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ICPAC Hearing Minutes From July 14, 1999

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5Washington, D.C.

6Wednesday, July 14, 1999






12This document constitutes accurate minutes of the meeting held July 14,

131999, by the International Competition Policy Advisory Committee. It

14has been edited for transcription errors.


___________________ ________________________

James F. Rill Paula Stern

Co-Chair Co-Chair












6Washington, D.C.

7Wednesday, July 14, 1999




11Taken at The Carnegie Endowment for International Peace, Root

12Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C.

13beginning at 10:00 a.m., before Ann Marie Federico, a court reporter and notary

14public in and for the District of Columbia.











1C O N T E N T S


3James F. Rill, Co-Chair

4Paula Stern, Co-Chair



7Thea Lee, Assistant Director of Public Policy, AFL-CIO



10Initial Remarks by Thomas E. Donilon



13Discussion of Overlapping Federal/Sectoral Merger Review by

14William E. Kovacic, Professor of Law, George Washington

15University Law School




19Initial remarks by James F. Rill







2Advisory Committee Members:

3James F. Rill, Co-Chair and Senior Partner, Collier, Shannon, Rill & Scott, PLLC

4Paula Stern, Co-Chair and President, The Stern Group, Inc.

5Merit E. Janow, Executive Director and Professor in the Practice of International

6Trade, School of International and Public Affairs, Columbia University

7Thomas E. Donilon, Partner, O'Melveny & Myers

8John T. Dunlop, Lamont University Professor, Emeritus, Harvard University

9Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York

10University School of Law

11Raymond V. Gilmartin, Chairman, President and Chief Executive Officer,

12Merck & Company

13Steven Rattner, Deputy Chief Executive, Lazard Frères & Co., LLC

14Richard P. Simmons (telephonically), President and Chief Executive Officer,

15Allegheny Teledyne Incorporated

16G. Richard Thoman, President and Chief Executive Officer, Xerox Corporation

17David B. Yoffie, Max and Doris Starr Professor of International Business

18Administration, Harvard Business School

19Department of Justice Employees:

20A. Douglas Melamed, Principal Deputy Assistant Attorney General, Antitrust


22Donna Patterson, Deputy Assistant Attorney General, Antitrust Division



1Department of Justice Employees (continued):

2Constance K. Robinson, Director of Operations and Merger Enforcement,

3Antitrust Division

4Charles S. Stark, Chief, Foreign Commerce Section, Antitrust Division


6Randy Tritell, Assistant Director, International Antitrust, Federal Trade


8William E. Kovacic, Professor of Law, George Washington University Law


10Thea Lee, Assistant Director of Public Policy, AFL-CIO

11No members of the public made an appearance or presented written or oral



14Advisory Committee Staff:

15Cynthia R. Lewis, Counsel

16Andrew J. Shapiro, Counsel

17Stephanie G. Victor, Counsel

18Eric J. Weiner, Paralegal

19Estimated number of members of the public in attendance: 20

20Reports or other documents received, issued, or approved by the Advisory

21Committee: None.





2DR. STERN: Good morning. I would like to welcome everyone

3here. This is the fifth full Committee meeting of the International Competition

4Policy Advisory Committee. We've come a long way since our first meeting back

5in February '98, and we're working diligently to release our report by late 1999.

6You could do it any way you want -- but we're going to wrap it up.

7Today we have an ambitious program ahead of us. Before

8describing what's on our plate, I would like to take a few minutes just to review

9our activities since our last full Committee meeting, which was in March. Since

10then the Committee has held two days of Spring Hearings, one on April 22nd and

11another one on May 17th. These round out the set of hearings that we held last


13At our last set of hearings, we were especially honored by the

14presence of the Attorney General of the United States, Janet Reno, and by

15Assistant Attorney General of the U.S. for Antitrust, Joel Klein. They were able

16to join us and to make some opening remarks at our hearing back in May.

17At our Spring Hearings, members of the Advisory Committee had an

18 opportunity to hear from a number of distinguished representatives of business

19community organizations, bar associations and other groups that have been

20developing input for many months.

21We also heard from individual U.S. businesses, economists, and

22several speakers who have been involved in providing technical assistance to

23developing antitrust authorities around the world.


1Transcripts of those Spring Hearings are being prepared to be posted

2on the Advisory Committee's website, where you can also find transcripts of all of

3our past meetings and hearings plus a host of other useful materials related to this

4Committee's work.

5If you have questions about how to access our website, the staff is

6obviously here to help you. Our Committee members have been very industrious

7in dedicating their energies to the meetings of our various subcommittees; we've

8divided ourselves into the trade and competition policy, multijurisdictional

9mergers, enforcement cooperation and, thanks to Rick Thoman, e-commerce.

10Turning to our meeting today, let me give just a quick overview of

11the agenda that we've got this morning. Our opening remarks will be from my Co-

12Chair, Jim Rill, and then we will commence with the presentation from organized

13labor. Miss Thea Lee, Assistant Director of Public Policy at the AFL-CIO, will

14offer us the perspective of organized labor on areas under consideration by the

15Advisory Committee.

16Then the Committee will have an opportunity to discuss

17multijurisdictional mergers, and our fellow member Tom Donilon will be here to

18lead that discussion.

19We 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.

21Professor William Kovacic will join us, once again, to respond to the questions on

22this issue that were raised back in March at our full Advisory Committee meeting,

23when he made his initial presentation to us.


1We hope you will be able to stay for lunch. Administratively our

2banker and gracious Executive Director, Merit Janow, should be given $15, for

3she has prepaid for the lunch out of her own pocket.

4After lunch, we have scheduled a single afternoon session during

5which the discussion will focus on the interface between trade and competition

6policy as well as on international agency enforcement cooperation. And Jim Rill

7will kick that discussion off.

8I would like to take a few minutes to welcome everyone in

9attendance in the audience. We deeply appreciate your interest in our work.

10Finally, I would like to note for the audience's purposes that this meeting is

11designed to receive input from the participants who have agreed to appear today.

12Accordingly, we have stated in the Federal Register notice, which

13announced this meeting, that there will be no participation by the audience, or it

14will all be passive participation by the audience. Even though today's format does

15not allow for participation from the audience, we do welcome and indeed invite

16any reactions that you may have to our meeting in writing and, again, please

17contact our staff if you wish to submit any written comments to the Advisory


19Before I cede the microphone to Co-Chairman Jim Rill, I would like

20to note that we have a very full turnout today of members, both present in the

21room as well as several on the telephone. All but one of our Committee members

22plan to be participating today, so I very much appreciate the input and the time



1Thank you very much. Jim?

2MR. RILL: Thanks, Paula. I, too, want to thank the members of

3the Committee present, either in person or by electronic media. We are coming, as

4Paula indicated, we are coming down to the development of the principles, at least,

5and broad areas for inclusion in the report that we anticipate will be filed with the

6Attorney General and the Assistant Attorney General by year's end.

7Now, by my calendar the fall ends somewhere around December 21.

8DR. STERN: That's good.

9MR. RILL: So whether one wants to say the end of the fall or year's

10end seems not the most relevant issue. The most relevant issue, of course, is going

11to be to develop within our own ranks a consensus on positions and transmit that

12into a scholarly but also directive report that contains positive, well developed

13recommendations to the Attorney General and the Assistant Attorney General, and

14also to other audiences to whom we will be directing our recommendations -- or at

15least directing our recommendations to the United States Government for its

16discussion, advocacy, potential negotiation with their colleagues in other

17jurisdictions of the world. And in that connection, we're pleased to see Sybille

18Frucht 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

20newly appointed as the Japanese Fair Trade Commission member of the Japanese

21Embassy delegation.

22As always, we're also glad to see Chuck Stark who is a senior, in

23terms of service, U.S. attorney involved in international antitrust relations and one


1of the real architects of the 1991 U.S.-EU agreement, and many other things as


3With that, we are delighted to have here our representative Thea

4Lee. And Paula, perhaps you want to make the introduction?

5DR. STERN: Yes, Thea, I very much appreciate your coming, and

6we are particularly -- with the guidance of Professor Dunlop -- have been very

7anxious to bring into our consideration the positions of organized labor on this

8issue. Knowing of your very thoughtful policy work in the past, I think we are all

9very lucky that you've come today and have put your mind to this particular topic:

10the intersection of trade and competition policy. And with that, I turn the mike to


12DR. LEE: Thank you so much, Paula, Mr. Rill, and members of the

13Advisory Committee and a particular thanks to Professor Dunlop, whose kind and

14persistent invitation resulted in my coming today.

15We very much appreciate the opportunity to present the views of the

16AFL-CIO on these issues to this Committee and the very important work that

17you're doing.

18What I hope to do today is focus on the key areas of concern to the

19labor movement, and I'll skim over some of the areas where there's less

20controversy, where we are in agreement with the positions put forth by the

21business community, the academics, and the government officials that you've heard

22from have already stated. I'm happy to clarify any of those positions in the

23question and answer, if that is necessary.


1The labor movement recognizes the challenges that we face around

2these issues at the theoretical level, at the political level and at the practical level,

3and we wish you well in your task of summarizing the diverse views and positions

4that you've heard and providing the analysis that will guide the future policy.

5These issues are of a lot of importance to both business and labor.

6As we see our economy increasingly integrated into the global economy on every

7level -- through the movement of goods, services, capital and people -- we find

8ourselves confronted more often and more compellingly with the need to address

9issues at the supranational level, and I think we've all seen in many of the different

10debates around trade policy that the concept of national sovereignty is no longer a

11simple one.

12Having international rules and standards limits our sovereignty, as

13we can see, but then, so, too, does the absence of international rules and standards.

14In the area of competition policy, the issues that have been raised are those where

15having domestic antitrust law or merger law doesn't do us any good if we don't

16have some international counterparts. As our companies are transnational, and as

17their business is transnational, we need to also address anticompetitive practices at

18the international level. And the same is true of the trade agreements that we

19negotiate, that the USTR will negotiate. Those trade agreements don't work if

20there are anticompetitive practices in other countries that negate the benefits that

21we have spent a lot of time negotiating.

22One of the things that makes this issue difficult is that it is an

23inherently political issue. It goes right to the heart of government interaction with


1national businesses. There are major economic interests at stake, and we see the

2issues of economic nationalism, of governments rightly looking to protect their

3national firms or what they perceive as their national firms in conflict with the

4international obligations or international principles that might promote more

5efficiency and a better overall outcome.

6You 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

8more detail than that.

9The labor movement has historically had an interest in seeing that

10corporate power at the national and transnational level is checked by appropriate

11government action. The question is how best to do that. One of the areas where

12we are in agreement with the work of the Committee and most of the people

13you've heard from is that it's a good idea to encourage countries to develop and

14enforce sound competition policy. That seems like the kind of thing that happens

15at a discussion level, rather than needing strict international rules. But some of the

16other issues that are not covered by trade policy -- transnational cartel behavior,

17monopoly and price fixing, transnational merger policy, and the anticompetitive

18behavior that blocks market access -- are not yet dealt with at the international

19area, but need to be.

20Other areas of competition policy are covered by trade policy, like

21national antidumping laws or government subsidy policies. These are both dealt

22with at the national level and explicitly permitted by international rules.

23The antidumping laws attempt to prevent predatory behavior,


1deliberate underpricing designed to garner market power which is then abused and

2puts you back into the first category of transnational monopoly behavior.

3One thing I want to talk about today that I don't think you have

4talked that much about is when we talk about national or international competition

5policy, one of the things we're talking about is the terms of competition.

6What 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

8much a labor issue.

9As I said, the trade laws today address a subset of terms of

10competition: subsidies and dumping. And the business community, with the

11support of the labor movement, has succeeded in identifying and classifying these

12forms of international competition as illegitimate. A government that subsidizes its

13export industries will come under international scrutiny, and may be faced with

14tariffs, compensating tariffs, countervailing duties, and so on. Similarly, the pricing

15policies in exports are very much under the discipline of international trade rules.

16The question I would like to raise today for your consideration is

17whether the systematic violation of internationally agreed upon labor standards,

18core labor standards as identified by the International Labor Organization, by the

19United Nations, and by the WTO, in fact, is an anticompetitive practice, and in

20many senses is equivalent to a forced subsidy where workers are forced to

21subsidize the profits of the companies that they work for with the complicity of

22their governments. In these cases, the governments are complicit with the

23companies in repressing labor rights, in artificially repressing the price of labor and


1doing so in an antidemocratic fashion, sometimes a violent fashion, often an illegal

2fashion. 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

4conventions. There is little oversight to this question.

5I know this hasn't really come under your jurisdiction. It certainly

6hasn't been a topic that the Working Group on Competition Policy at the World

7Trade Organization has addressed, but I think it does go to important international

8business issues and it's relevant.

9This issue has been raised unsuccessfully in the Canada-U.S. context

10where there was early on an attempt by the Canadian labor movement to file a case

11against 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

13look at the WTO language on subsidies, and if you consider that the government

14has a role in many cases in repressing internationally recognized labor rights, then

15you could see that you could at least make a decent argument that this is

16something 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

18have addressed.

19Now, all the problems that we've discussed have this in common:

20They can't be fixed purely at the national level. But the question is, how to fix

21them, at what level, and how do we best go about this? This is where you have

22given the bulk of your attention.

23Many of the people who have spoken and testified before this


1Committee 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

3working group. Most have been fairly skeptical about the value of competition

4policy negotiations at the level of the World Trade Organization.

5We would add our skepticism to that you have already heard. This

6is not to say that this issue should never be addressed at the WTO. I think maybe

7one day it should. Like most issues that involve conforming national rules to

8international standards, it is best addressed at the multilateral level. At the

9moment, however, it's premature to do so at the WTO. The consensus is so far

10from 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

12compliance with such rules, I think, is beyond where we are today.

13We also share a concern that the current Working Group on Trade

14and Competition Policy at the WTO has gone in directions that are detrimental.

15We certainly do not want to see this competition policy working group used as an

16excuse to undermine U.S. antidumping laws. That is a serious concern for us, and

17to the extent that the countries that have participated in that working group seem

18determined to raise that issue, then that seems like another very important reason

19why this is not a good time to pursue this conversation in that forum.

20But the broad conversation on international competition policy

21should continue at the international level. We would like to see labor rights be

22part of that agenda to the extent that it does continue.

23In terms of the merger review and the premerger notification


1questions, it seems that the issues of transaction costs and the kinds of

2bureaucratic hurdles that companies need to go through in order to notify about a

3merger, including filling out forms for many different countries, are an

4inconvenience, but maybe not a major inconvenience (according to some of the

5business testimony).

6It's important, I think, to streamline that process, but not at the

7expense of weakening the guidelines that are in place. We would not want to see

8a harmonization process for the premerger notification and merger review that had

9the result of weakening the standards that are in place now.

10The final issue that I think is the most interesting and the most

11difficult is the one of anticompetitive behavior abroad, and the extent to which this

12acts as an export restraint.

13We 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

15blatantly exclusionary or anticompetitive actions by governments in coordination

16 with firms. I hope we'll have some discussion about this question because we

17haven't worked out all the answers, but it's very important.

18In principle, some of these issues are covered by trade law. When

19one government nullifies the benefits that a country expects to get when it signs a

20trade agreement, that is actionable in principle.

21We have also seen the disappointing result of the WTO case on

22Kodak-Fuji. This result would cause us to doubt whether this issue will be

23addressed to our satisfaction effectively by the trade rules at this time.


1The question I have is can we use U.S. antitrust measures more

2effectively than we currently do -- more consistently and more aggressively -- to

3deal with these kinds of actions abroad? I know you've had some discussion about

4that in this Committee, what U.S. law allows, what are the kinds of obstacles that

5we face right now. The two obstacles that have been identified include the

6difficulty of gathering reliable evidence without the cooperation of foreign

7governments, and then the second difficulty of imposing remedies extraterritorially.

8It seems that the business community is a little bit wary of the

9evidence gathering side of things. That was one of the things that came up a few

10times in the testimony you've heard already, that the business community is

11worried about the confidential information that might have to be provided in this

12context. But it seems like that obstacle should be addressed squarely and that

13those concerns can be met. Certainly we would expect that any U.S. antitrust

14enforcement efforts would be able to keep that information confidential and the

15question is whether we can have that same confidence in foreign antitrust efforts

16here in the United States.

17But that is a direction that we should explore. Since it seems like

18this conversation at the WTO level has been problematic, it is not likely to

19necessarily move in the direction we want. It seems to me that it puts us back for

20the moment, at least, at our national law. The question we face is how to make

21that national law more effective, certainly within the guidelines of the multilateral

22trading system.

23But let me just stop there. I hope we can have some discussion


1about some of these areas, and I welcome your questions and comments.

2DR. STERN: Thea, thank you so much. That was a very, very

3thoughtful presentation and it reflects that a great deal of preparation was put into

4this. By looking at the work that we have done so far, and the diligence which has

5been demonstrated, finding the overlaps between emerging themes and organized

6labor's satisfaction with aspects of our work and how we're parsing our work is

7extremely reassuring; I just want to express my personal gratitude.

8It's true that, to use your word, persistence, Professor Dunlop really

9carried through on our desire from the very, very beginning. He has also carried

10through on both Joel Klein and the Attorney General's desire to make sure that we

11heard your voice, and you have given us a very thoughtful presentation -- it's not

12like we've just touched base. I think we've really joined the conversation, to use

13your words, so thank you very, very much. It doesn't surprise me, knowing of

14your diligence.

15I wanted to open up the floor to questions or comments from any of

16the members at this point.

17MR. RILL: Well, let me also echo my Co-Chair's admiration for the

18obvious preparation time that you put in and your familiarity with the record that

19has been developed to date. I myself would be embarrassed to have a test between

20you and me as to who is more familiar with the record. I think that's very useful.

21A couple of questions. You're concerned that the Trade and

22Competition Working Group at the WTO, the one that's headed by Professor

23Jenny, is off, I think you said, in a wrong direction with concern being expressed


1from some quarters on antidumping. You also suggest that it is, I think you used

2the word premature, for the WTO to get into any kind of prescriptive discussions

3of competition policy issues or principles.

4That view has been expressed in other quarters. Conversely, we do

5have heard views expressed that the WTO should play an even greater role. So

6this is an issue that we need to deliberate among ourselves.

7You also indicated, though, that there's a need for some further

8discussion, at least, deliberation on the international scale of competition policy,

9basic standards and so forth. Some of that, of course, goes on within the OECD's

10Competition Law and Policy Committee and the Trade Committee, the Joint

11Working Group in the OECD.

12We have heard the concern that the OECD is too narrow of a forum,

1329 countries. Some have described it as an elite group. I wonder if you have any

14thought as to where this discussion that you're calling for might take place. Not

15WTO, OECD is too narrow.

16Is there some possibility that, for example, a special forum, let's not

17call it an organization, but a forum for the discussion of the competition policy that

18would be more broadly based, perhaps, than the OECD but work on OECD

19principles might be something that could bear fruit, a fairly useful purpose, if you

20want to comment on that.

21DR. LEE: Yes. I think that's a good idea. It's interesting that today

22we think of this issue as being one that affects primarily the industrialized

23countries, and that's one of the reasons that the OECD, the U.S., Europe and


1Japan have been the key players in the competition policy discussion. But I think

2that 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

4state-owned enterprises to the private sector and some of the issues around

5monopoly will affect the developing countries, so if possible it would be desirable

6to have a forum which included both developed and developing countries for this


8The developing countries rightly resent when they come into a

9conversation after all the decisions have been made and then they're asked to sign

10on, and their particular concerns, which are different from those of the

11industrialized countries, have not been addressed or are addressed in a backhanded


13I think that's not a bad idea, to have a special forum. It could even

14be a voluntary forum so the countries that have concerns and that have strong

15opinions about this could come together in a lower pressure environment than the


17The WTO is never going to be a low pressure environment. It's one

18where there's a lot of politics and a lot of posturing, and a lot of trading off, as you

19all know, where countries raise difficult issues on purpose in order to make

20progress in some other totally unrelated area, so I think that a separate forum

21would offer some advantages, and would be a good direction to explore.

22I also just want to say one word of thanks to Andrew Shapiro who

23helped me get prepared for this and was very helpful in guiding me to the various


1transcripts. It would be remiss of me not to say that.

2MR. RILL: Thank you for that answer.

3Let me just ask you to elaborate, on another comment you made,

4regarding an attempt to get rid of some of the frictions in merger notification:

5multiplicity of jurisdiction, multiplicity of information, different timetables. We've

6heard a lot of testimony that these issues are a real problem, and we're going to be

7discussing that later on this morning among other merger-related issues.

8You suggest, I think, quite rightly in my own view, that that kind of

9procedural friction removal doesn't undercut the substantive work being done in

10the merger review process, and I think that's right.

11It seems to me that one of the topics that could be discussed at the

12forum that we're hypothetically developing as we speak would be the standards

13issue because there is a concern that not everybody in the world has the same

14consumer welfare standard that has been adopted in the United States, and that

15seems to me to be an issue worthy of discussion. There may be areas where we

16want our government to be in a position to advocate a consumer welfare standard

17so that perhaps more parochial national standards that may -- we heard may be

18developed in other jurisdictions -- could at least be made more transparent, and if

19possible, addressed. I wonder if you have a thought on that.

20DR. LEE: I think that would be very appropriate to raise issues that

21may not have come up and convince other countries of the rightness of that in this

22kind of harmonization discussion.

23There is always a danger in the harmonization discussion that


1countries have whatever they have and they're not willing to talk about changing it,

2but if you had a forum that was relatively open and you could share information

3about the benefits of the consumer welfare standard, that would be appropriate.

4MR. RILL: A number of our members, particularly from the

5business community, Ray Gilmartin, Rick Thoman and others have said that

6transparency is key at least at the first level to understand what the standards of

7other jurisdictions may be, and I gather you agree with that.

8DR. LEE: The transparency is something that we have pushed very

9hard in a lot of different forums, that certainly it's a bare minimum in terms of what

10countries need to interact intelligently and what businesses need to interact in other

11countries, that transparency should always be pushed as far as possible.

12MR. RILL: I think your discussion of labor standards as a form of

13subsidy, inferior labor standards as a form of subsidy is an issue that will be a

14matter of public policy debate for sometime. Am I understanding you correctly

15that where those substandard -- standards exist, they are government imposed.

16DR. LEE: Government tolerated in some cases.

17MR. RILL: Whether tolerated or even imposed, this type of issue

18may be one more for government negotiations in the trade area perhaps rather than

19in the competition, private restraint focused area that we're to some degree, I

20think, focused on in this Committee.

21Do you agree with that?

22DR. LEE: I raised the issue to see where it will end up. I don't

23know. Certainly this is an issue we've raised in the market access discussions that


1we would very much like to discuss at the WTO, in some ways the opposite of

2competition policy.

3There is also no consensus, as you know, on labor standards, on

4even having the conversation. We haven't gotten as far as competition policy in

5the sense that we can't establish a working group on worker rights at the WTO.

6We 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

9with government behavior and government rules that are inadequate in some cases,

10so --

11MR. RILL: I think we would probably be remiss if we took an

12unduly narrow view of our own jurisdiction and the variety of areas such that we

13did not address, at least as an advocacy recommendation to the United States

14government, positions that we feel are governmental restraints overseas that limit

15the free flow of markets and a strong competition policy.

16There are a number of members that feel the same way. So I think

17these are areas that we will at least review and recommend to our government that

18they engage in some fruitful advocacy with their counterparts and also, by the way,

19to look at ourselves and see that our own house is in order.

20DR. LEE: Yes, always important.

21MR. RILL: Thank you.

22DR. STERN: Eleanor?

23MS. FOX: Yes, thank you very much. I certainly enjoyed your


1presentation. I wanted to ask you about some possible tensions that you may see

2between labor rights and competition policy. So far you've been talking, I think,

3favorably about an efficiency and consumer welfare standard and yet you have also

4talked about the problem of putting pressure on labor rights and, in effect,

5exploiting labor.

6I wanted to ask you about an issue that usually comes up in big

7international 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

9and also how you see your AFL-CIO interaction with the ILO and whether

10countries that have lower labor costs might consider that they have a comparative

11advantage that ought to be recognized in the world, and whether if that's so,

12cheaper labor goes together with efficiency and world competition.

13So is there a tension there? Is there a problem of competitiveness

14that might have to be addressed by recognizing a common effort of efficiency,

15business and labor?

16DR. LEE: Okay, that's an excellent question. And let me start with

17the big mergers, loss of jobs. It's always a concern in any particular case, what the

18job impact is going to be, but I'm not sure whether there is any broad policy

19statement. Certainly it's something that should be taken into account. It's one of

20the 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

22companies merge and change their productive structure and their plans and so on.

23But I don't have a well thought-out sentence that would guide how merger policy


1should address job impacts.

2MS. FOX: Yes, our competition policy today in the United States

3actually doesn't, and this is because of our efficiency/consumer welfare policy, so

4I just wondered what your reaction was to that.

5DR. LEE: The other question about whether lower labor costs are

6legitimate comparative advantage and whether there is an efficiency aspect to that

7is an interesting point. What I would say is low labor costs in and of themselves

8are not objectionable.

9Our goal is not to equalize wages across the world, but there are

10different kinds of low labor costs. There are different reasons why labor is cheap.

11Labor is cheap sometimes because it's plentiful, or because it lacks technology or

12capital to work with. It's cheap sometimes because of a low cost of living. But

13sometimes labor is cheap because the government has systematically set out to

14repress independent labor unions, or to keep the minimum wage below the poverty

15level, or to keep the growth in the minimum wage below the growth in

16productivity. There are very different kinds of cheap labor, and they operate in the

17international trading system in very different ways. The differences in factor prices

18that 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

20for the basic argument in favor of free trade, but differences in factor prices that

21come from systematic repression are not efficiency promoting.

22They are actually distortions in the international trading system.

23They distort choices about the location of production. Unfortunately, the


1international 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.

3So, for example, one country is beheading labor leaders every week,

4or tossing them in jail and mutilating them, and hiring 5, 6, and 7-year-old children

5who are enslaved essentially, sold by their parents to produce carpets for export to

6the United States.

7Another country is allowing unions to organize and observing other

8internationally recognized workers' rights. These countries are side by side. They

9are competing in the same international trading system, they have the same access

10to international markets. One of them has lower labor costs, but not through any

11legitimate comparative advantage. This is the difference that we have tried to put

12forth, that repression creates inefficiency, not efficiency.

13The current set of trade rules creates perverse incentives where the

14worst actors can reap large economic benefits. These bad actors have no scruples,

15no morals, no judgment even, no concern about, let's say, the future of these kids,

16whether they're going to grow up to be productive members of society, or whether

17they will be crippled by the time they're 15, or blinded. In fact, a world without

18rules rewards the worst actors, and that that is an inefficiency.

19The same thing could be said about the environmental standards,

20too. To the extent that there are externalities that are not taken into account by the

21pricing system, allowing the worst violators of environmental standards to have

22the same access to markets that the good players have encourages the violation of

23environmental standards, e.g. the poisoning of streams.


1One of the issues that we have raised that maybe people aren't

2always aware of, is that this is not an issue that the U.S. is trying to impose on

3poor countries.

