table would requiresweeping exclusions and exemptions. And, evenif such exceptions could initially be attained, theywould, as in other international trade treaties, facecontinual pressure to be eliminated over time.(Sinclair and Grieshaber-Otto 2002)

Concerns for Southern countries

Even in more traditional areas of competition lawthat address concerns with the private sector, thereare grounds for caution about a multilateral com-petition regime, particularly for countries of theSouth. As Stewart (2001:14) notes:

The distribution of benefits from a strongcompetition regime becomes more complexat the regional or international levels. Theeffects for weaker economies in the morewidely defined market can be compared tothat for weaker firms in the nationaleconomy, in that most competitive firms,usually powerful MNCs, would win largeshares of the local market, weeding out lessefficient local firms. But the emergence ofentrepreneurs, increased investment, andmore production may more likely take placein the more powerful economies.

Southern countries have increasingly beenpushed or coerced by Northern countries intoadopting binding international standards withregard to commerce, trade and investment. WTOrules already significantly limit the scope for in-dustrial policies in Southern countries, and theaddition of competition policy rules that favourthe North would further undermine the capabili-ties that remain. There is a danger that interna-tional rules on competition policy will not takeadequate account of the different needs and lev-els of development in Southern countries. (see

Khor 2002 and Das 2002) That is, that the model,once again, could become a one-size-fits-all pre-scription that does not provide the requisite flex-ibility Southern countries need to steer their owndevelopment.

For instance, export cartels have been usedhistorically (and to some extent, to this day) byindustrialized countries to gain benefits for theirproducers. Cartels were legal in Britain up to theend of the Second World War, and were activelyencouraged in Germany’s developmental phase.(Chang 2002) It would be unreasonable forSouthern countries to give up similar tools, at atime when they are already severely handicappedin trade relations with the North.

A recent example is the attempt by coffee ex-porting countries to establish a coffee bean cartelto capture better prices on world markets by con-trolling supply. The cartel collapsed in early-2002amid failed attempts to prevent coffee bean pricesfrom falling to 30-year lows. (BBC 2001) None-theless, despite the failure of the cartel, such ac-tion is a legitimate response by producers to worldmarket conditions in order to increase their in-comes, given that most of the revenue from highretail prices for coffee goes to Northern retailers,traders and distributors.

Similarly, Southern countries may wish to useimport cartels to counteract the pricing power ofTNCs when buying from abroad. Both importand export strategies could form part of an in-dustrial strategy to develop national champions,or to provide a higher standard of living for work-ers (via higher export prices) and consumers (vialower import prices).

Policies that restrict investment or supportstate enterprises are also important to Southerncountries. While in theory competition policywould increase total welfare in the global economy,even if this is the case (and there are good reasonsto be skeptical), the welfare gains are less likely tobe in the South. The danger for Southern coun-tries is what Stewart (2001) calls “excessive mar-


ket entry” where the winners would be large for-eign firms, and the gains sent out of the country.In a national economy, there is also a clear gov-ernment role and (to varying degrees) capacitythrough redistributive policies to mitigate anydamage done. At the global level, this is not thecase.

Power imbalances between Southern andNorthern nations, and between Southern coun-tries and large transnational companies must alsobe considered in the effectiveness of any multilat-eral competition policy regime. Investigation is atime-consuming and costly process. Even inCanada, a nation that has adequate resources, alitigated case by the Competition Bureau costsabout $1 million. (SCIST 2002) For a Southerncountry, this is a huge sum of money that mustbe weighed against many other possible uses ofpublic funds. (See Finger and Schuler 2000 forthoughts on the costs and benefits of the Uru-guay Round.)

Southern countries already have greatdifficultly proving the existence of anti-competi-tive behaviour. Information may not be availablefor investigators, as decisions are typically madeoutside their borders. They are not likely to re-ceive cooperation from, say, the U.S. to prove anti-competitive behaviour on the part of a U.S. TNC,when the object of U.S. policy is to enhance mar-ket access for its corporations. And, even if suc-cessful in proving wrongdoing, enforcement maybe very difficult, if not impossible. (Singh andDhumale 1999) Hence, Southern countries mayfind that domestic competition laws provide pow-ers to constrain domestic formulations, but notthe market power exercised by foreign companies.

The growing market dominance by the larg-est TNCs is the real issue that competition policyat the global level should address. Southern coun-tries would be the primary beneficiaries of com-petition provisions aimed at tackling global mar-ket abuses. Unfortunately, there is little in cur-rent discussions to suggest that anything along

these lines for global competition policy will makeit on to the negotiating table any time soon. In-stead, current global competition policy appearsto be a means to facilitate market access, and ac-celerate M&A approval processes, to the benefitof TNCs, but not necessarily consumers or do-mestic economies.

There is no obvious reason why competitionpolicy should be foisted on Southern countries.If individual countries do decide that competi-tion laws would be beneficial, what shape theytake should be determined by appropriate demo-cratic processes in response to particular politicaland economic circumstances. Competition policyshould not be uniform; the marked differences incompetition law and overall policy objectivesamong industrialized countries illustrates the de-sirability of allowing nations to adopt competi-tion frameworks that suit their needs.

Don’t believe the hype

The rhetoric of competition can be excessive, andthe promises made for competitive markets over-stated. While there can be benefits from the ri-valry of a competitive marketplace, there is a gapbetween this simple point and the reality of capi-talist economies as we know them. The glorifica-tion of markets and competition can be a largeobstacle to clear thinking about the actual natureof markets and competition, and therefore whatrole competition policy should play.

There is a danger in viewing competitivemarkets as a substitute for public interest regula-tion, redistributive policies, and public servicesand enterprises. Even perfectly competitive mar-kets are still plagued by many undesirable out-comes, such as underproduction of basic research,pollution, resource depletion, and high levels ofinequality.

The overwhelming dominance of a smallnumber of large corporations in certain sectors is


quite common in industrialized countries. Indeed,a number of features of capitalist economies leadto greater concentration in markets:

• Size matters to achieve economies of scale atwhich production is efficient. This is true fortraditional manufacturing industries andnewer high tech industries where upfront costsfor research and development can be veryhigh.

• In many industries, large advertising budgetsare used to carve out market share, as a formof investment in corporate brand name.

• Mergers and acquisitions reinforce thesetrends through consolidation.

In these circumstances, the best approach forpolicy to address market power may not be toimpose greater competition in the marketplace,but rather to ensure strong regulation in the pub-lic interest, or public provision on a monopolybasis. Choices around competition policy, evenwhen strictly considered in the context of the pri-vate sector, are ultimately political in nature andinvolve trade-offs: there is no “optimal” competi-tion policy on a one-size-fits-all basis that can bespecified a priori in strict, legal terms.

The broad scope of competition policy meansit has a great potential for obstructing legitimatedemocratic choices about how to structure rela-tions in particular economic sectors (this idea isconsidered a heresy in free market circles). Thesechoices implicitly create winners and losers, butsuch is the nature of public policy.


