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1	INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
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5	Washington, D.C.
6	Wednesday, July 14, 1999
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12	This document constitutes accurate minutes of the meeting held July 14,
13	1999, by the International Competition Policy Advisory Committee. It
14	has been edited for transcription errors.
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16	___________________ ________________________
17	James F. Rill Paula Stern
18	Co-Chair Co-Chair
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1	INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
2	MEETING
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6	Washington, D.C.
7	Wednesday, July 14, 1999
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11	Taken at The Carnegie Endowment for International Peace, Root
12	Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C.
13	beginning at 10:00 a.m., before Ann Marie Federico, a court reporter and notary
14	public in and for the District of Columbia.
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1	C O N T E N T S
2	WELCOME AND OPENING REMARKS:
3	James F. Rill, Co-Chair
4	Paula Stern, Co-Chair
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6	PRESENTATION:
7	Thea Lee, Assistant Director of Public Policy, AFL-CIO
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9	MULTIJURISDICTIONAL MERGER REVIEW DISCUSSION:
10	Initial Remarks by Thomas E. Donilon
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12	WORKING LUNCH:
13	Discussion of Overlapping Federal/Sectoral Merger Review by
14	William E. Kovacic, Professor of Law, George Washington
15	University Law School
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17	TRADE AND COMPETITION INTERFACE AND ENFORCEMENT
18	COOPERATION DISCUSSION:
19	Initial remarks by James F. Rill
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1	APPEARANCES:
2	Advisory Committee Members:
3	James F. Rill, Co-Chair and Senior Partner, Collier, Shannon, Rill & Scott, PLLC
4	Paula Stern, Co-Chair and President, The Stern Group, Inc.
5	Merit E. Janow, Executive Director and Professor in the Practice of International
6	Trade, School of International and Public Affairs, Columbia University
7	Thomas E. Donilon, Partner, O'Melveny & Myers
8	John T. Dunlop, Lamont University Professor, Emeritus, Harvard University
9	Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York
10	University School of Law
11	Raymond V. Gilmartin, Chairman, President and Chief Executive Officer,
12	Merck & Company
13	Steven Rattner, Deputy Chief Executive, Lazard Frères & Co., LLC
14	Richard P. Simmons (telephonically), President and Chief Executive Officer,
15	Allegheny Teledyne Incorporated
16	G. Richard Thoman, President and Chief Executive Officer, Xerox Corporation
17	David B. Yoffie, Max and Doris Starr Professor of International Business
18	Administration, Harvard Business School
19	Department of Justice Employees:
20	A. Douglas Melamed, Principal Deputy Assistant Attorney General, Antitrust
21	Division
22	Donna Patterson, Deputy Assistant Attorney General, Antitrust Division
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1	Department of Justice Employees (continued):
2	Constance K. Robinson, Director of Operations and Merger Enforcement,
3	Antitrust Division
4	Charles S. Stark, Chief, Foreign Commerce Section, Antitrust Division
5	Other:
6	Randy Tritell, Assistant Director, International Antitrust, Federal Trade
7	Commission
8	William E. Kovacic, Professor of Law, George Washington University Law
9	School
10	Thea Lee, Assistant Director of Public Policy, AFL-CIO
11	No members of the public made an appearance or presented written or oral
12	statements.
13	IN ATTENDANCE:
14	Advisory Committee Staff:
15	Cynthia R. Lewis, Counsel
16	Andrew J. Shapiro, Counsel
17	Stephanie G. Victor, Counsel
18	Eric J. Weiner, Paralegal
19	Estimated number of members of the public in attendance: 20
20	Reports or other documents received, issued, or approved by the Advisory
21	Committee: None.
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1	P R O C E E D I N G S
2	DR. STERN: Good morning. I would like to welcome everyone
3	here. This is the fifth full Committee meeting of the International Competition
4	Policy Advisory Committee. We've come a long way since our first meeting back
5	in February '98, and we're working diligently to release our report by late 1999.
6	You could do it any way you want -- but we're going to wrap it up.
7	Today we have an ambitious program ahead of us. Before
8	describing what's on our plate, I would like to take a few minutes just to review
9	our activities since our last full Committee meeting, which was in March. Since
10	then the Committee has held two days of Spring Hearings, one on April 22nd and
11	another one on May 17th. These round out the set of hearings that we held last
12	November.
13	At our last set of hearings, we were especially honored by the
14	presence of the Attorney General of the United States, Janet Reno, and by
15	Assistant Attorney General of the U.S. for Antitrust, Joel Klein. They were able
16	to join us and to make some opening remarks at our hearing back in May.
17	At our Spring Hearings, members of the Advisory Committee had an
18	opportunity to hear from a number of distinguished representatives of business
19	community organizations, bar associations and other groups that have been
20	developing input for many months.
21	We also heard from individual U.S. businesses, economists, and
22	several speakers who have been involved in providing technical assistance to
23	developing antitrust authorities around the world.

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1	Transcripts of those Spring Hearings are being prepared to be posted
2	on the Advisory Committee's website, where you can also find transcripts of all of
3	our past meetings and hearings plus a host of other useful materials related to this
4	Committee's work.
5	If you have questions about how to access our website, the staff is
6	obviously here to help you. Our Committee members have been very industrious
7	in dedicating their energies to the meetings of our various subcommittees; we've
8	divided ourselves into the trade and competition policy, multijurisdictional
9	mergers, enforcement cooperation and, thanks to Rick Thoman, e-commerce.
10	Turning to our meeting today, let me give just a quick overview of
11	the agenda that we've got this morning. Our opening remarks will be from my Co-
12	Chair, Jim Rill, and then we will commence with the presentation from organized
13	labor. Miss Thea Lee, Assistant Director of Public Policy at the AFL-CIO, will
14	offer us the perspective of organized labor on areas under consideration by the
15	Advisory Committee.
16	Then the Committee will have an opportunity to discuss
17	multijurisdictional mergers, and our fellow member Tom Donilon will be here to
18	lead that discussion.
19	We will then have a working lunch beginning at 12:30, at which time
20	we will discuss the question of overlapping Federal agency review of mergers.
21	Professor William Kovacic will join us, once again, to respond to the questions on
22	this issue that were raised back in March at our full Advisory Committee meeting,
23	when he made his initial presentation to us.

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1	We hope you will be able to stay for lunch. Administratively our
2	banker and gracious Executive Director, Merit Janow, should be given $15, for
3	she has prepaid for the lunch out of her own pocket.
4	After lunch, we have scheduled a single afternoon session during
5	which the discussion will focus on the interface between trade and competition
6	policy as well as on international agency enforcement cooperation. And Jim Rill
7	will kick that discussion off.
8	I would like to take a few minutes to welcome everyone in
9	attendance in the audience. We deeply appreciate your interest in our work.
10	Finally, I would like to note for the audience's purposes that this meeting is
11	designed to receive input from the participants who have agreed to appear today.
12	Accordingly, we have stated in the Federal Register notice, which
13	announced this meeting, that there will be no participation by the audience, or it
14	will all be passive participation by the audience. Even though today's format does
15	not allow for participation from the audience, we do welcome and indeed invite
16	any reactions that you may have to our meeting in writing and, again, please
17	contact our staff if you wish to submit any written comments to the Advisory
18	Committee.
19	Before I cede the microphone to Co-Chairman Jim Rill, I would like
20	to note that we have a very full turnout today of members, both present in the
21	room as well as several on the telephone. All but one of our Committee members
22	plan to be participating today, so I very much appreciate the input and the time
23	spent.

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1	Thank you very much. Jim?
2	MR. RILL: Thanks, Paula. I, too, want to thank the members of
3	the Committee present, either in person or by electronic media. We are coming, as
4	Paula indicated, we are coming down to the development of the principles, at least,
5	and broad areas for inclusion in the report that we anticipate will be filed with the
6	Attorney General and the Assistant Attorney General by year's end.
7	Now, by my calendar the fall ends somewhere around December 21.
8	DR. STERN: That's good.
9	MR. RILL: So whether one wants to say the end of the fall or year's
10	end seems not the most relevant issue. The most relevant issue, of course, is going
11	to be to develop within our own ranks a consensus on positions and transmit that
12	into a scholarly but also directive report that contains positive, well developed
13	recommendations to the Attorney General and the Assistant Attorney General, and
14	also to other audiences to whom we will be directing our recommendations -- or at
15	least directing our recommendations to the United States Government for its
16	discussion, advocacy, potential negotiation with their colleagues in other
17	jurisdictions of the world. And in that connection, we're pleased to see Sybille
18	Frucht here as one of our more loyal attendees at this conference, representing the
19	mission of the European Commission; and also to recognize Koki Arai who is
20	newly appointed as the Japanese Fair Trade Commission member of the Japanese
21	Embassy delegation.
22	As always, we're also glad to see Chuck Stark who is a senior, in
23	terms of service, U.S. attorney involved in international antitrust relations and one

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1	of the real architects of the 1991 U.S.-EU agreement, and many other things as
2	well.
3	With that, we are delighted to have here our representative Thea
4	Lee. And Paula, perhaps you want to make the introduction?
5	DR. STERN: Yes, Thea, I very much appreciate your coming, and
6	we are particularly -- with the guidance of Professor Dunlop -- have been very
7	anxious to bring into our consideration the positions of organized labor on this
8	issue. Knowing of your very thoughtful policy work in the past, I think we are all
9	very lucky that you've come today and have put your mind to this particular topic:
10	the intersection of trade and competition policy. And with that, I turn the mike to
11	you.
12	DR. LEE: Thank you so much, Paula, Mr. Rill, and members of the
13	Advisory Committee and a particular thanks to Professor Dunlop, whose kind and
14	persistent invitation resulted in my coming today.
15	We very much appreciate the opportunity to present the views of the
16	AFL-CIO on these issues to this Committee and the very important work that
17	you're doing.
18	What I hope to do today is focus on the key areas of concern to the
19	labor movement, and I'll skim over some of the areas where there's less
20	controversy, where we are in agreement with the positions put forth by the
21	business community, the academics, and the government officials that you've heard
22	from have already stated. I'm happy to clarify any of those positions in the
23	question and answer, if that is necessary.

