Competition Policy and Trade Agreements: The Efficiency and Equity of Inclusive Growth

1. Ad Hoc Expert Group Meeting on the Role of Competition Policy in fostering Sustainable Growth and Development , Part II Competition Policy and Trade Agreements:The Efficiency and Equity of Inclusive Growth Professor Eleanor Fox New York University School of Law UNCTAD 7 July 2014 Geneva The views expressed are those of the author and do not necessarily reflect the views of UNCTAD

2. Outline 1. The new consensus on growth & development– we need inclusive growth and development • Relevance of recent inequality literature 2. Looking at the trade agreement clauses through the eyes of developing countries seeking efficient sustainable growth and development • i. liberalization • ii. global value chains • iii. IP rights • iv. competitive neutrality 3. Conclusion

3. Dispelling a myth of the last century • Myth: Arthur Okun, Equality and Efficiency, The Big Trade-Off (1975) • For almost 40 years “everyone knew that doing anything to reduce inequality would have at least some negative impact on GDP.” • But “what everyone knew isn’t true. Taking action to reduce extreme inequality … would probably increase, not reduce, economic growth.” Paul Krugman, March 10, 2014, NYT, re IMF reports

4. Relevance of the inequality literature • Literature • Picketty, Capitalism • Rodrik, The Globalization Paradox • Acemoglu/Robinson, Why Nations Fail • Sliglitz, The Price of Inequality • How this is relevant • If increasing aggregate economic wealth in the world has been a goal of antitrust/free trade • Developing countries need a counter-perspective: • Robust markets open to competition on the merits by those without power • For an inclusive–growth view, we look at trade agreements thru eyes of developing countries

5. Trade Agreements: i) Trade Liberalization • Trade liberalization helps make markets work • Benefits to developing countries are not automatic – need institutions, infrastructure, skills • Some liberalizations are more pro-development than others • Martin Wolf – The Hypocrisy of the Rich • The developed nations pick and chose what to liberalize • Where developing countries need liberalization the most they are not sure to get it • Lifting cotton subsidies; market access for textiles • A special competition challenge: • Liberalization facilitates international cartels, mergers that may be harmful to developing countries

6. ii) Global Value Chains • Enabling global value chains is liberalization • They are proliferating; they are in theory good for sustainable inclusive development • Economic opportunity for producers and consumers • They are changing patterns of competition and incentives -- effect on competition to be watched • Might they exploit and unreasonably exclude? • Competition law as an instrument to protect against anticompetitive exclusion and monopsony • (but not usually a violation) • South Africa – use of merger approval for safeguarding public interest in building capacity of local suppliers

7. iii) IP • IP protection is important for investment but .. • Further protections are not necessarily important for innovation and can be bad for development • Developed countries are driving hard bargains for protections beyond TRIPS • Are including in their bargaining agendas even more protection than they get at home • Even in developed countries • It is widely recognized that the balance between patent protection and competition too friendly to IP • Competition enforcement limiting IP–FRAND, generics

8. iv) Competitive neutrality • Principle: • No competitive advantage to government business simply because it is state-owned • Clauses are in some trade agreements, especially with Australia; proposed in TPP • Eg anticompetitive activities of sub-federal enterprises not to be excluded from antitrust laws • Competitive neutrality is symbiotic with competition; sympathetic to developing country needs for growth and development • and equity for the entrepreneur without political connections • The worst restraints are often by government and its cronies, who close markets by privilege and corruption

9. III. Conclusion • 1. The aim is INCLUSIVE growth and development • 2. This means a consciousness that the new clauses in trade agreements should look in the direction of the non-powerful • Benefits that disproportionately and consistently favor the rich, the powerful, the enabled, the well-connected need counter weight • For competition and trade policy what does this mean? • Opening markets with fair and free access and a lean against privilege and entrenchment • In this light we can assess • What are the best measures of liberalization, GVCs, IP protection, and competitive neutrality