Competition Commission and Competition Tribunal Minister Alec Erwin
 
The impact of globalisation and new technology on competition
The role of the Competition Authority in a developing country

Page 16 Conference - 29/03/01

MR ERWIN: Thank you very much Dave, guests, ladies and gentlemen. I must say the first thing I would like to say is that looking around I see a sprinkling of respected elders and a lot of young people. I sincerely hope that it’s the young people that are going to enter this whole realm of Competition Law, international trade law, because I’m quite convinced, as Dave has just indicated, that the body of law will increasingly become essentially international law and more and more competition law and the international agreements around investment and all forms of economic transaction will be mainly around international agreements. So, I think, if you are thinking of moving in this direction, you’re moving in the right place. 
Dave, as you indicated, the conference has two (2) major themes. The one dealing with the interplay between national and global law in the realm of competition and the other dealing with the challenges posed by very new and rapidly changing forms of transaction and commerce, the so-called new economy and its relation to the old. I am going to focus more in my opening remarks on the question of global law, because as you indicated, I think, this is a matter that is very much on the agenda and some very important decisions will have to be taken in the next few months around this very issue, because it is one of the issues, which may or may not unlock a new round in the WTO. 
So what I’d like to do is to give some insight into the emergence of Competition Law and in South Africa’s case, a modern version of that law in developing countries, because, I think, this will also give some insight into how it would be necessary to conduct the dialogue at an international or global level if we are going to progress and move forward. 
Now South Africa, like many developing countries, had a political leadership that were far more familiar with and far more committed to processes of industrialisation that were brought about by breaking the links with the world economy. Those of us familiar with those theories, which, I think, had a high measure of correctness for their time, essentially argued that in the aftermath of imperial domination and the spread of the capitalist economies through the world economies, that free trade was, in essence, a structural situation where the developing world would supply primary products and raw materials to the developing industrial world or the industrialising word. 
So for most of the political and even economic leaders of the developing world, in the last century, one had to break that link, if you were going to bring about development in your economy, if you were going to bring about industrial development. So for us in the Trade Union movements, ANC, SACP, we had a long tradition of this type of economics. What we did in South Africa and there are many people in this room who were part of that, was to begin a much more in-depth analysis in the mid eighties to see whether this reasoning still applied. 
In South Africa this was forced upon us, almost fortuitously, by the need to respond to the whole issue of sanctions. What would happen in our domestic economy if sanctions were to be effective? And we began a number of studies inside South Africa and out designed to analyse this. And in the process it became clear that in South East Asia we had a somewhat different past towards industrialisation from the nineteen fifties (1950’s), sixties (‘60’s) onwards, which was a more aggressive action with the world economy - in their case by no means free trade or free market, but a very aggressive interaction with the world economy, trying to match it on the terrain of manufactured product trade. 
And this led us in South Africa to begin reflecting and thinking through what would be the correct response, from an economic policy point of view, to the challenge of maintaining our industrial economy, but more than that diversifying it away from its traditional base in raw material production, mining production. 
And I won’t go into the ins and outs of the debate. It’s often been a contentious one, but essentially the main argument that won out and has informed Government policy since nineteen ninety-four (1994), even our interactions with the old regime from nineteen ninety-two (1992), was an argument that you would not be able to industrialise behind high tariff walls. You would have to acknowledge that the world economy had new production processes that the role of information and communication technology was very important and since then we’ve looked at that even more closely again, because it changes so quickly and we realised that if we were really going to engage with the world economy, we had to get all our economic actors to respond to the challenges of that world economy. That by sheltering them and protecting them you were merely delaying the engagement and the longer you delayed the engagement the more certain it was that your industrial capacity would eventually collapse. 
So we began a process of saying we’re going to have to open this economy, we’re going to have to work at a macro level to open that economy, but also then at a micro and sectoral level to get our economic enterprises to respond to the challenges that are emerging in the world economy. 
We’ve been, I think, fundamentally correct in that choice. The South African economy today is very different to what it was ten (10) years ago. On virtually every front we are far, far more competitive than we were before and the response in mining, manufacturing, agriculture, services has been in the main positive. This has meant deep restructuring of our economy. Many ineffective and inefficient enterprises have collapsed. Whole new sectors have rationalised. But the quality of jobs being created in the new enterprises is better and more stable than before. There are complexities. In clothing, certainly, we have a much more complex situation, but in general the thrust of the economy is positive. This leaves us with massive challenges of creating more employment and growing this more competitive economy. But, I think, the choice that we made is correct. Alongside that choice was a set of macro policies designed to ensure that our economy was able to sustain itself in very volatile world conditions. 