4This is an issue that the workers of the world, the unions of the

5world have agreed on. We have a basic consensus internationally among labor

6unions that labor standards belong in trade agreements.

7The International Confederation of Free Trade Unions (ICFTU) that

8represents about 124 million workers in 143 different countries, mostly developing

9countries, has worked very hard to develop joint statements on this issue. The

10ICFTU has held a lot of regional symposia where African, Asian, and Latin

11American trade unionists have debated and discussed these issues. In many cases

12their 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

14don't want to talk about labor standards in the context of trade agreements.

15So we view some of the work we do in our advocacy on this issue as

16trying to give voice to concerns that workers in developing countries have. These

17workers want the basic right to organize independent labor unions. We try to use

18whatever political or economic leverage we might have from being here in the

19United States to empower and provide space for them to do what they need to do

20in their country. And the ILO, the International Labor Organization, does

21incredibly important work and we are very supportive of the work of the ILO.

22We have been supportive of the Clinton administration's initiative to

23give another $25 million to the ILO to help build technical capacity in developing


1countries, to help them get the resources they need to improve enforcement and to

2improve standards.

3We don't see the ILO as a substitute for addressing these issues in

4the trading system, but rather as a necessary complement, something that must

5happen at the same time. At the end of the day, if there's no economic incentive

6for governments and companies to address the issue of labor standards violations,

7then it's unlikely to happen. The failure to identify unacceptable terms of

8competition in and of itself undermines the sovereignty of nations.

9For example, in the United States, our ability to put in place and

10enforce good high labor standards, and our ability to encourage unorganized

11workers to organize unions successfully is undermined, if every time we do that,

12the company picks up and moves or threatens to move to a country that doesn't

13have those same rights. It was a long answer to a short question.

14MS. FOX: Thank you very much.

15You were talking about terms of competition, but that is not

16necessarily competition policy as such. So do you see the relationship of your

17argument as related to the world trade system just as competition law might be

18related to the world trade system but not necessarily issues that we should take

19into account?

20DR. LEE: In terms of competition policy, it depends on whether

21you would see that as essentially a subsidy or not a subsidy. It could come under

22the rubric of competition policy, but probably it's in a separate realm in terms of

23the international trading system.


1The labor unions have been accused of being monopolies themselves,

2but of course the government, by intervening in labor markets, by repressing

3independent labor unions, is in fact creating monopsony. Where you have a single

4or a very small number of employers, and the government chooses to intervene in

5that interaction to support the employer over the workers and to ensure that the

6workers do not develop a countervailing power to bargain effectively with their

7employer, this would seem to fall in the competition policy area. Probably the

8primary place where it belongs is in the market access and trade discussions.

9DR. STERN: Are there other questions?

10MR. THOMAN: Have you done any quantitative analysis to

11estimate how many -- as you look at the world, how many workers fall into the

12category you mentioned that are unfair competition as opposed to general foreign

13workers of lower wage levels? Because one of the things that's striking is just a

14piece in the Financial Times this morning that talked about how the poor countries

15are continuing to lose wealth to the wealthier countries.

16I guess in the last 80 years, we have gone from the poorest countries

17to the 1 to 3 wealth to the most wealthy to now it's 90 to one wealth. So the wage

18factors alone aren't driving the actual wealth. Those discrepancies seem to be

19increasing in terms of the wealthy countries. So how big a problem is this? Is this

2010 percent of the work force that have these kind of unfair social examples? Is it

2150 percent?

22DR. LEE: I don't know the answer to that question, but it's a good

23question. Part of the issue is that you have two very different sectors, the export


1competitive sector and the informal and domestic sector. We know that a lot of

2labor rights violations occur in the domestic sector in which case they're not really

3relevant to the trade policy debate. They're relevant to the ILO or to other kinds

4of issues that need to be raised.

5So it is probably a smaller subset of workers who are in that set of

6super competitive exporting, the export processing zones and the export assembly

7areas where there is systematic denial of rights.

8We know there are certain countries that are particularly egregious

9in this area. China, for example, is an export powerhouse and has not a single

10independent labor union operating. The Chinese government has acted very

11aggressively to jail and suppress independent labor advocates, even people who

12have worn T-shirts advocating independent labor unions or put out newsletters

13talking about problems of unpaid back wages. Those kinds of people are seen as a

14threat to the system in China and have been jailed.

15I don't know the exact figures you mentioned, but the report that you

16mention, is that the UNDP's new report, the United Nations Development


18MR. THOMAN: I read it in the FT this morning.

19DR. LEE: I was looking at the UNDP report yesterday, and I think

20it's very interesting and very disturbing. It goes back to this issue about efficiency

21and world competition.

22The question is whether as we tear down trade barriers and enhance

23the mobility of capital, we're leading to a generally happy situation where poor


1countries get richer, poor people in all countries are given opportunities and are

2able to engage in the global economy, and so on, or whether we have something

3else that we're creating. What the UNDP report very troublingly says is that the

4increased liberalization and the absence of the kinds of rules and standards that

5we're talking about has increased polarization between countries and within

6countries. This is not the outcome that we seek from trade liberalization and

7capital liberalization. A country like Mexico, for example, which is definitely

8engaged in the global economy, it's engaged in the North American Free Trade

9Agreement and the WTO has experienced falling wages over the last 15 years or


11The Mexican minimum wage has lost something like three-quarters

12of its purchasing power, and workers are definitely not gaining their share of the

13prosperity that comes from integration in the global economy. To the extent that

14that's the case, I think we do have an obligation to say, the world trading system is

15not working for workers. We need to enforce core labor standards, thus allowing

16workers to organize unions when they choose to do so and to use that method to

17try to garner their share of the prosperity that comes from global integration.

18We also have to change attitudes pretty dramatically so that the

19domestic employers and the domestic governments accept it as a challenge.

20MR. GILMARTIN: Just a quick question. Do you have a sense on

21the international, in the international arena what the attitude of labor is towards

22competition policy in general, say as opposed to industrial policy? What's the best

23way to create jobs?


1The argument which you make about exports and being able to enter

2competitive markets, the U.S. certainly is going to export very successfully.

3DR. LEE: So --

4MR. GILMARTIN: I'm really asking about the attitudes, say,

5outside the U.S. about competition policy, what your sense is about that.

6DR. LEE: Labor movements outside the U.S.?


8DR. LEE: In many cases, particularly in Europe, you'll find that the

9labor unions are going to have positions that are similar to their governments. So

10to the extent that the governments are interested in a particular angle on this, for

11the most part, that's where the labor unions will be, but beyond that I don't have a

12good sense of the specific position of any particular national labor center.

13It's not something that's been thoroughly discussed, but it probably

14should be. Maybe at the Seattle ministerial, this is one of the issues that will be

15addressed more thoroughly by the ICFTU.

16DR. STERN: Further questions? I again want to thank you very,

17very much. You have been not only an important advocate but more an explicator

18of a lot of these positions that labor has taken. You've related it very much to our

19work and the scope of our work, where it works within our scope and where it

20may belong elsewhere, and the questions also have helped elicit even further

21understanding. I think this has been an incredibly worthwhile hour well spent, and

22I thank you very, very much.

23DR. LEE: Thank you. Thank you, Paula, Jim, and the Committee


1for your attention and for the invitation.

2MR. RILL: Thanks for coming.

3DR. STERN: Next on our agenda -- you're welcome to stay, Thea,

4if you want, but I have a feeling you've got a few other things to read back at the


6Next on our agenda is the multijurisdictional merger review

7discussion and our fellow member, Tom Donilon, has agreed to give us initial

8remarks, and I think we're all prepared. The floor is yours.

9MR. DONILON: Thanks. Merit, which document do members of

10the Committee have in front of them, the draft, chapter?

11MS. JANOW: I think all members have a copy of the notional

12structure of the report and the members of the merger subgroup have a copy of the

13merger paper, but the merger specific paper has not been distributed to all


15MR. DONILON: The staff has prepared a number of

16recommendations. Let me see if I can describe them generally, and Merit,

17obviously pitch in where you think we need to go deeper than I go here.

18The general approach of the staff, and I would recommend general

19approach of the Committee should be to achieve a number of policy objectives.

20Just to try to set some context.

21Number one is to try to reduce as best we can transaction costs

22associated with the procedural requirements of merger review. We've heard now a

23lot of testimony before the Committee about the increase in what we're referring to


1as the sheer -- I guess Barry Hawk used the phrase initially -- the sheer volume of

2merger control law that now must be considered by a company or companies

3doing international transactions.

4We're going to be joined by Bill Kovacic later. Maybe he could even

5join us now if he'd like to pitch in on this, because he has also spoken about and

6written a lot on the increase in sheer volume of law that companies face around the

7world in trying to do a transaction.

8DR. STERN: Excuse me. Bill, would you like to join us at the

9table? Your name has now been invoked three times on the record, twice when

10you weren't here, and -- there we go. Okay, sorry, Tom.

11MR. DONILON: I think that we've correctly been focused on trying

12to reduce transactions costs for American companies trying to do deals, trying to

13do transactions.

14Second, we've tried to I think, and the proposal will address this,

15tried to the best we can to avoid inconsistent results that might be presented to

16entities doing transactions, international transactions, which of course can add to

17costs and uncertainty, and in some cases, failure of transactions that one

18jurisdiction, including the United States, might find not to be anticompetitive but

19nonetheless because of inconsistent results, you may be in a situation where a

20transaction fails because another jurisdiction has found difficulties. We want to try

21to have consistent results and also not wildly incompatible remedies where

22transactions are allowed to go through conditioned on certain remedies.

23And last, our goal has been to try and develop a set of proposals that


1can promote so-called harmonization, both procedural harmonization and

2substantive harmonization over time which I think is obviously a laudable goal in

3this age of international transactions.

4With respect to procedures, which I'll talk about first, the staff has

5put forth -- and I think we can divide this up into, again, three areas -- procedural

6reform, substantive issues, and overlapping jurisdiction in the United States in

7reviewing mergers.

8The last is the most substantive and for me after looking at the

9materials and thinking about it, maybe the most important at the end of the day,

10and Bill I know is going to speak to that today. That is the situation where a

11transaction being reviewed in the United States has to run through multiple

12agencies before it can be approved. This has resulted, in my experience, in quite a

13bit of transaction costs here in the United States and delay, particularly in Telecom

14and other industries. I know Bill will talk about that today.

15On the procedural side, these are fairly technical issues, I think, and

16so I'll try to push through them fairly quickly because they really do fall in the

17realm of the Hart-Scott-Rodino aficionado class, which is well represented in the

18room, but I don't know how much time we need to spend on all these things, but

19they can be important.

20The 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

22might 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


1Committee needs to think about is how the United States goes about

2operationalizing that? How do you go about advocating these changes in a way

3that's most effective around the world in order to promote our overall goals of

4reduced transaction costs, not having incompatible remedies and results and

5ultimately some degree of procedural and substantive harmonization.

6The first area is the first issue that a lawyer, a practitioner, a banker

7faces when he or she is working on a deal, and that is notification thresholds.

8When does the transaction have to be reviewed by the relevant competition agency

9in a particular country.

10These thresholds are in some cases not very transparent, and there's

11a lot of uncertainty about that in my experience and practice, and I think we heard

12a lot about that from practitioners, and secondly, the thresholds vary quite a bit.

13The staff in its papers is recommending, I think correctly, that

14thresholds be transparent and that there be a pretty cogent nexus between the

15reviewing jurisdiction, reviewing country and possible impact on that country as

16opposed to just worldwide assets and very little local contact with the reviewing


18There's also been discussion of raising the threshold amount in the

19United States. It currently is $15 million. There has been discussion before this

20Committee of raising it to $50 or $100 million with automatic adjustments for

21inflation. This is obviously a serious issue.

22Now, Merit, I think our preliminary review of the data shows,

23though, that it wouldn't affect very many international transactions -- that less than


1five percent of the transactions reviewed, I don't know if it's by both agencies or

2just by the FTC.

3MS. JANOW: It's by both.

4MR. DONILON: By both agencies, less than five percent of the

5transactions where second requests were issued are transactions under $100


7MS. LEWIS: We're working on getting data for international

8transactions. But the smaller transactions tend not to be international transactions,

9they are more domestic. Certainly with respect to enforcement actions, few

10international transactions valued at less than $100 million were challenged in 1998.

11MR. DONILON: Although there has been a lot of discussion about

12this, there doesn't appear to be a lot of impact in the international area of the

13transactional amount.

14Secondly, and maybe presenting even more of a difficulty, I think, is

15that the agencies' budgets are directly related to filing fees. Therefore any increase

16in the threshold amount would, I take it, result in a reduction in the agencies'


18There's been discussion before the Committee of recommending that

19the FTC and Antitrust Division budgets not be so dependent on filing fees. I think

20that is probably a more rational way to budget antitrust enforcement, but at least

21this Committee member doesn't think, given the current budget situation, such a

22proposal would likely be taken on, frankly.

23I would be interested in what other people think about that. I think


1that the funding source issue is a very difficult issue to change, I think. I think,

2again, I would be interested in hearing other people's comments on that.

3MR. THOMAN: Do you know how much we're talking about,

4what's roughly the scale of the filing fees?

5MR. DONILON: I don't know what the absolute dollar contribution

6of the budgets is, but we certainly have people here who might.

7Chuck, do you know?

8MR. STARK: I don't.

9MR. RILL: Maybe Connie Robinson, Director of Operations,

10Antitrust Division would have a thought on that.

11MS. PATTERSON: This is Donna Patterson. I think by next year it

12will be the bulk of both agencies' budgets.

13MR. DONILON: Connie, do you know what the absolute dollar

14amount is?

15MS. ROBINSON: It's getting close to 100 percent.

16MS. PATTERSON: It's getting close to 100 percent of each

17agency's budget.

18MR. DONILON: What kind of dollars is that?

19MS. PATTERSON: I don't know the exact budget numbers, but it's

20probably around $200 million.

21DR. STERN: What did you say?

22MS. PATTERSON: Around $200 million for both agencies.

23MR. RILL: Aggregate?


1MS. PATTERSON: Aggregate, yes.

2MR. THOMAN: A much smaller number is a more manageable


4MR. DONILON: Right. No, I think that's a fair point that we're not

5talking about a huge amount of money.

6MR. RILL: It doesn't compare to the defense budget.

7MR. DONILON: So with respect to thresholds, I think those are

8really the key issues. Transparency, objective thresholds with a nexus to the

9jurisdiction that's reviewing the transaction, the issue of raising the dollar threshold

10in the United States and the implications of doing that with respect to the agencies'

11budgets which we've now heard, although it's not an absolute large dollar amount,

12it does approach 100 percent of the budget for antitrust enforcement.

13MR. YOFFIE: Tom, one quick question. Even if it's only less than

14five percent, would it still make sense to raise the number? In other words, why

15do you want to have that five percent being reviewed if we don't really think it's

16necessary for international transactions under $100 million?

17MR. DONILON: I think that's fair --

18MR. THOMAN: We're talking about less than five percent of --

19DR. STERN: It's likely to grow.

20MR. YOFFIE: You're only talking about small transactions. I'm just

21again 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

23therefore it takes the burden off some number of companies that probably just


1shouldn't be reviewed.

2MR. DONILON: Let me correct myself on that as I read the

3documents that we've been provided -- less than five percent of the transactions

4valued at less than $100 million receive second requests.

5MR. RATTNER: Less than five percent of all the transactions or less

6 than five percent of transnationals?

7MR. DONILON: Less than five percent of all transactions valued at

8less than $100 million, according to the data that's been given out by the

9enforcement agencies, resulted in the issuance of the second request.

10MR. RILL: I don't think those data divide between national and



13MR. RATTNER: And what percent of transactions over 100 million

14receive second requests? What does the five percent relate to?

15MR. DONILON: It's about the same, I think.

16MS. FOX: Yes, yes.

17MR. RATTNER: What does that tell us, then?

18MR. RILL: They're about the best I can recollect, and I'm sure there

19are people in the audience who have better data than I. Of the 4,000 to 5,000

20filings most recently, I think the FTC has issued about 50 second requests and the

21Department has issued about 120. Enforcement actions -- abandonments,

22consents, adjustments in the transaction or cases are about -- I'm sure they'll

23correct me if I'm wrong, about 30 a year per agency.


1MR. DUNLOP: Mr. Chairman, why don't we --

2MR. RILL: Hearing no correction, that's a ballpark.

3MS. ROBINSON: Jim, if I could just correct the second request

4number. Fiscal year '98 should be 79 at the Justice Department. Fiscal year '99 to

5date, we've issued 50, which is almost 10 percent less than we had about this time

6last year.

7MR. RILL: So we're talking about 80 then, not 120?


9MR. DUNLOP: Mr. Chairman, why can't we get a written report on

10this data that we can all look at and study?

11What's the total number of requests and how many are second

12requests, how many involve international, how many are purely domestic?

13MR. RILL: I think for the large part, that's a good idea, and I think

14for the most part that's readily available. When you get down to carving out

15between international and domestic, you have a definitional problem you have to

16deal with, what is international. I don't know that we need to get into that when it

17does create a problem.

18DR. STERN: I think your question now stands as a request to the

19staff, and I'm sure we will be getting it very quickly.

20MR. RILL: Basically the ballpark that we just discussed is how the

21breakdown is between filings, second requests, and enforcement actions.

22MR. DUNLOP: And has that changed over time?

23MR. RILL: Yes. A lot more filings.


1DR. STERN: So we would need to see the trend numbers.

2MR. RILL: Second requests are not too much greater, frankly.

3Enforcement actions, somewhat greater, although when one compares something

4that I'm familiar with, fiscal '91, to current filings, current enforcement actions,

5there is marginal change, not tremendous change.

6MS. JANOW: Could I just put in one footnote. We'll provide you

7all the data that we have, Justice and FTC has been very helpful in giving us some

8data, but as Jim points out the differentiation between domestic and international is

9not 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.

11MR. RATTNER: It may not get picked up by the filing data, but the

12data we use picks it up in terms of just activity out there. I mean, we can tell you

13how 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.

15MR. RILL: Then could you break it down even further than that,

16Steve, if there are two U.S. parties, is there a foreign asset that's involved or

17foreign sales.

18MR. RATTNER: That we can't do, but maybe somebody else can.

19MR. RILL: That's where it gets more complicated. I think you're

20right. You can surely define it by parties.

21DR. STERN: Steve, if you could help us out, it would be interesting

22to compare your data with the data that the government has provided.

23MR. RATTNER: That's easy.


1MS. JANOW: There is an exemption, though, for foreign parties,

2and that is something that we've also been emphasizing, Tom. This is a

3recognition in the U.S. system about the effects of the transaction in the United

4States, which recognition is not reflected in all jurisdictions of the world that

5require notification. In fact I think in the staff recommendations are just that, that

6that kind of recognition of the effects within the jurisdiction be picked up by others

7to help reduce the volume problem.

8MR. DONILON: That makes good sense. I think Professor Dunlop

9makes a good point that we should all look at the data in front of us.

10The data provided to the merger subcommittee indicates that

11although the absolute numbers of second requests is not large compared to the

12number of filings, as was just pointed out to us by the agency representatives, the

13data that we have, as I look at it, does indicate that 38 percent of all second

14requests, again, is based on a low number, but almost 40 percent of the second

15requests that were issued were issued in transactions valued at less than $100


17Now, again, we're working on a small base, but nonetheless, a fairly

18significant percentage of the transactions that do receive second requests are

19transactions that are valued at less than $100 million. I think that's the kind of data

20we can study.

21Again, maybe Steve and his firm can help on trying to identify what

22percentage of those have characteristics that we could fairly say would be an

23international transaction.


1MR. RATTNER: It's also true, Tom, that well more than 40 percent

2of the transactions are less than $100 million. I don't know that number, but I'm

3sure it's 60, 70, 80 percent.

4MS. 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.

6MR. DONILON: I will tell you, though, based on my practice that

7in a transaction valued at less than $100 million, the issuance of a second request is

8a fairly significant event.

9MR. RILL: I would like to say that in any transaction, the request is

10a fairly significant event.

11MR. DONILON: I think that's a fair point. In a massive

12international merger that has vast impact on the United States and around the

13world, you know when you can enter the deal as counsel that there's going to be a

14second request in all likelihood because the agencies have responsibility to examine

15it just on sheer size and significant overlap, but, again, I think on a transaction of

16less than $100 million, the issuance of a second request, it's a significant event.

17DR. STERN: Which leads to the next question: we now know that

18that's a significant event and obviously the agencies know it's a significant event.

19By dropping or by raising the level, are we really removing some what would be

20very significant transactions from the necessary scrutiny?

21MR. DONILON: Let me say two or three things about that, and I

22would yield to the enforcers or former enforcers who are present here.

23Point one, you can have a small transaction that could have a


1significant impact in a fairly narrow geographic area that might not be small being

2less than $100 million, the relevant geographical area being fairly small, and those

3consumers would feel it, I take it that we would probably hear from the

4enforcement agencies that these are in limited geographic areas.

5DR. STERN: Uh-huh.

6MR. DONILON: Secondly, we have the issue of, if you do raise the

7threshold, you have the funding issue.

8Third, counter to that is, of course, that the agency does not rely in

9any way on the actual filing of an HSR in order to be able to investigate or take up

10a competitive problem.

11The other side of that is, of course, would the agency be notified in a

12reasonable fashion, in a timely fashion about a transaction before it was carried out

13if it were that small. I think those are the competing issues.

14MR. RILL: Tom, let me interrupt, while we're on a couple of issues

15that you've raised before they slip my mind. One, comments that were made in one

16of our prior meetings, I think it was the past meeting that the whole issue of the

17Hart Scott, and I'm sure you're going to get to the second request issue, is really

18not an international issue, and perhaps it should be one that the Committee should

19not address.

20I don't agree with that. I think it may be more than an international

21issue, but it's certainly an international issue, and I think there are international

22implications that make it even more of an intense issue for international purposes.

23We've heard the chairman of the FTC and others make speeches as


1to how extensive the international nexus is with the merger review, cases of the

2mergers that are reviewed by the FTC and presumably by the Department,

3particular translation issues, particular locational issues, such as multiple location

4issues as well as multiple filing issues that I think make it, among other things, at

5least an international issue of significant proportions. That's my view, we should

6address the issue.

7On the question of filing fees, I don't think we ought to, without

8considering what we're doing, make a recommendation that would be picked up on

9and jeopardize the continued existence, viability, and enforcement strength of the


11I think that very well might be the view of a lot of the people around

12the table. This is a very intense political issue right now, policy issue, not a

13partisan issue by any means, but one that the chairman of the Senate Judiciary

14Committee is focused, and others are focused as well.

15I think that everyone would agree in the abstract that the filing

16thresholds are way too low. I think that if we advocate raising those thresholds, at

17least my own view is that we have to take a strong position that some mechanism

18has to be found to maintain the agency's enforcement budget at a responsible level,

19possibly current levels.

20There are several ways to do it. I'm not sure that any -- I'm just not

21sure that any is politically realistic. One that's been suggested is to simply take the

22agencies off the filing fee trough and have them have a general budget. I think

23that the OMB and Congress are going to find that hard to do. Regardless of the size,


1$200 million is a statistical accident, but still having been there and dealt with

2OMB, small numbers are not missed by them.

3Secondly, another possibility is to raise filing fees for those

4companies that do have to file once the threshold is raised. I don't know what the

5business reaction to that would be.

6On the other hand, I know that that would, in effect, require

7legislation, and to the extent that there are those in the Congress that view the

8filing fee as the tax, that may also raise a political policy argument.

9That doesn't stop us from suggesting that the thresholds are

10ridiculously low, and I think the agencies would agree with that, but I think in

11doing that, we have to take cognizance of the fact that any simple increase in the

12threshold is going to jeopardize the agencies' performance, unless Congress and

13the administration are willing to take the countervailing action of maintaining the

14agencies' budget in some other way.

15MR. YOFFIE: Jim, I must be missing something. If we raise the

16threshold, doesn't that in fact mean that there will be less work done by the


18MR. RILL: No. Because you look at the number of transactions

19that are actually reviewed. Again, I don't know the number, but I think there are a

20lot of transactions, and most of the transactions that are reviewed are above a

21threshold that we might raise it to.

22Secondly, as Tom points out, if the agency is aware of a transaction,

23even though it's not notified, that has anticompetitive consequences possibly


1through newspaper reports or competitor or customer complaints, you are still

2going to have to do the work to review the transaction without the benefit of

3filings and fees.

4I don't know how mathematically that model would give you the

5exact numbers as to how it would work, but I think it would not significantly

6reduce the work of the agency.

7MR. YOFFIE: You are identifying an even greater inefficiency than

8at 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

10direction and finding another mechanism to do it. The idea that you take small

11companies, you tax them in order to support all these other activities, can't be the

12most efficient way to run an antitrust policy.

13MR. RILL: I couldn't agree with you more, but we are where we


15DR. STERN: Tom, you thought we were going to get through this

16procedural stuff real fast. Do you want to go on?

17MR. DUNLOP: May I ask a question? Who sets the filing fees?

18MR. DONILON: Congress.

19MR. RILL: Legislative action sets the filing fees.

20MR. DUNLOP: When was the last time they set them?

21MR. DONILON: I don't know.

22MR. RILL: It's been amended. The filing fee's been amended.

23MR. DUNLOP: No, I meant the filing fee. When?


1MR. DONILON: I don't know the answer to that question.

2MR. DUNLOP: I would like to know.

3MR. RILL: Does anyone from the Department or the FTC know the

4answer? Connie?

5MS. ROBINSON: My best answer is the last filing fee amendment

6would have been in '96.

7MR. RILL: '96 and it went up to 45?

8MS. ROBINSON: $45,000.

9DR. STERN: Tom, these were initial remarks. I don't know what


11MR. RILL: This is a session in which we are supposed to talk to

12each other so I don't see any problem.

13MR. DONILON: I think that is exactly the right approach. I guess,

14though, we got two baskets here to talk about with respect to thresholds.

15One is what we think is an optimal system that the United States

16should advocate, and I think there would be general agreement on that --

17transparency and objectively based thresholds that's known and has some nexus to

18the jurisdiction reviewing would seem to me to make good sense. And as I said,

19the Hart-Scott-Rodino foreign persons exemptions as an example of that that our

20government should advocate. The other basket of course is changes that might be

21made to our thresholds and I take it these are on the table, increasing the


23I agree with Jim that if we're going to increase the threshold that we


1need to have a funding proposal. I would be interested in reactions to increased

2absolute filing fees on large transactions in order to make up for this, but you do

3have a circumstance here where you have transactions in the $50 million range that

4have the same filing fee or are subject to second requests in an economy which

5David can talk to and Steve can talk to more expertly than I can where lots of

6companies at this size are trying to get footholds.

7MR. THOMAN: Mr. Dunlop pointed out what a marvelous

8precedent this is. If the IRS could -- if we had to pay filing fees to the IRS, for

9example, think -- this is a wonderful precedent for all sorts of things.