3. From Doha to Cancun: Competition policy at the WTO

The WTO also contains competition provi-sions that specify limitations on state enterprisesand designated monopolies. While they do notban the creation and maintenance of such enti-ties, the limitations can have significant impacton the ability to use state enterprises for publicpurposes. Moreover, the creation of new state en-terprises will be subject to a Member makingequivalent commercial concessions to otherswhose economic interests have been adversely af-fected.

The General Agreement on Tariffs and Trade(GATT 1994) permits the creation and mainte-nance of state trading enterprises (including mar-keting boards), but specifies that they must act ina non-discriminatory manner with regard to im-ports and exports, and in accordance with com-mercial considerations (i.e., consistent with nor-mal business practices). These provisions apply,for example, to the export activities of the Cana-dian Wheat Board; indeed, the allegation that theCWB does not act in accordance with commer-cial considerations forms the basis of the U.S.challenge against the CWB at the WTO.

The addition of the General Agreement onTrade in Services (GATS) as part of the creationof the WTO in 1995 has placed stronger restric-tions on state enterprises and designated monopo-lies. Article VIII says that a monopoly supplier orexclusive service supplier must ensure that it doesnot abuse its monopoly position in activities out-side the scope of its monopoly position. Mo-nopoly suppliers must act in accordance with MostFavoured Nation and any specific commitmentsmade by the Member.

These restrictions can have meaningful im-plications for Crown corporations such as CanadaPost. In its monopoly service area, letter-mail han-

The launch of the Doha Round of multilateraltrade negotiations in November 2001 includedpreliminary negotiations on competition policy.A key decision point will occur in September 2003at the Cancun Ministerial meeting, when WTOmembers must decide by consensus on whetherto proceed with full-fledged competition policynegotiations for the remainder of the DohaRound.

The Doha Round negotiations are not as ex-pansive as those in the FTAA, though even smallprovisions could have sweeping impacts on na-tional economies. If negotiations proceed, theywill, at a minimum, represent a first step towardsglobal rules—with more steps likely to come insubsequent rounds of negotiation. Competitionpolicy negotiations also complement market ac-cess efforts in other perilous areas of negotiation,in particular, services and investment.

A number of competition rules already existin the WTO. This section reviews the existingcompetition provisions, what is on the table forthe Doha negotiations, and the status of thosenegotiations to date.

WTO and competition policy

Like other international trade agreements, thefocus of the WTO is on government-created bar-riers to trade and investment. WTO commit-ments to liberalization are seen as promoting com-petition in domestic markets by facilitating theentry of foreign companies. This emphasis onmarket access by reducing or eliminating barriersat the border (tariffs, quotas) and inside the bor-der (regulations and other government-imposedrestrictions) is intimately connected to a broadconception of competition policy.


dling and delivery services, Canada Post is sub-ject to a number of universal service and commu-nity obligations, as set out in legislation. Outsideof this area, Canada Post competes with couriercompanies, a sector for which Canada has madespecific GATS commitments. The impact of Ar-ticle VIII is to say that Canada Post cannot use itsmonopoly position to cross-subsidize its competi-tive services. The allegation of cross-subsidizationhas been made repeatedly by U.S.-based couriercompanies against Canada Post (this is also thebasis of claim for the UPS case under theNAFTA). While numerous investigations andreviews have found that Canada Post does notcross-subsidize, it is plausible that a WTO panelcould reach a different conclusion. (see Sinclair2001)

The GATS annex on telecommunications hasa pro-competitive basis of approach to a sectorthat has historically been treated as a natural mo-nopoly. Where a Member has made specific com-mitments in the GATS, they would be requiredto ensure access to and use of public telecommu-nications networks on reasonable and non-dis-criminatory terms.

One other option for bringing competitionpolicy into the WTO lies in the provisions of Ar-ticle XXIII of the GATT 1994 which allows achallenge of measures that purportedly nullify orimpair the benefits of trade liberalization whenthe measures are not subject to WTO rules.

This article was cited in the Fuji-Kodak casebrought by the U.S. against Japan at the WTO.The U.S. alleged that Fuji was engaging in anti-competitive behaviour by denying Kodak accessto Fuji’s wholesale distribution network (i.e., anexclusive vertical relationship). Japan argued thatKodak engaged in exactly the same practices inthe U.S. The WTO report on the matter, releasedin April 1998, concluded that there was no im-pairment of market access. (Hoekman andHolmes 1999) This case, however, is indicativeof the type of cases that could arise should an

agreement on competition policy be concludedat the WTO.

There is little in the way of WTO provisionsaimed at regulating private business conduct. TheGATS does recognize that certain business prac-tices of service suppliers may restrain competi-tion, but provides only for consultations with theother Member, rather than dispute settlement.This shows a clear double standard, as restrictivebusiness practices by private companies are glossedover, with the only recourse being consultations,but state enterprises are subject to disciplines thatcan be enforced by dispute settlement.

It has been argued that this imbalance is pre-cisely what the competition policy negotiationsseek to address, by bringing in restrictive busi-ness practices within the realm of the WTO.(Jenny 2002) As we shall see below, there are manygrounds for skepticism that this will be the ulti-mate result.

The Road to Doha

Competition policy has been a topic at the WTOsince the 1996 Singapore Ministerial. Togetherwith investment, transparency in government pro-curement, and trade facilitation, competitionpolicy is one of the so-called “Singapore issues”that had been under discussion at the WTO upto the launch of the Doha Round. Despite oppo-sition from many developing countries, the Dohaprocess led to the inclusion of these issues in thefinal declaration—with the caveat that officialnegotiations will not take place until after theCancun Ministerial, scheduled for September2003, and only if “explicit consensus” is attained.Until then, the modalities of the negotiations (i.e.,the structure of the negotiations) will be discussed.

After the 1996 Singapore Ministerial, a Work-ing Group on the Interaction between Trade andCompetition Policy met to discuss the topic. Atthe Working Group, discussion was wide-rang-ing, from calls for a multilateral competition


framework to a completely hands-off approachby the WTO, leaving competition policy to na-tional governments. The E.U. was the lead driverfor including competition policy in the WTO.The U.S. was generally opposed to a multilateralcompetition regime, but appears to have beenswayed in support of the E.U. position due tobilateral negotiations between the two trade pow-ers in support of launching a new WTO round.

While both the U.S. and E.U. undoubtedlyseek to eliminate anti-competitive practices athome, their interest in the negotiations appearsto be driven by the prospect of further prying openother countries’ markets to their domestictransnational companies. World Bank research-ers Hoekman and Holmes (1999:5) note:

The interest of the E.U. and U.S. is to usecompetition policy disciplines as an export-promoting device and to reduce the scopefor conflict in the approval of mergers be-tween large firms; they are less interestedin subjecting the behaviour of their firmsin foreign markets to international disci-plines that will benefit foreign consumers.

Competition policy disciplines should thusbe seen as complementary to other market-open-ing efforts in other negotiating groups. The GATSnegotiations carry a strong deregulatory thrust aspart of “securing greater market access.” Andshould investment also become a full-fledged ne-gotiating item, it will be a powerful vehicle forensuring market access. Competition policy is notthe only game in town, but a completed agree-ment would provide yet another avenue of attackfor American and European corporations to bet-ter penetrate Southern markets, and prevent theemergence of rivals based in the South.

