1

1	INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
2	MEETING
3
4
5
6	Washington, D.C.
7	Friday, September 11, 1998
8
9
10
11
12
13	This document constitutes accurate minutes of the
14	meeting held September 11, 1998, by the International
15	Competition Policy Advisory Committee. It has been
16	edited for transcription errors.
17
18
19	James F. Rill Paula Stern
20	ICPAC Co-Chairs
21

2

1	INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
2	MEETING
3
4
5	Washington, D.C.
6	Friday, September 11, 1998
7
8
9	Taken at The Carnegie Endowment for International Peace, Root
10	Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C.
11	beginning at 10:00 A.M. EST, before Bryan Wayne, a court reporter and notary
12	public in and for the District of Columbia.
13
14
15
16
17
18
19
20
21

3

1	APPEARANCES:
2	Advisory Committee Members:
3	Merit E. Janow, Executive Director
4	James F. Rill, Co-Chair
5	Paula Stern, Co-Chair
6	Thomas E. Donilon
7	John T. Dunlop
8	Eleanor M. Fox
9	Raymond V. Gilmartin
10	David B. Yoffie
11	Department of Justice Employees:
12	Joel I. Klein, Assistant Attorney General
13	Antitrust Division
14	A. Douglas Melamed, Principal Deputy Assistant Attorney General
15	Antitrust Division
16	Donna Patterson, Deputy Assistant Attorney General
17	Antitrust Division
18	Gary Spratling, Deputy Assistant Attorney General
19	Antitrust Division
20	Charles S. Stark, Chief, Foreign Commerce Section
21	Antitrust Division
22
23	APPEARANCES (Continued):

4

1	Other
2	Debra Valentine, General Counsel, U.S. Federal Trade Commission
3	No Members of the Public made an Appearance or Presented Written or Oral
4	Statements
5	IN ATTENDANCE:
6	Advisory Committee Staff:
7	Cynthia R. Lewis, Counsel
8	Andrew J. Shapiro, Counsel
9	Stephanie G. Victor, Counsel
10	Eric J. Weiner, Paralegal
11	Estimated Number of Members of the Public in Attendance: 35
12	Reports or Other Documents Received, Issued, or Approved by the Advisory
13	Committee: None
14
15
16
17
18
19
20
21
22
23

5

1	P R O C E E D I N G S
2	(10:00 A.M.)
3	DR. STERN: I would like to welcome each and every one of you
4	here, particularly the Committee members. There are some who are going to be
5	joining us at different times during the day.
6	This is our second full Committee meeting. I'm Paula Stern; I'm
7	Co-Chair, along with Jim Rill, of the International Competition Policy Advisory
8	Committee. We're very honored to have here this morning the Assistant Attorney
9	General for Antitrust Joel Klein, who will be speaking to us in a minute. And I'd
10	like to also introduce to you Merit Janow, who is the Executive Director of the
11	Committee.
12	I'm mindful that we are meeting both in this smaller group here as
13	well as in a public group. And I would like to welcome the members of the
14	public who are in attendance, and want you to feel included.
15	Since our inaugural meeting back in February, the Advisory
16	Committee has been very busy. Members have engaged in outreach to a number
17	of prominent business organizations, to law firms, and to other experts. Tom
18	Donilon, who should be joining us soon, Eleanor Fox, Jim Rill, Merit Janow and I
19	have had several productive meetings both in New York, with law firms that
20	handle an impressive array of international mergers with antitrust implications,
21	and just this week Jim and I have met with a number of D.C. law firms to get their
22	input.
23	We thank very much in particular John Dunlop, Ray Gilmartin,

6

1	Steve Rattner, who is not here, and Dick Simmons, who we were planning to see
2	but who apparently had a personal event that is going to prevent him from coming
3	this morning. But they have all made important and useful suggestions to guide
4	this outreach effort to the public.
5	I would like to introduce the staff. Our Committee staff has grown
6	since our last meeting in February. At the first meeting you met Stephanie Victor,
7	(and you might just wave), who is now counsel for the Advisory Committee. And
8	since then we have two additional attorneys, Cynthia Lewis, from Skadden Arps'
9	Brussels office and Andrew Shapiro, from Covington & Burling. In addition, a
10	paralegal, Eric Weiner, is assisting the Advisory Committee and has been very
11	hard at work.
12	They're now fully constituted as the staff and they have been
13	developing outlines to help structure our discussions and provide a skeleton for
14	the eventual Advisory Committee report. You all have received this big black
15	briefing binder for this meeting which contains annotated outlines reflecting a lot
16	of the staff's sifting and sorting.
17	I'd like to note, at this time that in order to gain input for our
18	members, we have issued in the Federal Register the announcement for this
19	meeting. There will, however, be no active participation, per se, of the audience.
20	We're please that you're here as interested members of the public, but the format
21	does not allow for participation from the audience.
22	Welcome Tom. Just getting the preliminaries out of the way.
23	We would welcome, however, any reactions you have to today's

7

1	meeting in writing. So please contact one of our staff if you wish to submit
2	written comments.
3	Just to lay out a road map very briefly on how we're going to
4	proceed and where we have come heretofore. At our first session, back in
5	February, you recall we had the Advisory Committee receiving formal
6	presentations from a number of Department of Justice officials about the issues
7	under consideration by the Advisory Committee. Today we have a different
8	format. And I hope by the end of today's meeting we will have the opportunity to
9	hear from each and every member, his or her views regarding the issues that were
10	raised in the outlines that you received before Labor Day.
11	Our first session this morning will address the interface of trade
12	and competition policy. As I mentioned a moment ago, Dick Simmons has
13	unfortunately been called away, and we are asking Merit Janow to read Dick
14	Simmons' remarks that were prepared in advance by him. As you can see from
15	the outlines -- the interface of trade and competition policy gives us a wealth of
16	policy options. And we can go through that -- after we have heard from Joel, who
17	is patiently waiting here.
18	But quickly, we will then move on from trade and competition to
19	deal with enforcement cooperation. And that second session will begin at noon
20	with a working lunch and will discuss enforcement cooperation issues. Jim Rill
21	will begin that discussion. And Gary Spratling at the Justice Department, who
22	you may remember spoke to us at the last meeting has, yet again, taken a red-eye
23	from California to join us for the enforcement cooperation discussions.

8

1	We will then move on to our third and final session at about two
2	o'clock, where we will discuss the multijurisdictional merger issues. Tom
3	Donilon has been graciously willing to kick off that discussion. And we are
4	expecting that Debra Valentine, General Counsel of the Federal Trade
5	Commission, along with Chuck Stark, who I see is sitting out in the audience,
6	Chief of the Antitrust Division's Foreign Commerce Section, will join us and will
7	be available to answer questions regarding the level of information sharing that is
8	currently ongoing between antitrust authorities and to discuss tasks of dealing
9	with different jurisdictions in multijurisdictional merger review.
10	Let me close by saying that you'll find, in tab C of the binders, that
11	the Advisory Committee is organizing hearings in November where we have an
12	impressive array of talent who have agreed to participate, including
13	representatives from a number of competition authorities from around the world.
14	It should prove to be quite an event and of course we're looking forward to that.
15	At this time, I would like to turn the podium over to Jim to see if
16	Jim would like to make some welcoming remarks and then we'll turn to hear from
17	our esteemed colleague and leader, Joel Klein.
18	Jim?
19	MR. RILL: I think there is nothing left to say as we alternate
20	chairing these meetings. For a change -- that normally wouldn't stop me -- but
21	today it's going to stop me and I'm going to turn it over to Joel Klein.
22	MR. KLEIN: People said there were no more miracles left in the
23	world. I thought that when Paula said, "And now we'll turn it over to Jim to see if

9

1	he wanted to make some comments," I thought my schedule just got messed up.
2	Paula, I'm delighted by your opening comments and Jim's lack thereof.
3	MR. RILL: Not necessarily in that order.
4	MR. KLEIN: It's an honor for me to be here today and, first of all,
5	to extend my welcome to all of you in the public and as well as the members of
6	the Advisory Committee and the staff.
7	I have stayed closely involved over the summer months with the
8	really extensive work that has been done under the leadership of Paula and Jim
9	and really with Merit and the staff, not just in terms of the outreach. But a great
10	deal of research, analysis and discussion has gone into preparing the background
11	papers. And I had an opportunity to read them in detail this weekend. I must say
12	they're enormously impressive and I think should focus not just our discussions
13	today but the work that lies ahead in the year to come.
14	I'm grateful; and I want to say to the staff in particular, this is
15	really first class high quality work and you should be proud of it. It's in the best
16	traditions of what I think the Antitrust Division represents and I'm glad to see that
17	you've lived up to those standards. So, I am very pleased.
18	In terms of what's going on in the Division in the international
19	area, nothing has abated. If anything, I think some very interesting lessons were
20	learned in the WorldCom/MCI merger. I think in the end it was a great success
21	story in the way that we and the European Community were able, effectively, to
22	collaborate. But, like many successful joint ventures, there were some bumps
23	along the road in terms of both the efforts to play one jurisdiction off against

10

1	another and some of the other involvement in terms of the press and even the Hill,
2	as we worked through this.
3	Having said all that, I think the work with DG-IV and the telecom
4	section of the Division was really very professional, very successful, and a real
5	meeting of the minds on competition policies -- and what I think people like my
6	friend and colleague, Eleanor Fox, would call part of the ongoing evolution of de
7	facto substantive convergence. That is, the mode of analysis, the thinking, the
8	identification of the competitive problem really came together, I think, quite
9	forcefully there and led to a strong and important conclusion.
10	We are, as well, working hard on our first positive comity referral.
11	As most of you know, we made an assessment that airline computer reservation
12	system issues in Europe raised concerns in terms of market access involving
13	certain practices. We made a referral to DG-IV. They accepted the referral and
14	that process is ongoing. We have spent time working with our colleagues in
15	Europe to move that process ahead. And I look forward to a resolution of that
16	matter in the not distant future.
17	Beyond that, we have a series of important bilateral meetings
18	coming up with the Japanese and Koreans which will be our first bilaterals, really,
19	since some of the major economic shifts in Asia. And my anticipation is that
20	some of those economic shifts and some of the new leadership we've seen in these
21	countries will create a climate in which there will be greater opportunity for
22	further discussions about effective international cooperation on competition
23	policy and indeed to continue, as Ray Gilmartin and I were talking about, to

11

1	continue the other half of the dialogue -- which sometimes gets left out on our
2	part but it's certainly key to trade and competition issues. And that is not just
3	antitrust enforcement but to sink a real marker for competition policy,
4	deregulation, open markets and increased innovation. And we're beginning to see
5	at least the vocabulary in terms of our bilateral discussions moving with
6	increasing enthusiasm in that direction.
7	Two other quick points I should note before closing. This week
8	we ended, I think as we talk the jury has gone out or the judge is instructing the
9	jury, in the case against three individuals in the international lysine conspiracy,
10	where we did prosecute three individuals from Archer-Daniels Midland after the
11	company pled guilty and was assessed a $100 million fine. But that trial,
12	actually, and the evidence that was introduced, is going to raise, I think, some
13	important issues in terms of understanding both the complexity of enforcement at
14	this level and the nature of the problem for the American economy. And we will
15	certainly be using materials from the trial, that are now in the public domain, as
16	part of our educational opportunity and our educational efforts on a worldwide
17	basis.
18	Finally I do want to commend the Committee for the hearings that
19	will be coming up later this fall. They have really put together an all-star cast of
20	international leaders who have agreed to come before the Committee and to talk
21	about their perspectives on these very, very important issues. I just actually,
22	before coming here, I just took a call from Dieter Wolf, who is the head of the
23	German antitrust authority, and he was pointing out that he was eager to be here