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1	The labor movement recognizes the challenges that we face around
2	these issues at the theoretical level, at the political level and at the practical level,
3	and we wish you well in your task of summarizing the diverse views and positions
4	that you've heard and providing the analysis that will guide the future policy.
5	These issues are of a lot of importance to both business and labor.
6	As we see our economy increasingly integrated into the global economy on every
7	level -- through the movement of goods, services, capital and people -- we find
8	ourselves confronted more often and more compellingly with the need to address
9	issues at the supranational level, and I think we've all seen in many of the different
10	debates around trade policy that the concept of national sovereignty is no longer a
11	simple one.
12	Having international rules and standards limits our sovereignty, as
13	we can see, but then, so, too, does the absence of international rules and standards.
14	In the area of competition policy, the issues that have been raised are those where
15	having domestic antitrust law or merger law doesn't do us any good if we don't
16	have some international counterparts. As our companies are transnational, and as
17	their business is transnational, we need to also address anticompetitive practices at
18	the international level. And the same is true of the trade agreements that we
19	negotiate, that the USTR will negotiate. Those trade agreements don't work if
20	there are anticompetitive practices in other countries that negate the benefits that
21	we have spent a lot of time negotiating.
22	One of the things that makes this issue difficult is that it is an
23	inherently political issue. It goes right to the heart of government interaction with

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1	national businesses. There are major economic interests at stake, and we see the
2	issues of economic nationalism, of governments rightly looking to protect their
3	national firms or what they perceive as their national firms in conflict with the
4	international obligations or international principles that might promote more
5	efficiency and a better overall outcome.
6	You could summarize some of these issues as consisting of problems
7	where the prices are too high or the prices are too low, but I'll try to go into a little
8	more detail than that.
9	The labor movement has historically had an interest in seeing that
10	corporate power at the national and transnational level is checked by appropriate
11	government action. The question is how best to do that. One of the areas where
12	we are in agreement with the work of the Committee and most of the people
13	you've heard from is that it's a good idea to encourage countries to develop and
14	enforce sound competition policy. That seems like the kind of thing that happens
15	at a discussion level, rather than needing strict international rules. But some of the
16	other issues that are not covered by trade policy -- transnational cartel behavior,
17	monopoly and price fixing, transnational merger policy, and the anticompetitive
18	behavior that blocks market access -- are not yet dealt with at the international
19	area, but need to be.
20	Other areas of competition policy are covered by trade policy, like
21	national antidumping laws or government subsidy policies. These are both dealt
22	with at the national level and explicitly permitted by international rules.
23	The antidumping laws attempt to prevent predatory behavior,

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1	deliberate underpricing designed to garner market power which is then abused and
2	puts you back into the first category of transnational monopoly behavior.
3	One thing I want to talk about today that I don't think you have
4	talked that much about is when we talk about national or international competition
5	policy, one of the things we're talking about is the terms of competition.
6	What is fair competition, what is unfair competition, what is allowed
7	by national rules or international rules, and what is not? In our view, this is very
8	much a labor issue.
9	As I said, the trade laws today address a subset of terms of
10	competition: subsidies and dumping. And the business community, with the
11	support of the labor movement, has succeeded in identifying and classifying these
12	forms of international competition as illegitimate. A government that subsidizes its
13	export industries will come under international scrutiny, and may be faced with
14	tariffs, compensating tariffs, countervailing duties, and so on. Similarly, the pricing
15	policies in exports are very much under the discipline of international trade rules.
16	The question I would like to raise today for your consideration is
17	whether the systematic violation of internationally agreed upon labor standards,
18	core labor standards as identified by the International Labor Organization, by the
19	United Nations, and by the WTO, in fact, is an anticompetitive practice, and in
20	many senses is equivalent to a forced subsidy where workers are forced to
21	subsidize the profits of the companies that they work for with the complicity of
22	their governments. In these cases, the governments are complicit with the
23	companies in repressing labor rights, in artificially repressing the price of labor and

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1	doing so in an antidemocratic fashion, sometimes a violent fashion, often an illegal
2	fashion. Governments often fail to enforce their own labor laws or fail to afford
3	the rights that they have agreed to by international treaties or by the ILO
4	conventions. There is little oversight to this question.
5	I know this hasn't really come under your jurisdiction. It certainly
6	hasn't been a topic that the Working Group on Competition Policy at the World
7	Trade Organization has addressed, but I think it does go to important international
8	business issues and it's relevant.
9	This issue has been raised unsuccessfully in the Canada-U.S. context
10	where there was early on an attempt by the Canadian labor movement to file a case
11	against the United States alleging our Right-to-Work laws in the southern states
12	were, in fact, an illegal and forced subsidy from workers to companies. If you
13	look at the WTO language on subsidies, and if you consider that the government
14	has a role in many cases in repressing internationally recognized labor rights, then
15	you could see that you could at least make a decent argument that this is
16	something which should be addressed by trade laws, should be addressed by
17	international competition policy, and it's certainly relevant to the issues that you
18	have addressed.
19	Now, all the problems that we've discussed have this in common:
20	They can't be fixed purely at the national level. But the question is, how to fix
21	them, at what level, and how do we best go about this? This is where you have
22	given the bulk of your attention.
23	Many of the people who have spoken and testified before this

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1	Committee have talked about the World Trade Organization, and the beginnings of
2	an attempt to address this issue at the WTO, through the competition policy
3	working group. Most have been fairly skeptical about the value of competition
4	policy negotiations at the level of the World Trade Organization.
5	We would add our skepticism to that you have already heard. This
6	is not to say that this issue should never be addressed at the WTO. I think maybe
7	one day it should. Like most issues that involve conforming national rules to
8	international standards, it is best addressed at the multilateral level. At the
9	moment, however, it's premature to do so at the WTO. The consensus is so far
10	from existing and the national policies are so divergent that even to outline general
11	principles is something that would be hard to do. To expect that there would be
12	compliance with such rules, I think, is beyond where we are today.
13	We also share a concern that the current Working Group on Trade
14	and Competition Policy at the WTO has gone in directions that are detrimental.
15	We certainly do not want to see this competition policy working group used as an
16	excuse to undermine U.S. antidumping laws. That is a serious concern for us, and
17	to the extent that the countries that have participated in that working group seem
18	determined to raise that issue, then that seems like another very important reason
19	why this is not a good time to pursue this conversation in that forum.
20	But the broad conversation on international competition policy
21	should continue at the international level. We would like to see labor rights be
22	part of that agenda to the extent that it does continue.
23	In terms of the merger review and the premerger notification

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1	questions, it seems that the issues of transaction costs and the kinds of
2	bureaucratic hurdles that companies need to go through in order to notify about a
3	merger, including filling out forms for many different countries, are an
4	inconvenience, but maybe not a major inconvenience (according to some of the
5	business testimony).
6	It's important, I think, to streamline that process, but not at the
7	expense of weakening the guidelines that are in place. We would not want to see
8	a harmonization process for the premerger notification and merger review that had
9	the result of weakening the standards that are in place now.
10	The final issue that I think is the most interesting and the most
11	difficult is the one of anticompetitive behavior abroad, and the extent to which this
12	acts as an export restraint.
13	We sign trade agreements and we implement them in good faith here
14	at home only to find that our access to foreign markets is sometimes blocked by
15	blatantly exclusionary or anticompetitive actions by governments in coordination
16	with firms. I hope we'll have some discussion about this question because we
17	haven't worked out all the answers, but it's very important.
18	In principle, some of these issues are covered by trade law. When
19	one government nullifies the benefits that a country expects to get when it signs a
20	trade agreement, that is actionable in principle.
21	We have also seen the disappointing result of the WTO case on
22	Kodak-Fuji. This result would cause us to doubt whether this issue will be
23	addressed to our satisfaction effectively by the trade rules at this time.

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1	The question I have is can we use U.S. antitrust measures more
2	effectively than we currently do -- more consistently and more aggressively -- to
3	deal with these kinds of actions abroad? I know you've had some discussion about
4	that in this Committee, what U.S. law allows, what are the kinds of obstacles that
5	we face right now. The two obstacles that have been identified include the
6	difficulty of gathering reliable evidence without the cooperation of foreign
7	governments, and then the second difficulty of imposing remedies extraterritorially.
8	It seems that the business community is a little bit wary of the
9	evidence gathering side of things. That was one of the things that came up a few
10	times in the testimony you've heard already, that the business community is
11	worried about the confidential information that might have to be provided in this
12	context. But it seems like that obstacle should be addressed squarely and that
13	those concerns can be met. Certainly we would expect that any U.S. antitrust
14	enforcement efforts would be able to keep that information confidential and the
15	question is whether we can have that same confidence in foreign antitrust efforts
16	here in the United States.
17	But that is a direction that we should explore. Since it seems like
18	this conversation at the WTO level has been problematic, it is not likely to
19	necessarily move in the direction we want. It seems to me that it puts us back for
20	the moment, at least, at our national law. The question we face is how to make
21	that national law more effective, certainly within the guidelines of the multilateral
22	trading system.
23	But let me just stop there. I hope we can have some discussion

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1	about some of these areas, and I welcome your questions and comments.
2	DR. STERN: Thea, thank you so much. That was a very, very
3	thoughtful presentation and it reflects that a great deal of preparation was put into
4	this. By looking at the work that we have done so far, and the diligence which has
5	been demonstrated, finding the overlaps between emerging themes and organized
6	labor's satisfaction with aspects of our work and how we're parsing our work is
7	extremely reassuring; I just want to express my personal gratitude.
8	It's true that, to use your word, persistence, Professor Dunlop really
9	carried through on our desire from the very, very beginning. He has also carried
10	through on both Joel Klein and the Attorney General's desire to make sure that we
11	heard your voice, and you have given us a very thoughtful presentation -- it's not
12	like we've just touched base. I think we've really joined the conversation, to use
13	your words, so thank you very, very much. It doesn't surprise me, knowing of
14	your diligence.
15	I wanted to open up the floor to questions or comments from any of
16	the members at this point.
17	MR. RILL: Well, let me also echo my Co-Chair's admiration for the
18	obvious preparation time that you put in and your familiarity with the record that
19	has been developed to date. I myself would be embarrassed to have a test between
20	you and me as to who is more familiar with the record. I think that's very useful.
21	A couple of questions. You're concerned that the Trade and
22	Competition Working Group at the WTO, the one that's headed by Professor
23	Jenny, is off, I think you said, in a wrong direction with concern being expressed

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1	from some quarters on antidumping. You also suggest that it is, I think you used
2	the word premature, for the WTO to get into any kind of prescriptive discussions
3	of competition policy issues or principles.
4	That view has been expressed in other quarters. Conversely, we do
5	have heard views expressed that the WTO should play an even greater role. So
6	this is an issue that we need to deliberate among ourselves.
7	You also indicated, though, that there's a need for some further
8	discussion, at least, deliberation on the international scale of competition policy,
9	basic standards and so forth. Some of that, of course, goes on within the OECD's
10	Competition Law and Policy Committee and the Trade Committee, the Joint
11	Working Group in the OECD.
12	We have heard the concern that the OECD is too narrow of a forum,
13	29 countries. Some have described it as an elite group. I wonder if you have any
14	thought as to where this discussion that you're calling for might take place. Not
15	WTO, OECD is too narrow.
16	Is there some possibility that, for example, a special forum, let's not
17	call it an organization, but a forum for the discussion of the competition policy that
18	would be more broadly based, perhaps, than the OECD but work on OECD
19	principles might be something that could bear fruit, a fairly useful purpose, if you
20	want to comment on that.
21	DR. LEE: Yes. I think that's a good idea. It's interesting that today
22	we think of this issue as being one that affects primarily the industrialized
23	countries, and that's one of the reasons that the OECD, the U.S., Europe and