The market access intentions of the U.S., E.U.(and likely other rich countries) have some strongimplications for the development aspirations ofSouthern countries. Singh and Dhumale (1999)

of the South Centre affirm that the developmentside of competition policy is largely absent fromthe current dialogue on trade and competition atthe WTO, and that addressing the issue throughthe framework of market access, national treat-ment, and other traditional WTO concerns isprejudicial to the development interests of poornations.

One important consideration for Southerncountries is the close link between competitionpolicy and national industrial/economic policy.There seems to be a consensus that competitionpolicy is often couched in the context of a givennation’s broader economic objectives, and that amultilateral approach to competition policyshould not negate efforts by governments to fos-ter national economic well-being.

The U.S. and E.U. have addressed this argu-ment by peppering the Doha Declaration withlanguage about supporting the “needs of devel-oping and least-developed countries.” While thislanguage ostensibly suggests that industrial policyand development considerations will be taken intoaccount, there are many reasons to be skepticalthat the power politics of the WTO will lead to ameaningful agreement on this front that wouldblunt U.S. and E.U. objectives for market access.At the WTO, addressing the needs of developingcountries tends to consist of time-limited exemp-tions from the full disciplines, plus provision oftechnical assistance, rather than clean carve-outsfor development purposes.

What’s on the table

The Doha Declaration specifies the following ar-eas for the negotiations: “core principles, includ-ing transparency, non-discrimination and proce-dural fairness, and provisions on hardcore cartels;modalities for voluntary cooperation; and supportfor progressive reinforcement of competition in-stitutions in developing countries through capac-ity building.” (Doha Ministerial Declaration, para.


25) This is a more limited set of items than out-lined in previous sections of this paper, or includedin negotiations towards an FTAA.

At this early stage, it is unclear how far alongthese lines a final agreement could be, if discus-sions even get that far. Numerous issues around“modalities” are still being discussed, such aswhether countries could opt out of a competi-tion policy agreement, and whether countrieswould be compelled to put in place a competi-tion law to exercise the provisions of the agree-ment.

Many developing countries, led by India, havequestioned the value of competition negotiations,and do not support the notion that countrieswould be required to develop their own compre-hensive regimes. Currently, only 80 out of 146WTO members have competition laws in place.(Clarke and Evenett 2003)

Even among countries that do have competi-tion regimes in place, there is wide divergence inthe scope and coverage of such regimes. Vautieret al (2002) argue that this makes the establish-ment of specific rules at the WTO close to im-possible. But instead, an agreement could moveforward on the basis of agreed-upon principlesthat capture the spirit of creating a global “cul-ture of competition.”

This type of approach may sound innocuous,but could be very far reaching. A key principlesuch as non-discrimination in the context of acompetition policy agreement could underminedevelopment prospects in the South or even insmaller Northern countries. A key concern, in thewords of Singh and Dhumale (1999), is that "theestablishment of 'level playing fields' would pro-hibit developing countries both from taking meas-ures to shield their firms and industries from com-petition from massive foreign corporations andfrom pursuing measures to promote the growthof strong domestic corporations."

Another substantial area for competitionpolicy negotiations relates to provisions on hard-

core cartels (those that engage in internationalprice-fixing, bid-rigging, and market-sharing ar-rangements). As many Southern countries sup-port the idea of competition policy as it relates toanti-trust provisions and the dominant marketpower of transnational corporations, they may beagreeable to provisions on hard-core cartels.

Southern countries are adversely affected bythe pricing practices of international cartels, butare often in a weaker position at a national levelto be able to address these concerns, whether interms of proving wrongdoing when decisions aremade outside their borders, or in terms of pros-ecuting the offenders. (For an examination of thenegative effects of cartels on developing countries,see Levenstein and Suslow 2001.)

However, in this area, the U.S. and E.U. aresupporting a narrow definition of hard-core car-tels that would be limited to the domestic arena,not to export cartels that benefit the exportingcountry at the expense of the importing country.In the U.S., for instance, both the 1918 Webb-Pomerene Act and the 1982 Export CompaniesTrading Act protect American export cartels fromprosecution under U.S. law. (Levenstein andSuslow 2001) A current dispute between the U.S.and India revolves around measures by India toimpede market access for a consortium of U.S.soda ash producers. (Inside U.S. Trade 2001) It isunclear whether the U.S. would support strongermeasures, particularly if they adversely affectedU.S. economic interests.

There are also good reasons why Southerncountries could themselves benefit from partici-pation in export cartels to, for example, bid upthe prices of resource commodities on interna-tional markets (as was the case for coffee beans).Hard-core cartel provisions could be seen as anattack on existing formulations like OPEC (Or-ganization of Petroleum Exporting Countries).This would require an expansion of the defini-tion of cartels to include “price undertakings madeby sovereign states.” Nonetheless, OPEC leads to


higher world prices for oil, and clearly benefitsoil-producing countries. Accordingly, multilateralmeasures would likely face some form of resist-ance from OPEC member countries.

Also on the table are provisions for voluntarycooperation. There are a number of internationalcooperation agreements, but these are almost ex-clusively among developed nations. Only a fewcooperation agreements are North-South in na-ture. It is unclear what voluntary cooperationmeasures would look like in the context of theWTO, and whether they would address any realissues beyond what already exists in internationalcooperation agreements.

The key term is “voluntary.” Southern coun-tries could benefit from an agreement that com-pelled another country to investigate and pros-ecute the anti-competitive practices of its compa-nies, a position put forward by Thailand. Whenit is convenient, the U.S. and other rich coun-tries agree to work together to investigate anti-competitive practices, or to coordinate merger ap-provals. But the U.S. has been reluctant to takeon any requirement that it investigate a case atthe request of another country, and also opposesthe review of decisions made by competition au-thorities by WTO dispute settlement panels.

Because the U.S. exercises effective veto powerover such items of negotiation, the promise ofdisciplining transnational corporations, or review-ing global mergers and acquisitions, is likely toremain illusory for Southern countries. Theywould not be able to ensure that their competi-tion concerns were taken seriously. On the otherhand, if Southern countries were required to putin place competition laws and authorities, the U.S.and others would be better able to pressure South-

ern countries to investigate the practices of theirown companies.

A final consideration would be any provisionsfor special and differential treatment. As men-tioned, competition policy has the potential toimpede industrial policy objectives. A large de-gree of flexibility would be required for Southerncountries in a competition agreement, because ofthe wide scope such an agreement would cover.By supporting a competition agreement in prin-ciple, Southern countries would have to negoti-ate hard to ensure that they maintain the requi-site policy space to meet industrial policy objec-tives. And any reservations or exemptions wouldlikely be time-limited, or would be eroded by fu-ture rounds of negotiations.

Hence, for Southern countries there appearsto be little to gain and much to lose from theDoha competition policy negotiations. This ex-plains why many are opposed to moving furtherto a full negotiating phase. They are rightly viewedas yet another set of institutional requirementsimposed on them by more advanced countries thatimpede their ability to implement independentpolicies in their national interests. India, in par-ticular, is leading the charge against includingcompetition policy at the WTO.

