Competition policy and international trade in air transport and telecommunications services

Abstract

This paper has argued that the international telecommunications and aviation regimes, put in place shortly after the inception of these industries, can be viewed as early examples of internationally coordinated competition policy. By agreeing to a system of landing rights in aviation and a mechanism for sharing termination costs in telecommunications, these industries successfully limited the scope for anti-competitive conduct on the part of foreign monopolists. However, the very nature of these regimes has meant that many of the possible gains from trade have not been achieved, with carriers extracting rents from the exclusive international rights they have gained. In an effort to dissipate these rents, a number of countries around the world have sought to increase competition in their domestic markets. An important source of this competition will be foreign firms. Hence, an increasing number of countries are unilaterally opening their air transport and telecommunications markets to foreign participation. In countries where liberlisation has progressed, prices have fallen and various static and dynamic efficiencies have been achieved. The problem is, however, that not all countries are following the path of liberalisation. Many retain a national airline and a telecommunications monopoly. Such asymmetries in liberalisation again open up opportunities for monopolists in illiberal markets to engage in anti-competitive behaviour to the detriment of consumers in liberal markets. In other words, as the old international system of bilateral agreements unravels new competition policy concerns arise. There seems little doubt that these problems need to be addressed by a set of competition policies, at least until, the asymmetries of liberalisation have been removed. The question is, what form these competition policies should take and whether or not they should be coordinated internationally. This paper has argued that ex post competition policies should be strictly preferred over ex ante policies. Whether policy responses should be coordinated or not is a matter of some debate. This paper has tentatively suggested that there may be some efficacy in a multilateral dialogue to 1) delineate the subset of services industries for which the type of anti-competitive behaviour discussed here is possible; and 2) develop a clear set of principles for the competition policies designed to ameliorate such behaviour.