12

1	and have an opportunity to share his thoughts with us. But, in addition, in
2	probably one of the two or three most well attended international meetings, the
3	meeting he holds every other year in Berlin, next year he's really going to take off
4	on our agenda and use that as a two-day seminar to basically broaden the
5	international interest in the concerns of this Committee.
6	So I think the efforts are working. I am enormously grateful for
7	the time that the many, many talented busy people on this Committee have put
8	into the effort. I sit here with exceptional confidence that these labors will bear
9	great fruit for the administration of the United States and, indeed, those concerned
10	with international competition policy and antitrust enforcement. So, I thank you
11	all very much.
12	DR. STERN: Joel, thank you very much for those gracious
13	remarks, particularly about the staff and the hard work that's gone on. This is, I
14	guess, the first chance to showcase what has been happening behind the scenes
15	since our February meeting. And I know we all very much appreciate those kind
16	words, particularly coming from someone who is so highly respected.
17	We're going to now turn -- and I think we're actually on schedule --
18	to the Trade and Competition Interface discussion. We did flip things around and
19	are opening with Trade and Competition, although the book may not show that.
20	Which tab, actually is Trade and Competition?
21	MS. JANOW: 1 -- A 2.
22	DR. STERN: A 2. As you can see from those outlines, the
23	interface of trade and competition policy requires examining a wealth of policy

13

1	options. Among those we have to consider are how to achieve our core
2	objectives, how to craft policies that deter anticompetitive restraints; that reduce
3	barriers to effective prosecution of anticompetitive restraints with adverse effects
4	on the United States; to address the problems of lax discriminatory enforcement
5	and to increase transparency. And finally, as a core objective, to promote
6	effective competition in jurisdictions that do not yet have competition laws.
7	Among the policy options the Advisory Committee may wish to
8	consider are one, unilateral enforcement of antitrust laws against foreign market
9	access restraints. Secondly, enhancing the bilateral cooperation, some of which
10	Joel made reference to in context of Europe as well as in discussions with other
11	countries, enhancing that bilateral cooperation through expanded positive comity
12	agreements and through traditional comity approaches. Naturally, a combination
13	of unilateral and bilateral trade solutions can be envisioned and are being
14	considered.
15	In the policy options that come under the rubric of international
16	initiatives, we have Eleanor Fox's proposal for the development of core principles
17	advanced through international fora or agreement. In addition, international
18	initiatives will cover new or expanded dispute resolution mechanisms. We've had
19	a number of speakers in the past throw some ideas out in that area. Additionally,
20	there are possibilities of pursuing expanded plurilateral agreements, not just
21	bilateral agreements, as well as developing initiatives at the World Trade
22	Organization beyond the idea of a dispute settlement mechanism that some have
23	proposed be conducted by trade organizations.

14

1	Another very important issue to this Advisory Committee concerns
2	how governmental restraints themselves should be handled and whether this is a
3	competition policy issue for the Committee to consider.
4	These are some of the highlights that we should bear in mind as we
5	go through this morning's discussion. Merit Janow, our Executive Director, has
6	worked long and hard in this field for many, many years. We all know her well,
7	and today she gets to do some additional work that was not what was on the
8	schedule, and that is to try to represent Dick Simmons. Dick Simmons is not here
9	today. Dick had prepared some remarks and Merit is going to see us through
10	those and give an opening to the discussion on the interface of trade and
11	competition.
12	MS. JANOW: I have just a moment ago received these remarks
13	that were prepared by Dick Simmons so I will apologize to you in advance for
14	what can only be a stilted delivery given the limited time that I've had with it. As
15	you will see, I'm in the peculiar position of noting approvingly of my own
16	writing.
17	And so I will start reading at this point.
18	"Quoting from the June 19 draft memo from Merit Janow, which
19	should be circulated to a wider audience, it's worth repeating what was stated
20	under the heading The Interface of International Trade and Competition:
21	'As many formal barriers to trade have been reduced or eliminated
22	around the world, international policy attention is increasingly focusing on the
23	role of private anticompetitive restraints of firms that can foreclose access to

15

1	markets as well as government practices that may have such effects. Indeed,
2	economic globalization has come to mean that competition problems increasingly
3	transcend national boundaries. And the international organizations such as
4	OECD and the WTO, as well as bilateral intergovernmental groups are engaging
5	in debate about the extent to which private anticompetitive practices are in fact
6	blocking access to markets around the world and what should be the appropriate
7	policy responses.
8	'And the Trade and Competition Subgroup of this Advisory
9	Committee is considering the nature of the market access problem and what
10	policy actions might usefully be undertaken to address those problems. In other
11	words, how can the U.S. more effectively address barriers to foreign markets that
12	stem from private restraints to trade and investment.'"
13	Dick Simmons goes on to say, "In attempting to define the
14	problem and identify the issues, at the May 18 subcommittee meeting, there was
15	extensive discussion after a presentation of an overview and discussion paper on
16	trade and competition. And to summarize, that discussion on May 18, focused on
17	three points; the first was to consider the nature and magnitude of market access
18	problems and whether expanded international policy initiatives are warranted.
19	"There appeared," in his view, "to be general consensus that
20	anticompetitive practices do impede American firms from selling or investing
21	abroad. It should be pointed out that while there was general agreement in this
22	matter that the level of anticompetitive practices can and do adversely affect
23	American firms. The level can vary significantly, depending on the nation and

16

1	the region of the world.
2	"It was also clear that it was extremely difficult, if not impossible,
3	to quantify the impact of such practices with any meaningful precision. I would
4	add that, depending on the company and its focus, producer of proprietary high
5	technology, whether it is produced in the country in question or (as compared to a
6	commodity) was produced by many countries, one could arrive at completely
7	different answers. And input on this matter from all of the members of this
8	Committee, I believe, would be very helpful.
9	"The subcommittee was in agreement that the best policy
10	initiatives would be those that focused at opening all nations to free competition -
11	- assuming that other distortions do not exist.
12	"In my letter of December 23 to Merit, I suggested that the level of
13	anticompetitive practices can and do vary depending on the nature of the
14	economy of the nation involved: in nonmarket economies where there is no body
15	of laws which prevent anticompetitive practices; in developing nations which
16	protect home market companies from foreign competitors; in developed nations
17	which, although similar in form to the United States, may act in groups with other
18	nations to protect home markets. The so-called East of Burma agreement is an
19	example of such practices.
20	"The second point of discussion in the subgroup meetings focused
21	on areas of divergence and complementarity that exist in the objectives, reach,
22	instrumentality of trade and competition policies. And third, it identified four
23	possible approaches to international competition policy problems. Possible

17

1	approaches, which were discussed and which are summarized, are also in the
2	binders sent out for this meeting. Those options are included; and I won't review
3	them in detail, but some comment may be useful.
4	"The policy options range from what I will call 'soft options' to
5	'hard options.' In the soft category -- and I mean only in using the word soft that
6	international cooperation bilaterally or multilaterally is essential if progress is to
7	be made in eliminating anticompetitive practices through this policy option.
8	Whether it be through positive comity, the pursuit of international
9	agreements, the convergence of competition laws throughout the world or other
10	forms of voluntary normalization of different country laws in this area -- my
11	personal opinion is that progress will be very slow indeed.
12	"I should also add that positive comity should be pursued as an
13	affirmative step towards removing restraints. This should not be construed to
14	suggest that such policy options are not, in my opinion, valuable options. It does
15	suggest that to achieve meaningful progress in this area, other options may also
16	have to be suggested or, in the final analysis, utilized.
17	"At the other 'hard' end of the policy option spectrum is the
18	unilateral enforcement of antitrust laws as a 'chip' to be played at the appropriate
19	time. If violations of U.S. antitrust laws were prosecuted or the threat of
20	prosecution existed for potential violations -- even those which occurred outside
21	the United States -- if the participating parties conducted business in the United
22	States -- this might prove a means for moving the entire process forward.
23	"The Advisory Committee is soliciting and receiving the views of

18

1	experts in the legal and economic fields in an effort to examine the impediments
2	to such effective enforcement. The recent price fixing cartels identified and
3	prosecuted by the Department of Justice, in the case of -- in graphite electrodes,
4	(which my firm is directly involved as a customer) -- is an example of a
5	worldwide cartel. The fact that U.S. antitrust laws involve criminal penalties, I
6	believe, promotes the unraveling of such anticompetitive practices. A policy
7	initiative which would promote criminal penalties in other nations' antitrust laws
8	could be a strong tool in developing a more uniform culture in avoiding such
9	practices.
10	"Other related anticompetitive practices include: private restraints
11	among foreign producers limiting exports to home markets; domestic cartels
12	limiting exports; government restraints with or without private involvement
13	authorizing or encouraging private cartels; government use of regulations to
14	restrict competition, whether it be through price or through large store
15	regulations, such as in Japan; and home market use of intellectual property
16	controls. These are a few examples.
17	"The Committee has determined that governmentally imposed
18	restraints are within its purview and will study the incidents and implications and
19	remedies, including such issues as foreign sovereign immunity and act-of-state
20	defenses.
21	"It was concluded that input from other interested bodies would be
22	constructive, and a draft document was provided to us in June as a possible
23	questionnaire to be sent out to interested organizations and individuals. Then, a

19

1	question which needs to be discussed is: What is the appropriate recourse if
2	progress is not achieved, or that which is achieved is not effective?
3	"Once again, the United States might, under those circumstances,
4	consider the use of government or private antitrust action. This option has
5	obvious problems associated with it, including the difficulty of access to witness
6	and documents. It also has the potential for increasing international frictions.
7	The application of U.S. law to foreign companies which do business in the United
8	States, regardless of whether the anticompetitive practices occur in the United
9	States, would not diminish tensions. It might, however, facilitate such cases.
10	"The U.S. government or private antitrust cases might be pursued
11	under the foreign country laws, of course, but the effectiveness of this option
12	depends on the availability of private actions and the practical accessibility to the
13	foreign court system.
14	"An approach could be the use of an international organization's
15	dispute resolution mechanism under those facts. As I understand it, the WTO's
16	jurisdiction over private restraints remains unclear. However, the WTO could
17	serve as a venue at arriving at an agreement on core principles. Another policy
18	option which the Committee should examine is: How or if trade laws and trade
19	law mechanisms should apply in situations other than government restraints?
20	Such remedies may themselves be anticompetitive.
21	"Finally, let me close by saying the world has changed
22	significantly since we last met. Many of the large economies of the world,
23	particularly the Asian nations, and Japan as a special case, Russia, and now

20

1	several South American nations, are facing severe economic and currency crises
2	which become liquidity crises and result in severe economic contractions. I
3	would suggest that the world trading system may well be under a great deal of
4	strain. Meaningful progress in the areas that we have discussed this year in this
5	Committee may be far more difficult to achieve in the present situation than we
6	could have anticipated just a few months ago.
7	"Depending on which scenario one selects, the outcome of current
8	difficulties -- whether it be in Japan, China, southeast Asia, Brazil, Argentina,
9	Russia -- and the resulting effects on Western Europe and the U.S. economies
10	over the next 12 to 18 months, point out that the need for this Committee and for
11	constructive remedies to the world's trading system will be even more important."
12	That concludes his remarks.
13	DR. STERN. Merit, do you want to add any parenthetical
14	remarks? Or footnotes?
15	MS. JANOW: I think not at this moment. I would rather hear
16	from our Committee members.
17	DR. STERN: Me too. I would like very much now to open the
18	floor to comments. We're going to try to focus on trade and competition policy.
19	The Chair recognizes Ray.
20	MR. GILMARTIN: Thinking about some of Dick's comments that
21	you read, but also really looking behind the tab in the binder on Trade and
22	Competition Policy, just a couple of, I guess, observations or reactions.
23	One is that in the material it suggests that there's no magic bullet.