We must keep in mind that the discussionsare at an early stage, and the “official” negotia-tions have not yet begun. Southern countries stillhave an opportunity at Cancun to prevent fur-ther negotiations from beginning. The CancunMinisterial will be a clear test of Southern coun-tries’ resolve; their capacity to resist pressure tac-tics from the U.S. and E.U. will determinewhether competition policy negotiations survive.


4. From the NAFTA to the FTAA: Competition policy in the Americas

arise if public health care in Canada were to beexpanded to new areas such as prescription drugsor dental care. US private health insurance com-panies and pharmaceutical companies with a pres-ence in Canada would likely use Chapter 11 ofNAFTA (the investor-state provisions of the In-vestment chapter) to sue for billions in compen-sation for lost business. (see CCPA 2002)

There are a number of important limitationsand obligations with regard to designated mo-nopolies and state enterprises in the Chapter, os-tensibly to guard against anti-competitive behav-iours. Article 1502 ensures that monopolies act"in accordance with commercial considerations";provide "non-discriminatory treatment" to invest-ments, goods and service providers of other Par-ties; and do not use their monopoly position toengage in anticompetitive practices in other mar-kets in a way that affects the investment of an-other Party (procurement by government agen-cies is exempted from this provision). Article 1503ensures that state enterprises provide non-dis-criminatory treatment in the sale of its goods andservices.

These provisions have some significant im-plications for public enterprises. One example oftrade challenge facilitated by the NAFTA is postalservices. The US courier company UPS is suingthe government of Canada under Chapter 11 forUS$160 million in damages, arguing that theCrown corporation is subsidizing its express de-livery service through its regular letter infrastruc-ture, thereby obstructing UPS's investments inCanada. The case is based in part on provisions ofChapter 15 (although UPS is reading in more ofChapter 15 than the text of Chapter 11 specifies).

UPS has a long list of complaints aboutCanada Post's alleged anti-competitive practices,

Competition provisions are under discussion inthe negotiations towards a Free Trade Area of theAmericas, due to be completed by January 1,2005. Because of the public release of the FTAAdraft text, we now have a sense of what is on thetable in terms of these negotiations. This sectionreviews the evolution and potential directions forcompetition policy in the Americas, beginningwith existing provisions in the NAFTA.

NAFTA and competition policy

The inclusion of a chapter on Competition Policy,Monopolies and State Enterprises (Chapter 15)in the NAFTA was a new development from theoriginal Canada-US FTA. The NAFTA recognizesthe importance of competition policy but leavesresponsibility to each nation to deter anti-com-petitive practices. The NAFTA says nothing aboutspecific anti-competitive behaviours, such as car-tels, predatory pricing, bid rigging, and the like.It leaves the determination of what represents“anti-competitive business conduct” to individualcompetition authorities. The NAFTA model doesnot establish a set of trilateral competition rules,a formal framework for cooperation, or even alist of proscribed deceptive business practices.

The bulk of Chapter 15, and its strongest pro-visions, are instead devoted to defining restric-tions on state-designated monopolies (whetherpublic or private) and state enterprises (such asCrown Corporations). The NAFTA does not pro-hibit a Party from creating or maintaining a mo-nopoly or state enterprise, although creating onewould likely require compensation under the In-vestment chapter of the NAFTA if actions byCanada, for example, affected the interests of aUS or Mexican company. This situation could


and is deliberately using the anti-monopoly pro-visions of Chapter 15 to force Canada Post to ei-ther segregate its courier activities or to get out ofthe courier business altogether. A UPS victorywould create pressure to break-up Canada Post'sintegrated mail, courier and package delivery serv-ices, and would have an impact on basic servicesprovided by the Crown corporation, such as de-livery to rural and remote areas. (see Sinclair 2001for summary of UPS's charges)

The UPS case is also significant because mostareas of public sector service delivery occur withsome degree of commercial presence along side.Beyond the direct implications to Canada Post, avictory by UPS would also set a dangerous prec-edent for many other public services and Crowncorporations. It would open a line of attack thatcould be used to challenge the viability of inte-grated public monopolies.

The NAFTA's Chapter 15 thus demonstratesthe double standards of competition policy in in-ternational trade negotiations. Provisions apply-ing to the private sector are vague, consultativeand toothless, while the provisions applying tothe public sector are legally binding, enforceablethrough dispute settlement, and may be used toundermine state enterprises and public services.Talk of competitive markets can be used to maska serious ideological agenda to privatize publicenterprises, restrict their capabilities, and to pre-vent new ones from coming into existence.

While Canada’s free trade agreement withChile essentially replicates the NAFTA languageon competition policy, the new US-Chile freetrade agreement adds new language that is indica-tive of what may be in the FTAA. The US-ChileFTA calls for the maintenance of competition lawsthat are transparent and do not discriminateagainst the other FTA partner. While this maysound like a level-playing field, US corporationsare much larger than their Chilean counterparts.This agreement would prevent Chile from taking

measures that shield, or promote the growth of,domestic corporations.

The US-Chile FTA also makes a pre-emptivestrike against postal service monopolies. At thebehest of the US express delivery industry (InsideUS Trade 2002a), the US pushed for languagethat restricts the ability of the Chilean postal serv-ice from subsidizing a competitive express deliv-ery service, even though Chile currently has nosuch service (Annex 11.6, paragraph 4).

The US also unsuccessfully sought languagein the US-Chile FTA that would prevent govern-ment ownership of telecommunications provid-ers, even though Chile has already privatized itstelecommunications companies. (Inside US Trade2002b) Such language, opposed by Chile, wouldhave prevented a future government from enter-ing into this market. In the FTAA context this isimportant, as many Latin American countrieshave been pushed to privatize public enterprisesover the past two decades. Reading these type ofrules into the FTAA would likely prevent theirre-emergence should future governments desireto rebuild their public sectors.

South America and the Caribbean

Other countries in the Americas have also set outcompetition provisions in their sub-regional tradeand investment agreements. Mercosur, the An-dean Community and the Caribbean Commu-nity each have (or are in pursuit of ) regional agree-ments on competition policy.

The countries of Mercosur (Common Mar-ket of the Southern Cone, composed of Argen-tina, Brazil, Paraguay and Uruguay) are signatoryto the Protocol of the Defense of Competition(Fortaleza Protocol), which sets out competitionarrangements for the trade bloc. The Protocol re-lies on the national competition authorities of eachmember country for investigation, and establishesa formal mechanism for cooperation among na-tional competition authorities.


FTAA negotiations

The FTAA Negotiating Group on CompetitionPolicy is the lead body responsible for competi-tion policy at the moment. Closer to the January1, 2005 deadline to conclude the FTAA negotia-tions, trade-offs will likely be made at the level ofthe overarching Trade Negotiations Committee,or directly by Ministers themselves. (For more onthe FTAA negotiating process, see Lee 2001)

In response to public pressure in the lead-upto the Quebec City Summit of the Americas inApril 2001, the first draft of the FTAA negotiat-ing text was made public in the Summer of 2001.A second draft was released in November 2002.The text is heavily bracketed (where brackets in-dicate areas of disagreement). Nonetheless, thebracketed text gives an indication of the positionsbeing taken in the negotiations, hinting at someof the provisions that could make it into a finaldeal. Unfortunately, no national attributions aremade, so it is not possible to state which proposalcomes from whom.

