Mucking around in the swamp, Ralph Lattimore

International Trade and Competition Policy: CER, APEC and the WTO 
Kerrin Vautier and Peter Lloyd
Institute of Policy Studies, $30.00,
ISBN 0 908935 18 8

For those who find it difficult to keep hold of the threads in discussions of international trade policy, international competition policy treatises might often prove impossible. This book helped me to review the sometimes twisted logic of the important issues involved — but then I’m a student of the subject. In spite of the valiant efforts of these highly qualified authors, this book may not help the general reader.

Another edit would make it more readable. New Zealand has accomplished much through CER (the closer economic relationship free tade agreement with Australia) and the stories of failures and successes teach us a great deal at a time when New Zealand and Australia are still sorting out their approaches to the worldwide competitive liberalisation processes.

The basic behaviour of trade and competition is simple enough but, as the book illustrates, the policy definitely is not simple. As individuals we want to be able to buy the products and services we want for particular purposes on the best possible terms. If the firm supplying us chooses to sell the goods cheaply to us, so much the better. The aim of government policy in the local economy, then, ought to be to allow us to make the best trade mainly by not coming between us and the supplier we have chosen.

The same principles apply to international trade. We trade with other countries because we benefit directly from the products and services they provide to us via imports. The higher the quality of the goods we import and the lower the price, the better off we are. Accordingly, the aim of trade policy for any country ought to be to encourage as much importing as possible by not interfering in the trade.

Life is almost this simple but not quite. In the local market it is possible on rare occasions for a very powerful supplying firm to sell us a product so cheaply (or alternatively to engage in other practices) that it drives competing firms out of the market. That is problematic because in these circumstances we might not be able to continue to get good deals. To guard against these possibilities, New Zealand and other sophisticated societies have competition laws designed to create an environment to dissuade powerful firms from anti-competitive practices and to serve as a basis for prosecuting them if they do. Governments interfere through competition law in an attempt to ensure that we can get the best possible deals sustainably. But governments do not usually constrain what a country’s firms do to foreign consumers.

This disregard for foreigners creates a tension because foreign competition laws can not be relied upon to create a competitive environment at home. The United States government was concerned about the recent Boeing/McDonnell-Douglas merger in terms of its effect on United States markets but the European Union and other countries are concerned about the effect of the merger on the terms of exchange and quality of aircraft outside the United States. Governments also use import policy in an attempt to promote competition through World Trade Organisation-approved instruments, including anti-dumping duties (against predatory pricing) and countervailing duties (to offset foreign government subsidies on exports. A second inter-governmental tension arises because production and investment in productive activities can occur almost anywhere in the world so that monitoring potentially uncompetitive behaviour may involve obtaining information from other countries.

The third tension is the big country/small country problem. As a small country we are suspicious of acceding to the rules of a larger country and so we should be if the large country’s rules do not represent best practice. In a bilateral agreement (like CER) between small and large, large will tend to dominate. One of the benefits of multilateral deals (like the WTO) is that all the smalls together can get a better deal from the large — its just much more difficult to get consensus on rules that are best practice.

These three tensions are the basis of international consultation on competition law. Put differently there are gains from trade in competition information and government practices. This is the stuff of this book. CER is arguably the most intimate free trade agreement in the world and it has developed rapidly since 1983 in addressing these interlocking trade and competition issues. Part I of the book is devoted to a review of the issues described above while part 2 is a case study of policy developments and changing industry attitudes in Australia and New Zealand under CER.

The complexity of these issues is augmented by the existence of poor-quality policy instruments to address particular issues from an economic perspective. The book spends considerable space on one of these issues — the ability of Australia and New Zealand to remove the rights of firms in either country to seek anti-dumping policy redress against the other. Herein lies an important lesson for wider trade agreements. This has been a difficult area to address internationally because anti-dumping duties have been an important type of non-tariff barrier, used mainly by more developed countries against less developed economies. Such policies are examples of “the stumps and crags which are only exposed in the swamp of domestic policy when trade liberalisation lowers the water level”.

A second important lesson explored by the authors concerns how New Zealand and Australia managed to develop reasonably consistent competition laws — New Zealand followed Australia and each agreed to recognise each other’s markets legally.

Vautier and Lloyd review all these interventions. Their aim is to see what we can learn about these developments with a view to developing proposals on a wider scale in the WTO and the Asia Pacific Economic Cooperation (APEC) agreement. The authors are very well qualified to do this. Vautier is a very experienced analyst of competition issues in New Zealand as well as being prominent in APEC affairs. Lloyd is a New Zealander who is at the University of Melbourne and is a leading international trade researcher.

This is a short, technical book. Being technical, the non-specialist reader may have to look up the meaning of phrases such as positive and negative comity. Being short, there is not the space to explore a number of important outstanding issues in depth including state trading enterprises and extra-territoriality pressures from the United States. Vautier and Lloyd have introduced the subject but answers that meet the political, legal and lobbying constraints are not easy to see yet.

Ralph Lattimore is Agmardt professor of international trade policy at Lincoln University and co-author of two recent books on economic reforms: The New Zealand Macroeconomy: A Briefing on the Reforms (with Paul Dalziel), reviewed in New Zealand Books December 1996 and A Study of Economic Reform: The Case of New Zealand (with Brian Silverstone and Alan Bollard), reviwed on p17 of this issue. 

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Posted in Economics, Non-fiction and Review
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