21

1	And based on our own experience as a company working in this area and also as a
2	-- working within a trade association in this whole area of competition policy --
3	that we should certainly agree based on our experience that there is no magic
4	bullet. So therefore, it may not be a question of choosing one policy option over
5	another, as it is that each policy option has a role that will be of varying degrees
6	of effectiveness, but, nonetheless, probably should be pursued or used at one time
7	or another.
8	Just, drawing on our own experience, it's not clear that market
9	access is the significant issue, and whether or not, say, U.S. companies are
10	disadvantaged over any other local companies because of a lack of competition
11	policy or lack of a competitive market. As an industry -- the U.S. is the only truly
12	market model in the world for pharmaceuticals. Every other market in the world,
13	really, is based on price controls. And so we're at a stage in which we're trying to
14	convince governments and regulatory agencies, ministries of health and
15	politicians, that market competition is a source of economic growth and a means
16	of stimulating innovation.
17	Nonetheless, to get those ideas across -- so, I guess, the first
18	option that we're already pursuing to try to do this is -- would fall under the
19	heading of "international initiatives" and really trying to arrive at core principles;
20	and transferring knowledge across markets around the world to reach agreement
21	on core principles with regard to health care delivery, and stimulating innovative
22	pharmaceutical industries. So, in arguing for the importance of market
23	competition -- and describing to various parts of government, as well as those

22

1	who are involved in a legislative process -- and in the case of Japan, the members
2	of the Diet -- the importance of market competition.
3	So, core principles -- and although we see it as a very long-term
4	and difficult process, nonetheless, when you look back over the last couple of
5	years, we've made progress. Therefore it certainly is a worthwhile option.
6	The other thing, too, is, in supporting us in these efforts has been
7	the advocacy of the U.S. government in terms of -- in its role of advocating the
8	importance of open markets, of free trade. And that has shown up really in the, I
9	think, more specifically for us, in sort of enhanced bilateral cooperation. Things
10	like the Trans-Atlantic Business Dialogue, in which decisions are discussed and
11	barriers therefore removed. But also as a means of educating everyone about the
12	significance of these kinds of issues. And, at times, the potential for unilateral
13	enforcement, as a means of gaining attention, has also played a role as well, I
14	believe.
15	So it's not a question, as I said, of one option over the other. I
16	think all of them have application.
17	The final thing I would say is that, in the whole issue of trade and
18	competition policy, I think it's important to be very clear about what are really
19	trade issues as opposed to competition issues and getting the right issues and the
20	right forum. Because, I think that taking a competition issue into a trade forum
21	when it really doesn't apply, doesn't take us very far or actually, I think, can be
22	detrimental to what we're trying to accomplish. So I think it's important to sort
23	out what are really legitimate trade issues as opposed to competition issues.

23

1	Dick is concerned about time in his remarks. I think we've got to
2	take a long view here. And it's a process of continuing to build relationships
3	based on these core principles. And, I think, if we can agree as to where this all
4	should end up -- which is the approach we're taking, say, with market competition
5	in the health care system, and try to reach an agreement on that -- then every
6	action that's taken can be evaluated in that context.
7	Then also, an option, that isn't included here, that we are pursuing
8	as an industry, which may not apply specifically to our task, is that, in effect, the
9	legislation that's passed in these countries that have a big impact on regulation,
10	competition and so on, is a very important element to consider. And so, therefore,
11	in our efforts in Japan to stimulate market competition, we are literally working
12	with members of the Diet in their home districts, if you will, to educate and alert
13	them to what the opportunities are and the potential. So that's another avenue of
14	establishing core principles, if you will.
15	DR. STERN: Extremely helpful. Lots of different avenues, to use
16	your word, to "pursue." I have some questions I'd like to ask, but I'd like to hear
17	comments from the rest of the Committee, preliminary reactions to the outline?
18	Are we on the right track in spelling out these approaches? And do you want to
19	talk about core principles in further depth here?
20	MR. DUNLOP: Well, I, perhaps, know the least about this of
21	anyone. Let me give you a view about it which goes this way. I think it may well
22	be that a lot of market access questions are in the eye of the beholder as much as
23	they are in reality. That poses some very hard issues. And therefore, my

24

1	experience in other fields has taught me that maybe the way we develop these
2	principles is to take a problem that somebody thinks is important -- health care for
3	example -- or access of construction firms -- and assemble a panel -- I guess I
4	would want some lawyers but not too many, but also some economists -- to kind
5	of do a fact-finding exercise to lay out what we know about the problem.
6	This is a very large universe, trade and competition, so you try to
7	get people informed about particular areas where you might have some ideas of
8	wanting to do something.
9	And after, I would like to see some numbers. This question of the
10	magnitudes is a problem that Richard Simmons rightly comments on how difficult
11	it is. So get a group of people to study an area in various places that you see and
12	just put it out for public review. I happen to think that transparency in this area,
13	as you've said before -- David and I were talking about this morning -- is in itself
14	an important matter and, by the way, exposing some problems to more public
15	scrutiny and to the scrutiny of various kinds of governmental bodies -- so
16	transparency may itself be helpful, in some circumstances, as a practical matter.
17	But, I would rather see our principles come out of a series of such
18	long-term fact reports. So this is the situation in health care; or in
19	pharmaceuticals and health care; or this is what it is in construction; or this is
20	what it is in some petrochem problems -- and so to build from the ground up with
21	the exposure of a careful set of facts about what's going on and then try to develop
22	your principles from that. That is the kind of thought I had since this topic is so
23	large, encompasses so much, and I regard the principles as many miles above the

25

1	real world, that it would be useful to try to put a little more content into it as we
2	go down the road. Anyway, that's one reaction.
3	MR. YOFFIE: I think you're going to see a lot of overlap in
4	people's comments because there are common themes that are emerging. The first
5	relates to the question of data.
6	We still don't have a clear sense of what the data is, what the scope
7	is, what's included, what's excluded. And that really gets specifically to Ray's
8	comment about trying to find ways to separate trade from the competition
9	problem. Until we understand the core data, it's hard to make that separation and
10	know how the significance of the competition piece. It requires trying to get a
11	sense of the boundaries between these areas? And where there are not
12	boundaries, part of our recommendations should also focus on U.S. government
13	recommendations regarding collaborative efforts between trade authorities and
14	antitrust authorities.
15	But we shouldn't ignore the internal U.S. governmental dynamics
16	here, where the boundaries tend to be very murky. And one of the things that
17	might be extraordinarily positive in the long run is to create more effective
18	internal mechanisms of dealing with these problems as they emerge. Because if
19	we treat these purely as a competition problem, then there's inevitably going to be
20	conflict in jurisdictions and that's going to ultimately reduce the effectiveness.
21	Second, the notion of core principles is an idea that is worth
22	pursuing. But we should think of core principles as a long-term policy solution.
23	We should not expect it to have really short term implications, particularly in the

26

1	world that Dick Simmons was outlining. Nonetheless, if we're thinking of this as a
2	10 or 20 year process, it is certainly appropriate to start building that foundation,
3	and obviously Eleanor has written about this. It is certainly an appropriate thing
4	to start this Committee with, once we have the data.
5	Third, I also agree that transparency is really fundamental to
6	everything we do here. Jagdish Baghwati described this as the Dracula Effect,
7	which is, you expose these things to light and many of them disappear. And I
8	think that's a good analogy for us to focus on. And many of these anticompetitive
9	areas are, in fact, invisible. The simple fact of making them transparent might
10	make it possible to reduce their impact.
11	We also talked about how you might make them transparent and
12	that gets to my next point which is we must create the right set of incentives to
13	make all these policies work. I think incentives have to have two forms: a
14	positive set of incentives and a negative set of incentives.
15	Dick talked about the negative incentive, meaning using the
16	unilateral policy to coerce people. I'm not sure I see anything in these proposals
17	that really focus on positive incentives, which are what are the things that we are
18	going to do to make it a positive inducement for some of our trading partners to
19	work with us in these areas. I don't have any solutions but I think that has to be a
20	critical piece of the solution.
21	As part of that process, for example, I was mentioning to John
22	about the transparency concept: that if we were to create panels, for example, to
23	investigate, then we should be considering having foreign members of the

27

1	antitrust commissions of these countries being part of these committees; so that
2	we make them part of the process, and it is not purely a U.S. imposed negative
3	incentive. Ultimately, I don't believe we're going to get the kind of cooperation --
4	from Japan and Europe in particular -- with only negative incentives.
5	MS. JANOW: May I ask a point on the data question, because it's
6	reiterated by several Committee members? This is a vexing matter. I think, for
7	our part, we have reached out to a number of trade associations and are
8	developing questions and hopefully this will provide an opportunity for firms to
9	respond with their own experiences, and provide as much detail as they wish to
10	provide.
11	But as you mentioned the data issue, could you elaborate a little bit
12	on what you think of as being the kind of -- that would be "hard" and quantifiable
13	to help access the magnitude of the harms associated with private restraints
14	because most of what tends to be raised, of course, is anecdotal industry and
15	sectoral evidence?
16	MR. YOFFIE: This is a hard problem, and we are not going to get
17	adequate econometric data to provide us with welfare implications of these
18	restrictions. I do not have any illusions about that. A lot of it is going to depend
19	on industry-level data.
20	I'm not thinking about quantifying welfare implications, but you
21	can get some sense of the size of the sectors that are potentially affected by
22	restrictions; the industry trade groups do assessments of potential trade effects.
23	You can get a sense of the orders of magnitude. But it's going to be by sector, I

28

1	suspect. I don't think there's any other way to do it. Then we can identify some
2	very large sectors -- health care, construction or other industries that have
3	historically been identified with trade problems of this type.
4	We need to have some sense of the industries that are effected; the
5	revenues; the trade; employment. And then we can get into some of the details of
6	the kinds of problems that exist within those sectors: whether they are
7	anticompetitive or whether they are purely trade related.
8	DR. STERN: Right. Let me just put in a plug for -- on behalf of the
9	whole Committee -- to the public. As Merit says, it's been vexing to try to get
10	even anecdotes, much less any kind of data. And we are constantly calling trade
11	associations, representatives of various sectors, academics, trying to come up with
12	more information, particularly in this area, but just generally. So if there are trade
13	associations who have information that would bear on any of our examinations,
14	and if we have not contacted you, please know that this is recognized as a big
15	problem for us.
16	MR. GILMARTIN: I was going to say that -- picking up on John's
17	comments and also yours -- is that it occurs to me that as an industry, as we
18	pursue the objectives we have for creating a more receptive environment for
19	business, when we separate competition policy and trade, this may be
20	oversimplified -- but when we're talking about trade -- that's when we're talking
21	about access and the opportunity to participate in the market. And our big issue
22	there is intellectual property. And that's handled through TRIPS and the
23	enforcement reports. That's an area of access.

