A more open world economy brings about new opportunities, stimulates creativity and innovation. It enables poorer countries to catch up and exploits global economies of scale. But globalisation also brings challenges, as it might spread the benefits unequally among people and regions, some of which are less well positioned to seize its potential.
These benefits and challenges also apply for competition policy in a globalised world. More open markets should work for all. In the OECD, our work usually focuses on antitrust and merger policies and on how to make those policies converge and adapt them to the global context. However, it is equally important also to focus on another aspect of competition policy, namely government support. Such support can have positive effects for companies, workers and consumers, but it can also substantially distort fair competition to the detriment of other companies, workers and consumers.
Government support for local industry in markets where there is overcapacity can give rise to serious distortions of competition. If the market is international and other governments think alike, this will only aggravate the problem instead of solving it. The case of the steel industry is a good example.
There are also other ways globalisation can produce "subsidy races" between countries. As investment becomes more mobile, several countries may compete for the same investment and try to outbid each other. Companies may be successful in playing governments out against each other in order to win the most lucrative subsidy packages. This might be highly profitable for the companies involved, but it creates a distortion on the market for those who are already established and compete without subsidies.
I see a parallel between what has proved necessary to achieve a well-functioning single market in the EU, and what we now need in the global market. Our state aid control system has served us well. It builds on the recognition that on the one hand, state aid can have positive effects by addressing market failures and preserving equity between regions within the EU. On the other hand, it is important to have disciplines in place so that government support does not distort competition to an extent contrary to a proper functioning of the single market.
Similarly, the positive effects of trade and investment liberalisation globally should not be undermined by undue government support. Companies should be able to compete on equal terms in the global market and have a fair chance to succeed on their merits. This will bring better products at lower prices and new innovations for consumers. And, just as important, it will allow citizens to see globalisation as a factor for a more fair and equitable world.
Achieving a worldwide level playing field would require a basic set of rules on the granting of subsidies that affect trade across borders. A common set of rules on subsidies would help minimise distortions of competition in global markets.
The EU is stepping up its efforts to do more in the area of subsidies in an international context. We are raising these issues in all our bilateral trade agreements. In most cases, our trading partners have acknowledged the importance of the subject by accepting basic provisions on subsidies, be it on transparency (including on subsidies to services), on facilitating consultations or on restricting the most distortive kinds of subsidies.
However, a multilateral system addressing subsidies more comprehensively would be preferable. We should therefore strive for a universal set of rules instead of ad hoc provisions, differentiated per sector or per region. Such a universal system would allow for a common set of rules that could be applied uniformly across all countries, and it would prevent countries “free riding” the efforts of others. The WTO already incorporates some basic elements of such a system. It is built on transparency, consultations and already provides trade defence instruments to address distortive subsidies. We should further develop this system, building among other things on the experience we have gained within the EU. I would like to mention two examples.
In the EU, we have recently strengthened our transparency rules as we have learned that this is an essential element of any state aid control system. Competitors and citizens should know how government money is used. Similarly, it would be good to have more comprehensive multilateral tools to ensure global transparency on government support. In today’s economy, those rules should cover both goods, as well as services.
In the EU, we have learned that government support to bail out ailing companies is particularly distortive as it harms competitors’ ability to compete on the merits as it preserves inefficient market structures, with overall negative effects on growth and employment. Also in this area, multilateral tools could be further developed.
Building a stronger global rulebook is not going to happen overnight, and will never happen without strong intellectual leadership. In this respect OECD has an important role to play. Its analytical exercise to map government support in certain sectors already provides important ground work on which to base our future action. I would like to encourage OECD towards giving more priority to advocacy, research and monitoring of government support, and to bring interested parties together to discuss the multilateral aspects of government support.
OECD Forum 2017 issues
OECD work on competition
©OECD Yearbook 2017. See www.oecd.org/forum/oecdyearbook