10MS. FOX: I think that it's incumbent upon us to point out the

11perverse incentives and the over taxation and come up with another budget

12proposal, not just for ourselves, but because of recommendations from the world

13at large, everybody has copied us, they are copying us. The agencies see how

14fruitful it is to get lots of people to file, and this has increased the proliferation in

15the world. And I think also that the thresholds should be raised and that I would

16like to hear a proposal for calibrating the fee to something related to the amount of

17work that the agency is expected to be doing, in some gross way at least, of which

18might mean that for easy transactions that are not looked at further because they're

19just not anticompetitive, there is almost nothing that would be charged against

20them, but for complicated transactions, that's a cost of the deal, but not to

21subsidize the rest of the operations of the agencies.

22MR. THOMAN: Tom, I know you're trying to get off this, but there

23also is the image that presumably the EU and other equivalent bodies, however we


1agree the limits should be in the U.S., there is a reciprocity across with other

2non-U.S. regulatory. I mean you hate to have the situation where we raise our

3limits and theirs get other -- so there is an issue of what theirs are today and


5MR. RILL: There is a gross difference between our thresholds and

6the EC thresholds. EC thresholds are much higher. However you don't have to

7worry about filing in the member states.

8MS. FOX: There is a difference in philosophy as to why the EC

9adopted their thresholds and they purposely first set them at a point to not to catch

10too many. They're also engaged in trying to not catch too many and to leave those

11below their jurisdiction to the member states as a sovereignty matter.

12MR. THOMAN: But if you go back to the notion -- we're trying to

13save money and time. The more you have one standard, one test, et cetera, the

14easier it is to get back to those objectives.

15MR. DONILON: I think that's a good list of issues on thresholds

16and one that may be fruitful.

17DR. STERN: Does everyone know where we are on the outline? It

18might make everyone more on the same --

19MS. JANOW: Well, we're not exactly following the outline.

20MR. DONILON: We're not exactly following the outline, I'm doing

21a summary.

22MR. RILL: The answer to your question is no.

23DR. STERN: I think I know where I am.


1MR. DONILON: I couldn't tell you where we are on the outline.

2MR. YOFFIE: Merit, do you have the more detailed version that

3Tom is working off of for those of us not on the merger subcommittee?

4MS. JANOW: The answer is yes. I'm not sure we have a full set of

5copies, but I can certainly give you mine, but I think the core issues are indeed

6identified in the skeletal outline. I wasn't sure Tom was working through it


8MR. DONILON: Why don't we move on to the next basket of

9procedural issues which is the amount of time that a jurisdiction gets to review a

10transaction and how that time period is triggered, which is pretty key.

11Again, there are two areas to discuss here. One is what are best

12practices, if you will, that the United States should enunciate and try to see

13adopted around the world, and secondly, what does that mean about our own

14practices. Once we identify the best practices, what changes do we think we

15should be recommending for our own government.

16The staff view, and I think I agree with it, is that we should try to do

17our best to develop common time frames. There are lots of different triggering

18events around the world, including definitive agreement requirements, which is that

19you have to have a definitive agreement before you can file, that's the case in the

20EU, and in some cases actually post execution filing deadlines. And there are

21some jurisdictions with very long review periods or in fact no firm deadlines for

22ultimate review.

23The staff, and I agree, believes that the United States with respect to


1best practices should focus on what's been called outlier jurisdictions, that is,

2countries with very disparate triggering events and initial review periods. So in the

3United States, for example, this wouldn't require anything.

4In the United States, you can file with the enforcement agencies

5prior to having a definitive agreement. You can go in anytime after the execution

6of a letter of intent between the firms.

7In other places around the world, including the EU, there is the

8definitive agreement requirement, and we have rather lengthy review periods. I

9don't think that that is a very controversial, and most of the people agree, a very

10controversial procedural change to advocate, that is eliminating the definitive

11agreement requirements and seeking to eliminate post transaction filing


13Bill, do you agree with that approach?

14MR. KOVACIC: I do.

15MR. DONILON: The other issue with respect to timing is the length

16of the review period. In the United States it's the 30 day initial review period, and

17a second review of 20 days after compliance with the second request is reached.

18We have talked at the Committee about whether we should

19encourage firm deadlines for the second review or not, and that's an issue I think

20still open, a four or five month deadline for completing a second phase review. I

21don't know if Committee members have views on that. Eleanor?

22MS. FOX: I think it is probably a good idea. I heard a lot of

23conversation on it when we visited law firms, but there was some dissension.


1MR. RILL: I think when you look at what's going to be helpful and

2what isn't obviously in this type of procedural reform, this idea of having a fixed

3time frame was something that came up early in our discussions, as you recall, and

4we went around, some of us, talking to a lot of people, including relying on our

5own experience with mergers and second requests, and there certainly was not a

6uniform view that even if this were adopted, it would be particularly helpful.

7I think we need to look at our notes and review our position on

8whether or not that would be a useful modification. I think the question we face

9is: is this something that we think would be practical so far as the agencies are

10concerned, that's not a deal breaker, but certainly a factor to be taken into account,

11and is this a change that merging parties would believe might eliminate the frictions

12in the system. I'm kind of having second thoughts about that.

13DR. STERN: The minute you get to the question of harmonizing

14with other jurisdictions, if this is what we're trying to achieve --

15MR. RILL: This would generally take us in the direction of the EU.

16DR. STERN: Exactly. That's a consideration, too.

17MR. RILL: The points raised by the staff and by the structure of the

18U.S. is that the EU isn't quite so document crazy as we are.

19MS. JANOW: I just had one footnote. I think in our own staff

20prepared papers that the focus has been on whether or not there is a possibility of

21imposing some disciplines on the time periods rather than focusing on any

22particular time period, that is to say, the EU model or another. For example, the

23Canadians have used 14 days for noncomplex matters, 70 for complex, 150 for


1very complex, so that the firms know the kind of guideposts of what to expect. I

2think we have been thinking more, at least in some of the informal drafts and

3discussions, not about a legislative deadline necessarily but more understanding of

4what would be the associated time frame so that if very complex issues were

5raised, agencies would not be constrained in going beyond some artificial deadline.

6So that's the balance that's been tried, that we've been working with.

7MR. YOFFIE: What's the downside to the EU procedure?

8MR. RILL: For one thing, it's been picked up in our discussions, is

9in EU procedure, once you get into phase two, the four-month phase, that is the

10rule. You cannot close within that time, under the merger regulation, that's the

11time period.

12A number of parties, and certainly to some extent my own

13experience, people that we talk to that do a lot of merger work believe that having

14a fixed limit within which closure cannot be accomplished would probably extend

15in many instances, second requests, the time frame within which the merger may

16close. We've heard testimony --

17MR. YOFFIE: Jim, isn't that one easy: you set a five-month

18maximum as opposed to a five-month minimum?

19MR. RILL: You could do that. The question then becomes how do

20you decide what is the maximum. That's something that could be worked out. We

21have heard testimony from the FTC and also from the Department that even in the

22case of second requests, the vast majority of second requests do not reach their

23full-blown substantial 200 boxes or a thousand box compliance.


1Normally it's worked out more often than not worked out within the

2time frame, and I think a lot of lawyers handling mergers would, I think, agree

3with that and want that flexibility to close sooner than the outer time frame and

4review model.

5MR. THOMAN: As a practitioner, and John I know has done this a

6lot more than I have, but I've been involved in two or three of those, which were

7borderline in terms of whether they would have been permitted or not.

8What you get into then is discussions of well, if it doesn't close,

9who's going to bear the cost. The further out that can be, so then you get a

10discussions of what is the worst case? Well, the worst case is if it's seven or eight

11months, certainly in technology, is a lot worse -- a business that floats for eight

12months is a lot worse than a business that floats for four months. So you very

13quickly get to numbers which say, gee, I can't -- the worst case is so awful that I

14can't countenance it. That's the kind of issue that in my experience I have had two

15or three that could have turned out like that.

16MR. RILL: That's certainly true in high tech.

17MR. THOMAN: If you have four, or five, at least you could


19MR. RILL: No, that's a good comment.

20MR. YOFFIE: Jim one other comment, too. It used to be trade

21policy didn't have any deadlines, either. If you remember back in the 1970s,

22countervailing duty and dumping suits could be stretched out sometimes for years,

23and with the changes in the trade laws, which did set very strict deadlines on the


1procedures, I think that has produced much more efficiency in the handling of

2these activities. I agree with Rick that if you set a maximum deadline we could

3potentially get much more efficiency in the process. Everybody understands the

4deadlines they are working under and if it is closing earlier, we create the option to

5make that possible. In terms of a recommendation, even though it requires a

6legislative change, it seems to me that's directionally correct.

7MR. RILL: Nothing to stop us from making legislative


9DR. STERN: Plus marrying that with some of these regulatory

10guideposts a la the Canadian experience which also will insert a little more

11certainty, but it's not a certainty, it's a little more predictability.

12MR. DUNLOP: Right.

13MR. DONILON: By the way, we heard testimony from the Federal

14Trade Commission that the average second request investigation was resolved in

15about four months. So we could point towards the average now.

16MR. RILL: Somewhat less than 50 percent required substantial

17compliance, substantially less?

18MR. DONILON: Right. And on the other hand, testimony that was

19a surprise to me was, and indicates I think a seriousness of purpose at the FTC in

20terms of picking transactions for second requests is that approximately 60 percent

21of the second requests over the last five years did result in enforcement action. So

22they were focusing on transactions where there really were issues.

23MR. RILL: I think we're going to get a paper from DOJ on this,


1too. My understanding is something like 30 percent is the number for DOJ, that

2I've heard that. There's a reason for a hearsay rule.

3DR. STERN: Maybe you should get some competition between the

4agencies for a higher number.

5MR. RILL: Or lower.

6MS. FOX: But we have to know how many were aborted as a result.

7MR. RILL: I think that's included within the enforcement number

8that the FTC gives, ones that have been abandoned, modified, fixed, consents,

9challenged in litigation. That's all within that 60 percent number. At least that's

10my understanding from Bill Baer.

11MR. DONILON: I guess then the consensus seems to be that we

12have a pretty good consensus on best practices to be advocated but it also seems

13to be a consensus to take a hard look at hard deadlines on the second phase; is that


15The next in a basket of procedural issues is what do the agencies ask

16for in the review and how useful is it. In the United States, obviously, the DOJ

17and the FTC conduct merger reviews in two steps with an initial filing and

18information provided under the Hart-Scott-Rodino form, and then the second

19request which can include information that the agency needs to look at the

20transaction further.

21It's my understanding that the Federal Trade Commission is looking

22at revisions on the Hart-Scott-Rodino form to make it more useful in review.

23Merit, is that true?


1MS. JANOW: Yes. They have been in an ongoing process -- I think

2it's our understanding that that continues at this time.

3MR. DONILON: Because there is -- in my experience, you know,

4some unnecessary information that's asked and a lot of useful information. It's

5very SIC code based, which in every case is not a very accurate description of

6what's going on.

7A proposal that has been talked about in front of the Committee -- I

8think we probably, by the way, on that should try to get in concert with the FTC

9revision effort. They obviously have a lot of experience on this, and if they're

10moving in a particular direction, perhaps we can help push that along in our report.

11A proposal that's been put in front of the Committee with respect to

12filing, though, is a proposal which would have kind of a short form-long form

13approach to this. That is, if parties can come in and demonstrate that any overlap

14between the parties is less than 20 percent, I think we've been talking about Merit,

15then there would be much less of an information request, I guess would be the


17If, in fact, the combined share is above 20 percent, the HSR form

18would require up front a set of information that could illuminate the competitive


20Do you want to talk about that any further, Merit?

21MS. JANOW: I would like to invite Cynthia to elaborate, but I think

22the basic notion here was simply that there may not be adequate information to

23make these determinations from the initial filing requirement, so can one in essence


1ensure that there is adequate information to get those deals off the table that

2deserve to be off as quickly as possible. That's the objective. And one -- and this

3is particularly true with respect to foreign jurisdictions, and again that is part of the

4focus 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

6me ask Cynthia if she wishes to elaborate with respect to the 20 percent or other?

7MS. LEWIS: What we've tried to do with this proposal is reduce

8initial filing burdens, particularly for transactions that raise no competition issues.

9For example, the proposal would eliminate from the initial notification forms

10extensive information requests concerning non-overlapping products, such as

11market information relating to the acquiring party's individual market shares above

1225 percent. We've also tried to devise a mechanism to get information up front in

13the 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.

15The agencies would not have to go on a fishing expedition at that point because

16they would have a lot of the key competitive information up front to enable them

17 to craft a more narrowly focused request.

18MR. DONILON: I think that's something worth exploring with the

19agencies to get their reaction. You know, in a transaction where you know that

20there are competitive issues, typically the merger team representing the parties will

21go almost immediately upon filing to the agency and say, we know you're going to

22have 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.


1We want to voluntarily start to work with you right now in order to

2demonstrate that there is not an issue, and the agencies typically work in concert

3with the parties to try to accomplish that in the first 30 day period, that being to

4make a determination that there is not a serious competitive issue. What the staff

5proposal, I take it, would do would be to try to formalize that, that the agencies

6and the parties wouldn't be relying on kind of this dance that happens between

7merger counsel and the agencies where merger counsel spends a lot of money

8sitting in a conference room discussing the issue of should we call the lawyer

9working on this or not? If we call him or her, are we going to tip them off that we

10think there is a problem with the transaction?

11I think in most cases, experienced merger counsel will call and

12identify themselves as representing the parties. But, in some cases, I don't think

13that happens, and you get a delay, and you may get a second request because you

14have just let it go too long.

15You haven't engaged the agency, the agency hasn't engaged with you

16in order to try to identify things. I would be interested in the agency reaction

17though to that kind of formalization of what happens really in practice.

18Now, one reaction might be that maybe 20 percent is too low, that in

19fact the agencies might not be seeking lots of information, but I think we should

20really explore that.

21DR. STERN: Do you want to do that now? Do you want to get


23MS. JANOW: I think maybe we were generating a few questions


1here. Perhaps move on if you don't mind.

2DR. STERN: Good.

3MR. DONILON: The last issue with respect to, what kind of

4information we have asked for is translation expense which can be quite expensive.

5There are proposals that we've discussed about asking the agencies to take on

6foreign language experts to review foreign language documents and then those

7 experts could ask the parties for whatever -- to translate specific documents as

8opposed to translate a mass of documents.

9There'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.

11It is expensive, in my experience, but I guess I am ambivalent about

12this proposal. I think that asking the agencies to hire additional skill sets is a

13significant request that may not be the top of their priorities.

14Secondly, as I think the statement against interest as a practitioner, if

15I were an enforcer, I would not rely on the lawyers for the parties to provide

16summaries of documents in a potential enforcement review. Every person has his

17or her own summary of a document, and lots of times these document reviews

18depend on a line instead of notes or something like that. I don't know that that's

19really wise, but the translations issue is obviously an issue, because it is a big

20expense potentially in an international transaction.

21DR. STERN: I have a technical question. How soon will computers

22be able to make translation a less costly consideration for documents?

23MR. THOMAN: We do it now. We do a lot of work in Europe on


1documentation. We do the EU Patent Office documentation in most languages.

2But it's not perfect. What the state of the art now is, we have software which will

3give you three ways of translating something then you need a human to go through

4it and cross out two of them so what you get is about an 85 percent improvement

5of speed over full blown translation around that 80 or 85 percent, but you still

6need a human interface to choose because often there are the same words that

7mean things in multiple languages.

8DR. STERN: Sure.

9MR. THOMAN: What you then do is, is if you are with a pretty

10high confidence, there are pieces that can be done word for word but very often

11you have to go to three options, but we do that as a business. We do that for a lot

12of car companies, for example, electronics companies, we have to do foreign

13documents in multiple languages and we literally -- we digitize them and print them

14out just in time to be dropped in the boxes, whatever product, wherever they're

15going, whatever country.

16DR. STERN: Is this a Xerox service?

17MR. THOMAN: This is a Xerox service.

18DR. STERN: Do you have a lot of competitors? I shouldn't have

19asked that here.

20MR. RILL: Strike the question.

21DR. STERN: You don't have to answer that.

22MR. RILL: The answer is yes.

23DR. STERN: I'm sorry. I guess I wanted to know how prevalent


1this technology was, if technically we're going to get quicker or sooner fix than we


3MR. THOMAN: It will be a little while because it's complicated

4literally a word for word with pretty much certainty. So you'll always need a

5human interface. The key is to limit the human interface. IBM spent a lot of time

6on this also and had trouble, the same trouble. Both of those two have spent huge

7amounts of time and effort.

8DR. STERN: Uh-huh.

9MR. YOFFIE: I think realistically we're talking three to five years

10before you can expect something of the level which a lawyer would be comfortable


12MR. THOMAN: Right. It may be longer because they have been

13saying that about voice now for -- three to five years ago -- they have made a lot

14of progress, but it was still -- it was going to be now, but it's not now yet.

15MR. YOFFIE: Translation is easier than voice.

16MS. JANOW: I don't know, but two years ago, I reviewed a

17Japanese computer translation of Hamlet. Japanese to English, To Be or Not To

18Be was to have or perhaps I have not, so I feel three years might be ambitious.

19DR. STERN: I don't expect poetry. There is a difference between

20translating with all due respect, to legal briefs, I don't -- I have never seen one that

21I would call poetry. So, I mean, there may be a level of acceptability. The point is

22there may be some -- technology may help us and we should anticipate that in our



1MR. DONILON: The next set of issues falls in the basket of

2transparency, and again transparency is a principle which I think could be

3something very fruitfully advocated by the Committee, that is trying to get as much

4publication of requirements, as much clarity for practitioners and businesses

5around the world to use.

6We can talk about what the best venue is for doing that, but I think

7it's obviously, from a practitioner's point of view, from a business person's point of

8view, that would be quite a useful thing to promote.

9We have also talked about basic principles that can be advocated by

10various fora in the United States in merger review. Again we have talked about


12With respect to the United States itself, we have had discussions

13about how the U.S. agencies might be more transparent, in their deliberations. I,

14as a practitioner, find a lot of transparency. I find there is agreement with other

15folks on the Committee, I think, that there is a lot of information about how the

16United States enforces merger law. We have guidelines, we have speeches by

17practitioners, we have a very useful interaction between the ABA Antitrust Section

18and the agencies where these things are fully, pretty fully ventilated, but in order to

19be a semi-fair presenter, some of the ideas that have been talked about really fall

20into two areas.

21One, the question presented is, should an agency before it presents a

22second request make a short statement of its issues. A short statement, theory of

23its case, what's bothering it in specific, what markets are bothering the agency and


1why the 30-day termination period hasn't just been allowed to lapse and why the

2transaction can't just close. That's one question.

3Second, Paula, you've asked about this on a number of occasions,

4should the DOJ and FTC be required to publish the reasoning for their decisions

5where they don't go forward. They obviously do when they do go forward, they

6go to court and publish it extensively.

7Again, I think that the agencies in the United States do a lot. The

8FTC, for example, I think has very useful material to aid public comment on

9settlements that it might propose. There are annual reports and other things, but

10these are the two issues that have been raised most directly, should before a

11second request is issued an agency be required to make a short statement of the

12case and to tell you formally what's on their mind and secondly, should in some

13cases, and if so what cases, should the agencies be required to issue an opinion of

14some sort.

15MR. RILL: It seems to me that it would be wrong probably to

16require the agencies to do this in every case investigated, but I think the agencies

17could probably do, maybe at just the margins, a somewhat better job of articulating

18in cases that are doctrinal or paradigm cases in their own judgment, reasons why a

19particular merger was permitted.

20Connie is here so I'll flatter her. The articulation regarding the

21L'Oreal case in some of your speeches was quite good, and I tried to do some of

22that, I would only advocate more of it. I think even where there are consents

23reached, the Commission now could further improve its statement in aid of public


1comment in the consents than it does now. Justice is under a little bit more of a

2burden because they have to get court approval under the Tunney Act for its

3consents, but the Commission doesn't have that burden. It's very modest in

4attempts to put it to the agency to make this request, focus on the agency, but it's

5less burdensome and perhaps more useful than requiring that every case

6investigated, all 80 some odd Justice Department second requests, 60 some odd

7FTC second requests where there's no enforcement action, to have a meaningful

8statement, that would make a good contribution.

9On the second request statement, I think internally staff should have

10that obligation to the operations office and the bureau directors, and the agencies

11indicate that they do have that now.

12I think we ought to think hard about -- I don't know how to come

13out on this, but I think we ought to think hard about what benefit really would be

14achieved by requiring some public statement at that time of the second request

15being issued, both from the standpoint of the parties and the possible impact on

16financial markets or elsewhere on the deal by having the agencies come out and

17say, we're concerned that in this particular market there very likely could be a

18substantial lessening of competition. All the arbitrageurs are running around doing

19what arbitrageurs do. I wonder if that's a real benefit; compare that with just the

20fact that the issuance of a second request is sometimes disclosed by the parties

21anyway. I haven't really thought that through. I see a concern that could be raised


23Secondly, I wonder how articulate real agency definitions of the


1particular problem would be. It isn't going to help very much to say we're issuing

2a second request because we think there may be a problem under section 7 of the

3Clayton Act. I'm not suggesting the agencies would do that, but in past history I

4have seen that sort of problem of supporting FTC, DOJ subpoenas.

5So I don't know. I'm questioning how much good that would really

6do and whether there is a downside aspect to it.

7MR. DONILON: I guess my view is somewhat in line with yours,

8Jim, is that I fear that these kinds of statements would become highly stylized and

9there would be a form that would develop within the agency as to what you give

10the parties when you're about to issue a second request.

11Secondly, I would be interested in agency reaction to this, if the

12agency is preparing to go to court, are they going to want to give you a statement

13of their case before they're ready?

14MR. RILL: Well, I certainly think that's something that we have all

15wondered about.

16DR. STERN: I think my take on this is very similar to Jim's. That

17where there are speeches that have been made, if there is a way to encourage that

18in these important shifts in doctrine, it should be done. On the second request, I

19think we should probe the questions that you've mentioned. I think they're very

20good ones, with reference to court considerations that impact agency decisions.

21The burden, administratively, may not be so great because within the

22bureaucracy, there is this communication going on. Sharing that with the parties is

23different from sharing it with the public. There might be a proviso that only the


1interested parties, not the stock market, and the arbitrageurs would be signaled as

2to the thinking.

3MR. RILL: It's a real problem. And you're right, it's a real problem,

4the second request in the U.S. is an abomination. The agencies would agree that in

5many instances the second requests as issued are enormously costly, time

6consuming, and often in my own experience and I think the experience of a lot of

7people who do a lot of merger work, by and large you can find out pretty much

8what the agency staff are concerned about and what they're looking at.

9In the meantime, that good working relationship is done against this

10backdrop of a huge thunder cloud of a second request which goes well beyond

11those discussions, and that maybe the reason why Ann Malister, who is here, tells

12us that in, I don't know, pick a number, 80 percent of her second requests there is

13not substantial compliance and that negotiation bears fruit. But there is still the

14thunder cloud, and the parties have to worry about complying with that in case the

15negotiation breaks down, and that's something that really cries out for a solution

16which I don't have right off the top of my head.

17MS. JANOW: I was just going to put an international context to

18this. I think the recurring theme in all of these specifics has been if the U.S. is

19going to be an advocate for reform in foreign jurisdictions, then you should get our

20own house in order, and that has therefore stimulated focus on these particulars,

21including the question of transparency. But frankly, the issue of transparency has

22been emphasized in our hearings as a problem around the world of great

23significance, including the underlying rationale behind merger review as being


1opaque in many jurisdictions, far in excess of any problems that may exist here.

2So I just wanted to get back to the context in which this issue and

3others have been, I think, raised and also the particular point of focus, Tom, that

4you just emphasized which is issuing statements or -- I think also in the context of

5the fact that the U.S. officials tend to issue guidelines and have speeches and a

6variety of expressions so the public can understand, although maybe not fully in

7the second request context, and that doesn't exist everywhere in the world. And so

8perhaps more of these underlying rationales for merger review around the world

9need to be made transparent and greater efforts at being clear as to what policies

10are and criteria are for review.

11DR. STERN: I'm glad you brought that back because this is not a

12criticism. Making these recommendations is not necessarily a criticism of the U.S.

13agencies, but it is a set of recommendations which are stimulated by the desire for

14transparency so that there won't be abuse. Sunshine is the ultimate disinfectant.

15We may not have abuse here, but if we are being copied in our rules and

16regulations by other nations, then if we had the provisions for greater transparency,

17others who were copying our rules and regulations will pick up those provisions

18for transparency as well. It may eliminate abuse in other systems.

19MS. FOX: Those are very good points. I want to mention one

20piece of it and then come back to the larger point that Merit made.

21The pieces regarding whether the agency considers short statement

22of issues before a second request is issued, I wondered is there any serious

23problem of the agencies issuing a second request because they're really not ready at


1the end of the first time period, and so if there is a serious problem, then

2requirement of their focussing very specifically on what they're very seriously

3concerned about might be a very useful requirement.

4Now, just coming back to the important points that Merit just made,

5this is a general transparency point, and general transparency as to countries'

6standards and what they analyze. This ties in with an issue we'll come back to

7maybe at the end of the day on whether there should be a freestanding or a

8competition forum, and this subject matter might apply across all issues of

9competition law, certainly not just to mergers, but mergers is an important part of


11We need to know what are, in effect, the guidelines and modes of

12analysis of every jurisdiction and how they deviate. So I would just be in

13agreement that guidelines are excellent, speeches are excellent. I also think

14sometimes it's very important to have particular facts building around us rather

15than just come down to have agencies around the world talking very specifically

16about how they apply their law to particular facts, and that could be done around a

17table at a general freestanding competition forum.

18MR. DONILON: That's an ultimate issue. I don't know whether it

19should be forum discussing it, but I think given -- I heard a very powerful

20presentation that Bill gave I think it was a year ago at the ABA on this sheer

21increase in volume of regulation around the world, and given that, I think we

22would be wise to try to get ahead of this and really find a way to push very hard

23for transparency and agreed-upon principles and kind of no surprises because the


1best thing, American companies will be investing in places, buying company places

2that we can't really -- that are not very prevalent right now I think as we go


4MS. FOX: Could I say something about the difference between

5transparency and agreed-upon principles? They are obviously two different things,

6and I know, the idea of agreed-upon principles does run through this and I think

7 people in most jurisdictions will say, yes, I would like agreed-upon principles, if it

8 can be my way.

9I'm generally in favor not of even, well, harsh or aggressive advocacy

10to sell our own principles. I'm much more in favor of transparency of countries'

11different choices, and so I think it's really fine for us to say this is the way we do it,

12and this is the standard we have, and we'll tell you why it works very well for us

13and why we think other systems impose cost, but I myself am not very happy to go

14further and say that other models are wrong or improper, but they ought to be

15transparent. I would say that they're wrong and improper only if they're parochial

16and with spillover effects.

17MR. THOMAN: The question is if we could take our procedures

18and modify them 10 percent and make them totally congruent, there's an issue I

19think beyond transparency, if you could agree on those areas of which by little

20effort you could move to a common standard.

21MS. FOX: Yes.

22MR. THOMAN: I think that's what we're talking about. There were

23probably a fair number of those.


