Trade and Competition: Policy interface; institutional coherence? Trudi Hartzenberg

1. Trade and Competition: Policy interface; institutional coherence? Trudi Hartzenberg 18 October 2011 TIPS/SAIIA Development Dialogue

2. Overview Background – scope of trade and competition policy South Africa’s trade and competition policy development Competition issues in regional trade agreements Competition policy and SA’s trade relations Trade-investment-competition nexus – cases Conclusions

3. Background – Definitions and Scope Competition policy: central focus – efficiency: measures to promote competition (safeguard competition not competitors), prevent anti-competitive practices and regulate mergers (can impact competition and market structure) Key issues: - Units of analysis: firm and the market (‘relevant market’) - Scope of competition policy (national, regional…no multilateral agreement); usually ‘all econ activity’ will be covered Trade liberalisation (multilateral, regional, unilateral) reduces barriers between nation states – facilitating market integration (dominant paradigm is perhaps still focused on trade in goods – border measures: tariff) Key issues: - impact on market definition (mkts & competition transcend national borders); - beyond trade in goods (services, investment lead logically to competition)

4. Scope, Definitions Focus on competition policy-trade policy interface: - No multilateral agreement on competition, but early recognition of trade-competition interface: Havana Charter (Ch V – provision on restrictive business practices) - As govt barriers decline, private barriers may increase… - Globalisation (trade and investment integration; increase in trans-border activities increased scope for cartels, vertical restraints) – given governance gaps - Trade, investment, competition connections in GATS, TRIMS, TRIPS - In short: some concerns that benefits of trade liberalisation may be reduced by anti-competitive practices

5. Trade and competition policy development in South Africa (1) Early Post-1994: period of extensive policy reform Trade: from import-substitution to export orientation - enthusiastic liberalisation immediate post-1994 period; slow down towards late 1990’s… trade policy serves industrial policy objectives (import tariff – instrument of industrial policy to be used selectively to protect specific industries); 2009 Trade Policy: strategic tariff policy Institutional architecture: dti, and since 2009 DED (oversight function: International Trade Administration Commission)

6. Trade and competition policy development (2) Competition policy: long history in SA; development of robust competition policy (post-’94) was only possible if public interest imperatives were accommodated; hallmark of SA’s competition policy – explicit articulation of public interest objectives (eg in merger review i) impact on a particular industrial sector or region, ii) employment, iii) ability of small and historically disadvantaged persons to compete, iv) international competitiveness of national industries) Institutional architecture: Competition Commission, Competition Tribunal, Competition Appeal Court – oversight shifted from dti to DED Brief history: Competition Act 89 of 1998 (as amended) - strong focus on merger control initially, more recently restrictive practices cases (eg cartels); procedural/administrative justice issues – eg participation of trade unions - not party to any international agreements which provide eg for cross-border merger control Implications of this institutional reconfiguration? Capacity and more issues

7. Competition in multilateral agreements No multilateral agreement on competition, but: Recognition of relationship between trade and competition policy (debate: complements or is a liberal trade policy a substitute for competition policy?) Havana Charter - chapter V GATS, Article VIII: Members to ensure that state monopolies do not act in a manner inconsistent with their obligations/specific commitments TRIPS, Articles 8 and 40: Authority to take measures against abuses of intellectual property rights/ anti-competitive licensing practices Basic Telecom Negotiations, Reference Paper on Regulatory Principles: Commitment to adopt appropriate measures to prevent anti-competitive practices by major suppliers

8. Competition in multilateral trade agreements Agreement on Safeguards, Article 11:3: Members not to encourage/support the adoption of non-governmental measures equivalent to voluntary export restraints, orderly marketing arrangements or other governmental arrangements prohibited under Article 11.1 Consultation Arrangements, 1960 Resolution under GATT and GATS: Recognition that business practices that restrict competition in international trade may hamper the expansion of world trade and economic development

9. Competition provisions in RTAs • The inclusion of competition policy in RTAs is part of a trend towards deeper integration: inclusion of new generation trade issues (services, investment, competition policy….labour, environment) • Competition provisions vary from: best endeavour (we’ll try to cooperate), legally binding cooperation, supra-national institutions, limitations to trade remedies • South Africa’s strategic trade policy: - strong focus on trade in goods (linked to industrial policy paradigm)- strategic tariff policy (selective tariff review process by Itac) - no impetus to include new generation issues - partnerships: South-South relationships - an emerging African strategy?

10. Competition and South Africa’s trade relations Southern African Customs Union (SACU): Part 8 – Common Policy Development, art 40 (each member state must have a competition policy and member states agree to cooperate in enforcement) – no mention of institutional model. Southern African Development Community (SADC): SADC Declaration on Regional Cooperation in Competition and Consumer Policies (adopted 2008, signed 2009) – cooperation (formalise) in enforcement, and in merger control Important question: relationship between competition policy and trade remedies (anti-dumping, countervailing to counter unfair trade practices) - with deeper integration competition policy increases in importance Cooperation with other agencies: European Commission, US Federal Trade Commission and others (eg in Africa; African Competition Forum)

11. Trade-investment-competition nexus Recent case: Walmart: Massmart merger – what are the issues: - acquisition of 51% stake in Massmart by Walmart - trade in services (GATS commitments – distribution sector fully liberalised across all four modes of supply): Mode 3 (supply of a service by a services supplier of one Member, through commercial presence in the territory of another Member) ie investment (FDI) - key issues raised, include: sourcing strategy, employment Large merger review process: unconditional approval by Commission, conditional approval by Tribunal (conditions suggested by parties), now appeal by govt depts (dti, DED, DoA) Note: cannot invoke national laws to escape international law obligations

12. Some concluding remarks Clear links between trade (and investment) and competition policy (regional integration, global integration) – markets transcend national borders; this creates governance gaps (scope of trade law, trade remedies) Therefore: Impact of trade liberalisation may be circumscribed by anti-competitive practices South Africa’s competition policy: robust market governance instrument (limited extra-territorial application), strong institutional architecture (independent) South Africa’s trade policy: rethink from enthusiastic embrace of liberalisation to more circumspect approach based on specific industrial policy objectives (keep in mind that the New Growth Path is essentially an industrial strategy) – supporting the overall objective of job creation (political imperative) South Africa’s trade relations: focused liberalisation (goods), S-S partnerships (consistent with more inward policy focus)