29

1	When we go to Japan and talk about competition policy, we're not
2	talking about access. We're not making the point that we're trying to open up
3	markets or anything like that. We're talking about what the benefits are, in terms
4	of economic growth and innovation to Japan, of creating market competition, a
5	more competitive market in pharmaceuticals. So we're not arguing the point that
6	we're being denied opportunity or markets because Japanese companies are as
7	effected by these policies as we are. In fact, we ally with Japanese companies;
8	particularly the ones that are the most innovative and would benefit from full
9	market competition, as a means to work within Japan to create a more competitive
10	marketplace.
11	So it's the harm basically to the patient; it's the harm to the
12	economic system; it's the harm to innovation that we're arguing. We're trying to
13	deal with anticompetitive behavior so we have better access. We get a good
14	reception for that. I'm not sure on the access stuff that you get that good a
15	reception because it's often in the eyes of the beholder. It's sort of like an "I've
16	fallen and I can't get up" type of attitude. That is why it needs some help.
17	DR. STERN: This is very important in terms of what the U.S.
18	government can do in terms of positive and negative incentives. Later we'll have
19	a discussion on what the U.S. government does in assisting other countries to
20	draft competition laws, often in the merger area. We're seeing a proliferation for
21	a variety of reasons. Maybe, we're promoting the proliferation of different
22	merger laws. But there are things that the U.S. government can be doing in these
23	bilateral discussions to promote the principles of competition and expand the

30

1	focus on merger regs, to these basic economic principles.
2	The other incentive I was thinking of is the IMF. Perhaps there is a
3	silver lining in this cloud of the Asia crisis. It is dawning on authorities --
4	Korea is a good example. Joel says that the Department will have more
5	conversations with people that may be even more open to these ideas and
6	recognize that a more open economy is a more healthy economy. It may be that
7	Merit can give us a little insight on this.
8	MR. GILMARTIN: May I make another point? Then the data that
9	we're using to argue our case, that we've collected, is that the U.S. pharmaceutical
10	industry is the most successful industry in the world. It discovers about half the
11	world's drugs, growing rapidly and creates jobs. We do that because these
12	enabling conditions are present in the U.S.
13	So, we say to the Japanese government, "We have them, you don't;
14	your industry is underperforming." Similarly, if I go to Europe, it's the same
15	message, "You have some of these, but there are a lot you don't; you're at a
16	disadvantage." Since we're confident we can compete in the world, we're looking
17	to create the same kind of conditions abroad that exist here that make us as
18	successful as we are here. We're trying to do that in all parts of the world. And if
19	Japanese competitors and European competitors benefit from that? Fine, because
20	we'll just beat them in the marketplace.
21	By defining the problem that way -- about competition -- that may
22	be the data that you collect. It's different in terms of how industries prosper in
23	some environments.

31

1	DR. STERN: That is very important: this whole push towards
2	deregulation, particularly in bilateral trade discussions. Charlene Barshefsky says
3	she's going off to Japan next week. I certainly hope the emphasis will be on the
4	deregulatory message. There are other messages that I think may come through
5	louder and clearer, but this message that economies, even in the developed
6	countries, are made stronger and sharper through deregulation, through this
7	insertion of competition, is, in effect, a trade mission. At the same time, it is also
8	an antitrust mission or a competition policy mission that the U.S. government
9	should pursue more.
10	MR. GILMARTIN: One last point, and I don't mean to dominate
11	on the pharmaceutical industry, but basically we're saying there are five reasons
12	that we are the best in the world. I don't make it that blunt, but one of them is
13	because of the support of basic research in this country. But also intellectual
14	property protection; free markets; appropriate and transparent and regulatory
15	environment; and access to global markets. These are the enabling conditions
16	that allow us to innovate and create jobs, contribute to economic growth, and to
17	discover breakthrough drugs for the patient. So that's the basic message that we
18	hammer on and it's very -- the reason I mention it is some of what you're talking
19	about is that government, U.S. government, in other situations can make those
20	same --
21	DR. STERN: I wonder if other sectors, say the construction
22	industry, and others have done --
23	MR. DUNLOP: I doubt it. Some I do know, but that's one of my

32

1	notions about fact finding. Find out what people have done, thought, rather than
2	put a finger up in the air.
3	May I raise a different sort of a question that may help us? As I
4	was looking over our binders, in section D-3, on page 7 at the top, there is the
5	following comment about the matter of a study being done by -- under section
6	1504 of NAFTA. And what is says is this; "Establishes working group on trade
7	and competition." That's a -- a term we were talking about -- "establishes a
8	working group on trade and competition to make recommendations on further
9	work as appropriate within five years of entry into the force of the agreement.
10	These recommendations are due at the end of '98."
11	That's not so long from now. I'm wondering if we can get some
12	idea about what NAFTA has in mind and whether that, under the same title,
13	anyway, would be of some help to us in thinking about the parameters of this
14	problem?
15	DR. STERN: We'll make sure the staff follows up on that.
16	MR. RILL: Eleanor, actually, has been participating in the 1504
17	Working Group. So, maybe she could add something to John's question.
18	MS. FOX: Chuck Stark, who is here, has actually been
19	participating more than I have because the working group is a government --
20	intergovernmental -- working group. They will have a report, I'm told, by the end
21	of this year and we should look at it with great interest and we'll see if it moves us
22	along. I've done some background work for the ABA, and continue to do some,
23	to try to be of help to the working group.

33

1	DR. STERN: Is it broken down by sectors?
2	MS. FOX: No. It probably will relate to the trade and competition
3	interface of the three countries -- Canada, the United States and Mexico -- and
4	whether more and different kinds of cooperation may be envisioned on this
5	regional basis.
6	MR. DUNLOP: Let me raise the question. Take the whole
7	trucking industry. We're all well aware of the enormous rows that have been
8	created in that situation, whether the truck's from Mexico, the weight regs of
9	people who drive, how far you're going to let them drive, all this kind of stuff. I
10	don't know whether that's trade or competition, but I assure you it's contentious.
11	I'm wondering what that piece of paper has to say to us as we, it
12	seems to me, seem to tackle the same problem but essentially on a global basis.
13	MR. RILL: I'd like to come back if I may to David's point on data.
14	There, actually, is a wealth of information available. There is a lot of data out
15	there on a sectoral basis across a large number of industries. I could rattle off --
16	autos, glass, paper, semiconductors -- industries which have been at the forefront
17	of concern over trade limitations. Those data are generally statistical data
18	showing import flows, and export flows, production information and comparing
19	the situation with country X with the situations in countries Y and Z.
20	A lot of it emerges in papers filed with the International Trade
21	Commission, papers filed with the Commerce Department and Commerce
22	Department studies. We did some work on this, Merit knows well, during the
23	Structural Impediment Initiative talks with the Japanese. At the end of those talks

34

1	we got into sectoral discussions.
2	It's interesting information and there are data. They don't get
3	beyond actual numbers of what goes in and what comes out of various countries.
4	With the limited, albeit highly qualified staff that we have, I wonder how much
5	we want to get into those data, because underlying that I don't see -- at least I
6	haven't been able to find data that relates the import information to restraints of
7	trade. Perhaps its easier with governmental than private restraints, but none of the
8	data can really tie the two together so readily. Maybe we can look at those data,
9	see what are there, and then talk further among ourselves to see if we want to
10	pursue it further? There's plenty out there. I don't know, necessarily, what we do
11	with it after we take a look at it.
12	MR. YOFFIE: Some of the sectors you mention probably would
13	not fit our definition here. I would imagine autos would be an example of a very
14	large sector where antitrust concerns would not be the primary ones. They would
15	be more traditional trade access issues. I'm just guessing.
16	MR. RILL: There were inquiries made with respect to limits on
17	distribution of automobiles in other venues.
18	MR. YOFFIE: I suspect the Structural Impediments Initiative
19	would probably have more of the data than we would want. Precisely because it
20	was going after the kinds of restrictions that this Committee has the power to look
21	at. I think it's a very good source. And the question is: Is there, in fact, some
22	evidence of anticompetitive behavior, separate from purely market access
23	questions?

35

1	MR. RILL: What we're doing -- I guess what we're doing, as Paula
2	indicated -- we are trying to see what we can get from various trade associations
3	and various sectors. Also sources of data, we hope, will come out of
4	organizations that are not sector specific. But questionnaires are being prepared,
5	reviewed and being sent out to get a sense of this type of problem. The U.S.
6	Council on International Business and the Business and Industry Advisory
7	Committee to the Competition Committee at the OECD are participating in these
8	efforts as well.
9	Sometime in the Spring, when we have to sit down and start
10	thinking about what we're going to write in our report here, we ought to be seeing
11	what we're getting out of that as well. I don't know of a source where we can get
12	a statistical fix on group boycotts in country Y. I wish --
13	DR. STERN. And we're also getting the cooperation of the
14	Committee for Economic Development in circulating the questionnaire. And,
15	again, a plug: If anybody would like a questionnaire or has some suggestions
16	of other organizations, we are really trying hard to reach out.
17	MR. RILL: It's a really important question you raise.
18	MS. JANOW: I think, as Jim is saying, we have seen recurring
19	incidents of complaints about barriers to market access stemming from private
20	restraints or some combination of private and public restraints. And this is being
21	actively debated in international fora and the traditional characterization of such
22	problems, as was commented on here by Dick Simmons, is either
23	non-enforcement or lax enforcement or discriminatory enforcement with respect

36

1	to those jurisdictions that have competition laws and market access or private
2	restraints arrangements, as in markets that don't have competition laws.
3	I suspect this Committee will have to think through those policy
4	responses even without a full comfort level on the data. I'm concurring with Jim
5	on that point. It's still important to consider what does one do in environments
6	that don't have these laws? Do you think it is best to push for their creation as a
7	matter of U.S. government advocacy? You have described so well the leadership
8	of an American company, in your case, showing the benefits to the domestic
9	economy of the measures. That's not always the nature of the complaint.
10	Sometimes the complaint is that there is government support or encouragement of
11	private arrangements that are designed to block foreign or that are designed to
12	expropriate foreign technology. So there is a range here, and I suspect that range
13	needs to be a medium-term perspective as well as a short-term perspective about
14	what needs to be done.
15	MS. FOX: I want to say a few words to carry that theme further. I
16	do have a lot of respect for data, so what I'm about to say does not indicate I
17	don't always want more data. But life is short, the life of the Committee is
18	shorter, and global markets are becoming more global every day. And more and
19	more we see that nations are treating the problem as national. But markets are
20	larger than national boundaries. In view of globalization, it's very important to
21	develop some core principles that recognize the true dimension of problems. We
22	need, first, a vision from the top of each problem. Whether it's a market access
23	problem or a merger problem, the real boundaries are not national boundaries.