1MS. FOX: I was talking substance at the moment. Yes, on

2procedure particularly I see there's room to move. As we did in TRIPS. I mean,

3the United States really moved in TRIPS first to file as opposed to first to invent in

4order to get the greater good. And we should identify areas where we think there

5is room for improvement, but we're not about to adopt the EC substantive

6standard on mergers nor are they prepared to adopt ours, and I think in cases

7where we suspect that's true, we should have a separate --

8MR. RILL: Closer for them than many other jurisdictions are to

9each other and to us.

10MS. FOX: That's right, that's right.

11DR. STERN: I was just going to say on these transparency and

12publishing features or publishing doctrinal changes, that in the globalized economy

13that making what might be an ad hoc speech at an ad hoc conference on a given

14date may be picked up by some in the inner circles, but if we're trying to

15internationally make these doctrines clear, I think we should be encouraging it.

16MR. DONILON: There are terrific websites that the DOJ and the

17FTC have right now.

18DR. STERN: Right, we talked about that.

19MR. DONILON: But maybe a formalized publication of key

20speeches which I don't think is done, is it? I think you typically have to collect the

21speeches on your own. You have to collect it on the websites but maybe a

22formalized annual compilation of key documents would be a useful example to set.

23DR. STERN: And it doesn't have to be like an annual report. It can


1be a continuing report in which you post it as it is delivered.

2MR. KOVACIC: I wanted to add a couple of suggestions about

3steps to improve the quality of decision making and indeed to establish processes

4to collect information over time that permits this kind of inquiry to continue in the


6One technique that's being used in the transition environment as a

7condition of receiving assistance from groups such as the OECD is for the

8enforcement agency to submit to audits after the fact -- that is to have external

9advisors do two things. One is to audit workloads and to audit the flow of work

10through the agency. That's the macroscopic perspective. But the second, much

11more specific step -- and I think more illuminating -- is the host country's

12agreement to submit to the detailed review of specific enforcement initiatives.

13The host country's competition authority agrees to have a group of

14outside observers come over a period of days and examine in great detail the

15decision to prosecute or not to prosecute for a specific matter and to examine what

16information was collected. These types of audits, I think, have been enormously

17informative to the enforcement officials, but also over time I think an ambition of

18these is to make available in the public domain at least some form of redacted

19assessment of what's taking place.

20MR. RILL: Bill, is there anything written on this? Any reaction

21from the emerging economies, any report on this?

22MR. KOVACIC: Nothing they have committed to paper, but I

23know that this has been an enormously informative instructional tool for them, and


1I would suggest that if we're looking at best practices, that's not a bad idea to use


3DR. STERN: How about the U.S. being subjected to such art?

4MR. KOVACIC: I would do it in an instant. I would just finish by

5saying the counterpart to that, a weak variant of it is that in the late 1960s and

6early 1980s, with encouragement from Congress, the FTC funded after-the-fact

7assessments of selected enforcement initiatives in the area of vertical restraints and

8the FTC's Xerox monopolization case.

9The Commission retained outside consultants to have access to the

10Commission's own internal deliberative records and to prepare assessments, the

11results of which in each case were published.

12Jack Kirkwood, who was the planning director of the FTC's Bureau

13of Competition, oversaw this effort. I was in Jack's office at the time. You can

14imagine this caused a great deal of discomfort, especially among the litigation staff

15who thought this was a good way to saw your own legs off. If you were going to

16 do an assessment, you could do three things: you could learn you did a good job,

17 you could learn that nothing happened, you could learn something bad happened.

18 Two out of three weighed against doing these on a regular basis. But the results

19were enormously informative. I think they taught us a lot about the appropriate

20course of doctrine.

21This was a form of audit -- an after-the-fact evaluation. While I

22could go on at length about the methodological problem of doing these, I think it

23offers a technique for feeding back into the policy-making process an assessment


1of things such as, are you asking for the right information, what information do

2you ask for that you actually use, what's your intuition about substantive policy?

3These are possibilities, and one of them indeed is perhaps a best

4practice that emerges from approaches that donors are imposing on transition

5economies in developing their own systems.

6MS. JANOW: Who funded that, Bill?

7MR. KOVACIC: The FTC paid for its own evaluations. We got

8desperately poor assistant professors of economics and imposed pre-13th

9amendment wages on them and extracted a pre-13th amendment level of effort,

10but these have been extraordinarily valuable policy-making tools as a result. As a

11way of imposing discipline on the decision making progress, collecting the kinds of

12information we're talking about, and ultimately revealing more about what actually

13happens inside the decision making process, these were enormously informative


15DR. STERN: And how did the interested parties feel, other than the


17MR. KOVACIC: We had long chats.

18MR. THOMAN: I didn't know about it. If I had known about it, I

19would have wanted to read it.

20DR. STERN: Now he really does.

21MR. THOMAN: There's an internal legend inside Xerox on what it

22did, now I want to read what the FTC said it did.

23MR. KOVACIC: What's interesting is Tim Bresnahan was a junior


1academic at Stanford, and Tim did the assessment of Xerox. Basically the main

2requirement was that you could not disclose nonpublic information in the publicly

3available version, but for the internal version it was a no-holds-barred assessment

4of what was taking place.

5MS. FOX: Bill, could you tell us which countries in transition have

6submitted to the reviews.

7MR. KOVACIC: I know that it's taken place in Poland, Hungary,

8and I am just mentioning the officials who have described for me the process

9they've gone through, Ukraine, Russia, Czech Republic. I suspect there are others

10as well. OECD has been the principal forum for doing this, and it usually consists

11of a panel of three or four outsiders who come in for three to five days and meet in

12a setting such as this. The enforcement agency says we're going to take you

13through start to finish what we did and why we did it, and the aim is to have a

14no-holds-barred assessment and evaluation internally of the decision to prosecute

15and what could be done better.

16MR. DONILON: There are some remaining process issues. My

17recommendation would be that the Committee members look at them in the paper

18that's going to be circulated on this, I think this probably would be the most

19efficient way to do it because I think that the issue that Bill is going to talk about

20today, agency overlap, is potentially one of the most important, agency overlap

21and review of mergers is one of the most important that we can discuss. So I

22guess I will stop my initial remarks at this point.

23DR. STERN: Tom, that was really very helpful.


1MR. RILL: Great job.

2DR. STERN: Great job, you're right, Jim. Why don't we take a

3break at this moment, get some lunch, and continue on with our working lunch.

4MS. JANOW: I think we might lose some people. I think our next

5task is a drafting task, so we will have everything that we'll try to put this in a

6prose that's understandable, not just in truncated outline form, and circulate it to


8DR. STERN: Okay, thank you very much. So far so good.


10DR. STERN: We would like to open up the individual

11conversations to a unified conversation and start our working part of the working

12lunch, and I'm choosing my words very selectively and slowly, recognizing that we

13are going to have this conversation directed by Professor Kovacic, so we are now

14ready, if you are, Bill.

15MR. KOVACIC: I hadn't had a chance to ask Tom before whether

16he had any specific suggestions about how best to go over some of the


18DR. STERN: Well, Tom, a question has been put to you in your


20MR. KOVACIC: I was just going to ask Tom if he had wanted to

21make some general observations about the multi-agency review issues.

22MR. DONILON: Not really, Bill. Just to say that it obviously is a

23very big issue and I think one that is quite important to international transactions,


1and it will become increasingly important to those transactions in industries that

2are consolidating around the world. This is a very large and important issue I think

3 for this Committee to try to get its arms around.

4MS. JANOW: Could I add a quick note? I think we have also

5invited Professor Kovacic to give us an unvarnished a view as possible of where

6this is a problem and where it's not a problem, and to the extent that one can point

7to sectors or reviewing agencies that have an international feature of where these

8problems are surfacing, that would be particularly welcome as one of the

9suggestions we made.

10MR. KOVACIC: Right. I thought what I would do is perhaps with

11both of your suggestions in mind to start by speaking generally about where the

12problem does arise, thinking about Federal, state, and local participation in the

13process, then to talk about some of the specific difficulties that arise in particular

14categories of transactions and then to finish by thinking a bit about models for


16It's become apparent I think when you look at the U.S. landscape

17that there are a number of different instrumentalities involved not only at the

18Federal level but at the state and local level. The principal concerns substantively

19arise in the what might be called the transitional industries, industries that formerly

20had been subject to comprehensive oversight with respect to rates, entry, terms of

21service and are now emerging into a less regulated environment, with telecom and

22energy being the most important candidates. These are the areas where I think the

23greatest difficulties have emerged.


1In both of those areas, and telecom is probably the best example, it's

2now clear that there's active participation for any single transaction by a host of

3authorities, not simply at the Federal level, but at various political subdivisions as


5For the typical telecom transaction, there is oversight traditionally by

6the antitrust overseer, in this case the Department of Justice, the Federal

7Communications Commission, the state attorneys general, the state public service

8commissions of every jurisdiction in which the firms do business, and I think last of

9 all, and perhaps most startling in the case of the recent cable transaction involving

10 AT&T and TCI, the city of Portland exercising its authority and its oversight over

11cable franchises has decided to impose a requirement that AT&T provide certain

12kinds of broadband, high speed Internet access as a condition of getting local

13 approval for their transaction.

14In a way, I think, the most obvious general national competition and

15international competition policy concerns arise at the Federal level, but I think it is

16probably simplifying the problem too much to think that the state oversight,

17especially by the major state public service commissions, and here I'm thinking

18about New York, Illinois, California, just to pick a few, doesn't affect the ability,

19the incentive and interest of international players in the telecom market to

20undertake specific transactions.

21And while I hadn't thought until two weeks ago about the local

22dimension, where you do have cable system operators, and to the extent that the

23cable system operators are seen as an alternative to the traditional regional Bell


1operating companies because they provide another wire to many of the ultimate

2users, the local oversight could have an effect as well. Chairman Kennard of the

3FCC has expressed his dismay at the District Court decision in the city of Portland

4case as well, but I suspect the city of Portland and other jurisdictions will fight

5every bit as aggressively as they did to get this result to preserve it over time.

6I think the reason that this does become a problem, even with the

7state and local overlay, is that for the same reason that these networks are

8important because of their network effects, decisions by political subdivisions

9such as state or local governments, to the extent that they limit the ability of the

10network to be developed, to develop consistent standards, consistent product

11offerings, to the extent that you impose conditions on different pieces of the

12network, it limits the ability of the parties to achieve the network-like benefits that

13would come from these transactions.

14I suppose one way to think about the Portland intervention is to say

15if the citizens of Portland want to impose controls on themselves that are ill-

16conceived, there's a self-correcting political mechanism in place there that keeps

17that in check. Yet to the extent that part of the logic of the AT&T and TCI deal is

18to create a broad based national or regional alternative to the traditional local

19phone service providers, letting the City of Portland make this kind of policy

20judgment has broader regional and national, perhaps, even international

21implications as well.

22So I think while I'm inclined to think that thinking about the

23problems at the Federal level is perhaps the place to start, I'm hesitant to say that


1the state and local effects are not significant, particularly in light of the fact that

2these political subdivisions do have the ability to impose restrictions that affect the

3 desirability of proceeding as a whole.

4I want to identify a basic policy decision that's implicit, I think, in

5looking at the process for merger review. Why have differences in approach

6emerged? It's because the substantive standards that are being applied and the

7substantive mandates differ from jurisdiction to jurisdiction.

8If we were to draw a Venn diagram, the antitrust role would be a

9distinct circle inside a much larger set of concerns that the sectoral regulators such

10as the Federal Communications Commission or, indeed, the state public service

11commissions bring to bear on these issues. A question that arises as a matter of

12substance is what should be the appropriate tools for making policy involving

13mergers in the telecom, energy or other regulated sectors.

14It's clear that there's a strong preference embedded in the organic

15legislation of these sectoral bodies that competition policy concerns as we would

16define them are not all that counts, that there is an array of other considerations

17that ought to be part of the analysis. One question is whether, as part of their

18review of a variety of other factors, they should revisit issues decided by the

19competition policy agencies or should they be able to conduct in the first instance a

20new and fully independent assessment.

21Let's say it's the latter circumstance that truly takes place today. And

22it is also apparent in carrying out this role that the sectoral regulators have more

23powerful tools to obtain adjustments to the transactions. What's the source of that


1greater power? Well, a broader charter, to be sure. That is a charter that's beyond

2the standards encompassed in the Clayton Act and its jurisprudence.

3Second is related to process, and this I think lends itself to a very

4specific possible adjustment. There are no time limits on the decision making by

5sectoral bodies such as the FCC or FERC or the state public service commissions.

6This is a focal point of legislative debate at this moment.

7There are proposals by Congress to cap the process, really drawing

8on the same intuition that the Committee discussed earlier in talking about Tom's

9presentation about time limits and caps on the merger review process.

10Why is the absence of time limits very important? For transactions

11of this kind, and I think Rick referred to this before, the question that the merging

12parties have to ask is how long do they want their money and their transaction to

13be on hold before it's completed?

14In the case of FCC or state public service commission review, the

15answer, if you ask how long can this go, the answer is there's no outer bound on

16the process. That gives the decision-makers tremendous leverage. It means in

17particular that competition policy or other concepts that might not survive review

18in the courts, if you had to get them there, gain more efficacy because the agency

19has the opportunity to say we will simply wait you out. That is, we will wait until

20you accede to some of our requests for concessions.

21There's a political safety valve. You can go to the Hill, you can

22apply pressure which certainly these bodies do as well, but when a proceeding is

23pending, there's no particularly effective way to move things along. The ability


1simply to wait makes theories that might be difficult for the Department of Justice

2to succeed with in a PI action in the U.S. District Court in the District of Columbia

3 much more important and requires the parties to take them more seriously.

4So one specific adjustment that in a sense might harmonize this

5process and tend to unify the competition policy standards that are being used is to

6cap the amount of time that the sectoral regulators have to do their job.

7Let me give you a specific example. It's apparent that the sectoral

8regulators are more fond of potential competition theories and more sanguine

9about the capacity of potential competition theories to provide a foundation for

10evaluating transactions than the antitrust agencies are. Potential competition has

11an uncertain future in the courts, and it's had an uncertain past. But it's apparent

12that a foundation for FCC analysis is to rely heavily on it.

13Well, you ask yourself, how well would you do if you had to take on

14a transaction and impose a broad array of restrictions based on a potential

15competition theory.

16My judgment is that might have a very difficult ride through the D.C.

17 Circuit, and ultimately through the Supreme Court, depending upon how broad a

18set of demands were imposed. But that judgment day is never going to happen in

19 this process because I think it is highly unlikely that a telecom service provider

20would take the year-long, at least, trip through the FCC, then an additional year

21perhaps through the D.C. Circuit to finally get judgment day.

22In effect where mergers are concerned, the merging parties know

23that the sectoral regulators hold the high cards, and the high cards in many ways


1consist of simply having the ability to wait out the other party.

2So one implication of this might be to cap the amount of time that

3the sectoral overseers have.

4Another issue, another problem that I think arises in the process is

5one of transparency, and it involves, in part, the relationship between the

6competition policy agenda, the traditional antitrust agenda, and the other features

7of the jurisdiction of the overseeing agencies.

8I suspect many of you have watched the hearings and deliberations in

9 front of the FCC and FERC. The tone of those proceedings is very striking. I sat

10 in a generic session, I was one of six people on a panel. And each one, as they

11went around the table talking about the competition policy issues of three major

12telecom deals that were before the Commission, said "this is what I want the

13parties to do for my constituency and my group."

14I felt that by the end of it it was incumbent upon me to start my

15comments by saying, "I want high speed broadband Internet access as a condition

16of the deal going ahead." If I didn't ask for something I would have let down the

17team and didn't belong on the panel.

18I think what is apparent in the process is that the FCC, as part of its

19public interest mandate, believes that it is appropriate in reviewing mergers to use

20the merger review process to impose these kinds of conditions.

21Now, there has yet to be, by way of transparency, I think, a clear

22definition from the sectoral regulators about the standard that they impose. Is the

23standard one of, if the transaction is likely to be anticompetitive, it's forbidden or


1do the parties have an affirmative obligation to show what will help?

2You can discern in the statements of some of the sectoral regulators

3both points of view. But it's apparent that there is much greater ability to use the

4merger review process to accomplish the noncompetition policy agenda in place

5and fulfill those aims, then there would be if the agency, for example, were told to

6conduct a rulemaking.

7If you want to impose requirements on service providers under your

8jurisdiction, do a rulemaking and make them do the following things. That would

9be much harder to accomplish.

10I think the reason that they like the merger jurisdiction so much is

11that it is an excellent vehicle to accomplish this because rather than being in the

12position of imposing something on an unwilling party who doesn't have to

13acquiesce, you're in the position of confronting a very impatient party who

14desperately wants to get through your gate and is much more likely to

15accommodate your request.

16I suppose a minimalist possibility that might come forth, and we

17mentioned earlier the possibility of guidelines, would be that where sectoral

18regulators want to exercise their authority and have a competition policy

19component as one of several different variables, it might not be asking too much to

20say, you have to make clear in guidelines precisely how you're going to conduct

21that analysis, and perhaps to suggest what weight is to be given to different factors

22and how you plan to trade them off.

23Those things I would suggest basically do not appear in the formal


1proceedings or even the speeches of the decision-makers in question.

2DR. STERN: May I interrupt you and ask. You started by saying

3you were focusing on energy and the telecom. In other words, on the Federal

4Communications Commission and on the Federal Energy Regulatory Commission.

5You're now making some general recommendations for standards.

6Are there other agencies that we ought to be thinking of as you go

7through this besides the FERC and the FCC?

8MR. KOVACIC: I think my generic suggestion would be that

9wherever an institution is operating under a public interest standard, that lends

10itself to consideration under a host of different variables, that the decision making

11process, that the general standards ought to be spelled out perhaps in guidelines,

12perhaps by other means, but that that decision making calculus has to be made


14DR. STERN: Well what are the other agencies then?

15MR. KOVACIC: The other bodies that have a similar mix of

16concerns, I would include the Surface Transportation Board, if we have another

17suggestion about them, but if the status quo prevails, that would certainly be such

18a body.

19I would like to see the same thing from the Department of

20Transportation to the extent that in deciding whether international route authority

21and carrying out those negotiations in deciding when routes can be transferred, to

22have more precise and transparent their decision making calculus --

23MR. RILL: The FMC?


1DR. STERN: Maritime?

2MR. KOVACIC: Absolutely. I think the banking regulators, by way

3of a best practice model, the banking regulators, I think, have done a

4comparatively good job of making more transparent their decision making criteria,

5and the approach they use to resolve possible tensions that arise.

6MR. RILL: There you have a reverse trump card, you understand.

7That is if Justice challenges a bank merger, it gets an automatic stay, so the trump

8card tends to run in favor of Justice, capital J.

9MR. KOVACIC: Yes. That leads to one suggestion I have in

10looking at one approach for achieving a unified set of competition principles across

11different sectors. I would in each instance allow the Department of Justice or the

12Federal Trade Commission to establish the minimum floor for competition policy

13standards. That is, in the case of the Surface Transportation Board, I would allow

14the Department of Justice to veto specific merger decisions that it felt didn't satisfy

15those requirements.

16Likewise, I would give them a comparable role in dealing with the

17Department of Transportation. To the extent that, as a general starting point,

18wherever a sectoral regulator shares authority or in this -- at present, in fact, has

19complete authority as the Surface Transportation Board does, I think it would be

20highly valuable to have the antitrust overseers at least exercising the ability to insist

21on concessions that satisfy the competition policy interests of the Clayton Act.

22Perhaps I could turn to the more difficult issue that we raised in an

23earlier session, which is what is the appropriate allocation of authority under the


1existing mechanism. That is, you can imagine several possible models which

2would distribute decision making authority in different ways. You could have a

3sectoral regulator that in parallel with the antitrust agency decides competition

4policy issues de novo and is in no way bound by what the competition authority

5ultimately decides to do, especially if the antitrust agency decides not to prosecute.

6Bell Atlantic/NYNEX is maybe a model of how that could play out.

7Although the Department of Justice chose not to prosecute, the FCC did impose

8significant conditions, as did some state governments. That's the status quo model

9with parallel proceedings. It becomes most important where the competition

10agency decides not to prosecute.

11Another model is to divest the sectoral regulator completely of a

12competition policy-making function. That is to say, you can't revisit these issues.

13These are reserved entirely to the Department of Justice. If you want to carry out

14a review of the transaction, you have to do so on other grounds.

15Doug Melamed, at our last session, raised the question, does packing

16the competition policy mission together with the other variables temper reliance on

17the other variables? If you have a competition policy culture or criterion

18embedded in the decisions of the sectoral regulator, does it tend to cause the

19sectoral regulator not to use the other variables in too expansive or unprincipled a


21And I think you could look at historical experience that suggests

22that's happened, and I think perhaps the relationship between consumer protection

23and competition authority at the FTC provides an example. The competition


1policy mandate and experience have probably influenced the consumer protection

2mission in ways that are probably desirable.

3I want to suggest another possibility. That is, if you make the

4noncompetition policy variables much more explicit and put the spotlight on them,

5 it's harder to use them in the way they're used now. My hypothesis now is that

6under the rubric of talking about competition policy, everything else comes in, and

7 it's not explicitly highlighted and treated separately.

8A suggestion I might make is that if you want to treat those

9variables, you certainly can, but perhaps you do that in a rulemaking. I know the

10political science answer would be a rulemaking would be much harder to

11accomplish than doing it in the context of the merger, but that doesn't necessarily

12dictate that you would not use the rulemaking instead as a matter of good policy.

13Let me mention two other models quickly. One model that has some

14antecedents in other countries is that the competition policy authority always gets a

15place at the table, at the sectoral regulator, and gets to veto decisions that don't

16satisfy competition policy standards. The competition policy authority doesn't

17 make an independent decision, but it's able to cast aside decisions that from an

18antitrust perspective are not robust enough.

19And the other alternative, sort of the last box that one could draw is

20you fold all of the traditional regulatory functions into the competition agency.

21There's one country that's doing this in an expansive way now, and that's Australia.

22The Australian Competition and Consumer Protection Commission

23has a single institution, and if you look at the organization chart, the traditional


1regulatory functions appear as a subdivision of the competition authority. If you

2ask the Australians, and my main source of knowledge about experience comes

3from listening to Allan Asher and his colleagues on the Commission, they will say

4the experience has been wonderful, but then of course, what else could they say,

5especially since Allan helped to design this mechanism?

6But I think the one issue that they identify as being a real issue for

7concern is that if you put these functions together, whose culture is ultimately

8going to guide the decision making and behavior of the institution? Does the

9regulatory capacity of the unified body become subordinate in its attitudes and its

10preferences to the competition policy ethic or, to use a pejorative antitrust

11characterization, does the regulatory approach of the regulators "infect" the entire

12agency so that instead of having the pro competition approach, you have an

13incumbent-oriented, help-out-the-existing- service-provider attitude that spills over

14into other areas of decision making?

15DR. STERN: What's happened in Australia?

16MR. KOVACIC: I think because of the existing attitudes of the

17Commission, of the existing commissioners, when you look at their decisions day

18in and day out, they've been robustly pro-entry, pro-competition, maybe even to

19the extent of slighting some of the traditional reasoned objections that natural

20monopoly regulators might have to doing things too fast.

21DR. STERN: And the sectors that are on there are transportation,

22energy, and communications?

23MR. KOVACIC: Transportation, energy, communications. I don't


1know if they pick up other sectors such as water, but the most important of the

2sectors that we would usually put in the traditional regulated camp are under their


4MS. JANOW: Agriculture?

5MR. KOVACIC: Agriculture is the universal third rail, and nobody

6touches it except at their peril.

7But I think -- maybe to rank solutions again, to finish by

8summarizing solutions, and then to address questions and comments, I think you

9can array them from one pole that involves relatively, extremely modest forms of

10adjustment, that I think would be valuable, to those that involve more robust

11institutional change.

12The more modest solutions I think involve coaxing more

13transparency out of the process and relying on what we referred to in the earlier

14paper as basically the domestic equivalent of soft convergence processes in the

15international world. What do those consist of? More transparency by way of

16issuing guidelines: that the FCC, for example, the Surface Transportation Board,

17the Department of Transportation should do what the Federal Energy Regulatory

18Commission has been doing, which is to articulate their decision-making process in

19guidelines and to spend much more time in individual decisions explaining precisely

20what it's doing and why, and most important, how it's making trade-offs between

21noncompetition and competition-oriented variables.

22As part of that soft convergence process, you could rely on the

23continuing kinds of connection discussion that have taken place internationally.


1Why does the European Union's competition system look so much more like ours

2than it did 25 years ago? Not because we're adopting their practices, but because

3they've been moving in many respects toward ours. The best example is that their

4market definition guidelines looks strikingly similar to the U.S. merger guidelines

5model. That didn't happen because of a binding treaty or requirement. That

6happened simply through a process of continuing interaction and discussion.

7I would predict that over time that that would provide a unifying

8influence here as well. That is, even if one didn't touch the system at all, that will

9continue to happen over time. Maybe to push it by requiring at least the guidelines

10be issued and decision-making processes be made more explicit would be a way to

11give a further push in that direction.

12The more robust possibilities -- and I for my own part, I'm persuaded

13that these are attractive, but there's no inexorable principle that would dictate that

14this be so -- I would think where competition policy concerns are at issue, I would

15reserve that decision to the antitrust regulator, to the antitrust overseers, and have

16the sectoral regulators take a subordinate position.

17What would this mean day in and day out? It means divesting the

18FCC, FERC, the Surface Transportation Board, the Department of Transportation

19of their ability to review mergers on the basis of competition policy concerns. So

20that jurisdiction would be removed from their oversight if the Department of

21Justice makes that choice. I would be quite confident of the Federal Trade

22Commission in the deals it handles to do the same.

23Answering that really forces, though, and perhaps it's beyond the


1mandate of the Committee, but implicit in that preference is a decision that relying

2on more expansive competition policy notions that would not survive the test of a

3preliminary injunction action in front of the district courts is not appropriate. That

4is, what I'm basically saying in making this suggestion is that I would prefer not to

5have the FCC to have the ability in general terms to say, "We know the

6Department of Justice would not litigate on this theory, but we would, and, oh by

7the way, we know we'll never have to, because we'll never find ourselves in a

8courtroom having to defend that position."

9Implicit in what I'm saying is that there should be a single

10competition policy standard administered by the antitrust agencies.

11There is an intermediate position, if we're not going to change the

12existing allocation of authority, is to remove the biases that are embedded in the

13system by reason of procedural features of the system. Most important, to put a

14limit on the deliberations of the sectoral regulators. That is to say, you simply can't

15use the possibility of continued deliberation as a way to extract further

16concessions, and that if you cap the amount of time that the sectoral regulator has,

17that brings closer the possibility that you would have effective judicial review. And

18by effective, I mean judicial review that gives the merging parties a chance to pose

19the same kind of challenge that they might be able to pose if it were a preliminary

20injunction action.

21To make one single procedural change, in short, would be to limit

22the period of their review, because the ability to simply go on without a

23well-defined terminus to the analysis converse a tremendous amount of leverage on


1the sectoral overseer.

