Ian Wooton University of Strathclyde and CEPR

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Ian WootonUniversity of Strathclydeand CEPR

• Trade and competition policy
• anti-dumping and anti-trust policies in RTAs

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Competition policy

• Disciplines behaviour of imperfectly competitive
  firms in the international marketplace
• examine the different opportunities offered by
  RTAs relative to those under the multilateral
  trading regime

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Competition in autarky

• In a world of self-sufficient countries
• firms produce entirely for domestic consumption
• If firms competitive and no distortions
• free market is efficient
• If a firm (or firms) exercise an inappropriate
  degree of market power
• government should use competition policies to
  address this behaviour
• anti-trust (AT) policies

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Competition and trade

• When trade barriers are lowered
• penetration of domestic markets by foreign firms
• bringing aggregate benefits
• If firms behave competitively
• global efficiency with free trade and free
  markets
• If foreign firms exercise market power
• government intervention justified
• but limited instruments available

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Policy responses

• Exporting country options
• use AT policies to discipline firm
• often not in national interest
• Importing country options
• does not have ability to use AT rules
• resurrect trade barriers
• losing all the gains from trade
• implement anti-dumping (AD) policies
• only affects goods in import market
• prevents price discrimination

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AT versus AD 1

• AT focused on encouraging competition
• AT rules designed to ensure firms do not undercut
  the benefits of market integration by collusive
  behaviour
• whereas AD often works to reinstate some of this
  lost power
• If governments had single goal of promoting
  efficiency and competition
• AT the superior instrument
• increasingly seems that AD being used to pursue
  other goals

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AT versus AD 2

• Advantage of AD over AT
• does not need supranational powers
• Disadvantage of AD over AT
• does not directly address misuse of market power,
  except for predation
• only works indirectly
• often the disadvantages of AD overwhelm the
  advantages
• Could be complementary policies
• AT for domestic markets
• AD to deal with foreign firms

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Anti-dumping legislation

• AD a twentieth century phenomenon
• particularly rapid growth in 1990s
• when developing countries increasingly adopted AD
  legislation
• by 2000, more than 90 of world trade potentially
  subject to AD actions
• may have pervasive effects even when duties not
  imposed
• Strong correlation with trade liberalization
• a pressure safety valve for system?
• an instrument of retaliation?

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AD and RTAs

• Preferential trading is flourishing
• what is relationship between competition policy
  and RTAs?
• does RTA creation result in the elimination of AD
  on intra-regional trade?
• is AD replaced by AT?
• No clear pattern has emerged
• seems to depend on goals of the RTA

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RTA examples polar extremes

• EU
• has substituted AD with AT for intra-union trade
• applies common AD procedures for third-country
  trade
• driven by goal of single market
• NAFTA
• on AD, only concession by US was establishment of
  bi-national panels
• no harmonization of AT
• no acceptance of supranational authority

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Multi-dimensional integration 1

• Both trade liberalization and competition policy
  can be pursued multilaterally or bilaterally
• range of available policy options
• depends on the desired degree of integration
• Most basic level of regional integration is FTA
• only obligation is zero tariffs on bilateral
  trade with other member nations
• could parallel this with elimination of AD on
  intra-regional trade
• no reduction in national sovereignty

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Multi-dimensional integration 2

• Could match deeper trade integration with
  coordination on competition
• e.g. common AD together with common external
  tariffs
• regional AD more consistent for external firms
• AD more effective as protection
• ambiguous welfare implications
• common AT policies part of achieving a common
  market

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Conclusions

• RTAs can facilitate the multilateral process in
  moving towards free trade
• by removal of intra-regional AD policies in
  addition to tariff elimination
• This is especially true given
• the increasing complexity of the multilateral
  negotiations, and
• the expected expansion in RTAs

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Reference

• Ian Wooton and Maurizio Zanardi
• Trade and Competition Policy Anti-Dumping
  versus Anti-Trust
• Forthcoming in James Hartigan, ed., Handbook of
  Trade and Law, London Basil Blackwell

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Growth of anti-dumping laws
As of 31 December 1989
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Growth of anti-dumping laws
As of 31 December 2001
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Growth of WTO and AD laws
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Stages of bilateral integration

Trade Competition policy
Self sufficiency(autarky) Autonomous competition (AT) policy
Unilateral tariffs Unilateral AD actions
RTA(free bilateral trade) Bilateral removal of AD
Customs union(common external tariff) Common external AD policy
Common market Common AT policy