The Interface of Trade, Investment, and Competition Policies: Issues and Challenges for Latin America

J. Luis Guasch and Sarath Rajapatirana ()

Reports from World Bank Latin America and the Caribean Region Department

Abstract: Latin American countries have not had much experience with competition policies in the past. Combined with restrictive trade policies, the absence of competition policies has often led to monopolized domestic markets. The strong trade liberalizations in Latin America during the 1980s and the 1990s have introduced a good measure of import competition, but trade policies alone are not sufficient to create a competitive environment in an economy. The presence of non-traded goods, vertical integration, monopolized distribution systems, the limited use of trade policies to foster competition, and sometimes the use of anti-dumping measures, countervailing duties, and safeguards as protective devices have constrained the effectiveness of trade policy as an instrument of competition policy. Competition policies, such as anti-trust, merger controls, and other regulatory means, can prevent the abuse of market power, dominance, exclusionary practices, and collusion among competitors. Domestic competition is further enhanced by foreign ownership and liberalized investment regimes. These latter provisions provide a market presence that enhances competition. This paper holds that trade and competition policies are essential complements and when they are used together they can lead to higher levels of welfare. There are of course tensions between these two policies that arise from globalization, regional policies, technical barriers, certain forms of industrial policies, and macroeconomic exigencies. Trade policy itself can be used for protection even without high tariffs or quantitative restrictions through anti- dumping measures, countervailing duties, and safeguard measures, that would limit, rather than promote, competition. Caution should be the guiding principle in the use of these measures and they should be GATT compatible in law, and competition promoting in spirit. The authors favor the use of safeguards, rather than other trade measures, to provide temporary protection to firms facing import surges. While Latin American countries have recently made impressive progress in trade reforms, there has been limited use of competition policies. The paper argues for the use of competition policies to enhance the gains made through trade reforms and for the harmonization of competition policies as these countries reduce trade barriers against each other through regional agreements. More effort should be made to create favorable competitive environments, harmonize trade, regulation, competition policies and conflict resolution, strengthen their enforcement mechanisms, and make

Date: 1994
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Working Paper: The interface of trade, investment, and competition policies: issues and challenges for Latin America (1994)
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