Competition Policy, Industrial Policy, and a Multilateral Framework on Competition

1
Competition Policy, Industrial Policy, and a
Multilateral Framework on Competition

• Simon J. Evenett
• World Trade Institute
• University of Bern, Switzerland

2
Stated objectives of Industrial Policy

• To improve long run productivity growth by
• shifting resources into faster growing (often
  manufacturing) industries
• improving dynamic economic efficiency

3
Common instruments of Industrial Policy

• Policies towards imports and exports
• Policies towards domestic input markets
• Policies towards domestic product markets
• Can include competition policy, e.g.,
• State-created or state-tolerated cartels
• Merger policy and National Champions
• There are many industrial policies that are not
  related to competition policy

4
First important point about a multilateral
framework on competition policy

• A multilateral framework on competition would not
  affect developing countries from using the
  following industrial policies
• Policies towards imports and exports
• Policies towards domestic input markets
• Policies towards domestic product markets that do
  not relate to competition policy

5
Competition policy and the goals of industrial
policy is there a conflict?

• Yes
• Cartels prevent price competition and finance
  investments needed for growth
• Mergers are needed to promote national champions
• Unconstrained rivalry in banking sector and
  network industries is inefficient

• No
• Are cartels the best way to finance investment?
  What about investment credits, subsidies?
• Do larger firms have higher productivity levels
  and growth? No.
• Argument for a sectoral exemption from
  competition policy, not a general exception

6
Even if there is a conflict, here are five ways
to manage the conflict in a multilateral
framework on competition

• Exempt state actions from competition policy
• Allow competition policy to have multiple
  objectives
• like in South Africa
• Give dynamic as well as static efficiency a role
  in competition enforcement
• like in the US, Canada, and EU
• Create sectoral exemptions
• Allow national cabinets to over-rule the
  competition authority
• e.g. recent merger of Eon-Ruhrgas in Germany

7
Three important policy implications for our
discussions

• A multilateral framework on competition would not
  cover most of policies that developing countries
  use to promote industries.
• Recent research suggests that there is little, if
  any, conflict between competition policy and the
  goals of industrial policy.
• Even if there is a conflict, there are five ways
  to address it in a multilateral framework on
  competition policy.