2DR. STERN: Have you completed your presentation?


4DR. STERN: Thank you. I was thinking about what would be left

5of the independent agencies stripped of the competition policy responsibilities or

6review opportunities. That's not, I guess -- should not be a concern of this

7Committee, but I still was trying to think if that would leave those agencies more

8or less captors of the sectors that they would be overseeing.

9MR. MELAMED: Can I say something? It would enable me to

10make another minor comment that I want to make about this point, which I

11thought was very wise.

12I think when we use the term -- when it's been used in the last 15

13minutes, competition policy or competition objectives -- it potentially encompasses

14two different notions, and we ought to surface the distinction. When the antitrust

15agencies enforce antitrust laws, they ask the question, is the merger

16anticompetitive? Does it injure competition and make something worse?

17I think when the regulators answer that question, at least as a

18practical matter, they're asking a different question, which is, does this provide an

19opportunity for us, the agency, to do something that we think will promote

20competition? For example, require a phone company to open up its market, even

21though the merger doesn't create a problem of that particular type.

22It seems to me that this distinction explains much of the differences

23between what the regulatory agencies have done and what the antitrust agencies


1can be expected to do. It also could contain a germ of an answer to your question

2which is, yes, the sectoral regulators can continue to try to promote regulation by,

3as Bill said earlier, promulgating rules of general application and addressing

4institutional issues that are quite different from identifying transactions which make

5 things worse.

6DR. STERN: Right. But would they be less empowered? Yes, it

7was stated by Bill.

8MR. MELAMED: They would be less empowered in the context of

9merger review. They might be liberated actually to refocus their energies.

10MR. KOVACIC: I think on the question of capture, in some sense

11are they -- how does this affect their vulnerability to being captured? And in the

12traditional political science concern and certainly the traditional antitrust critique of

13 traditional sectoral regulation is the problem of capture.

14DR. STERN: Right.

15MR. KOVACIC: And capture in particular by incumbents who

16become absolutely deaf to requests by prospective entrants or others to change

17conditions of entry and service.

18DR. STERN: Yes.

19MR. KOVACIC: One response that I see a lot in the newer

20literature about the transformation of some of these agencies is that capture is

21harder to do because the number of industry participants in these sectors is so

22much more diverse with so many more conflicting interests than one has before.

23That is, the traditional strength of antitrust oversight has been is that it has been


1hard to capture the antitrust agencies because there are so many people coming to

2your door step, and who's going to capture you? In the Telecom area, maybe

3that's become more difficult because of who's coming to your door step now.

4Well, you have got the regional Bell operating companies, you have the local

5exchange competitors, you have the Internet folks, you've got the -- a whole host

6of competitors. And in the energy sector you have the power exchange

7companies, you have the energy service providers, you have the generators, you

8have the distributors. It's simply a much more fractured and contentious universe

9 of industry participants which I think has made it harder for any one group to

10capture the institution as a whole.

11DR. STERN: Reflecting deregulation by those agencies themselves.

12It is because you've had deregulation. For example, in the communications area,

13you get more actors, and so the original sector and the original participants in the

14sector who were part of the designers of the law that set up the agency have, by

15virtue of the deregulating activity of that agency, created this proliferation of

16competitors. It suggests that there should never be another sector-specific agency

17set up.

18MR. KOVACIC: I think at a minimum it would suggest that there

19be structural limits on the perpetuation of the status quo.

20DR. STERN: Yes.

21MR. KOVACIC: And that is-- one structural limit is that you sunset

22existing regulatory mechanisms or that you force the reevaluation of traditional

23assumptions about whether entry is feasible or not feasible. I mean, in many ways


1for the sectors in question, they've deregulated out of necessity rather than

2necessarily out of choice, although the FCC made certain choices in the 1960s with

3long distance that had a formative influence, and were the result of managerial

4choices by the commissions themselves.

5DR. STERN: Likewise with the FERC.

6MR. KOVACIC: Yes. That is, the fact that you can build small,

7highly efficient generation units now that you -- that the model of a highly

8centralized generation tier technically no longer has the same foundation that it did


10I would be nervous about having a sectoral body that was not

11governed by structural limits that tend to extend the status quo and did not have a

12robust role for the competition policy authority to override basic judgments that

13the sectoral regulator makes about some of these issues.

14MR. RILL: I wonder, Bill, to turn the table over, how -- assuming a

15legislative mandate that gave responsibility to the competition agencies who were

16making the competition decisions in a merger context -- how much thought has

17been given to the extent to which regulatory agencies might evade that by making

18competition decisions, imposing regulatory requirements based on those

19competition decisions which they're not supposed to be making, and putting it

20under the rubric of universal service or some similar non-competition-related social

21policy under which the regulatory agency operates.

22Having wondered that, I don't know that we have to answer all the

23questions within this framework, but it is a matter of some concern, to me at least.


1MR. KOVACIC: To sharpen the point even more, what prevents

2the sectoral regulator from saying I don't have competition policy authority, but I

3have consumer protection authority?

4DR. STERN: Right.

5MR. KOVACIC: And what is the best protection of consumers?

6Well, it's rivalry. That's what I'm seeking now. So I'm going to do something


8I suppose one antidote to that is to attempt to unify the

9decision-making processes. That is, one approach is to put the Department of

10Justice or the Federal Trade Commission, which does cable transactions, has done

11energy-related transactions, to put them at the table in the process, and to allow

12them to impose this competition policy floor.

13MR. RILL: I don't know what at the table means, whether it's in a

14deliberative context, but I suspect some of that goes on informally to the extent

15that ex parte rules don't block it, and ex parte rules generally don't apply in these

16types of merger context.

17On the other hand, at the table could mean that they can appear

18before the regulatory agency. I wonder, just a rhetorical question, if Department

19of Justice representatives would comment on how effective they've been before the

20Surface Transportation Board in their formal appearances on mergers. I think the

21answer -- the record speaks for itself. So I don't know what --

22MR. KOVACIC: I think that at the table means the ability to veto

23decisions on competition policy issues that are not --


1MR. RILL: Well, that's the same as saying leave the competition

2issues to the Department of Justice or the FTC. The other possibility which I

3would, at least I personally think would be very dangerous, probably bad, would

4be to give either the Department of Justice or the FTC the regulatory powers so

5they become an Allan Fels/Australia type operation. I think that puts more of a

6burden on them, and it tends to undermine the, if you will, the integrity, the

7sanctity of competition principles. Now, I want you to know that at a recent

8seminar I have been accused by my colleague, Tim Muris, of having a Ptolemaic

9view of the universe, with antitrust in the center and everything else circulating

10around it. I'll defend that position, too.

11MR. KOVACIC: I share your opposition to giving the competition

12policy agencies the other sorts of functions. By other sorts, I mean what I would

13call the social policy agenda that goes beyond competition policy. I think the

14dilemma that we face in talking about institutional choice is that there are certain

15functions that the competition agencies historically have been institutionally

16ill-situated to perform, but have been forced to address by reason of the kinds of

17problems that come before them.

18Anytime you're going to make a decision about access to a

19bottleneck facility or an essential facility. Anytime you're going to become involved

20 in resolving vertical issues that have tremendous horizontal dimensions -- which

21simply describe the most serious problems you have in these sectors -- if you're

22going to decide to resolve those problems, you inescapably get drawn into the

23 question about defining access terms and overseeing them, and the Department of


1Justice --

2MR. RILL: Having been there and done that, I can empathize with

3the difficulty.

4MR. KOVACIC: The Department of Justice, as a result of its

5experience mainly with telecom, has been drawn step by step into the process of

6doing that as a matter of course. To the extent that if we were to talk to colleagues

7at the Federal Communications Commission or FERC circa 1985, 1990, they

8would say these guys are stealing some of our functions. That is, more and more

9they are doing the sorts of things we used to do.

10So how do you solve that? Either you give the antitrust authorities a

11more robust role in developing the institutional ability to do these kinds of things,

12which makes them more expressly regulators, but regulators within a narrow

13bound of looking at access pricing and nondiscrimination conditions. Or, another

14possibility is that the antitrust regulators make the decisions about basic

15competition policy frameworks and then they hand off implementation to the

16traditional sectoral regulators who have more experience at doing these kinds of


18MR. RILL: Can I switch you just one second, and then I am

19finished. As I say, we don't have to answer all of the details and the devil may be

20in the detailed questions about an evasion of a principled competition responsibility

21in the Division or FTC. I am somewhat, not so much concerned as intensely

22curious, as to the nexus of this issue as to global competition. Let me, just for

23 example, pick up on your initial comment regarding the City of Portland. Let me,


1rather, take an example of say, the State of Missouri, to pick one in the middle,

2which imposes under its enforcement authority particular divestitures in a grocery

3store merger, speaking hypothetically, that may be beyond, say, what was imposed

4by the Federal Trade Commission.

5This is a multi-enforcement problem. It probably has zero global

6nexus. Have you done any work or can you cite us to any work that shows a

7relationship between the difficulties, time or result-related, arising from the

8multijurisdictional review problem that relates specifically to global competition?

9MR. KOVACIC: I haven't done and I'm not aware of an assessment

10that's tried to take -- first, to do something that the Committee alluded to earlier

11today, that is to take, for example, a medium timeline from announcement of the

12transaction until completion, for transactions generally. Versus, say, telecom or

13energy, which is where the issues have come up most frequently. Or to do a

14separate assessment where you have to sort out separately transactions with a

15major international dimension and those that don't. I don't know of an effort to --

16MR. RILL: I don't, either. It would be interesting to find one.

17There are anecdotes from when the European Commission and Justice Department

18cleared the MCI/WorldCom merger, and they're both U.S. companies, but the

19issue was global Internet backbone, U.S. and European global Internet backbone.

20If anybody knows of any studies that can tie this to international, I would definitely

21like to see it. But all I know is anecdotes. Big ones, but anecdotes.

22MR. THOMAN: Along the same lines, just to follow up. Again, I'm

23a nonlawyer. This may be a very naive observation. But certainly in Europe you


1hear the complaint about the lack of clarity about when Justice and when the FTC

2get involved. And so whether there's an issue about overlay, overlap between

3those two agencies that needs transparency, at least clarity --

4MR. RILL: There is an issue there, Rick, and one that's been

5discussed for years.

6MR. THOMAN: I've certainly heard that from the European side. I

7don't know how informed it is.

8MR. RILL: And it's a factor, I think, in my own experience it is a

9factor, that sometimes arises from the U.S. side. I think conditions are a lot better

10now than perhaps they have been at times in the past, but I think there is generally

11a pretty good, quick clearance relationship. But the problem is historic. There

12was a report done by the ABA which I think we ought to make available to

13anybody who wants to look at it, back in 1988, '89, of the FTC. It culminated in

14the Kirkpatrick II report. It concluded, that, well, if we had to do it over again, we

15wouldn't have two federal agencies charged principally with enforcing the same

16antitrust laws.

17When Bill Baxter came on board at the Department of Justice in '81,

18he and David Stockman decided, wouldn't it be a good idea to abolish the FTC?

19And all hell broke loose in Congress. And I know, that's going on almost 20 years

20ago, but still, it was political dynamite, and I think any proposal of that sort here

21would be political dynamite. I'm not averse to political dynamite, but I think it's

22been studied so much --

23MR. THOMAN: I wasn't necessarily saying -- I am just arguing the


1issue from a non-U.S. viewpoint. The more we can be clear and transparent, in

2which case, which goes to which or how soon it takes, the easier it is for to us ask

3other countries to do the same.

4MR. RILL: I think that's a valid point, Rick, and I think just

5suggesting that transparency or, as to which agency handles which type of

6transactions --

7MR. THOMAN: Right, right.

8MR. RILL: -- would be an improvement. Again, my own experience

9is it hasn't been a great difficulty in recent years. But there are all kinds of horror

10stories and, you know, one-time anecdotes of, we got a second request only

11because the agencies couldn't decide which agency had it until the 29th day. I

12think that does not occur often; the fact that it may occur at all is bad. But I think

13your transparency point is well taken.

14DR. STERN: Eleanor, I would like to keep on this subject. Is this

15on this? FTC, DOJ?

16MS. FOX: No, not FTC, DOJ. No, go ahead.

17DR. STERN: Okay. We didn't hear what you thought.

18MR. KOVACIC: Well, I'll do the typical initial academic's dodge,

19and I'll describe the models. There are two models. I can imagine three

20possibilities at the Federal level -- status quo, which involves possibilities for

21competition with some coordination, and I think there is a competition. A

22competition that exists, not perhaps in a terribly obvious way, but one exists with

23possibilities for innovation and improvement between the two institutions.


1A second possibility is to have enforcement exclusively through an

2executive branch department with responsibility for international criminal/civil

3matters, which would be the Department of Justice.

4The third option is to take all functions save criminal and

5international liaison and put them all in an independent regulatory commission.

6Most of the world does the third. We are truly unique in doing both. Which makes

7the most sense?

8I guess, if I think about the Federal Trade Commission in theory, I

9would have picked the Federal Trade Commission option, but my own sense in the

1085 years of empirical experience is that --

11MR. RILL: That you've had?


13MR. KOVACIC: Is that that's not been a success. Although I keep

14wandering back to that image when I think about -- I don't encourage this as

15everybody's bedtime reading, but the legislative history of the FTC does a good job

16in the abstract of explaining why you would want the FTC to be your competition

17policy authority, because it talks about administrative processes and changes that

18perhaps give you a faster path for resolving urgent matters in areas such as high

19tech where you might want faster results.

20An expert body that would do certain things differently, wouldn't be

21bound by, limited by the constraints of traditional Federal District Court litigation,

22with this wonderful synthesis of economic knowledge, legal knowledge,

23accountant specialists, experts. Everyone has their own judgment about how that


1experiment has worked, but I'm afraid I have a very gloomy view of it.

2MR. RILL: I'm not going to rise to the bait. It would take the rest

3of the afternoon.

4MR. KOVACIC: No, I would say a country legitimately and

5sensibly could decide it wanted to diversify the portfolio to do what we have had,

6which is an experiment. I think the experiment does have some fairly powerful

7implications, and they would dictate unifying in a single institution, and that would

8be the Department of Justice. But I admit to schizophrenia on that issue, but if I

9had to vote, that would be it.

10MR. RILL: Good academic response.

11DR. STERN: That's a very helpful response. But help me with the

12international and the criminal. That was the second model. Describe that to me


14MR. KOVACIC: I'm assuming that no independent regulatory

15commission in our political science could act on behalf of the head of state, nor

16could it act as the prosecutor in criminal matter, so there's inevitably going to be a

17residual policy-making authority in the executive branch.

18DR. STERN: Right. In the executive branch.

19MR. YOFFIE: And here you mean by international -- what?

20Because that's obviously critical to this Committee.

21MR. KOVACIC: It would be the ability to negotiate treaties, to

22speak formally on behalf of the Government of the United States when it goes into

23an international forum, and to engage in cooperative relationships that require the


1formal approval of the United States.

2MR. RILL: May I just follow up one second on this same point.

3From a standpoint of weighing important frictions, important opportunities for

4accomplishment, would you say that the greatest problem relates to the dual

5enforcement between FTC and Justice or the dual competition responsibilities

6between either FTC and Justice and the regulatory agencies treading on that same


8MR. KOVACIC: I think to a great degree, differences in policy

9between the two Federal competition agencies have largely been eliminated. I do

10think there are instances in which the outcome can be determined, depending upon

11where you go. These occur in some instances at the margin, but those are rare.

12But I think because of the conscious efforts, really going back 50 years, to make

13sure that there were not great discontinuities from 6th and Pennsylvania to 10th

14and Constitution, that those discontinuities were been limited, has been

15enormously successful. I think the possibilities for inconsistency are much greater

16when you go to the sectoral areas. But I would say it is the very success between

17the Federal agencies in eliminating differences in policy that raises the question:

18Why have two?

19MR. RILL: But I think your answer is that the greater problem by

20far is between the antitrust agencies and the regulatory agencies?

21MR. KOVACIC: Unmistakably. I think there is unmistakably a

22complication -- a real cost of having two Federal antitrust agencies is that you have

23to identify the preferences and respond to the tastes of two sets of public officials.


1MR. RILL: Well, that can be intramural within any given agency as

2to which section you land in. I think I have your answer.

3MR. KOVACIC: Unmistakably. Yes. It is the relationship of the

4sectoral overseers that is much more of a concern. And think of it this way: If you

5had to explain to someone outside the country about the difficulties associated

6with identifying differences in outcome, depending on whether the deal goes to the

7Commission or to the Department of Justice, that's a much easier conversation to

8have than the telecom official who says, "I'm thinking of buying some assets in the

9U.S. Tell me what I'm in for." That is a much longer conversation.

10MR. MELAMED: Can I just interject a thought? I think the

11substantive differences are the critical ones. There is a transaction costs problem

12of multiple review where you don't know which agency is going to have it, but I

13agree with this colloquy that the critical question is a substantive one. The

14problem of substantive differences of the sectoral regulator is inherent, whenever

15you have a sectoral regulator charged with merger review unless, of course, you

16simply say, "Apply the antitrust laws."

17The very task of doing merger review is an invitation for the

18regulator to impose a tax on the transaction to achieve some regulatory objective.

19I think that is the problem. The problem is, are competition or economic efficiency

20objectives disserved by having government agencies in a position to impose taxes

21on otherwise benign transactions?

22DR. STERN: Well, fair enough. All right. I was trying to challenge

23that assertion by thinking that there may be additional remedies available within the


1sectoral agency to advance competition that are not available in the on-or-off

2merger -- permit or not.

3MR. MELAMED: It may be that it's important, then, that you give

4real flesh to the word remedies.

5DR. STERN: Yes!

6MR. MELAMED: That is to say, you require the sectoral regulator

7to identify the problem that is created by the merger --

8DR. STERN: Right.

9MR. MELAMED: -- and to show a rational relationship between the

10remedy and that problem, rather than a relationship between the regulatory remedy

11and some other regulatory objective.

12DR. STERN: Right. Well, that should be something we should

13amplify in our recommendations -- that when clarifying the roles and separating the

14roles, competitive competition-enhancing roles, of DOJ/FTC, on the one hand, and

15the sectoral agency on the other. It's the remedies and how they are applied and

16towards what aim they are applied that needs to be transparently described.

17MR. DONILON: As Doug is saying it's not just the remedies, it's

18the law that's being applied as well. That's the problem -- going to Jim's question,

19your question, which Rick raised first about FTC versus DOJ, at least the FTC and

20DOJ enforce the same law --

21DR. STERN: Yes.

22MR. DONILON:-- you know, in large part.

23MR. RILL: Well, the FTC has gotten more sensible about Section 5.


1We hope.

2MR. DONILON: But I think the panel is right. The discussion you

3have with an international client about transactions being reviewed in the United

4States is quite simple. You may have detailed instructions about how it might

5proceed, at the FTC or DOJ, given the different procedural routes and paths that it

6can go down, but the law is going to be the be the same. The substantive law is

7going to be the same. And the problem that Bill has identified, I think, a pretty

8clear one, is that the competition law itself -- not just the remedies, what they

9might ask from parties, but the law itself -- is different. In pursuit of the same goal

10that doesn't affect the competition policies.

11DR. STERN: Well, to put a point on this: assume that the FTC was

12applying the same law but it had within its powers as the Congress gave it, as the

13sectoral regulatory agency, additional powers that would allow it to add remedies

14or attach remedies to advance the same law that may not be within the realm of

15DOJ and/or the FTC.

16MR. DONILON: Well, then it starts to look more like the sectoral

17regulator. I mean if the --

18DR. STERN: Well, I'm just asking: Do they have remedies?

19MR. DONILON: They have remedies -- I think that there are

20adequate remedies to address competition law problems, but other social

21engineering issues, policy issues, are not the province of the competition law


23DR. STERN: Right.


1MR. DONILON: And I wouldn't recommend giving them those

2powers. They ask the question, as Bill puts it, is this transaction going to be

3injurious to competition and therefore injurious to American consumers.

4DR. STERN: Yes. Right.

5MR. DONILON: They don't ask the question, here, we have an

6opportunity here with a transaction before us to do some policy things we want to

7do and advance some social issues that we want to advance. You know, let's

8decide what those are, despite the fact that there is absolutely no competition

9injury that results from the deal.

10DR. STERN: Well, I think I understand what you're saying, but

11what I was trying to just hypothetically ask: What would be the impact if they

12were looking at exactly the same law, considering just the competition, would they

13have additional remedies, additional to that which the DOJ and the FTC have?

14MR. KOVACIC: I think the way I would put it is, I think the set of

15possible remedial solutions would be the same for both. That is, the Department

16of Justice could go to a Federal District Court and say, I want an injunction that

17would require the parties to do X, Y, and Z, and it would be the same set of

18solutions that the sectoral regulator would generate.

19What's different, I think, is that in principle, the FCC and FERC are

20institutionally probably better capable to effectuate some of these solutions than

21the Department of Justice or the Federal Trade Commission acting alone, or in the

22case of DOJ going to the Federal district judge and saying, "This is how you ought

23to put it in place."


1Many commentators have pointed this out: It's the reason why when

2you look at early formative cases that generated the essential facilities doctrine,

3cases like Terminal Railroad or even later cases like Otter Tail -- in Terminal

4Railroad, this is the bridge across the Mississippi River with the terminal facilities

5on either side. It's a collective effort to charge higher prices to those who were not

6members. The Supreme Court says you have to provide non-discriminatory

7access. You can't collude to impose a price disadvantage.

8And the issue comes up, well, who is going to decide what the right

9price is? Who's going to monitor the nondiscrimination requirement? The

10Supreme Court says, "Uhh-- there is the ICC over there. They can handle it."

11Very quickly they walk off stage. They say there is another institution that can do


13In Otter Tail, when the Supreme Court faces another issue about

14access, to an integrated network by an unintegrated party, and says you have to

15provide access, and the question comes up, "Well, are you saying that the Federal

16courts now are going to monitor under the terms of an antitrust decree access and

17terms of access to the network?"? The court says, "Well, it's the Federal Power

18Commission, they're going to handle it."

19In each instance the Court had comfort in imposing a decree with

20highly regulatory implications by saying there is a collateral Federal institution who

21does that kind of thing, and without explaining how they're going to do it, they can

22take care of it.

23DR. STERN: Well, you see, that's my point, and that's where I was


1going. I was guessing, and that's why the Australians have come up with one

2agency. That's a good reason why.

3MR. DONILON: Exactly.

4MR. RILL: But I wish we could bring Connie Robinson up to the

5table and have her explain her experiences in, in effect, of being in charge at the

6senior staff level enforcement of the AT&T decree, where FCC's responsibility in

7many respects was transferred to the Department of Justice, which is, I think,

8inevitable in an essential facility access type of case which is brought by the

9antitrust agencies. It was not there, by and large, for the FCC to make those

10compliance decisions based on nondiscriminatory, equal access obligations that

11were imposed on the telephone industry as a result of the 1984 decree.

12DR. STERN: So you invented it.

13MR. RILL: So the antitrust agencies -- well, I don't claim credit.

14But the agencies --

15DR. STERN: No, I meant "one invented". I didn't mean "you".

16MR. RILL: The antitrust agencies had the responsibility to make

17those decisions, and I suspect in appropriate cases those are the decisions that have

18to flow from the responsibility of the antitrust agency.

19MR. MELAMED: I think -- this is just conjecture -- that this

20particular problem is not likely to be of huge importance in the merger context.

21You can imagine a merger that is justified by enormous efficiencies and results in

22the creation of a new essential facility, and then you have an access issue. But it

23takes some imagining to get there. Most of the access cases, like Otter Tail and


1AT&T, were not merger cases. So I suspect that, as a practical matter, concerns

2about the ability of the antitrust agencies to fashion effective remedies for

3problems created by mergers are likely to arise when the problem created by the

4merger is not a competition problem.

5Let's say for some reason a merger creates a realistic basis to think

6that the goal of universal service will be disserved. Well, then, maybe you do want

7to have a sectoral regulator who can say, that, although that's not a competition

8goal, it is an important public policy, and we want to have a merger-specific policy

9to deal with an merger-specific problem. But that's not quite the same as saying

10that we need a sectoral regulator to deal with a competition problem.

11MR. KOVACIC: The best example I can think of of a decree that

12has the first of the two categories of potential problems that Doug mentioned is the

13British Telecom-MCI consent decree which has a fairly elaborate set of

14nondiscrimination and access-related controls, but --

15MR. RILL: AT&T/McCaw was the same way, although their

16decree was abrogated by the law.

17DR. STERN: Imposed -- the British Telecom imposed by --

18MR. KOVACIC: By settlement.

19MR. RILL: Same thing with AT&T and McCaw.

20DR. STERN: But this was not because the FCC was pushing that?

21MR. RILL: No.


23MR. MELAMED: These are both vertical cases, but you're right,


1they did raise the access issues.

2MR. DONILON: One model, Bill that arises out of the comments

3that Doug just made that you didn't discuss would be -- but I want to get both

4your reactions to it -- would be what about not just having the DOJ and the FTC

5get the trump card on competition policy. What about wholesale removal of

6merger from the sectoral regulators? What falls out of that proposition?

7MR. KOVACIC: I think Doug's earlier remark touched on this.

8What it means is that sectoral regulators will have to find other occasions and

9mechanisms for effectuating some of the social policy decisions that now are

10carried out through merger review, and that to the extent that mergers implicate

11these other issues, the sectoral regulator will have to undertake other proceedings

12to cure the ill effects.

13MR. DONILON: And they would have to do so expressly and not

14in the context of approving the merger? Or protecting competition?

15MR. KOVACIC: That's right. This means that the role of the

16review is simply to avoid harmful transactions and that benign -- competitively

17benign or procompetitive transactions go ahead. If there are adverse distributional

18effects, or if there is a dissatisfaction with the existing distribution of benefits and

19costs, or other adverse effects given the -- measured by the larger set of aims that

20motivates the agency, those have to be carried out through different modes.

21MS. FOX: I wanted to go back to the discussion of a little while

22ago. You made several really important recommendations, a list of possible

23recommendations. And I'm going back to two of the possible recommendations.


1One we discussed a little bit, which is giving the antitrust agencies the sole

2authority to determine the competition issue, and secondly, I wanted to put back

3on the table that where there are noncompetition values and goals to be

4implemented, and the sectoral authority is making a decision based on them, it

5ought to be very clear about what it is doing, transparency as to that.

6I was very interested in the distinction that came out in your

7colloquy with Doug in which Doug, you said, interestingly, that the sectoral

8authority will be asking the question or may, among other things, ask the question:

9Does this vetting of the merger provide us with the opportunity of doing

10something procompetitive? This is also something Paula was talking about.

11This is really very interesting. For example it could be the case of

12the antitrust law as decided in Marine Bank Corporation makes life too tough for

13the antitrust enforcers, and that therefore the antitrust enforcers might not win in

14court against a Bell Atlantic-NYNEX, but maybe the sectoral regulator could say

15the burdens of the plaintiff in the antitrust court are really too tough and therefore

16we decide that this not go through as a matter of public interest because we think

17there's an important potential competition question, and we can't prove as a matter

18of probability that Bell Atlantic will come into NYNEX's territory, but there's a

19good chance, and could say, we therefore stop the merger, I should think.