37

1	And we need, secondly, principles to deal with nation-to-nation conflicts, not the
2	least to head off the shifting of competition problems into a trade war. So, first,
3	we need to see the whole picture and grapple with it and, second, to have some
4	rules in place to solve conflicts among nations.
5	If we are going to think about broader-than-national interest, about
6	international problems as international, first of all, I want to say it's not altruistic.
7	We ourselves are benefited by looking at the problem as a world problem, trying
8	to remove barriers, open markets to competition, and prevent cartels to the extent
9	it's consistent and feasible with nations' proper interests to protect their own
10	public.
11	So we shouldn't really be thinking only in terms of labeling
12	American firms' opportunities abroad, though of course we think about that, but
13	we should be thinking more about the openness of markets. We also, I think,
14	have to think of the integration of trade and competition problems even while we
15	think of the separation of trade and competition problems and the separation of
16	some governmental problems from private problems. I think we have to move to
17	really seeing and dealing with them together.
18	I think one of the problems of the Kodak/Fuji dispute was that our
19	existing system forces us to disaggregate what is government and what is private.
20	And we don't see the whole picture and there's no place we can go to deal with the
21	whole picture at once. It might look much different if it were a whole problem of
22	governmental involvement and encouragement plus the private action. Rather,
23	today: half a problem goes here, to the WTO; and half the problem goes there, to

38

1	the competition agencies.
2	MR. RILL: Can I react to that and make a couple of other
3	comments that have been prompted by the excellent comments by the other
4	speakers?
5	I don't want to lose sight of the transparency point. I think that's
6	critical. And I think, just based on my own experience in SII and in other matters
7	that I've handled, transparency is an enormous barrier: transparency of what other
8	governments are doing and sometimes transparency of what our own government
9	is doing.
10	In that connection, I think, a step in the right direction is the
11	positive comity approach. I think it is slow moving, but I think that if we take a
12	look at the 1998 U.S.-EU agreement, with its reporting-back mechanisms, I think
13	those will move us in the right direction towards transparency of activity between
14	various jurisdictions here and abroad.
15	What I hear on positive comity, on the negative side of the positive
16	comity issue, in our travels, has been one, "Well, okay that's a stick where
17	foreigners can beat on our guys." Well, "So what?" is my reaction to that. There
18	is a reciprocity in positive comity. And, two, it's an excuse for inaction. I think
19	we have to examine that one. And it seems to me that if it's an excuse for inaction
20	then it's a failure. And I, being one of those at the creation of positive comity in
21	1991, would view that as a great loss. But rather than that, I think it's an engine
22	for action. I think once a serious positive comity effort is made, once there's a
23	formal referral and action on the other side that would be positive, or action here

39

1	on a referral to us that would be positive, positive comity will be viewed as a
2	success.
3	But what we have to deal with, as a Committee, is this: What
4	happens when positive comity breaks down, when there is a dissatisfaction by one
5	side or the other as to result? I think that's where it becomes an engine for action
6	because, I think, it leads to greater political acceptability to consider what Dick
7	Simmons says in his statement: unilateral enforcement. That having tried positive
8	comity, and it not being successful, then there's some political stigma removed
9	from unilateral enforcement. At least that's a thought we might want to examine.
10	While we examine also, possibly, the removal of some of the barriers, practical
11	barriers, to cross border enforcement and what steps we might recommend.
12	Further, on transparency, and this is kind of a wild thought, purely
13	personal, which I guess by definition is wild, and that is: Whether or not we
14	should think in terms of getting some kind of dispute resolution mechanism in
15	place, à la WTO -- binding arbitration.
16	But is there something to be said for nonbinding consultation by a
17	third party? John, you and I talked about that, I think, at the break of the last
18	meeting. There are a lot of bumps in the road, as I guess Joel said in another
19	context on the way. But that certainly would enhance transparency if people went
20	at it.
21	The OECD's 1986 recommendation, reviewed in 1995, provides a
22	possible forum for non-binding mediation through the OECD Committee: the
23	OECD now with 29 nations and counting. I think it's something we ought to look

40

1	at.
2	The only other thing I would say is that, I think, there is a very
3	valuable discussion here on the interface between the trade issue and the
4	competition issue. It's very difficult. It's difficult, as David says, within our own
5	government. Some of us thought that perhaps USTR, from time to time, is doing
6	antitrust work. And I suspect USTR thinks that antitrust is sometimes doing trade
7	work.
8	I don't have a ready answer to this, but we need to look at it and we
9	need to look, I think, beyond that. It's too easy to say government restraints, that's
10	trade, and private restraints, that's antitrust. There's so much of a blend, we
11	probably need to look at some of the ancillary issues, as Joel has said. We need to
12	look at where government compulsion and foreign sovereign immunity end, and
13	how broadly we should recommend to the Department and others to examine
14	those doctrines and their continued vitality in a globalized economy in hybrid
15	governmental private relationships that exist throughout the world.
16	Those are my reactions to the very helpful thoughts that have been
17	thrown out this morning.
18	MR. DUNLOP: Now I raise the question on this matter of
19	principle -- I wonder if you have an answer to it. I need to know whether, when
20	you say the principle of openness in trade and all that, does that mean -- and a lot
21	of the world is a Third World -- does that mean you are inherently by principle
22	opposed to the infant industry argument?
23	MS. FOX: No, it doesn't.

41

1	MR. DUNLOP: Then how do you combine the industry argument
2	with free trade?
3	MS. FOX: That's a good question, and here I also want to bring in
4	transparency, that Jim recognized, because transparency of derogations can be
5	one of the most important things one can do in dealing with specific fact
6	examples -- it could also help us combine the conceptual with the reality.
7	Specific fact examples that have happened in the past include, of
8	course, U.S. trade with Japan and claims that we can't get into Japan. Future
9	examples might involve developing countries.
10	I think that we could do well by having a general principle that is
11	most tightly linked with the trade principle. Here I'm going to focus on the WTO,
12	just to say a word about how certain market access questions are on the other side
13	of the coin of trade restraint that are now prohibited. If one wants to be part of
14	the world trading system -- if a country wants to be part of the world trading
15	system and have the benefits of open markets around the world, as already now
16	given by the WTO, then it seems to me that that country also ought to be saying,
17	"I guarantee that I won't make restraints that are inconsistent with the WTO; and I
18	also guarantee that I'm not going to sanction business firms making those
19	restraints so other people can't get into the market."
20	If there's a particular problem about developing countries where
21	they might need governmental protection, say for an infant industry, I would say
22	they should be free to make transparent derogations; and if derogation is
23	important to the national interest and is not really a beggar-thy-neighbor spillover

42

1	type of thing, then they should expose this as what they're doing. There should be
2	a register for these derogations. I think there should be a register for countries'
3	cartels so at least it becomes transparent, and then maybe the derogation will
4	disappear. In any case, we can see what we are debating about and even can think
5	about what future rules to make to constrain derogations.
6	You could have the possibility of a consensus of nations that either
7	they will have an antitrust law that will prevent anticompetitive blockages of
8	markets or they will assure, otherwise, that there are no anticompetitive blockages
9	of markets. Hong Kong, for example, might assure no anticompetitive blockage
10	of markets even without a competition law, if it has a totally free economy where
11	the market won't let the firms engage in such restraints. That's one example.
12	The particular market access problem is so linked with what
13	countries are bargaining for when they enter the world trading system that there
14	really ought to be some undertaking of open markets in the first instance, plus
15	transparency for derogations.
16	MR. RILL: Madam Co-Chair, if I may, just for a second. The
17	OECD, of course, has issued a Hard-Core Cartel Recommendation, as I think Joel
18	mentioned as he was very instrumental in putting that through. We should be
19	aware, at this Committee level, that the WTO ship is either going to be sunk or
20	somewhat further out on the ocean well before we submit a report. Because the
21	Working Group on Trade and Competition, headed by Frédéric Jenny in the
22	WTO, is due to be renewed or not at the end of this year; and is due to submit
23	reports as to whether or not it will be renewed. I don't know that there's a

43

1	mechanism for us to have an input into that, but I throw it on the table because
2	maybe we would want to advise the Department of Justice on that issue, that
3	fairly sensitive issue.
4	MR. DONILON: This is not an area where I have a deep
5	expertise, so I wanted to ask a couple of questions and make a couple of points.
6	The first point is, although it may be difficult to get data, I think it's important for
7	the Committee to at least define the problem with precision that it's addressing.
8	And I think we should do some work on that. I would like to better understand
9	exactly what problem we're trying to address here, what conduct by private firms
10	would constitute something that we would like to see addressed.
11	Second, with respect to the role of the Division and law
12	enforcement agencies: I think it's an important question to try to better unpack.
13	What are the real world capabilities of the antitrust authorities for addressing this?
14	The Antitrust Division does not negotiate access to the WTO on behalf of
15	countries. It doesn't negotiate trade agreements. It brings cases.
16	And what would a complaint look like? What would a
17	hypothetical complaint look like here? What are the challenges? We have Chuck
18	Stark here who might be able to talk to us a little bit about this. Chuck, I assume
19	there are real challenges here as to bringing a case against -- against what
20	conduct? What does it look like? And we need to really try to understand what
21	this section of the background paper means, what this option means in terms of
22	unilateral enforcement. Is it real? What would have to be present for a complaint
23	to be brought? Is it something as a matter of policy if a complaint is possible to

44

1	be drawn? Is it something we would recommend? Does it risk politicalization of
2	the Department and subject it to that kind of pressure?
3	My instinct tells me that actual complaints brought in this area by
4	the Justice Department would face real practical limitations -- as is outlined in the
5	background paper -- and would be quite limited. Which brings me to agree with
6	Ray's initial comments, which is: the way to go with this is to look at long-term
7	multiple approaches -- bilateral, multilateral and government advocacy, both in
8	the private sector and government sector.
9	To do that, as he said, we need to decide, I think -- and this would
10	be my next recommendation -- on a place for the Committee to focus; decide
11	where we want to end up. What are the core principles that we can endorse to
12	the United States government? And then lastly, think about concrete ways in which
13	to advance those principles over the long-term. Where and how should they be
14	advanced?
15	Again, those are comments from someone who doesn't have a lot
16	of deep experience in this. But I do think we need to define the problem, realize
17	the limits or understand at least the possibilities and limits of antitrust
18	enforcement here, and then think about concrete ways in which we can advance a
19	set of core principles that we might work through.
20	DR. STERN: That's very helpful. The questionnaire, which will
21	be on our website soon, is offered in our tab 2. So it's D 2. I think that will get to
22	you. And if you get to the page, where it says background material in the
23	discussion -- 3. D3. It's Background Material and Discussion Questions. Is that