Now for us then competition policy became more and more a factor we had to look at. Your speaker at the dinner tonight, Tito Mboweni, when he was in the ANC’s department of economic policy, was, in fact - and I think it was a good choice you got him to speak - was one of the key economists in the ANC that drove us towards examining competition policy more and more. And in nineteen ninety-two (1992) we held a major workshop in South Africa with many international experts and began quite quickly coming to the conclusion that competition policy had a range of very positive benefits. Getting it through was not always easy. There was quite considerable opposition in the business community and considerable suspicion in the labour movement. 
But our reason for pushing for competition policy was not just because of some blind belief in the benefits of competition, but essentially because it seemed to us this would reinforce strongly the move towards making our economic actors more adaptive, more competitive. And what became clear as we examined the economy was that monopolisation, monopolistic practises, cartels, were very severe constraints to adaptability in an economy. They were essentially rent seekers. They were taking efficiencies away from the economy. So as a part of our policy of restructuring this economy it was clear to us competition policy was crucial. 
We, as you know from our Act, had to balance in our own national law the interplay between the world markets and the domestic markets. We are not an isolated economy. Each economic actor is essentially acting in the world market. So your law has to accommodate the effects that economic actors will have in your domestic economy at the same time as looking at their parole and activities in the global economy - a difficult balance. One, which I think we’re working through and, I think, it’s going relatively well. The balance is between size and domestic market power. The balance is between size and international market competitiveness. 
I think we’ve also found that we’ve learned far more about the South African economy through our Competition Commission than we’ve done through many a many a study on this economy. We’ve got information around the actual conduct of economic actors, what it is that’s driving them and pushing them towards the various mergers and other practices than we have before. So it has given us insights into the investment process, which have been absolutely invaluable. 
But one of the problems though that we’ve experienced on the global front, has been that as we opened our economies, as we built our own capacity in South Africa to engage in the world economy and on the world trade front, we realised just how severely imbalanced the outcome of the Uruguay round had been. This is not a simple question of it’s imbalanced. It’s a very deep-seated set of structures that exist in the outcome of the WTO negotiations that are weighed against the developing world. And this is clearly a product of the fact that the negotiations were essentially about resolving the problems, competitive problems, between the developed countries and were not really focusing or having at the forefront of their mind, the negotiators, the far more profound and deep-seated structural problem of the world economy, which is that the majority of the world’s people live in under developed and developing countries. So that the vast majority of the world’s land mass and its peoples do not enjoy the levels of development that the industrial countries have, but the WTO negotiation was essentially about the trading relationships, the investment relationships, the other commercial relationships between the developed countries and the developing countries were unable to influence or tilt this balance. 
So the question of having rules is profoundly important. As we have seen time and time again there’s very little you can do against economic power. It tends to be unreflective, unsympathetic and extremely aggressive. We see these in trade negotiations, investment negotiations, commercial negotiations. There’s no warmth of the human spirit in economic interactions. And that means that powerful economies tend to drive things in their direction very strongly. Powerful corporations drive things in their direction, unwittingly sometimes, often wittingly. 
So the only response that can possibly be brought against that to protect the weak, to protect the less powerful, is enforceable rules that are complied with, by everybody. As it stands today we still don’t have that. We still have a range of unilateral measures taken by the powerful economies outside of the WTO rules. So the need for rules is fundamental. There’s no question about that. What we have to correct is the outcome. You cannot have the massive distortions of wealth that now occur in the North through subsidies to inefficient agriculture. You cannot have attempts to protect economic activities, which cannot compete with the new economies of the South. 
These are major distortions in the world economy, which inhibit the onset of a developmental process. It’s ridiculous to ask very poor countries to develop themselves. We know from the long history of human economic activity that trade is fundamental to development. It has always been one of the engines of development. Investment in economies, whether forcefully or by commerce, has always been one of the engines of development. 