20So I mean, I thought that actually fit into where Paula was going,

21and that might be good or bad, depending on how sound antitrust law is.

22Now, I wanted to make a couple of other comments that deviate a

23little bit from that thought. One is right on that point. Sometimes when a sectoral


1agency thinks it's doing something more competitive, it might be doing something

2anticompetitive, and so perhaps that merger should go through because it wasn't

3anticompetitive and the sectoral authority decides what I just said, and wants to

4abort it on competition grounds. I should think that the agencies ought to at least

5have input if the sectoral authority is still focusing on competition itself. This is

6one point.

7Now, a lot of the colloquy actually reminded me of linkages to

8certain international issues, and now I'm off on a different track here. One is that

9whatever is our discussion on the relationship in the United States between

10antitrust and the sectoral regulators might have reverberations in other parts of our


12Some merger laws, like Poland, would balance anticompetitive

13effects against any other kind of economic advantages. The authorities are always

14saying, "Well, I have the opportunity to stop this merger. Let me see what good

15things I can do for Poland. I might impose binational obligations or infrastructure

16obligations. "

17And here if we do make a recommendation in this section about

18being very clear about the additional factors and variables that are being added to

19the debate, we could also make that recommendation later on in our report.

20DR. STERN: Yes.

21MS. FOX: Then the other international connection I wanted to

22make came up in my mind when you were talking about the relationship between

23the antitrust authorities and the sectoral regulators on issues that are hybrid issues,


1such as access and nondiscriminatory access. This is exactly, now in the

2transnational context, a kind of issue that come in telecoms annex to the GATT's

3agreement and competition law.

4And there is a question as to who is going to be making the decision

5as to what is the abuse of dominance when a telecom company doesn't giving

6access or is allegedly not giving nondiscriminatory access. And I think that

7however we deal with the issue here also might be carried over to a

8recommendation in the international market access part, when there are

9competition principles embedded in WTO agreements. So it might be helpful, and

10if you have further thoughts, now or later down the line, as to how that issue ought

11to get determined when it comes up in the WTO context, that would be helpful.

12DR. STERN: Okay.

13I would add one more thing that I would ask you to think about that

14in light of the time, we probably can't get into the discussion, but I wanted to put it

15at least on the record. Jim, talked about the international function, and you asked

16the question, what do you mean by that. My thoughts started to come, "well,

17representation in negotiations," but I was thinking about the interaction between

18the Department of Justice and the U.S. Trade Representative.

19So I think I would like to hear what you have to say on that after

20you've had some time to think about it because we do need to go on.

21Again, Bill, you've been just terrific in stimulating this discussion and

22really boring down into the deep significant issues, and we thank you very, very

23much. It's been a great day, so far so great, Merit.


1We're conscious of the next agenda item, which is trade and

2competition interface and enforcement cooperation discussion, and while Jim Rill

3will be handling the initial remarks, I am aware also that Rick Thoman has been

4good enough to volunteer to give us a report on the e-commerce subcommittees


6MR. RILL: I think we should go with Rick.

7DR. STERN: Do we need to take a break first?

8MS. JANOW: I was going to welcome Dick Simmons. Are you

9here with us?

10MR. SIMMONS: I am.

11MS. JANOW: Terrific. We haven't had a moment to welcome you.

12I thought we should do that before we move into another subject area.

13MR. RILL: Let me just say that the 4:30 deadline is going to have

14to be a firm one for me, at least, so we're going to have to finish at 4:30 regardless,

15and maybe reconvene, but I think a lot of us had planned around the conclusion

16time of the agenda.

17DR. STERN: Absolutely. We've been pretty good about the ending

18time. Sometimes the beginning time --

19MR. RILL: The beginning time gets a little tricky. But I think I

20would like to cede my opening time to Rick.

21DR. STERN: If it's all right with you, Rick, we'll just continue, and

22if people wish to excuse themselves individually, they might. So, if you're ready,

23we're ready.


1MR. THOMAN: Sure. Well, I'll make this short. I don't think it's a

2big subject that's worth more than the five or so minutes I'm going to talk, but I

3don't think we have much more than five minutes to say at this point.

4We had, I thought, a very good meeting in New York. A number of

5us were there, a number of people from the industry were there. I think around e-

6commerce I would like to make five points if I could. The first is that we all know,

7I think increasingly more today than when we started this off, that e-commerce is

8an area that's going to be very, large, very important, and is only beginning to

9assume the scale that it's going to be several years from now. There's no question

10that almost every company is now trying to think of what its e-commerce strategy

11is. That was not the case six months ago or nine months ago.

12The other thing that's characteristic about e-commerce, other than

13the fact it's growing very quickly, is that it's very, very complex in terms of what

14we're talking about, and that's because it's probably the first economic capability

15that isn't geographically focused. And that makes it very difficult to think about in

16the context of what we're here today to talk about. And I say that in the sense that

17you can imagine the problem of selling a Japanese product on an American server

18on a German network over a website which is located in some other country to a

19French consumer. So you've got so many areas that you can touch in terms of

20where does the transaction actually take place, that it's more difficult. So that's the

21first comment I would make, is that it's a very large and very important area and

22yet is extraordinarily complex in terms of the traditional, we make a product here

23and we sell it there mentality that I think the original trade theory grew up in.


1Secondly, it's important because it's likely to change pretty

2dramatically competitive balances, not only between companies and industries but

3the way things are done, and in a whole series of ways. We all know, for example,

4that to sell things through a sales force costs roughly 20 to 25 percent of revenues,

5to sell things on the Internet costs one percent of revenues. So your ability to

6disintermediate competitors is pretty dramatic.

7The ability to do 24-hour service in a country that traditionally

8maybe had closed its stores for social reasons or other reasons is another area. So

9simple access. What it allows in a sense, you could argue what it allows is the

10ATM model applied to anything. The ATM model is a wonderful model, in which

11your customer becomes your employee, you don't pay him for the work, and he

12gets convenience and cost for it. In a sense that's what the Internet becomes.

13And so I think that the fact of the change of competitive balance is

14important because that leads in a way to certain of the antitrust implications. I

15think the paper that we wrote here, that somebody wrote, it's a very good paper,

16talks about really three of them. The first of them is, I think, the one that's

17potentially the most dangerous, which is sort of a hidden mercantilism. It's very

18easy to argue that I will not allow e-commerce to operate in my country because I

19do not want to give access to private financial data of my citizens to allow it to

20operate. And that's a hard one to argue because privacy is extraordinarily different

21from place to place, if you do any kind of service on financial research, if you lived

22in southern Europe and for centuries have been trying to escape the king's tax

23people, you have a great understanding of what privacy means. The Swiss banks


1have lived off to it for years. So that's a very real difference from country to

2country, and yet it's also a very nice handle to not allow things to happen that

3would tend to upset encumbrance, we're doing things the way that the thing is, is


5So there's a real issue I think around how you can deal with that

6issue of hidden mercantilism in a straightforward manner because ultimately it's a

7very emotional, difficult issue around privacy. I might add we're seeing it with

8regard to genetic foods and other things. It's a bit of the same issue, I would


10Obviously there are potential network externalities. I won't go into

11that, but to the extent you have people with very strong positions that are allowed

12to leverage those, you have the ability to create monopolies or quasi-monopolies.

13They're not there today, but that's a potential issue.

14And then you have all the traditional antitrust problems in the new

15area such as cartels, price signaling to clients, sales, all the other things which you

16could argue if they're secret, there is a risk of it. If they're very open, there's a risk

17of it. But none of the traditional issues go away.

18So all of those reasons, I think, the antitrust implications of e-

19commerce are all of the things that we currently have to worry about plus some

20new ones.

21The fourth comment I would make is that the enormous growth in

22this area -- but the thing I've learned around my life in technology is that the great

23law of technology is the law of unintended consequences. It's very hard to know


1in a big, new technology precisely what's going to happen. But we know there is

2going to be enormous capabilities to do different things with this media which will

3evolve in ways we can't see and there will be consequences of we can't foresee

4today at all easily.

5And I think that as we talked about our options, and I think the

6paper mentions them here, it's a very difficult area. Because I think there's a

7school of thought, certainly in my industry, that says this is a wonderful industry,

8let's just not regulate it and everything will be fine. I think most people in industry

9would clearly accept the fact that there are clearly areas around consumer

10protection, et cetera, which isn't our area here today, that are issues, and we're

11beginning to see that in the United States, people buying all sorts of unlicensed

12drugs on the Internet, things like that.

13So I think the do-nothing issue is one that is dangerous, because the

14danger of a do nothing is that ultimately something will happen and there will be

15some kind of kneejerk reaction regulation which probably isn't appropriate.

16On the other hand, there's another set of thought which is to say let's

17go out and sort of create an environment, negotiate an international agreement.

18The problem is I don't know if we know what it is yet. It's growing so quickly, it's

19so early, that it's hard to know that you wouldn't inadvertently do something

20without knowing which is difficult. So I think we sort of, to a degree, coalesce

21what I call the third way, and I hate to say that given Tony Blair and Schroeder's

22recent issues, but which I think really relate to the notion, if you don't know where

23it's going, probably you can agree on some principles and possibly a process


1around it. And we need to think through what that looks like, or might look like,

2or at least elements of that, which at least give us some sense of comfort that it's

3generally in the right direction.

4And I think as I talk to a number of people in the room, I think that's

5where they are. But that's I think a summary. I'll just stop here. That's about my

6five minutes.

7DR. STERN: Oh, that's terrifically helpful. Comments, questions?

8MR. RILL: Rick, do you -- I'm sorry, go ahead.

9DR. STERN: Eleanor?

10MS. FOX: I just wondered if you had anything in mind on principles

11and process?

12MR. THOMAN: No, not yet. There's been a lot of good work done

13in different places. You don't have to start from ground zero.

14MR. RILL: I think anything along those lines would be very helpful.

15I suppose one concern that this seamless commerce breaks across the lines would

16have would be the Balkanization of regulation, not merely mercantilistic motivated

17Balkanization, but simply a multiplicity here of regulation whether the antitrust and

18consumer protection would seem to be more egregious, more inhibiting, more

19seismic than it would be perhaps in a more traditional industry. That's something

20we may want to comment on with more information.

21MR. THOMAN: There is the other element, which is that you could

22argue that -- could you argue whose regulation applies, in an area of consumer

23protection, et cetera.


1One of the concerns when you talk to people in the small business

2area is -- for a large company like ours, you know, we can figure out on an e-

3commerce site how to send things to France and Germany and comply with

4everybody's regulations.

5A small business company really can't. One of the issues you'll hear

6in the small business community is that unless there is some thought about how

7these services are delivered in multiple countries, it becomes difficult for the

8smaller business community to participate because they don't have the resources to

9tailor their product offering to the regulatory and legal aspects of all these different

10countries, so they would much rather have a set of regulations which says the

11manufacturers site law prevails, and of course when you talk to the French and the

12Germans and the Italians about that, because it's essentially a U.S. phenomenon

13today, they're not very excited about that, but there is an interesting issue between

14the smaller business and the larger business and their ability to tailor their offerings

15for all the different environments which are the same.

16DR. STERN: This is always the issue with standard setting and

17international standard settings: what's the best way to have harmony that doesn't

18disadvantage particularly the small or the new entrant?

19My only request is again to get on the record just that the staff make

20a point of looking at what is being worked up in the U.S. Trade Representative's

21office with regard to e-commerce and in particular the ACTPN, the President's

22Advisory Committee on Trade Policy Negotiations.

23MR. THOMAN: We can do that.


1DR. STERN: Yeah, because some of these common principles of

2the work. That may have been what you were referring to in this instance with

3work already done on it.

4MR. RILL: I think that just from my own view there is a lot to be

5said for a separate -- whether it's a chapter or a very large section of a chapter on

6market frictions on this particular issue, and I think any help that you, an expert in

7the field can do to add --

8MR. THOMAN: I would be glad to do it.

9MR. RILL: -- to our deliberations on that, I would certainly

10appreciate it. Thank you.

11MR. THOMAN: Okay.

12MR. YOFFIE: I just wanted to raise a question, maybe get a

13reaction from Doug. There are two ways we can think about the problem. One is

14as an e-commerce problem. I want to pose the question --

15MR. THOMAN: That's correct. That's a fair -- I agree with that.

16MR. YOFFIE: -- which may or may not be e-commerce related, I

17think is a more important way to frame it.

18MR. THOMAN: I was using shorthand. That's a better way to

19frame it.

20MR. YOFFIE: But the reality is a lot of the problems you describe

21might be covered under traditional trade policy and not competition policy.

22What's really different about the Internet and information technology

23gets to the number two problem you outlined, which is network externalities. This


1is a global problem when we talk about network externalities. We rarely talk

2about U.S.-specific networks but rather something that cuts across the globe and

3therefore is at the heart and soul of what this Committee is about, but it's also at

4the heart and soul of antitrust policy domestically as well.

5At lunch we were talking about Microsoft because if you think about

6the Microsoft case, that's as much a global case as it is a U.S. case. The question

7really becomes we're thinking about the question of network externalities and the

8implications for monopoly, and whether traditional antitrust law as we think of it

9and the way in which we process antitrust cases today are, in fact, appropriate in

10this new world.

11This is the question that has been raised a thousand times in the press

12over the Microsoft case. I never heard the Department of Justice's view was on

13this, whether we really think existing antitrust law is adequate to deal with the

14problems of the Internet economy.

15MR. MELAMED: It seems to me there are two forms of that

16question. I think I know which one you had in mind, but I want to make sure.

17One is, we're dealing in a world of rapid change. Usually there is

18something technological in there. There is no way that the law, the government

19and the courts with their cumbersome process can keep up with that. I don't think

20that's what you meant.

21I think what you meant is something else, which is -- in a world of

22network externalities, with a likelihood of serial monopoly rather than rivalry, does

23it make sense to talk about competition also.


1MR. YOFFIE: I meant the second, but the first is one of the

2implications of the second.

3MR. THOMAN: The first of the reasons is why we can't regulate it

4now, one of the reasons.

5MR. YOFFIE: Part of the question is whether or not, pursuing a

6traditional antitrust policy because things are changing so fast. In other words,

7pursuing a traditional antitrust policy to solve the second issue, will that work in a

8world in which there is constant change and too many things are changing during

9the process of a trial or putting a case together or so forth.

10MR. MELAMED: Let me give you a 30-second preview of the six

11or seven-week discussion we could have on that question.

12My own personal views about the speed of change, is that, even if it

13were so significant that we would agree that you can't rely on antitrust litigation

14and remedies to solve practical problems in real institutional or market contexts,

15you can still look to antitrust enforcement to articulate rules that ought to be

16complied with and the violation of which, for example, could expose someone to

17private damage remedies.

18As to the second question -- which is what happens to the body of

19rules in the face of the increasing importance of the network economy -- well,

20that's a big question, but let me just anecdotally address it this way.

21It has been suggested at various ways in relation to the Microsoft

22case, why should there be rules about predation in a winner-take-all market

23because there's going to be a winner anyhow. My own view is that you may have


1to think a little harder, but of course you can have rules, for example, that would

2help you identify which of the rivals ought to prevail in the winner-take-all market,

3and what are the means of competition that are likely to result in efficient

4resolution of that rivalry versus an inefficient resolution.

5I don't think antitrust is knocked off the boards in these markets.

6They just present a new set of facts we have to think about.

7MR. YOFFIE: I was actually posing a different question: do we

8have to think about new antitrust rules? We're agreeing that rules may be

9appropriate and useful. But the question is, are the existing rules appropriate and

10useful or do we need to be thinking about how to redefine those rules for the

11context in which you just described?

12MR. MELAMED: I think the existing, broad concepts and statutes

13are perfectly adequate and that they will and ought to continue to evolve as they

14have for a hundred years, recognizing that there will be lags before they catch up

15with new learning and new institutional settings. But this is a huge conversation.

16MS. JANOW: I would like to ask this Committee to give us some

17guidance on how we answer these questions, not at this moment, but I think even

18the perhaps less difficult analytical questions that you suggested of traditional

19practices using a new medium pose many challenges in terms of the effective

20enforcement that we haven't begun to really talk through or think through anyway.

21So how this report might both spot the issues and raise the questions that need to

22be addressed and perhaps lay out a suggested methodology or approach for

23government officials and interested publics to think about these issues over time,


1we very much need your input on because I think there is no template here, and

2while we can be informed of what other agencies are doing like USTR, surely, and

3others, I don't think there is a depth of scholarship on this or industry statements or

4et cetera, so we really, I think, could extend the charter of this Advisory

5Committee very substantially.

6DR. STERN: Looking for work, Merit?

7MS. JANOW: No, I'm actually not. It's a plea, but also I think this

8is one where we need lots of ideas.

9MR. GILMARTIN: You know, based on what's already happened,

10since everything is moving so fast, there have been lots of events that have

11occurred as well, and when people talk about the Internet, it's generally in the

12broad terms that we just talked about it so far -- something is happening, it's going

13to be big, but in terms of what's actually happened, what specific cases or instances

14do we have that would suggest that the rules or the way the world works now

15doesn't apply? Can we just use some specifics as to what is so different than

16what's happening now that present rules don't apply?

17MR. THOMAN: There was a privacy directive passed in October by

18the EU.

19MR. GILMARTIN: Even without the Internet, that affects us just

20by mailing patient data across the Atlantic.

21MR. THOMAN: But there was some belief on the part of U.S.

22administrative people that at least partly that that was a defensive measure to allow

23Europe to keep its level playing field at a very low level while they got their


1technology act together. That's precisely this.

2MR. GILMARTIN: In my industry that never occurred to us. What

3we saw was a difference of privacy issues about how to handle patient

4confidentiality, medical research and things like that. And it was a difference in

5attitudes about privacy and how one regulates that, not any sort of underlying

6conspiracy here to frustrate.

7MR. THOMAN: There is a real reality that you described, there is

8also a belief that there could be more dangerous motives, and who knows what's


10MR. GILMARTIN: But that's pretty traditional stuff, just a different


12DR. STERN: Just a different example. Just like as you said,

13genetically modified.


15MR. THOMAN: Exactly.

16MS. FOX: Could I make a couple comments, just trying to work my

17way to Merit's questions.

18There are a lot of very different issues here. There are regulatory

19issues that are not competition issues like privacy regulation, but Rick is posing the

20basic problem of state action that restrains trade so that nations might take

21mercantilistic action that restrains trade. This area, if we want to treat it

22separately, raises those problems. Those problems, however, do run throughout

23competition policy as opposed to competition law and we might want to take that



2Other observations I just wanted to make. We could ask the

3question on the competition field itself, what are the additional opportunities for

4restraining trade and using leverage in ways that are likely to harm consumer

5welfare and efficiency. We must also ask what are the additional opportunities for

6increasing competition, by passing --

7MR. GILMARTIN: Knocking down barriers.

8MS. FOX: Knocking down barriers, that's very important. David

9raised kind of the dual questions or problems.

10One is that the very fast-paced change of technology could make

11traditional relief always too late, and therefore, some argue today that in such high

12tech, fast moving areas, and this is high tech, fast moving. The Internet is an

13example. Some argue that therefore antitrust can't deal with it. But I'm just

14getting some reasons why he thought antitrust could still do something. This is a

15very important issue on the table today.

16MR. RILL: I'm sorry, I just wanted to react to what you're saying.

17MS. FOX: Yes.

18MR. RILL: What it does is put on antitrust, traditional antitrust

19concepts, the burden of being alert to emerging technologies and perhaps the

20domination of emerging technologies that would require quicker action and

21application of antitrust principles --

22MS. FOX: Right. Yeah.

23MR. RILL: -- which creates an enormous burden on antitrust. I can


1think of examples, but it would involve some special pleadings, which I don't

2think s appropriate to do right now.

3MS. FOX: But quicker antitrust relief is actually a very important

4idea that more expeditious antitrust relief is maybe an important idea that we

5should think about, saying something about, so on the one hand, getting substantial

6structural relief or injunctive relief might be rather late.

7I think you, Doug, were suggesting, I might be putting words into

8your mouth, but tell me if I am, that there are still remedies at the end of the case

9that a court can order even if it's possibly too late for important structural relief,

10setting forth clear rules of law that should not be violated that can be very

11important in controlling conduct next time.

12MR. RILL: Or even this time.

13MS. FOX: Or even this time, and in the future, maybe at least that.

14MR. YOFFIE: Let me try to answer Ray's question directly because

15I think it was a very fair question: why is this different from anything else, and as I

16said, a lot of the neomercantilism isn't different. It's the same.

17DR. STERN: It's just "neo."

18MR. THOMAN: It's driven, though, by the ability to force change

19quickly creates a much more potential -- reflects a reaction, I think.

20MR. YOFFIE: The ability to --

21MR. THOMAN: The speed and cost advantages.

22MR. YOFFIE: It's faster, it's lower cost, on a much larger scale

23because these technologies are scalable essentially on a global basis at zero cost.



2MR. YOFFIE: But the last piece that I was focusing on is the

3winner-take-all network externality argument. This says that once a competitor

4gets to a certain threshold that there are going to be self-reinforcing dynamics

5which leads him to get essentially 100 percent of the market, and if the Department

6of Justice or the FTC then comes in, it's too late because there are no real effective

7remedies at that stage. Customers have already adopted the standard for the

8technology, even if it was achieved through predation. The problem is you can't

9reverse it. It's just too late or too difficult.

10And that's basically the argument that's been made around the

11current case with Microsoft and Netscape, which is Microsoft started to move very

12aggressively in the fall of 1996, the DOJ files the case in May of '98. By that point

13in time, they've already gained 50 percent share, and while the case has been tried

14in the last 12 months, Microsoft's gained another 10, 15 percent market share

15points, and is starting to look as though we are at that point where the market is

16tipped and remedies may or may not have any effect. Because it's global in nature,

17the question becomes: do existing processes and procedures allow us to adequately

18address --


20MR. YOFFIE: -- adequately address these kind of dynamics? Not

21that there shouldn't be rules, but is it going to be effective or are we going to see

22more and more potential monopolies emerging? We then go through a long,

23drawn-out trial with no real remedy at the end.


1MR. MELAMED: Two thoughts. One would actually be a

2conditional thought.

3If a premise of what you're saying, and I would love to have the six

4weeks to carry on this dialogue, is that we have these network industries in which

5winner-take-all outcomes are pretty much preordained by the structure of the

6industry, then the problem can't be what you just said a few seconds ago, which is

7we're going to see more monopolies emerging. That's the end of the premise.

8The question becomes, are we going to see the right winners, and is

9there a role for antitrust to have something to say about the rules of competition

10that will help us have a higher -- there is one more component that comes into this

11where you start with e-commerce, rapid change, global networks, winner take all,

12and that is, these are global phenomena which obviously pose to take us back to

13what, the courts, a huge additional burden on antitrust or competition agencies,

14not only for the obvious process reasons, if you could get evidence to prove about

15who did what to his home page, you know, in Slovakia, but who ought to. Even

16in Boeing-McDonnell Douglas, we all had some intuition about where was the

17center or the centers of gravity of interest. Who had a legitimate stake in that

18battle? Which agency or agencies are supposed to deal with the kind of problem

19you're talking about should take out government obstacles and just talk about

20private conduct screwing up a global market. Another dimension.

21MS. FOX: Related to what you said, Doug, I think there's

22underlying that idea, if there is a winner-take-all result, there are to be rules as to

23legitimate ways to be the one that takes all, if one must take all, and those rules are


1appropriately litigated. I went further than what was said, there might not be

2winner take all or the life of the winner might be shorter or longer. Rules, for

3example, without definition, some kind of open architecture rules or some kind of

4rules that allow more contestability might assure that the life of the winner will be

5shorter. One other thought is, even if there is a winner take all and long-term

6winner scenario, there is still the possibility of using leverage and related markets

7or not, and like applications markets, and there could be more need for rules that

8would allow open architecture on those related markets. This gets you into areas

9of rules of leverage and our antitrust laws might be less robust than some might

10wish in leveraging that doesn't lead to monopoly in those related markets.

11MS. JANOW: I would like to take off this point if I may and ask

12David, who I know has done so much work in this area, David, you raised, I think,

13the question of whether or not if the courts move too slowly, and this structural

14situation is different in response to Ray that there needs to be a different approach

15that maybe is agreed to at the international level or maybe national legislation in


17Why would we have any confidence that what would be arrived at

18those two possibilities, if they had a structural feature to it saying, no market

19dominance, for example or some, would be any better? Is there any reason to

20think it would be an advantageous approach?

21MR. YOFFIE: This is why I started our discussion at our

22subcommittee by saying do nothing as the first option, precisely because of that

23fear. But let me come back to something that John and I talked about yesterday or


1whatever the day was, Monday on the phone, which is that this is an area in which

2these dynamics are just emerging, and the reason there is not much research is that

3there's not much history, so it's very difficult to be able to say with any precision

4how we should be able to get specific policy recommendations at this stage.

5However, I think those of us who are engaged in these areas now

6believe that if there is any issue that's going to be critical in the next millennium,

7this is going to be it, but it's not clear that this Committee can say definitively, here

8are the appropriate recommendations other than we may need to do a lot more

9study and two or three years from now we actually might be in a much better

10position because we'll have at least five years of history rather than three years of

11history behind us to be able to draw some very specific kind of recommendations.

12I would be very hesitant, given the history of our experience to date to make

13specific recommendations at this stage. I think that's probably what Doug is

14saying, too. It just isn't clear.

15MR. THOMAN: But there may be principles we can feel

16comfortable with, there may be a process we can specify that helps us get to that

17point. I think that's -- I'm reluctant to sort of say, it's too complex and too early to

18do nothing about it because then nothing will be done. I guess I would like to try

19to be a little more forward looking if we can without being categorical. I think

20you're right, we don't know a lot.

21MR. YOFFIE: I'm not worried about the complexity. I'm more

22worried about the history.

23MR. THOMAN: Right. Right.


1MR. YOFFIE: But do we have enough confidence in the underlying

2dynamics, in our understanding the underlying dynamics?

3MR. THOMAN: I would agree with you, we don't.

4MS. FOX: I think even raising these questions can be very valuable,

5and I want to throw one other in to the list we've discussed, which is what is

6antitrust harm in a context like this because, as we know, the paradigm of

7neoclassical price theory, consumer welfare harm just might not fit, and yet there

8might be a market harm.

9DR. STERN: This is terrific. I agree with both of you all. Just

10trying to pose the questions, just articulating questions is helpful, framing the

11issues, even if we aren't categorical, to use Rick's term, in recommendations. So,

12this conversation has been terrific. And Eleanor's point goes back to a question I

13wanted to ask you, David, and it also relates to your concern about history of that.

14We don't have research.

15But do we have, though, examples of a winner-take-all paradigm,

16which you have invoked, in other technologies? What have been the relevance of

17antitrust laws in dealing with that? There should be some history in other

18winner-take-all technologies.

19MR. YOFFIE: True. We obviously have a previous history with

20Microsoft, so in operating systems, independent of the Internet. And we had a

21consent decree that was signed in 1994?

