COMPETITION POLICY

Competition policy is a framework of legislation and institutions that aims to ensure competition among economic actors. The objectives of compe-tition policy vary with the national and historical context (Motta 2004), but many of them focus on a common set of problems raised by a lack of competition, including:

◼ distribution of wealth from consumers to monopolistic firms, with a resulting overall loss of welfare

◼ reduced incentives for firms to innovate and seek efficiencies, with possible environmental impacts

◼ abuse of dominance in the market, including acting to reduce the ability of new firms to enter the market.

Competition policy usually consists of a national competition law and institutions to enforce the law and advocate for competitiveness among the various related ministries. One of the major tasks of any national competition body is to scrutinise mergers and acquisitions to determine whether they meet competition-related public interest criteria.

In some cases industrial policy can increase competition among firms in a national economy, but the intersection of competition law, industrial policy and trade law lies in the practice of granting exemptions from competition law for industrial policy purposes. The history of industrial policy in Korea, for example, involves state encouragement of mergers and cartels to achieve the economies of scale and experience necessary to compete at the international level (Amsden 1989). Taiwan simi-larly encouraged mergers, particusimi-larly in sectors facing difficulties (Wade 1990). Cosbey and Mann (2014) discuss the widespread use of industrial policy in the context of the mining sector to create national champions– domestic firms that domi-nate the economic landscape in their respective sectors. These are examples of a common practice

in competition policy–the introduction of broader public policy objectives that may ultimately see competition lessened to achieve non-competi-tion-related objectives.

There is no conflict between trade law and this sort of selective enforcement of competition policy. There is no discipline in WTO law that obliges members to enact or enforce competi-tion policy, though there has been discussion on the subject for many years (Evenett 2003).

There is a standing Working Group on the Inter-action between Trade and Competition Policy that reports to the WTO’s General Council. The Trans-Pacific Partnership breaks new ground for trade agreements in addressing competition policy, but even that agreement allows significant leeway to national governments to exempt the application of competition law for public policy reasons, asking only for consistency and trans-parency, and providing no dispute settlement mechanism (Trans-Pacific Partnership Agree-ment 2015, chapter 16).

3.8. CONCLUSIONS

This section assesses whether there are areas of trade and investment law that constrain the use of green industrial policy (Table 9.1). In many cases there do exist such constraints. For exam-ple, tariff policy is strongly constrained by bound tariff rate commitments, subsidies and perfor-mance requirements are conditional on domestic content requirements and export performance are prohibited. As well, governments that are party to the Agreement on Government Procurement cannot use offsets or discriminate in favour of domestic suppliers in their procurement.

Where clear constraints do not exist, govern-ment policy may be discouraged by uncertainty.

Governments will be understandably reluc-tant to embark on programmes of green indus-trial policy that take them into what we have called the grey zone of uncertainty of trade and investment law, such as actionable subsidies for research and development and other purposes, or the use of GATT’s Article XVIII exceptions for developing countries.

That said, uncertainty could also be seen as policy space. Most governments have laws that are probably in breach of their trade and invest-ment obligations and this is only a problem when another country complains about them. Formal complaints are costly, in terms of both politi-cal capital and financial and human resources.

They will be launched only when those costs

147

Trade and Investment Law and Green Industrial Policy

are perceived as justified by significant adverse effects and when the odds of winning are suffi-ciently high. They may also be considered when domestic political concerns demand it, and this may happen even in the face of low odds. Small economies are less likely to be challenged, since their export streams tend to be less significant.

The time that it takes to finally come to resolution of a complaint can also be seen as policy space. In rare cases, a decade might pass before the WTO’s dispute mechanism renders final judgement on a measure, its appeal, and subsequent complaints over non-compliance with judgments. By that

time a green industrial policy measure may have achieved its goals.

On the other hand, the mere threat of WTO disputes is often enough to steer small developing country governments away from grey zone meas-ures, since the costs of managing a dispute are high and expert resources are scarce. In the case of non-WTO investment agreements, there is a very different calculus for launching a complaint.

