ICPAC Hearing Minutes From May 17, 1999

This document is available in two formats: this web page (for browsing content) and PDF (comparable to original document formatting). To view the PDF you will need Acrobat Reader, which may be downloaded from the Adobe site. For an official signed copy, please contact the Antitrust Documents Group.

1

1INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE

2HEARINGS

3

4

5

6Washington, D.C.

7April 22, 1999

8

9

10

11

12

13This document constitutes accurate minutes of the

14meeting held April 22, 1999 by the International

15Competition Policy Advisory Committee. It has been

16edited for transcription errors.

17

18




19
James F. RillPaula Stern


20
Co-ChairCo-Chair


21

22

23

2

1INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE

2HEARINGS

3

4

5

6Washington, D.C.

7April 22, 1999

8

9

10

11

12

13

14Taken at the Center for Strategic and International Studies, 1800 K

15Street, N.W., B-1 Conference Center, Washington, D.C., beginning at 9:00

16A.M., before Ann Marie Federico, a court reporter and notary public in and for

17the District of Columbia.

18

19

20

21

22

23

3

1APPEARANCES

2Advisory Committee Members:

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

4PLLC

5Paula Stern,  Co-Chair and President, The Stern Group, Inc.

6Merit E. Janow,  Executive Director and Professor in the Practice of

7International Trade, School of International and Public Affairs,

8Columbia University

9Thomas E. Donilon, Partner, O'Melveny & Myers

10John T. Dunlop, Lamont University Professor, Emeritus, Harvard

11University

12Eleanor M. Fox,Walter Derenberg Professor of Trade Regulation,

13New York University School of Law

14Department of Justice Employees:

15Joel I. Klein,  Assistant Attorney General, Antitrust Division

16Other:

17Debra Valentine, General Counsel, Federal Trade Commission

18Members of the Public Appearing before the Advisory Committee and Presenting Written or

19 Oral Statements:

20 Panelists: Confidential Information Sharing:

21Klaus F. Becher, Associate General Counsel, DaimlerChrysler AG

22A. Neil Campbell, McMillan Binch

23Janet L. McDavid, Hogan & Hartson LLP

4

1Panelists: Confidential Information Sharing (cont'd.)

2Phillip A. Proger, Jones, Day, Reavis & Pogue

3Panelists: Representatives of Trade Associations:

4American Forest & Paper Association - Maureen R. Smith, Vice President,

5International

6The Business Roundtable - Robert C. Weinbaum, Assistant General Counsel,

7General Motors Corporation ; Thomas B. Leary, Hogan & Hartson, LLP

8National Association of Manufacturers - Stephen Bolerjack, Counsel,

9Antitrust and Trade Regulation, Ford Motor Company

10U.S. Chamber of Commerce - William Blumenthal, King & Spalding

11U.S. Council for International Business - Thomas M. T. Niles, President

12Panelists: The Role of International Institutions in Competition Policy:

13Joe Phillips, Organization for Economic Cooperation and Development

14Mark A. A. Warner, Organization for Economic Cooperation and

15Development

16Panelists: The International Antitrust Law Committee of the ABA Section of

17International Law and Practice:

18Donald I. Baker, Baker & Miller PLLC

19Michael H. Byowitz, Wachtell, Lipton, Rosen & Katz

20Paul S. Crampton, Davies, Ward & Beck

21Daryl A. Libow, Sullivan & Cromwell

22

23

5

1IN ATTENDANCE:

2Advisory Committee Staff:

3Cynthia R. Lewis, Counsel

4 Andrew J. Shapiro, Counsel

5 Stephanie G. Victor, Counsel

6 Eric J. Weiner, Paralegal

7Estimated number of members of the public in attendance: 30

8Reports or Other Documents Received, Issued, or Approved by the Advisory

9Committee:

10International Bar Association Exchanges of Confidential Information

11 Between Antitrust Enforcement Agencies, Preliminary Observations

12Prepared by a Working Group of the Antitrust and Trade Committee

13of the International Bar Association

14International Chamber of Commerce ICC recommendations to the

15International Competition Policy Advisory Committee (ICPAC) on

16exchange of confidential information between competition authorities in

17the merger context, prepared by the Commission on Law and Practices

18Relating to Competition

19American Forest & Paper Association Presentation by Maureen R. Smith,

20Vice President, International, American Forest & Paper Association

21The Business Roundtable Statement of Robert C. Weinbaum, Office of

22General Counsel, General Motors Corporation, on behalf of The

23Business Roundtable Task Forces on International Trade and Investment

6

1and on Government Regulation

2National Association of Manufacturers Testimony of Stephen D. Bolerjack,

3Counsel, Antitrust and Trade Regulation, Ford Motor Company, on

4behalf of the National Association of Manufacturers

5U.S. Chamber of Commerce Comments of the U.S. Chamber of Commerce

6United States Council for International Business Comments of the United

7States Council for International Business (USCIB) on International

8Competition Issues to the International Competition Policy Advisory

9Committee, May 27, 1999; Preliminary Comments (Oral Statement) of

10Ambassador Thomas M. T. Niles, President, USCIB

11OECD Speech by Joanna R. Shelton, Deputy Secretary-General, OECD,

12"Competition Policy: What Chance for International Rules?" (Nov. 25,

131998), submitted by Bernard Phillips

14ABA Section of International Law and Practice presentation by Members of

15the International Antitrust Law Committee (Don Baker, Mike Byowitz,

16Paul Crampton and Daryl Libow)

17

18

19

20

21

22

23

7

1PROCEEDINGS

2MR. RILL: Let me welcome everyone to the April 22 hearings

3of the International Competition Policy Advisory Committee and express my

4thanks to those of you who will be appearing today, and to the press and others

5in the audience. This is actually the second wave of hearings. We also had a

6hearing scheduled for tomorrow but were ousted by the crowds of the 50th

7anniversary of the North Atlantic Treaty Organization. A few of us in the

8room remember when that was signed.

9The Committee's hearings today were really prompted by a

10number of very thoughtful papers and views that have been presented to us.

11Also, they have been prompted by exchanges at the last hearings -- those

12hearings took place in November and focused on a variety of issues that are

13going to be discussed and illuminated today.

14 Today's hearings will progress with four separate sessions.

15Session 1 on confidential information sharing; Session 2 on presentations by

16various representatives of trade associations which have been particularly

17knowledgeable and interested in the work of the Advisory Committee; Session

183, which now has become basically an OECD session -- we at our November

19hearings had participation by a number of governments interested in the

20merger, trade and competition and enforcement cooperation areas. Today we

21will hear from two representatives of OECD -- representing 29 governments --

22and finally Session 4, a presentation by the representatives of the International

23Law and Practice Committee of the American Bar Association, which has met

8

1with us on a couple of occasions and done a great deal of work in this area.

2Before recognizing the first panel, I would like to acknowledge

3the Committee members who are present: John Dunlop, Eleanor Fox, and my

4Co-Chair, Paula Stern, and our erudite and extraordinarily competent leader,

5Executive Director Merit Janow.

6Again, before recognizing the first panel, I would like to call on

7Paula for any introductory comments she may have and then turn it over to

8Assistant Attorney General Klein, who is the father of this effort.

9DR. STERN: I would like to just second the welcome to

10everybody, particularly those who have come from so very far, and say that we

11are closing in on a number of the issues. We feel we have made an enormous

12amount of progress thanks to the input of individuals like yourselves. Your

13individual input has been extremely valuable and I am looking forward to a

14very fruitful day, and of course on May 17th we will resume the hearings that

15we have postponed that had been scheduled for tomorrow. And I am now

16looking forward to hearing from the father of the Committee, Joel Klein.

17MR. KLEIN: Thank you. It's often been said that victory has

18many parents and defeat is an orphan. I am happy to have sired this enterprise.

19I hope I feel that way on the day the final report comes out. For the time

20being, actually this really was the Attorney General's ultimate decision and she

21deserves a great deal of credit, because I am sure there were a number of

22people out there who said to her as they said to me: Well, why would you

23unleash at least a dozen people who are not in your employ, and who are

9

1independent and tough-minded people with a lot of knowledge and background

2in this area to go out and make a report that will tell the Department all sorts

3of things that it ought to be doing with respect to international antitrust

4enforcement?

5I think it reflects, truly, her sense of security and her willingness

6to reach out to some of the finest, most talented people in the field to bring in

7recommendations in an area in which, frankly, there are not easy and obvious

8answers. And I think it's not typical in government to go out and put this much

9responsibility and this much power, frankly, in the hands of an advisory

10committee.

11 Everything I have seen about the process confirms to me that the

12judgment that the Attorney General made was right. The hearings that were

13held last fall, I think, were really landmark hearings. The bound transcript

14that's come out of that is a document in and of itself worthy of careful

15attention and study. And I anticipate the report we're going to get later this

16year from this Committee is going to be really a true landmark report in the

17issues of globalization of antitrust enforcement, and the intersection of trade

18and competition policy.

19Let me tell you, it could not come at a more timely point in our

20history. Even as the Committee does its work, this area keeps growing and

21exploding. You wake up this morning and you see the proposed merger

22between Deutsche Telekom and Telecom Italia. And that is simply a harbinger

23of what we are going to see in the next five to ten years. People who do not

10

1think we are going to see a spectacular increase in global mergers along the

2lines of these $50-$100 billion-plus deals in the next four to five years should

3not be allowed to go online by themselves during day trading.

4 (Laughter)

5This is as obvious as it is compelling. It's going to raise some

6very, very complicated issues. I am sure, as we sit here now, people

7throughout the world are thinking about the implications of this particular

8merger and, indeed, what it does to the ongoing relationships between Sprint

9and Deutsche Telekom, and France Telecom, a transaction that the Division

10actually reviewed and conditioned when it originally took place.

11Beyond this merger boom that we currently see and will continue

12to see, I cannot tell you because it's confidential, but I can indicate something

13about the nature of the Division's work in cartel enforcement, international

14cartel enforcement. Again, this reflects truly a sea change in antitrust

15enforcement. The nations of the world have come several standard deviations

16in terms of their levels of cooperation between what we saw in 1993 and '94,

17when we did the DeBeers/GE cartel case, to what we're seeing now. And it's

18frequently been reported that we have somewhere around 30 active grand juries

19looking into international cartels. What's not as well known is the magnitude

20of the volumes of commerce that are affected by these price-fixed industries.

21 And for those of you who often hear in academic debates

22questions about whether there is a need or not a need for antitrust enforcement,

23the fact that this could be debated anywhere proves to me that there is not

11

1enough reports going on in the academies. But when you think about this and

2look at the fact that, with effective global worldwide antitrust enforcement,

3there are at a minimum, I believe, 20 or 30 huge ongoing international cartel

4conspiracies that are taking, I believe, billions of dollars annually out of the

5U.S. economy, the need to be as effective in the international setting as we are

6in the domestic setting is absolutely critical. And the work of this Committee

7will obviously have an impact on that as well.

8And finally, it could hardly be more timely in terms of the issues

9at the intersection of trade and competition policy -- which I will tell you are

10some of the most difficult and sensitive issues both in terms of thinking

11through the policy and, indeed, of thinking through the politics. And I will

12look forward to the report of the Committee in that respect.

13 In the meantime, we have now got actually our first at least

14partial result of our first positive comity referral on the computer reservation

15system that we referred to Europe -- to DG-IV -- with respect to Sabre's

16concerns about market access in Europe. At this point, DG-IV has issued a

17statement of objections that is a kind of Notice of Proposed Finding of

18Violation to Air France. In the meantime, Sabre has resolved its disputes in

19terms of the private negotiations with respect to Lufthansa and SAS, all of

20which suggest that positive comity can be and will be a modest but important

21player in the issues at the intersection of trade and competition policy.

22At the same time it's obviously essential, from our point of view,

23that competition policy remain soundly based in key antitrust economic

12

1principles and that the issues at the border of trade and competition policy not

2be clouded in any way that undermines or erodes effective antitrust

3enforcement. In that regard, we're looking toward the end of this year to

4another round at the World Trade Organization. And while there will be a

5wide variety, I'm sure, of different views, for the United States I think this is

6really one time where the Goldilocks policy -- which is we don't want it to be

7too cold or too hot -- is going to be a critical balance.

8 And what I mean by that is, I think it is very important that the

9WTO keep a key oar as probably, in many respects, the most inclusive global

10organization that will be looking at the range of issues at the intersection of

11trade and competition. I think they have got to remain a key player in this

12evolving process which I think we have to take a long-term view about. And at

13the same time I don't think they are ready for dispute resolution. And so, what

14I want to make sure is that we both continue to empower the WTO efforts in

15this area while at the same time we don't prematurely reach some model of

16dispute resolution or hard negotiations which could in the end do more harm

17than good. So that will be a role that we will play, I believe, aggressively. Of

18course, we will await the recommendations of this Advisory Committee as we

19continue to refine our thinking in detail in all of these areas.

20I just want to leave -- this is actually a little longer than I

21typically do this, because last week I had to sit and listen while all these people

22associated with the American Bar Association spoke at their annual Spring

23meeting, so I figured this is my shot to make them sit and listen while I speak.

13

1But none was more eloquent than Phil, who had to try to manage 2,000 people

2who had, it seemed to me, each gone to about 2,000 cocktail parties before they

3showed up. He handled it. He said, in one of the lines that will sort of live

4forever, he said, "We're going to introduce the front table, and I would ask

5only one thing, that you hold your applause until the end." And what

6everybody on the front table said is, you should ask only one thing, "Would

7you be kind enough at least to applaud?" I think you managed some success in

8that.

9But I close by telling you that, actually, I think as we move

10forward, the need for the work of this Committee, the thoughtful engagement

11that is likely to grow out of the enormously fine work that has occurred, is so

12critical now that, whatever else, I will credit the Attorney General not just for

13her foresight but for her brilliance in timing. Because this is the right time for

14this report. Let me again thank you Jim, Paula, the members of the Committee,

15and also Merit and the members of her staff, who have just done a terrific

16amount of very, very good work. I am personally much in your debt and I'm

17sure the Attorney General shares that as well. Thank you.

18MR. RILL: Joel, thanks very much. We are personally very

19much in your debt for the support and leadership you have given us, as well as

20the resources that we have available to us, a truly superb staff. Cynthia

21Lewis, Andrew Shapiro, and Stephanie Victor, who work tirelessly to develop

22papers and think-pieces for our input. And also as a matter of my own

23observation privilege, Sarah Bauers of our firm, who also has contributed an

14

1enormous amount of time and insight into this project.

2With that, we'll just turn to the first panel. At our last hearings

3there was a great deal of discussion on the issues related to the sharing of

4confidential information which is necessarily implicated in all of the subjects

5that we're dealing with: mergers, trade and competition, and cartel enforcement

6cooperation. And interest was expressed by the Committee members and by

7the panelists in having a more detailed exploration of those issues. So today

8we have representatives of three organizations that volunteered, I will use that

9term advisedly, to present papers and views on the issue of confidential

10information.

11The IBA group is represented by Neil Campbell, of McMillan

12Binch in Toronto, an award-winning student, an award-winning professor, the

13Rapporteur of the Global Forum, and if you don't know what that is, you need

14to read some of his papers, which are truly excellent. Let me commend a

15recent paper that was put out on international merger control, the recent book

16that was put out on international merger control by the Global Forum.

17The ICC, International Chamber of Commerce, will be

18represented by Klaus Becher, who is associate general counsel for

19DaimlerChrysler. Klaus has been in the antitrust world for 15 years, is a

20member of the ICC's Commission on Competition, and is head of a task force

21of the International Chamber of Commerce that was put together to present

22views to us on this subject.

23The third presentation is a panel of the leadership of the

15

1Antitrust Section of the American Bar Association. Let me emphasize that

2today they're speaking for themselves based on their enormous expertise and

3not expressing the view of the American Bar Association, the Antitrust

4Section, and possibly their partners. But I can only say that having been

5through the bureaucracy of the American Bar Association, we understand that

6position fully and are delighted to have the views of such expert panelists.

7Phil Proger, of Jones Day Reavis & Pogue, the current chair of

8the Antitrust Section, and a longtime practitioner in antitrust, is one of our

9panelists of ABA Antitrust Section leaders. And the other is Jan McDavid, of

10Hogan & Hartson, who is the incoming chair of the ABA Section of Antitrust

11Law. I'm privileged to have worked and known both of them as friends and

12respected colleagues for more years than probably any of the three of us care

13to think. But they bring to this panel a unique expertise in international

14mergers, trade and competition, and enforcement issues.

15So without introducing each, take the time you need to give us

16your views and if it's agreeable we'll save the questions until all the panelists

17are through. So, Neil, if we may start with you. Actually, Neil, I'll reverse

18that for a minute because I understand Jan has to leave. You don't? Okay.

19Then we'll save the questions to the end. And Neil, if we could have your

20views, then go to Klaus and Phil and Jan.

21MR. CAMPBELL: Jim, thank you very much for the kind

22introduction. And good morning to you, and all the Committee members and

23guests. It's a great honor and privilege to come and speak to this group,

16

1particularly when we hear the Assistant Attorney General explaining what he

2thinks the significance of the work of this Committee is.

3And, Jim, as you have said, the history leading to us being here

4this morning is some discussion about information-sharing issues at the

5November Advisory Committee hearings. And I can say on behalf of the

6International Bar Association, the IBA, that they very much appreciated the

7invitation to provide input into that process. And what the IBA has done

8through its Antitrust and Trade Committee is strike a small working group. I

9think I have to make the same caveat that you made for others, and that is that

10what you will hear this morning are the views of the working group of three,

11which have not gone through the protocols of an IBA formal policy statement

12approval.

13My colleagues in the working group are Terry Calvani, of the

14Pillsbury, Madison firm, who I think is well known to many people here, and

15had hoped to be with us this morning but has been called away and asked me to

16give his regrets. And John Davies, from the Freshfields firm in Brussels, who

17was not able to come this morning also asked me to give his regrets. They have

18both given me carte blanche to go ahead and speak to the written material

19which we have made available to the Committee last week. What I propose,

20therefore, to do is to simply touch on some of the highlights in that material

21without speaking to all of it in detail. But I will be happy to take questions on

22any of the more detailed points.

23What I would like to do is to highlight five areas. First what we

17

1think are the four key points that we would want people to think about in broad

2brush in this area: to spend a little bit of time on what we see as the

3stakeholder incentives in this particular area; to discuss some things that we

4feel are sensible and appropriate general principles: to spend a moment on

5what we think is the most difficult issue, which is the question of notification

6and prior authorization before confidential information is shared; and finally,

7to speak briefly about waivers of confidentiality, which is the area that we feel

8is most promising for very significant progress in the short term.

9 We have made an assumption not stated in our written material

10that the protection of confidential information of companies is an important

11thing. The assumption here is that there are not only compelling private

12interests that make this important but that there is a compelling public interest

13in protecting that confidentiality. I won't say a lot about that fact. On

14occasion I have encountered people who may express some doubt about that.

15If that assumption is one that the Committee does not share, I would be happy

16to speak to it in more detail. But we took that as our point of departure.

17From that we began to think about where we are currently, in

18terms of the practice in the sharing of confidential information as the three of

19us have seen it and experienced it. That experience is based in all of our cases

20as being lawyers in private practice who advise companies in merger and

21criminal and other cases which, as was said in the introduction, are clearly

22becoming increasingly international.

23The first point that I would like to emphasize is a relatively

18

1unhopeful one, and that is that we do not think that there is going to be rapid

2progress on non-voluntary exchanges of confidential information unless

3agencies and their governments are prepared to introduce legal frameworks

4with relatively stringent and serious safeguards for the protection of that

5information. The basic reason for that conclusion is that private parties in the

6business community in most countries are going to be unlikely to perceive

7significant benefits in the non-voluntary settings and will have very significant

8concerns about the protection of privacy and fairness.