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1	Japan have been the key players in the competition policy discussion. But I think
2	that will change as the developing countries become more closely integrated into
3	the global economy. The issue that also has arisen about the transition of
4	state-owned enterprises to the private sector and some of the issues around
5	monopoly will affect the developing countries, so if possible it would be desirable
6	to have a forum which included both developed and developing countries for this
7	discussion.
8	The developing countries rightly resent when they come into a
9	conversation after all the decisions have been made and then they're asked to sign
10	on, and their particular concerns, which are different from those of the
11	industrialized countries, have not been addressed or are addressed in a backhanded
12	manner.
13	I think that's not a bad idea, to have a special forum. It could even
14	be a voluntary forum so the countries that have concerns and that have strong
15	opinions about this could come together in a lower pressure environment than the
16	WTO.
17	The WTO is never going to be a low pressure environment. It's one
18	where there's a lot of politics and a lot of posturing, and a lot of trading off, as you
19	all know, where countries raise difficult issues on purpose in order to make
20	progress in some other totally unrelated area, so I think that a separate forum
21	would offer some advantages, and would be a good direction to explore.
22	I also just want to say one word of thanks to Andrew Shapiro who
23	helped me get prepared for this and was very helpful in guiding me to the various

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1	transcripts. It would be remiss of me not to say that.
2	MR. RILL: Thank you for that answer.
3	Let me just ask you to elaborate, on another comment you made,
4	regarding an attempt to get rid of some of the frictions in merger notification:
5	multiplicity of jurisdiction, multiplicity of information, different timetables. We've
6	heard a lot of testimony that these issues are a real problem, and we're going to be
7	discussing that later on this morning among other merger-related issues.
8	You suggest, I think, quite rightly in my own view, that that kind of
9	procedural friction removal doesn't undercut the substantive work being done in
10	the merger review process, and I think that's right.
11	It seems to me that one of the topics that could be discussed at the
12	forum that we're hypothetically developing as we speak would be the standards
13	issue because there is a concern that not everybody in the world has the same
14	consumer welfare standard that has been adopted in the United States, and that
15	seems to me to be an issue worthy of discussion. There may be areas where we
16	want our government to be in a position to advocate a consumer welfare standard
17	so that perhaps more parochial national standards that may -- we heard may be
18	developed in other jurisdictions -- could at least be made more transparent, and if
19	possible, addressed. I wonder if you have a thought on that.
20	DR. LEE: I think that would be very appropriate to raise issues that
21	may not have come up and convince other countries of the rightness of that in this
22	kind of harmonization discussion.
23	There is always a danger in the harmonization discussion that

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1	countries have whatever they have and they're not willing to talk about changing it,
2	but if you had a forum that was relatively open and you could share information
3	about the benefits of the consumer welfare standard, that would be appropriate.
4	MR. RILL: A number of our members, particularly from the
5	business community, Ray Gilmartin, Rick Thoman and others have said that
6	transparency is key at least at the first level to understand what the standards of
7	other jurisdictions may be, and I gather you agree with that.
8	DR. LEE: The transparency is something that we have pushed very
9	hard in a lot of different forums, that certainly it's a bare minimum in terms of what
10	countries need to interact intelligently and what businesses need to interact in other
11	countries, that transparency should always be pushed as far as possible.
12	MR. RILL: I think your discussion of labor standards as a form of
13	subsidy, inferior labor standards as a form of subsidy is an issue that will be a
14	matter of public policy debate for sometime. Am I understanding you correctly
15	that where those substandard -- standards exist, they are government imposed.
16	DR. LEE: Government tolerated in some cases.
17	MR. RILL: Whether tolerated or even imposed, this type of issue
18	may be one more for government negotiations in the trade area perhaps rather than
19	in the competition, private restraint focused area that we're to some degree, I
20	think, focused on in this Committee.
21	Do you agree with that?
22	DR. LEE: I raised the issue to see where it will end up. I don't
23	know. Certainly this is an issue we've raised in the market access discussions that

24

1	we would very much like to discuss at the WTO, in some ways the opposite of
2	competition policy.
3	There is also no consensus, as you know, on labor standards, on
4	even having the conversation. We haven't gotten as far as competition policy in
5	the sense that we can't establish a working group on worker rights at the WTO.
6	We would very much like to do that and we have failed, and the U.S.
7	Government has put this forth and has not been able to garner support from other
8	countries to move forward. But many of the issues you address do have to do
9	with government behavior and government rules that are inadequate in some cases,
10	so --
11	MR. RILL: I think we would probably be remiss if we took an
12	unduly narrow view of our own jurisdiction and the variety of areas such that we
13	did not address, at least as an advocacy recommendation to the United States
14	government, positions that we feel are governmental restraints overseas that limit
15	the free flow of markets and a strong competition policy.
16	There are a number of members that feel the same way. So I think
17	these are areas that we will at least review and recommend to our government that
18	they engage in some fruitful advocacy with their counterparts and also, by the way,
19	to look at ourselves and see that our own house is in order.
20	DR. LEE: Yes, always important.
21	MR. RILL: Thank you.
22	DR. STERN: Eleanor?
23	MS. FOX: Yes, thank you very much. I certainly enjoyed your

25

1	presentation. I wanted to ask you about some possible tensions that you may see
2	between labor rights and competition policy. So far you've been talking, I think,
3	favorably about an efficiency and consumer welfare standard and yet you have also
4	talked about the problem of putting pressure on labor rights and, in effect,
5	exploiting labor.
6	I wanted to ask you about an issue that usually comes up in big
7	international mergers, which is loss of jobs, and whether you and your organization
8	have a concern about loss of jobs that you think ought to be included in analysis
9	and also how you see your AFL-CIO interaction with the ILO and whether
10	countries that have lower labor costs might consider that they have a comparative
11	advantage that ought to be recognized in the world, and whether if that's so,
12	cheaper labor goes together with efficiency and world competition.
13	So is there a tension there? Is there a problem of competitiveness
14	that might have to be addressed by recognizing a common effort of efficiency,
15	business and labor?
16	DR. LEE: Okay, that's an excellent question. And let me start with
17	the big mergers, loss of jobs. It's always a concern in any particular case, what the
18	job impact is going to be, but I'm not sure whether there is any broad policy
19	statement. Certainly it's something that should be taken into account. It's one of
20	the public policy considerations that any government will consider, but I'm not sure
21	what the general principle is. We understand there will be loss of jobs as
22	companies merge and change their productive structure and their plans and so on.
23	But I don't have a well thought-out sentence that would guide how merger policy

26

1	should address job impacts.
2	MS. FOX: Yes, our competition policy today in the United States
3	actually doesn't, and this is because of our efficiency/consumer welfare policy, so
4	I just wondered what your reaction was to that.
5	DR. LEE: The other question about whether lower labor costs are
6	legitimate comparative advantage and whether there is an efficiency aspect to that
7	is an interesting point. What I would say is low labor costs in and of themselves
8	are not objectionable.
9	Our goal is not to equalize wages across the world, but there are
10	different kinds of low labor costs. There are different reasons why labor is cheap.
11	Labor is cheap sometimes because it's plentiful, or because it lacks technology or
12	capital to work with. It's cheap sometimes because of a low cost of living. But
13	sometimes labor is cheap because the government has systematically set out to
14	repress independent labor unions, or to keep the minimum wage below the poverty
15	level, or to keep the growth in the minimum wage below the growth in
16	productivity. There are very different kinds of cheap labor, and they operate in the
17	international trading system in very different ways. The differences in factor prices
18	that come about through differences in climate or factor endowment are a natural
19	piece of the trading system. You can argue that these differences form the basis
20	for the basic argument in favor of free trade, but differences in factor prices that
21	come from systematic repression are not efficiency promoting.
22	They are actually distortions in the international trading system.
23	They distort choices about the location of production. Unfortunately, the

27

1	international trading system doesn't recognize that this is a problem, so we have no
2	rules, we have no minimum international standards on labor rights.
3	So, for example, one country is beheading labor leaders every week,
4	or tossing them in jail and mutilating them, and hiring 5, 6, and 7-year-old children
5	who are enslaved essentially, sold by their parents to produce carpets for export to
6	the United States.
7	Another country is allowing unions to organize and observing other
8	internationally recognized workers' rights. These countries are side by side. They
9	are competing in the same international trading system, they have the same access
10	to international markets. One of them has lower labor costs, but not through any
11	legitimate comparative advantage. This is the difference that we have tried to put
12	forth, that repression creates inefficiency, not efficiency.
13	The current set of trade rules creates perverse incentives where the
14	worst actors can reap large economic benefits. These bad actors have no scruples,
15	no morals, no judgment even, no concern about, let's say, the future of these kids,
16	whether they're going to grow up to be productive members of society, or whether
17	they will be crippled by the time they're 15, or blinded. In fact, a world without
18	rules rewards the worst actors, and that that is an inefficiency.
19	The same thing could be said about the environmental standards,
20	too. To the extent that there are externalities that are not taken into account by the
21	pricing system, allowing the worst violators of environmental standards to have
22	the same access to markets that the good players have encourages the violation of
23	environmental standards, e.g. the poisoning of streams.

28

1	One of the issues that we have raised that maybe people aren't
2	always aware of, is that this is not an issue that the U.S. is trying to impose on
3	poor countries.
4	This is an issue that the workers of the world, the unions of the
5	world have agreed on. We have a basic consensus internationally among labor
6	unions that labor standards belong in trade agreements.
7	The International Confederation of Free Trade Unions (ICFTU) that
8	represents about 124 million workers in 143 different countries, mostly developing
9	countries, has worked very hard to develop joint statements on this issue. The
10	ICFTU has held a lot of regional symposia where African, Asian, and Latin
11	American trade unionists have debated and discussed these issues. In many cases
12	their governments are not receptive and are not representing the workers or the
13	unions of their countries when they come to an international forum and say they
14	don't want to talk about labor standards in the context of trade agreements.
15	So we view some of the work we do in our advocacy on this issue as
16	trying to give voice to concerns that workers in developing countries have. These
17	workers want the basic right to organize independent labor unions. We try to use
18	whatever political or economic leverage we might have from being here in the
19	United States to empower and provide space for them to do what they need to do
20	in their country. And the ILO, the International Labor Organization, does
21	incredibly important work and we are very supportive of the work of the ILO.
22	We have been supportive of the Clinton administration's initiative to
23	give another $25 million to the ILO to help build technical capacity in developing

29

1	countries, to help them get the resources they need to improve enforcement and to
2	improve standards.
3	We don't see the ILO as a substitute for addressing these issues in
4	the trading system, but rather as a necessary complement, something that must
5	happen at the same time. At the end of the day, if there's no economic incentive
6	for governments and companies to address the issue of labor standards violations,
7	then it's unlikely to happen. The failure to identify unacceptable terms of
8	competition in and of itself undermines the sovereignty of nations.
9	For example, in the United States, our ability to put in place and
10	enforce good high labor standards, and our ability to encourage unorganized
11	workers to organize unions successfully is undermined, if every time we do that,
12	the company picks up and moves or threatens to move to a country that doesn't
13	have those same rights. It was a long answer to a short question.
14	MS. FOX: Thank you very much.
15	You were talking about terms of competition, but that is not
16	necessarily competition policy as such. So do you see the relationship of your
17	argument as related to the world trade system just as competition law might be
18	related to the world trade system but not necessarily issues that we should take
19	into account?
20	DR. LEE: In terms of competition policy, it depends on whether
21	you would see that as essentially a subsidy or not a subsidy. It could come under
22	the rubric of competition policy, but probably it's in a separate realm in terms of
23	the international trading system.

