Trade Liberalization, Competition and the WTO
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Trade Liberalization, Competition and the WTO

Edited by Chris Milner and Robert Read

The prospective WTO Millennium Round of negotiations will highlight critical economic issues regarding the application and implementation of the WTO rules to international trade in goods and services. In this book, a distinguished group of academic experts considers the agenda and areas of interest for the next Round in light of Seattle, the functions of the WTO and competition policy issues arising from trade liberalization.
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Chapter 9: State Trading, Agriculture and the WTO

Steve McCorriston and Donald MacLaren


Steve McCorriston and Donald MacLaren There has been a considerable literature in recent years on the links between competition policies and trade, the obvious implication being that these links should be seen as an important aspect of trade negotiations under the auspices of the WTO. More specifically, while the effects of trade policy instruments in restricting market access to or affecting competition in export markets are well known to trade economists, the anti-competitive practices of firms can have equivalent effects. To take the case of an importing country, the exercise of market power in the domestic market can limit the extent of import competition from foreign firms where the exercise of that market power is not restricted to ‘horizontal’ activities but also extends to vertical ties and contracts. For example, the use of vertical restraints or vertical integration (or contracts that replicate such an outcome) can foreclose competition between domestic and foreign firms (see, for example, Spencer and Jones, 1991). Horizontal mergers may also limit competition by giving domestic firms greater market share at the expense of foreign competitors (Barros and Cabral, 1994). On the export side, price discrimination or dumping gives foreign firms an ‘excess’ market share in the domestic market and gives rise to the use of countervailing measures and anti-dumping duties. At a broader level, the exercise of market power over a number of jurisdictions, for example market-sharing agreements involving a limited number of firms that prevent competition between countries, is another area...

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