Evaluating effects of world trade agreements on competition

At present, World Trade Organization rules relating to competition policy are very limited and are confined to measures adopted by governments. However, the existence of monopolistic and anti-competitive practices in markets, both domestic and international, can significantly influence the impact of trade and other trade related measures which already exist under the Uruguay Agreement or which may be proposed for inclusion in the New Round Agenda.

Anti-competition practices may limit access to a market (e.g. import cartels, exclusive distribution agreements); may have an effect in a different market from that in which they are conceived (e.g. export cartels); or may have an impact in several markets (e.g. international cartels, cross-border mergers). The [Uruguay Round Agreements] do not include a competition agreement, however, a number of the WTO provisions do relate, directly or indirectly, to business practices, in particular, GATS, TRIMs, and TRIPs. The existing WTO provisions, however, only apply to measures adopted by governments.

Competition law is absent or weak in many developing and least developed countries, and is particularly susceptible to harm from cartels organized by developed countries that fix prices of materials, capital goods and technology. As TNCs become increasingly important in international trade, investment and technology flows, developing countries are increasingly vulnerable to the anti-competitive practices of these enterprises.

European transnational corporations may be negatively affected if there is more effective control over their anti-competitive practices in overseas markets. Alternatively, if a multilateral agreement results in a reduction in anti-competitive practices by government or private business in the markets into which European companies are exporting or investing, there will be a positive impact linked to improved market access.

Essentially, the economic consequences for the EU in the liberalization scenario would show greater gains, but the social and environmental consequences may be more problematic if the social safety nets and the appropriate environmental protection measures are not in place. The effects of clarification and strengthening of the anti-dumping measures within the EU is more problematic. In so far as they stop EU defensive measures to keep out long-term, low price imports from LDCs, consumers will gain and EU producers and workers will lose. To the extent that they stop predatory selling and unwarranted short-term market instability there should be a net gain.

The worst case scenario for developing countries and least developed countries would be if TNC business practices were not tightly regulated, control of anti-dumping defence instruments in developed countries were not loosened up and developing countries were expected to establish and implement new competition policies unaided. These would almost certainly result in short to medium term economic, social and environmental losses as well if they did not receive sufficient international assistance. Under 'ideal' conditions, they should begin to make modest economic, social and environmental gains in the medium-term which grow in significance in the longer term.

The economic impacts of the new competition policy should be positive but their extent and distribution between country groups will vary according to the details of the policy. The social and environmental consequences will depend upon the social safety nets and environmental protection measures in place. In the case of the longer-term effect an important issue is whether any increase in environmental impacts, due to the output expanding effect of greater efficiency can be offset by the resource saving and waste reduction effort stimulated by greater competition supported by appropriate environmental protection and poverty reduction measures.

1. The general presumption, so far as the EU is concerned, is that the failure to address satisfactorily reduced competition problems results in losses in economic welfare, increased negative social impact (through adverse distributional effects) and, more speculatively perhaps, negative environmental impact due to inefficiencies in resource use.

2. Over the longer term the relationship between increasingly competitive market conditions, technical change and its social and environmental consequences will become increasingly critical.

3. The unregulated activities of foreign enterprises may also have adverse environmental impacts, through restrictive practices limiting developing countries' access to environmental goods and services.

4. Any economic problems under a liberalization scenario are likely to be less for developed than developing countries (anti-dumping and TNC regulation might modify this).

5. If major adjustment costs are incurred by developing countries moving towards more open competition (and no international assistance is provided to assist with these) then the economic and social impacts, particularly over the short and medium term, could be negative in certain developing countries (particularly in least developed country groups), and increased economic and social costs in such countries over a lengthy transitional period could result in negative environmental costs as well. In the long term, when the transition is complete, positive economic impact should be achieved but much will depend on this economic, social and environmental base line that exists at the end of the transition period.

Type Classification:
F: Exceptional strategies
Related UN Sustainable Development Goals:
GOAL 4: Quality EducationGOAL 10: Reduced InequalityGOAL 16: Peace and Justice Strong Institutions