Competition,Trade And Emerging Economies

Author:Damien Geradin
Profession:Professor of Law at the University of Liège and Director of the Global Competion Centre

Competition and Trade. Competition and Developing Economies. Boxes.


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Competition and Trade

Opening domestic markets to international trade is one of the key policy reforms in which the MPs have engaged these last few years under the impulsion of Association Agreements with the EC, as well as free trade agreements with other countries. Freer trade generates large benefits and is a factor stimulating economic growth in developing and emerging economies. Yet, most of the MPs have so far failed to integrate in the global economy and their share of global trade and investments are significantly lower than in other regions. This suggests that all instruments that contribute to facilitating free trade, including the application of competition rules, should be welcome in these countries.

Since the end of the Second World War, the interface between trade and competition policies has received considerable attention from policy-makers, practitioners, and academics. 15 The point of connection between these policies is that it is widely believed that free trade among nations does not only require the removal of public barriers to trade (for example, quotas, custom duties), but also a series of obstacles originating in private restraints, such as abuses of dominance, import cartels, and vertical restraints (Fox 1997). Competition law would thus be a necessary complement to trade policy.

The importance of competition law as a tool to promote market integration has long been understood in the EC (Ehlermann 1992). Promoting the creation of a single market has always been seen as one of the major objectives of EC competition law (Bellamy and Child 2001). Com-

An increasing number of low and middle income countries have successfully used integration with global markets to attract foreign direct investment, generate export-led growth, and create jobs in trade-related industries. Examples include the East Asian "tiger" economies, Mexico, or the countries of Central and Eastern Europe. The Middle East and North Africa (MENA) 14 region, however, has missed out on the opportunities offered by the process of globalization over the past two decades. An extensive World Bank study, published in mid-2003, takes stock of the low level of trade integration of the MENA countries. Whereas most regions increased their level of trade integration (measured by the trade-to-GDP ratio) the one of MENA actually fell in each of the five-year periods between 1985-99. Diversification of exports away from petrochemicals and raw materials, measured by different concentration indices, has been slow and lags far behind other regions. "Finland, with 5 million people, has almost twice the non-oil exports of the entire MENA region. And the Czech Republic and Hungary, with populations of about 10 million, each had greater non-oil exports" than the MENA region with its almost 300 million inhabitants. Besides the low levels of trade integration illustrated by these statistics, the MENA countries have also been sidelined with respect to global capital flows. In each of the five-year periods between 1986 and 1996, foreign direct investment (FDI) was less than half a percent of GDP. Many emerging economies achieved a multiple of those figures. Despite geographic proximity, only a mere 2 percent of European FDI goes to the MENA region. The low performance of the region with regard to exports and FDI inflows becomes obvious, if benchmarked against average figures for countries with similar levels of per capita income, natural resource endowments, and population. Compared to their "potential" non-oil exports and FDI inflows, virtually all MENA countries under perform significantly. "Only Jordan and Morocco had exports close to what would be predicted. The world's three biggest under performers are MENA countries (Algeria, Egypt, and Islamic Republic of Iran), and the other MENA countries are all under performers." In 2000, Algeria, Morocco, and Syria attracted negligible amounts of FDI and Egypt, Tunisia, Jordan, and Lebanon also remained significantly below their potential. This is in stark contrast to emerging economies like Mexico, Eastern Europe and Eastern Asia, which have used global integration as a catalyst for economic development.
Source: Müller-Jentsch, Daniel. Forthcoming. "Deeper Integration and Trade in Services In the Euro-Mediterranean Region."

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petition rules have been applied, for instance, to prevent vertical restrictions, which would contribute to dividing markets along national lines. 16 The European Commission is also taking an increasingly tough stance against cartels involving companies from different Member States, as such cartels generally have a market partitioning effect (Monti 2002).

More recently, competition rules have been inserted in a series of regional or bilateral trade agreements concluded by the EC, such as the European Economic Area (EEA) or the Association Agreements concluded by the EC with a variety of third countries. A similar approach can also be found in agreements concluded in other parts of the world. 17 For instance, the Protocol for the Defense of Competition in Mercosur contains an ambitious agenda whereby member countries are called to harmonize their domestic competition laws and institutions are created to prevent anticompetitive behaviors that affect trade among the member countries (Tavares de Araujo, Jr. and Tineo 1998).

The relationship between trade and competition policies is also a major issue at the WTO level (Tarullo 1999; Fox 1999). Since the beginning of the 1990s, the EC has pressed its trading partners for the adoption of a competition law framework in the context of the WTO (Fox 1997). In Page 23 1996, the WTO Ministerial Meeting held in Singapore created a Working Group on the Interaction between Trade and Competition Policy. 18 The mission of this Working Group was to "study issues raised by Members relating to the interaction between trade and competition law, including anticompetitive...

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