'1997 World Investment Report' calls for attention to competition policies as complement to benefits of global investment policy liberalization.

The rapidly increasing globalization of business can yield enormous benefits for economic growth and development, but it could also lead to the domination of some markets by a few major corporations. Policies to maintain the efficient functioning of markets and limit the scope for restrictive business practices are therefore needed, the United Nations Conference on Trade and Development (UNCTAD) states in its World Investment Report 1997: Transnational Corporations, Market Structure and Competition Policy (WIR97). The Report was issued at a time of booming international investment, when the number of trans national corporations (TNCs) is growing fast and the stock of their assets and volume of their sales across the globe are hitting record levels. The liberalization of foreign direct investment (FDI) regimes is not only fostering this boom, but it is also creating more business competition in many markets.

The Report states that the scale of some mergers and acquisitions and the possibility that some markets might be dominated by a few firms is raising important questions of competition policy. "This was recently highlighted, for example, in the European Union debate concerning the merger of Boeing and McDonnell Douglas, two of the world's largest aerospace companies", notes the Report.

WIR97 points out that because of the greater competitive strength that TNCs sometimes have, FDI could increase market concentration and raise the scope for restrictive or anti-competitive practices by firms. But as TNCs become more efficient through integrating production internationally, they can also enhance competition by introducing new or better quality products to national, regional and global markets. The widened scope of markets in an era of globalization enables TNCs to respond rapidly to higher prices anywhere in the world, not only through trade, but also through international production. This type of supply response becomes particularly important in services, many of which are non-tradable.

A key message for Governments is that competition policies, FDI policies and trade policies must be mutually supportive if efforts are to succeed to make markets function properly, the Report states. Countries must not only have competition policies in place; they must ensure that they are effectively implemented. This requires, for example, a capable competition-enforcement agency with powers to investigate businesses. These powers should include the ability to analyse the competitive effects of concentrative forms of FDI.

Healthy economies require not only liberal trade and FDI regimes, WIR 97 states, but markets that are contestable, where firms can...