30

1	The labor unions have been accused of being monopolies themselves,
2	but of course the government, by intervening in labor markets, by repressing
3	independent labor unions, is in fact creating monopsony. Where you have a single
4	or a very small number of employers, and the government chooses to intervene in
5	that interaction to support the employer over the workers and to ensure that the
6	workers do not develop a countervailing power to bargain effectively with their
7	employer, this would seem to fall in the competition policy area. Probably the
8	primary place where it belongs is in the market access and trade discussions.
9	DR. STERN: Are there other questions?
10	MR. THOMAN: Have you done any quantitative analysis to
11	estimate how many -- as you look at the world, how many workers fall into the
12	category you mentioned that are unfair competition as opposed to general foreign
13	workers of lower wage levels? Because one of the things that's striking is just a
14	piece in the Financial Times this morning that talked about how the poor countries
15	are continuing to lose wealth to the wealthier countries.
16	I guess in the last 80 years, we have gone from the poorest countries
17	to the 1 to 3 wealth to the most wealthy to now it's 90 to one wealth. So the wage
18	factors alone aren't driving the actual wealth. Those discrepancies seem to be
19	increasing in terms of the wealthy countries. So how big a problem is this? Is this
20	10 percent of the work force that have these kind of unfair social examples? Is it
21	50 percent?
22	DR. LEE: I don't know the answer to that question, but it's a good
23	question. Part of the issue is that you have two very different sectors, the export

31

1	competitive sector and the informal and domestic sector. We know that a lot of
2	labor rights violations occur in the domestic sector in which case they're not really
3	relevant to the trade policy debate. They're relevant to the ILO or to other kinds
4	of issues that need to be raised.
5	So it is probably a smaller subset of workers who are in that set of
6	super competitive exporting, the export processing zones and the export assembly
7	areas where there is systematic denial of rights.
8	We know there are certain countries that are particularly egregious
9	in this area. China, for example, is an export powerhouse and has not a single
10	independent labor union operating. The Chinese government has acted very
11	aggressively to jail and suppress independent labor advocates, even people who
12	have worn T-shirts advocating independent labor unions or put out newsletters
13	talking about problems of unpaid back wages. Those kinds of people are seen as a
14	threat to the system in China and have been jailed.
15	I don't know the exact figures you mentioned, but the report that you
16	mention, is that the UNDP's new report, the United Nations Development
17	Program?
18	MR. THOMAN: I read it in the FT this morning.
19	DR. LEE: I was looking at the UNDP report yesterday, and I think
20	it's very interesting and very disturbing. It goes back to this issue about efficiency
21	and world competition.
22	The question is whether as we tear down trade barriers and enhance
23	the mobility of capital, we're leading to a generally happy situation where poor

32

1	countries get richer, poor people in all countries are given opportunities and are
2	able to engage in the global economy, and so on, or whether we have something
3	else that we're creating. What the UNDP report very troublingly says is that the
4	increased liberalization and the absence of the kinds of rules and standards that
5	we're talking about has increased polarization between countries and within
6	countries. This is not the outcome that we seek from trade liberalization and
7	capital liberalization. A country like Mexico, for example, which is definitely
8	engaged in the global economy, it's engaged in the North American Free Trade
9	Agreement and the WTO has experienced falling wages over the last 15 years or
10	so.
11	The Mexican minimum wage has lost something like three-quarters
12	of its purchasing power, and workers are definitely not gaining their share of the
13	prosperity that comes from integration in the global economy. To the extent that
14	that's the case, I think we do have an obligation to say, the world trading system is
15	not working for workers. We need to enforce core labor standards, thus allowing
16	workers to organize unions when they choose to do so and to use that method to
17	try to garner their share of the prosperity that comes from global integration.
18	We also have to change attitudes pretty dramatically so that the
19	domestic employers and the domestic governments accept it as a challenge.
20	MR. GILMARTIN: Just a quick question. Do you have a sense on
21	the international, in the international arena what the attitude of labor is towards
22	competition policy in general, say as opposed to industrial policy? What's the best
23	way to create jobs?

33

1	The argument which you make about exports and being able to enter
2	competitive markets, the U.S. certainly is going to export very successfully.
3	DR. LEE: So --
4	MR. GILMARTIN: I'm really asking about the attitudes, say,
5	outside the U.S. about competition policy, what your sense is about that.
6	DR. LEE: Labor movements outside the U.S.?
7	MR. GILMARTIN: Yeah.
8	DR. LEE: In many cases, particularly in Europe, you'll find that the
9	labor unions are going to have positions that are similar to their governments. So
10	to the extent that the governments are interested in a particular angle on this, for
11	the most part, that's where the labor unions will be, but beyond that I don't have a
12	good sense of the specific position of any particular national labor center.
13	It's not something that's been thoroughly discussed, but it probably
14	should be. Maybe at the Seattle ministerial, this is one of the issues that will be
15	addressed more thoroughly by the ICFTU.
16	DR. STERN: Further questions? I again want to thank you very,
17	very much. You have been not only an important advocate but more an explicator
18	of a lot of these positions that labor has taken. You've related it very much to our
19	work and the scope of our work, where it works within our scope and where it
20	may belong elsewhere, and the questions also have helped elicit even further
21	understanding. I think this has been an incredibly worthwhile hour well spent, and
22	I thank you very, very much.
23	DR. LEE: Thank you. Thank you, Paula, Jim, and the Committee

34

1	for your attention and for the invitation.
2	MR. RILL: Thanks for coming.
3	DR. STERN: Next on our agenda -- you're welcome to stay, Thea,
4	if you want, but I have a feeling you've got a few other things to read back at the
5	office.
6	Next on our agenda is the multijurisdictional merger review
7	discussion and our fellow member, Tom Donilon, has agreed to give us initial
8	remarks, and I think we're all prepared. The floor is yours.
9	MR. DONILON: Thanks. Merit, which document do members of
10	the Committee have in front of them, the draft, chapter?
11	MS. JANOW: I think all members have a copy of the notional
12	structure of the report and the members of the merger subgroup have a copy of the
13	merger paper, but the merger specific paper has not been distributed to all
14	members.
15	MR. DONILON: The staff has prepared a number of
16	recommendations. Let me see if I can describe them generally, and Merit,
17	obviously pitch in where you think we need to go deeper than I go here.
18	The general approach of the staff, and I would recommend general
19	approach of the Committee should be to achieve a number of policy objectives.
20	Just to try to set some context.
21	Number one is to try to reduce as best we can transaction costs
22	associated with the procedural requirements of merger review. We've heard now a
23	lot of testimony before the Committee about the increase in what we're referring to

35

1	as the sheer -- I guess Barry Hawk used the phrase initially -- the sheer volume of
2	merger control law that now must be considered by a company or companies
3	doing international transactions.
4	We're going to be joined by Bill Kovacic later. Maybe he could even
5	join us now if he'd like to pitch in on this, because he has also spoken about and
6	written a lot on the increase in sheer volume of law that companies face around the
7	world in trying to do a transaction.
8	DR. STERN: Excuse me. Bill, would you like to join us at the
9	table? Your name has now been invoked three times on the record, twice when
10	you weren't here, and -- there we go. Okay, sorry, Tom.
11	MR. DONILON: I think that we've correctly been focused on trying
12	to reduce transactions costs for American companies trying to do deals, trying to
13	do transactions.
14	Second, we've tried to I think, and the proposal will address this,
15	tried to the best we can to avoid inconsistent results that might be presented to
16	entities doing transactions, international transactions, which of course can add to
17	costs and uncertainty, and in some cases, failure of transactions that one
18	jurisdiction, including the United States, might find not to be anticompetitive but
19	nonetheless because of inconsistent results, you may be in a situation where a
20	transaction fails because another jurisdiction has found difficulties. We want to try
21	to have consistent results and also not wildly incompatible remedies where
22	transactions are allowed to go through conditioned on certain remedies.
23	And last, our goal has been to try and develop a set of proposals that

36

1	can promote so-called harmonization, both procedural harmonization and
2	substantive harmonization over time which I think is obviously a laudable goal in
3	this age of international transactions.
4	With respect to procedures, which I'll talk about first, the staff has
5	put forth -- and I think we can divide this up into, again, three areas -- procedural
6	reform, substantive issues, and overlapping jurisdiction in the United States in
7	reviewing mergers.
8	The last is the most substantive and for me after looking at the
9	materials and thinking about it, maybe the most important at the end of the day,
10	and Bill I know is going to speak to that today. That is the situation where a
11	transaction being reviewed in the United States has to run through multiple
12	agencies before it can be approved. This has resulted, in my experience, in quite a
13	bit of transaction costs here in the United States and delay, particularly in Telecom
14	and other industries. I know Bill will talk about that today.
15	On the procedural side, these are fairly technical issues, I think, and
16	so I'll try to push through them fairly quickly because they really do fall in the
17	realm of the Hart-Scott-Rodino aficionado class, which is well represented in the
18	room, but I don't know how much time we need to spend on all these things, but
19	they can be important.
20	The staff is looking at four or five areas of procedural reform efforts.
21	It's an interesting question as to what you do when you come upon what you think
22	might be the best way to go that may result in some change in the U.S. law, it will
23	result in a lot of changes in foreign practices. One of the things that this