22MR. MELAMED: Probably signed in '94, entered '95.

23MS. FOX: Yes, entered in '95.


1MR. YOFFIE: So we have some history, which is not a very

2positive history I think from the Department of Justice perspective. Would that be


4MR. MELAMED: That was before my time, but that's what they tell


6MR. YOFFIE: So we certainly have one example in which the

7identical underlying economics would have been applied, and where antitrust

8authorities were directly involved in that question, and then there certainly are

9other industries. One that I cannot talk about publicly would be Intel. This is

10another example of a company that has some features of network externalities,

11again very closely connected to Microsoft, and has been subject to antitrust

12investigation by the Federal Trade Commission. So there are examples.

13Even in other industries which would be more consistent with

14Eleanor's comment about they don't last very long, things like video games,

15Nintendo was an example of a case where many of the same dynamics applied but

16were obsoleted fairly quickly by future generation technologies.

17DR. STERN: And that's good, that's where I'm driving: that it's

18almost a misnomer to call it "winner takes all" because "winner takes all" is in the

19first round or the second or third round, but how long is this boxing match? If

20another technology takes over. So it's --

21MR. YOFFIE: If it's IBM and it lasts for 20 years, and if it's

22Microsoft, it lasts for 20 years.

23DR. STERN: But not Nintendo.


1MR. THOMAN: There is a difference though. I would argue an

2Intel, a Microsoft, a Cisco, once they achieve that position, the switching costs are

3enormous. The switching costs of the game, you buy the new game, you throw

4the old game away, so there's a very different -- if you get to the choke point with

5high switch costs, then there is a characteristic in a way that David is talking about.

6DR. STERN: Then that tells us something right there.

7MR. MELAMED: There is another set of historical experiences,

8although quite different, it had some parallels, and that is the old-fashioned natural

9monopolies, with declining marginal costs. They were certainly winner-take-all

10markets; they had a somewhat different dynamic, but at least we have some

11experience with anticompetitive conduct and competition rules in those industries.

12MS. FOX: In newspaper cases, including one with New England

13newspapers and there was only going to be one survivor.

14MR. YOFFIE: But the economics of natural monopolies are very

15different than the economics of network externalities. We have to be careful.

16What Rick is talking about is what economists describe as complementary assets

17that are tied specifically to the underlying products.

18Those didn't exist in the natural monopolies, and therefore the

19switching costs had a fundamentally different character to them. There are some

20different dynamics, but the computer industry historically is the one industry where

21we've seen very long lived monopolies or quasi monopolies. IBM being the one

22that had the longest history, and again IBM continues to have about 60 to 70

23percent of the worldwide mainframe market to this day. It still generates multi-


1billion dollars of net profits to the company, and still makes it one of the most

2 profitable companies in the world, and that goes back to 1964.

3DR. STERN: Well, I was thinking about the natural atrophy of a

4monopoly that if you do have a monopoly, the flabbiness is attacked if you have a

5new entry such as imports, in a traditional sense. Because we're in this globalized

6economy, it may be that we're lacking the potential of a new competitor to come in

7out of the blue, if you will.

8MS. FOX: Space.

9DR. STERN: Out of space. So, to that extent this is perhaps a new

10paradigm and a new set of problems.

11MR. YOFFIE: What information technology does, though, is it

12creates the possibility of truly global monopolies, not --

13DR. STERN: That's what I mean. That's what I mean.

14MS. FOX: And who is the potential competitor.

15DR. STERN: Exactly, except for someone from Mars.

16MR. YOFFIE: Microsoft and Intel have between 85 and 90 percent

17of the relative market share in their segments on a global basis so when you think

18about new competitors coming out of the blue, it's generally got to be new

19technologies. It must be a substitution effect as opposed to an imitation effect,

20which makes it a fundamentally different dynamic.

21DR. STERN: You need clarity.

22MR. YOFFIE: I wanted to come back to Eleanor's point again and

23ask Doug because this question of consumer harm is the other major question that


1emerges with these dynamics. Microsoft is giving the product away for free, and

2has 100 percent of the market, then there's an obvious question of how do we

3measure consumer harm in this world, no matter how they got there.

4MR. MELAMED: I just heard a story from a person who was trying

5to buy a car and the car dealer said, "Mr. So-and-so, I lose money on every car I

6sell," and he didn't believe it. I think you might have misstated a little bit when you

7said they don't get any benefit from selling the product.

8MR. YOFFIE: From Internet Explorer.

9MR. MELAMED: Well, not from Internet Explorer; but it seems to

10me that the network story, as an antitrust story, is essentially this: The incumbent

11tries to keep potential rivals from having the access to the standards that enable the

12rivals in effect to take advantage of the network economies.

13If the incumbent succeeds, he reduces the likelihood that the rival

14will displace him in whole or in part. That reduced likelihood might injure

15consumers, not because it will have a big price effect, but because it is likely to

16affect the amount and type of innovation and product quality available to

17consumers, especially if the rival was given a greater opportunity to flourish.

18I don't mean to be glib about this, but I don't know why any of these

19notions are beyond the comprehension of a competition paradigm.

20MR. YOFFIE: That's a legal question, which is --

21MR. MELAMED: I didn't mean it to be.

22MR. YOFFIE: That's precisely the question I was getting at which

23is, are those notions in fact adequately dealt with within the context of today's


1antitrust law?

2MR. MELAMED: Antitrust law has evolved, it has changed a great

3deal in the last 30 years, certainly the last 100 years.

4If we went into court tomorrow and articulated some of the ideas

5that I was attempting very briefly to summarize here, there is a certain probability -

6- maybe 40 percent, 60 percent, who knows -- that the first judge is going to say, I

7don't understand what you're talking about, plaintiff loses; but maybe the third time

8around, the plaintiff is going to win if his theory is sensible, and the law is going to

9evolve and catch up with new economic learning.

10MR. RILL: I quite agree with that, I don't think the legal principles

11are the ones that are in question. I think maybe the enforcement tactics are in

12question. The fact assembly is in question, the ability that we have some certainty

13that you're identifying a market soon enough or perhaps too soon is in question,

14but it seems to me these have been the questions that have been with us to a lesser

15degree perhaps for a hundred years, and now it's a question that requires quicker

16action, but the underlying competition policy principles, it seems to me, are

17perfectly adequate to deal with it.

18Microsoft -- the legal theory underlying Microsoft, I'm not

19principally involved in that case, it would seem to me to be fairly straightforward

20legal principles of tying/exclusive dealing as a mechanism for monopolization, that

21it's not complex legal theory, it's legal theory that rests on cases like Lorraine

22Journal which go back 30 years, 40 years.

23MS. FOX: That's what Bob Bork says, it's Lorraine Journal.


1MR. RILL: Just because he said it doesn't mean it's necessarily


3MS. FOX: I think there are more complex issues than Lorraine


5MR. RILL: I happen to agree with him.

6MS. FOX: I think there is a question as to what we have defined as

7consumer welfare harm is really the only market harm. I mean, I think it's possible

8that in an effort to confine our antitrust laws and to consolidate them that we have

9used a sort of proxy or symbol that may be or sound a little narrower than all

10market harms are.

11I think that it's just going to be very useful to write a chapter laying

12out the questions and I think that it's probably too soon to come up with any

13answers, but I also happen to think that most of the antitrust problems, even

14applied to the new technologies, can probably best be decided in a ground-up way

15like our usual antitrust cases are, just lay the facts out there and the law is in a way

16elastic enough to meet the market circumstances.

17DR. STERN: Well this five minute discussion has stretched -- I

18think, again, it's been a terrific discussion. We've been plowing new ground here.

19Thanks to your stimulus, Rick. Thank you very much. We'll just

20see what comes next in our next meeting.

21We're now going to move to the last item on the agenda, the

22discussion on trade and competition interface and enforcement cooperation. You

23guys are looking at each other.


1MR. RILL: We're passing notes. Do we have to tell the class what

2the notes are about?

3DR. STERN: Yes.

4MS. JANOW: We're noticing the shortage of time.

5MR. RILL: Let me just first of all apologize to Dick Simmons who

6has been on the line waiting patiently, I hope on the line.

7MR. SIMMONS: Who, me?

8MR. RILL: Because I know this is a subject that particularly

9interests him, and we have exactly an hour and 15 minutes to deal with it at this


11DR. STERN: Right. Go ahead.

12MR. RILL: What were you going to say?

13DR. STERN: What Merit suggested I say, which is, Dick, is there

14anything that you wish to say?

15MR. RILL: That's a good idea.

16MR. SIMMONS: Thank you, there is on this particular subject, if I

17could step back for one moment. I think I heard most of Rick's comments on e-

18commerce, but if I could just make a short comment on that. If the 35 or 40 years

19since the Second World War is a period in which most of the changes throughout

20the world were focused in manufacturing and technology improvements, I think

21the next 40 years are going to be driven by e-commerce, are going to be the first

22real change in the transactional kinds of relationships around the world. And one

23aspect of that, I think, falls into the trade and competition area because e-


1commerce may be the way to deal with some of the problems of access that

2currently are being discussed and do exist around the world because at least in a

3couple of countries, the distribution system is how access is denied or limited, and

4e-commerce bypasses it, and it may make moot many of the problems that all of

5us, several of us have had with regards to problems of access.

6If you don't have to go through the constraint imposed by a

7distribution system by being able to use e-commerce, and I think we will be able to

8at different rates of change in different industries, then some of the problems of

9access I think will go away.

10Now, if I could just offer a couple of comments on this section that

11you're now going to discuss, let me just preface it by saying that first of all, I

12apologize for not being there. Jim Rill, I think has some sense of why it's so busy

13the last six months. But with regard to paragraph I C and then 1 and 2, I become

14very uneasy without a very clear and specific understanding of what is being said

15here, and I can only display my uneasiness by asking questions which are

16rhetorical, don't have to be answered here, but which, Merit, I would really

17appreciate getting some clarification on.

18For example, on paragraph C, sub 1, DOJ/FTC should have parity at

19the table with other agencies, e.g., Department of Commerce, USTR where issues

20of trade and competition are involved, and then it goes on to expand on that a bit,

21and then in (C)(2) it talks about it and (C)(2)(a), and I would really like some

22clarification of what you -- whoever is drafting this part of it really means.

23I also point out that political problems that this creates when you


1start to talk about taking turf away from, whether it be USTR or Department of

2Commerce or whomever, without a clear understanding of (1), for example, and

3(2)(a) where it says, U.S. and foreign companies must be judged under the same

4U.S. standard should not judge foreign companies under a different standard,

5parenthesis, by using trade remedies.

6I would ask what does that mean, and I do restate my uneasiness if I

7read the wrong implication into that. So let me stop at this point and simply say

8that I do think you got to make very clear in your draft exactly what we're talking


10MR. RILL: Dick, this is Jim. I think you've raised a good point,

11primarily I think on the lack of perhaps clarity with which these discussion points

12have been raised.

13MR. SIMMONS: And, by the way, if I can, I'll refer to Intel, the

14title of that book, Only the Paranoid Survive, applies to me, too.

15MR. RILL: Well, you're in good company. And I don't think there

16is a question of -- I don't think it's a question of attempting to grab jurisdiction

17from one agency to another, and let me give you the notion that underlies what

18you're looking at which has not been distributed beyond the working group, so it's

19not a document that's in the hands of the full Committee, nor is it an attempt to,

20other than put forward some ideas that have been raised in the hearings and in

21intramural discussions among the working group as possible recommendations that

22the Committee might at the end of the day put on the table in its report.

23Having said that, I think the thought here is really twofold. One,


1where national policy is being developed, the Department of Justice, given its

2experience and focus on competition policy issues should be in a position to

3articulate that experience and its positions in the deliberations of the Executive

4Branch on a par with the Department of Commerce and the Trade Representative,

5where private restraints are at issue (that is opposed to government restraints or

6hybrid restraints, which at the end of the day I think I would be defined as

7essentially private restraints encouraged by the government).

8Therefore, the suggestion is that there be clear lines of delineation

9between -- and we're getting off of policy-making direction now and into

10enforcement technique, and remember this deals with enforcement issues, the

11hybrid restraint should be the responsibility of the antitrust enforcement agencies,

12and I would say conversely where there are government restraints involved, the

13enforcement responsibility vis-a-vis those government restraints should probably

14be preliminarily with the more traditional trade agencies, the USTR in particular,

15while the question of remedy then becomes, of course, one that would have to be


17With respect to the same standard, it seems to me that foreign

18companies should be judged under the same antitrust standards as U.S. companies.

19There should not be, and I'm sounding like I'm advocating this but I'm trying to

20explain what the language means, and it may well be at the end of the session I

21would advocate something like this, but it means that there should not be a special

22antitrust rule applicable to a foreign company that's more rigorous or contains

23different remedial sanctions than the same antitrust rules that would be applied to a


1domestic company.

2That's all in the world it means, and I think then we need to consider

3as you look at other proposals that have been put to us, the question of how one

4determines whether or not there's a violation of antitrust law and the question of

5whether or not the U.S. enforcement agencies should apply different antitrust

6principles either from the standpoint of substance or proof to a foreign situation as

7it does to a domestic situation, and I think that's really the sense of what (c)(1) and

8(2) of the outline mean. For those of you who don't have the outline, this

9discussion draft was circulated only among the working group, and simply

10suggests that the Department of Justice and the FTC should have parity at the

11table on trade and competition issues where competition policy questions are

12involved, and involving issues of private restraints, whether they're purely private

13or hybrid governmental private, the enforcement position of the Department of

14Justice/FTC should have priority over those of other agencies of the government.

15Are you more confused or less?

16MR. SIMMONS: No, I understand that, but going back an hour on

17so when the discussion was on the role of FTC, if I could play devil's advocate for

18just a moment, why shouldn't FTC ask for a seat at the table, too?

19MR. RILL: That's a good question actually, and they might just do

20that, but --

21MR. SIMMONS: They could set up an advisory committee, come

22up with a set of recommendations that FTC should play a more responsible role.

23MR. RILL: And when I say they might just do that, I'm being a little


1facetious. I think the issue there is whether Justice is more appropriately

2structured to deal with the table in the Executive branch, being a member of the

3Executive branch and having a policy-making function within the Executive branch

4than an independent agency.

5MR. SIMMONS: I understand that, but I was just trying to make

6the point and also, of course, the DOJ is not just asking for a seat at the table,

7they're asking for an equal seat at the table for the Assistant Attorney General for


9MR. RILL: I think that's what's contemplated here.

10MR. SIMMONS: My questions are not that I necessarily oppose

11them, oppose the proposal, I just want to make sure I understand it in its full


13MR. THOMAN: It would be useful as we go forward to define

14what parity means. If parity means you're now adding a third party --

15MR. SIMMONS: I'm sorry, I can't hear.

16MR. THOMAN: It may be useful to define what we mean by parity

17as we think about this. If it simply means that everybody -- if we've added a third

18party to what is sometimes not even an easy discussion between two, we may not

19have helped our ability to formulate trade policy, so it may be useful, if we can be

20precise about where the role is greater or lesser, to the degree we can do that.

21MR. RILL: I think there are two facets.

22MR. THOMAN: You have done part of it here.

23MR. RILL: I think what we've done is blended two concepts.


1One, let's take an example where there's a perceived overseas

2restraint in a particular industry. Let's say it's a vertical restraint that appears to be

3historically governmental, emerging possibly into a private restraint, not clear as to

4the legal effect at this point, the government, let's say the President of the United

5States goes over to country X and raises the issue, and then in a matter of a

6meeting of the policy advisors to the President, the Secretary of Commerce or the

7Undersecretary, the Special U.S. Trade Representative or the Deputy Trade

8Representative discuss the issue and decide what the matter of policy is and what

9is the U.S. response to this particular complaint.

10The thought there is that the Department of Justice would have its

11representative, whether the Attorney General who has multiple responsibilities well

12beyond this area, not merely so focused as the Trade Representative or the

13Undersecretary of Commerce, but has responsibilities well beyond that area should

14not be able to have at the table someone comparable to the Assistant Attorney

15General for Antitrust to take part in the give and take deliberation of the

16government's policy on that question.

17MR. THOMAN: That's fair enough.

18MR. RILL: And bring to bear a consumer, if you will, protection

19dimension and taking into account the Foreign Trade Antitrust Improvement Act,

20any export interest of the United States as it applies to competition policy. That's

21one aspect of it.

22The second aspect is then in the enforcement area. If it is

23determined that this is purely a governmental issue, whatever restraint exists, of


1course if no restraint is found then that's the end of it, but if a governmental

2restraint exists, then that presumably would be the province of the trade


4However, if it's a private or hybrid restraint, the suggestion here is

5that the antitrust authority at the Department of Justice would have the principal

6responsibility to seek appropriate relief, enforcement action, either through

7unilateral enforcement activity in an antitrust case or negotiation through positive

8comity or some comparable action to attempt to relieve the harm that may exist.

9Does that, Rick, answer your question?

10MR. THOMAN: It helps. I was worried about a decision process.

11Parity sort of implies everybody agrees.

12MR. RILL: There is only one ultimate decision-maker, and of

13course that's the President.

14MR. THOMAN: Right, right.

15MR. RILL: And it's the question of the seat at the table to have the

16input into the advice to the President.

17MR. GILMARTIN: Is this -- is it fair to say that this concept, this

18approach or this idea comes out of some of the discussions that we've had about

19how trade policy sometimes gets confused with competition policy.

20MR. RILL: I think that's a fair statement.

21MR. GILMARTIN: And trade policy avenues that follow have

22failed, whereas the appropriate venue would have been competition policy, and

23that's some of the experience that we have.


1MR. RILL: Well, it's difficult to get into this kind of discussion

2without dealing with specific cases, which is always risky, and particularly when

3one's been involved in specific cases, it gets even more risky. But I think one

4would have to question whether or not there had been -- whether there could not

5have been a greater competition policy, perhaps even enforcement or positive

6comity input into, say, the auto dispute that was ultimately resolved I think not

7very satisfactorily as a trade measure.

8MS. FOX: I am a little worried about taking the competition

9authorities out of the discussion of state trade restraints.

10MR. RILL: I don't think you take them out of the discussion. I

11think that's -- as I say, there's -- I sound like I'm making a recommendation. This

12is very premature for me to be making recommendations.

13I'm probably trying to explain what consensus, not consensus even,

14but what thought has been put together here, and the notion is that they would not

15be taken out of play in the discussion of possible remedies to a trade restraint.

16The only thought is ultimately if there is a trade issue to be resolved

17in negotiations, that would presumably be the priority responsibility of the trade

18authorities. And they could advise the trade authorities and probably would advise

19the trade authorities as to the consequences of any remedy, which I think has

20happened from time to time with more than a little mixed success over the years.

21I mean, historically the Department of Justice used to come into

22antidumping cases and say these are bad cases. Nobody paid any attention to

23them, and maybe that was the right way to go about it. But certainly they would


1advise on trade remedies. That's at least contemplated I think by this draft outline.

2MR. SIMMONS: It was my clear impression, Jim, that in the early

3session, whether it be the first one or the second one, it was stated explicitly that

4DOJ in creating the Advisory Committee had no interest in involving themselves in

5unfair trade laws and the adjudication of them.

6MR. RILL: The jurisdiction of the Committee does not extend to

7antidumping and countervailing duty issues.

8MR. SIMMONS: That's right. So why would the Committee then

9make or even consider making a recommendation that would give justice and DOJ

10a seat at the table on an antidumping case.

11MR. RILL: I don't think that's contemplated in the recommendation.

12It was contemplated here, for example, really in the context of market access.

13MS. JANOW: Yeah. The use of the term trade remedies was

14speaking to 301, at least with respect to the draft.

15MR. SIMMONS: I could even make an argument about 301 that at

16least on some aspects of 301. I do think it's important, if I can, to reemphasize this

17point, that where the Committee is going to consider recommendations that would

18expand the existing influence and authority of DOJ in trade and competition areas,

19that we work very hard to be as explicit as we can.

20MR. THOMAN: That's sort of what I'm saying.

21MR. SIMMONS: In defining what it is that we're trying to


23MR. RILL: I think that's a good point, and there is a blur here in this


1draft that needs to be corrected.

2MR. SIMMONS: As I say, it could be I just read it the wrong way

3or interpreted it the wrong way.

4MR. RILL: No.

5MR. SIMMONS: But I could read into it a fairly broad expansion of


7MR. RILL: No. It's perhaps a moderate expansion of influence. It's

8not intended to be a broad expansion of power. But your point is quite well taken

9that this could be drafted a lot more explicitly.

10MR. SIMMONS: It seems to me that one of the most important

11parts of the Committee will be the deliberation on the specific recommendations.

12That goes without saying. Notwithstanding all the work that gets you to that point.

13But the people who draft those final recommendations will have tremendous

14influence over the final report.

15MR. RILL: I agree.

16MR. THOMAN: That's exactly my reaction on this I had questions

17about what parity meant and what issues that were. I think you can be clear on

18this. The way you described it I feel comfortable.

19MR. RILL: Okay.

20MR. THOMAN: Can I ask one other thing again. I've been closer

21to certain of these issues with a view lately, and I've been both concerned and

22impressed by how quickly inconsequential disputes can blow up to very large

23policy areas, I'm talking about bananas and hush kits and also how the fact that the


1working relationships that have been built over a decade or longer over time have

2managed to sort of get them down, so if you looked at all of them together, I think

3I once figured out it was half of one percent of our trade are disputes. Is the

4intention here that when DOJ has this exclusive jurisdiction in these private and

5hybrid restraints and immediately starts suing people, have we created again our

6traditional American legalistic response to things without an ability to consult and

7resolve disputes, you see what I'm saying?

8MR. RILL: I see exactly what you're saying.

9MR. THOMAN: Right.

10MR. RILL: I think it's a real issue that is of concern and deserves

11some focus.

12MR. GILMARTIN: Let me argue on the other side of that.

13Actually in the EU it's been quite effective to use the courts to hammer away at

14government restraint by using competition policy principles of the transparency

15directive, and in some encouragement along those lines by the EU in terms of

16saying it's like knocking down the Berlin Wall, in terms of banging away at

17government restraints in a way that increases the competition, so this is where

18competition policy and the role of the Department of Justice can be important. So

19I'm not as concerned as Dick apparently is or you're expressing about the

20expansion of competition policy as a way of generating opportunities for market


22Market access issues for us are competition related, government

23restraint related, not trade related per se. Trade remedies are inadequate, just don't



2MR. RILL: I think that Rick's concern is that possibly the use of the

3U.S. antitrust laws to break open markets could create diplomatic reactions or

4policy reactions that would be very averse, and I think the thought here, and at

5least the U.S. tradition has been to use that actual enforcement tool very sparingly,

6perhaps some would argue too sparingly, but that the principle which was

7expressed in '92 that when that authority would be used to in effect deal with

8restrictions on the U.S. export markets, U.S. export opportunities, it would be

9only used where there is, you go back and see speeches given when this was

10adopted by the then assistant Attorney General, that it would be only used in areas

11where clear violation of U.S. law, of probable violation of foreign law as well and

12where there would be obviously a very substantial effect on U.S. foreign

13commerce. There would be an opportunity, even without an agreement, an

14opportunity given to the local enforcement authority, the national enforcement

15authority where the conduct was occurring to take action should there be legal

16authority to do so and the will to do so illustrated, and that's basically the concept

17of positive comity, as its come to be called, and we're beginning to see some

18success, for example the computer reservation system case being the early test,

19some success with the use of positive comity.

20MR. THOMAN: Again, you've been with this all along. I've just

21been impressed with my last year of the Transatlantic Business Dialogue, how

22much has been accomplished through effective coordination of standards. It's

23really been quite remarkable. But I also saw what happened for a couple month


1period when people got focused on these small disputes, and the atmosphere got

2quite venomous in ways which would probably given the scale of disputes they

3were all out of proportion to what they were.

4MR. GILMARTIN: Yeah, and I guess I've been interpreting the

5work in this area or in this section as really envisioning an approach to arrive at

6agreements on competition policy.

7MR. THOMAN: That's what I'm arguing for. This may be a

8necessary last resort, as it were.

9MR. GILMARTIN: It's really a set of principles that we can agree

10upon on competition policy between the EU and the U.S. on some of these things

11and then using positive -- not necessarily unilateral actions by the U.S. to try to

12break things open.

13MR. THOMAN: That's why I'm concerned of whether this

14recommendation would give rise to that. I don't know that it would, I'm just

15asking the question.

16MR. RILL: No, there is a suggestion here that at least the capacity

17for unilateral action ought to be somewhat strengthened, at least as a last resort,

18but it would be I think fairly clearly a last resort if the agreement breaks down.

19MR. THOMAN: I'm comfortable with that if that is the way it is

20written. It seems to me that the notion of unilateral enforcement is not particularly

21taken seriously abroad at the present time, and that at least there should be some

22thought given in our discussions to whether or not we would want to recommend

23to the Department and the FTC a strengthening of that tool, granted a last resort


1tool, beyond where it sits right now, so that we can have it there in the event that

2the other more accommodating avenues that were closed to us.

3MS. FOX: Ray has suggested that maybe the groundwork be laid by

4agreement that legitimizes such an action, and I would support that, that if there is

5an agreement that legitimizes the action to protect export opportunities, then it of

6course becomes legitimate.

7MR. RILL: Those kinds of agreements are going to be hard to come

8by because I think the U.S. jurisdictional view is somewhat broader than the view

9of foreign jurisdictions.

10MR. GILMARTIN: To the idea of some sort of forum where

11competitive, even the example that was used earlier by Bill, that even just people

12getting together and talking about these things starts to bring convergence of


14MR. RILL: That's what we brought up in the first part of the day,

15the question to our first witness, that we ought to be thinking possibly about a

16world competition forum, not necessarily an organization, not necessarily with

17even negotiating authority, but at least in the first instance a discussion opportunity

18across a broad base of jurisdictions, but that's an overarching end of the day kind

19of possibility.

20Dick, I'm sorry, do you have other points?

21MR. SIMMONS: No, I just wanted to stress the point I had made in

22the broadest context, to urge that we try to be as specific and as detailed as we can

23so at least as we consider the final recommendations, we fully understand the


1import of them.

2MR. RILL: Do you have a better understanding of where this draft

3was attempting to --

4MR. SIMMONS: Yes, I think I do, but I still would like to see it in

5more detail the next time around.

6MR. RILL: Oh, absolutely. Absolutely.

7In the time left I suppose it might be worthwhile at least to highlight

8some of the thoughts that the staff and others have developed as to possible

9decisions or discussion points for this chapter or the section on trade and

10competition, and one of the areas -- first I think we need to look at our own home

11base and decide what recommendations we could make that would be internal to

12the U.S. Government and then turn on where we might advocate joint

13arrangements and then perhaps advocate some foreign policy issues.

14One of the problems we've had is that we've not been able to really

15quantify the extent to which private and hybrid restraints really are a major

16impediment to trade. We have some anecdotes, we have a lot of anecdotes. Many

17of those anecdotes are not substantiated in these cases, and that's just a fact of life.

18They're described by some of our foreign colleagues as the bleating of our industry

19that's suffering because of its own incapacity to export. I don't think we can buy


21MS. JANOW: Burrrr.

