Improving International Competition Order

After the failure of the Havana Charter in 1947, the WTO took over the role of mediator for questions regarding trade, except for cases involving foreign competition policy. Even in trade policy the influence of the WTO remains limited, however, because it can neither act of its own accord nor apply sanctions in cases of violations against the trade rules of GATT, as a national authority would. There are no competition policy instruments to deal with international violations of competition that negatively effect foreign countries, such as abusing a position of market control, export cartels, vertical or horizontal limitations to competition on export markets and mergers that effect third-party countries.¹

Because of the many forms competition can take, there is no universally accepted definition of it.¹ The basic character of competition in a market economy can be understood as the contention between at least two participants on the supply side and those on the demand side. Competition forces the companies to adjust their supply to correspond to the wishes and needs of their consumers (the regulatory function). In a national economic system the desire to maximize profit produces the dynamic in which the raw materials with the best value are used in production. The end product that offers the best value is in the highest demand and is the most produced, which in turn allows the firm producing it the most room to reduce its prices (the allocation function).²

After having lowered the general import duties in the various GATT rounds, however, anti-dumping measures became one of the most important import restrictions in global trade. Anti-dumping duties are on average 10–20 times higher than the existing import duties and can be as high as 100 times the import duties.¹ Dumping is defined in international economics according to two criteria: the sale of goods on an importing market at a price lower than that charged on the domestic market, or the sale on a foreign market at a price lower than the cost of production. Article VI of the GATT prohibits dumping in the international rules of fair trade if it causes or threatens to cause material injury to an existing industrial branch or greatly hinders the development of a new branch (GATT, art. IV). Anti-dumping measures should create and maintain a state of fair competition, taking on the role of a competition organization, which is still lacking on an international level.

After the failure of the Havana Charter in 1947, the role of mediator for questions regarding trade was passed to the WTO, though not for cases involving foreign competition policy. The influence of the WTO is limited even in trade policy, however, because neither can it decide of its own accord to act, nor does it have the ability to apply sanctions in the case of violations against the trade rules of the GATT, as a national authority would. Competition policy instruments to deal with international violations of competition that effect foreign countries negatively — such as taking advantage of a position of market control or export cartels, or vertical and horizontal limitations on competition on export markets and mergers that effect third-party countries — do not exist.¹

Having worked out our economic ideal competition order, this chapter summarizes the general discussion on reform and makes several reform suggestions. The first part comprises an explanation of the criteria by which to evaluate reform suggestions, while the second presents, compares and evaluates a selection of the most important suggestions. The third part brings everything together in conclusion.

There is general agreement between states that the international cooperation of competition authorities and courts should be improved. A general prohibition of hard-core cartels seems to find consensus as well, this being perceptible in the meetings of the WTO working group. At the time of writing, the USA is still contesting the WTO regulations for competition even though the Report of the International Competition Policy Advisory Committee (ICPAC)¹ had already, in April 2000, in large part established the necessity for international rules on competition owing to increasing globalization. The arguments brought by the USA were threadbare at best. One argument was that the WTO has insufficient instruments for intervention and sanctioning, and that US courts could therefore better enforce an international competition policy. Another was that WTO panels lacked the technical expertise necessary to implement an international competition policy. In fact, the USA argued that international competition regulations were unnecessary and their implementation too costly. The USA suspects that their influence on international competition policy could be reduced if there were international rules or if third parties could exert influence. The main fear in this context for the USA is a weakening of its own anti-dumping laws.²