37

1	Committee needs to think about is how the United States goes about
2	operationalizing that? How do you go about advocating these changes in a way
3	that's most effective around the world in order to promote our overall goals of
4	reduced transaction costs, not having incompatible remedies and results and
5	ultimately some degree of procedural and substantive harmonization.
6	The first area is the first issue that a lawyer, a practitioner, a banker
7	faces when he or she is working on a deal, and that is notification thresholds.
8	When does the transaction have to be reviewed by the relevant competition agency
9	in a particular country.
10	These thresholds are in some cases not very transparent, and there's
11	a lot of uncertainty about that in my experience and practice, and I think we heard
12	a lot about that from practitioners, and secondly, the thresholds vary quite a bit.
13	The staff in its papers is recommending, I think correctly, that
14	thresholds be transparent and that there be a pretty cogent nexus between the
15	reviewing jurisdiction, reviewing country and possible impact on that country as
16	opposed to just worldwide assets and very little local contact with the reviewing
17	country.
18	There's also been discussion of raising the threshold amount in the
19	United States. It currently is $15 million. There has been discussion before this
20	Committee of raising it to $50 or $100 million with automatic adjustments for
21	inflation. This is obviously a serious issue.
22	Now, Merit, I think our preliminary review of the data shows,
23	though, that it wouldn't affect very many international transactions -- that less than

38

1	five percent of the transactions reviewed, I don't know if it's by both agencies or
2	just by the FTC.
3	MS. JANOW: It's by both.
4	MR. DONILON: By both agencies, less than five percent of the
5	transactions where second requests were issued are transactions under $100
6	million.
7	MS. LEWIS: We're working on getting data for international
8	transactions. But the smaller transactions tend not to be international transactions,
9	they are more domestic. Certainly with respect to enforcement actions, few
10	international transactions valued at less than $100 million were challenged in 1998.
11	MR. DONILON: Although there has been a lot of discussion about
12	this, there doesn't appear to be a lot of impact in the international area of the
13	transactional amount.
14	Secondly, and maybe presenting even more of a difficulty, I think, is
15	that the agencies' budgets are directly related to filing fees. Therefore any increase
16	in the threshold amount would, I take it, result in a reduction in the agencies'
17	budget.
18	There's been discussion before the Committee of recommending that
19	the FTC and Antitrust Division budgets not be so dependent on filing fees. I think
20	that is probably a more rational way to budget antitrust enforcement, but at least
21	this Committee member doesn't think, given the current budget situation, such a
22	proposal would likely be taken on, frankly.
23	I would be interested in what other people think about that. I think

39

1	that the funding source issue is a very difficult issue to change, I think. I think,
2	again, I would be interested in hearing other people's comments on that.
3	MR. THOMAN: Do you know how much we're talking about,
4	what's roughly the scale of the filing fees?
5	MR. DONILON: I don't know what the absolute dollar contribution
6	of the budgets is, but we certainly have people here who might.
7	Chuck, do you know?
8	MR. STARK: I don't.
9	MR. RILL: Maybe Connie Robinson, Director of Operations,
10	Antitrust Division would have a thought on that.
11	MS. PATTERSON: This is Donna Patterson. I think by next year it
12	will be the bulk of both agencies' budgets.
13	MR. DONILON: Connie, do you know what the absolute dollar
14	amount is?
15	MS. ROBINSON: It's getting close to 100 percent.
16	MS. PATTERSON: It's getting close to 100 percent of each
17	agency's budget.
18	MR. DONILON: What kind of dollars is that?
19	MS. PATTERSON: I don't know the exact budget numbers, but it's
20	probably around $200 million.
21	DR. STERN: What did you say?
22	MS. PATTERSON: Around $200 million for both agencies.
23	MR. RILL: Aggregate?

40

1	MS. PATTERSON: Aggregate, yes.
2	MR. THOMAN: A much smaller number is a more manageable
3	issue.
4	MR. DONILON: Right. No, I think that's a fair point that we're not
5	talking about a huge amount of money.
6	MR. RILL: It doesn't compare to the defense budget.
7	MR. DONILON: So with respect to thresholds, I think those are
8	really the key issues. Transparency, objective thresholds with a nexus to the
9	jurisdiction that's reviewing the transaction, the issue of raising the dollar threshold
10	in the United States and the implications of doing that with respect to the agencies'
11	budgets which we've now heard, although it's not an absolute large dollar amount,
12	it does approach 100 percent of the budget for antitrust enforcement.
13	MR. YOFFIE: Tom, one quick question. Even if it's only less than
14	five percent, would it still make sense to raise the number? In other words, why
15	do you want to have that five percent being reviewed if we don't really think it's
16	necessary for international transactions under $100 million?
17	MR. DONILON: I think that's fair --
18	MR. THOMAN: We're talking about less than five percent of --
19	DR. STERN: It's likely to grow.
20	MR. YOFFIE: You're only talking about small transactions. I'm just
21	again posing the question, even if it doesn't have a big impact or maybe especially
22	because it doesn't have a big impact, it won't have a big impact on the budget and
23	therefore it takes the burden off some number of companies that probably just

41

1	shouldn't be reviewed.
2	MR. DONILON: Let me correct myself on that as I read the
3	documents that we've been provided -- less than five percent of the transactions
4	valued at less than $100 million receive second requests.
5	MR. RATTNER: Less than five percent of all the transactions or less
6	than five percent of transnationals?
7	MR. DONILON: Less than five percent of all transactions valued at
8	less than $100 million, according to the data that's been given out by the
9	enforcement agencies, resulted in the issuance of the second request.
10	MR. RILL: I don't think those data divide between national and
11	international.
12	MR. DONILON: No.
13	MR. RATTNER: And what percent of transactions over 100 million
14	receive second requests? What does the five percent relate to?
15	MR. DONILON: It's about the same, I think.
16	MS. FOX: Yes, yes.
17	MR. RATTNER: What does that tell us, then?
18	MR. RILL: They're about the best I can recollect, and I'm sure there
19	are people in the audience who have better data than I. Of the 4,000 to 5,000
20	filings most recently, I think the FTC has issued about 50 second requests and the
21	Department has issued about 120. Enforcement actions -- abandonments,
22	consents, adjustments in the transaction or cases are about -- I'm sure they'll
23	correct me if I'm wrong, about 30 a year per agency.

42

1	MR. DUNLOP: Mr. Chairman, why don't we --
2	MR. RILL: Hearing no correction, that's a ballpark.
3	MS. ROBINSON: Jim, if I could just correct the second request
4	number. Fiscal year '98 should be 79 at the Justice Department. Fiscal year '99 to
5	date, we've issued 50, which is almost 10 percent less than we had about this time
6	last year.
7	MR. RILL: So we're talking about 80 then, not 120?
8	MS. ROBINSON: Right.
9	MR. DUNLOP: Mr. Chairman, why can't we get a written report on
10	this data that we can all look at and study?
11	What's the total number of requests and how many are second
12	requests, how many involve international, how many are purely domestic?
13	MR. RILL: I think for the large part, that's a good idea, and I think
14	for the most part that's readily available. When you get down to carving out
15	between international and domestic, you have a definitional problem you have to
16	deal with, what is international. I don't know that we need to get into that when it
17	does create a problem.
18	DR. STERN: I think your question now stands as a request to the
19	staff, and I'm sure we will be getting it very quickly.
20	MR. RILL: Basically the ballpark that we just discussed is how the
21	breakdown is between filings, second requests, and enforcement actions.
22	MR. DUNLOP: And has that changed over time?
23	MR. RILL: Yes. A lot more filings.

43

1	DR. STERN: So we would need to see the trend numbers.
2	MR. RILL: Second requests are not too much greater, frankly.
3	Enforcement actions, somewhat greater, although when one compares something
4	that I'm familiar with, fiscal '91, to current filings, current enforcement actions,
5	there is marginal change, not tremendous change.
6	MS. JANOW: Could I just put in one footnote. We'll provide you
7	all the data that we have, Justice and FTC has been very helpful in giving us some
8	data, but as Jim points out the differentiation between domestic and international is
9	not a differentiation, I gather, that the data picks up, and as you know, there have
10	been many international deals that don't involve foreign parties and so on.
11	MR. RATTNER: It may not get picked up by the filing data, but the
12	data we use picks it up in terms of just activity out there. I mean, we can tell you
13	how many of the deals and different size categories. The way we typically define it
14	is one non-U.S. party constitutes a non-U.S. deal.
15	MR. RILL: Then could you break it down even further than that,
16	Steve, if there are two U.S. parties, is there a foreign asset that's involved or
17	foreign sales.
18	MR. RATTNER: That we can't do, but maybe somebody else can.
19	MR. RILL: That's where it gets more complicated. I think you're
20	right. You can surely define it by parties.
21	DR. STERN: Steve, if you could help us out, it would be interesting
22	to compare your data with the data that the government has provided.
23	MR. RATTNER: That's easy.

44

1	MS. JANOW: There is an exemption, though, for foreign parties,
2	and that is something that we've also been emphasizing, Tom. This is a
3	recognition in the U.S. system about the effects of the transaction in the United
4	States, which recognition is not reflected in all jurisdictions of the world that
5	require notification. In fact I think in the staff recommendations are just that, that
6	that kind of recognition of the effects within the jurisdiction be picked up by others
7	to help reduce the volume problem.
8	MR. DONILON: That makes good sense. I think Professor Dunlop
9	makes a good point that we should all look at the data in front of us.
10	The data provided to the merger subcommittee indicates that
11	although the absolute numbers of second requests is not large compared to the
12	number of filings, as was just pointed out to us by the agency representatives, the
13	data that we have, as I look at it, does indicate that 38 percent of all second
14	requests, again, is based on a low number, but almost 40 percent of the second
15	requests that were issued were issued in transactions valued at less than $100
16	million.
17	Now, again, we're working on a small base, but nonetheless, a fairly
18	significant percentage of the transactions that do receive second requests are
19	transactions that are valued at less than $100 million. I think that's the kind of data
20	we can study.
21	Again, maybe Steve and his firm can help on trying to identify what
22	percentage of those have characteristics that we could fairly say would be an
23	international transaction.