9 Our second conclusion is much more optimistic, and that is that

10we believe that there is great scope for continued expansion of the use of

11voluntary waivers in merger cases and in some non-merger cases, particularly

12in the process of parallel settlement negotiations with multiple agencies. We

13are hopeful here because in those particular situations we see potential for

14significant benefits to both the enforcement agencies and to the private parties

15who are involved in the process.

16Our third conclusion, or perhaps recommendation would be a

17better characterization, is that in trying to make waivers more useful and

18acceptable, we think it is particularly important that waivers be truly voluntary

19and that they do not become an automatic activity. The issue around

20voluntariness is that, in the context of a merger and many other situations, the

21enforcement agencies have very significant practical leverage which results

22from the discretion that individual officials have in the activities that they

23undertake on a day-to-day basis in the investigation. We think that this is a

19

1subject not much talked about that deserves some serious attention if we are to

2recommend a real enhancement in the use of voluntary waivers. With respect

3to waivers not becoming automatic, the concern is that waivers actually be

4requested and used in situations where there is, in fact, some real benefit to

5agencies and to the parties giving the waivers. There is a risk that, if waivers

6become habitual, they may be used in situations where they, in fact, expand the

7time and cost of an investigation process rather than reduce it.

8Finally, we note that there is very substantial variability right

9now in the legal and in the practical levels of confidentiality protection in

10jurisdictions around the world. Without naming names, we would have very

11serious concerns about exchanges of confidential information going into

12certain jurisdictions. There are other jurisdictions where the legal and

13practical degree of protection would be much higher and the level of trust and

14confidence would accordingly be much higher.

15 And so what we would suggest for the United States as it thinks

16about going forward in this area would be to look ideally at a system that will

17be multilateral rather than a series of checkerboard bilaterals, but that would

18begin with jurisdictions in which there is a long history of cooperation to work

19from, where there is a high volume of cases to make the effort worthwhile, and

20where the other country and agency has a clear and well-established domestic

21track record on confidentiality. Over time, we would expect that more and

22more of the jurisdictions would come into a position of meeting those kind of

23criteria and could be added.

20

1Let me now turn for a moment to the stakeholder incentives. It

2was our analysis of the two primary stakeholders which has led to a number of

3the conclusions that I have spoken about. From the perspective of enforcement

4agencies, we see significant benefits and no particular downsides to very broad

5scope for sharing of confidential information to facilitate enforcement in all

6cases -- merger cases as well as non-merger cases.

7From the perspective of private parties, the position is quite

8different. There are cases, particularly mergers, where possible time and cost

9savings can be very, very significant. And this ties into broader issues that the

10Committee is looking at about how to make cross-border merger review more

11efficient.

12I should actually digress to make a side comment that I meant to

13make in the introduction: we have had the benefit of reading a number of staff

14papers on a number of subjects, and while we were not speaking to those in

15detail, the three of us did want to say how much we were impressed by the

16scope and quality of analytical work that the Committee staff have been

17undertaking. There do seem to be some very, very useful and promising ideas

18being considered.

19 Coming back to the comment on private parties, there is scope

20for advantages, particularly in merger cases, and in other settlement

21negotiations. But there are also, as you will have heard and will hear from the

22ICC, a number of very significant -- at least perceived and sometimes real --

23concerns, and a number of those are listed in our written material. I will just

21

1touch on a couple of them here.

2One is simply the risk that increases every time you have

3information in multiple locations. It's the commercial business risk of

4disclosure of highly confidential information, and it is a particular feature of

5antitrust that you are working with marketing and strategic planning

6documents of the highest business sensitivity to organizations in many, many

7of the investigations.

8The second area is the incremental legal risk that companies face

9when confidential information which is potential evidence is disclosed to other

10jurisdictions. This is particularly significant where there are substantial

11differences between the legal systems in question. There are many similarities

12currently but also many significant substantive differences, as we all know,

13between the European and the American system or the Canadian and the

14American system, and even more when you consider some other jurisdictions.

15 I think the Committee should consider that, to people outside the

16United States, the United States system is seen as a system that carries

17enormous legal risk in terms of the potential penalties, including criminal

18penalties, as well as the potential for private actions and treble damages and

19simply the time and cost of legal proceedings. That will be a factor as people

20outside the United States think about confidential information flowing into the

21United States.

22So we would say that private parties are seldom going to be

23motivated to expedite or enhance sharing information in what might be called

22

1"violation" cases -- be they criminal conspiracy cases or other non-merger

2cases -- unless they are working towards a parallel settlement negotiation.

3Thus, we conclude that in non-merger cases, legislation and international

4agreements that have really substantial safeguards that will give private parties

5a comfort level about the protection of confidential information would be

6needed to facilitate information sharing. If the agencies and governments are

7not prepared to address those issues, we think there will be significant

8resistance to making progress on non-voluntary exchanges. On the other hand,

9we conclude that the use of waivers in merger cases is one where there is very

10significant scope to make progress in the short term. Indeed there is a lot

11already happening there.

12I would like to turn briefly to some of the general principles that

13we felt should be considered in this area. They are set out in some detail in the

14written material, so I'm just going to touch on them. One is with respect to the

15use of the confidential information and the basic ideas that it is used only for

16the designated purpose of advancing a particular investigation.

17We also make a number of more detailed suggestions that were

18actually inspired from commercial confidentiality agreements, which are very

19commonplace in all sorts of transaction settings. We think they have some

20useful concepts in terms of the disclosing party having discretion but not

21obligation to disclose information, requirements to return information, and the

22idea that there need to be remedies or sanctions if the agencies do not, in fact,

23adhere to the legal requirements that surround the protection of confidential

23

1information. I think this is something that was touched on in what I regard as

2the seminal discussion of this whole area, which is the 1991 report of the

3ABA's International Antitrust Committee. We also comment briefly on how

4information should be treated. I'll touch only on one point there, which is the

5concept of national treatment -- that foreigners should not be discriminated

6against relative to domestic companies.

7The third principle is no downstream disclosure, and in our view

8this is the most fundamental item. It is again not one we thought of originally

9but one that was identified by the ABA's 1991 report. At a minimum it means

10a track record of no leaks and no free flow to other federal or to subfederal

11government agencies. But it also, to get a complete closed loop in the

12downstream, means closing off the ability of third parties to drag information

13out of the receiving agency using access to information laws or using discovery

14rules. We're not persuaded that there is any system in the world currently that

15has a complete closed loop with no downstream disclosure. Any shortfall from

16that raises an issue that is of concern to private parties in a particular case,

17whether it is a voluntary or non-voluntary exchange.

18The fourth point is the preservation of legal privileges. This is a

19detailed and difficult area. The basic points we would like people to think

20about here are that there may be privileges that belong to the agencies but also

21privileges that belong to the private parties involved in having provided

22information. We think that what makes sense is a "highest common

23denominator," where the privilege can be claimed at the highest level available

24

1in either the receiving or the disclosing jurisdiction.

2The fifth point is that the receiving agency should be under an

3obligation to assert whatever confidentiality and privilege claims can be made.

4We think at that stage there is also a need, when the third party is seeking

5information by discovery or access to information laws, to have a notification

6mechanism so that the private parties affected also have the opportunity to use

7their best efforts to protect their information, which may include disclosure

8subject to an appropriate protective order.

9Finally, we strongly encourage the use of policy statements in all

10of the jurisdictions that would be involved in this type of process. They would

11play an important role in fostering the overall transparency of activity of

12agencies in this area. Such statements could usefully set out in plain language

13what the confidentiality laws and policies are in a short and clear way, as well

14as the treatment of privilege and other issues of discretion that an agency may

15have in dealing with exchanged information.

16I would like to comment briefly on notification and prior

17authorization, which we expect will be the most controversial and critical issue

18in any attempt to introduce non-voluntary legislated information exchanges. In

19light of the time, I won't speak to this in a lot of detail. But in the questions I

20can elaborate with some examples, in particular from Canada. I think

21basically the agency concern here is that notification and/or prior

22authorization, whether by a judge or some other official, before an exchange of

23confidential information occurs will either be burdensome to the conduct of

25

1investigations or there will be the loss of the surprise element, which may be

2important for the effectiveness of the investigation.

3We have not heard either of those arguments really articulated in

4a way that is terribly persuasive -- or any other terribly persuasive arguments

5about why there can never be notification or prior authorization. There is a

6delicate balancing issue in cases where there is a real threat of destruction of

7evidence or some other prejudice to investigations, but those, I think, are

8relatively rare cases objectively considered.

9I would like to end, then, with our thoughts on the area where we

10would hope to see short-term progress. That is in the use of voluntary waivers

11of confidentiality which, as the Committee knows, are now a significant feature

12of modern merger practice and have been used in a few non-merger cases that

13are well known.

14As I said at the outset, the question of what is voluntary is, in

15our view, a very critical issue. What we would like to see is that when

16agencies are requesting waivers, they identify potential benefits, such as

17opportunities to save time and cost in an investigation. It would be

18constructive to identify the areas where parties under investigation or parties

19to a merger may find it in everyone's interest to have a waiver. The waiver

20may relate to documents or discussions and it may be a blanket waiver or a

21restricted limited waiver.

22What we are concerned about is that agencies not use pressure or

23threats or implied threats of, for example, slowing down the review of a

26

1merger, broadening the scope of an investigation, or other things that can be

2done and are difficult to control at the practical day-to-day level. We don't

3have full answer to this area of unease, although we do think that one helpful

4step would be in the policy statements that we referred to earlier: for an agency

5to say as a matter of policy that it will not use threats of prejudice in the law

6enforcement investigation by delay or whatever would be helpful as a matter of

7policy.

8 In terms of more concrete ways to move forward I think what we

9see right now in waivers is relatively simplistic and somewhat lacking in

10standardization, and that there would be room to develop model waivers that

11are perhaps more balanced than the current waiver -- which basically tends to

12say "we waive all our rights" -- not particularly balanced from the perspective

13of the private party. In light of some of the things we have touched on earlier

14about the way in which confidential information may be used and treated, the

15treatment of privilege, and the assertion of confidentiality and privilege claims,

16if agencies were prepared to look at a model waiver in which there were some

17commitments from the agencies with respect to the way in which they would

18use and treat the information and approach the protection of it, that that would

19very significantly enhance the attractiveness of waivers to private parties who

20are asked to think about giving them.

21That I think is where I should stop in terms of the summary of

22the views we have come to. I would be happy to take any questions. Thank

23you.

27

1MR. RILL: Neil, thanks very much. I'm sure that all of us have

2a number of questions which we'll defer until all the panelists have an

3opportunity to speak. Next, Klaus Becher.

4MR. BECHER: First I would like to thank the Committee for

5inviting the International Chamber of Commerce to present its views in this

6hearing. ICC has formed a working group which I have the honor to chair. We

7have been operating in a very tight time frame and we had the first meeting in

8the beginning of March. So I have to add a caveat which Neil also has added

9with his remarks. We have not a formally-adopted ICC position, but at least

10we have been able to come up with a draft paper which will be distributed

11afterwards.

12I'm working for DaimlerChrysler and I can state actually, from

13my own experience, that the increasingly international nature of business

14transactions has not only resulted in a growing number of mergers and

15cooperation projects but also in a growing number of jurisdictions you have to

16deal with when you want to get such a merger or another transaction approved.

17In response to this, it's understandable that competition

18authorities are examining means of cooperation to facilitate and coordinate

19their respective review and their investigation and decision-making processes.

20The business community certainly recognizes the potential

21benefits of such cooperation, but the business community has also been greatly

22concerned by one of its main elements, which is the exchange of confidential

23corporate information.

28

1Confidential information supplied by companies to competition

2authorities in the context of merger reviews or antitrust investigations often

3includes extremely sensitive information relating to the strategy of the

4company, its investment plans, and its marketing roles and methods. To give

5you an example, in the merger proceedings relating to the merger between

6DaimlerChrysler, we had to provide our marketing plan for the next five years

7relating to passenger cars both to the authority in Brussels and to the Federal

8Trade Commission in Washington. And the parties are certainly highly

9interested that these marketing plans not become known to their competitors.

10Indeed, if such information falls into the hands of competitors of

11the company involved or into the public domain, which is even worse, this

12could have serious adverse consequences on the competitive position of the

13company or its share market value. This risk is not theoretical, especially

14when information is sent to countries where the company providing the

15information faces strong competition, especially from state-owned companies

16or in the context of mergers when share prices are especially volatile. ICC,

17therefore, applauds the initiative of the International Competition Policy

18Advisory Committee in addressing this issue and in inviting the international

19business community to contribute to its work in this area.

20We have been working for several years on issues arising out of

21the increasing cooperation between antitrust authorities which have an impact

22on business. ICC has issued a paper in 1996, which is called the ICC 1996

23Statement, setting out business concerns relating to the exchange of

29

1confidential information between antitrust authorities and also suggested

2safeguards to reduce the risks of prejudice to the companies concerned. ICC

3has now been asked by ICPAC to submit views on its core concerns arising

4from the exchange of confidential information and recommendations to address

5these concerns.

6As to the scope of our draft paper, we will focus on information

7exchanged in the merger review context, and I will explain later why.

8Cooperation between authorities in the merger area is increasing substantially,

9as multijurisdictional merger transactions become more common. To ensure

10transparency and predictability for both companies and authorities involved in

11multijurisdictional merger notifications, ICC feels that it is essential to have

12internationally agreed standards accepted by authorities as well as by

13companies, which would be integrated into multilateral as well as bilateral

14agreements.

15With respect to the non-merger area, we make reference to the

16ICC 1996 Statement, which will be attached to our draft paper on exchange of

17confidential information. The 1996 paper pointed out that although certain

18overarching competition law principles are generally accepted in major trading

19countries, considerable differences in the international antitrust laws still do

20exist.

21Some members, especially in North America, did not feel that

22further convergence of these laws needs to be a precondition for information

23exchange. Other ICC members, particularly in Europe, felt that with the

30

1current low level of convergence, cooperation between antitrust authorities

2should not include the exchange of confidential information. Being a European

3lawyer, I would like to point out some of the differences which actually have

4caused the European ICC members to feel different from their North American

5colleagues.

6These differences are also set out in the 1996 paper. Most

7important is that the EU competition system is an administrative

8prohibition-based system, which actually encourages companies to file a large

9quantity of business information to obtain exemptions and immunity. The U.S.

10system is an essentially litigious system driven by private parties, where less

11business information is regularly supplied by companies.

12While in the U.S., which extends its antitrust jurisdiction to acts

13having an effect of its export commerce, antitrust offenses can lead to criminal

14penalties and treble damages, antitrust offenses are purely a civil matter in the

15EU, and the European Commission's jurisdiction is limited to acts implemented

16and effecting competition within the EU.

17Another area of difference which is of particular concern to

18business is the extent to which competition authorities are able to resist

19disclosure to third parties. In some jurisdictions the competition authority

20could be obliged to disclose information for the purpose of legal proceedings

21involving third parties. Despite these differences, ICC members were,

22however, unanimous in their concern that any confidential corporate

23information exchanged should be properly protected. The 1996 paper stressed

31

1that companies should be given prior notification before any proposed

2information exchange, and recommended several other safeguards.

3 The ICC 1996 Statement also pointed out that alternative forms

4of cooperation to information sharing agreements, such as ad hoc cooperation

5with the company's consent, could help avoid some of the problems discussed.

6Now to the exchange of information in the merger context. Of

7course, companies have an interest in reducing the administrative burden,

8costs, and delays resulting from multijurisdictional merger reviews. I said this

9morning to Janet McDavid in the DaimlerChrysler merger we had to file in nine

10different jurisdictions, and I felt ashamed because Janet told me that she is

11working on a case where 27 different jurisdictions are involved. And I am

12afraid that this number may even increase in the future when countries learn

13more about competition laws and enact their own national laws.

14Companies have an interest in ensuring that the decisions given

15by different authorities are consistent, which is not difficult in a case which

16does not involve any substantial antitrust issues, like the DaimlerChrysler

17merger, but which may be difficult in cases which involve 27 jurisdictions with

1827 different views.

19To the extent that the exchange of certain information could help

20ease the problems associated with multijurisdictional merger review,

21companies are often prepared to consent to authorities exchanging their

22confidential information and to accept the risks associated with this in the hope

23of a speedier, more consistent, and less costly and burdensome merger review

32

1process.

2 To foster this mutually beneficial cooperation between

3companies and competition authorities, however, it is essential that a high

4degree of trust in the will and the ability of competition authorities to ensure

5the protection of such information is extended.

6 We have to keep in mind that information exchange is only one,

7but a very important, element in the broader framework, and other approaches

8to ease problems arising from multijurisdictional merger review must also be

9pursued. These include reduction of the information required to the essential

10minimum -- right now I think the antitrust authorities go exactly in a different

11direction -- harmonization and transparency of substantive and procedural

12requirements to the extent possible; clear time frames; and more frequent use

13of what we call negative comity, that is, when authorities decline to exercise

14their jurisdiction.

15This principle may assume changes to national legislation, but

16from a business community point of view we should discuss not only positive

17comity but also negative comity. I'm only afraid that no country has the

18courage to enact laws which provide for negative comity. This can probably

19only be done on an international treaty basis, if at all.

20 We have then discussed principles for the exchange of

21confidential information in multijurisdictional merger cases, and the ICC

22Working Party, at this stage, recommends that the following set of principles

23should be applied when confidential information is exchanged in

33

1multijurisdictional merger cases. And these principles should be integrated

2into multilateral and bilateral agreements.

3As to the preconditions for exchange: confidential information

4should only be exchanged with the consent of the parties involved from whom

5the information was obtained. Where such information is the property of a

6third party, authorization should also be obtained from that party.

7The terms and conditions under which the company consents to

8the exchange should be set out and agreed by the company and the competition

9authority supplying the information.

10The second precondition: information exchange procedures

11should be fair and transparent and carried out in consultation with the

12companies owning the information. For example, companies must be given the

13opportunity to explain any information transmitted which could be

14misinterpreted.

15A further precondition: the competition authority requesting the

16information should have exhausted its own administrative possibilities for

17obtaining the information independently before making the request. The next

18precondition: any exchange of information should speed up the investigative

19process rather than lead to extra delays.

20Next precondition: information exchanged should be subject to

21conditions of confidentiality in the receiving jurisdiction, at least as stringent

22as those of the jurisdiction supplying the information. Legal safeguards in the

23receiving jurisdiction should ensure that information exchanged will not be

34

1disclosed to third parties.

2 Last condition: the principle of reciprocity should be respected.

3That is, the competition authorities supplying and receiving the information

4should both agree to follow the same rules regarding the exchange of

5information.

6 The next subject we discussed was the scope and duration of

7information exchange. Information should be considered to be confidential

8when firstly the owner/provider company itself defines the information as being

9confidential; or secondly, the information is considered to be confidential or

10subject to legal professional privilege by domestic legislation of the supplying

11or the receiving authority. We do not claim that information has to be treated

12as confidential when it's publicly available, of course.

13The information for which consent is required for exchange

14should be precisely identified and consent must be sought for any modifications

15to the scope of the information exchange.

16We believe that the identification of confidential information for

17exchange should be done on a case-by-case basis and suggest that it would be

18difficult to identify categories of confidential documents that agencies could

19share under a waiver as suggested in the ICPAC staff draft protocol on

20international agency cooperation.

