Economies Cooperate; Businesses Compete

It is common for modern companies to cross borders when conducting business. Across each border is a different set of laws and varying commitments to their enforcement. Because of this, international firms are often faced with the opportunity to bend rules meant to uphold the welfare of local consumers—such as laws that prevent monopolies and policies that promote competition.

“As trade barriers fall between economies, anti-competitive practices of businesses across borders surge,” said Marie Sherylyn D. Aquia, Chair of the APEC Committee on Trade and Investment, one of the delegates from the 21 APEC member economies who gathered in Ho Chi Minh City in August to push for forward-looking trade development in the Asia-Pacific.

There are many ways to curb competition. Business owners could, for example, use their significant resources to keep imports out or block the entry of foreign competitors altogether.

This is not good for the economy or for consumers. Competition drives firms to innovate and increase efficiency. It forces businesses to offer consumers a wider range of products and services to choose from at lower prices. If the owners of all the restaurants in your city got together and conspired to collectively raise prices, they would lose their incentive to provide customers with good food.

In a connected world, the need to set rules to preserve trade competition has emerged as an important aspect of international business, but something has to be done about gaps in policy. In the APEC region, competition policy varies greatly from member to member.

Data published by the APEC Competition Policy and Law Group reveal that some member economies have laws dating back more than a century, some have relatively recent laws, and others still have no laws at all.

“The trade policies of each economy, on their own, are not sufficient,” said Aquia. According to her, APEC members need to weave provisions enforcing competition into free trade agreements between economies and in regional free trade agreements.

“Provisions on competition ensure that a more secure business environment is created,” Aquia said.

Her committee brought together trade officials, representatives of the private sector and the academe, regulation experts as well as lawyers in Ho Chi Minh City to tackle this highly recommended marriage between competition law and trade negotiation.

According to Aquia, “the approach is rarely ‘one-size-fits-all’ and should be complemented by market-oriented reforms appropriate for each economy.”

“As such, free trade agreements can also play a role in promoting structural reform and improving competitiveness," she said, “especially among less-experienced economies.”

APEC is naturally one of the best platforms for policymakers to get together to hammer out this kind of multilateral work—over half of the world’s free trade agreements originate from the Asia-Pacific region.

“For the past 30 years, regional trade agreements and free trade agreements in the APEC Region have flourished in number, scope of work and sophistication,” said Ambassador Bui Thanh Son, Deputy Foreign Affairs Minister of Viet Nam and the 2017 Chair of APEC Senior Officials.

Part of this sophistication is a growing understanding of how important competition policy is among free trade negotiators. According to the World Economic Forum, 88 per cent of trade agreements that were in force in 2015 devoted specific provisions or entire chapters to competition policy.

“No one can refute the enormous benefits of free trade agreements on economic growth, market access, the attraction of foreign direct investment or domestic institutional reforms,” said Ambassador Bui. “However, in the current regional and global economic context, the question is how to make the most of the socioeconomic benefits that these agreements bring.”

Using these agreements to enforce competition across borders is one way of maximizing the benefits of these deals. Because although it is best for economies to cooperate, the more intense the competition among businesses the better. The consumer will always come out on top.