45

1	MR. RATTNER: It's also true, Tom, that well more than 40 percent
2	of the transactions are less than $100 million. I don't know that number, but I'm
3	sure it's 60, 70, 80 percent.
4	MS. FOX: We may want to get data at a $75 million benchmark, a
5	$50 million benchmark -- to see whether there is a big drop-off.
6	MR. DONILON: I will tell you, though, based on my practice that
7	in a transaction valued at less than $100 million, the issuance of a second request is
8	a fairly significant event.
9	MR. RILL: I would like to say that in any transaction, the request is
10	a fairly significant event.
11	MR. DONILON: I think that's a fair point. In a massive
12	international merger that has vast impact on the United States and around the
13	world, you know when you can enter the deal as counsel that there's going to be a
14	second request in all likelihood because the agencies have responsibility to examine
15	it just on sheer size and significant overlap, but, again, I think on a transaction of
16	less than $100 million, the issuance of a second request, it's a significant event.
17	DR. STERN: Which leads to the next question: we now know that
18	that's a significant event and obviously the agencies know it's a significant event.
19	By dropping or by raising the level, are we really removing some what would be
20	very significant transactions from the necessary scrutiny?
21	MR. DONILON: Let me say two or three things about that, and I
22	would yield to the enforcers or former enforcers who are present here.
23	Point one, you can have a small transaction that could have a

46

1	significant impact in a fairly narrow geographic area that might not be small being
2	less than $100 million, the relevant geographical area being fairly small, and those
3	consumers would feel it, I take it that we would probably hear from the
4	enforcement agencies that these are in limited geographic areas.
5	DR. STERN: Uh-huh.
6	MR. DONILON: Secondly, we have the issue of, if you do raise the
7	threshold, you have the funding issue.
8	Third, counter to that is, of course, that the agency does not rely in
9	any way on the actual filing of an HSR in order to be able to investigate or take up
10	a competitive problem.
11	The other side of that is, of course, would the agency be notified in a
12	reasonable fashion, in a timely fashion about a transaction before it was carried out
13	if it were that small. I think those are the competing issues.
14	MR. RILL: Tom, let me interrupt, while we're on a couple of issues
15	that you've raised before they slip my mind. One, comments that were made in one
16	of our prior meetings, I think it was the past meeting that the whole issue of the
17	Hart Scott, and I'm sure you're going to get to the second request issue, is really
18	not an international issue, and perhaps it should be one that the Committee should
19	not address.
20	I don't agree with that. I think it may be more than an international
21	issue, but it's certainly an international issue, and I think there are international
22	implications that make it even more of an intense issue for international purposes.
23	We've heard the chairman of the FTC and others make speeches as

47

1	to how extensive the international nexus is with the merger review, cases of the
2	mergers that are reviewed by the FTC and presumably by the Department,
3	particular translation issues, particular locational issues, such as multiple location
4	issues as well as multiple filing issues that I think make it, among other things, at
5	least an international issue of significant proportions. That's my view, we should
6	address the issue.
7	On the question of filing fees, I don't think we ought to, without
8	considering what we're doing, make a recommendation that would be picked up on
9	and jeopardize the continued existence, viability, and enforcement strength of the
10	agencies.
11	I think that very well might be the view of a lot of the people around
12	the table. This is a very intense political issue right now, policy issue, not a
13	partisan issue by any means, but one that the chairman of the Senate Judiciary
14	Committee is focused, and others are focused as well.
15	I think that everyone would agree in the abstract that the filing
16	thresholds are way too low. I think that if we advocate raising those thresholds, at
17	least my own view is that we have to take a strong position that some mechanism
18	has to be found to maintain the agency's enforcement budget at a responsible level,
19	possibly current levels.
20	There are several ways to do it. I'm not sure that any -- I'm just not
21	sure that any is politically realistic. One that's been suggested is to simply take the
22	agencies off the filing fee trough and have them have a general budget. I think
23	that the OMB and Congress are going to find that hard to do. Regardless of the size,

48

1	$200 million is a statistical accident, but still having been there and dealt with
2	OMB, small numbers are not missed by them.
3	Secondly, another possibility is to raise filing fees for those
4	companies that do have to file once the threshold is raised. I don't know what the
5	business reaction to that would be.
6	On the other hand, I know that that would, in effect, require
7	legislation, and to the extent that there are those in the Congress that view the
8	filing fee as the tax, that may also raise a political policy argument.
9	That doesn't stop us from suggesting that the thresholds are
10	ridiculously low, and I think the agencies would agree with that, but I think in
11	doing that, we have to take cognizance of the fact that any simple increase in the
12	threshold is going to jeopardize the agencies' performance, unless Congress and
13	the administration are willing to take the countervailing action of maintaining the
14	agencies' budget in some other way.
15	MR. YOFFIE: Jim, I must be missing something. If we raise the
16	threshold, doesn't that in fact mean that there will be less work done by the
17	agency?
18	MR. RILL: No. Because you look at the number of transactions
19	that are actually reviewed. Again, I don't know the number, but I think there are a
20	lot of transactions, and most of the transactions that are reviewed are above a
21	threshold that we might raise it to.
22	Secondly, as Tom points out, if the agency is aware of a transaction,
23	even though it's not notified, that has anticompetitive consequences possibly

49

1	through newspaper reports or competitor or customer complaints, you are still
2	going to have to do the work to review the transaction without the benefit of
3	filings and fees.
4	I don't know how mathematically that model would give you the
5	exact numbers as to how it would work, but I think it would not significantly
6	reduce the work of the agency.
7	MR. YOFFIE: You are identifying an even greater inefficiency than
8	at first appears: Essentially taxing small transactions in order to support the overall
9	budget of the agency. If that's correct, it makes a stronger case for moving in this
10	direction and finding another mechanism to do it. The idea that you take small
11	companies, you tax them in order to support all these other activities, can't be the
12	most efficient way to run an antitrust policy.
13	MR. RILL: I couldn't agree with you more, but we are where we
14	are.
15	DR. STERN: Tom, you thought we were going to get through this
16	procedural stuff real fast. Do you want to go on?
17	MR. DUNLOP: May I ask a question? Who sets the filing fees?
18	MR. DONILON: Congress.
19	MR. RILL: Legislative action sets the filing fees.
20	MR. DUNLOP: When was the last time they set them?
21	MR. DONILON: I don't know.
22	MR. RILL: It's been amended. The filing fee's been amended.
23	MR. DUNLOP: No, I meant the filing fee. When?

50

1	MR. DONILON: I don't know the answer to that question.
2	MR. DUNLOP: I would like to know.
3	MR. RILL: Does anyone from the Department or the FTC know the
4	answer? Connie?
5	MS. ROBINSON: My best answer is the last filing fee amendment
6	would have been in '96.
7	MR. RILL: '96 and it went up to 45?
8	MS. ROBINSON: $45,000.
9	DR. STERN: Tom, these were initial remarks. I don't know what
10	happened.
11	MR. RILL: This is a session in which we are supposed to talk to
12	each other so I don't see any problem.
13	MR. DONILON: I think that is exactly the right approach. I guess,
14	though, we got two baskets here to talk about with respect to thresholds.
15	One is what we think is an optimal system that the United States
16	should advocate, and I think there would be general agreement on that --
17	transparency and objectively based thresholds that's known and has some nexus to
18	the jurisdiction reviewing would seem to me to make good sense. And as I said,
19	the Hart-Scott-Rodino foreign persons exemptions as an example of that that our
20	government should advocate. The other basket of course is changes that might be
21	made to our thresholds and I take it these are on the table, increasing the
22	thresholds.
23	I agree with Jim that if we're going to increase the threshold that we

51

1	need to have a funding proposal. I would be interested in reactions to increased
2	absolute filing fees on large transactions in order to make up for this, but you do
3	have a circumstance here where you have transactions in the $50 million range that
4	have the same filing fee or are subject to second requests in an economy which
5	David can talk to and Steve can talk to more expertly than I can where lots of
6	companies at this size are trying to get footholds.
7	MR. THOMAN: Mr. Dunlop pointed out what a marvelous
8	precedent this is. If the IRS could -- if we had to pay filing fees to the IRS, for
9	example, think -- this is a wonderful precedent for all sorts of things.
10	MS. FOX: I think that it's incumbent upon us to point out the
11	perverse incentives and the over taxation and come up with another budget
12	proposal, not just for ourselves, but because of recommendations from the world
13	at large, everybody has copied us, they are copying us. The agencies see how
14	fruitful it is to get lots of people to file, and this has increased the proliferation in
15	the world. And I think also that the thresholds should be raised and that I would
16	like to hear a proposal for calibrating the fee to something related to the amount of
17	work that the agency is expected to be doing, in some gross way at least, of which
18	might mean that for easy transactions that are not looked at further because they're
19	just not anticompetitive, there is almost nothing that would be charged against
20	them, but for complicated transactions, that's a cost of the deal, but not to
21	subsidize the rest of the operations of the agencies.
22	MR. THOMAN: Tom, I know you're trying to get off this, but there
23	also is the image that presumably the EU and other equivalent bodies, however we

52

1	agree the limits should be in the U.S., there is a reciprocity across with other
2	non-U.S. regulatory. I mean you hate to have the situation where we raise our
3	limits and theirs get other -- so there is an issue of what theirs are today and
4	reciprocity.
5	MR. RILL: There is a gross difference between our thresholds and
6	the EC thresholds. EC thresholds are much higher. However you don't have to
7	worry about filing in the member states.
8	MS. FOX: There is a difference in philosophy as to why the EC
9	adopted their thresholds and they purposely first set them at a point to not to catch
10	too many. They're also engaged in trying to not catch too many and to leave those
11	below their jurisdiction to the member states as a sovereignty matter.
12	MR. THOMAN: But if you go back to the notion -- we're trying to
13	save money and time. The more you have one standard, one test, et cetera, the
14	easier it is to get back to those objectives.
15	MR. DONILON: I think that's a good list of issues on thresholds
16	and one that may be fruitful.
17	DR. STERN: Does everyone know where we are on the outline? It
18	might make everyone more on the same --
19	MS. JANOW: Well, we're not exactly following the outline.
20	MR. DONILON: We're not exactly following the outline, I'm doing
21	a summary.
22	MR. RILL: The answer to your question is no.
23	DR. STERN: I think I know where I am.

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1	MR. DONILON: I couldn't tell you where we are on the outline.
2	MR. YOFFIE: Merit, do you have the more detailed version that
3	Tom is working off of for those of us not on the merger subcommittee?
4	MS. JANOW: The answer is yes. I'm not sure we have a full set of
5	copies, but I can certainly give you mine, but I think the core issues are indeed
6	identified in the skeletal outline. I wasn't sure Tom was working through it
7	necessarily.
8	MR. DONILON: Why don't we move on to the next basket of
9	procedural issues which is the amount of time that a jurisdiction gets to review a
10	transaction and how that time period is triggered, which is pretty key.
11	Again, there are two areas to discuss here. One is what are best
12	practices, if you will, that the United States should enunciate and try to see
13	adopted around the world, and secondly, what does that mean about our own
14	practices. Once we identify the best practices, what changes do we think we
15	should be recommending for our own government.
16	The staff view, and I think I agree with it, is that we should try to do
17	our best to develop common time frames. There are lots of different triggering
18	events around the world, including definitive agreement requirements, which is that
19	you have to have a definitive agreement before you can file, that's the case in the
20	EU, and in some cases actually post execution filing deadlines. And there are
21	some jurisdictions with very long review periods or in fact no firm deadlines for
22	ultimate review.
23	The staff, and I agree, believes that the United States with respect to

54

1	best practices should focus on what's been called outlier jurisdictions, that is,
2	countries with very disparate triggering events and initial review periods. So in the
3	United States, for example, this wouldn't require anything.
4	In the United States, you can file with the enforcement agencies
5	prior to having a definitive agreement. You can go in anytime after the execution
6	of a letter of intent between the firms.
7	In other places around the world, including the EU, there is the
8	definitive agreement requirement, and we have rather lengthy review periods. I
9	don't think that that is a very controversial, and most of the people agree, a very
10	controversial procedural change to advocate, that is eliminating the definitive
11	agreement requirements and seeking to eliminate post transaction filing
12	requirement.
13	Bill, do you agree with that approach?
14	MR. KOVACIC: I do.
15	MR. DONILON: The other issue with respect to timing is the length
16	of the review period. In the United States it's the 30 day initial review period, and
17	a second review of 20 days after compliance with the second request is reached.
18	We have talked at the Committee about whether we should
19	encourage firm deadlines for the second review or not, and that's an issue I think
20	still open, a four or five month deadline for completing a second phase review. I
21	don't know if Committee members have views on that. Eleanor?
22	MS. FOX: I think it is probably a good idea. I heard a lot of
23	conversation on it when we visited law firms, but there was some dissension.