21Of course, should information exchange be limited to the

22necessary minimum, the transmission of information must be limited in time

23and be returned to the owner or respective provider company after the agreed

35

1time period elapses. All notes and copies of the information must be destroyed

2to prevent institutional knowledge.

3 To the circumstances of disclosure: the company should be

4informed of the identity of the authority or the authorities to whom the

5information would be sent, the terms and conditions under which the supplying

6authority was providing information to the other authority; the national rules

7governing the use of the confidential information which would bind the

8receiving authority, and last, but not least, the date of the proposed disclosure.

9We also feel that we need to establish conditions for the use by

10the receiving authority of the information exchanged. The use should be

11limited to the purpose and to proceedings for which the company providing the

12information agreed to its transfer. Secondly, information exchanged should not

13be disclosed to any parties outside the receiving authority, in particular

14third-party plaintiffs, other agencies or governments. Legal safeguards should

15be put into place to ensure that such information will not be disclosed to third

16parties.

17ICC has serious concerns about information being supplied to

18any jurisdiction without these safeguards. Where such an unsatisfactory

19situation exists, authorities in the receiving jurisdiction must commit to

20resisting attempts by third parties to obtain information from them, including

21by invoking all available privileges and exercising any prerogatives under

22Freedom of Information legislation.

23 Next condition: the information exchanged should be subject to

36

1legal professional privilege when it would be considered as deemed so under

2the rules of either the supplying or receiving jurisdiction.

3We then focus on a scenario where the agreed terms of exchange

4are not respected. If terms and conditions under which a company agreed to

5information exchange are not respected, it should have the right to obtain the

6immediate return of the information from the receiving authority and not be

7obliged to provide further information.

8 We also feel that it would be desirable for the company to have

9the possibility of seeking judicial relief, including orders for the return of all

10or part of documents or information provided, and constraining the use by the

11foreign authority of all or part of the documents or information. However, we

12are aware that mechanisms to make this possible in an international context are

13still not in place.

14As to the confidentiality waiver agreement between a company

15and a competition authority, Neil has already touched on issues which we also

16discussed. We suggest that the following elements should be included in any

17agreement in which a company party to a merger consents to a competition

18authority providing its confidential information to another competition

19authority.

20 First, the identity of the authority to whom the information will

21be sent. Second, the date of the proposed disclosure. Third, the date on which

22the information will be returned together with an understanding that all notes

23and copies of the information with the receiving authority will be destroyed.

37

1Fourth, the purpose for which the information is being exchanged. Next,

2precise identification of the information to be exchanged, together with an

3understanding that further consent will be sought if the scope of the

4information to be exchanged is modified.

5Next point: a description of the national rules governing use of

6the confidential information by the receiving authority. Then the terms and

7conditions under which the supplying authority is providing information to the

8receiving authority, which should include undertakings by the receiving

9authority that the use of the information will be limited to the purpose and to

10proceedings for which the company providing the information agrees to its

11transfer; and that the information exchanged will not be disclosed to any

12parties outside the receiving authority, in particular third-party plaintiffs,

13other agencies or governments. And it will resist attempts by third parties to

14obtain information from it, including by invoking all available privileges and

15exercising any prerogatives under Freedom of Information legislation.

16Last: a provision that in the event that the terms and conditions

17under which a company agreed to information exchange are not respected, the

18company should have the right to obtain the immediate return of the

19information. The company should not be obliged to provide further

20information, and the authority should make no further use of the information in

21question. It would also be desirable for the company to be assured of the

22possibility of obtaining judicial relief as discussed, but ICC has also stated

23that the required mechanisms are still not in place.

38

1Again, thank you for the opportunity to be involved in the

2discussion of a highly fascinating subject. ICC is certainly prepared to

3continue discussions in this field, which hopefully will lead to a solution which

4is satisfactory to both the antitrust authorities and the business community.

5Thank you.

6MR. RILL: Thank you, Klaus. I'm sure we'll have questions,

7not only today but down the road as we formulate our own recommendations

8that we'll be addressing to the ICC. Thank you for the very thoughtful input.

9Jan, Phil, how do you want to proceed?

10DR. STERN: Excuse me, before you do, I am wondering if you

11have any paper that accompanies your statement. Okay. Thank you.

12I've been spoiled by my experience at the International Trade

13Commission. I always like to have prehearing briefs or something so that I can

14prepare questions, so I'll have to listen to you more carefully.

15MR. PROGER: The Section of Antitrust Law is preparing

16papers. We hope at the May 17th hearing, when the two ABA panels appear,

17that we will have permission to present those papers. Jim, as a past Chair of

18the Section knows, we have to go through ABA procedures to present the

19papers, but we are working on that process.

20MR. RILL: And it makes the federal government look like a

21smoothly running operation.

22MS. McDAVID: It does.

23MR. RILL: Let me acknowledge the presence of another one of

39

1our Committee members, Tom Donilon, who joined us here a little while ago.

2Tom is with O'Melveny & Myers and is a former high-ranking State

3Department official.

4DR. STERN: If I might just say, if my request has any

5assistance or any weight at all, I would appreciate having something in writing

6on the 17th. Thank you.

7MR. RILL: Phil?

8MR. PROGER: Jim and Paula, thank you for having me again.

9It is a privilege to be here. I do want to acknowledge that working with Merit,

10Cynthia, Andrew and Stephanie has been a real delight. And Merit, I greatly

11appreciate the assistance and cordiality that you have provided. I might say on

12a personal note, it is kind of a privilege to be here today testifying before

13Eleanor Fox. Eleanor started me in the Section. I worked for her, I will not

14say how long ago, Eleanor, but it was on the original Hart-Scott-Rodino

15legislation.

16At the outset, I am obligated to issue a disclaimer on behalf of

17Jan and myself. We appear here today as individuals and not as Chair-Elect or

18Chair of the American Bar Association's Section of Antitrust Law. Our views

19are our own and not the views of either the American Bar Association or its

20Section of Antitrust Law.

21I guess we all wear a lot of hats here. I must say that Neil and

22Klaus were kind enough to provide their papers to us in advance. I do not

23know if they are aware, but I am a member of both their organizations, and I

40

1was proud to be a member when I read their excellent papers. They are both,

2to quote Neil's partner, Bill Rowley, first rate. And I will not try and repeat

3the various considerations, recommendations, and ideas expressed in them

4other than to say, I do sincerely believe they are very well thought out and

5cover the issues excellently.

6So with that said, let me see if I can provide a little bit of a

7different slant. When I testified last, I indicated that I was skeptical that there

8is a significant issue of confidentiality in multijurisdictional transactions and

9investigations. Given the differences worldwide in our substantive laws and

10processes trying to create a system in which there is non-voluntary mandated

11disclosure will create a lot of problems, many of which I think are difficult

12even to foresee today.

13Neil made the comment that many non-Americans look at the

14U.S. adversarial system with concern and horror. I can assure you, Neil, that

15many Americans feel the same way at times about our system. We have a

16different system of enforcement, and in that system those being investigated by

17the respective agencies must be aware of two things that are somewhat unique

18to the United States, although maybe one of them has a parallel in the

19European Union.

20One is we do have a system of private litigation, and while one

21can argue that compulsory mandated disclosure to enforcement agencies would

22not be turned over to private litigants, in point of fact private litigants are a

23little bit smarter than that. What they will do is go to the court and they say to

41

1the court that the parties have already produced this information to the various

2enforcement agencies. Just compel the parties to give us what they have given

3already the various enforcement agencies.

4Moreover, the information that you have been compelled to give

5may be beyond the scope of what a private litigant in the United States may

6otherwise be entitled to discover. So I think the underlying linchpin of our

7litigation system poses some considerations that ICPAC should carefully

8consider before recommending compulsory disclosure.

9Secondly, and to some extent there is a parallel with the

10European Commission and the Member States, we have in the United States

11multiple sovereigns. Not only can the federal government, either the Federal

12Trade Commission or the Department of Justice, conduct investigations, but

13also can one or more states. Usually the federal agency and the states

14cooperate in their investigations, but not always. While the existence of

15private litigation and multiple sovereigns does not make mandated confidential

16disclosure impossible, it does complicate the process.

17In addition, there are at times different public policies than

18purely competition. And these other public policies, which often are non-

19competition policies, can raise significant problems when information has been

20turned over to competition enforcement authorities, but now are available for

21other uses. So disclosure, particularly in situations where it goes to

22organizations that have not established the history of somewhat apolitical

23dedication to competition principles, raises serious concerns.

42

1And there are reasons why, in representing zealously a client,

2that may not be in the best interests of the client.

3One, it can affect, frankly, some of your tactics in defending

4your client. There may be reasons why at a particular point in time it would be

5premature with respect to one party to turn over information that is perfectly

6mature and appropriate with respect to another party. Two, it could broaden

7the scope of either a private litigant's case or another competition authority's

8case by providing information to them that really is outside the core scope of

9their investigation, but now raises issues that they feel that they must look into

10even if tangential. So it adds burden and expense.

11 Nevertheless, If ICPAC feels that there should be a

12recommendation of some mandatory disclosure, I would suggest that some of

13the following considerations be considered.

14One, I think there should be greater transparency in how the

15enforcement process works and under what context information will be

16disclosed by and between competition authorities.

17Two, there should be improved awareness and transparency of

18confidentiality protections which apply in foreign jurisdictions. If we're going

19to go down this road, I think that the jurisdictions involved need to be open and

20transparent on their laws and make it clear when you provide confidential

21information what your protections are, what your rights are, and what the

22process is to protect your rights.

23Three, there have been a few statements by senior competition

43

1authorities suggesting that failure to agree to waive confidentiality protections

2may create an adverse inference. I think that it must be very clear that such an

3inference is not appropriate and that there may be perfectly legitimate reasons

4why a party may not want to waive national confidentiality protections to allow

5enforcement agencies to exchange and share the party's confidential

6information. And I have tried to enumerate reasons, such as private litigation

7in the United States or the use of the information for non-competition reasons,

8why parties may be reluctant to waive confidentiality.

9Four, any exchange of confidential information on a mandatory

10basis must fully maintain and protect the attorney-client privilege. That, I

11think, is fundamental to our system of jurisprudence in the United States, and

12to due process.

13Five, if there are to be mandatory disclosures or waivers, they

14should be limited in scope, while reducing the volume, not increasing the

15volume that a party must in aggregate produce. I think there is a real danger

16that we might end up with the lowest common denominator and everyone seek

17their own Christmas ornament. And thus, in fact, the parties end up with

18increased burden.

19And if the documents are produced, then there must be a clear

20understanding of the limits on their use and that there use is for competition

21law enforcement purposes only. If there is going to be mandatory disclosure,

22there must be no right of the parties receiving the information to further

23disclose them to other parties without permission.

44

1Finally, I think that there should be some ability of the parties

2involved to receive notice before any exchange or disclosure is made. Parties

3should have an absolute right to be able to obtain a review before a neutral

4decision maker, such as an Article III Judge in the United States, before their

5documents originally obtained through mandated disclosure are turned over to

6a third-party.

7Right now the enforcement processes in the United States and

8the European Commission, particularly with respect to merger enforcement,

9are different. The European Commission approach is much more front-ended,

10while the U.S. approach, with our second request and ultimate potential

11litigation, is more back-ended. Timing differences should be acknowledged,

12and the parties should have some right to have some say over the timing.

13 Last, if we are going to go in the direction of mandated

14disclosure and sharing among enforcement agencies, we are probably better off

15with bilateral negotiation, initially with the European Commission, and using

16what develops from that negotiation as a model. But I would only do so if

17there is a limitation placed on DG-IV's requirement of transferring information

18to Member States. But if that could be dealt with and if we are going to go in

19this direction, despite what I view as some significant pitfalls, I think bilateral

20negotiations principally with DG-IV is probably the starting point.

21I thank ICPAC for the opportunity to appear here today. You

22have a difficult task and I hope that my comments are helpful. Thank you.

23MR. RILL: Thank you, Phil. Jan?

45

1MS. McDAVID: I'm going to speak principally from my

2perspective of having been involved in a number of multinational mergers,

3including the one to which Klaus referred in which we are filing in 27

4jurisdictions, which is the "mother of all multinational mergers," as well as

5civil investigations, principally, as well as based on one or two criminal

6proceedings.

7 In addition, I participated with Jim Rill, my colleague Tom

8Leary, and Bob Weinbaum in providing input to the Division and Federal

9Trade Commission on the IAEAA. We were particularly interested in the

10provision that excepted Hart-Scott-Rodino material from disclosure pursuant

11to what we call the "Vowel Act," because it is otherwise unpronounceable,

12based on concerns of disclosure of confidential information, particularly

13among the European Commission and its member jurisdictions. I think most of

14those fears have not materialized, but it was an absolutely legitimate concern

15at the time.

16I want to compliment both Neil and Klaus on their excellent

17papers. There really are some very important but subtle points in there that I

18hope the Advisory Committee will pay attention to as you proceed to your

19recommendations.

20The data gathered in a merger investigation, as Klaus has

21already explained, truly are the crown jewels of a corporation, current and

22forward-looking strategic planning data and marketing data, the disclosure of

23which could be incredibly damaging to the company on a competitive basis or

46

1even in a political context. I've represented foreign companies in the United

2States, and I've represented American companies in foreign jurisdictions, and

3there is always a fear that if you are not a national of the regulating authority,

4you are going to be treated differently somehow than nationals may be treated.

5My foreign clients have been worried that they will be subject to

6greater regulation. My American clients in Europe are worried that a

7European firm may secure an advantage over them as a consequence of

8information they disclose or, perhaps, that a decision may be made in a matter,

9and may have motivations that are not entirely on the merits. And the

10confidentiality of the information is in many ways the linchpin of all of that,

11because this information is so sensitive.

12The parties' objectives in consenting, as they often do, to the

13sharing of information I think are important to consider. In my experience the

14issue of time and of cost savings is rarely actually realized. What really

15happens is that everybody gets more than they might otherwise get. The

16Federal Trade Commission or the Department of Justice will want everything

17that is disclosed, all the filings that are given to the foreign authorities, and the

18foreign authorities will want some of what is given to the United States

19agencies.

20What you really gain perhaps is the ability to coordinate the

21timing of the decisions at the various agencies so that you're not going to be

22gamed between decision points. And you are more likely to assure consistent

23analysis and consistent outcome and probably an outcome that is more likely to

47

1be on the merits and less likely to be politically motivated. Assurances of

2confidentiality, as all the other speakers have said, is absolutely critical to

3this.

4The risk of inconsistent privileges in different jurisdictions can't

5be overemphasized. Here, for example, we have the problem that material that

6would be testimony before a grand jury taken under waivers or assurances of

7confidentiality or immunity arrangements may be transferred to the Canadian

8government under the MLAT and then come back into the United States for use

9in civil litigation.

10The European Union has different rules with respect to the

11attorney-client privilege than the United States does, and those differences are

12very significant. And so, for example, we are often concerned that

13communications by inside counsel are not recognized as privileged in Europe,

14although they are recognized as privileged in the United States. Those

15materials may, through the back door, become available to the American

16agencies when they would not otherwise have been, as a result of the exchange

17of information.

18All of the waivers that I have been involved in, and there have

19been many, are all "one off." And that is an important point I think, and I

20would emphasize as the others have, desirability of transparency and some

21protocols in this area to minimize the need to engage in a one-off negotiation

22with respect to every transaction.

23In this regard, as Phil did, I would like to point you to the

48

1protocol that exists between the federal agencies and the state attorneys

2general. It is often the subject of additional negotiation, but the protocol at

3least provides a uniform starting point for all of those negotiations, and I think

4we all learned something from each of those negotiations. The states are even

5talking about modifying their protocol based on the many negotiations they

6have had with private parties and the things they have learned. A great deal

7more transparency about what sorts of provisions are commonplace and how

8you deal with issues like the protection of the attorney-client privilege in the

9context I described would be very useful to the parties and to the business

10community.

11Today my clients have been willing to agree to waivers of

12confidentiality principally with respect to the major jurisdictions, such as the

13European Commission, the Canadian government, the Australian government,

14and the New Zealand government, which have an established track record of

15confidentiality. I think there would be far greater reluctance to share

16information with authorities that don't have that track record and in whom they

17may not have as high a level of confidence in the protection of their

18information.

19And finally, I would note that although there have always been

20in my experience excellent protections with respect to confidentiality of the

21data, the differences in the way proceedings are handled do create certain

22suspicions and concerns on the part of parties who are involved. For example,

23in Europe it is far more commonplace for the regulators to articulate their

49

1concerns publicly in the press. That is obviously done on information they

2have gathered in the investigation. That raises some significant concerns on

3the part of parties who are involved in the process. I have clients who recently

4sent their chief executive officers to meet with Commissioner Van Miert, only

5to discover a room full of reporters and photographers -- which wasn't exactly

6the way they anticipated conducting the meeting. Those sorts of experiences

7do lead to suspicions on the part of American companies that perhaps there are

8risks with respect to their information, which are their crown jewels.

9MR. RILL: Jan, thank you very much, and thanks to all of the

10panelists. I would just like to start with one thought for any panelist, and that

11is: there is a desire to assure that downstream protections are available to

12confidential information exchanged, whether it's in a voluntary or non-

13voluntary context, but let's assume it's voluntary. Even there, there is a desire

14for downstream protections, and I think the U.S. law is pretty well developed

15there. If a problem arises principally where litigation pops up, and even then

16there is availability of in camera treatment, maybe there is something that

17could be done in such a situation.

18I'm not aware of any situation where there has been leaks from a

19U.S. enforcement agency to other agencies, particularly in the merger context.

20And there is law that prevents Hart-Scott-Rodino materials from going to the

21states. I don't know, Phil, that your comment about sophisticated plaintiffs,

22while certainly a factor, relates so much to information sharing. Once one

23agency in the U.S. gets that information that's susceptible to at least some

50

1demand from plaintiffs for that information the law is fairly clear, but the law

2is not quite so well developed, I think, in Europe.

3And the problem that concerns U.S. businesses about

4downstream protection in Europe is the fact that merger information goes to

5the Advisory Committee, which consists of representatives of every Member

6State. In many instances mergers have to be voted on by the full Commission,

7which involves commissioners from at least every Member State, sometimes

8two. And there is not, I think, any fully developed downstream protection in

9those contexts. And I wonder if there is any way for such protections, starting

10with you, Klaus, if you want to address that particular issue?

11MR. BECHER: From the EU point of view I think there is

12downstream protection guaranteed, but you are right, the more people get

13involved, the more people know about confidential information, the higher the

14risk is that this confidential information will practically not be not protected.

15To my knowledge, it's the practice of the merger task force of

16the European Commission to inform the Advisory Committee, the members of

17the Advisory Committee, to an extent which is absolutely necessary, but this of

18course can require that they have to disclose confidential information,

19especially when you talk about strategic plans. So there is a risk. From a legal

20point of view, the information is protected, but we all know and also people

21who deal with commercial confidentiality agreements know, that these

22agreements are on paper in the first place and are a reminder to the parties not

23to disclose such confidential information.

51

1But once you have to disclose confidential information to

2anybody, I think you have to be aware that there is a risk that this information

3will not be confidential in the future. There are authorities which are well

4respected, and I fully believe that the Federal Trade Commission is a very

5respected authority which will not disclose and has not disclosed confidential

6information. There are penalties for disclosure of highly confidential

7information. And there has been no leak in Europe so far, but the risk is there.

8 MR. RILL: Phil, you were going to say something, you were

9going to jump on a comment of mine.

10MR. PROGER: I would never jump on a comment of yours.

11MR. RILL: That's perfectly all right. It won't be the first.