22MR. RILL: I heard that at the OECD meetings a week or so ago

23from another government whose name I shall not mention. But the fact of the


1matter is there are anecdotes, there are cases. I think one thing that the draft

2suggests is that there be a concentrated attempt to try and get some -- a

3governmental attempt to get some arms around the extent to which this really is a

4problem -- it may not be just the U.S. Government, it may be a challenge to

5foreign governments to do it.

6MS. FOX: I know there is value in getting more evidence. I frankly

7think, and I think Frederic Jenny expressed this view in Paris, that people have

8collected a lot of evidence, and I know it is not methodical, but one could proceed

9on the basis of the knowledge that with the public barriers receding, private

10barriers are more significant restraints to market access, that where private

11anticompetitive barriers exist there ought to be a methodology to challenge them,

12and I myself am very comfortable with that idea because it seems to me if markets

13are closed by private anticompetitive restraints that this undercuts the spirit of the

14world trading system, and although it may not be prohibited now by the world

15trading system, to make the world trading system more nearly complete, there

16ought to be a methodology consistent with the WTO to attack them.

17MR. RILL: I think you're right. I don't think it's incumbent on this

18Committee to try to do end game work to have a statistically acceptable sample to

19demonstrate the quantity of impact of private restraints on world trade.

20MS. FOX: If there were fruitful bodies of knowledge to tap, I

21would want to go ahead and do it, but I'm not so sure that there are.

22MR. RILL: I don't see it. Not for lack of looking. But maybe the

23governments can continue to pursue some type of analysis. This is also what the


1draft suggests. It is also suggested that there be a strengthening of the U.S.

2capacity for unilateral enforcement in the appropriate circumstances we're talking

3about. We've talked a bit about that in our conversation a few minutes ago without

4getting into excruciating detail, the comments made by our first witness are really

5right on point.

6One is, apart from the political issue of unilateral enforcement, what

7are the discovery impediments and what are the remedial impediments. The

8discovery impediments tend to be technical legal issues that probably ought to be

9looked at by lawyers, and we ought to have some assessment of it, how severe are


11The remedial issues are ones that I think we need to discuss in the

12context of unilateral enforcement. Are there remedies that can be imposed that

13would cure the situation without doing adverse work on U.S. or other consumers

14and without raising undue political difficulty.

15MS. FOX: I am not certain that I support beefing up our own ability

16to enforce the law to protect export opportunities. Incidentally, I think all

17enforcement is unilateral and I don't call it unilateral enforcement, but maybe I'll be

18overruled on that. But I think that we ought to suggest further what is in the

19positive comity agreements on the excluding nations enforcement and go further

20to suggest agreements to having viable procedural mechanisms within the excluding

21nation so that there could be -- so that we could hopefully rely on enforcement by

22foreign nations and persons. And maybe making that unilateral, I mean multilateral

23if we, in the context of a possible world competition forum --


1MR. RILL: Are you suggesting in that context the possibility of

2private rights of action?

3MS. FOX: Yes.

4MR. RILL: That's really what you're talking about?

5MS. FOX: Oh, and government rights of action.

6MR. RILL: Yeah. I can't imagine we would have a bilateral

7agreement unless there was a government right of action at least.

8MS. FOX: Yes, a government right of action. I would prefer

9actually to see it ultimately multilateral in the context of freestanding competition

10for an agreement rather than -- probably rather than -- no, I withdraw that. I'm

11sorry. I wouldn't rather. I withdraw that. I do think that is the one point that

12really ought to be in the WTO.

13MR. RILL: What is that?

14MS. FOX: The market access right, that there is one point at the

15intersection of trade and competition which is the other side of the coin of public

16restraints and that is private restraints, and that really is the point that I think

17probably ought to be negotiated within the WTO.

18MR. RILL: I'm not at all clear though what you mean. What

19specifically should be within the WTO?

20MS. FOX: Oh, that nations should agree to have principles of law

21against unreasonable barriers to access to their market and should agree have

22procedural systems whereby that right can be enforced.

23MR. RILL: I guess the question I have is, all right, suppose there


1was that kind of agreement. Suppose we or someone thinks that that law is either

2inadequate or that the enforcement is inadequate. What then?

3MS. FOX: That's where I think if there is a showing that the nation

4has not done what it has promised to do under this proposed agreement that there

5should be an agreement that the foreign nation should then be able to sue in its

6own courts applying the law of the excluding countries.

7MR. RILL: I don't want to get into a technical discussion on that

8issue but who would resolve whether or not the nation adequately had an antitrust

9law and adhered to that agreement?

10MS. FOX: At some point it could go to a resolution panel. Some

11points would be clear and some points would be gray area.

12MR. RILL: This is similar, isn't it to what Konrad von Finckenstein


14MS. FOX: Apparently, but I didn't read his proposal. But I was told


16MR. RILL: You weren't there?

17MS. FOX: No, but I proposed this a long time ago, a few years ago

18in an article.

19MR. RILL: Okay. Well, that's certainly something that needs to be

20discussed. The problem I would have with it personally as a first impression, or

21second or third impression is that it falls upon a decision making body, an

22international decision making body, a supranational decision making body to make

23a determination whether or not a country has an adequate principal competition


1policy and even more difficult whether or not it has enforced that policy in an

2acceptable manner.

3MS. FOX: There is a way to get around that, but it has its own

4problems, which is to allow a nation that claims that there is not an adequate

5system in the excluding nation to simply make the decision and then sue in Federal

6court, and let the other side challenge -- you know, you could have more self help.

7MS. JANOW: Could I back us away from this particular and sort of

8put it in the context that I think we have been discussing this, which is not that any

9existing remedies would be withdraw -- that is to say, that Jim is making the

10argument that unilateral remedies, we might want to examine if there is room for

11them be strengthened. I mean surely that is a debate that is occurring in public

12policy in a wider community, but in addition to unilateral and bilateral, including

13through positive comity enhancements with more jurisdictions, what role for the

14WTO and what role for other initiatives, so I think with respect to what role for

15the WTO, I think what I'm hearing Eleanor is clarifying a position that you have

16written in numerous essays about an enhanced market access competition policy

17role for the WTO.

18That is going further. It's been in your writings, it's not been in the

19staff-produced proposals or ideas. Ours have seen a much more incremental role

20for the WTO as building up its competition expertise, possibly experimenting in

21sectoral areas that are deregulating, like Telecoms, continuing the activities of the

22Working Group, those kinds of incremental steps have been ones that we've been

23debating, but I think what you're suggesting is that we include an affirmative set of


1obligations with respect to competition and policy matters within the WTO, so I'm

2just putting that in.

3MS. FOX: That's right, I certainly agree with all of those

4incremental recommendations, like certainly the WTO has to gain more expertise

5to answer the questions that will arise in the context of the Telecom agreement,

6and other agreements that mention competition law or abuse of dominance must

7do that. And certainly I think that either the Working Group on Trade and

8Competition must be continued or there must be another forum that's a little more

9freestanding to continue it.

10MR. RILL: The thought may be that whether it's continued or not

11that there will be another forum to pursue the discussions at least of trade and

12competition issues and competition issues generally. Not all competition issues

13are trade issues.

14MS. FOX: That's the really biggest point, the other forum would be

15under the banner of general competition issues. Trade and competition are a small

16part of that that have to be interacted with what is happening at the WTO.

17MR. THOMAN: That's the world competition organization?

18DR. STERN: Forum. Forum.

19MR. RILL: Forum, whatever.

20MR. THOMAN: My question there is who joins, why?

21MS. JANOW: Everybody.

22MR. THOMAN: What we heard was in hindsight, I think I heard

23our witnesses saying in hindsight, if we had to do it all over again, we would have


1one thing doing things rather than two, so I know we have an OECD and we have

2a WTO and we have a new thing. I'm not against it. I just didn't understand what

3it did. The OECD I know is a more technical area. The WTO has a issue, the

4knot there is trade, and so many people that have issues that it's hard to get things

5done, so is this a small select organization?

6MR. RILL: I think quite to the contrary. I think OECD serves the

7small select organization purpose. Personally I would, these thoughts formulate as

8I speak and consider, but I think I favor something of this sort. I think it would be

9open to everybody, and it might well include, tentatively thinking out loud, it might

10well include private as well as governmental representatives in the discussion. In

11fact, I see almost no downside to that.

12MR. THOMAN: It's useful to flesh out what it is and again whether

13cynically people review it as a place for the competition people to go because the

14trade have their WTO. I didn't understand the rationale.

15MR. RILL: The rationale is to develop more consensus on

16competition policy, to develop more transparency on competition policy, to

17develop greater coordination and perhaps more agreements outside the forum,

18perhaps bilateral agreements and multilateral agreements down the road.

19Ultimately looking way down the road, maybe even to develop some kind of

20general statements or maybe specific statements on substantive standards starting

21with the hard core cartel area that we would then recommend.

22MR. THOMAN: I guess I just didn't understand.

23MR. RILL: That's the thought.


1MR. GILMARTIN: That's precisely the point, there is no question

2of competition to work on these things which I think are quite significant.

3MR. THOMAN: That's true.

4MS. JANOW: Sir Leon makes the point there are 80 jurisdictions

5with competition authorities, maybe some 60 with merger control, and there is no

6forum for those folks.

7The trade and comp issues in a narrow band are being discussed in

8the WTO, but they're not talking about how do you create independent agencies,

9or what are the resources you need or how does one do technical assistance or

10what is the evidentiary requirements -- there are so many competition issues that

11have no home for comprehensive representation and discussion, but there are

12analogues, there is an international organization for securities regulators and they

13meet. Obviously there is intellectual property community that meets so

14competition policy doesn't have I think a forum. I don't think the organizational

15feature is as important as the deliberative. Unless there was consensus to create an

16organizational feature in which case maybe some organizational features could be.

17I think we've seen that in the APEC context where a small secretariat collected

18information, organized meetings, et cetera, so that was the concept.

19MR. THOMAN: It's an interesting concept. I'm not being negative.

20I like the idea of the private/public together. I've been again very impressed by the

21Business Dialogue.

22MR. RILL: It partakes of elements of the TABD only in a broader

23geographic scale of OECD on a broader national scale, and perhaps beyond.


1OECD is essentially an intergovernmental organization with very restricted private

2input, and then it takes on the membership perhaps of the WTO only not with the

3sort of trade focus with all of the trade substantive issues that permeate the WTO,

4and that's just the thought that's put on the table for discussion.

5DR. STERN: I would like to favorably react to the paper, the idea

6of the forum. I am not so sure about the private and public participants, and we

7can just think about it.

8I did want to make a comment about another aspect of the trade and

9competition discussion which is the notion of building on the U.S.-EU agreements.

10I didn't see it amplified in the outline, and there is a reference to bilaterals on

11positive comity. The U.S. and the EU have been a model for other countries, the

12lattice effect. I see it addressed. There is a reference to improving bilaterals, and

13of course the U.S.-EU is an existing one so maybe that's where we were talking

14about, that's where it should go. But I just wanted to put a spotlight on the fact

15that we've talked about it in different hearings and meetings.

16Ray mentioned it earlier today, but I didn't see amplification and I

17really had to search for a reference on U.S. international initiatives because there is

18more discussion in the plurilateral and multilateral organization arena, letter C,

19than there is on the amplification on this U.S.-EU model.

20MR. RILL: I think that's a fair plan. Actually we're sort of there

21anyway in the flow of the discussion.

22DR. STERN: Well, good.

23MR. RILL: It will get us there in about three minutes.


1DR. STERN: I knew Rick was going to leave at 4:00.

2MR. RILL: Another thought is the unilateral issues we think --

3maybe we think this is an issue that Eleanor has talked about and also we heard

4about earlier from Bill Kovacic and that is continued U.S. support for emerging

5market economies and developing a competition policy, whether it was through

6AID funding, we heard from the AID representative or otherwise, and I think there

7are other discussions we ought to have, thoughts we ought to have on the table.

8We're obviously going to have not only another subcommittee

9meeting but another full Committee meeting I think on this subject alone so we

10have time to discuss trade and competition which we don't have.

11MS. JANOW: My calendar's available.

12MR. RILL: No, no, but your leadership needs to be there, too.

13MS. FOX: Could I make an overall -- go ahead, I'm sorry.

14MR. RILL: Just to get us to where Paula was. Some thought about

15the repeal of the Webb-Pomerene and Export Trading Act may be appropriate and

16I think we need to deal in the context of trade and competition or more generally

17with the issues of information sharing, which I think for current purposes in the

18time allowed gets us to the bilateral issue that you were talking about, but Eleanor


20MS. FOX: My general comment is Merit had encouraged us at an

21earlier meeting, and David had encouraged us at an earlier meeting, to take the

22kind of broad view of where we should be going in the world in view of

23globalization and internationalization and the place of competition, competition


1laws and disciplines within that broad view, and if one does that I think one looks

2at the world rather than what are the U.S. interests.

3I'm a little concerned about saying let's do this in U.S. interests, let's

4see what the U.S. interests are and let's sell it to the world. I think that we might

5develop a more cosmopolitan tone of the whole enterprise. You know, you open

6up markets, you see where the markets are naturally and you try to develop a

7nonparochial policy that fits the whole market, and this way it's much more --

8It's more cosmopolitan. We also will be and would be adopting a lot

9of ideas that the EU has already put on the table, and we really ought to be giving

10them credit for it and not just assuming we are reinventing the wheel because in

11view of the internal market of Europe, they've done an awful lot of thinking.

12MR. RILL: That's a good drafting point. The structure here was

13designed principally, as far as I can tell, the structure was designed I think logically

14and perhaps not diplomatically to say, okay, here's what the U.S. can do, and then

15here's what the U.S. will want to negotiate with their foreign counterparts, but I

16think your point is well taken.

17MS. FOX: It might be tone over substance, but this approach also

18pulls us out of our three boxes, you know, and we get a general concept, and we

19talk about the range of issues which don't always fall in the three boxes, and we're

20sometimes talking about them under trade and competition, but they're not trade

21issues, and then we lay out the general framework, and we do the work in the

22merger area, and we do the work in the cartel area, and we do work in just general

23competition, like jurisdictional areas, and then we come to the trade issues which


1are a piece of the competition issues, and show the relationship in the direction

2with WTO.

3MR. RILL: I think that's a good point. I want to get, before we run

4totally out of time, I want to get to Paula's point, the lattice notion is a good one.

5We have not gone into general, I think, encouragement of bilaterals because there

6are bilaterals beyond those which involve the U.S., Canadian, European, New

7Zealand, Australia, even more comprehensive.

8I think that you go through this, you'll see that although the space is

9not great, there is -- the issues on bilaterals are touched upon, and I think there is

10now some experience being developed as to the effectiveness of the bilaterals, both

11in the formal exercise of positive comity and conceivably even in the less formal

12exercise of the positive comity but I think there are other issues that can be added

13to the bilaterals along the lines, Eleanor, you're suggesting. I think some input

14there would be very, very helpful.

15The thought is that the first step in attacking private restraints that

16inhibit market access is for the maximum exercise of bilateral relationships, if they

17can be achieved.

18Now that's a question that I think we would want to talk about

19because then we would be recommending to the Department a greater use in

20expansion of bilaterals and I'm not sure where the Department is on that at this

21point. I'm not sure it matters where the Department is at this point.

22MS. FOX: Would you think that's en route to multilateralizing?

23MR. RILL: In time, perhaps.


1DR. STERN: Yes, in time. Because we've anticipated that idea of

2at least the U.S.-EU relationship as a model for others for expanding out. It's a

3stepping stone.

4MR. RILL: Rick, before you go, is there any comment?

5MR. THOMAN: No, I think that's a great suggestion. I think we

6have jumped awfully quickly into the role of Justice. I think it's a good drafting


8MR. RILL: It's certainly not intended to be parochial or jingoistic,

9but I think the point is well taken, it could be read that way. I think the reasoning

10was not to do that, I think the reasoning was to say logically, here's what we can

11do and here's what we have to do together.

12MS. JANOW: Impulse was exactly the opposite, which was not to

13opine to others before we opine to ourselves, but I think that it is instead an

14introductory chapter that talks about competition policy and a global economy and

15its applications be that merger or trade and competition, subsequently.

16MR. THOMAN: I thought it was a good paper. I just didn't quite

17understand some things.

18MR. RILL: And understandably you didn't understand it. When I

19was raising questions, I was having a little trouble trying to forge through it

20myself, and I can say that without criticizing anyone else other than perhaps in part

21myself, but I think we have tried to articulate that a little bit.

22I think that the remainder of the paper deals with the types of

23organizations that might be involved in the trade and competition issue. We've


1talked about that pretty much all day, especially the OECD and the WTO, and now

2we're talking about a world competition forum. That essentially is the framework

3in which the current thinking progresses.

4Now we have had a number of proposals put to us for a more

5aggressive role for the WTO, and perhaps a more aggressive position in the, let's

6call it the market access area, call it what it is, presented to us by some of the

7witnesses that have testified. I think of Thomas Howell, Alan Wolff's colleague,

8and Dick Cunningham, who would have a competition role, for example, the ITC

9which would produce binding conclusions on the antitrust agencies.

10I think Dick Cunningham's view is that there would be some remedy

11for a systematic foreclosure that substantially lessens competition and I'm not sure

12how refined Dick has actually gotten with those proposals, but I think we owe

13consideration to those proposals. Personally I'm very skeptical of them, but that's

14just a personal view. I think we need to talk about those and deal with them as

15part of our deliberations in the Committee. I don't know, Dick Simmons, whether

16you have a view on that?

17MR. SIMMONS: No. I am a natural born skeptic, as you know,

18but I would just like to see them all laid out there.

19MR. RILL: That's what I'm suggesting.

20MR. SIMMONS: No, I would like to see them laid out. It is very

21difficult, you have to understand where I come from. It is very difficult for me to

22look at things totally in the theoretical when it comes to government involvement.

23I almost have to see pragmatic examples of the extreme boundaries


1that we're talking about because that's the very nature of the way the government

2operates. The best example to me is the recent decision by the government in the

3products which my company doesn't make but which we're interested in watching,

4and this is the suspension agreement on the steel just announced yesterday, I guess,

5with Russia when in fact these outrageous duties in the same cases were filed

6against Japan, a suspension agreement was also made with Brazil.

7Now, if I were a Japanese producer, I would try to figure out some

8way of filing a suit against somebody for being discriminated against, even though

9our law, our antidumping laws permit our government to do that.

10Jim, am I making the kind of point that --

11MR. RILL: Well, you're certainly making a point. It's a strong

12policy point, and I think the policy point once again goes back to -- actually, you

13know what it does, Dick, it goes back to this whole overarching issue of


15MR. SIMMONS: Yeah.

16MR. RILL: And why is Peter not treated the same as Paul.

17MR. SIMMONS: Here is a case where I think we're doing

18something that is offensive to one of our major trading partners, in this case Japan.

19MR. RILL: And I think it's not altogether clearly articulated by the

20government as to why these particular distinctions are made, and I think that the

21transparency issue --

22MR. SIMMONS: So that's a little bit why I'm so skeptical. As you

23know, I've been involved in this process for so many years that I always try to


1beware the bearer of gifts, I want to know what's in the box.

2MR. RILL: And that's a fair point.

3MR. SIMMONS: So it seems to me that as we look at all these

4things, we should look at them all, not preclude any.

5MR. RILL: I think some people have given some very serious

6thought to some of the alternative approaches to the market access issue. They've

7taken the time to prepare papers and come before us with proposals and come

8before other bodies such as the U.S. Congress with those proposals.

9MR. SIMMONS: And you did mention the issue of private right of

10action just a moment ago, which is perhaps, you know, Arlen Specter is trying to

11gain some support for it. He won't, but he is going to try again.

12MR. RILL: Well, I actually made an appearance before the OECD

13Competition Law and Policy Committee urging that private action would be

14something that should be encouraged at bilateral discussions as a mechanism for

15further relief, and I think that's another one we would want to lay out and consider.

16MR. GILMARTIN: But I think, I'm speaking very theoretically

17here, but it strikes me that our discussions have been all along the line of not

18having to seek relief by using the government but how to set up a framework that

19fosters competition and is enabling because along the lines of what Dick said, I

20remember Senator Moynihan said at a session I was at 15 years ago, he said be

21careful what you ask the government for because they can do to you in the same or

22great proportion as to what they do for you. So, I mean, when you seek relief

23from them --


1DR. STERN: The curse of the Greek gods.

2MR. GILMARTIN: That's what we're talking about.

3MR. RILL: The other thing we need to focus on more in the trade

4and competition area is the extent to which we would want the Justice Department

5to engage in advocacy involving government restrictions on open competition.

6It's certainly true in the intellectual property area where we do have

7at least a WTO agreement of questionable force, but in the intellectual property

8area, enormous restraints I think that are imposed largely by government, and here

9is an advocacy opportunity for the Department of Justice and a good reason for it

10to have a seat at the table --


12MR. RILL: -- in the trade and competition discussions. There are

13any number of other examples, we had a discussion of industry standards, you will

14recall, by Len Waverman and his colleagues that demonstrated in the cell phone

15area the standard which is to preclude anybody who wasn't an internal market


17Those are areas I think that probably are as or more serious, have as

18much if not more serious impact on open competition as private or hybrid

19restraints. That's something that we would be remiss if we didn't discuss and urge

20the government to focus on.

21Paula, we've been through the outline. It's been very sketchy because

22of the really good discussions we've had before now, but I think what we've done

23is highlight the areas of discussion.


1DR. STERN: Yes.

2MR. RILL: I think we're probably going to need certainly another

3working group meeting and probably -- well, certainly another Committee meeting


5DR. STERN: Yes.

6MR. RILL: -- after that on these subjects.

7DR. STERN: I agree.

8MR. RILL: Dick, we may even do it in Pittsburgh.

9MR. SIMMONS: Thanks.

10MR. RILL: I really would like to sit down with you on this thing. I

11think the working group would, too.

12MR. SIMMONS: I would be glad to host it.

13DR. STERN: Well, thank you.

14MR. RILL: That's really where we are.

15DR. STERN: Okay.

16MR. RILL: We've hit the high points.

17DR. STERN: It's been a wonderful day thanks to everybody's input

18and participation. I think we've been extremely lucky to have had such really good

19discussion leaders, my Co-Chair, Jim Rill, Tom Donilon, Professor Bill Kovacic,

20Rick Thoman and also Dr. Thea Lee, and so unless Merit has some other

21administrative matters to give us, it looks like she's got some papers to give us, I'll

22turn it over to you, Merit.

23MS. JANOW: Okay. We thought you might want to see a few


1things because you have nothing to read. We have gotten a lot of submissions

2from various folks, and so we have given you a list of them. If any of them interest

3you, then just ask us.

4Also, the EU has, the Commission has advanced formally, I guess, its

5proposal on what it wants to do at the WTO.

6MR. RILL: Yes.

7MS. JANOW: And so we have --

8MR. RILL: You're talking about the European Commission, not the

9Federal Trade Commission?

10MS. JANOW: That's correct. The European Commission has

11submitted to the European Council its proposal on competition policy at the

12Millennium Round, so I duplicated a copy of that formal position for your


14Eleanor, your piece in the Journal of International Economic Law is

15an interesting piece. We've made a copy of it.

16DR. STERN: Do we have your copyright permission?

17MS. FOX: Yes.

18MS. JANOW: We did get a submission from Dewey Ballantine that

19I'm bringing to your attention as well as a list, so if you would help yourselves.

20Our next scheduled meeting is October 5th. Obviously that is in the

21distant future, and we will be turning to drafting something. I'm hoping as the next

22approach, we might be having a discussion around a draft as against sort of an

23outline. If you have a different suggestion as to approach, please let me know.


1And thank you very much.

2MR. RILL: Do you think one day's going to be enough for that? Is

3that all we're going to be able to hold people?

4DR. STERN: I think so. I think we should shoot for one day, and

5then see what happens.

6MR. RILL: We've really got a lot to talk about today even without a

7draft in front of us.

8DR. STERN: We certainly should get the draft in advance, and then

9if people would like to mark it up, we might think about shortcuts, sending out the

10draft in advance, having individuals if they wish to mark it up, and fax it back, you

11know, a week's time ahead, have the staff analyze the marginal notes, and put in

12those areas that they've identified where there's disagreement so as to focus our

13discussion. That's just off the top of my head, but you all may have some other

14ideas about how to cut through and get the input and synthesize it so that we're

15just talk about --

16MR. YOFFIE: You might try to make it longer, I might suggest a

17somewhat an longer day. Once you have everybody here, you can keep them here

18for an extra hour or two.

19MS. JANOW: How about two days?

20DR. STERN: Two is not good.

21MR. YOFFIE: If we stay until 6:30, that would be far better than

22trying to do two days.

23MS. JANOW: Or the dinner before and then extending through?



2MR. RILL: I don't think you would get much done at dinners.

3DR. STERN: I agree with you, David. I think we should tell people

4what very clearly when we're going to begin in the morning and say that we're

5going to shoot for a certain closing time, but that we, unlike other meetings, will

6not be as punctual in ending as we have been in the past.

7MR. RILL: I think that's announced in advance, that's fine. If it's

8not announced in advance, we make plans for after the meeting.

9DR. STERN: Precisely.

10MS. FOX: I won't be at the next meeting because I have classes the

11next day, so I'll just give extensive input.

12MR. RILL: I don't know what the budget area situation is, but

13would it be more convenient to have it in New York rather than here?

14MS. FOX: I could call in for part of it.

15DR. STERN: I'm sure the staff will be reconfirming dates and times,

16and you'll be getting venues and you'll be getting further --

17MR. DUNLOP: The only comment I would say out of experience is

18if we could have a draft a week ahead of time.

19MR. RILL: That would be no problem.

20MR. DUNLOP: And could we expect for those who volunteer to

21write you to tell comments on that, and then try to focus the discussion on issues

22that -- you're dealing with a big document.

23DR. STERN: Absolutely.


1MR. DUNLOP: There are a lot of issues of language and so on.

2Anyway, I would be speaking only for myself. If you get us something ahead, I

3could bring it to the meeting a memo which says what my comments on your draft.

4DR. STERN: That would be wonderful. In fact, we might even ask

5you to send the memo in advance so that --

6MR. DUNLOP: I don't know about that.

7DR. STERN: Well, we'll send it to you two weeks ahead of time so

8that the staff will be able to synthesize --

9MR. DUNLOP: Now you're negotiating.

10DR. STERN: No, I'm not. My suggestion is so that your

11comments, along with Eleanor's and everybody else's will be synthesized by the

12staff, and they'll be able to see where there are differences.

13MR. DUNLOP: My whole idea is that since in the end if you're

14down to the drafting stage, then words make a difference.

15MR. RILL: Oh, yes.

16DR. STERN: Good.

17MR. RILL: Thanks, everybody, for coming.

18DR. STERN: Yeah, thank you all. Thanks again to the staff. Nice


20MR. SIMMONS: Thanks for letting me participate.

21DR. STERN: Thanks for your time, Dick. Bye.

22(Whereupon, at 4:30 p.m., the taking of the instant hearing ceased.)



Updated June 25, 2015