55

1	MR. RILL: I think when you look at what's going to be helpful and
2	what isn't obviously in this type of procedural reform, this idea of having a fixed
3	time frame was something that came up early in our discussions, as you recall, and
4	we went around, some of us, talking to a lot of people, including relying on our
5	own experience with mergers and second requests, and there certainly was not a
6	uniform view that even if this were adopted, it would be particularly helpful.
7	I think we need to look at our notes and review our position on
8	whether or not that would be a useful modification. I think the question we face
9	is: is this something that we think would be practical so far as the agencies are
10	concerned, that's not a deal breaker, but certainly a factor to be taken into account,
11	and is this a change that merging parties would believe might eliminate the frictions
12	in the system. I'm kind of having second thoughts about that.
13	DR. STERN: The minute you get to the question of harmonizing
14	with other jurisdictions, if this is what we're trying to achieve --
15	MR. RILL: This would generally take us in the direction of the EU.
16	DR. STERN: Exactly. That's a consideration, too.
17	MR. RILL: The points raised by the staff and by the structure of the
18	U.S. is that the EU isn't quite so document crazy as we are.
19	MS. JANOW: I just had one footnote. I think in our own staff
20	prepared papers that the focus has been on whether or not there is a possibility of
21	imposing some disciplines on the time periods rather than focusing on any
22	particular time period, that is to say, the EU model or another. For example, the
23	Canadians have used 14 days for noncomplex matters, 70 for complex, 150 for

56

1	very complex, so that the firms know the kind of guideposts of what to expect. I
2	think we have been thinking more, at least in some of the informal drafts and
3	discussions, not about a legislative deadline necessarily but more understanding of
4	what would be the associated time frame so that if very complex issues were
5	raised, agencies would not be constrained in going beyond some artificial deadline.
6	So that's the balance that's been tried, that we've been working with.
7	MR. YOFFIE: What's the downside to the EU procedure?
8	MR. RILL: For one thing, it's been picked up in our discussions, is
9	in EU procedure, once you get into phase two, the four-month phase, that is the
10	rule. You cannot close within that time, under the merger regulation, that's the
11	time period.
12	A number of parties, and certainly to some extent my own
13	experience, people that we talk to that do a lot of merger work believe that having
14	a fixed limit within which closure cannot be accomplished would probably extend
15	in many instances, second requests, the time frame within which the merger may
16	close. We've heard testimony --
17	MR. YOFFIE: Jim, isn't that one easy: you set a five-month
18	maximum as opposed to a five-month minimum?
19	MR. RILL: You could do that. The question then becomes how do
20	you decide what is the maximum. That's something that could be worked out. We
21	have heard testimony from the FTC and also from the Department that even in the
22	case of second requests, the vast majority of second requests do not reach their
23	full-blown substantial 200 boxes or a thousand box compliance.

57

1	Normally it's worked out more often than not worked out within the
2	time frame, and I think a lot of lawyers handling mergers would, I think, agree
3	with that and want that flexibility to close sooner than the outer time frame and
4	review model.
5	MR. THOMAN: As a practitioner, and John I know has done this a
6	lot more than I have, but I've been involved in two or three of those, which were
7	borderline in terms of whether they would have been permitted or not.
8	What you get into then is discussions of well, if it doesn't close,
9	who's going to bear the cost. The further out that can be, so then you get a
10	discussions of what is the worst case? Well, the worst case is if it's seven or eight
11	months, certainly in technology, is a lot worse -- a business that floats for eight
12	months is a lot worse than a business that floats for four months. So you very
13	quickly get to numbers which say, gee, I can't -- the worst case is so awful that I
14	can't countenance it. That's the kind of issue that in my experience I have had two
15	or three that could have turned out like that.
16	MR. RILL: That's certainly true in high tech.
17	MR. THOMAN: If you have four, or five, at least you could
18	calibrate.
19	MR. RILL: No, that's a good comment.
20	MR. YOFFIE: Jim one other comment, too. It used to be trade
21	policy didn't have any deadlines, either. If you remember back in the 1970s,
22	countervailing duty and dumping suits could be stretched out sometimes for years,
23	and with the changes in the trade laws, which did set very strict deadlines on the

58

1	procedures, I think that has produced much more efficiency in the handling of
2	these activities. I agree with Rick that if you set a maximum deadline we could
3	potentially get much more efficiency in the process. Everybody understands the
4	deadlines they are working under and if it is closing earlier, we create the option to
5	make that possible. In terms of a recommendation, even though it requires a
6	legislative change, it seems to me that's directionally correct.
7	MR. RILL: Nothing to stop us from making legislative
8	recommendations.
9	DR. STERN: Plus marrying that with some of these regulatory
10	guideposts a la the Canadian experience which also will insert a little more
11	certainty, but it's not a certainty, it's a little more predictability.
12	MR. DUNLOP: Right.
13	MR. DONILON: By the way, we heard testimony from the Federal
14	Trade Commission that the average second request investigation was resolved in
15	about four months. So we could point towards the average now.
16	MR. RILL: Somewhat less than 50 percent required substantial
17	compliance, substantially less?
18	MR. DONILON: Right. And on the other hand, testimony that was
19	a surprise to me was, and indicates I think a seriousness of purpose at the FTC in
20	terms of picking transactions for second requests is that approximately 60 percent
21	of the second requests over the last five years did result in enforcement action. So
22	they were focusing on transactions where there really were issues.
23	MR. RILL: I think we're going to get a paper from DOJ on this,

59

1	too. My understanding is something like 30 percent is the number for DOJ, that
2	I've heard that. There's a reason for a hearsay rule.
3	DR. STERN: Maybe you should get some competition between the
4	agencies for a higher number.
5	MR. RILL: Or lower.
6	MS. FOX: But we have to know how many were aborted as a result.
7	MR. RILL: I think that's included within the enforcement number
8	that the FTC gives, ones that have been abandoned, modified, fixed, consents,
9	challenged in litigation. That's all within that 60 percent number. At least that's
10	my understanding from Bill Baer.
11	MR. DONILON: I guess then the consensus seems to be that we
12	have a pretty good consensus on best practices to be advocated but it also seems
13	to be a consensus to take a hard look at hard deadlines on the second phase; is that
14	fair?
15	The next in a basket of procedural issues is what do the agencies ask
16	for in the review and how useful is it. In the United States, obviously, the DOJ
17	and the FTC conduct merger reviews in two steps with an initial filing and
18	information provided under the Hart-Scott-Rodino form, and then the second
19	request which can include information that the agency needs to look at the
20	transaction further.
21	It's my understanding that the Federal Trade Commission is looking
22	at revisions on the Hart-Scott-Rodino form to make it more useful in review.
23	Merit, is that true?

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1	MS. JANOW: Yes. They have been in an ongoing process -- I think
2	it's our understanding that that continues at this time.
3	MR. DONILON: Because there is -- in my experience, you know,
4	some unnecessary information that's asked and a lot of useful information. It's
5	very SIC code based, which in every case is not a very accurate description of
6	what's going on.
7	A proposal that has been talked about in front of the Committee -- I
8	think we probably, by the way, on that should try to get in concert with the FTC
9	revision effort. They obviously have a lot of experience on this, and if they're
10	moving in a particular direction, perhaps we can help push that along in our report.
11	A proposal that's been put in front of the Committee with respect to
12	filing, though, is a proposal which would have kind of a short form-long form
13	approach to this. That is, if parties can come in and demonstrate that any overlap
14	between the parties is less than 20 percent, I think we've been talking about Merit,
15	then there would be much less of an information request, I guess would be the
16	idea.
17	If, in fact, the combined share is above 20 percent, the HSR form
18	would require up front a set of information that could illuminate the competitive
19	issues.
20	Do you want to talk about that any further, Merit?
21	MS. JANOW: I would like to invite Cynthia to elaborate, but I think
22	the basic notion here was simply that there may not be adequate information to
23	make these determinations from the initial filing requirement, so can one in essence

61

1	ensure that there is adequate information to get those deals off the table that
2	deserve to be off as quickly as possible. That's the objective. And one -- and this
3	is particularly true with respect to foreign jurisdictions, and again that is part of the
4	focus here, that can require information with respect to areas where there is no
5	overlap, so I think both aspects of that are what we have been speaking to, but let
6	me ask Cynthia if she wishes to elaborate with respect to the 20 percent or other?
7	MS. LEWIS: What we've tried to do with this proposal is reduce
8	initial filing burdens, particularly for transactions that raise no competition issues.
9	For example, the proposal would eliminate from the initial notification forms
10	extensive information requests concerning non-overlapping products, such as
11	market information relating to the acquiring party's individual market shares above
12	25 percent. We've also tried to devise a mechanism to get information up front in
13	the initial review period so that -- at least in the U.S. -- the agencies can quickly
14	resolve the competition issues or better focus requests for additional information.
15	The agencies would not have to go on a fishing expedition at that point because
16	they would have a lot of the key competitive information up front to enable them
17	to craft a more narrowly focused request.
18	MR. DONILON: I think that's something worth exploring with the
19	agencies to get their reaction. You know, in a transaction where you know that
20	there are competitive issues, typically the merger team representing the parties will
21	go almost immediately upon filing to the agency and say, we know you're going to
22	have some questions, we would like to get this done in the 30 day period, the
23	Hart-Scott-Rodino form doesn't give you what you need here, we know that.

