The interface of trade, investment, and competition policies : issues and challenges for Latin America

Latin American countries have not had much experience with competition policy. Restricted trade policies, together with no competition policy, have often resulted in domestic monopolies. Trade liberalization in the 1980s and 1990s has strengthened import competition, but trade policies alone cannot create a competitive economic environment. Trade policy as an instrument of competition policy (limited as it has been) has been constrained by a disproportionate amount of nontraded goods, vertical integration, and distribution monopolies -- and sometimes the use of antidumping, countervailing, and safeguard measures. Competition policies -- such as antitrust laws, merger controls, and other regulatory measures -- can prevent exclusionary practices, collusion among competitors, and the abuse of market power. Allowing foreign ownership and liberalized investment regimes will further enhance domestic competition by adding market presence. The authors contend that trade and competition policies must complement each other and that when they do, welfare improves. Tensions between the policy areas arise because of globalization, regional policies, technical barriers, certain kinds of industrial policy, and macroeconomic exigencies. Trade policy itself can be used for protection even without high tariffs or quantitative restrictions. Antidumping, countervailing, and safeguard measures limit rather than promote competition. These measures -- which should be GATT-compatible by law and competition-promoting in spirit -- must be used judiciously. The authors favor the use of safeguards rather than other measures to provide temporary protection for firms facing import surges. Latin American countries have recently made impressive strides in trade reform, but have made limited use of competition policies. The authors argue for more use of competition policies to enhance gains from trade reform. They also argue for harmonization of competition policies as these countries reduce barriers against each other through regional agreements. More efforts should be made to: 1) create favorable competitive environments; 2) harmonize trade, regulatory, and competition policies as well as conflict resolution mechanisms; and 3) strengthen enforcement mechanisms and make them binding.