45

1	where I had it? No. I moved my finger. Here it is. It is Background Material
2	Provided, Questions Presented and it's right after the list of business outreach
3	organizations contacted. So that is at D2.
4	And on page 2 of that background material, one and 2, there are a
5	series of -- 3. Page 3 of the questions. E3. Trade and Competition Policy
6	Interface Issues and the questions are on pages 3 and 4.
7	Tom, you've called our attention to it. What is it that we're asking?
8	And if you've got further suggestions, this can always be improved.
9	Now your point about what the Justice Department is doing about
10	law enforcement, what else can it do --
11	MR. DONILON: What can it do?
12	DR. STERN: What can it do? And you talked about bringing
13	cases. But they also might negotiate positive comity agreement with others, and
14	extend outreach to other countries.
15	MR. DONILON: The reason I brought that up -- that, I think, is
16	correct and would be part of the multiple approaches point, which is advocacy by
17	the government and by United States private sector. But where I wanted to try to
18	get a better feel, because, quite frankly, I don't have a feel for it, is: What do we
19	mean by saying that we should at least consider -- explore -- the option of
20	unilateral enforcement, which would be bringing actual cases against specific
21	conduct and specific parties? As a practicing attorney, the first thing I would do
22	is look at the complaint against my client and try to figure out whether it stands.
23	And I'd like to get a feel for whether or not -- what the Justice Department will do

46

1	with that.
2	MR. RILL: Tom, there are cases. There are cases that have been
3	brought. And we've asked the Department to advise us of the number of
4	enforcement actions that, in whole or in part, related to conduct overseas,
5	affecting both incoming, but particularly, outgoing commerce. I think we asked
6	this at the first meeting. I haven't seen anything yet but I'm sure they'll give us
7	that. That will be at least a partial answer.
8	In addition, part of our road show discussions with other law firms
9	is eliciting that kind of information. All of which is by way of saying, I think,
10	your question is really pertinent and one we need to get in up to our elbows.
11	MS. JANOW: Can I add just a footnote on this point? Jim also
12	took the lead, he didn't in mention it in this instance but, in the Antitrust Section
13	of the ABA. That was specifically a question we asked of them, was to try and
14	provide us a chronicle as well as an assessment of these so-called export restraint
15	cases, not only those involving the government, which is not a terribly long list, I
16	should note, and is also not terribly recent. With perhaps a case list partly of the
17	barriers or the difficulties of litigation.
18	We have in these outlines spoken to the difficulties of litigating --
19	prosecuting these cases when transnational cartels are involved. We haven't done
20	that explicitly in the export restraint case. Gary Spratling will be with us later, as
21	will Chuck Stark. I think those difficulties become even more complicated when
22	you're talking about an export restraint situation and maybe what you're also
23	suggesting is that we might usefully develop a background paper to think about

47

1	those difficulties in the export restraint context.
2	So, I think there are things underway that will help us on that, or at
3	least provide some background.
4	MR. RILL: I think that's going to be covered, at least in part, in
5	the paper that we're going to be getting from the ABA Antitrust Section. One of
6	the thoughts that was given to us, as you recall, at one of the law firm visits was --
7	we're not limited to advising just Executive Branch action. If there's legislation
8	we think is appropriate, we can certainly -- maybe nobody would listen to us --
9	but we can certainly recommend it. If there are impediments to enforcement,
10	either cartel enforcement or if we find there are impediments to other types of
11	civil enforcement, and we think that's a problem, we should examine it, identify it
12	-- I think this is your point, Tom -- and then recommend ways that it might be
13	remedied.
14	MR. GILMARTIN: Picking up on Tom's point, as well, about
15	defining the problem, particularly in this area here. And as you noted, Merit,
16	there are a lot more, sort of, trade and competition interface issues being brought
17	forward in the trade arena. And one of the things that we should probably
18	examine would be sensitivity to the point that you made Eleanor, because the
19	trade arena has been a very effective and high profile activity. To what extent are
20	problems being defined to take advantage of that vehicle? Now these are really
21	competition problems, which is what you were talking about.
22	What happens when they get in the trade arena and they start
23	developing the case and it's not there because you can't make it a trade case?

48

1	Now -- and if there was a parallel effort on competition, if you will, that that was
2	a venue by which you could really deal with these kinds of issues, then we get the
3	problem defined properly and then would be more effective in resolving it.
4	DR. STERN: When you stop and think about it, the U.S. Trade
5	Representative has traditionally sat as a cabinet officer. It sits in the White House
6	and gets ambassadorial rank. All of this because Congress made it so important.
7	This was a creature of the Finance Committee and Ways and the Means
8	Committee. So it's an interesting point. Are we now at a stage in our economic
9	history that we are wanting to enhance the competition policy role as a public
10	policy priority of the United States in the international arena?
11	MR. RILL: That's a really good question I think, and one that we
12	should address. I would certainly support giving the Assistant Attorney General
13	for Antitrust a cabinet rank.
14	DR. STERN: Ambassadorial too!
15	MR. GILMARTIN: If you define the problem the other way,
16	everything starts moving, just to an extreme; all competition becomes some big
17	part of the WTO, which doesn't seem, necessarily, the right way to go.
18	DR. STERN: It may be the tail wagging the dog.
19	MR. GILMARTIN: The result of people trying to attack their
20	market access issues and what they think might be a very effective arena, as
21	opposed to what's the right WTO --
22	DR. STERN: That is a very good point.
23	MS. FOX: I want to say something further to Tom's very good

49

1	question about what are we talking about, because this trade and competition
2	question can be very broad. I want to start tackling that fight, talking more about
3	why are we here, and to say something about what the European Commission is
4	doing --
5	DR. STERN: I hope you will also -- I do feel like we need to
6	address -- I don't want to cut you off, but you're the core principle person. And if
7	we can get a few core principles at least articulated, that's your assignment.
8	MS. FOX: Okay. I could do that. But one thing I wanted to say --
9	this relates to trade and competition and it relates to U.S. and the world, it relates
10	to the EC and the world -- there are others, that is, not Americans, who are much
11	farther than we are, having done more thinking and resulted in papers and
12	proposals. They are farther along in thinking about internationalizing competition
13	law. They recognize that because problems are international and supposition that,
14	because problems are international, we need to internationalize competition law.
15	A piece of that is trade and competition, sort of narrowly defined,
16	that is: barriers to market access, both public and private. That's just one piece.
17	Then there's this big problem about: Do we need to and do we want to
18	internationalize competition law?
19	If we proceeded to internationalize competition law, rather than
20	internationalizing at the point that trade meets competition, we might end up in a
21	totally different place. We might end up with -- even if you ended up with
22	something and you might shoot down everything -- you might end up with a new
23	kind of collaboration, not in the WTO, that talks about international problems. Or

50

1	there's some core principles of open markets and derogations, and what do you do
2	about competition law on an international basis.
3	The reason I am mentioning this now is because there's a huge
4	debate in the world going on -- and the European Commission and many
5	Europeans and a number of others envision internationalizing competition policy
6	in the image of EC law. Those are two different things. One: international
7	competition policy. And when you do it, of course you do it to be more like
8	whoever you are. And the Europeans are very far out in front in putting forward
9	this idea that there are problems that need an international solution. And they are
10	also kind of expanding the scope of the European Community solutions through
11	association agreements and trade agreements.
12	And my point is that if we're not part of this debate, we default.
13	Maybe in some cases the European laws are better than ours. I think they are
14	with respect to state action within the European internal market. On other points
15	our laws might be better than theirs are. But we're not engaging in the debate.
16	My fear is, if the United States stands back and says, "We can do
17	whatever we want to; we have our unilateral remedies if we don't like what's
18	happening on in the world," and we're afraid to go into the international arena
19	because we will get co-opted by trade policy or foreign competition policy, I'm
20	afraid that is going to lead us to the default position. We will find an
21	internationalization of antitrust and, whatever it is, and we will not have been
22	architects.
23	DR. STERN: That's a superb statement, and may even suggest that

51

1	we have been using the wrong term in, "the interface of trade and competition."
2	Maybe we should be reshaping the definition of our examination to the
3	"internationalization of competition law." And the EU not only may be shaping it
4	in its own image, but also exporting it to central Europe, eastern Europe, and in
5	negotiations with Latin America and other countries. Thank you, Eleanor.
6	I'm sorry, Tom?
7	MR. DONILON: I was going to add half a sentence to what
8	Eleanor said. Not only that we are not part of the dialogue, but that the dialogue
9	doesn't have the benefit of our hundred years' of experience. In this area we've
10	seen a lot of pendulum shifts and swings in our antitrust enforcement/competition
11	law. And I think that we have a lot to bring to the -- a lot to bring to the table, I
12	think -- that's number one.
13	Number two, that's something I should have mentioned in talking
14	about long term approaches. It's not clear to me that the lesson that every country
15	will learn from the events of the last year, that the international economic system
16	will be to open their markets, it may be -- they may learn other lessons. But to the
17	extent that other countries, over the long haul, do develop open markets, we have
18	a very highly stylized and deep relationship with most of our current trading
19	partners -- between market economies. But as other countries develop market
20	economies, I think it's important to get the core principles established and try to
21	get out in front of development of these market economies with ideas that make
22	some sense.
23	MR. YOFFIE: I just wanted to make a couple of quick points.

52

1	One, to come back to the painful subject of data. If we don't get a good sense of
2	the orders of magnitude that are involved here, our ability to recommend remedies
3	will be limited. In other words, we can recommend stronger remedies if we can
4	argue that this is a bigger problem.
5	DR. STERN: We thought this was all going to be in the Harvard
6	Business School data bank.
7	MR. YOFFIE: I want to make sure we think about this connection
8	between data and remedy. If, in fact, we can see a few anecdotal examples here
9	and there, then we are likely to conclude that positive comity, for example, might
10	be the most we can reasonably recommend under current circumstances. If, on
11	the other hand, we can argue for a trend or argue that there is widespread
12	evidence of the existence of these problems, we can make the argument that more
13	important or severe actions can be taken.
14	I want to make sure we don't miss that link. I want to make sure
15	we remember when we are having people at our hearings in Washington in
16	November, that we ask the foreign competition authorities, in particular, what
17	they want from the United States. Because that is something that gets us into this
18	realm of positive incentives. What are the things we may be able to offer as part
19	of any new set of guidelines, whether it be international, multinational or even in
20	terms of bilateral agreements that we're going to be able to offer?
21	MS. JANOW: Well, if I may -- since my job as Executive
22	Director is to try to operationalize some of your thinking in some drafts that come
23	back to you -- just challenge a couple of notions that come forward to help me

53

1	think about how we do that. First, David you caused me to challenge yet
2	additional comments. Let me just point to one.
3	Eleanor: the internationalization of competition policy. I think that
4	naturally leads to the question, and I'm hearing concurrence on the importance of
5	that framework, of: What are our objectives? What might be U.S. objectives with
6	respect to the internationalization of competition policy? The European proposal,
7	which may not be a consensus proposal, but their proposal has suggested some
8	sort of international rules or principles, whether at the WTO or elsewhere. And
9	so that's on the table to be addressed.
10	But I think there is a debate as to whether the internationalization
11	of competition policy needs to take that form or -- that form meaning some effort
12	to reach a harmonized set of agreed-upon rules, which, as Eleanor said, would be
13	in the European model. Is the U.S. objective here to develop it's own advocacy
14	for its set of rules at the international level, or might the United States' objective
15	in the internationalization of competition policy take other forms?
16	I think that's an important issue. What are our objectives with
17	respect to the internationalization of competition, and how would we -- this goes
18	to your point, Tom -- make it concrete? I think this Committee perhaps needs to
19	debate that issue a little bit more.
20	And then David, I just wonder on this point -- I'm remembering,
21	for so many years in the trade context, arguing about issues, for example, like
22	supercomputers, if I may say, where you couldn't say that the trade effects
23	associated with supercomputer sales were that significant, but the perceived

