Are Trade and Competition Policy Substitutes or Complements? The Case of South Africa

This paper examines the relationship between competition and trade policy in South Africa in order to address the role that each policy can play in achieving greater efficiency and welfare. There is the view, given the trade liberalisation that has occurred in South Africa, that the need for an active competition policy is accordingly reduced. While both trade and competition policy has been reformed in recent years, and import penetration has risen, it is not clear whether imports have been able to curb the possible abuse of market power. In the light of changes in trade policy over the period 1993 to 1996, the paper therefore develops an empirical model to test whether trade liberalisation has had an impact on the exercise of market power in South Africa. The reform of competition policy has however been more recent and therefore its exercise in more active form will not be captured in the period under review. The striking change of the period lies in the dramatic rise in import penetration ratios that occurred in the industrial sector offering the opportunity to estimate the impact of such penetration on profitability and market structure.