Australia: Competition provisions in international trade agreements - the cart before the horse?

ACCC Chairman Rod Sims has advocated for competition law commitments to be included in Australia's international trade agreements. While this makes sense for trade agreements with developed nations, other more basic issues – such as eliminating tariffs and other trade barriers – should be at the forefront of Australia's negotiations with developing nations.

Australia is in the midst of negotiating an important free trade agreement with our ASEAN neighbours called the Regional Comprehensive Economic Partnership (RCEP).

Australia has a lot to gain from RCEP. It's designed to bring together ASEAN's ten members plus Australia, China, India, Japan, Korea and New Zealand, into a single trading bloc. Together, these countries account for around 70% of Australia's exports. 

At a recent meeting for the RCEP in Brisbane, Mr Sims suggested that, in addition to eliminating tariffs and quotas, RCEP would benefit from complementary provisions that impose competition law and policy commitments on RCEP trading partners, for example to deal with domestic anti-competitive practices.  

Mr Sims comments are uncontroversial.  It's widely recognised that improving market access for foreign entrants (through lower tariffs and quotas) can be stymied by the anti-competitive conduct of domestic competitors.

This conduct can include below-cost pricing by those in the local industry to kill off any new foreign entrants, as well as government subsidies enjoyed by domestic industry participants.

As a consequence, provisions relating to competition law and policy are common in FTAs.  For example, Australia's FTA with the US contains detailed obligations relating to the regulation of state and private monopolies, government-owned enterprises and cross-border consumer protection

Competition provisions should be a second-order issue

It is sensible to expect FTAs among first-world nations to include provisions requiring effective competition regulations to be applied in a transparent, consistent and fair manner, and to a standard that accords with existing practice.

However, it is less reasonable to insist on provisions of that kind in FTAs involving developing nations, such as in a regional bloc like ASEAN.

Although ASEAN's 2007 Economic Blueprint envisages that all member states will introduce national competition laws by 2015, progress has been patchy. 

While most of the member countries have introduced laws to address anti-competitive practices such as cartels and mergers to monopoly, many are still developing the regulatory infrastructure and expertise to effectively administer those regimes. 

A handful of the least-developed countries, including Burma/Myanmar and the Philippines, have no generic competition laws in place at all. 

In this context, Australia must be realistic. A push for more substantive competition provisions has the potential to slow negotiations and detract from the more important and fundamental issue of lowering direct barriers to trade.

In negotiating the RCEP, it is in Australia's interest to call for competition provisions that encourage and assist signatory nations to develop competition regimes without trying to mandate what those regimes should look like or how they are administered, at least not at this time.

A more constructive set of provisions would call for:

• exchanges of experience regarding the promotion and enforcement of competition law and policy;

• exchanges of information about competition law and policy;

• exchange of officials for training purposes;

• provision of assistance in 'capacity building' on competition law and enforcement; and

• exchange of consultants and experts on competition law and policy.

A useful reference for RCEP would be the competition provisions in the existing ASEAN-Australia-New Zealand FTA (AANZFTA).

AANZFTA recognises the importance of competition and the curtailment of anti-competitive practices and establishes a broad framework for collaboration in relation to competition law, policy and enforcement, but it explicitly does not prescribe any anti-competitive measures that signatories must implement. 

Further, the chapter on competition in the AANZFTA is expressly excluded from the agreement's consultation and dispute resolution provisions, with the result that any disputes arising in connection with competition matters must be addressed through diplomatic negotiation. 

This reflects a concern that while signatories may agree that competition law and policy is important economically, and that co-operation on competition issues is to be encouraged, each should retain its sovereign right to "develop, set, administer and enforce its own competition laws and policies".

In negotiating the RCEP, there may be a temptation for Australia, whose domestic firms may have felt shut out by historically favourable treatment of state-owned enterprises in Asia, to push for a robust competition law regime.

But with the vast majority of our exports going to nations that form the RCEP bloc, Australia would be wise to focus on realistic goals and put trade barriers ahead of competition provisions.

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