The NAFTA language around competitionpolicy is the starting point for the draft FTAAchapter. However, the FTAA draft is clearlyNAFTA-plus—a variety of other proposals gobeyond the NAFTA provisions. There is generalagreement on a model where each nation (or sub-region) would have its own competition author-ity to enforce certain agreed-upon principles andmeasures within its own jurisdiction. These com-petition authorities would cooperate with one an-other, and there would be some FTAA-widemechanism to oversee it all.

The FTAA parties would adopt or maintainmeasures against anti-competitive business prac-tices [1.1], and would require the maintenanceof a competition authority at the national or sub-regional level [3.1] (both of these articles are notbracketed). The overall thrust of these provisionsis that nations would be put in a position of in-

The Protocol thus sets out a very comprehen-sive list of prohibited behaviours, but at the sametime establishes a test that would have to be metin terms of real market outcomes. It does not setout separate rules for state monopolies and enter-prises. Article 2 notes that such enterprises arecovered by the agreement, but only “insofar asthe rules of this Protocol do not prevent the regu-lar exercise of their legal attributions.” This latterprovision seemingly provides protection for pub-lic enterprises by giving some degree of latitudefor state monopolies or enterprises to run afoulof the competition provisions.

However, such provisions remain hypotheti-cal in terms of actual practice. Despite beingsigned in December 1996, the Fortaleza Protocolis not operational at present because Paraguay andUruguay have not yet passed national competi-tion laws. (Tavares de Araujo Jr, 2001)

Decision 285 of the Andean Community(composed of Bolivia, Columbia, Ecuador, Peru,and Venezuela) sets out a framework for compe-tition policy in the region. It was signed in 1991,and is based on a model similar to the FortelezaProtocol. Decision 285 relies heavily on nationalcompetition authorities, and also creates a Boardto investigate cross-border complaints, with anumber of anti-competitive measures spelled out.The onus is on national competition authoritiesto carry out the decisions of the Board (althoughthe Board seemingly has less enforcement teeththan in the case of Mercosur).

The Caricom (Caribbean Community andCommon Market) has a distinct multilateral com-petition regime as part of a single market com-posed of 15 small nations. Protocol VIII createda supranational Competition Commission pos-sessing broad powers of investigation and enforce-ment. Within the Americas, this multilateralmodel most resembles the supranational equiva-lent of a coherent national regime, although therationale for its existence is rooted in the very smallsizes of individual Caricom nations.


vestigating and enforcing public and private ac-tivities within their jurisdications that inhibit themarket access of foreign companies.

Section 1.4 sets out a detailed list of meas-ures that would be considered anti-competitivebusiness practices. Many of these can be seen aspreventing restrictive practices by large compa-nies, while others would benefit large corpora-tions by increasing market access. As in theNAFTA model, a number of provisions in thedraft Chapter suggest that anti-competitive dis-ciplines will apply equally to private and publicsectors. Indeed, an objective of this chapter is toestablish disciplines on public enterprises.

The proposed language on state monopolies andenterprises is based on that of the NAFTA. This fol-lows the NAFTA model whereby countries wouldostensibly maintain the ability to designate suchenterprises, but they are subject to important con-ditions, such as non-discrimination and acting inaccordance with commercial considerations.

Some bracketed language softens the NAFTAbenchmark, while other brackets put greater re-strictions on state monopolies and enterprises. Anexample of the latter is language that allows themaintenance or designation of a monopoly or stateenterprise “insofar as they are subject to nationalor sub-regional rules on promotion and protec-tion of competition.” [2.2.1] This would explic-itly ensure that all disciplines on the private sec-tor would also apply to the public sector, a strongNAFTA-plus restriction on such enterprises.

As the examples above of postal services andpublic health insurance indicate, these restrictionsare strong. Many public services and Crown cor-porations would likely get caught in the crossfireof a NAFTA-plus competition chapter in theFTAA. The chapter could also be considered astake through the heart of agricultural marketingboards and state trading endeavours such as theCanadian Wheat Board, unless specific exemp-tions were acquired.

Moreover, the restrictions on regulated mo-nopolies and state enterprises go beyond thoseplaced on private firms. The implication is thatmany countries may not bother to establish stateenterprises or regulated monopolies, as the corepurpose for doing so may be defeated or restricted.The chapter aims to limit the potential role thatcould be played by state enterprises in theeconomy as alternatives to private actors—a rolethat deliberately distorts market forces in order toremedy market failures or to achieve certain so-cial goals, such as universal service or environ-mental protection.

The draft chapter contains new language thatmakes it a vehicle for pushing deregulation, lan-guage that goes well beyond the NAFTA. Theproposed preamble to Section 2 notes that: "[Anti-competitive [business] practices may have theirorigin in regulatory policies and practices, admin-istrative measures, [legal] [designated] monopo-lies], and state aids].]" With regard to regulatorypolicies and practices, the section cites that "theirdesign supports the use of pro-competitive regu-latory principles"[2.1.1] and it would preventregulatory policies "from [unreasonably] limitingaccess to the markets or in any way [unreason-ably] impairing the conditions of competition inthe FTAA"[2.1.2]

These proposals, if accepted, could amountto a blanket requirement that international tradein goods and services be unhindered, that no re-strictions on foreign investment be tolerated, thatregulations that restrict competition in any man-ner be eliminated, and that all foreign corpora-tions be granted national treatment-unless spe-cific exemptions were negotiated. The intent ap-pears to favour the "self-regulation" of a competi-tive market over direct regulation by governments-a premise that could impose legal and institutionalobligations on countries that are breathtaking inscope.

Section 2 also contains a proposal to study“state aids,” or regional development programs,


to the extent that they affect competition. Noth-ing more specific is proposed in terms of disci-plines, but this suggests that regional developmentprograms (legal under WTO rules) are on theFTAA radar screen.

Sections 3 and 4 set out provisions to create aformal framework for cooperation and review be-tween the various competition authorities of theAmericas. It would create a Committee composedof competition officials and experts from all ju-risdictions, whose tasks would consist of activelypromoting cooperation, monitoring the state ofthe various competition regimes, providing tech-nical assistance, and conducting studies [3.2]. TheChapter would also establish a Competition PolicyReview Mechanism, whereby each regime wouldbe periodically assessed, and non-binding recom-mendations would be made for improvement[3.5]. Chapter 4 provides for the possible estab-lishment of formal mechanisms for the exchangeof information.

These institutional provisions may be of lim-ited benefit to smaller countries with complaintsagainst large TNCs. A Latin American country,for example, could not force the U.S. to investi-gate the anti-competitive practices of a U.S. com-pany; such a decision would be at the discretionof U.S. authorities. This closes a major potentialavenue of gain by Latin American countries re-lated to being better able to challenge the anti-competitive practices of foreign transnationalcompanies. It also demonstrates the double stand-ard of weak disciplines on the private sector butstrong ones on the public sector.