12MR. PROGER: I really do think this is a bigger problem than is

13being acknowledged. In the United States, we have developed a process to

14protect the rights of parties in an investigation. And I feel pretty comfortable

15with the European Commission, and most, but not all, of the Member States.

16But we are not talking about cooperation only between the U.S. and the EC.

17We are talking about increased cooperation among a proliferation globally of

18enforcement agencies that now number, according to Bill and Neil, over 80

19enforcement agencies.

20MR. RILL: That was two years ago.

21MR. PROGER: With 24 more in the works. Most of those

22jurisdictions do not have the history of procedural and substantive due process

23that exists in some of the more developed nations. Most of those countries do

52

1not have the history of the separation of competition issues from national

2issues, such as trade or employment.

3For example, if we mandate that the parties must waive

4confidentiality protections, I could foresee a time when parties may be required

5by an appropriate enforcement agency, possibly based on a request from

6another jurisdiction, to produce information or even create information for that

7other jurisdiction. It is not unusual today under the HSR second request --

8which is not subject to Article III judge review -- for the parties, in order to get

9their deal through, to reprogram computers, databases, and produce

10information that a party in private discovery could never obtain. But once

11produced, there will be some judges that say, "You've got it. You've done it.

12Produce it." Thus, given how easy it is to file these lawsuits, I think there is a

13real danger here.

14MR. RILL: I don't think there is any question that there is a

15concern. Paula did you --

16 DR. STERN: I have a couple of questions.

17MR. CAMPBELL: Jim, could I just briefly comment on the

18exact question you raised, just two concrete examples of what no downstream

19closed loop concept means to me? With respect to Europe, it would actually

20mean that it would rule out information coming from a foreign agency going to

21the Advisory Committee Member States. And the way you would get through

22that is a Member State that wanted to come into this kind of information

23sharing agreement, that has committed its own domestic people, would then be

53

1in a position in an appropriate case to get it. But otherwise that subset of

2information would be held only for the Commission.

3MR. PROGER: Could I just ask you one question, Neil? Would

4you also amend that to say that not only that, but also that the Commission or

5the Member State does not even know of the existence of the information?

6Because if they know of the existence of the information, they can go to the

7parties and say, "Well, we know you gave it to them; give it to us."

8 MR. CAMPBELL: Yes, and maybe I will answer that in terms

9of my one U.S. illustration, which is the discovery problem that you've so

10accurately described as a very real problem. You don't solve that unless you

11amend something to throw up an affirmative barrier in the discovery rules so

12that the private party cannot discover the agency with respect to inbound

13information received from a foreign agency, and that the private plaintiff

14cannot discover the company -- or the U.S. affiliate of the company that gave

15the information internationally -- on the indirect basis of "give-us-whatever-

16you-gave or whatever-went-through-to-the-U.S.-agencies."

17 Jim, I don't know what the U.S. experience has been, but there is

18a live Canadian case in a criminal matter in a follow-on private litigation

19where the Competition Bureau was third-party discovered by the plaintiff. And

20the Bureau didn't even resist the discovery, at least initially. But even if it

21had, it would probably have been ordered to produce. We have the same

22problems with our discovery rules in Canada.

23MR. RILL: Failure to resist discovery is not a good way to get

54

1sharing of information.

2We should probably relieve this panel in about ten minutes or so.

3But I want my colleagues to have the opportunity to ask some questions. As a

4courtesy to the next panel, we probably need to keep the answers short.

5 DR. STERN: In fact, if you wish to answer after the hearing,

6that would be fine with me as well.

7MR. RILL: I misspoke, though. We have actually, this panel,

8we have until 12:00, so we're not under any time duress.

9DR. STERN: Okay, good, because I would like to hear from

10individual remarks.

11You all represent a great deal of practical experience. These

12questions could all be answered by each and every one of you. So in the

13interest of time and efficiency to the extent that you have amendments or

14addenda or separate views, if you will, please feel free to just jot those as

15informally as you want down on paper afterwards. That may be one practical

16solution.

17Let me tell you where I'm going, and let me repeat that any one

18of you can answer the questions. I am looking for those areas of overlap

19amongst you and your colleagues whom you represent. And there is overlap in

20both the written testimony as well as in the testimony we have heard spoken

21today. I am therefore looking for those areas, if you will, where there is not

22overlap, where there is controversy, where there is not a consensus as to the

23advisability of sharing of confidential information.

55

1And let me therefore start with one question I would like to -- I'll

2give you all three questions basically, and then you can perhaps organize your

3responses individually.

4First, we're always searching for leaks. Your practical

5experience of any leaks of any information, all of which would be prejudicial.

6So I just want to ask for any experience of anything that you know in any

7jurisdictions, not just the United States.

8 Second, I would like to hear the extent to which the existence of

9the Economic Espionage Act of 1996, which provides for criminal prosecution

10for trade secrets that are stolen, acquired improperly, has any bearing at all on

11your discussions or your considerations.

12 The third question goes to those individual companies or

13countries or sectors which would be more reluctant to share, to have

14confidential information exchanged or shared. In other words, we have heard

15from Dr. Becher that there are those in Europe, although Phil Proger in his

16opening statement started to sound like a European company in his concerns. I

17turned to Jim and said that. I think we both agree. It was beginning to sound

18that way.

19So I'm wondering, are there particular sectors that have

20problems with exchange of merger confidentiality? Has DaimlerChrysler itself

21had experience that makes you chary of this? Is it possible that there are

22certain governments which are suspect more than others? Is it possible that

23those sectors which have been government-owned or industries that have been

56

1government-owned are more reluctant to share? In other words, I would like to

2narrow, based on your practical experience, those areas where there's greater

3reluctance to share.

4Finally, I had one small, tiny question about New Zealand and

5Australia, and that is: Is there a different arrangement of confidentiality in the

6merger area in New Zealand from Australia? Don't they consider themselves

7now, because of the New Zealand-Australia trade agreement, to be one market?

8I had the impression from one of the statements that they considered

9themselves to be two different markets and to have two different arrangements

10potentially for confidentiality. I invite anyone to jump on that.

11MR. RILL: Merit, you suggested that we collect questions?

12MS. JANOW: That would be one possibility.

13MR. RILL: Why don't we go ahead --

14DR. STERN: That sounds like a lot of questions right there.

15MR. RILL: I think we should try these, and then see where we

16go from there.

17DR. STERN: Good. Good.

18MS. McDAVID: I'm not aware of circumstances in which

19company data has actually been leaked, but I'm aware of many circumstances

20in which inside deliberations of agencies in the United States and in foreign

21countries appear in the press. Exactly how it happened or who did it is

22impossible to find. It drives the business people absolutely crazy. And you

23can't ever trace it to anyone because everyone will deny that they are the

57

1source.

2MR. RILL: Of course, it does wonderful things to stock prices.

3MS. McDAVID: Absolutely. It has all kinds of implications. It

4does make the business people chary about being responsive.

5One of the experiences that American businesses have had is that

6their data have been well protected in the United States. So the concerns that

7many businesses had back when the Hart-Scott Act was enacted, that it would

8start appearing in The Washington Post and The New York Times the next day,

9did not materialize, and they fell back into a fair level of confidence. But

10every once in a while there is one of these circumstances where stuff starts

11showing up routinely in the press.

12DR. STERN: And the Economic Espionage Act of 1996?

13 MS. McDAVID: The circumstances I'm talking about are

14probably not subject to that because we're not talking about company data,

15we're talking about here are the issues on which the agency is focusing: here

16are the outcomes that are potentially possible in the agency. That sort of thing

17is very damaging.

18MR. RILL: Here's what the staff is recommending?

19MS. McDAVID: Exactly.

20DR. STERN: My question went to confidential information that

21are the "crown jewels," to use your words, of individual companies.

22MS. McDAVID: I'm not aware of those circumstances, those in

23which information has appeared in the press or been leaked. But I'm simply

58

1not aware of it, I'm not saying it didn't happen.

2MR. BECHER: For DaimlerChrysler, I can concur. I'm not

3aware of any leak of confidential information in any antitrust proceedings to

4which we have been a party. I should add that if we provided highly sensitive

5company information, like strategic plans to antitrust authorities, we have

6provided these plans to highly respected antitrust authorities, like the

7Department of Justice, the Federal Trade Commission or the European

8Commission in Brussels, or the Federal Cartel Office in Berlin. These are

9authorities with long-standing experience which follow due process.

10And I certainly would be very reluctant to provide this kind of

11highly sensitive information to other jurisdictions. I won't name those

12jurisdictions now but I can imagine a lot of jurisdictions in which I personally

13would be very reluctant to provide strategic plans and other materials.

14DR. STERN: Very helpful.

15MR. CAMPBELL: Your three questions. First of all, leaks. I'll

16confine the answer to Canada. The answer is the Competition Bureau doesn't

17leak. It has an excellent track record. But again, that's talking about purely

18confidential documents. Jan has made a useful observation about discussions

19of information that comes out in confidential documents.

20MR. RILL: Let me try and clarify that right now. That type of

21leak typically doesn't relate to confidential business information. It's the

22deliberations of the staff. The issue that's confronting us today isn't one that

23covers that particular situation, as reprehensible as it is.

59

1MS. McDAVID: But doesn't it makes the business people

2wonder? It makes the business people wonder whether their data are secure.

3MR. CAMPBELL: John Davies, if he were here, would describe

4a recent experience he had in which a draft of a Form CO was filed with the

5European Commission and a first stage Hart-Scott-Rodino filing was made,

6and almost instantaneously thereafter the parties were receiving questions from

7the U.S. agency which could not have conceivably been formulated without a

8briefing of the concepts in the draft Form CO. Which is not to say that the

9actual document -- but a Form CO has extensive information about views of

10markets and so on which allowed, apparently in this case, the U.S. agency to

11be briefed on a set of issues and perspectives arising out of a confidential

12submission in Europe.

13 DR. STERN: Again, that was a leak between the two authorities

14and without a protocol existing on the sharing --

15MS. McDAVID: Had there been a waiver in that circumstance?

16MR. CAMPBELL: No, this was before there was a formal Form

17CO, which as you know is sometimes filed in draft. That would be the

18comment with respect to leaks in practice. I can't speak to your Economic

19Espionage Act, but the observation I would make is that I think the general

20concept of there being sanctions for leaks is something we recognize in all

21areas, some deterrence is important. I do believe that the 1991 ABA report had

22a very important observation when it said that the presence of sanctions in

23various jurisdictions is a pretty important concept --

60

1DR. STERN: Including the criminal sanction?

2MR. CAMPBELL: Whether criminal or not, but sanctions that

3are applicable to the agencies and the officials therein. And with respect to

4Canada you would struggle hard to find whether sanctions exist and what they

5would be. There might be creative ways to find them but they are not clear and

6obvious. I'm not sure what the position would be in other jurisdictions.

7 I think the third question is a very interesting question with

8respect to areas of focus. My own view, having raised this with our working

9group, is that you will not find this cleaving out in a big difference between

10sectors. This is a cross-sector issue for the business community. I certainly,

11in my practice, see it almost universally from all business clients, and that

12won't narrow it for you.

13With respect to the observation about government-owned

14entities, yes, that creates a special additional level of concern. It's often raised

15with respect to Europe, but despite having privatized a lot we still have some

16government entities in Canada where people could legitimately have an

17additional concern about who the Competition Bureau might talk with and what

18they might say.

19With respect to countries, in our written material what we have

20suggested that would be useful from the perspective of the United States is to

21start with the EU and Canada and some of the significant EU Member States.

22We did not choose to name names within the EU, but I think the criteria we

23have suggested would be helpful guidance: that is, their own domestic track

61

1record as perceived from afar; the volume of cases; etc.

2DR. STERN: Any other comments? Phil?

3MR. PROGER: I am aware of what might be a few instances,

4but because of attorney-client privilege I cannot really say much about it. I'm

5not sure that helps you very much.

6 Let me just say that I've had one instance where a colleague

7contacted me maybe a year after a deal had been closed and said, "I think I

8have something of yours." It turned out it was my client's five-year business

9plan. It was Bates-stamped with our production number. However, the other

10party had a copy of it, as did other law firms and consultants. This colleague

11who was, I believe, acting with integrity, was returning it to me because he or

12she had gotten it from their client, which was a direct competitor. But to this

13day, I do not know how they got it.

14 I think there have been a few instances, not many, where

15information has been -- I don't know if the correct word is leaked but certainly

16produced -- by state attorneys general or by members of Congress. But,

17overall, I would say that I think the issue is not how much leakage there is

18today because I think everyone is very careful about confidentiality and I give

19high marks to the agencies.

20Nevertheless, as Jan points out, it is always distressing to see

21the staff's recommendation on the front page of the Wall Street Journal. But in

22terms of absolute information, I think people are trustworthy in the United

23States and in DG-IV, and I do not think you are seeing a lot of leaks there, but

62

1they can happen. You are talking about a lot of information, and now you are

2going to proliferate that process, and I think that raises the concerns we have

3been discussing.

4MS. McDAVID: You have raised an important point about

5Congress, because there is an exception to the confidentiality rules for the

6Hart-Scott Act for the Congress. The agencies, God bless them, try not to give

7them the documents. They try to go brief them orally. But that is a real

8Achilles heel of the American system.

9DR. STERN: Should that exemption be renewed, recommended

10to be renewed?

11 MR. PROGER: It would be preferable if there was no exception

12to the confidentiality rules for the benefit of Congress. If Congress wants

13documents, they have independent means to compel disclosure. But I doubt

14that eliminating the exception is doable politically.

15DR. STERN: What sanctions would you suggest? Not just from

16 members of Congress. If you have thoughts afterwards on sanctions

17appropriate or any of these, please feel free.

18MR. RILL: The one that at least gives a minimal level of

19protection is there has to be at least a request from a Committee Chairman or a

20Subcommittee Chairman. Now that may be small solace, but at least

21hypothetically and we know none exist, a single rogue congressmen can't go

22rummaging through the files without a Subcommittee or Committee approval.

23MR. CAMPBELL: One of the questions that those of you who

63

1are here may know the answer to but I don't -- the IAEAA is an interesting

2piece of framework legislation, and allows the creation of bilateral agreements

3which can themselves have various negotiated condition -- I don't know

4whether under that legislation the United States could enter into a bilateral

5agreement that put its agencies in a position where the received information

6would not be disclosed to Congress or to private parties in discovery, or

7whether those other legal overlays will override what you could do in the

8mutual assistance agreement? But there is the scope in theory to create rules

9applying to this kind of cross-border exchange of information that are different

10-- a little more restrictive -- than your general domestic confidentiality

11regimes.

12 MR. RILL: Just reading the IAEAA, to respond to that question

13in theory, the IAEAA depends on what's in the agreement. And there can be

14a provision in the agreement that provides that we will not give this to the

15Committee on the Judiciary, even if it should vote unanimously to request the

16agreement. Now these agreements are circulated for comment in the Federal

17Register for a period of time, and the suggestion that, as a practical matter, the

18agreement would ever be adopted with that provision in it seems to make that

19kind of extra legal agreement unlikely.

20MR. PROGER: Jim, it is far more likely that rather than

21restricting Congress or a Committee of Congress from lawfully obtaining the

22information, there be a requirement that ensures that they have to abide by the

23confidentiality provision.

64

1MR. RILL: That's in the statute. It is in the statute that you

2have to abide by your own confidentiality rules with respect to shared

3information. I think the notice idea that you all came up with is certainly a

4good one that could be incorporated in any agreement. By the way, the

5agreement with Australia I think is going to be formally signed by May 27th.

6DR. STERN: And not New Zealand?

7MR. RILL: I think it's Australia.

8DR. STERN: I do too, and this leads to my next question.

9That's a question that was on there. If you have any insight, please let me

10know.

11But I did want to follow up the question with Phil, in which you

12were talking about DG-IV and limiting its ability to pass on confidential

13information to Member States.

14Is there a constraint within the EU that limits such a limitation,

15that would not permit such a limitation, that you were suggesting? Just as we

16have, because of our separations of powers, certain obligations to share things

17from the Executive Branch with Congress, I'm wondering if the DG-IV is also

18obliged to share certain information? So how much can one actually limit?

19Now, that's a kind of a constitutional question for the EU, but it would be

20helpful to know an answer to that to see whether your suggestion is a practical

21one.

22MS. McDAVID: I think it would have to be imposed by the

23European Commission itself because today I don't believe that is possible

65

1under the operations of the Commission.

2MR. BECHER: I don't think it works today because the

3Advisory Committee plays a role in any merger control proceedings. They

4have the right to know the information which is important for the decision.

5And this information may contain business secrets. And so from my point of

6view right now, there is no way to avoid that the EU Commission or the merger

7task force as part of the EU Commission will pass on confidential information.

8It will have to pass on confidential information to the members of the Advisory

9Committee. And then the members, of course, are the Member States. So the

10confidential information is then also with the Member States or the respective

11competition authorities.

12 But still, a legal safeguard is built in. From a safeguard point of

13view everything is okay, and as Neil said, the track record in this respect is

14good. We don't know everything, but nothing has been published in a negative

15sense. So the track record is excellent. And as to the system, you have to

16change the system within the EU to come to a solution which you suggested.

17 MR. PROGER: There are two different considerations. One is

18the potential that the information might be disclosed to the Member State

19competition authority, but also there is the potential that the information is

20disclosed to other parts of the Member States' government that deal with trade,

21employment or other considerations.

22MR. RILL: Let me turn to the other members of the Committee,

23and Merit has questions, and I think Eleanor does, too. Merit, if you want to

66

1go.

2 MS. JANOW: I have two questions and one plea. First on the

3question, I would like to shine a little more attention for just a minute maybe

4on attention in objectives that were suggested here. Dr. Becher, you made the

5point about the value of exhaustion of administrative possibilities for obtaining

6information. In other words, an exhaustion of independent requests.

7And my question to you there is: whether or not, if you have an

8exhaustion principle in place, whether you are not putting that potentially in

9tension with your shared interest in reducing the burden on the merging parties

10and the delays of multijurisdictional merger review? So how do you, in your

11mind resolve that tension, implied by exhaustion, as well as the problems that

12may stem from the fact that a document may be outside of the jurisdictional

13reach of the requesting agency? So that's the first question.

14The second question is about waivers. The staff attorneys,

15particularly Cynthia Lewis, has been working hard to develop some prototypes

16to get reactions from the bar. I'm wondering if there is a way that this could be

17privatized -- here comes the plea -- if this is a, I think, a consensus point that

18all of you were saying? I'm wondering if we might develop some model

19waivers, restrictive waivers, or if each of your groups might play with that in

20more elaborated fashion and work with us? Because I think each of you are

21saying that this is important, and also each of you are identifying the

22transparency requirements that would be introduced by each jurisdiction,

23including with respect to the specific handling of that information pursuant to

67

1procedures in the jurisdiction being contained within the waiver itself. And if

2so, I see this as something that perhaps is advanced through a privatized

3initiative as well. Thank you.

4MS. McDAVID: Going first to your second point, Merit,

5absolutely, we can work with you on that. The agencies have their own

6models, but most of us add bells and whistles to them. But we would be happy

7to work with you on that through the bar.

8 On your first point, it's an issue that has come up with respect to

9the state attorneys general, where the issues are very similar. One of the major

10benefits that we achieve when we signed the protocol with state attorneys

11general to have a combined investigation is that they don't initiate separate

12process, and we don't have to engage in duplicative and different kinds of

13searches which add enormously to the cost.

14 And this is a bigger issue probably with the United States as

15foreman of the investigation, which is so document intensive and data

16intensive, as opposed to the European model which tends to be more

17presentation intensive. But that is one of the major advantages we secure when

18we enter into the protocol, is that we basically provide the states what we give

19to the federal agencies.