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1	We want to voluntarily start to work with you right now in order to
2	demonstrate that there is not an issue, and the agencies typically work in concert
3	with the parties to try to accomplish that in the first 30 day period, that being to
4	make a determination that there is not a serious competitive issue. What the staff
5	proposal, I take it, would do would be to try to formalize that, that the agencies
6	and the parties wouldn't be relying on kind of this dance that happens between
7	merger counsel and the agencies where merger counsel spends a lot of money
8	sitting in a conference room discussing the issue of should we call the lawyer
9	working on this or not? If we call him or her, are we going to tip them off that we
10	think there is a problem with the transaction?
11	I think in most cases, experienced merger counsel will call and
12	identify themselves as representing the parties. But, in some cases, I don't think
13	that happens, and you get a delay, and you may get a second request because you
14	have just let it go too long.
15	You haven't engaged the agency, the agency hasn't engaged with you
16	in order to try to identify things. I would be interested in the agency reaction
17	though to that kind of formalization of what happens really in practice.
18	Now, one reaction might be that maybe 20 percent is too low, that in
19	fact the agencies might not be seeking lots of information, but I think we should
20	really explore that.
21	DR. STERN: Do you want to do that now? Do you want to get
22	comments?
23	MS. JANOW: I think maybe we were generating a few questions

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1	here. Perhaps move on if you don't mind.
2	DR. STERN: Good.
3	MR. DONILON: The last issue with respect to, what kind of
4	information we have asked for is translation expense which can be quite expensive.
5	There are proposals that we've discussed about asking the agencies to take on
6	foreign language experts to review foreign language documents and then those
7	experts could ask the parties for whatever -- to translate specific documents as
8	opposed to translate a mass of documents.
9	There's also been a discussion about the parties being able to provide
10	summaries to the agencies if requested by the staff within a certain time frame.
11	It is expensive, in my experience, but I guess I am ambivalent about
12	this proposal. I think that asking the agencies to hire additional skill sets is a
13	significant request that may not be the top of their priorities.
14	Secondly, as I think the statement against interest as a practitioner, if
15	I were an enforcer, I would not rely on the lawyers for the parties to provide
16	summaries of documents in a potential enforcement review. Every person has his
17	or her own summary of a document, and lots of times these document reviews
18	depend on a line instead of notes or something like that. I don't know that that's
19	really wise, but the translations issue is obviously an issue, because it is a big
20	expense potentially in an international transaction.
21	DR. STERN: I have a technical question. How soon will computers
22	be able to make translation a less costly consideration for documents?
23	MR. THOMAN: We do it now. We do a lot of work in Europe on

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1	documentation. We do the EU Patent Office documentation in most languages.
2	But it's not perfect. What the state of the art now is, we have software which will
3	give you three ways of translating something then you need a human to go through
4	it and cross out two of them so what you get is about an 85 percent improvement
5	of speed over full blown translation around that 80 or 85 percent, but you still
6	need a human interface to choose because often there are the same words that
7	mean things in multiple languages.
8	DR. STERN: Sure.
9	MR. THOMAN: What you then do is, is if you are with a pretty
10	high confidence, there are pieces that can be done word for word but very often
11	you have to go to three options, but we do that as a business. We do that for a lot
12	of car companies, for example, electronics companies, we have to do foreign
13	documents in multiple languages and we literally -- we digitize them and print them
14	out just in time to be dropped in the boxes, whatever product, wherever they're
15	going, whatever country.
16	DR. STERN: Is this a Xerox service?
17	MR. THOMAN: This is a Xerox service.
18	DR. STERN: Do you have a lot of competitors? I shouldn't have
19	asked that here.
20	MR. RILL: Strike the question.
21	DR. STERN: You don't have to answer that.
22	MR. RILL: The answer is yes.
23	DR. STERN: I'm sorry. I guess I wanted to know how prevalent

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1	this technology was, if technically we're going to get quicker or sooner fix than we
2	realize.
3	MR. THOMAN: It will be a little while because it's complicated
4	literally a word for word with pretty much certainty. So you'll always need a
5	human interface. The key is to limit the human interface. IBM spent a lot of time
6	on this also and had trouble, the same trouble. Both of those two have spent huge
7	amounts of time and effort.
8	DR. STERN: Uh-huh.
9	MR. YOFFIE: I think realistically we're talking three to five years
10	before you can expect something of the level which a lawyer would be comfortable
11	with.
12	MR. THOMAN: Right. It may be longer because they have been
13	saying that about voice now for -- three to five years ago -- they have made a lot
14	of progress, but it was still -- it was going to be now, but it's not now yet.
15	MR. YOFFIE: Translation is easier than voice.
16	MS. JANOW: I don't know, but two years ago, I reviewed a
17	Japanese computer translation of Hamlet. Japanese to English, To Be or Not To
18	Be was to have or perhaps I have not, so I feel three years might be ambitious.
19	DR. STERN: I don't expect poetry. There is a difference between
20	translating with all due respect, to legal briefs, I don't -- I have never seen one that
21	I would call poetry. So, I mean, there may be a level of acceptability. The point is
22	there may be some -- technology may help us and we should anticipate that in our
23	recommendations.

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1	MR. DONILON: The next set of issues falls in the basket of
2	transparency, and again transparency is a principle which I think could be
3	something very fruitfully advocated by the Committee, that is trying to get as much
4	publication of requirements, as much clarity for practitioners and businesses
5	around the world to use.
6	We can talk about what the best venue is for doing that, but I think
7	it's obviously, from a practitioner's point of view, from a business person's point of
8	view, that would be quite a useful thing to promote.
9	We have also talked about basic principles that can be advocated by
10	various fora in the United States in merger review. Again we have talked about
11	those.
12	With respect to the United States itself, we have had discussions
13	about how the U.S. agencies might be more transparent, in their deliberations. I,
14	as a practitioner, find a lot of transparency. I find there is agreement with other
15	folks on the Committee, I think, that there is a lot of information about how the
16	United States enforces merger law. We have guidelines, we have speeches by
17	practitioners, we have a very useful interaction between the ABA Antitrust Section
18	and the agencies where these things are fully, pretty fully ventilated, but in order to
19	be a semi-fair presenter, some of the ideas that have been talked about really fall
20	into two areas.
21	One, the question presented is, should an agency before it presents a
22	second request make a short statement of its issues. A short statement, theory of
23	its case, what's bothering it in specific, what markets are bothering the agency and

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1	why the 30-day termination period hasn't just been allowed to lapse and why the
2	transaction can't just close. That's one question.
3	Second, Paula, you've asked about this on a number of occasions,
4	should the DOJ and FTC be required to publish the reasoning for their decisions
5	where they don't go forward. They obviously do when they do go forward, they
6	go to court and publish it extensively.
7	Again, I think that the agencies in the United States do a lot. The
8	FTC, for example, I think has very useful material to aid public comment on
9	settlements that it might propose. There are annual reports and other things, but
10	these are the two issues that have been raised most directly, should before a
11	second request is issued an agency be required to make a short statement of the
12	case and to tell you formally what's on their mind and secondly, should in some
13	cases, and if so what cases, should the agencies be required to issue an opinion of
14	some sort.
15	MR. RILL: It seems to me that it would be wrong probably to
16	require the agencies to do this in every case investigated, but I think the agencies
17	could probably do, maybe at just the margins, a somewhat better job of articulating
18	in cases that are doctrinal or paradigm cases in their own judgment, reasons why a
19	particular merger was permitted.
20	Connie is here so I'll flatter her. The articulation regarding the
21	L'Oreal case in some of your speeches was quite good, and I tried to do some of
22	that, I would only advocate more of it. I think even where there are consents
23	reached, the Commission now could further improve its statement in aid of public

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1	comment in the consents than it does now. Justice is under a little bit more of a
2	burden because they have to get court approval under the Tunney Act for its
3	consents, but the Commission doesn't have that burden. It's very modest in
4	attempts to put it to the agency to make this request, focus on the agency, but it's
5	less burdensome and perhaps more useful than requiring that every case
6	investigated, all 80 some odd Justice Department second requests, 60 some odd
7	FTC second requests where there's no enforcement action, to have a meaningful
8	statement, that would make a good contribution.
9	On the second request statement, I think internally staff should have
10	that obligation to the operations office and the bureau directors, and the agencies
11	indicate that they do have that now.
12	I think we ought to think hard about -- I don't know how to come
13	out on this, but I think we ought to think hard about what benefit really would be
14	achieved by requiring some public statement at that time of the second request
15	being issued, both from the standpoint of the parties and the possible impact on
16	financial markets or elsewhere on the deal by having the agencies come out and
17	say, we're concerned that in this particular market there very likely could be a
18	substantial lessening of competition. All the arbitrageurs are running around doing
19	what arbitrageurs do. I wonder if that's a real benefit; compare that with just the
20	fact that the issuance of a second request is sometimes disclosed by the parties
21	anyway. I haven't really thought that through. I see a concern that could be raised
22	there.
23	Secondly, I wonder how articulate real agency definitions of the

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1	particular problem would be. It isn't going to help very much to say we're issuing
2	a second request because we think there may be a problem under section 7 of the
3	Clayton Act. I'm not suggesting the agencies would do that, but in past history I
4	have seen that sort of problem of supporting FTC, DOJ subpoenas.
5	So I don't know. I'm questioning how much good that would really
6	do and whether there is a downside aspect to it.
7	MR. DONILON: I guess my view is somewhat in line with yours,
8	Jim, is that I fear that these kinds of statements would become highly stylized and
9	there would be a form that would develop within the agency as to what you give
10	the parties when you're about to issue a second request.
11	Secondly, I would be interested in agency reaction to this, if the
12	agency is preparing to go to court, are they going to want to give you a statement
13	of their case before they're ready?
14	MR. RILL: Well, I certainly think that's something that we have all
15	wondered about.
16	DR. STERN: I think my take on this is very similar to Jim's. That
17	where there are speeches that have been made, if there is a way to encourage that
18	in these important shifts in doctrine, it should be done. On the second request, I
19	think we should probe the questions that you've mentioned. I think they're very
20	good ones, with reference to court considerations that impact agency decisions.
21	The burden, administratively, may not be so great because within the
22	bureaucracy, there is this communication going on. Sharing that with the parties is
23	different from sharing it with the public. There might be a proviso that only the

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1	interested parties, not the stock market, and the arbitrageurs would be signaled as
2	to the thinking.
3	MR. RILL: It's a real problem. And you're right, it's a real problem,
4	the second request in the U.S. is an abomination. The agencies would agree that in
5	many instances the second requests as issued are enormously costly, time
6	consuming, and often in my own experience and I think the experience of a lot of
7	people who do a lot of merger work, by and large you can find out pretty much
8	what the agency staff are concerned about and what they're looking at.
9	In the meantime, that good working relationship is done against this
10	backdrop of a huge thunder cloud of a second request which goes well beyond
11	those discussions, and that maybe the reason why Ann Malister, who is here, tells
12	us that in, I don't know, pick a number, 80 percent of her second requests there is
13	not substantial compliance and that negotiation bears fruit. But there is still the
14	thunder cloud, and the parties have to worry about complying with that in case the
15	negotiation breaks down, and that's something that really cries out for a solution
16	which I don't have right off the top of my head.
17	MS. JANOW: I was just going to put an international context to
18	this. I think the recurring theme in all of these specifics has been if the U.S. is
19	going to be an advocate for reform in foreign jurisdictions, then you should get our
20	own house in order, and that has therefore stimulated focus on these particulars,
21	including the question of transparency. But frankly, the issue of transparency has
22	been emphasized in our hearings as a problem around the world of great
23	significance, including the underlying rationale behind merger review as being