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DICTIONARY OF TRADE TERMS

The intent of this dictionary was to produce a broad listing of terms, which are commonly used in trade negotiations and especially within the context of the Free Trade Area of the Americas (FTAA) with a view to providing an information tool for the public at large. The dictionary is presented in the four official languages of the FTAA: English, Spanish, Portuguese and French.

The compilation does not attempt to present the entire universe of terms used nor does it seek to prejudge or to affect in any way definitions or approaches currently proposed by any country in any trade negotiation. In fact, many of the definitions included in the publicly-available Draft FTAA Agreement which are still the subject of difficult debates have been excluded from this dictionary. The definitions are based on widely available source material including other trade agreements.

An alphabetical listing of the terms is included to facilitate the use of the dictionary. The terms and their definitions are presented by general negotiating theme found in the FTAA and in other trade negotiations.

An electronic version of this document can be found on the following websites: IADB, OAS,  and ECLAC.


 


IADB
 


OAS
 

ECLAC


COMPETITION POLICY
TERM DEFINITION
Abuse of dominant position Anticompetitive business practices in which a dominant firm may engage in order to maintain or increase its position in the market. These business practices by the firm, not without controversy, may be considered as “abusive or improper exploitation” of monopolistic control of a market aimed at restricting competition. Although they may include practices such as charging excess prices, price discrimination, predatory pricing, refusal to deal/sell, tied selling, etc., which of the different types of business practices are considered as being abusive will vary on a case by case basis and across countries.
Anticompetitive practices A wide range of business practices in which a firm or group of firms may engage in order to restrict inter-firm competition to maintain or increase their relative market position and profits without necessarily providing goods and services at a lower cost or of higher quality. These practices include price fixing and other cartel arrangements, abuses of a dominant position or monopolization, mergers that limit competition and vertical agreements that foreclose markets to new competitors.
Barriers to entry Factors which prevent or deter the entry of new firms into an industry even when the incumbent firms are earning excess profits. There are two broad classes of barriers: structural (economic or innocent) and strategic (behavioral). Structural barriers arise from basic industry characteristics such as technology, costs and demand. Strategic barriers arise from the behavior of incumbents.
Bid rigging (Collusive tendering) A particular form of collusive price-fixing behavior by which firms coordinate their bids on procurement or project contracts. There are two common forms of bid rigging. In the first, firms agree to submit common bids, thus eliminating price competition. In the second, firms agree on which firm will be the lowest bidder and rotate in such a way that each firm wins an agreed upon number or value of contracts.
Cartel A cartel is a formal agreement among firms in an oligopolistic industry. Cartel members may agree on such matters as prices, total industry output, market shares, allocation of customers, allocation of territories, bid-rigging, establishment of common sales agencies, and the division of profits or combination of these. Cartel in this broad sense is synonymous with “explicit” forms of collusion, which does not necessarily require a formal agreement, whether public or private, between members. Often the terms collusion and cartel are used somewhat interchangeably. Cartels are formed for the mutual benefit of member firms.
Competition laws Also known as “antitrust” or “antimonopoly” laws. Antitrust refers to a field of economic policy and laws dealing with monopoly and monopolistic practices. The intellectual basis for antitrust economics or policy is the sub-field of industrial organization economics which addresses issues arising from the behavior of firms operating under different market structure conditions and the effect that this has on economic performance. Most antitrust or competition laws have provisions dealing with structure such as mergers, monopoly, dominant market position and concentration, as well as behavior, such as collusion, price fixing, and predatory pricing.
Competition policy Include competition laws in additions to other measures aimed at promoting competition in the national economy, such as sectoral regulations and privatization policies. Also supervision over the government policies through competition advocacy.
Consumer welfare The individual benefits derived from the consumption of goods and services. In theory, individual welfare is defined by an individual’s own assessment of his/her satisfaction, given prices and income. Exact measurement of consumer welfare therefore requires information about individual preferences. In practice, applied welfare economics uses the notion of consumer surplus to measure consumer welfare.
Cooperation Cooperation on competition has two main elements: (i) provisions to facilitate “case-specific” cooperation on anti-competitive practices having an impact on international trade; and (ii) provisions relating to general exchanges of information and experiences and joint analysis of global trade-related competition issues (“institutional co­operation” in OECD terms).
Discriminatory provision Includes treating: (i) a parent, a subsidiary or other enterprise with common ownership more favorably than an unaffiliated enterprise, or (ii) one class of enterprises more favorably than another, in like circumstances.
Efficiency It relates to the most effective manner of utilizing scarce resources. Two types of efficiency are generally distinguished: technological (or technical) and economic (or allocative). A firm may be more technologically efficient than another if it produces the same level of output with one or fewer physical number of inputs. Economic efficiency occurs when inputs are utilized in a manner such that a given scale of output is produced at the lowest possible cost.