20MR. RILL: Other comments? Neil?

21MR. CAMPBELL: Yes. Maybe I'll take the second first as

22well. Time was an issue for us and so we didn't get into the detail of waivers,

23but I will go back to my colleagues and see if we might do a second phase here.

68

1I think that is something we might be able to contribute some further thoughts

2on.

3With respect to your first point, on perhaps not long and detailed

4reflection, Jan, we felt there was a difference internationally versus the U.S.

5federal-state protocol where we felt that was actually a fine example of getting

6something, if you want, in each direction, and it will have a nice set of in-built

7incentives to encourage people to work with it. If you think of Venn diagrams,

8though, you are in that case dealing with a little circle -- or 50 little circles --

9within a big circle, typically looking at the same underlying law. If you look

10internationally, you are dealing with a set of nonoverlapping circles with

11different legal frameworks which makes it more difficult for a particular

12jurisdiction to stand down or stay in the background. And so we weren't

13convinced, though maybe we didn't try hard enough, that we could find the set

14of incentives that would make that kind of a process work in an analogous way

15in an international setting. But if others can find those kinds of reciprocal

16incentives, I think that's useful to consider.

17I think your question also touches on another area of tension

18which is important to keep in mind, and that is the question of what is

19voluntary. The U.S. has a particularly large view about what documents are

20relevant and across borders in terms of getting things. For example, last year

21our firm helped on a second request search of facilities in Canada, and people

22were in Taiwan searching offices and so on.

23One of the dynamics with respect to documents that may be

69

1different between jurisdictions is the question of leverage -- where an agency

2says, "We want the Canadian filing, we want the European filing, please give it

3to us." This is a different point, but analogous to the leverage issue we raised

4earlier with respect to voluntary waivers. It is one of those in-built questions

5about how the merger review procedural structures work. The U.S. has one

6that has got, in my impression, a fair bit of leverage in the hands of the

7agencies.

8MR. RILL: Phil?

9MR. PROGER: Several points. One, as Jan said, the Section

10would be happy to try to help on a model agreement.

11But if you do that, let me suggest something else, which is

12getting the agreement in and of itself is a start, as exampled by the compact

13with the National Association of Attorneys General, but it doesn't go all the

14way. Let me give you two considerations.

15 One, I had a situation where one state opted out of the compact,

16and said that they were going to, therefore, issue their own subpoena, which

17they did. Specification one was, "Give us everything that you gave to the

18Compact states." And then thereafter, there were numerous other

19specifications. So the benefit of the Compact was, as practical matter, lost.

20Two, if you're going to have that type of agreement, the country

21must have procedural safeguards and there has to be someone that a party can

22petition, who is a neutral party, if the agreement is not being honored. There

23has got to be sanctions for failure to honor the confidentiality. Having an

70

1agreement that is not enforceable is of little value.

2Last, and I do not think least, I am still concerned that you risk

3that you are going to be dealing with the lowest common denominator and you

4are not going to reduce the burden.

5So no one has made a compelling case that in practice there is a

6lot of reduction of the burden. And in the end consumers pay for this. There

7are enormous expenses in these transactions, and someone ends up paying for

8them, and in some situations the companies absorb them, but in many

9situations it is passed on to consumers.

10MR. RILL: Shareholders are people too, aren't they?

11MR. PROGER: Shareholders today are people. Shareholders

12today are often state teachers' retirement funds or other similar pension funds.

13MR. BECHER: May I make one more comment relating to the

14exhaustion principle?

15I think the important message we want to convey with this

16principle is that, first of all, each antitrust authority should think about its own

17administrative possibilities rather than going to the other antitrust authority.

18It's the easy way to just ask the other antitrust authority, "Give us everything

19you have received," rather than really thinking, "What do we really need under

20our jurisdiction and why don't we ask under our jurisdiction the respective

21party to provide the information?"

22There is obviously some fine tuning necessary as far as timing is

23concerned, because if you need cooperation among antitrust authorities

71

1because you want to have the same result, which is actually in a merger case

2always clearance, then of course you will not ask for exhaustion of the

3administrative processes and then you identify the respective confidential

4information which has to be exchanged so the antitrust authorities can sit

5together and discuss the substance.

6MR. RILL: Eleanor?

7MS. FOX: My question goes to a subject we haven't discussed,

8which is the scope of confidentiality, and I want to say that against a certain

9background which is this: There are clear tensions in regard to this problem.

10Information can be very much in the public interest, agencies having

11information can help them to enforce better, and of course on the other side,

12the crown jewel problem is very distinct.

13From my past life as a litigator I recall certain overclaiming

14confidentiality, and I think it might be useful for us, if and when we propose

15protocols, if we also tackle the problem of what is confidential. So it's too late

16in the day to really be asking for responses right now, but I think it would be

17very useful to have a view of confidential that isn't overbreadth.

18I want to add one other point. I know, at least since my

19association, that the ABA Antitrust Section has been always so concerned

20about, and I would be interested to seek, viewpoints -- that is, members on the

21Task Force who are also speaking from their own positions, which might be as

22private plaintiff lawyers and even state attorneys general, because they might

23see the public interest in a little different way and it would be interesting to

72

1engage in that debate.

2MS. McDAVID: I can provide you with input on that because

3we are dealing with it right now in a matter that will probably involve the

4production of roughly 30 million pages.

5Deciding on a page-by-page basis what is confidential and what

6is not is an enormous expense and burden on the parties, in addition to the

7burden and expense that they are already bearing of the identification,

8production, and copying of those data. And I think it is that which is more

9likely than anything to lead to overidentification of things as confidential,

10because you have to necessarily make very gross judgments --is this public? If

11it's not, we'll treat it as confidential -- because anything else is, as a practical

12matter, simply impossible.

13MR. PROGER: Let me challenge you, Eleanor. Why should the

14 parties have to bear this burden? You are compelling me to produce

15information that I otherwise would not put in the public domain. Why am I not

16entitled to a simple presumption that my information is confidential?

17 MS. McDAVID: That's absolutely true.

18MR. CAMPBELL: I can give you, very quickly, the Canadian

19approach to this on a domestic basis. There is a provision of the Competition

20Act which says that anything in the merger filing or anything in the request for

21an advance ruling certificate in relation to a merger or anything obtained using

22compulsory powers (search and seizure or subpoena powers) is confidential

23unless it has otherwise been made public. And it is a simple rule that doesn't

73

1relate to the crown jewel-like nature of the document. It is simply the way in

2which it arrives in the possession of the agency.

3 It has a bizarre defect at the moment, which is anything that you

4would want to give voluntarily to the Competition Bureau in Canada has no

5form of statutory protection, no matter how confidential it really is. This leads

6sometimes to rather odd results. But from the point of view of Phil's comment,

7that if you were being compelled to produce it, the Canadian default is, it's

8confidential.

9MR. RILL: You can always require them to compel you to

10produce it even if you're doing it voluntarily so that you get the safeguard.

11 I don't know that we as an Advisory Committee can get into

12defining specifically what is confidential information. I think we've got enough

13in front of us. I think most of the jurisdictions that are deeply involved in

14merger review, not all 60 or so that have some merger review authority, have

15exactly what you're talking about as a presumption of confidentiality. You can

16put my next dog license in your Hart-Scott-Rodino returns, and it's

17confidential in that context. I'm not saying that there aren't a multiplicity of

18reasons why those presumptions exist, but the fact is by and large they do.

19Tom?

20MR. DONILON: I don't want to keep these folks any longer

21than I have to. I just want to make two quick points and I'll ask one question.

22One is that I agree with the observation. My observation from working with

23American business persons is that there is a high degree of confidence in the

74

1American agencies with respect to confidentiality, and I, like you, don't know

2of an instance, frankly, where confidential data has been disclosed. You can

3counsel a client with some confidence that that will be the case and that

4cooperation is in their interest and they can be reassured.

5Second, I think there is increasing confidence, although not full

6confidence, in the EU. And I don't know enough about the Canadian situation,

7I haven't been counseled on that situation. I imagine it's similar. But not the

8same degree of confidence obviously beyond that as Phil was saying. I think

9that's a very important point. Second, I think a protocol developed, Jan, with

10the bells and whistles of experience is a useful thing for the Committee to put

11together.

12Third, my question, and it goes to the bottom line. I think, Jan,

13your testimony really goes to our core burden here. The burden of this

14Committee with respect to any specific recommendation seems to me is whether

15it meets our goals of reducing transaction costs, enhancing efficiency, and

16encouraging harmonization in the merger field specifically.

17 What I heard you say, and Phil actually said it more applicably,

18is that your testimony would be that, in fact, a mandatory system of disclosure

19of confidential information between or among reviewing jurisdictions or

20pursuant to a formal protocol, in your view, would not be superior to the

21current system of waivers sought by lawyers representing companies and

22individual transactions, and that you have not in your experience and the

23experience of the Section seen time reduced, cost reduced. It has helped, as I

75

1heard you say, in certain tactical ways or in certain transactions where the

2parties see that they can get a coordinated response and perhaps a better

3response.

4But as a general matter such a recommendation or such a system

5would not reduce transactions costs and may cause other problems and may in

6fact increase transaction costs with each reviewing jurisdiction wanting to have

7an equal amount of documents to plow through. Did I hear you right?

8MS. McDAVID: You got it right, Tom. There are benefits, but

9transaction cost reductions is not likely to be one of them. In fact, my

10experience is in some ways, quite apart from the production of the data in

11multiple jurisdictions, the coordination among counsel in multiple jurisdictions

12that is required as a result of the coordination, because they're all talking to

13each other -- you can't say one thing to one and a different thing to another,

14when you're dealing, as we are, with 27 filings -- is a real burden and an

15additional cost. We're not talking to every one of them on a regular basis, but

16we deal, not quite daily, but certainly every other day, with European and

17Canadian counsel.

18MR. RILL: John, do you have any question or comment?

19MR. DUNLOP: Well, let me ask, out of the total number of

20cases of mergers in the United States, first, and then, if you want in multiple

21jurisdictions, in what fraction of those cases is this problem of agreement

22under the existing system on data a problem? And what fraction is a chore to

23be done, but on the whole pretty well worked out? I don't know if you

76

1understand.

2MR. RILL: The agencies have made some comment on that.

3MR. DUNLOP: Is it clear what I want?

4MR. RILL: It's clear to me.

5MS. McDAVID: It's not routine, I think, is the answer. It is

6rare -- well, probably rare is an overstatement, but it's certainly not in the

7routine cases, it is in the biggest cases with multinational dimensions. With

84500 or 4900 filings a year, first of all the agencies only investigate 300 of

9them in the United States. So you have to start with that 300 as your real

10subset. And of the 300, I can't tell you what the percentage is.

11MR. RILL: Bob Pitofsky said that 50 percent of that 300

12involved an international dimension, but whether that means international

13coordination I don't know. So it's some subset of 150 that would be involved

14in some kind of detailed exchange of information --

15MR. PROGER: One reason why the numbers statistically are

16low is because most of these transactions have no competitive concern and

17should not --

18MR. RILL: Most of the 4,500 --

19MR. PROGER: -- and therefore should not have this tax in the

20first place. But in those transactions that are multijurisdictional, there is a

21significant concern. I also urge you not to limit your deliberations to mergers.

22 MR. RILL: I think you can rest comfortable that the Advisory

23Committee is not going to consider that this is a de minimis problem.

77

1Otherwise we probably wouldn't be spending this amount of time on it.

2Just one comment on Phil's comment. I appreciate what you're

3saying -- that we really need to look beyond mergers -- and I'm grappling

4myself, and I'm sure my colleagues are, as to whether there is sort of a

5separate section of the report on sharing of confidential information that

6transcends all three areas. In the merger area, I've been told and I know of no

7instance where information submitted subject to a merger review has resulted

8in prosecution by a U.S. agency. I know of no instance. Maybe there are

9some.

10MS. McDAVID: I know where there was a civil enforcement

11investigation, but not a criminal investigation.

12MR. RILL: But it's quite unusual that that would happen.

13There is nothing to prevent it from happening, but I think your point is well

14taken. You cannot deal with sharing of confidential information in a vacuum.

15I'm not sure exactly how we're going to deal with it. But the fact that maybe

16there are only 150 cases or a subset of 150 where the issue of cooperation

17among agencies arises doesn't mean it's not the most important subset of cases,

18generally, and that's something we have to deal with. Neil?

19MR. CAMPBELL: I have a couple of very brief bits of

20Canadian anecdotal information. I think, of Canadian mergers probably half

21have a cross-border element, and in the case of Canada, that is almost always

22involving the United States. I had a recent case in which we were working for

23an American company acquiring a plant in Canada. The target company had

78

1no assets in the United States, and we made our filing with the Canadian

2Competition Bureau. Our client had no facility in Canada but was selling

3products into Canada. The first thing the case officer said was, "We're going

4to want to talk to the Americans, have you done your HSR filing yet?" We

5said, "No. There is no filing in the United States and there would be no reason

6for the United States to be interested in the transaction because there are no

7assets there." And a week later he was still talking about wanting to talk to the

8U.S. enforcement agency simply because they're conditioned now to

9cross-border cases.

10Another anecdote, Jim, with respect to the scenario you just

11described. We did see a case in which parties did a swap transaction: where

12one company bought a business in Canada and sold a business in

13Massachusetts to the same parties, so it was back-to-back transactions in

14different local markets. This came to the attention of the Competition Bureau

15as a merger, but when they became aware of the back-to-back transaction in

16the U.S., they opened a criminal investigation into the possibility that this was

17a market allocation. And having opened a criminal investigation, they were in

18a position where they could have, under the Mutual Legal Assistance Treaty,

19have forwarded all of that information to the U.S. agency. I can't say that it

20occurred, but it is possible for certain types of mergers and other arrangements

21that look like joint ventures which under Canadian law are ambiguous as to

22whether they are mergers or criminal. So Phil is quite right, there is a

23crossover.

79

1MR. RILL: Maybe when the FTC issues its joint venture

2guidelines it will all be clear.

3I think we've caught up with the time and we can take a break

4now until noon, when the next panel actually is scheduled to appear. Let me

5thank all of the panelists very, very much. This presentation has been most

6helpful. I want to echo Paula's comment to invite you, urge you, to submit any

7individual or collective written views you have, subject to whatever

8bureaucratic limitations are imposed, and they would be very much respected

9even as individual views.

10DR. STERN: Yes.

11MR. RILL: I think each of us individually may have some

12questions we would like to pose to you, and feel free do that informally or

13formally as our schedule permits. Thanks for the time, the obvious effort you

14have put in, and we look forward to further working with you. Thanks a lot.

15 We'll take a break until noon.

16(Recess.)

17MR. RILL: If we can get ready to go with our second panel. I

18want to move along because we have some panelists that have some very tight

19timetables.

20Let me call to order the second panel. And what we have here is

21a group of overall business organizations and one very broad, very impacted

22product organization with a lot of experience in this particular area. I will

23introduce them in the order in which they will present.

80

1Bob Weinbaum, a member of the Office of General Counsel,

2General Motors Corporation. Bob is a Michigander, a graduate of the

3University of Michigan law school, a former chair of the Antitrust Section of

4the American Bar Association, speaking today in his capacity as representative

5of the Business Roundtable. Bob, being a Michigander, is also a Detroit

6Tiger's fan, and is feeling very good about their having swept the Yankees

7three straight over the weekend.

8Tom Niles will be our next presenter. Tom, as of a month or so

9ago -- two months now, how time flies -- is President of the U.S. Council for

10International Business. Tom is known to many of us, when I was the Assistant

11Attorney General, he was Ambassador to the European Union. He has also

12been Ambassador to Canada, Assistant Secretary of State for Europe and

13Canada, Ambassador to Greece, and, of current interest, served in Belgrade

14and Moscow twice. Tom is going to be the second speaker and will be

15representing the U.S. Council for International Business.

16Our third speaker, just going down the line, will be Maureen

17Smith, who is Vice President of the American Forest and Paper Association.

18Maureen is also a former colleague, Deputy Assistant Secretary of Commerce,

19and one of the top workers in the trenches of the Structural Impediment

20Initiative negotiations with the government of Japan, which we participated in

21for three years during the Bush administration.

22After Maureen, we'll call on Steve Bolerjack to speak on behalf

23of NAM. Steve is antitrust counsel for Ford Motor Company, recently

81

1involved in a major international transaction, and also a graduate of the

2University of Michigan law school. I don't know about his sports affiliations.

3And finally, Bill Blumenthal will represent the U.S. Chamber of

4Commerce. Bill is one of the leading lights of the antitrust bar, a very

5respected colleague, has had numerous chairs in the Antitrust Section of the

6American Bar Association, and is a partner at King & Spalding in Washington.

7So Bob, we'll start with you and if we can all remember the next order, we'll

8just go on from there.

9Again, as with the prior panel -- and let us know when you have

10to leave, both Bob and Tom -- we would like to hold the questions until after

11the presentations are made.

12MR. WEINBAUM: Thank you, Mr. Chair, Madam Chair,

13Madam Executive Director, and members of the Advisory Committee. It's a

14privilege for me to be here representing the Business Roundtable to present our

15views on some questions that we know are of a great deal of interest to you.

16I would like to say at the outset I appreciate your

17accommodating my schedule so that I'm able to get down to Florida for my

18son's wedding festivities over the weekend.

19MR. RILL: You should definitely not miss that flight.

20MR. WEINBAUM: That's right.

21I also appreciate the fact that the panel has invited business

22people and representatives of business organizations to appear before you. I

23think it's exceedingly important that you get some of your testimony directly

82

1from the horse's mouth rather than filtered through our hired mouthpieces, very

2able counsel, but at the same time I think the perspective is sometimes a lot

3different. So in that sense I'm personally very appreciative.

4 I would like to start by indicating that two task forces of the

5Roundtable, the Task Force on Government Regulation and the Task Force on

6International Trade and Investment have been considering the work of your

7Advisory Committee since late last year. And we decided that the best way to

8go about trying to get some input from our membership was to develop a

9questionnaire.

10We developed this questionnaire, and to our pleasant surprise 54

11members of the Business Roundtable, which is roughly a third of the

12membership, did respond. The questionnaire went directly to the CEOs from

13Jack Smith and Phil Condit, who were the chairs of the respective task forces.

14We kept the questionnaire simple, one page, to maximize the prospects that we

15would get responses.

16Today I would like to share with you the results of the

17questionnaire because I think it may give you a sense of what at least members

18of the Roundtable business community think on some of the issues that you're

19grappling with.

20The first section of the questionnaire dealt with problems

21experienced with multijurisdictional reviews of mergers or acquisitions. Given

22the likely composition of the sample and the size and scope of the many

23Roundtable members from a variety of industries, it was surprising to us that

83

1only 30 percent of the respondents reported that they experienced problems

2with multijurisdictional merger reviews. Among those that reported problems,

3most identified difficulties with the burdens of the process -- 94 percent. More

4had difficulties there than with the substantive rules, where 56 percent said it

5was an issue.

6Obviously some have problems with both. For those members

7that did report problems associated with multijurisdictional reviews, only 43

8percent considered those problems so harmful or so costly that they would

9want to have the solution lie with the negotiation of some sort of an

10international agreement.

11Overall, 11 percent of those responding favored bilateral

12negotiation covering these multinational merger reviews. Less than 4 percent

13favored a solution at the World Trade Organization.

