Superintendencia de Industria y Comercio

Competition Authorities must resist anti-trade trends

There is a rising perception that trade is undermining prosperity. However, numerous studies suggest the contrary; trade has fostered economic growth and has contributed in spreading development around the globe. In fact, trade “appears to raise income by spurring the accumulation of physical and human capital and by increasing output for given levels of capital”[1].

Despite the evidence, misleading perception on trade is gaining supporters (perhaps, the widespread use of social media help to disseminate confusion). Because trade entails winners and losers, those who lose usually blame trade for their unfavorable position.

It takes time for markets to adjust to a new efficient equilibrium. Nonetheless, under the international legal framework, governments can also soften this painful adjustment mechanism by helping those “left behind”[2] to reincorporate with vigor to markets.

Thus, in this period of less confidence in international trade, competition and Antitrust Authorities can play an important role in defending trade liberalization and stiff competition. To that end, we propose a collaborative strategy for the sake of international free trade, supported on a coherent competition policy.

Therefore, Antitrust Enforcers must go back to the basics in order to be able to use the theoretical tools that will be required to resist the anti-trade trend that threats competition principles and damage free and competitive markets.

The intimate relation between trade and competition

Restrictions on trade can have great anticompetitive effects on local markets. The logical relationship is intuitive but repeatedly forgotten. If a country raises obstacles to trade, it also reduces foreign competition on local competitors. However, from a pure competitive perspective, national grounds are not acceptable to block competitive pressure on local industries.

Trade restrictions can enhance domestic market power and might benefit inefficient industries that use trade obstacles to protect themselves of the discomfort caused by international competition. This might lead to higher prices that harm consumers[3]. On the contrary, “the free movement of goods ensures that countries and firms specialize in what they can do best, thus enhancing economic efficiency and welfare of the countries involved in a trade liberalization process”[4].

If the current trend continues, more countries will face domestic pressure to raise new trade barriers and retaliate. This scenario might lead to a dangerous trade war in which every country –poor and rich- and the world as a whole will be worse off. Simply put by Motta and Onida: “because of this spiral of protectionist moves the likely final result is one where each country will find itself back to an autarky like situation, governments will have wasted resources, and each country will be worse off than before the protectionist measure had been taken”[5].

The misuse of legal tools for undermining the international trade system and reducing competition

Since many liberalized economies have reduced their tariffs, regulators may be tempted to increase the number and severity of unnecessary non-tariff barriers for protectionist aims.

Another mechanism is the proliferation of unjustified anti-dumping measures, which might produce anticompetitive outcomes in domestic markets and, although it might sound counterintuitive, can harm exporters[6] as well, when they are highly integrated to global value chains.

As to anti-dumping measures, it is important to bear in mind that many antitrust specialists and economists have gone further and suggested a more stringent approach to anti-dumping measures. Certainly, according to this understanding, anti-dumping measures should be addressed from a pure antitrust perspective. Consequently, States would be entitled to use anti-dumping measures only to react to predatory practices[7]. This is not, however, the WTO approach.

Finally, one common tool to restrict international trade is raising tariffs, which reduce competition in domestic markets and increase prices for consumers.

How to respond?

Competition Authorities can respond adequately to the temptation of getting involved in trade wars. As Antitrust Enforcers, we share common grounds that are more difficult to manipulate by particular interests. In fact, because we protect markets, not particular industries, we act impartially and independently. We suggest the following starting points for a common strategy to defend free trade and competition:

• Promoting the domestic understanding of the close relation between trade and competition. This can give us a stronger voice before regulators and national authorities when they argue that trade policy is not an antitrust issue.
• Adhering strictly to the international trade and domestic rules. This approach fosters international competition and put necessary non-tariff barriers, safeguard and anti-dumping measures as exceptional tools.
• Opposing trade wars and preventing regulators and authorities to force States to get involved in them.
• Enhancing cooperation and unity of Antitrust Enforcers to adhere to these and other common principles on behalf of free and competitive markets.

Ismael Beltrán Prado
Director of the Competition Advocacy Group
Colombian Competition Authority

[1] Frankel, Jeffrey A., and David Romer. "Does Trade Cause Growth?" The American Economic Review 89, no. 3 (1999): 394.  http://www.jstor.org/stable/117025.
[2] The Economist. Digital Edition. “The right way to help declining places” Available at: <https://www.economist.com/news/leaders/21730412-time-fresh-thinking-abou...
[3] See, Motta, Massimo, and Fabrizio Onida. "TRADE POLICY AND COMPETITION POLICY." Giornale Degli Economisti E Annali Di Economia, Nuova Serie, 56 (Anno 110), no. 1/2 (1997): 67-97. http://www.jstor.org/stable/23248278.
[4] Motta, Massimo, and Fabrizio Onida. 70.
[5] Motta, Massimo, and Fabrizio Onida, 71.
[6] See Konings, Jozef, and Hylke Vandenbussche. "Antidumping Protection Hurts Exporters: Firm-level Evidence." Review of World Economics / Weltwirtschaftliches Archiv 149, no. 2 (2013): 295-320. http://www.jstor.org/stable/42635227.
[7] Motta, Massimo, and Fabrizio Onida, 78.