So we have to unlock these iniquities within the world system. This raises then the question of do we need Competition Law at a global level? If you were to ask most developing countries that question, they would throw their hands up in horror. And one of the reasons that they would do this is because up until now the outcome of the negotiations, as I’ve just indicated, has been far too severely imbalanced against them. And this has led to a perception and I must say a reality where the laws that have been developed through decades of institutional change in the industrial countries, get applied to the developing, without any regard for whether the same economic and institutional conditions exist in those developing countries or whether there is a political capacity and a socio economic capacity to implement those rules within the economic and commercial circumstances of a developing country. 
So we would argue, as the South African Government, and we would be very much a minority in the developing world, that from our experience in utilising Competition Law - I’m talking here about the new Competition Law. I think the old Competition Law it was very much a dead letter. In our experience of using this we’ve begun to realise this is a very important instrument of economic policy, in the areas I looked at, in ensuring consumer protection and welfare, in increasing the efficiencies in the economy and preventing large-scale rent seeking in the economy. Now if that is the case, since economic actors, as I said also, cross our borders continuously, it seems to us absolutely inevitable that we must begin an international dialogue on Competition Law. 
How that is done is the challenge facing us. Does this mean we all take the US Act or the EU Act and we apply it? Or does it mean we establish certain essential pillars or parameters or principles within which we believe Nation states should pass Competition Laws, that at least in their architecture and intention are compatible and therefore capable of increased harmonisation? But for this to happen we will have to accept that for us in the developing world a dialogue needs to take place. We have to work with each other to understand the efficacy of this law and its role and we need to build capacities. 
Here I’m not talking about donors helping us build capacity. I’m firmly of the view that far too much of the time in the developing world is spent about saying give us technical assistance; give us technical assistance. The real issue at stake is the political decision to create that capacity. There is no shortage of intellectual capacity in the developing world. We, in South Africa, I think, have shown this very, very clearly. We took the decision to have a Competition Commission. We’ve built the capacity by asking the developed countries and others to help us, but we took the decision to build the capacity. It’s pointless saying come and build the capacity for us. 
So this political decision - and I stress that - there has to be a political commitment in the developing world that we are going to create this institutional legislative capacity. We’re going to bring in the resources, human and other, to carry out this activity. 
In the absence of that we are going to fall back into the tensions that bedevil the WTO negotiations. This apprehension on the part of the developing countries that they are having something imposed upon them and the desire of the developed countries to get international regulation as quickly as possible, but because they are moving from a position of strength, the inevitable tendency to push their own laws forward. It’s understandable. It’s human. There’s nothing wrong with it. We need as developing countries to build this capacity. In South Africa, as you know, a few months back we held workshops for African countries, along with the WTO and European Union and others, to try and have a dialogue on Competition Law, allowing people to understand this more effectively. 
The second issue, I think, that we’ll have to take into account with the possible discussion of this at a WTO level, is that the matter is very complex. We need considerable dialogue as to what it is we would intend putting in. Are we going to focus on specific actions dealing with cartels? Are we putting in place basic pillars or parameters, as I discussed? Are we spreading competition to where it can very easily go to all dimensions of trade? There are those that argue that we could deal more effectively with dumping and anti-dumping through Competition Law. It’s a position powerfully argued, particularly by Hong Kong in many fora. It generally causes compete consternation for other developing countries. But, in principle, in theory, in practice, they’re absolutely right. You can deal. Many of the dimensions of dumping and anti-dumping are merely variance of anti-competitive practices in the national economy. 
So how far does Competition Law spread? This is an area that creates a lot of nervousness in the WTO, because as we’ve seen from the TRIPS when you start out signing an agreement, which purportedly deals with intellectual property and you suddenly discover deals with crazy alcohols like Grappa and Ouzo or it wants to deal with them, you realise well this is disastrous. Because what’s happened is we’ve started out with what is probably an economically acceptable concept that there is the capacity to alienate and privatise genuine intellectual property and then it moves to any old alcohol you brew with your grandmother’s formula. You realise wait a bit, there’s something problematic here. 
So I’m afraid, through a cavalier use of the TRIPS and through attempts to extend it to absolutely absurd dimensions, you’ve created a tremendous mistrust of agreements, which purportedly start out with something sensible, but you don’t know how big the wagon is that’s coming through your door behind it. So there’s going to be some very careful discussion required of us on this matter. Where do we stand, very briefly, and in conclusion where do we stand with the WTO issue? 