14The second section of our questionnaire inquired into members'

15experiences with market access barriers attributable to foreign antitrust-related

16business practices. The percentage of members that experience these barriers,

1731 percent, was approximately the same as those reporting problems with

18multijurisdictional merger reviews. And the percentage favoring the

19negotiation of an international agreement was also about the same -- 47 percent

20for market access issues and 43 percent for multijurisdictional merger review

21issues. And I might add if you haven't read it, we've attached the questionnaire

22results to the statement which was filed a few days ago with the Advisory

23Committee.

84

1The respondents preferred bilateral negotiations to multilateral

2negotiations to address antitrust-related market access problems. In fact, only

3one of the 54 respondents favored negotiation of a WTO agreement to address

4these access barriers attributable to anticompetitive practices.

5 Market access barriers are by their very nature targeted at

6specific industries, and it's not particularly surprising that most Roundtable

7members did not encounter problems in this area. Still, these barriers pose

8significant problems for the companies affected and do call for appropriate

9action by the U.S. Government. We want to emphasize that our questionnaire

10dealt only with the one category of market access barrier. That is,

11anticompetitive practices. Foreign anticompetitive practices.

12Our members' answers in this area, in our judgment, in no way

13bear upon the Business Roundtable's position concerning other types of market

14access barriers.

15I would like to now turn to some policy recommendations we

16would like to make with respect to international competition. The Business

17Roundtable recommends that the U.S. Government take constructive

18incremental steps based on shared experiences, bilateral cooperation, and

19technical assistance to other companies in order to develop an international

20culture of sound antitrust cooperation and enforcement. We therefore make the

21following specific policy recommendations:

22 First, we consider that the negotiation of a WTO competition

23agreement would be unnecessary and potentially counterproductive at this

85

1time. First there is no meaningful international consensus on the competition

2policy goals that would be advanced at the WTO. Second, we question whether

3the WTO has the institutional competency at this stage of its development to

4deal with anticompetitive practices that are for the most part perpetrated by

5private actors as opposed to national governments. Third, we're concerned that

6certain developing countries might use such negotiations to disturb the

7carefully crafted multilateral balance embodied in the WTO anti-dumping

8code.

9Finally, since linkages between competition and trade have not

10sufficiently developed, it would be difficult to determine how the relevant

11issues might be effectively tackled in a multilateral trade context.

12In the event there is a consensus to preserve a role for the WTO

13in this area, we believe a more constructive approach would be to establish a

14new work program on competition policy to assist the governments in framing

15competition policy issues, exchanging information and viewpoints, and

16providing technical assistance for the development and enforcement of

17appropriate antitrust laws.

18This recommendation, as you know, is consistent with the

19previously expressed Roundtable position.

20We also suggest that the United States continue to take a

21bilateral approach to international competition policy issues. Pursuit of

22additional bilateral agreements tailored to the similarities and differences

23between the national regimes involved we think is the most constructive

86

1approach for dealing with competition policies and market access problems

2confronting U.S. companies in key foreign markets.

3Furthermore, even though they may focus on matters of process

4initially, bilateral agreements offer an excellent opportunity eventually to

5promote greater harmonization or convergence of national policies.

6The following are examples of bilateral initiatives which we

7think should continue to be encouraged:

8First, we like the idea of continuing to promote the principle of

9positive comity. Encouraging countries to enforce their own antitrust laws

10where appropriate will help ease international tensions arising from

11extraterritoriality. Positive comity also provides a sensible systematic

12approach to fact gathering, reporting, and bilateral consultation among

13competition authorities.

14At the same time, the Roundtable believes that U.S. authorities

15should continue to exercise extraterritorial antitrust jurisdiction where foreign

16relief is not forthcoming, substantive violations are presented, the standards

17for U.S. jurisdiction are met, and effective relief can be obtained.

18We recognize that sovereign states may continue to have

19different views on various substantive antitrust policies, but the differences

20should be overtly expressed rather than implemented by inattention. It is not

21inconsistent, in our judgment, with national sovereignty for two nations to take

22steps that make it easier for each one to hold the other to its word. Suppose

23that private conduct in one nation violates the overt laws of another to the

87

1detriment of citizens of another nation. If the public authorities of the first

2nation do not take appropriate action for some reason, they should at least be

3willing to facilitate extraterritorial enforcement of laws entirely consistent

4with their own.

5The experience of PPG industries, a Roundtable member,

6illustrates this principle. PPG has pointed out that a tightly controlled

7oligopoly of Japanese flat glass manufacturers has been permitted to severely

8restrict access to domestic distribution channels through unilateral and

9coordinated exclusionary conduct. The conduct included enforced quotas for

10the purchase from Japanese producers, tie-in sales requirements, exclusive

11denial of product advertising space in domestic trade publications, and

12coercive financial leverage. To date neither MITI nor the Japanese Fair Trade

13Commission has addressed the problem, despite compelling evidence of

14conduct that their own law does not condone.

15In this kind of a situation, it is appropriate for U.S. antitrust

16authorities to step in and assert their authority to prosecute foreign

17anticompetitive conduct. We also think that it is important to continue to

18negotiate MLATs. Such agreements promise to substantially enhance the

19ability of U.S. authorities to prosecute anticompetitive practices as I described

20before. We think it is important to strengthen international enforcement of

21private antitrust actions.

22And finally, we think it is important to continue to expand

23technical assistance to developing countries to aid in the drafting of national

88

1antitrust legislation, the implementation of effective enforcement regimes, and

2the refinement of investigatory techniques. And the Roundtable has set forth in

3our paper some suggestions, areas where we think it is important to pay

4particular attention as we go forward to assist in the development of

5enforcement regimes.

6Finally, we think that premerger and preacquisition reviews

7conducted by multiple countries have the potential to subject American

8businesses to substantial transaction costs, and I would like to spend just a few

9minutes talking about this.

10As I pointed out, our member companies do not appear to regard

11these costs to be so great as to warrant the negotiation of an international

12agreement. This does not mean that these problems are not of concern for the

13companies that reported them or that this Committee's attention to this area

14would be misplaced. To illustrate with an analogy, we cannot conclude that

15there are no second request problems with respect to Hart-Scott-Rodino simply

16because second requests are relatively rare. Mergers with an international

17dimension are becoming increasingly common and for many of our members the

18full impact of these developments may not yet have been experienced, and we

19heard this morning that when we are filing in 9 or 26 countries and the

20prospects are great for those numbers to be enhanced, there are going to be

21substantial costs for business.

22In the area of multijurisdictional merger reviews, we're

23particularly interested in the promotion of best practices. Admittedly,

89

1multilateral negotiation of a code of best practices is probably not feasible at

2this time. The most realistic ultimate outcome might be some consensus on

3principles looking to unilateral adoption in whole or in part by various

4sovereign authorities. To move the process along, it would be helpful to

5develop a set of best practices in consultation with U.S. antitrust agencies,

6select foreign authorities, and private experts around the world. The objective

7would be not to negotiate a protocol but, rather, to develop and circulate a list

8of recommended best practices along with explanatory comments and perhaps

9alternative viewpoints. These are the kinds of things where we think would

10lead to an incremental improvement in how the respective jurisdictions go

11about their merger review obligations.

12In addition, the Business Roundtable supports steps to obtain

13greater transparency in antitrust enforcement. We have already alluded to this

14concept in our discussion of positive comity. I want to stress the importance

15of holding a nation to its word. Whatever substantive standards a nation may

16apply to its merger review, those standards should be publicly expressed and

17applied consistently. Again, it would be helpful to begin at home and continue

18to expand the information flow from our own agencies on the standards they

19apply. Our agencies are doing a good job but there is always room for

20improvement.

21That concludes the remarks that we would like to present to the

22Advisory Committee. There is some further detail in the paper itself, and to the

23extent you have any follow-on questions or concerns beyond any questions you

90

1would like to address to me today, we would be happy to furnish

2supplementary information to you. The Roundtable is privileged to be able to

3participate in the work of the Advisory Committee, and I thank you all.

4MR. RILL: I want to thank you very much and thank you for

5your efforts and your colleagues' efforts in putting together the questionnaire.

6I think that will be very helpful to us in our deliberations as well as, of course,

7your comments today. Tom.

8 MR. NILES: Thank you, Mr. Chairman.

9I'm pleased to have the opportunity to present the views of the

10United States Council for International Business on the important international

11competition policy issues before the Advisory Committee. I might just note

12that the Council participates on the international side of these issues through

13our affiliations with two organizations -- the International Chamber of

14Commerce where we represent U.S. business and also in the BIAC of the

15OECD -- we participate actively in both of those organizations.

16MR. RILL: Tom, I want to interrupt and commend the U.S.

17Council for the work it has done in this area. Your organization deserves a lot

18of credit. I also want to recognize your colleague, Nicole Domencic, who is

19here today and has done a lot of work in this area and it has been very helpful

20to us.

21MR. NILES: I can't take any personal credit for that because,

22as you've noted, I've only been with the Council for a couple months, but

23Nicole has been working on this for quite a while, and my predecessor, Abe

91

1Katz, was actively involved.

2 We will be giving the Committee a more lengthy paper. I'll try

3to keep my remarks short since we don't have a lot of time and there are other

4people who have important positions to present as well.

5I will briefly comment on three key issues: trade and

6competition, enforcement cooperation, and the merger review process.

7On the question of trade and competition, I might say we agree

8with the Business Roundtable position that it would be at the very least

9premature to begin any effort in the WTO to negotiate a multilateral agreement

10on the relationship between trade and competition policy. We support the

11continuation of the educational mandate that the WTO currently has with the

12working group on trade and competition. We believe that the working group

13should focus on the importance of transparency and national treatment, and in

14addition to consideration of enhanced cooperation should also consider

15appropriate measures and safeguards to protect the confidentiality of

16proprietary business information from improper disclosure.

17On this confidentiality issue I might note that one aspect of the

18WTO that should be kept in mind is that with 134 members, the WTO would

19not offer the sort of protection of confidential information that the participants

20in the earlier panel this morning were particularly concerned about.

21Obviously, a lot of those WTO members outside the OECD group would not

22have the sort of system that would provide protection for confidential

23information; one more reason why we think it would be very premature to get

92

1involved in the effort to negotiate a competition policy agreement in the WTO

2at this time.

3It is very much, we believe, in the interests of business and

4government alike to reduce duplicative and multijurisdictional enforcement in

5competition laws in the name of providing more certainty in competition policy

6and keeping down the cost of compliance. In this respect, USCIB members

7generally believe that positive comity can be an effective enforcement tool.

8Here we share the views expressed by the representative of the Business

9Roundtable. Positive comity, we believe, can be used effectively when the

10United States Government would be willing to defer jurisdiction where a

11problem can be effectively resolved by another country.

12However, in cases where private restraints and foreign markets

13appear to be impeding the export of U.S. goods or services, United States

14antitrust authorities should defer jurisdiction only if in doing so, it is certain or

15nearly certain to result in effective enforcement action by the local authorities

16that will eliminate those private restraints. I might say from a personal point

17of view, I am a little bit concerned about the idea that we should proceed

18extraterritorially in enforcing our antitrust laws, given some of the experiences

19I had over my career in the Foreign Service, most notably the Laker antitrust

20case in 1983-84, and the difficulties that particular case caused in our

21relationship with the United Kingdom, a country that feels very strongly about

22the issue of extraterritorial application of United States laws, including in the

23area of competition policy.

93

1Increased enforcement cooperation raises another important

2issue of concern to our members, and that is the protection of confidential

3business information and the exchange of information between antitrust

4authorities. Here we share the concerns of the panel in the earlier group; and I

5mentioned the problem that would emerge if indeed something were done on

6competition policy beyond the educational effort underway in the context of the

7WTO.

8The final area I will address this morning is multijurisdictional

9merger review. Our members continue to express concern on a number of

10issues relating to mergers. For example, USCIB members agree with the

11ICPAC's suggestions that competition authorities should not rely on filing fees

12for funding. The issue of thresholds is also challenging for business, and some

13of our members have suggested the need for the review of our own

14Hart-Scott-Rodino thresholds.

15USCIB members feel that the proliferation of merger notification

16requirements in countries developing competition laws is increasingly

17burdensome for business. Translation: the filing requirements can be costly,

18especially for U.S. businesses with substantial overseas operations. It's not

19unheard of that a multinational corporation with a proposed merger would be

20today required to file in 20 or 30 jurisdictions, and this will certainly continue

21to increase. For example, a merger such as that announced yesterday between

22Italia Telecom and Deutsche Telekom, and the earlier one between Daimler and

23Chrysler.

94

1In the merger area we believe that national governments and

2organizations such as the OECD can assist business by increasing the

3transparency of information regarding existing notification regimes and

4pending notification initiatives. Here we share the view expressed a moment

5ago by the representative of the Business Roundtable. Merely identifying and

6periodically updating information on merger laws in foreign jurisdictions and

7making such information readily available would be a great service to the

8business community. USCIB members believe the merger notification process

9in any jurisdiction should be tailored so as to avoid imposing any unnecessary

10transaction costs that do not have a direct correlation to effective competition

11law enforcement concerns in the effective jurisdiction.

12In this respect we support the OECD-BIAC recommendations

13with regard to the OECD project on the harmonization of merger notification

14requirements. We support the position that to the fullest extent possible

15information required to make an initial filing should be limited to information

16normally maintained by the parties in the normal course of business. When a

17transaction does raise serious competitive issues, the request for additional

18information, of course, may be necessary and even expected. As was stated in

19the BIAC recommendation to the OECD, proportionality should be a guiding

20principle in all jurisdictions which have or are considering merger notification

21requirements.

22 In conclusion, let me summarize a few of the recommendations

23of the USCIB, the ICC and BIAC, which I presented to you this morning, albeit

95

1in rather condensed form.

2Business advocates greater transparency of antitrust laws and

3procedures across all areas of competition policy. Regarding trade and

4competition, we support the continued and important analysis of trade and

5competition issues at the OECD, the WTO, and the ICC. We do not support

6moving toward an international framework on competition rules at this time but

7encourage increased bilateral cooperation and the use of positive comity.

8 Regarding the protection of confidential business information in

9the exchange of information between authorities and antitrust cooperation, we

10emphasize the importance of notice to business before sensitive information is

11exchanged by antitrust authorities in an investigation. On mergers, our

12members support efforts to create a more transparent and efficient process that

13will increase certainty in the filing process and keep transaction costs down.

14Finally, the USCIB commends the Advisory Committee for its

15work, and we look forward to continued cooperation with you. Thank you very

16much.

17 MR. RILL: Tom, thanks very much. Very comprehensive

18statement. I look forward to reading it in some detail. Undoubtedly we will

19have some questions here and hereafter. Maureen.

20MS. SMITH: Thank you very much.

21Before I begin I would like to express our appreciation on behalf

22of forest products industry for this opportunity to speak with you today, but

23more broadly to express our appreciation for the tremendous effort that you

96

1have been making to come to grips with the issue of competition policy and

2particularly for industries like ours where anticompetitive practices and

3especially other governments' toleration of anticompetitive practices is a

4genuine bottom-line issue which goes to our ability to sell our products and

5increasingly globalized international market.

6Today what I think my role on the panel is to kind of drill down

7and give you a very specific example of how the toleration of anticompetitive

8practices by the government of Japan in the paper market, as our colleague

9from the BRT pointedly made, is that these typically take place in individual

10product sectors, and give you a clear view of exactly how it works in practice

11to deprive us of market access, and why existing trade policy tools really do

12not get to the problem.

13First of all, let me make the point that the Japanese paper market

14is terribly important to our ability to compete on a global basis. It is, after the

15United States, the world's second largest producer and consumer of paper and

16paperboard. Nevertheless, import penetration in this sector in Japan is the

17lowest anywhere in the world. In 1998, imports from all sources in this

18product category accounted for just under 3.9 percent of Japanese paper and

19paperboard consumption, and imports from the United States represented only

201.7 percent of consumption.

21As I'm going through this I have to ask Merit's particular

22tolerance because I'm sure that she knows a lot of what I'm saying, at least as

23well as we do or anybody else, having been responsible for this issue over time

97

1in the USTR. But as I'm giving you these numbers, I have to emphasize that if

2you were to chart those figures for the past decade, and I believe for the past

3two decades, you would find that they vary plus or minus one-tenth of one

4percent at every stage of the business cycle, at every level of yen-dollar

5relationship, and across all variations of major macro indicators. So one has

6to come to the conclusion that there is very remarkably little sensitivity to

7market factors in this sector.

8 To put it in perspective, though, even a one percentage point

9increase in U.S. market share would be worth $400 million in additional U.S.

10export sales to Japan. So the fact that we've not been able to move those

11numbers at all over the past 20 years makes it clear how much sales our

12industry has lost over this period of time.

13Behind that, however, what I think needs to be said for this panel

14is if you look at the traditional barriers to market access, the Japanese case in

15the paper industry is a pretty good one. Tariffs are very low, two to three

16percent, and in paper particularly you don't encounter issues of standards or

17other traditional nontariff barriers. So one has to look for an explanation why

18this particular segment of the economy appears to be immune to market

19factors.

20Our conclusion is that competition in the Japanese paper market

21has been suppressed historically, by both governmental and private action

22which have made access for imported products extremely difficult with the

23unique exception of those products that are not produced domestically.

98

1And particularly the U.S. paper industry believes that this is

2attributable to an array of anticompetitive business practices. And as I go

3through this list you will see some parallelism with the list that our colleague

4from the BRT referred to describing the situation in the flat glass industry.

5First, a complex and largely closed distribution system; second,

6interlocking relationships between members of the keiretsu which include

7manufacturers, agents, wholesalers, trading companies, printers, publishers,

8other end users, and financial institutions. These relationships result in

9exclusionary business practices restricting the entry of new suppliers including

10imports.

11I might shed a little personal experience with you here. We have

12an office in Japan, and I tried to ensure that all of our programs and

13promotional literature was printed on American paper. I wanted to use it as an

14additional promotional tool to have a little logo at the bottom of it that said

15printed on high quality U.S. paper.

16Every single printer in Japan that we contacted told me that they

17would charge me a 50-percent, a 200-percent premium if I specified imported

18paper. And that just gives you an example of how this works, that even where

19a consumer is sold on the quality of the paper that they want to specify, and

20again we're talking about a very high quality paper here that we would be using

21for these publications, because of the relationships, the printers will not even

22entertain that request. Every barrier was put in my way, and to my chagrin I

23did give up.

99

1DR. STERN: They didn't say that the printer press would be

2broken if U.S. paper went through the press.

3 MS. SMITH: No, they didn't say that, but they said, and

4furthermore even if you want to pay that premium we will not guarantee that

5we will meet your deadlines. They threw every single obstacle in my path so

6that, as I said, even I at the end of the day had to back down, and say, I give

7up, just print it so that we can get a brochure about a promotional event before

8the promotional event is even over. I just wanted to share that with you.

9And reinforcing all this or the enforcement behind all this is the

10financial ties between manufacturers and distributors, preferential bank

11financing even for uncompetitive companies, a lack of transparency in

12corporate purchasing practices, and finally and most directly, inadequate

13enforcement of Japanese antimonopoly laws.

14Again, as Merit knows very well, in April 1992, the U.S. and

15Japanese governments, thanks to her excellent efforts, concluded a five-year

16agreement on measures to increase market access for foreign firms exporting

17paper products to Japan. And while there was no explicit recognition on the

18part of the government of Japan that one of the problems in the market were

19anticompetitive practices, among the remedies that were stipulated in that

20agreement was the development of antimonopoly law compliance programs by

21distributors, converters, printers.

22Concurrent with that agreement the Japan Fair Trade

23Commission undertook a study of the paper distribution system from the

100

1perspective of competition conditions. This report, which was released in June

2'93, again fits the pattern that is typical of many such JFTC surveys in that it

3did not identify specific actionable violations of the Antimonopoly Act but it

4did cite certain aspects of the paper distribution system which it found to be,

5quote, problematic.