This can be done by a private firm without consid-eration of wider political concerns, and there are now funding models that encourage speculative forays into arbitration (Honlet 2015).

Table 9.1: Summary: Legality of Trade and Investment Measures

Status Conditions Applicable Law Notes

Protective tariffs unrestricted

(conditions) only permitted within boundaries set by bound tariffs

WTO - GATT bound tariffs are

increasingly low - not much room for policy

Subsidies

linked to exports prohibited WTO - SCM But allowed for LDCs

conditional on LCR prohibited WTO - SCM, WTO -

TRIMs Feed-in tariffs unrestricted

(conditions) only when not accompanied by LCR conditions

WTO - SCM these may be actionable subsidies, but would likely never be challenged

Support for R&D cannot cause

adverse effectes for foreign competitors

WTO - SCM

Preferential tax treatment subsidy removal

(disruptive) unrestricted for example, fossil fuel

subsidy reform subsidies to services unrestricted

consumer subsidies unrestricted

Export credit cannot be offered on

non-market terms WTO - SCM Performance requirements

local content prohibited WTO - TRIMs

technology transfer allowed in WTO; prohibited

in a few international investment agreements

joint venture allowed in WTO; prohibited

in a few international investment agreements employment targets unrestricted

R&D expenditure unrestricted But have been interpreted

by a recent Tribunal as local content requirements training of locals unrestricted

148 ^{Status Conditions} Applicable Law Notes Service sector requirements

quantitative restrictions on

providers prohibited WTO - GATS, many

RTAs limits on foreign

shareholding prohibited WTO - GATS, many

RTAs

domestic content unrestricted But possibly slated for

prohibition in TISA

technology transfer unrestricted But possibly slated for

prohibition in TISA

R&D expenditure unrestricted But possibly slated for

prohibition in TISA

hiring of locals unrestricted But possibly slated for

prohibition in TISA

Government procurement Highly restricted in GPA, but

not all WTO members are parties to GPA

State-owned enterprises unrestricted

(conditions) no nationality-based discrimination in purchases or sales

WTO - GATT Article XVII

Exemptions from

competition policy unrestricted Punitive environmental taxes,

charges unrestricted E.g., carbon taxes

That said, there are of course green industrial policy options still open to governments that are interested in promoting domestic green sectors.

Feed-in tariffs can be used as part of a broader suite of measures, as long as they do not contain domestic content requirements, for example.

Performance requirements for training of staff are also acceptable. Those governments that are not party to the GPA still retain broad scope for using government procurement as green indus-trial policy. There are, moreover, a number of types of green industrial policy to which trade and investment law do not apply, such as science and education policies designed to build up domes-tic capacity, general infrastructure investment, funded demonstration projects, legal reform to encourage investment, and so on.

There are also a number of exceptions available to developing countries, such as the ability of least developed counties to use export-contin-gent subsidies, although they may lack the fiscal resources to make that exception meaningful, and

the as-yet untested industrial policy exceptions available through GATT Article XVIII.

But ultimately it is clear that trade and investment law imposes substantial obstacles for many types of green industrial policy. This is to be expected.

Trade and investment law have as core principles the commitment to non-discrimination between foreign and domestic producers and investors, and industrial policy is ultimately about benefiting the latter, usually at the expense of the former. For this reason domestic content requirements are so clearly and powerfully prohibited, for example. For this reason consumer subsidies to purchase green goods are probably acceptable while subsidies to domestic producers of those same goods are not. As a general rule, trade and investment law restricts ‘vertical’ policies–those that discriminate between foreign and domestic firms in specific sectors. In contrast, ‘horizontal’ policies, such as generic infrastructure investment, legal reforms, regulatory strengthening, science and education policies, tend not to be affected.

149

Trade and Investment Law and Green Industrial Policy

Im Dokument GREEN INDUSTRIAL POLICY: (Seite 162-165)