Trade Policy and Competition Policy

Despite the reduction in trade barriers which has followed successive GATT agreements, national governments still affect trade flows by using instruments such as quantitative restrictions to imports, antidumping actions, state subsidies, preferential procurement policies, and definitions of standards. The use of these instruments for protectionist purposes is also in conflict with competition policy objectives in the home markets, since a decrease in the competitive pressure of imports enhances market power of the domestic firms. Governments should avoid the temptation to resort to such instruments for protectionist purposes. In particular, a reform of anti-dumping laws, to which governments have increasingly resorted over the recent years, is necessary. Besides unilateral reforms, more international cooperation should be fostered to control that the use of the aforementioned instruments does not degenerate in protectionist spirals which would result in welfare losses for all the countries involved. We also point out that different domestic competition laws might in turn have an affect on trade. However, the danger that governments might use competition policy as a “strategic trade” device to help the national industry should probably not be emphasised, since in many cases lax rules would be as detrimental to national as to foreign welfare. Harmonisation of competition policies is probably not necessary, but in any case would be a very difficult objective to reach. This is because there often exists little consensus on the policies which should be followed, since countries genuinely differ in their evaluations about such policies. However, the definition of a clear set of rules which establishes the assignment of competition policy cases to a particular jurisdiction, by avoiding costly duplications and increasing the certainty of the rules, should receive priority in the international agenda.