6These include the capital relationships, again that we've cited

7between manufacturers, distributors, and wholesalers; the use of oral

8agreements to determine the terms of a transaction; the traditional after-sales

9price adjustment. And imagine the difficulty of competing when your

10competition in Japan does not submit a written bid in terms of price. And

11furthermore, that bid or the price that is paid can be revised several months

12later so that you have no ability to access the system on a competitive basis.

13What has been the effect of this particular provision of the paper

14market access agreement? Well, one positive benefit is that now rather than

15the unwritten understandings, there are actual written contracts. However, our

16understanding again based on people in the marketplace is that these are still

17subject to subsequent readjustments, so it's more of a, if you will, cosmetic

18improvement than a real improvement in the conditions of competition.

19Overall, however, the marketplace effects of the agreement

20regrettably were very disappointing. And again it is our view that this is due

21to the fact that there was no change whatsoever in the JFTC view of the

22anticompetitive practices in that industry.

23On the contrary, there is a case to be made that the toleration of

101

1these anticompetitive practices accompanied an explicit restructuring policy in

2the Japanese paper industry. And again this is a pattern that is very familiar to

3those of us who have worked with Japan.

4In terms of working with MITI, in 1994 MITI developed a report

5prepared by a study committee on basic issues in the Japanese pulp and paper

6industry, which those of us who have worked in this know as an elevation plan.

7And the objective was to restructure the Japanese paper industry in a way that

8would turn it from fundamentally an import substitution industry based on the

9domestic market alone to an export-oriented industry designed to serve regional

10markets.

11If you think about the competitive position of the Japanese paper

12industry where they depend to a large part on imported raw materials and

13where they depend entirely on imported sources of energy, the idea that you

14would entertain ambitions to become export-oriented makes it clear that this

15cannot be accomplished without substantial help from the government. And

16that is exactly what has happened over time.

17Even though, as I have mentioned, it is a very high cost producer

18and notwithstanding the fact that the domestic market was growing at only 2

19percent, Japanese companies initiated projects to add capacity equivalent to

201.7 million metric tons of new paper and paperboard capacity. The major

21players in the industry underwent a, quote, consolidation, which substantially

22strengthened the position of the leading producers and minimized direct

23competition.

102

1And finally, several paper companies obtained special treatment

2under Japan's business reform law. Whenever there is a reform in the title of

3Japanese legislation, my experience has been that the objective is not in the

4direction of reform but rather to return to protectionist and industry promotion

5policies that have worked in the past. But at any rate, under the business

6reform law, they received special tax credits and approval by the JFTC for

7cooperation with other companies in the industry in the course of this

8restructuring.

9The Japanese press at the time made it very clear that companies

10would cooperate to inject capital into weaker elements of the industry so that

11at the end of this plan, again, supervised by MITI, the Japanese paper industry

12would be strengthened and capable of being an export industry.

13 The results in the marketplace are very, very clear. Since the

14restructuring was completed, paper and paperboard exports from Japan in

151998 increased by an incredible 14.8 percent. At the same time, imports

16declined precipitously. This I think is certainly a case for our industry, but my

17purpose here today is not to tell you our problems in the Japanese market. My

18purpose here today is to present to you an example, one window on the

19Japanese model which we believe is particularly important, not just because of

20the impact on our industry, because it does serve as a model for other countries

21in the region which are following the export-led growth model. And we only

22have to look at the way similar practices are being applied in Korea and in

23China to recognize the importance of coming to grips with the specific aspects

103

1that I have identified in our sector.

2So we have developed some recommendations for your

3consideration that might assist in dealing with these. They are based on our

4experience under the agreement, and based on our experience in the

5marketplace of long standing, we have come to the conclusion that clearly the

6Japanese government has been unwilling to enforce its own Antimonopoly Act,

7and indeed that the toleration of these practices has served to advance their

8industrial restructuring plans.

9First, it is suggested that U.S. enforcers could request follow-up

10surveys in some of the sectors that have been surveyed in the past, including

11paper. The object of these surveys should be to assess compliance with Japan's

12own Antimonopoly Act. And the suggestion is that these be interactive surveys

13to the extent that we wish to avoid a repeat of the past when they were a

14whitewash of existing practices, but that there be some standards and some

15expectations established at the beginning as to the thoroughness of the surveys.

16 Second of all, U.S. enforcers could request the Japanese

17government's cooperation with a U.S. investigation of conduct in Japan that is

18hindering exports from the United States. We're not suggesting at this point

19that this be directly tied to enforcement action, but we do think that a joint

20investigation in this area would be useful.

21U.S. enforcers could help educate Japanese enforcement

22authorities and Japanese companies on the value of comprehensive

23antimonopoly law compliance programs and encourage their adoption by

104

1Japanese companies. This might be also a useful undertaking by some of our

2broader-based business organizations.

3We attempted to do something like this in our sector, and the

4normal language barrier was complicated by an absolute inability to

5communicate these concepts of compliance, the kinds of compliance programs

6that all of our companies understand and vigorously support.

7A compliance program in the Japanese paper industry means a

8statement in the files that says the Japanese manufacturing company is in

9compliance with the Antimonopoly Act. That's their idea of a compliance

10program. So I think that some real education in this area would be very, very

11helpful. But it is a major undertaking. As I said, we have tried it, and the

12groundwork is not there.

13It's suggested that U.S. enforcers could work with U.S. agencies

14responsible for compliance with existing trade agreements to determine

15whether conduct that constitutes noncompliance with such agreements amounts

16to an antitrust violation, and I think generally we do support very close

17collaboration between our trade authorities and our antitrust enforcement

18authorities.

19And finally, U.S. antitrust enforcers might consider supporting

20amendment to U.S. antitrust laws clarifying their application to conduct

21outside the United States which hinders access to foreign markets.

22Thank you very, very much.

23MR. RILL: Maureen, thank you very much. I hope you can stay

105

1with us because I have some questions. But I would like to, before we break

2for lunch, give us an opportunity to ask any questions we might have for Tom

3because I understand you have a time problem. Can you bear with us for a few

4 minutes to answer a few questions.

5MR. NILES: I'm fine, if anybody has any questions now.

6 MR. RILL: Let me just open up with a question. I see an

7interesting parallel on a question that Paula asked earlier. I see an interesting

8parallel between your views and those of the Business Roundtable, and

9skimming through some of the other statements, it seems to me there is a

10commonality of interest here in the business community which I find

11gratifying.

12MR. NILES: Not surprising, since their members are, generally

13speaking, our members.

14MR. RILL: That doesn't always work.

15 MR. NILES: It doesn't always. But not surprising.

16MR. RILL: I wonder if you feel that the Council and BIAC have

17been effective in making these views known to governments and

18intergovernmental organizations, starting with the U.S. Government. I'm not

19asking for a report card on your own performance, but whether there are

20improvements that could be made in overall relationships so that the U.S.

21business views can be adequately expressed in international communities.

22MR. NILES: I don't have the impression that we have a problem

23in this area, and I know we particularly appreciate the opportunity to present

106

1our views to this Committee, because I think it's somewhat unusual that

2 business views are presented in this way. It's probably a practice that could be

3more widely adopted across the range of U.S. Government activities, but we

4 certainly appreciate this opportunity.

5 I don't have the impression in this particular area, the area of

6competition policy, that our members feel that positions adopted by U.S.

7Government officials, whether in the OECD or in the WTO, are counter to the

8views of business.

9 MR. RILL: That's good to hear.

10MR. NILES: That doesn't always apply.

11MR. RILL: I understand.

12MR. NILES: For example -- well, I won't cite other cases, but

13there are plenty of them.

14MR. RILL: Let me acknowledge the presence of Debra

15Valentine, the general counsel of the Federal Trade Commission and formerly

16the head of the International Commerce Section of the Federal Trade

17Commission, and former partner of Tom Donilon.

18MS. VALENTINE: I would be interested in asking Tom one

19quick question before we leave you.

20First, one thing to perhaps assuage some concerns, which is that

21I also remember fondly the Laker days, and those I'm sure were not easy ones

22for you. In fact, there was --

23 MR. NILES: We won it.

107

1MS. VALENTINE: Yeah, I know.

2MR. NILES: We and the State Department did.

3 MS. VALENTINE: -- an interesting evolution in the way that

4other countries are looking at their antitrust laws and far more, including the

5EC notably and quite strongly in a very recent decision, are accepting the

6concept of extraterritorial effects.

7 MR. NILES: Or you can say that they're following our bad

8example.

9MS. VALENTINE: Or that we could be correct and they are far

10 more acknowledging it or accepting of it.

11But what I wanted to ask you about really was your push for

12positive comity and what you thought that could actually cover and

13accomplish, where you thought that would really work and whether you were

14even -- because you used it as a potential method or means for eliminating

15multiple reviews, transaction costs -- and where I thought you were first going

16was actually to be talking about it in the merger area where it's obviously much

17more difficult to do.

18MR. NILES: No, I wasn't referring to it in the merger area,

19although it might indeed some day come to that, given the number of mergers

20and acquisitions which are crossing the international borders. For example

21between the European Union and the United States and Japan, every major

22acquisition in one of these jurisdictions has significant effects in the other. At

23some point, given the number of mergers and acquisitions that we're likely to

108

1be looking at downstream here, we might want to think about whether the

2principle of positive comity could be applied in some way to mergers and

3acquisitions. But that's not our position. I'm just raising that as a possibility.

4MR. RILL: Or even traditional comity.

5MR. NILES: Not negative comity, though, as we heard earlier.

6MR. RILL: I think I prefer calling it traditional comity and

7positive comity. Paula?

8 DR. STERN: I have some questions for those who have testified

9so far, and I want to say that it's really gratifying to see the business

10community coming forward. We have really worked to prime this pump, and

11it's finally very good to hear from representatives directly who are in the

12business community. That goes to Robert Weinbaum's point. I'm sorry he is

13not here, and I know that he will, however, be reviewing the transcript.

14 I would invite each and every one of you to take the opportunity

15after this hearing if you have further thoughts, further questions or further

16responses to your questionnaires, et cetera, to share them with us because this

17has been one of our primary objectives as a private independent advisory

18group, to reach out, outside of the government to encourage responses because

19this is not a government group. This is an independent advisory group that is

20sponsored by the government.

21The questions that I have relate to some of the topics that we

22talked about in the earlier panel today, and the fact that there has been this

23coincidence of positions is very helpful to the advisory group to know what

109

1consensus may be emerging in the private sector about the role, for example, of

2the WTO.

3Particularly you, Ambassador Niles, and Mr. Weinbaum's

4testimony overlapped in stating the concern that the WTO not negotiate an

5agreement. And you, in your testimony, specifically talked about an

6educational role exclusively, and that you do not support the establishment of

7WTO principles or rules.

8I would like to ask you to dive a little deeper here with me. The

9existing WTO services agreement has competition principles embedded in the

10telecommunications segment of that agreement, so the WTO is already, if you

11will, a little bit pregnant when it comes to principles. And I'm wondering if it

12is the position of your organization or of the business community that those

13competitiveness principles have been a mistake, that we should negotiate to

14remove them, or alternatively they may, in fact, be a very good first step that

15should be built upon in other sectors in the services area, such as other

16telecommunications or regulated industries or formerly government-owned

17industries that have been privatized, such as the energy sectors or other sectors

18in distribution, transportation, delivery services, and whether, indeed, one

19should even take that principle and bring it out of the GATT services

20arrangement and apply it into nonservices area, into the goods area. So I wish

21that you would talk to me a little bit more about that aspect of the WTO's

22experience.

23MR. NILES: Sure. Our position on the role of the WTO or

110

1competition policy in the WTO, intersection between trade and competition

2policy, is not based on the view that the WTO should never get involved in the

3subject but, rather, it's premature to try to do it today, in part because, at least

4in our view, there is no consensus among WTO members as to what that might

5be and what might emerge from this process. And indeed the working group on

6trade and competition policy may ultimately, we don't know when that is, lead

7us to the point where we might, indeed, see sufficient consensus to negotiate a

8more general agreement. So we're not saying don't do it ever. We are saying it

9would be distinctly premature to undertake such an effort now, and it would

10simply accentuate or bring to the fore differences between WTO members.

11There is also the issue I mentioned about confidentiality of

12information. If we got hypothetically into an information exchange with the

13134 members of the WTO, we would have a major confidentiality problem on

14our hands, much beyond anything we have experienced before. In fact, as we

15heard today, the exchanges we have now on a bilateral basis with OECD

16member countries work quite well from the confidentiality point view. So we

17feel that it would be premature but we shouldn't say never, but I'm not sure

18when ever might be.

19For example, within the time frame of the next multilateral trade

20round, the millennium round, which we hope will be initiated in Seattle in

21December, we would certainly not see this as the time to begin to have anything

22more than an educational effort in the WTO on competition policy practices.

23Now, in terms of what was agreed on GATT's agreement on

111

1telecommunications, that really was a very specific agreement with some very

2unique characteristics where you were dealing with sectors, which in most

3countries, though not the United States, were state-controlled sectors where

4you didn't have any degree of competition at all, even the degree at which we

5were in 1986 at the beginning of the Uruguay round, when competition had

6developed within the U.S. telecommunications sector as a result of divestiture.

7So it was necessary there and certainly this is a positive element. But I don't

8think those principles could necessarily be applied today across the range of

9activities in the WTO.

10DR. STERN: Do you feel that they should be looked at?

11MR. NILES: We don't have any problem at all with that. But

12another thing, our members who are in one aspect or another of the

13telecommunications business aren't all dissatisfied with what was done in the

14WTO on telecom, but we don't feel that the situation is propitious today to

15generalize from that agreement into other sectors.

16DR. STERN: So there should be a standstill on applying

17principles, competition principles potentially to any other sectors and services?

18MR. NILES: No. We don't want to move back from what was

19achieved in the Uruguay round, but we don't feel at this point that we want to

20move forward into other areas.

21 MR. RILL: One other point to the question, it's not clear

22exactly how well it's worked in the telecom area, but I'm not qualified to speak

23to that.

112

1 MR. NILES: Nor am I.

2DR. STERN: That's why I was asking if you have experience --

3MR. NILES: I'm not qualified on that either, Jim, but I would

4think that the fact that we haven't heard any complaints from our members,

5which include major telecom providers, service providers, equipment

6providers, suggests to me that it is probably working pretty well. The more

7you hear about it --

8DR. STERN: Well, I would venture to guess that the USTR will

9 be working on other sectors, and so it's very interesting to hear that --

10MR. NILES: You mentioned transportation. I dare say that's

11one sector they won't be working on. Excuse me.

12DR. STERN: I mentioned delivery services. And distribution.

13MR. NILES: Well, civil aviation is an interesting area, but I

14have a feeling that if we raised civil aviation, others would raise shipping.

15 DR. STERN: Well, since we'll be hearing -- I think we were

16planning to hear from representatives from UPS tomorrow, but that's been

17rescheduled. So it's very helpful to hear your comments from the overall

18organization.

19 MR. NILES: This is an area in the United States that is highly

20competitive. FedEx and UPS are around the world providing services very

21effectively and profitably. There are others sectors, shipping, where we're not

22so --

23 DR. STERN: May I just --

113

1MR. RILL: I'm sorry.

2DR. STERN: I think your position is very clear, and I

3appreciate your going down to other possible roles which you feel the WTO

4should not -- or the U.S. Government, I guess, should not venture.

5My question to Maureen Smith, my dear colleague, is if you

6would comment, please, on the experience that you are having to date with the

7U.S. Government, and whether you feel that there is a role -- the government is

8adequately equipped to take up this issue with the Japanese government absent

9the market access agreement which is now defunct. This is a very dramatic

10presentation.

11MS. SMITH: Thank you.

12Actually, we have, like I'm sure several other organizations,

13responded to the Federal Register notice regarding the reinstitution of Super

14301. And one of the priorities that we identify is to look at the paper market

15access agreement and the role of anticompetitive practices in failing to reach

16our objectives in that agreement, and making the point that the government of

17Japan was not one day within the five-year term of that agreement found to be

18in compliance by the U.S. Government. And now that there is no agreement for

19them to be not in compliance with, we do not think that that is a basis for

20assuming that they are in compliance.

21We think that there is still a compliance issue out there. And in

22view of the fact that this is about a $40 billion market and our normative share

23of that market should be about $4 billion every year as opposed to last year we

114

1sold about $650 million, we think that gap of about $3.5 billion a year merits it

2being one of the Super 301 priority practices. So thank you very much for the

3question.

4MR. RILL: It didn't sound like you were prepared for the

5answer.

6DR. STERN: You're very welcome.

7I understand from my colleagues, that's why the notes were

8going back and forth, excuse us, that we will be convening this panel again

9after lunch, but I know Maureen told me she wasn't staying for lunch, so I was

10trying to get my questions in.

11MS. SMITH: I will certainly stay and make myself available for

12questions.

13MR. RILL: You'll be back then when we reconvene. This is

14probably a very good time to break for lunch and reconvene. We can do it in

1545 minutes. 2:00?

16(Recess.)

17SESSION TWO

18MR. RILL: Our panelists are ready, so I guess we should be as

19well. While we're waiting for Bill to show up, let me acknowledge the presence

20Tom Leary, who has joined us representing the Business Roundtable. Bob

21Weinbaum, for reasons he explained, had to leave. Tom, I've known for only

22about 30 years. He's been at it much longer than I. Tom's a partner in Hogan

23& Hartson. This is Hogan & Hartson day. We had Janet McDavid. Tom was

115

1a chief antitrust counsel for General Motors for a number of years. Before

2that with White & Case, and since that for about the last ten years with Hogan

3& Hartson.

4MR. LEARY: 16 actually.

5MR. RILL: So he's got tenure.

6He is one of the real antitrust scholars and practitioners of our

7time and has represented the Business Roundtable for more than 20 years.

8DR. STERN: I certainly hope you will pick up on the question

9then that I put to Bob Weinbaum in his absence about what the BRT's position

10is regarding principles, WTO principles, and the applicability of that notion in

11the telecom area, the services area.

12MR. LEARY: The same question.

13DR. STERN: Exactly. I would be very interested in getting the

14BRT's position on that.

15MR. RILL: While you're thinking of your answer to that

16question, we're going to be hearing from Steve Bolerjack and Bill Blumenthal.

17MR. LEARY: Not today.

18DR. STERN: That's fine. But it's important in light of the

19dialogue that we did have that we get the record complete.

20MR. LEARY: Sure.

21MR. RILL: Steve.

22MR. BOLERJACK: Dr. Stern, Mr. Rill, members of the

23Committee, the National Association of Manufacturers thanks you for the

116

1opportunity to address you regarding its concerns about U.S. international

2antitrust policy. I also want to echo the appreciation expressed by the

3representative of Roundtable that you have taken the time and the effort to

4assure involvement by representatives of the business community at these

5hearings.

6The National Association of Manufacturers is an industry trade

7group, the nation's broadest-based industry trade group. It has more than

814,000 members, for those of you who are not fully familiar with it. About

910,000 of those members are small manufacturers. They produce about 85

10percent of all manufactured goods in the United States and employ over 18

11million people. NAM attempts to enhance the competitiveness of

12manufacturers and improve living standards by shaping a legislative and

13regulatory environment conducive to U.S. economic growth and increase

14understanding among policymakers, the media and the general public about the

15importance of manufacturing.