Well what has happened is that in the CUEUJ (Canada, United States, European Union and Japan) there are a number of very important differences, meaning that the driving force of world trade, which they inevitably must be, are no longer the driving force. They’re sitting watching each other and somewhat uncertain about what to do. So the European Union argues we should put competition on the agenda for a new round and the Americans are opposed to it. Japan and Canada watch both of them. 
So our main problem is working out what is on the agenda. We know agriculture is on the agenda. We know services is on the agenda and there is some very technical but not unimportant matters around dumping and TRIPS and TRIMS and a whole range of other issues, special and differentiated treatment that are on the agenda. That’s the built-in agenda. It’s a built-in agenda that offers no prospect of progress, because no one is going to make concessions on that basis. There’s no one who is going to make a concession in Europe on agriculture in exchange for some relatively small or obscure matter that is really of interest to the developing world, not the developed. So we can’t get out of the gridlock and the gridlock sits there, nothing happening. 
Then the argument is well industrial products - what should we deal with in industrial products? Should we have a general round of tariff reduction? The developing world is saying not on your life. You first address the major problems we’ve got - tariff peaks, tariff escalation, back loading of textiles and clothing, a range or other matters in industrial tariffs in order to create equality or a more equal playing field on industrial tariffs. 
Then do we deal with competition, investment, environment, labour standards, electronic commerce? What is the scope of this agenda? For the developing world they’re saying look we’ve just hardly completed digesting the last meal and now you want to dump another one on us, even bigger than the last. On the other hand it will be suicidal in our view to stand back and do nothing. 
So the outcome, which, I think, many of us, many countries, are working on is likely to be realistically one of two possibilities. The first is we decide not to embark on a new round, in which case the WTO will have a meeting in Qatar in November, which will be a futile and useless exercise and most of the trade ministers won’t attend it, because they’ll be too busy negotiating something somewhere else. 
That is a dangerous prospect, a prospect that the developing world should not think of as a victory. Because what it will mean is that we will begin moving very rapidly back towards the complexity, lack of clarity and opaque regime of the GATT, the General Agreement on Trade and Tariffs. A host of plurielateral, regional, bilateral agreements all sitting one on top of the other and reflecting convenience of the parties or power of the strong. For those who think this is not something that will happen quickly, I think, they’re very wrong. I can assure you that from South Africa’s perspective, if we did not enter a new round from the November this year, we would immediately shift our not inconsiderable resources into negotiations with other regional blocks. We cannot sit and watch Mercesor or Asiaan or Apec make progress in market access between themselves and we sit isolated from that. It would be suicidal economically, suicidal from a trade point of view. So we would move. We would move to consolidate rapidly the trading relationships in Africa and we would be at the very forefront of driving a new regionalism, which is why we can say with some confidence this is not a prospect that won’t happen. It’s a prospect that will happen. 
The other alternative is as challenging, a better alternative, but for us in the developing countries will cause us to have to work very much more closely together. The other alternative is that we do start a new round and in that new round, in one or other way, we’ll be addressing competition and investment at the least. That means we have to adjust to that. We have to prepare our positions. We have to begin planning for it. We have to begin working together as developing countries to bring about these negotiations. 
Now in South Africa we’ve been fortunate in that we have, I think, drawn very heavily on all parties to the economic process. Through the national economic development and Labour Council, through workshops such as this, we seek quickly and clearly, advice as to what we should move forward on. For us in South Africa, as I said at the beginning, we would be a minority in the developing word that would even begin to contemplate that competition should be on the agenda. 
So if we are going to persuade or discuss with our colleagues in the developing world why this matter should be on the agenda, we’d better have some very clear reasons for it - reasons, which allow us, as policy makers in the developing world, to understand that this can benefit the developmental process. That it is an integral part of the economic reforms and restructuring of a modern economy that are essential for development. 
So far from being, as you said Dave, somewhat abstract and academic, I’m hoping that the end of your two days some fairly crisp, well argued and erudite points will be made, because two weeks afterwards … or less than two weeks … ten (10) days after you finish your conference, I will be meeting with some ten (10) to fifteen (15) of our colleagues in the developing world and on that agenda will be: Should we entertain the proposition from the European Union that competition is on the agenda? 
What we decide, I think, at that meeting in Cairo will be very, very important for the future of the WTO. Thank you very much. 


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