Edited by Manfred Neumann and Jürgen Weigand
Chapter 4: Trade Policy and Competition Policy: Conflict versus Mutual Support
4 Trade policy and competition policy: conﬂict vs. mutual support Eric Bond 1 Introduction Achieving allocative efﬁciency is a primary goal of trade liberalization and of competition policy. Trade barriers impose costs or restrictions on actions of foreign ﬁrms that do not apply to domestic ﬁrms. When markets are perfectly competitive, the discriminatory nature of trade barriers prevents goods from being produced in the lowest cost location. Trade liberalization is a means of achieving an efﬁcient international allocation of resources. Competition policy, on the other hand, is primarily focused on limiting actions of ﬁrms that might restrict competition in the domestic market. The 1994 OECD interim report on convergence of competition policies notes that ‘There is general agreement that the basic objective of competition policy is to protect and preserve competition as the most appropriate means of ensuring the efﬁcient allocation of resources ... in free market economies.’ There are two problems with this simple characterization, in which trade liberalization policy is aimed at achieving equal market access by all ﬁrms and competition policy is aimed at preventing anti-competitive actions within the domestic market. The ﬁrst is that countries often depart from efﬁciency motives in setting their trade and competition policies. Large countries may beneﬁt at the expense of other countries by imposing tariffs, since the cost of the tariff is shifted onto the foreign suppliers. In addition, special interest groups that beneﬁt from trade barriers may successfully lobby for the imposition of tariffs...
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