Whether the institutionalization of a systemfor information-sharing would aid the competi-tion authorities of developing nations to strikemore frequently and potently at transnationalfirms engaged in anti-competitive acts is not soclear. The system, in order to be effective, wouldhave to impose obligations on the nations of theFTAA, but especially the wealthier ones, to sharesensitive business information when there is a valid

concern of business abuse. But, as mentioned ear-lier, this is unlikely given the reluctance of coun-tries such as Canada and the U.S. to have theirlarge firms prosecuted internationally.

At the same time, the chapter suggests thatrigid obligations would be imposed on nationalcompetition authorities. These long lists, ifadopted, seem over-prescriptive and would limitthe role of governments to have competition poli-cies and authorities that reflect the developmentaspirations of their nation. Enforcing the letter ofthe law would likely undermine attempts to cre-ate national champions by ensuring that nationalcompetition authorities would be used to attackthem should they be successful.

Finally, the Chapter has provisions related todispute settlement, with two differing proposals.One would open up dispute settlement possibili-ties over whether national competition authori-ties are abiding by their FTAA commitments, butthe dispute settlement mechanism would not beable to overturn decisions made by national com-petition authorities. The second proposal wouldexempt most competition matters from disputesettlement, with the exception of monopolies andstate enterprises. Thus, under both of these pro-posals, the public sector could potentially be chal-lenged for a wide variety of behaviours deemedto be anti-competitive, irrespective of public in-terest considerations, unless specifically exemptedfrom the chapter.

It is worth reiterating that the FTAA chapteron competition policy is heavily bracketed, anddue to be revised over time. Specific provisionsnoted above may be dropped in the course of thenegotiations or due to public pressure—or not.Specific reservations and exemptions may be ne-gotiated. And moreover, it is still far from certainthat an FTAA will ever come into being. Muchdepends on developments in Latin Americancountries, especially Brazil, and on the progressof negotiations at the WTO’s Doha Round.


utilize their domestic competition policy effec-tively when their interests dictate. They wouldgain, however, the capability of asking (even forc-ing) Southern competition authorities to investi-gate and prosecute behaviours by domestic enti-ties that may spring from companies’ cultivationof distribution networks and other relationships,or that may spring from state-led industrial policy.Competition policy would buttress their marketaccess ambitions, including greater market accessto public sector activities.

In contrast, most developing and less devel-oped nations need a lot of help if they are to ef-fectively target anti-competitive practices thatspring from the most powerful corporations. Thisis due primarily to an enduring lack of resources,lack of information from richer countries, and aninability to punish anti-competitive behaviour,again due to lack of resources and threats by largecorporations of withdrawals of FDI in the eventof successful prosecution. It is far from clear thatsuch assistance would come from, say, the U.S. ifan influential U.S. corporation were involved. Atbest, a multilateral regime would enable nationalauthorities to tackle practices by domestic corpo-rations. Such authorities would then become prox-ies for Northern countries to ensure the preva-lence of their corporations in the South. Becauselarge corporations are disproportionately housedin the North, Southern countries have far less lo-cal champions to defend in Northern markets.

The private sector bias in international tradeagreements is also cause for concern. Limited stepshave already been taken in the NAFTA and theWTO to place restrictions on state-designatedmonopolies and state enterprises. Further nego-tiations are likely to strengthen these disciplines,thereby undermining the potential these institu-

5. Conclusion

The FTAA or WTO negotiations fail to addressthe real issues that would be of benefit to South-ern countries or to consumers in both the Northand South. With the exception of export inter-ests seeking to penetrate foreign markets moredeeply, there is little to gain in these negotiationsfor a country like Canada that already has a com-petition regime. The same could be said for South-ern countries that may have or desire competi-tion regimes, but could lose autonomy in the con-text of an international agreement that meets theneeds of the bigger powers.

While there are some interesting provisionsin the draft FTAA and Doha declaration thatwould address restrictive business practices of pri-vate corporations and hard-core cartels, theoverarching emphasis on market access is prob-lematic. Any prospects for reining in private sec-tor power are likely to be watered down and beunenforceable in the current political climate ofeither the WTO or FTAA. On balance, there ismore to worry about—such as consequences forCrown corporations and domestic regulation—than there is to benefit from, given the philosophi-cal thrust underpinning the negotiations.

The successful conclusion of competitionpolicy agreements in the FTAA or WTO (ad-vances in one negotiation may spur the other) islikely to reflect the pre-existing hierarchy of powerwithin the world. In terms of competition policy,any agreement on competition policy in the con-text of the WTO or FTAA is likely to reflect, insubstance and intent, the interests of the strongerpowers, not the smaller and weaker countries.

The U.S. and E.U.—the dominant powersin international trade, with the biggest marketsand the most powerful corporations—wouldlikely maintain the status quo of being able to


tional forms play as alternatives to private corpo-rations. In a push for rules to restrict private be-haviours, public institutions may also be included,with negative consequences for many countries.Further entrenching deregulation, as proposed inthe draft FTAA text, under the rubric of compe-tition, is also highly problematic.

Ultimately, the global economy needs a mul-tilateral body to address some of the really sub-stantive issues with regard to the dominance ofglobal corporations, and global mergers and ac-quisitions, something that is not on the table ineither the FTAA or WTO negotiations. What amultilateral competition regime would look likeis an issue which has been taken on, discussed,thought and written about, and conceptualizedby several actors from a wealth of different per-spectives.

Some UN agencies, such as the UNDP(1999) and UNCTAD (1997), have argued thatthere is a need for some form of multilateral frame-work to rein in the growing power and influence

of TNCs, especially to prevent such companiesfrom abusing their power in countries ill-equippedto deal with anti-competitive behaviour. A mul-tinational competition authority, not housed atthe WTO, that would ensure diverse productchoice for consumers, and consumer welfare gen-erally, and that would have the power to break uplarge global concentrations of private power, isan intriguing possibility. In the current politicalclimate, however, such a formulation is wishfulthinking, although the recent spate of corporatescandals in the U.S. could begin to roll back anapproach that has been obsessed with restrictingthe public in favour of the private.

In the meantime, there is reason for skepticismabout the current international negotiations.Given the realpolitik of international trade nego-tiations, the pitfalls loom large while the prospec-tive gains seem remote. Like the story of the Tro-jan horse, appearances can be highly deceiving,and there is danger in viewing competition policynegotiations as something that they are not.


Appendix 1: National competition policy regimes

ment where the perceived benefits of competi-tion are maximized. The Act thus has several ob-jectives beyond competition per se. Examples in-clude: the growth and viability of small and me-dium-sized businesses, as well as “efficiency andadaptability” within the Canadian economy. Itapplies to all sectors of the Canadian economy,and to Crown corporations in industries wherethey compete with other firms. (American BarAssociation, 1997)

The Act contains both civil and criminal pro-visions for dealing with anti-competitive behav-iour. The criminal provisions proscribe such ac-tions as conspiracies in restraint of trade, bid-rig-ging, predatory and discriminatory pricing, pricemaintenance, misleading advertising, and othermisleading marketing practices. The penalties in-curred for violating the criminal provisions of theAct range from small fines to prison terms.