Flexibility and progressivity In the multilateral context flexibility and progressivity are qualities for an international agreement. To get flexibility implies that the framework agreement recognizes that competition laws cannot and probably should not the same in all countries; they are differences in substance as well as in procedure. Progressivity refers to the commitment to competition –for example through transition periods– probably depends on the level of the economic development and size of the economies.
Market power The ability of a firm (or group of firms) to raise and maintain prices above the level that would prevail under competition is referred to as market or monopoly power. The exercise of market power leads to reduced output and loss of economic welfare.
Market regulatory policies and measures Any rule that affects the price or quantities traded in a relevant market, or investments in the sector of activity affected by such rules. Market Regulation: Broadly defined as the imposition of rules by government, backed by the use of penalties that are intended specifically to modify the economic behavior of individuals and firms in the private sector.
Mergers and acquisitions Merger is an amalgamation or joining of two or more firms into an existing firm or to form a new firm. A variety of motives may exist for mergers: to increase economic efficiency, to acquire market power, to diversify, to expand into different geographic markets, to pursue financial and R&D synergies, etc. Mergers are classified into three types: Horizontal Merger, Vertical Merger, and Conglomerate Merger. Acquisitions: Refers to obtaining ownership and control by one firm, in whole or in part, of another firm or business entity. As distinct from a merger, an acquisition does not necessarily entail amalgamation or consolidation of the firms.
Monopoly A situation where there is a single seller in the market. In conventional economic analysis, the monopoly case is taken as the polar opposite of perfect competition. By definition, the demand curve facing the monopolist is the industry demand curve which is downward sloping. Thus, the monopolist has significant power over the price it charges, i.e. is a price setter rather than a price taker.
Natural (or legal) persons Person, may be a natural person (individual) or juridical person (legal entity, for example a corporation) under the law.
Non-discrimination In the multilateral context there are two components to the principle of non­discrimination: national treatment and most-favored-nation treatment (See general definition). In the context of FTAA Chapter on Competition Policy that refers to each Party undertakes to ensure that the provisions of its competition statutes and regulations do not discriminate on the basis of the nationality of the natural or legal persons of the Parties. (See also “procedural fairness”, page 22).
Output restrictions Are anticompetitive agreement –including by quotas/ hard core cartels- by competitors to emulate monopoly in order to earn higher profits. It is for market sharing arrangements often applied in sectors where there is surplus capacity or where the objective is to raise prices.
Positive and negative comity Under the concept of positive comity, cases involving anti-competitive practices originating in one country but affecting another can be referred to the competition agency of the country where such practices have originated for appropriate action. Principles of negative comity mean that countries (Parties) would take into account the important and clearly stated trade interests of other countries before action is taken in particular cases.
Procedural fairness/ Due process In the multilateral context broad provisions on procedural fairness at the domestic level are based on three central concepts: (i) that governmental measures of general application be published and that this be done, as a general rule, before they are applied; (ii) that such measures be administered in a uniform, impartial and reasonable manner or in a fair and equitable way; and (iii) possibilities for appeal or review of decisions on the application of such measures. The different constituencies of competition law enforcement have somewhat different interests in procedural fairness.
Protection of confidentiality Protection of confidential information from unwarranted disclosure is a fundamental part of procedural fairness. The most common way of protecting confidential information is by establishing direct obligation for countries (Parties) and authorities to protect confidential information, and prohibitions to disclose confidential information.
Relevant market Means the geographic and product market for a good or service as used in antitrust analysis. It refers to the line of commerce in which competition has been restrained and to the geographic area involved, defined to include all reasonably substitutable products or services, and all nearby competitors, to which consumers could turn in the near term if the restraint or abuse raised prices by a not insignificant amount. See Subsidies, Antidumping and Countervailing Duties, page 42, where this text may have a slightly different meaning.
Transparency In a broad sense are degrees to which trade policies and practices, and the process by which they are established, are open and predictable. Transparency is a basic requirement for enforcement of competition law; as such laws are often written in general framework form and are applied in a technical manner on a case-by-case basis. In the context of FTAA Chapter on Competition Policy refers to each Party undertakes to publish or otherwise make available any laws, regulations, procedural rules, implementing guidelines, final judicial or quasi judicial decisions or administrative rulings of general application respecting competition matters. See Services, page 39, where this text may have a slightly different meaning.