54

1	consequences of the loss of that market were. So I'm wondering, even -- if there's
2	an analogy here -- even if we're not able to give a sense of the order of magnitude
3	of commerce affected by anticompetitive restraints, does that really limit this
4	Committee in thinking about remedies?
5	MR. YOFFIE: In the case of supercomputers it was externalities,
6	and everyone had a clear sense of what those externalities are. There, again, you
7	were identifying relatively large scale effects: just not in the particular area that
8	was being traded. So any way you look at it, you have to identify some effects
9	that are going to be important to the economy.
10	So, I don't think that these things are mutually exclusive. You can
11	have, potentially, small industries -- particularly in high-technology, where the
12	potential effects would be very widespread -- and that would be sufficient at least
13	to argue that maybe more severe or impactful remedies are required.
14	MS. FOX: As usual, Merit, your questions are very probing and
15	really important. I want to say a word about our objectives vis-à-vis what seem to
16	be European objectives.
17	As you've mentioned, the European proposal seems to envision,
18	ultimately, common rules for the world. I'm against that. It begins, however,
19	with a very fruitful framework for building blocks of positive comity and
20	cooperation, transparency -- which is one of the keys in the European internal
21	market, but particularly with government restraints -- and nondiscrimination.
22	I take Tom Donilon's point about our experience over a hundred
23	years and about the swings of the pendulum on substantive law. This is so

55

1	important. Nothing should be written in stone at a world level; you can't dissolve
2	the stone. Things change, society changes, needs change. Different societies may
3	need different rules or nuances; the same society may need different rules at
4	different times.
5
6	My thought is we should, first of all, engage -- that is the U.S.
7	should, and it is not now -- engage in conversations about how to internationalize.
8	There is a need for internationalization that fits the scope of world problems, and
9	a need for articulating, in general, an open market, free market rule, certain rights
10	of derogation, transparency of derogations, restrictions on excessive government
11	protective or beggar-thy-neighbor restraints, and dispute resolution.
12	And I'll give you one example of a law that I think is in need of
13	internationalization: the Canadian merger law. The law says that mergers that
14	are anticompetitive are potentially illegal. But they could be defended if Canada
15	gains more than it loses. This includes producer gains from exports. If the
16	producers and consumers in Canada have a net gain, the merger is okay in Canada
17	even though the world suffers a net consumer loss.
18	That's a nationalistic way to look at a merger that has international
19	effects. If U.S. consumers are hurt by a Canadian merger, their harm, as well as
20	Canadian consumer harm, either should not be offset by Canadian producer
21	benefits, or all consumer and producer benefits should be taken into account. But
22	if you literally apply Canadian law, it's discriminatory and shouldn't be allowed.
23	This is probably the tip of the iceberg. There are probably many

56

1	other national laws and their applications that look in this direction, because law
2	is national. And nations are looking out only for their own immediate interests.
3	Yet we're all better off if the standard is world welfare subject to what nations
4	agree are rights to derogate. That's the kind of principle that I'd be looking
5	towards.
6	I think it's very important to advocate that no detailed principles be
7	written in stone. On the other hand, it's okay, it seems to me, to advocate
8	adoption of an antitrust law against cartels. You can import the OECD
9	recommendation itself, without all the exceptions. And you could advocate
10	adoption of law forbidding anticompetitive mergers with serious spillover effects.
11	The form could be a framework directive in the tradition of the EC,
12	as advocated by the EC Experts' Report. A framework directive would lay out
13	the objectives and say: All countries must pursue these objectives. All countries
14	undertake to adjust their national law to implement these objectives, and no
15	country may have discriminatory law.
16	MR. RILL: Is the WTO the right forum in which the discussions
17	to this end should take place?
18	MS. FOX: Not necessarily. I think the problem -- or opportunity
19	-- is that the WTO is there.
20	MR. RILL: The elephant's on the table.
21	MS. FOX: Yes, and there's an additional problem that -- and you
22	can tell me whether this is the dog or this is the tail -- but there is one distinct
23	issue which is a trade/competition issue: and that's the market access issue. We

57

1	could agree, in the context of the WTO, that countries should not allow
2	unreasonable restraints on market access by government or private parties. One
3	could say that's the only trade issue. But we do have this problem of
4	internationalizing to fit the modern world.
5	DR. STERN: Only the WTO issue.
6	MS. FOX: Thank you. The only WTO issue. We could say that's
7	a legitimate concern of the WTO. Everything else is new and different. It's not
8	trade. It stems from the fact that globalization of markets has internationalized
9	competition problems.
10	DR. STERN: Eleanor, you've been a wonderful, wonderful,
11	clairifier and resolver, perhaps, of a lot of these conundra that we have been
12	discussing, including defining "this elephant" called the WTO.
13	MR. RILL: I thought you were talking about me.
14	DR. STERN: No, Jim. I'm not getting "partisan" here. The WTO
15	organization has also been the magnet for groups wishing to achieve other goals.
16	Take the trade and environment debate at the WTO. Take labor and trade issues;
17	some say why not the ILO, the International Labor Organization? The reality is
18	that trade has become such a successful route, politically, as well as in other
19	ways. And the WTO has grown beyond, perhaps, what its original missions were.
20	But there aren't any competing institutions.
21	It is, as Eric reminds us, the witching hour. And I would like to
22	thank everyone for his or her contribution. Now we are going to switch gears and
23	go into both the lunch hour, but it is a working lunch. Ordinarily I'd like to give

58

1	everyone a chance to give closing remarks, but I think that would be redundant.
2	And we'll have opportunities to continue the discussion as we go into
3	International Law Enforcement Cooperation as well as Multijurisdictional Merger
4	issues. So we will take a quick break. But Merit is not going to let us do that.
5	MS. JANOW: I am. I really am. Just a footnote. We are
6	preparing a set of questions, solicitations for papers on each of the three subjects,
7	including this one. So if I could ask, before anybody leaves today, to be sure to
8	take that with you so you react to it. We'll pass it out. That was one point.
9	Second, we've mentioned before also the hearings. I know you
10	can't necessarily speak to your calendars today, but if you have subjects on the
11	hearing schedules that are particularly interesting to you, if you could just alert
12	me and then I can work with your offices about the dates and so on. We have
13	such a spectacular group coming and all of them are very much interested in
14	being able to interact with you that, to the extent your calendar permits, it would
15	be marvelous if you could reserve some time over those three days. Thanks.
16	DR. STERN: Thank you. Okay. We'll take a five-minute break,
17	10-minute break.
18	(Recess.)
19	DR. STERN: We get an opportunity to talk and eat at the same
20	time. And we're now going to move on to item two on our calendar: Enforcement
21	Cooperation. And we have the good fortune of having our Co-Chair, Jim Rill,
22	lead off this discussion. And Gary Spratling is here now, having earned the red
23	badge of courage for taking the red-eye again. And, also taking note that, Chuck

59

1	Stark is also here and available. Jim, would you do us the honor?
2	MR. RILL: Sure. Let's get right into it. Obviously, extraterritorial
3	enforcement or, really, enforcement cooperation in the cartel context is one of the
4	three legs of the Committee's responsibility. I want to start by not going over the
5	turf that we plowed through at the last meeting, but to express my profound
6	thanks to the Department of Justice, and, in particular, Deputy Assistant Attorney
7	General Spratling and his senior counsel, Scott Hammond, who both have been
8	very, very forthcoming and helpful, in giving us a cornucopia of statistical data
9	relating to the Department's global cartel enforcement program. Just makes me
10	wonder where were they when I was there, but never mind that. The fact is just to
11	review some of the statistics.
12	DR. STERN: I was just asking, are the statistics going to be made
13	public? I guess so.
14	MR. RILL: He said it's an update of what was presented February
15	26. So, if that was public, this is.
16	DR. STERN: The public is waiting to hear it.
17	MR. RILL: The fact is that --
18	MR. SPRATLING: The first section, Jim, is an update, but the
19	other stuff is new.
20	MR. RILL: I appreciate that. The discussion earlier this morning,
21	Gary, focused, in part, on a desire to obtain some kind of data to give us an
22	empirical assessment of what the scope of the trade and competition area problem
23	might be. Based on the information that you've given us already, I don't think

60

1	we're going to have that same unsatisfied thirst in this area. And if we do, I'm
2	sure you'll come forth with more.
3	Just to rattle off a few of the numbers: 30 current sitting grand
4	juries are looking into suspected international cartel activity. The subjects and
5	targets of these investigations are located on five continents and in over 20
6	different countries. The activity is even broader than these numbers reflect,
7	according to the information given to us -- implementing cartel meetings are
8	suspected to have occurred in 60 different cities in 25 different countries,
9	including most of the Far East and nearly every country in Western Europe. I
10	suspect some in the United States.
11	The volume of commerce in some matters reaches over a billion
12	dollars a year in some matters; and others, over $500 million a year. And in over
13	half of the investigations, well over $100 million a year of commerce is affected
14	by the suspected cartel activity.
15	I feel so much chagrin that the comparison numbers that the
16	Department provides compares fiscal year 1991 with fiscal '97 and fiscal '98.
17	And the --
18	MR. SPRATLING: Well, Jim, the seeds of a successful
19	prosecution, after all, are sewn much earlier.
20	MR. RILL: Ever the diplomat. But I'll go ahead and say what
21	they said about us. In fiscal '91, only one percent of the corporate defendants in
22	cases brought by the Division were foreign -- that doesn't count Californians,
23	right Gary? And in fiscal '97, 32 percent of the individual defendants were

61

1	foreign based; '98 to date -- not much time left -- 64 percent of corporate
2	defendants were foreign-based and 30 percent of individual defendants were
3	foreign based. That's an awesome number.
4	To David's request for statistical data, I think we have a wealth of
5	it in the international cartel area. In fiscal '97, the Department had a record
6	breaking $205 million recovery in criminal fines, almost 500 percent higher than
7	the level imposed during any previous year -- at least I've got company. And in
8	fiscal '98, over $245 million in criminal fines already have been recovered. I
9	don't know as of what date this information is.
10	MR. SPRATLING: That's as of yesterday, Jim; but we hope the
11	figure will go up before the end of the year.
12	MR. RILL: With about two weeks running.
13	$450 million in fines have been imposed since the beginning of
14	fiscal year '97. Nearly $420 million, or over 90 percent, of the fines have been in
15	connection with international cartel activity. I think in fairness we'd like to know
16	the percentage against U.S. firms and the percentage against foreign firms and
17	how that might divide out.
18	MR. SPRATLING: We will provide that.
19	MR. RILL: The fact, I think, we should recognize, also, and I
20	think it's a very important fact in our outreach as a Committee and in our
21	deliberations as a Committee, is that the parties injured by the cartel activity are,
22	at least in the first instance and quite often in the last instance, business firms --
23	principally customers of the cartel's co-conspirators.