The most important civil provisions regulateconducts such as abuse of a dominant positionthat prevents competition or lessens it substan-tially, refusal to deal, exclusive dealing, and merg-ers. If wrongdoing is ascertained, or if a merger islikely to lessen competition below a certain thresh-old, orders can be issued to remedy the situation.In the case of a merger, the parties may be askedto dissolve the merger or enter into specific agree-ments to ensure the merger does not contravenethe prescriptions of the Act.

Because the purpose of the Act and its associ-ated institutions is neither competition proper northe protection of competitors, the Bureau mayrefrain from interfering with activities that lessencompetition if it is ascertained that such activitieswill result in “efficiency gains.” This means, ineffect, that the damages caused to the economyas a whole by the loss of competition resulting

Competition policy has its origins at the nationallevel. About 50 countries worldwide have com-petition laws as part of their corporate govern-ance apparatus. This appendix reviews the majorlegal features of competition regimes in Canada,the U.S., and the E.U., with some comments onregimes in Southern countries, in order to givereaders a sense of what national competition re-gimes do, and how this contrasts with competi-tion policy in the context of international tradeagreements.

A key point is that competition regimes haveunique characteristics, reflecting the evolution ofprocedures and policies in distinct economic cir-cumstances. Canada’s regime balances competi-tion considerations against economic efficiencyobjectives. The E.U.’s competition regime is con-cerned with the integration of its member econo-mies. The U.S. is preoccupied with consumerwelfare. Many Southern countries do not havecompetition regimes, and those that do give lotsof leeway for domestic policy considerations.

Canada

Canada’s competition laws and regulations arecontained in the Competition Act (the Act), whichcame into force on June 19, 1986. The predeces-sor of the Act, the Combines Investigation Act, rep-resented the first ever legislation proscribing con-spiracies in restraint of trade to fix prices or re-strict output, and was nearly 100 years old whenrenamed. The lead agency for the investigationand enforcement of the Act is the CompetitionBureau, although criminal matters are referred tothe Attorney-General of Canada for prosecution.

The Act, rather than promoting competitionas an end in itself, seeks to create a legal environ-


from a merger must be at least nullified by gainsin efficiency. Within a certain range of marketconcentration, mergers are unlikely to be chal-lenged by the Bureau if it could be ascertainedthat it would lead to a total surplus for theeconomy resulting from increased efficiency.

This “efficiency argument” that justifies leni-ency with regard to market concentration can beproblematic. It lumps producer and consumerbenefits together, even if the gain is clearly on theside of the producer, to say that efficiency has in-creased in, for example, cases of mergers. Thegrowing trend to sacrifice competition for effi-ciency is generally excused, in Canada as else-where, by the need to adapt to the constraints ofa changing, global economy—acute in the con-text of Canadian companies seeking to competewith larger rivals south of the border. Those con-straints include, among other things, the neces-sity for economies of scale and scope—attainableby concentration or close cooperation—in orderto cover the high overhead costs and R&D budg-ets required to stay afloat in today’s “knowledge-based economy.”

Goldman and Kissack (1993) argue thatCanada’s competition policy is largely a reflectionof Canada’s industrial policy objectives. They notethat:

The relatively small size of the Canadianeconomy is such that, in some industries,relatively high levels of concentration arenecessary before minimum efficient scalecan be achieved. Domestic firms often needto achieve these scales to compete more ef-fectively in international markets.

Size is equated to efficiency, suggesting a tol-erance for concentrations of market power if theyare related to pushing Canadian companies suc-cessfully onto the global stage. The consequencesfor exports are considered when the CompetitionBureau reviews mergers. But this may lead to per-

verse policy, in that a merger could have anti-com-petitive impacts at home, but be justified becauseof its supposed increase in the international com-petitiveness of Canadian companies.

United States

The U.S. is reputed to have the toughest systemof anti-trust law and enforcement in the world.The high-profile Microsoft case is just the lead-ing edge of anti-trust cases that include the break-up of AT&T in 1984 and Standard Oil in 1911.Over the decades, U.S. trustbusters have takenon the Hollywood movie industry, U.S. Steel,Alcoa in the aluminum market, IBM during theheyday of its market dominance, and many oth-ers, sometimes successfully, sometimes not, butalways willing to go after concentrations of eco-nomic power that are believed to hurt Americanconsumers. (Crandall 2000)

The U.S. competition laws, contrary to theCanadian ones, seek to protect and promote com-petition per se, as well as consumer welfare. U.S.competition policy sees competition as a desir-able outcome and attempts to discourage anti-competitive practices that may have adverse ef-fects on prices. For instance, merger cases are gen-erally assessed with respect to their effect on con-sumer prices.

U.S. competition policy is geared towards pro-tecting competition as an end in itself. LikeCanada, the aim is not to protect individual com-petitors, but to ensure that the benefits of com-petition prevail. Although efficiency gains maybe considered, the primary concern is price levelswithin the affected industry. The main differenceis that, while Canada’s focus is efficiency gainsand total welfare for the economy, the U.S. ap-proach is aimed at ensuring competition and con-sumer welfare. (Industry Canada 1995) Accord-ingly, U.S. competition authorities have gener-ally shown more teeth than their Canadian coun-


terparts in restricting market concentration, al-though it is often argued that the Canadian ap-proach is necessary due to the size of its market.

At the federal level, both the Department ofJustice (DoJ), specifically the Anti-trust Division,and the Federal Trade Commission (FTC) are re-sponsible for the enforcement of federal statutes.The DoJ is both an investigator and a prosecutorin federal courts for both civil and criminal pro-visions. The FTC also has investigatory andprosecutorial powers, although its policy is toencourage settlements whenever possible. (Ameri-can Bar Association 1997) The FTC’s focus islargely on the civil provisions of American anti-trust laws, as well as consumer protection. Thetwo agencies have developed a consultative proc-ess whereby they notify each other before launch-ing a formal investigation or issuing enforcementintentions. They then determine which agency isbetter able to handle the matter based on, amongother things, relative expertise, staff availability,and interest. (Ibid., 1997)

Unlike Canadian provinces, individual U.S.states may, if they wish, develop and enforce theirown competition regimes. The State AttorneysGeneral are responsible for the administration ofindividual states’ competition policies. State andfederal competition agencies generally share re-sources, but states may not enforce federal com-petition laws. (Hawk & Veltrop in Slot andMcDonnell, 1993)

Furthermore, private parties (i.e., citizens orcorporations) can initiate private suits to seek re-dress for harm caused by anti-competitive behav-iour. This has proved to be a powerful enforce-ment mechanism in the U.S. An interesting fea-ture of the civil litigation side of U.S. anti-trustenforcement is its treble damage component. Ineffect, what this does is triple the amount finedfor damages incurred by anti-competitivebehavior.

