Incorporating Competition Elements into RTAs: Characterization and Empirical Analysis

1
Incorporating Competition Elements into RTAs
Characterization and Empirical Analysis

• Robert D. Anderson and
• Simon J. Evenett
• www.evenett.com

2
Contents of this presentation

• Purpose of this paper.
• Departure from existing literature.
• Classification of competition elements in RTAs.
• Assessment of OECD (2006) study of competition
  provisions in RTAs.
• Does the private sector respond to competition
  elements in RTAs?
• Empirical analysis of cross-border MA 1989-2004.
• Evaluation of 8 hypothesis and 5 policy
  experiments.
• Concluding remarks.

3
Departure from the existing literature

• Motivation for international obligations on CLP.
• Arguments in favor.
• Doubts.
• Classification of competition provisions in RTAs.
• UNCTAD/IDRC (2005) study.
• OECD (2006) study (preliminary version available
  in 2005).
• Empirical work on RTAs and FDI.
• Dummy variable approach (very common).
• Correction for endogenity (Baier/Bergstrand
  work).
• Little/No work on effect of competition
  provisions in RTAs.

4
Classification of competition elements in RTAs
5
Our findings

• What we did.
• Competition provisions are not new.
• Evidence that recent RTAs have been influenced by
  EC treaty, NAFTA, and WTO obligations.
• Competition provisions take many formsnot just
  obligations in a dedicated chapter or title of
  the RTA agreements.
• General objectives of the agreement.
• Sectoral chapterstaming the state
• Cross-cutting obligations.
• Competition provisions are not the samebut
  arguing there are two broad families is going too
  far (as the OECD does).

6
Assessment of OECD (2006) study

• Examined competition provisions of 86 RTAs
  notified to WTO from 2001 to 2005.
• Identified 8 different categories of provision.
• Indicated presence or absence of such provisions.
• Our assessment This study is a very useful
  starting point but
• their focus was almost exclusively on competition
  provisions in competition chapters.
• we question their finding that trade is the
  overriding principle.
• we question their identification of two broad
  families of agreements.

7
Does the private sector respond to the
competition elements in RTAs?
8
Motivation for study

• Some strong claims made by enforcement officials
  that they dont use RTA provisions so how could
  they be effective?
• Even if true, the private sector could still
  respond to them.
• (Anecdotal) evidence of private sector concern
  about merger review provisions.
• Participation in OECD (via BIAC) and ICN.
• Statements made to influence RTA negotiations.
• e.g. Current U.S.-Korea FTA negotiations.
• See Inside US Trade articles on 9 June 2006, 21
  April 2006, and 17 March 2006.

9
U.S. business concerns about Korean competition
law and the ongoing FTA negotiations

• Another area highlighted by business groups was
  reform of Koreas competition policy. They argued
  that Korean competition lawsare not enforced
  with respect to Korean industrial conglomerates,
  such as chaebol
• The U.S.-Korea Business Councilcalls for Korea
  to provide transparency in its competition policy
  with regards to investigations of U.S. companies,
  including by explaining the reasoning behind the
  imposition of any penalties on U.S. companies
• NAM also raised enforcement of competition
  policy, and called for competition regulators in
  the U.S. and Korea to actively exchange
  information so that they generally interpret
  cases similarly.
• NAM also suggestedthat regulatory cooperation on
  competition policy could be also addressed
  outside of the FTA
• NAMalso pointed to the U.S.-Singapore FTA
  language as another possibility for increasing
  cooperation. Inside U.S. Trade 9 June 2006.

10
Empirical analysis of cross-border consolidation
1989-2004

• Studied determinants of inward cross-border MA
  flows from 1989-2004.
• Need to strip out variation created by many
  non-legal and non-FTA determinants of
  cross-border MA, and then examine effect on MA
  inflows of
• (i) national merger legislation
• (ii) coming into force of RTAs, and
• (iii) competition provisions in RTAs.
• To fix ideas about the latter three factors 8
  hypotheses were stated (see section 4.1).

11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
Evaluating 5 policy experiments
15
Concluding remarks

• Our analysis seeks to expand the debate on
  competition provisions in RTA along two
  dimensions
• Emphasis the importance of competition
  elements/principles not just competition
  chapters.
• Importance of considering private sector
  responses to competition provisions and not just
  those of officials from competition agencies.
• Caveats and future research.
• Implications for RTA negotiations and for other
  international initiatives on competition law and
  policy.