Trade policy and competition policy in Europe: Complementarities and contradictions

1. Competition policy and trade policy are usually distinct areas of economic policy, the first being inward, the second outward oriented. With increasing economic internationalization their interconnections become more important, not only on the national, but also on the European and world levels. 2. In the EC the completion of the Single Market at the beginning of 1993 permits gains from increased intra-European trade due to specialization, economies of scale and scope, reduced transaction costs. The ensuing restructuring pressures as well as growing imports from third countries lead to inter-firm cooperations, mergers and concentration. National subsidies often increase distortions. 3. EC competition policy therefore is increasingly Controlling deviations from fair competition in the private and in the public sector. It is thus replacing national trade policies by member states, which are no longer available. This is a definite improvement, as imperfections within the EC can thus be addressed directly instead of by second best trade policy measures. 4. Intra-EC imperfections in factor and product markets such as wage rigidities and labour immobility, monopolistic and oligopolistic market structures, positive and negative external effects, public goods, etc. are affecting not only intra-European trade but also trade with third countries. In order to redress the distortions caused by such imperfections, trade policy measures such as import restrictions and export subsidies are used by the EC. These measures often have anti-com-petitive effects which could be avoided by addressing the distortions directly. 5. Non-competitive market structures, government intervention and other imper-fections in third countries give rise to aggressive export and protectionist import policies, which cannot directly be addressed by EC policies. Counteractions by EC trade policy instruments are mostly GATT-legal (safeguards, antidumping and antisubsidy measures), but partly not covered by GATT rules (VERs, OMAs). Both have usually anticompetitive effects: e.g. undertakings are com-parable with international cartels; anticircumvention measures against "screwdriver'-firms have a tendency to limit international capital mobility. 6. Conflicts between EC and third countiy trade policies - which are based on and justified by imperfections in Europe and Overseas - can be solved or at least diminished by attacking these imperfections directly where they arise. This is done within the EC by competition policy; it is planned for the union with EFTA in the EEA; and there are efforts to extend Cooperation between competition policy makers to the world level, following valuable OECD recommendations. It is an open question whether GATT can be strengthened or whether an Institution similar to ITO as envisaged by the Havana Charter will be established. The necessity to coordinate trade policies under worldwide competition rules is undeniable, if huge efficiency losses - possibly trade wars - are to be avoided.