Presented by:

Dr M. A. Razzaque

International Trade and Competition Policy

International trade and trade liberalisation

Trade liberalisation and competition policy

Is trade liberalisation helpful to competition policy?

Does competition policy restrict international trade? or, does it promote trade competitiveness?

WTO and competition policy

Competition policy under trading blocs

Content of the Presentation

International trade and trade liberalisation

International trade – Exchange of goods and services amongst countries

Trade Liberalisation?

Undertaking liberal policies for imports

Having liberal policies for exchange transactions

Trade Policy and Instruments

Policy => sets out objectives and means to attain them

Instruments => a set of tools through which policy objectives are to be materialised.

Import bans

Quota – quantitative restrictions

Tariffs (customs duty, supplementary duty, VAT, Dev surcharge)

Tariff rate quotas

Foreign Exchange restrictions

Import Licensing

Trade Policy Instruments to Control Imports

Trade Liberalisation would imply:

• Relaxation/removal of import bans

•Relaxation/removal of quantitative restrictions

• Reduction/removal of tariffs

• Relaxation of foreign exchange restrictions

• Simplifying the import licensing procedure

How trade measures are recorded:

• Use of certain classification system (such as HS and SITC)

• Use of codes to reflect disaggregation of commodities

Consider the Code:

HS 02 _ Meat and Edible Meat Offal HS 0202 _ Meat of Bovine Animal FrozenHS 0202200 _ Meat Bovine Cut w/Bone Frozen

Operative Tariff Schedule

OTS of Bangladesh 2003-04

Excel Sheet showing Bangladesh’s OTS

Calculate the impact of tariffs

CD SD DS AIT VAT

87032113

(luxury vehicle)

22% 250% 4% 3% 15%

$100 $122 $305 $317 $327 $375

On-going Trade liberalisation in Bangladesh

Significant changes in terms of abolition of import quotas, simplification of import licensing procedures, reduction in import tariffs, harmonisation of tariffs, reduction in the number of tariff slabs.

Bangladesh: Removal of QRs at the 4-digit HS Classification Level

Year Total Restricted for trade reasons Restricted for non-trade reasons

Banned Restricted Mixed

1985-86 478 275 138 16 49

1987-88 529 257 133 79 60

1988-89 433 165 89 101 78

1990-91 239 93 47 39 60

1991-92 193 78 34 25 56

1992-93 93 13 12 14 54

1993-94 109 7 19 14 69

1995-97 120 5 6 16 93

1997-02 122 5 6 16 95

2003-06 63 5 8 10 40

Trade-Related Restrictions as Proportion of Total HS 4-digit Import Lines

1.9%2.2%

2.2%

1.9%3.2%

3.2%

11.1

%14.5

%20.5

%

28.7

%

38.0

%

39.6

%

34.7

%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-97

1997

-200

2

2003

-200

6

per

cent

Bangladesh: Un-weighted Average Duty Rates

Fiscal Year CD SD VAT IDSCLicense

Fee Total

1991-92 57.23 0.73 14.03 - 2.22 82.29

1992-93 47.14 1.44 12.17 - 2.19 69.57

1993-94 35.83 1.67 11.63 - 2.15 56.3

1994-95 25.95 0.61 10.4 - 1.95 42.43

1995-96 22.46 0.82 10.58 - 1.98 38.95

1996-97 21.87 0.97 10.68 - 1.99 38.57

1997-98 21.1 1.11 10.66 2.27 1.99 40.61

1998-99 20.52 1.49 10.63 2.26 1.99 40.49

1999-00 17.12 2.04 10.36 1.99 2 36.86

2000-01 17.2 3.22 10.81 2.07 2.08 39.38

2001-02 17.13 3.22 10.83 2.07 2.08 40.15

2002-03 16.5 1.96 10.94 2.92 - 35.51

Certainly, liberalisation tends to promote competition

We can work out the competitive effects from the impact of tariffs.

Are all these liberalisation good for competition?

CD SD+DS+AIT BD price

World $100 30% 50% $195

World $100 30% 0 $130

Domestic producers have to compete with international firms

Liberalisation could be an effective means for dealing with monopoly and oligopolistic market structures.

Liberalisation can ensure ‘love for variety’ and quality

Liberalisation however may not work, if:

Importers form cartel and/or are involved in tacit collusion

Foreign firms can manage to ‘avoid’ competition

Import of goods is restricted due to such factors as foreign exchange scarcity/import licensing procedure/political unrest leading to disrupted transportation and communication system, international crises leading to supply shortfall.

In the first place, liberalisation may not be possible, if:

If there is a strong pressure from the domestic industry groups (vis-à-vis given the isolation paradox and free rider problem amongst the consumers)

Political economy of protection – the connection between domestic producer groups and policy makers.

Infant industry argument (but what if the infants are never grown up?)

Employment argument (but who does the bear the costs?)

Sugar Price Hike

CD SD DS VAT 1$ = TK.7017011100 (raw

cane sugar)30% 30% 4% 15%

US price $0.46/Kg

($462/mt:)

0.59 0.77 0.80 0.93 Tk.65

Alternative

Price: $0.46/Kg

0.59 X X X Tk. 41.3

Alternative

Price: $0.46/Kg

X X X 0.53 Tk. 37

Shipment and insurance costs have not been considered here, which would be around 10 percent

BUT, Note that alternative scenarios might result in loss of government revenue.

Flexible trade policy will require flexible revenue raising capacities.

The basic point is: on many occasions one can rely on international trade to tackle the anti-competitive practices.

For sugar price: http://www.sugartech.co.za/sugarprice/index.php

Does competition policy restrict international trade? or, does it promote trade competitiveness?

Evidence for restricting international trade is unknown.

However, strong possibility of raising the competitiveness of domestic industry and thus expansion of exports.

The strategy of providing some protection to begin with and then setting industries free may be effective, if the right industries are selected.

• Still not an agreement under WTO

• First proposed in Singapore 1996 but without any success

• Many developing countries opposed the idea of bringing in competition policy in WTO – why?

• Having competition policy is not WTO-inconsistent as long as the principle of non-discrimination is maintained.

• In fact, it may be required to have CP to deal with unfair practices of international suppliers.

WTO and competition policy

• Consider SAFTA

• Suppose, BD and India are to exchange 0 for 0 tariffs under SAFTA while the tariffs on rest of the world remains the same.

• Let’s get back to our sugar example

Competition policy under trading blocs

Existing situation

17011100 (raw cane sugar)

CD SD DS VAT 1$ = TK.7030% 30% 4% 15%

US price: $0.46/Kg 0.59 0.77 0.80 0.93 Tk.65

India: 0.40/kg 0 tariff under bilateral FTA

0.46 Tk. 32

(Tk. 60)

Pro-consumer tariffs

10% 0% 0% 15%

US Price:$0.46/Kg 0.50 0.50 0.50 0.58 Tk. 40.7

Concluding Observations

• Trade is usually good for competition.• Loss of revenue can however be a concern.• Trade and competition can promote

competitiveness of the domestic sectors.• Trade and competition policy does not rule out

the need for providing protection to local industry.

• Bangladesh has made some significant progress on trade liberalisation.

• But, there are further scopes for supporting consumers.

• Well-thought out and flexible use of trade instruments can serve the purpose of consumers and domestic industry.

• Regional trading arrangements will have to be carefully handled to protect consumers.

• Behaviour of the importers need to be carefully monitored.

Thank You.