The U.S. has not been constrained by its bor-ders in pursuing anti-trust actions. The 1945

Alcoa aluminum case set a precedent that activi-ties outside the U.S. that affect U.S. commerce isnot beyond the reach of the Sherman Act. TheDepartment of Justice also retains the authorityto challenge anti-competitive behaviours that af-fect U.S. exports. This has been used by the U.S.in attempts to break open foreign markets. Othercountries have been dismayed by the sovereigntyimplications of these actions, leading “blockingstatutes” in Canada, the U.K., and other coun-tries forbidding cooperation with the U.S. whenit claims extraterritorial jurisdiction. (Akbar 1999)

European Community/E.C.

The E.C. competition policy’s main objective isto ensure unity and dynamism in the commonmarket. As trade and investment barriers werereduced as part of European integration, there wasconcern about maintaining contestability of mar-kets in the face of mergers and acquisitions. Ac-cordingly, competition policy has been used asan industrial and economic policy instrument toa greater extent than has been the case in Canadaor the U.S. (Industry Canada, 1995)

The attainment of the E.C.’s main competi-tion objective is underpinned by two sub-objec-tives: a) to restrict the abuse of dominant posi-tion by large firms that control large shares of spe-cific markets, thereby allowing small and medium-sized firms to exist and prosper, and b) to preventMember States’ abuse of their right to provide stateaid to public or private domestic firms, therebylevelling the playing field for all firms across theCommunity.

Similar to the U.S., within the EuropeanUnion individual Member States may have theirown competition regimes and watchdogs. How-ever, to the extent acceptable to Member States,the Commission’s law is pre-emptive and nationalcompetition authorities and courts may be respon-sible for investigation and adjudication under E.C.


law. In merger cases, however, the E.C. is the fi-nal authority. (Industry Canada 1995) The Com-mission itself has broad investigatory powers.

The E.C. finds itself in an interesting situa-tion as some of its Members are new to competi-tion and anti-trust policy, while others have longtraditions and established enforcement mecha-nisms. Cooperation on competition matters be-tween Member States is crucial to fulfill the E.C.’scompetition objectives. Civil actions by privateparties are allowed in some Member States butare, unlike in the U.S., seldom relied upon as en-forcement mechanisms. (Hawk & Veltrop in Slotand McDonnell, 1993)

E.U. competition policy has served the E.U.’sindustrial policy objectives to a greater extent thanhas been the case in either Canada or the U.S.Accordingly, state aid to public or private firms ispermitted, and a framework exists through whichMember States must obtain clearance for certaintypes of aid, while others may be performed atwill. E.C. competition law also explicitly providesfor collusion and cooperation between firms, givennet gains in efficiency and/or technical and eco-nomic progress.

Competition policy in the South

The creation of competition authorities in theSouth is a relatively new development. Like other“good” policies and institutions, competition lawsand authorities are often pushed onto Southerncountries from well-intentioned Northern coun-tries. This can have negative consequences, if pre-scriptions are too much of a one-size-fits-all vari-ety.

While generally adhering to the same princi-ples around contestability of open markets, com-petition laws in the South have generally been de-signed in a manner that suits the economic de-

velopment needs of the particular nation. For ex-ample, Korea only recently adopted broad com-petition laws in the wake of the Asian crisis. Dur-ing its period of fast economic growth, Korea ex-empted many sectors from the application of com-petition law, had a high threshold before lookingat mergers, and did not prosecute cartels.

Many Southern countries with competitionlaws grant exemptions when actions that wouldotherwise contravene the law are of benefit to thedomestic economy. Indonesia and Pakistan aretwo examples. Some countries do not have gen-eral competition laws, but enforce the principleswe associate with competition laws on a sectoralbasis (e.g. Hong Kong), or through a patchworkof other corporate governance laws (e.g., Malay-sia). A general concern, whether in the context ofgeneral competition law or on a more ad hoc ba-sis, is ensuring that state monopolies that are pri-vatized do not simply become private monopo-lies.

Southern countries must also deal with a highlevel of market penetration by foreign companies,and a dependence on imported goods in certainareas (such as capital equipment). The competi-tion concerns of Southern countries often havemore to do with anti-competitive practices on thepart of transnational corporations than domesticones. In addition, corporations that behave com-petitively in major markets like the U.S. and E.U.may simultaneously engage in anti-competitivebehaviours in developing countries. There arecases of international cartels—for example, in syn-thetic fibres, chemical textile products, and prism,lenses and lighting equipment—which have ap-plied in countries without effective competitionlaws, but not in the U.S. or E.U. (Jenny 2001)

For an overview of the different competitionlaws around the world, see Chakravarthy (2002).


Appendix 2: Bilateral and plurilateralcompetition arrangements

capacity building (generally Southern countries),while others merely provide for the sharing of non-confidential information. The U.S. will generallycraft the agreements with regard to what it per-ceives as being priorities with the othersignatory(ies).

Canada is signatory to a number of bilateraland plurilateral cooperation agreements withother governments to share resources on compe-tition policy and enforcement matters. The prin-cipal partners are the U.S., the E,C., Australia/New Zealand, Chile, Mexico, and Costa Rica.(Competition Bureau, 2002)

One of the main shortcomings of these en-deavours is the unlikeliness of cooperation be-tween rich and poor nations because of markeddifferences in legal environments, trade flows, andeconomic development, as well as several othereconomic and social factors. Certain governmentshave also been apprehensive about sharing sensi-tive business information on domestic firms, in-volved in anti-competitive practices abroad, withforeign competition authorities. Hence, compe-tition authorities may be unwilling or unable toprovide a foreign competition authority with vi-tal information that could lead to the disman-tling of cartels and other such harmful behaviors.(Jenny 2002)

For more details on competition agreementsbetween countries or regions, see FTAA WorkingGroup on Competition Policy (2001) andUNCTAD (2002b).

The process of globalization has posed distinctchallenges for competition regimes that are na-tional in character. Anti-competitive practices mayspill across borders, and mergers are increasinglycreating new giants on the global stage.

National competition authorities have beenresponding to the global economy by increasinglystriking agreements to cooperate with one another.

A 1991 bilateral competition agreement be-tween the U.S. and E.U. contains a variety of pro-visions related to the coordination of enforcementactivities. They aim to bring their positions andremedies closer to each other to avoid a harmfulimpact on the market of the other. And they agreethat one party can request the other to take ac-tion when the former is being adversely affectedby anti-competitive conduct. Since the agreement,the U.S. and E.U. have cooperated in hundredsof cases, including transatlantic mergers. (Devuyst2000)

The U.S. has since signed a number of bilat-eral competition agreements, including with Ger-many, Australia, Canada, Israel, Japan, and Bra-zil. As a prelude to the FTAA, the U.S. signed onto the Panama Communique—with Argentina,Brazil, Canada, Colombia, Costa Rica, Jamaica,Mexico, Panama, Peru, and Venezuela—to facili-tate greater cooperation among competition au-thorities in dealing with cartels and anti-competi-tive behaviour. (Devuyst 2000) Those agreementsvary in substance, depending on the contexts ofindividual countries. Some include clauses for


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A Trojan Horse for International Trade Negotiations?

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