Competition Issues in the Global Economy and the WTO Regulation of World Trade

• Author: Giorgio Sacerdoti
• Position: Professor of International Law and Jean Monnet Chair in European Law, Bocconi University, Milan; Member of the Appellate Body of the WTO, Geneva. This paper was first presented as a “ Key Note Speech“ at the 15th St.
• Pages: 69-80

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1. Introduction

The relationship between competition law, as it basic tenets emerge from a comparative examination of the legislation and enforcement practice in the main jurisdictions, on the one hand, and the evolution of international trade regulation and practice on the other hand has always been a tempting subject but also a difficult one. I will try to discuss it in this paper in my academic capacity but taking into account also my experience as a member of the Appellate Body of the WTO. Since I am not an expert of competition law but rather an international lawyer this is the only approach which I feel confident to follow in this endeavour.

The interrelation between these two fields is well known and has often been explored, especially at the academic level. The effectiveness of national competition regulation would be reinforced by a multilateral regulation ensuring coordination between authorities and remedies to private parties unfairly treated in foreign market. Thus internationally contestable markets also in respect of private anticompetitive conduct is a recognized objective in an open global economy.² Still, it does not happen often that experts in these two areas meet and discuss together. There are enough, issues in the respective fields to discourage mixing the two. From a regulatory and institutional point of view, these two sets of regulation deal with distinct aspects of market regulations, pursue different, though not totally apart objectives, are addressed to different actors (enterprises and states respectively) and use quite different techniques.

In fact the WTO law system does not cover expressly competition, that is the conduct of enterprises in the global market, nor does it have the objective to regulate governmental action and enforcement of anti-competitive conduct of enterprises that have effects beyond national borders. The WTO organizes an inter-governmental system of rules that aims at regulating the conduct of governments in international trade. Trade has been understood traditionally since the creation of GATT in 1947 as the import and export of goods across borders, focusing on the reduction of border barriers by states and the non discriminatory treatment of imported products visà-vis domestic ones once imports have been introduced in a given domestic market.

The conduct of private parties, including any anti-competitive conduct of enterprises, be it internally, in cross-border operations or at a global scale, is not basically within the purview of this system. On the other hand, whenever the conduct of governments by regulating competition or by intervening in the markets do affect the conditions of competition therein between domestic and foreign business, WTO rules may become relevant and indeed have been invoked in this respect in several WTO disputes. Although the competition aspects have rarely been highlighted as such, it is a fact that many provisions in the WTO Agreements address issues of competitionPage 70at the international level and may have an impact on the regulation of competition by member governments.

This will be therefore the object of the first part of my presentation here. The second aspect will focus on the discussions that periodically take place and initiatives stemming there from, as to the desirability and practicability of an expansion of the WTO system to cover directly competition matters. The objections raised especially by developing countries have prevented until now such a development. Most recently this has happened in 2004, when a tentative plan to pursue “trade and competition” as a new item in the current Doha Round negotiation was abandoned.

2. From the Havana Charter (ITO) to GATT and the WTO

Before investigating the competitive dimension of the current rules it is appropriate to recall some of the main aspects of the WTO system to understand the relevance for competition regulation of existing trade rules and the potential of the system to govern competition expressly, but also the difficulties and the reasons for the resistance that such a development has encountered until now.

May I recall briefly to the competent audience of this Forum, without going into too many details, that the WTO was established in 1995 and is a development of the GATT, the General Agreement on Trade and Tariff. The GATT was a multilateral agreement but had no institutional framework. It was not an international organisation and relied only a small secretariat. Secondly, it only covered international trade of goods, because when it was established in 1947 international trade included basically only goods. The GATT was a side-effect, so to say, of the negotiation of the Havana Charter which was meant in 1948 to establish an international trade organisation as the third pillar of the economic post WW II order along side the Bretton Woods institutions: the IMF dealing with monetary issues and currencies and the World Bank aimed at assisting reconstruction and development. The Havana Charter was never ratified by the US Senate and it remained as a result a dead letter.

The Havana Charter would have been more comprehensive in coverage than the WTO almost 50 years later. Besides establishing the International Trade Organisation (ITO) it would have included rules on competition as well as covering other fields so to regulate not only trade but the international economy in general through cooperation and standards setting in various areas. The support for this far reaching approach faded quickly thereafter. What was left was the GATT, a distillation of the Trade Chapter of the Havana Charter that had been meant to be a provisional arrangement to sustain liberalization and orderly trade while the ITO would enter into force.³ The basic principles of GATT was the most favoured nation and the national treatment principles in order to avoid discrimination between products from different origin.

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The “good conduct” code for governments laid down by GATT included just a few explicit rules against anticompetitive conducts by foreign firms (anti-dumping) and by governments (as to subsidies and privileges granted to state trading enterprises). The original text was sketchy and, institutionally, did not afford adequate remedies in case the relevant provisions would be abused by governments .

Ensuring market access to foreign producers and thereby enhancing international competition was however always basic to the GATT and is central to the WTO too, which has retained the GATT (now labelled “GATT 1994) as one of its central pieces of legislation. By requiring equal treatment and by restricting interference by governments in the flow of international trade and as to the access to domestic markets by foreign companies, the GATT and subsequent regulation comply with a basic objective: that of protecting international competition in a market economy, now expanded to cover almost the entire world.

The first principle of GATT is of course found in Article 1 on the “Most Favoured Nation Treatment”. MFN entails that an importing country should not treat differently imports of the same products from different foreign markets. Except where authorized by the agreement ( as within custom unions or under preferential conditions permitted in favour of developing countries), customs duties must be identical on any given imported product irrespective of the origin, and so also other charges and standards on or in connection with importation of such a product. The “National Treatment” obligation has also an obvious competitive aspect. Once imported into a country, the foreign product must be treated just as the like national product for all purposes, ranging from distribution to taxation. Avoiding discriminatory treatment by public authorities based on the origin of a product improves of course fair competition internationally.

The Uruguay Round of multilateral trade negotiations, initiated in 1986 and concluded in 1994, has expanded and improved tremendously the sectoral coverage and the institutional set up of the world trading system. The number of participating economies has subsequently expanded to reach almost the whole word, the most notable exception being currently Russia.

The Uruguay Round had been launched as one of the periodic rounds that had extended the purview of the GATT in the past. Especially the Kennedy Round in 1967 and the Tokyo Round in 1979 had added teeth to the antidumping and subsidy regulation. The last GATT round went well beyond past multilateral negotiations; notably it has made governmental activity in the pursue of otherwise legitimate domestic policies subject to more effective disciplines, so to ensure that it may not result in abusive restrictions to market access.

Another notable success of a systemic implication was to bring services under the coverage and the disciplines of the multilateral trade system. Trade in services has become a very important part of international trade. While most services were not tradable when GATT was established, professional and financial services, tele-communication, information technology, to mention the most prominent, are key toPage 72the modern economy in an international dimension. The new General Agreement on Trade in Services (GATS) includes principles taken from the GATT but enshrines also specific rules, in view of the fact that services are mostly limited by government domestic regulation, notably on service providers, rather than by...