62

1	And since the beginning of fiscal '97, the Division has prosecuted
2	international cartels affecting over $10 billion in U.S. commerce. And, of course,
3	as I indicated at the outset, there are 30 grand juries looking at international
4	cartels that have not entirely finished their work. So this is really a number in
5	progress.
6	Specifically, in the lysine area, worldwide sales affected
7	approximately $1.5 billion; $650 million in the U.S. This is a very important feed
8	additive for the agricultural economy in the U.S. Citric acid: worldwide sales
9	approximately $1.2 billion; U.S. impact over $1 billion.
10	Now let's talk about cartel activities currently under investigation.
11	Looking at the shipping industry, where U.S. sales are over $200 million in
12	services; metals over $750 million; construction contracts over $220 million.
13	These are matters that are still being looked at.
14	MR. SPRATLING: Which is the reason they're not more
15	specifically defined.
16	MR. RILL: I appreciate that. A good amount of the work that still
17	remains to be done is very difficult -- in the trade and competition area -- I think,
18	it's already done, in large measure, by the Department for us in the cartel
19	enforcement area.
20	It's not hard to answer the question, "Are transnational cartels a
21	problem?" The numbers speak for themselves.
22	The question then becomes: What is there for this Committee to
23	do? And I think one would want to look at the obstacles to effective enforcement

63

1	cooperation. Some of our partners I think are concerned. By partners I mean, not
2	my partners, I mean foreign national colleagues are concerned about information
3	being transmitted to the United States, in a variety of contexts, and being used for
4	purposes other than the designated purpose for which the information was asked.
5	How do we address that?
6	There are issues that have been raised as to foreign sovereignty.
7	The Japanese government opposed the prosecution efforts of the United States
8	against the conduct occurring overseas that was prosecuted in a criminal context
9	in the Nippon Paper case. The United States prevailed in that litigation. Access
10	to documents as well as to witnesses continues, I think, to be raised as an
11	impairment to fully effective enforcement.
12	I know that Assistant Attorney General Bingaman, in several
13	speeches following the General Electric/DeBeers case, which the United States
14	lost at trial, suggested that part of the reason for the unsatisfactory result was the
15	inability to obtain testimony of witnesses located overseas. And that, again, is a
16	question as to whether this should be viewed as a problem by the Committee and
17	what remedies should this Committee suggest to address that problem?
18	There's also the question of obtaining extradition for those
19	overseas who have been indicted. We have extradition treaties with a variety of
20	nations. Few of them mention antitrust as an extraditable offense. Is that
21	something we should look at? Are there adequate border watches? Is
22	cooperation with the INS fully effective in reaching individuals that are subject to
23	investigations, or, for that matter, under indictment entering the United States, to

64

1	find them?
2	I think part of the problem, to the extent there is a problem, is that
3	other countries are not fully in tune with criminal enforcement of antitrust
4	offenses. Only, I think, eight countries in the world, other than the United States,
5	have criminal sanctions for antitrust competition violations. I think Canada, of
6	course, is one that does; Japan does. There have been some prosecutions in both
7	of those countries. So the investigative cooperation may be limited by the extent
8	to which foreign countries are willing fully to cooperate with us, a nation which
9	has a very active criminal enforcement program.
10	I think conversely, there has, at least in our conversations, been
11	some concern expressed with the cooperation that can arise by an outflow of
12	information from the United States to countries that may have serious penalties. I
13	think the government, as you said, Gary, won a very important victory in the
14	recent Balsys case regarding the application of the Fifth Amendment, which was
15	held in a different context not to apply to self-incrimination concerns arising
16	under the laws of a country other than the United States. I think it's a concern
17	raised more as a policy matter, in case there are serious sanctions overseas, maybe
18	even arising under non-competition laws, perhaps fraud laws or other laws that
19	would be uniquely severe. That would be a matter of concern to the United States
20	companies' willingness to provide information if it would wind up in the hands of
21	foreign enforcement officials, a subject we should probably look at.
22	How can we improve enforcement? I think this is another subject
23	that the Committee needs to look at. First of all, assuming we do want to improve

65

1	enforcement and, at least, that's my own view. The US-Canada MLAT -- Mutual
2	Assistance Legal Treaty -- works well. We can use more input as to how it has
3	worked. But I think agencies on both sides of the border have extolled its
4	effectiveness. I don't know that the MLATs with other countries have been so
5	effectively implemented or that their coverage is so antitrust-express as with the
6	agreement with Canada. We need to know that before we can recommend the
7	expansion of the MLAT approach.
8	Confidentiality concerns arise in a variety of contexts. They arise
9	in the merger context, they arise in the trade and competition context, and they
10	certainly arise in the cartel enforcement context. On the other hand, I don't know
11	if I personally have a lot of sympathy for the confidentiality concerns of people
12	who get together in hotel rooms and rig prices. I can see why they would want to
13	keep that confidential. But the public policy rectitude seems somewhat lacking in
14	those circumstances.
15	The Department has endorsed and supported the OECD Hard-Core
16	Cartel Recommendation. I think that's probably a positive step. Are there further
17	steps in the core principle convergence area that would apply to cartel
18	enforcement that would be useful for this Committee to recommend? There is, on
19	the table, a proposal to raise criminal fines from $10 million to $100 million for
20	corporate offenses. I'm not sure I even right now know the status of that. It may
21	be a while before that issue is addressed. You want to say something on that,
22	Gary?
23	MR. SPRATLING: No. The legislation is being held up until we

66

1	get the comments of interested parties and then we expect it to go forward.
2	MR. RILL: And the Judiciary Committee would be the one to
3	consider that legislation. I'll leave that there. The Advisory Committee, the staff,
4	Paula and I, and Merit have met with a number of business, legal, and academic
5	types to try and get our arms around this problem and get the advantage of
6	personal experience and economic and legal scholarship, and I think we're going
7	to do that significantly more. We have worked closely with Gary and Scott and
8	the DOJ staff, and we really are getting, I think, superb help in information from
9	you all, but we need to continue that.
10	Some thoughts. It seems to me that the case for the scope and
11	magnitude is well on the way to being made. This is an issue; and we should
12	recognize what the Department's done in this area. I think we need to look at
13	bilateral and multilateral agreements both on substance and process to determine
14	whether we should encourage the Department and the United States government
15	to enter into these. At the same time, we should address legitimate confidentiality
16	concerns and penalty concerns, if they are legitimate, that are raised by people
17	that we talked to in the U.S. as well as overseas.
18	And then I think we need to look at ways, if we believe it should
19	be made more effective, as to how enforcement can be made more effective. In
20	addition to legal assistance treaties, perhaps extradition treaties and other ways
21	that we can break down -- recommend breaking down some of the barriers to
22	witness and document production, discovery, and enforcement that may still exist.
23	Having said all that, I think the record indicates that whatever impediments there

67

1	are have not stood in the way of the very strong, powerful, global antitrust
2	enforcement activity against hard core cartels, for which Gary and his colleagues
3	and Joel should be, in my opinion -- speaking as only one member of the
4	Committee -- strongly applauded. That's it, as an opener.
5	DR. STERN: Thank you so much, Jim. We have all had an
6	opportunity to look again at the outline in the book that the staff has so carefully
7	pulled together covering all of this. And Jim has been good enough to bring us
8	up-to-date. I open the floor now to any comments, reactions, guidance, direction,
9	advice from the members. Eleanor?
10	MS. FOX: I have a small question on data. Gary, is there data --
11	this is in my -- Jim's saying that great deal of the harm of international cartels are
12	to businesses. And my question relates to competitiveness. Is there any data
13	showing the costs to our businesses that are doing business in international
14	commerce, and the extent to which international cartels are handicapping U.S.
15	firms in international commerce? How much are overcharges impairing the
16	competitiveness of U.S. firms? Do you think that will be a useful statistic to look
17	at, if we could get it?
18	MR. SPRATLING: We haven't tried to get that because our focus
19	is on the -- we know there is that downstream effect, either in terms of the impact
20	on consumers or in terms of the impact on the victimized companies' abilities to
21	compete in whatever markets they're competing in. We recognize both of those
22	downstream effects.
23	But to the extent that we collect information, most of it is

68

1	anecdotal, some of which Jim referenced in his opening remarks. We are looking
2	at the extent to which prices are increased to the victims of these conspiracies.
3	And we know that, of those that we've prosecuted thus far, most are businesses.
4	Consumers don't buy lysine; very large poultry and pork producers
5	buy lysine. Consumers don't buy citric acid. Coca-Cola, Pepsi Cola are all
6	companies that process foods using citric acid. Consumers don't buy the marine
7	construction services; the oil companies buy the marine construction services.
8	Consumers don't buy graphite electrodes, but the steel companies buy graphite
9	electrodes to make steel. We have much anecdotal evidence, some of which Jim
10	mentioned.
11	In one of the industries that we have not specifically described --
12	we just called it the construction industry -- in one of those industries there was a
13	markup on a 200 million-dollar bid of 70 percent. There was a -- we have
14	markups in a series of bids in an industry where we have one prosecution thus far,
15	and we expect other prosecutions -- there were consistent markups on bids, up to
16	40 percent, after the conspiracy started. And so we have that type.
17	You know in other conspiracies, we can identify from the point the
18	conspiracy started as to the amount of increase that occurred right away. Not all
19	conspiracies are perfect. Sometimes there's fluctuations and there's cheating and
20	some outliers that conspirators can't control. So, there is some fluctuation.
21	So, to the extent that we collect the evidence, it's at the point I have
22	just described: that is, the immediate victims of the conspiracy. We know that, in
23	the vast majority of the cases we prosecuted, they are businesses -- they are U.S.

69

1	businesses. And of course one of our difficulties here has been -- we all said this
2	at our very first meeting -- one of the difficulties is convincing people of the
3	seriousness of this problem.
4	I suggest that the businesses that have been injured as a result of
5	these cartels which we've uncovered -- because otherwise they wouldn't have
6	known about it -- they now appreciate the seriousness of this. They have
7	examined the extent of what their injury is. They have now undertaken lawsuits
8	to try to recover damages for those injuries. So, they appreciate the process.
9	And in some of our sentencing there's indications that the judiciary
10	is increasingly appreciating the problem. At a sentencing hearing that Joel Klein
11	and I attended last Tuesday, involving some unusual circumstances that I don't
12	think we need to burden the record here with, the government was actually
13	seeking a lower fine against a corporation than the court had indicated it might
14	impose. It's pretty unusual for the government to be seeking a lower fine. I can
15	go into that privately with some people as to why that was the case.
16	But at the sentencing hearing, the judge said, after imposing a
17	higher fine, the judge said something like, "I recognize the extraordinary
18	cooperation that this firm gave to the government investigation. Indeed the
19	government has called it a 'vital' investigation. But in spite of that, this is a
20	serious crime. This company stuck its hands into the pockets of American
21	businesses and consumers as surely as if it had robbed them. We've got to deter
22	this type of conduct."
23	That's music to my ears of course but the fact is that there is not