16The NAM strongly supports the U.S. antitrust law as affording

17valuable protection from unreasonable restraints and a good supplement to the

18workings of a free market. It also supports the antitrust or competition laws of

19other countries provided they are enforced evenly and fairly. It has concerns,

20however, that all too often foreign antitrust authorities are not even-handed in

21their dealings with U.S. or foreign companies, and that their laws and

22enforcement policies have motives different from the stated purpose.

23I would like to start this portion of my remarks on the primary

117

1international antitrust concern for NAM: premerger notification and

2multijurisdictional merger review. In the United States we've been dealing

3with the requirements of the Hart-Scott-Rodino Act since 1978. However, as

4members of this Committee are well aware, within the last decade numerous

5jurisdictions have initiated some form of merger notification so we are now

6over 50, or at least that's what I heard from Chairman Pitofsky, that was in the

7fall. Lord knows how many there are at the moment.

8 MR. RILL: He's been saying the same number lately.

9MR. BOLERJACK: Oh, he hasn't changed? One of the reasons

10is there is no good single source for finding which country has a merger

11 notification requirement, as has been pointed out.

12Again, as you know, the procedural requirements vary greatly

13from country to country. Numerous jurisdictions require a filing in the

14absence of any domestic effect whatsoever, and this results in needless cost to

15business and unfortunate delays. The causes of these costs and delays again

16are well known. Many laws have very low thresholds based on worldwide

17turnover. The time periods in which a filing must be made vary widely. They

18are triggered by different events. The filings require different levels of detail

19and different sorts of information not collected in the ordinary course of

20business. And protection accorded confidential information submitted by

21merging parties varies widely amongst the jurisdictions.

22In addition, the concept of requiring a filing fee for this law

23enforcement function, exported from the United States, creates conflicts of

118

1interest at the agency and eliminates any incentive in the agency to seek

2efficiencies and should be strongly discouraged.

3 A number of jurisdictions have laws with thresholds so low that

4acquisitions unlikely to have any domestic effect on competition must be the

5subject of filings and the serving of a waiting period. An example we proffer

6is the Slovak Republic, in which -- don't chuckle -- in which the thresholds are

7expressed in terms of the worldwide turnover of all merging parties, which

8comes to about $9 million, and individual turnover of any merging parties in

9excess of $3 million worldwide.

10 There is no requirement for any domestic effect on competition.

11If one of the parties has no or minimal sales within the Slovak Republic a

12notification is still required in theory. The waiting period is one month, but

13requests for additional information toll that period and the authority typically

14requests additional information several times in order to prolong the period.

15Other examples you're probably aware of are Brazil and Poland.

16The events which trigger the requirement that a notification be submitted and

17the period for review vary widely, resulting in difficulty in coordinating the

18filings, and it extends the period of what I will call competition law

19uncertainty. Business's desire in this is certainty as to where the filings must

20be made, and to identify any authority that may object to a proposed merger at

21the earliest possible stage, so it may be dealt with.

22Unfortunately in this instance an example would be Brazil,

23which has an initial review period of up to 72 days. Notification must be filed

119

1within 15 working days of signing an agreement. It used to be prior to closing.

2They have now come out with a new opinion: if you have in your agreement a

3provision that the seller will operate the business in the ordinary course, that is

4an example of the buyer exercising control, and so they want the notification

5within 15 days of signing the agreement.

6 The period can be extended for an additional 120 days if

7additional information is requested. Other countries have similar

8requirements. As you know very well, under Hart-Scott a filing need not await

9a definitive agreement, it can be done at a very early stage. So the result is

10that decisions by enforcers in these countries can follow the U.S. decision by

11three, four, five months, and you're sitting in an area of uncertainty. The

12example I would give you is a major merger, not mine, that is still under review

13in Brazil, and it's been over a year.

14In addition, there is no effort to achieve uniformity in the

15substance of the information requested in the filings or the level of detail

16required. The United States requires truly a minimum of information in a

17Hart-Scott filing. They save for a second request their truly impressive desire

18for detail. The European Union requires a significantly greater level of detail,

19and most foreign countries, at least in my experience, tend to work off the EU

20form and require that sort of information. But they vary greatly in the

21background information which must be submitted, the level of detail provided,

22and any connection with the transaction is sometimes completely absent.

23You've never had fun until you've tried to figure out whether anyone in a major

120

1multinational company has joined a trade association in Poland, and if so, what

2their name and address is and the identity of all the other members. Even

3though that trade association may have absolutely nothing to do with the

4acquisition you're carrying out, the enforcers are frequently not willing to

5waive the requirements, so if Hertz has joined a trade association of travel

6agencies or rental car producers, an acquisition on the automobile

7manufacturing side of the business would still require that seemingly irrelevant

8information.

9The recent effort of the Organization for Economic Cooperation

10and Development in this regard unfortunately does not seek to establish a

11single form, but rather a menu from which a meal, if you will, can be chosen.

12You know you're eating at McDonald's, but there are still 10,000 combinations

13and permutations. Another problem is the requirement that the acquisition

14document, which is rarely a basis for objecting to a transaction, be translated

15in its entirety. These agreements can take up volumes, and they almost never

16have anything to do with any competition law issue.

17So the NAM urges the Committee to recommend the first step in

18addressing these problems is a revision of the Hart-Scott-Rodino Act and the

19implementing regulations to eliminate exactly these same problems. Only then

20can this country speak with authority on the problems imposed by other

21regimes. The basic $15 million threshold has not been changed in over 20

22years. If this had been adjusted for inflation using the CPI, it would now be

23about $43 million.

121

1The NAM recommends that HSR thresholds be increased

2automatically on an annual basis, commensurate with the gross domestic

3product deflator, an indicator of inflation in the entire economy. For 1998,

4this translates into an HSR threshold of $26.68 million. The values contained

5in the regulations should similarly be adjusted to account for inflation and

6indexed to the GDP deflator to account for future inflation. It's noteworthy

7that the fines for violating Hart-Scott are indexed to account for inflation, but

8the dollar value for determining whether filing is required are not.

9The Government statistics reveal that transactions valued below

10$25 million will raise few, if any competitive concerns. In their report to

11Congress for fiscal year 1998, the FTC reported they had received 1,235

12filings on transactions valued at $25 million or less. The agencies initiated

13second request investigations in only 11 matters or about nine-tenths of one

14percent of those transactions. The remainder of the notifications received

15clearance without much of an issue; in 95 percent of the cases neither agency

16received clearance to even contact the parties.

17The filing fees alone in the remaining 1,224 transactions cost the

18acquiring parties $55.1 million, more in attorneys fees and the savings lost due

19to the delay in implementing efficiencies that would have resulted from these

20transactions. By the way, if the threshold was raised to $50 million, these

21numbers do not change all that much except the number of transactions double,

22the filing fee or single element of cost will double to $106 million, but rather

23than investigating in a second request mode 0.9 percent of the transactions,

122

1they investigate 1.2 percent of the transactions. Rather than not requesting

2clearance in 95 percent of the cases, it dropped to not requesting clearance in

394 percent of the cases.

4In addition, the Committee should recommend that any filing fee

5or tax on transactions, which is what it truly is, should be delinked from

6funding for the agencies. The existing linkage creates a conflict of interest for

7the agencies, eliminates any incentive for them to achieve efficiencies by

8reducing the workload generated by these unnecessary filings, and it exposes

9them to a substantial funding cut in the event of a reduction in filings, which is

10exactly what happened between '89 and '91, when filings dropped 40 percent.

11It's all very well and good for to us to express disapproval of the Romanian

12system, in which filing fees are used to provide bonuses for the employees

13reviewing the transactions, but how different is that from the existing U.S.

14system where the fees are used to fund the entire agency budget?

15Another contribution the Committee could make would be to

16encourage the Attorney General to institute efforts to harmonize international

17merger notification procedures. There are a variety of alternative methods that

18can be used, including efforts to try to achieve a common reporting threshold

19and test for national effects, as well as a common form and waiting period.

20The fact that there are numerous alternatives that could be discussed shouldn't

21deter the parties from initiating these discussions because until discussions

22start, no one will make any changes.

23It would seem that the United States and European Union are

123

1necessary parties to any such discussion, and NAM would suggest that initial

2efforts toward an agreement should be limited to these two enforcers, and

3possibly a few others, rather than trying to achieve a consensus with a

4convention of 50 or more enforcement agencies in the room. Consideration

5might be given to a system permitting less detailed reports with shortened

6waiting periods for transactions the parties feel are likely to raise no antitrust

7concerns, such as the Canadian system. It's also critical that the team studying

8this should include business representatives, and we would hope the Committee

9would consider making that recommendation also.

10Our comments on trade and competition policy interface issues

11will be brief. NAM also is concerned that far too often the enforcement

12policies of other countries reflect an effort to protect domestic industry. The

13Japanese flat glass industry represents an example of the Japan Fair Trade's

14Commission failure to enforce its own antitrust laws. I think this group earlier

15has heard a sufficient amount about this. I would just like to raise a couple of

16points.

17 The two industries who are NAM members, who are very

18familiar with this, are Guardian Industries and PPG Industries. They have had

19very good success in other Asian markets. This is not a one-shot deal. They

20have been trying to gain access for decades. The NAM is aware that U.S.

21antitrust agencies have been in discussions with their Japanese counterparts

22about entering into a cooperation agreement, similar in some respects to the

23one in the European Community, and including the concept of positive comity.

124

1Such an agreement would not be advisable until the JFTC acts to resolve these

2outstanding competition issues in a manner that is both transparent and

3credible.

4The NAM expressed very strong reservations and concerns about

5the International Antitrust Enforcement Assistance Act at the time of its

6passage. Even in the face of the enactment of that law and our being here

7today expressing a desire for harmonized standards, we wish to reiterate our

8primary concern; specifically, the sharing of data and other proprietary

9information furnished to U.S. antitrust enforcers that could be useful to

10another country's domestic industry.

11The example which -- I came in at the tail end of the discussion

12this morning and did not hear all the comments about the European Union, the

13Member State Advisory Committee, and furnishing all information provided

14DG-IV to representatives of that Committee. That process raises significant

15concern on the part of NAM and its member companies. We feel further action

16has to be taken to keep such information confidential. Possibly shutting it off

17at its source, which would be a recommendation to the Attorney General that

18the enforcers in this country consider the suggestion that certain documents

19should not be given to them except in a redacted form, and stop the insistence

20that each and every document be provided; the position that if there is one

21responsive document in a binder or book they be given the entire book, even

22though the remainder are not related at all to the transaction at hand, but may

23have very significant confidential information. The concern that parties

125

1refusing to grant confidentiality waivers are attempting to obtain some

2illegitimate procedural advantage is, I think, very, very often misplaced.

3In conclusion, the NAM would like to thank the Committee for

4the opportunity to be here today and express our position on this matter.

5Anything we can do to provide further input to the Committee in the future we

6would be very pleased to do. Thank you.

7MR. RILL: Steve, thanks very much, and appreciate your effort

8and the effort of NAM to bring a further business perspective to our

9deliberations. I want to pursue, I'm sure the rest of the panel will as well,

10some questions with you, particularly I think with regard to cooperation

11agreements. But first let's hear from Bill Blumenthal.

12MR. BLUMENTHAL: Mr. Chairman, thank you. I'm pleased to

13be here today on behalf of the U.S. Chamber of Commerce, and the Chamber in

14turn is grateful for the opportunity, as are the other business organizations, to

15present its views to the Advisory Committee.

16The Chamber is the world's largest federation of businesses. It

17represents more than 215,000 businesses and organizations. Many of those

18businesses are members of the other organizations from which you're hearing

19today, so you won't be surprised to hear a substantial symmetry in the views of

20the Chamber and those of the other panelists. I will try to keep the redundancy

21down.

22MR. RILL: Or perhaps the controversy up. I'm only kidding.

23MR. BLUMENTHAL: As increasing numbers of sovereign

126

1jurisdictions have elevated the role of competition policy in their domestic

2affairs, the business community has faced an increasing burden of duplicate

3enforcement and inconsistent standards. Now, as a general principle the

4Chamber favors enhanced cooperation and increased harmonization as means

5to reduce those burdens. But that principle has to be tempered by the

6recognition that the desirability of harmonization is extremely sensitive to the

7choice of standards by which that harmony is to be attained, and equally

8important that cooperation is desirable only if appropriate procedural

9protections are afforded the parties that are under investigation.

10As you know, there are many issues that arise with respect to

11multijurisdictional law enforcement and international cooperation. The

12comments that the Chamber is going to be presenting today address those

13issues, only those issues, really, that have provoked the greatest expression of

14concern among our members. We take the occasion with respect to merger

15issues in particular to reiterate the business community's belief that

16transactions cost associated with the merger review process can be and should

17be reduced, and can be reduced without subverting the legitimate objectives of

18competition policy. And we will then turn briefly to a concern that arises in

19both merger and non-merger contexts. We've already heard a fair bit about it

20today, namely the potential that the confidentiality of sensitive business

21information might be compromised amid international cooperation efforts.

22Turning first to merger review issues: In light of the spread of

23the disparate filing requirements around the globe, in light of the increasingly

127

1complicated regulatory framework and the escalation of transactions costs, the

2Chamber believes the United States can serve an important role by establishing

3a benchmark for the rest of the world. Before the United States, however, can

4legitimately lay claim to a position of global leadership in the field of merger

5review, the Chamber's view is that the U.S. first needs to conduct a balanced

6and candid assessment of its domestic requirements.

7We identify several possible reforms that warrant consideration.

8Most of these thoughts are not original. Indeed, as you will recognize, many of

9them are derived from the prior views that have been expressed by members of

10the Advisory Committee and by its staff. And our purpose as to those is to

11express the business community's endorsement.

12Before getting into specifics, I feel compelled to observe in light

13of the populist origins and the Jeffersonian traditions of antitrust that there is

14no inconsistency here between sound competition policy and the interests of the

15business community. In particular, many and perhaps most of the antitrust

16cases that have been brought every year relate to intermediate goods and

17services, and as you know that means the purchasers are businesses. The

18members of the organizations appearing on this panel account for a very

19substantial portion of the consumption that occurs in the United States. And

20with that let me turn to several specific observations with respect to merger

21review.

22First, the Chamber, too, shares the view that the number of

23required filings in the U.S. should be reduced. The very large number of

128

1transactions that require filings today results from updated filing thresholds

2that have not been materially revised since the passage of the Hart-Scott Act in

31976. Based on historical indices measured by either inflation or perhaps a

4better measure, the rise in the stock market, alternative measures of asset

5value, the size of transaction threshold in particular is no longer in line with

6economic reality. And the Chamber supports a substantial increase in that

7threshold commensurate with the appropriate indices as well as an increase in

8other conforming thresholds throughout the regulatory structure. We believe

9serious consideration should also be given to indexing.

10The second observation as to mergers, that the budgets of the

11FTC and the Antitrust Division should not be dependent on merger filing fees.

12As others have observed, Congress has come to rely almost exclusively on

13filing fees for purposes of funding of not only merger enforcement, but also the

14Antitrust Division's criminal enforcement activities and many of the FTC's

15consumer protection activities. That has resulted in a cycle of dependency

16with certain unfortunate consequences as a matter of public policy. They're

17laid out in the paper. They're essentially the same that Steve identified.

18The third observation as to merger policy, that the information

19requirements of the second request process in particular ought to be narrowed.

20The process as practiced in the U.S. is extremely burdensome. Our members

21have observed that the information demanded by the enforcement agencies in

22the U.S. during the second request process is almost invariably broader than

23the information demanded by foreign counterparts during comparable

129

1procedural stages. We recognize that to some extent this may derive from the

2substantive merger statutes in the different jurisdictions. We also recognize

3that there are substantial inherent difficulties in specifying with any precision

4the manner by which merger reviews are to be conducted.

5The second request process does have some difficulties that

6ought to be remedied. Many of the burdens faced by the business community

7arise not just out of the substantive information demands but also from

8indefinite deadlines, translation requirements, various packaging instructions.

9The typical 1.5 cubic foot carton, for example, is a packaging instruction --

10not that that one is problematic, but it's illustrative.

11Many of these considerations have already been identified and

12described and assessed by the Advisory Committee staff, and I refer in

13particular to the working draft proposals in a discussion drafted March 25.

14Without intending to offer a blanket endorsement, the Chamber does believe

15that the staff's views have very substantial merit and warrant serious

16consideration.

17The fourth observation with respect to merger enforcement, the

18burdens associated with multijurisdictional reviews are not limited to the

19transnational context. Within the U.S. itself there are individual transactions

20that are often subject to multiple reviews by differing regulatory and

21enforcement agencies at the federal, state, and I think even local levels. And in

22many instances various U.S.-related agencies apply discordant and even

23inconsistent standards. The Chamber does not use this occasion to urge any

130

1particular plan or program as a remedy. We instead limit ourselves to the

2simple observation that as the Advisory Committee is considering best

3practices that might be adopted in a transnational setting, it also seeks to

4identify approaches that have been adopted by hierarchies of jurisdictions

5outside the U.S. as a means of reducing redundancy and burden here.

6Let me quickly address confidentiality concerns, which arise in

7both merger and non-merger settings. These are substantially the same that

8Steve identified before, so I'll be brief. The Chamber recognizes the

9importance for the ability of antitrust enforcement agencies to exchange

10information. We also recognize that statutory language currently in place does

11afford protection of confidentiality for most types of business documents that

12are shared. There is, however, as you know, a movement that has been

13underway to facilitate increased information sharing between governments, and

14the Chamber fears the possible leakage of business information that could

15occur and would have extremely detrimental effects on U.S. companies. While

16we are not aware that any such leak or disclosure has occurred to date, that

17should not reduce our attention to the potential severity of the problem. It

18remains important to recognize that foreign countries maintain different laws

19and different practices from our own, and that some of those could adversely

20affect the security of confidential information that is in their possession.

21In the Chamber's written remarks we lay out a number of issues

22to which we direct the Advisory Committee's attention. With that, let me close

23by saying the Chamber is grateful for having been given this opportunity to

131

1present its views, and we very much look forward to the opportunity to work

2with staff to elaborate on any questions.

3MR. RILL: Thanks very much. Tom, do you have any

4comments to make?

5MR. LEARY: Well, maybe you wonder why the Roundtable did

6not offer similar comments, and I guess there are two reasons for that. First of

7all, the Roundtable is really a somewhat different organization than either the

8NAM or the Chamber in that it has a much smaller membership. In other

9words, we're talking about an organization with 165 members as opposed to

10many thousands. And therefore we felt it was more appropriate to present to

11you those concerns that had been affirmatively identified by our members. I'm

12sure that every Roundtable member is a member of one or the other if not both

13of those organizations, but they have a great many additional members as well.

14 I don't have any quarrel, and I am sure that our members have no

15quarrel, with the substantive suggestions that were made by the other two

16associations here, and we endorse them. I think with specific reference to

17Hart-Scott-Rodino reforms, there is just one additional problem that I'm sure

18we all recognize. It is encapsulated in one of my favorite political slogans.

19There was a cynical old political boss a number of years ago who used to say:

20"Never confuse what you would like to happen with what's going to happen."

21And I'm afraid that's one of the problems we have with Hart-Scott-Rodino

22reform. I'm not talking about tweaking the second request process. I'm talking

23about changing the thresholds and so on and so forth.

132

1In the present political climate, I just don't think anything like

2that is going to happen unless we can figure out a way to do it in a

3revenue-neutral way. I think probably everybody in this room agrees that

4ideally there should be a disconnect between Hart-Scott-Rodino funding and

5funding for the agencies. But politically that seems to be a nonstarter right

6now. And I think we all have to think very, very hard about ways of getting

7from here to there that are consistent with present political realities.

8MR. RILL: Thank you, Tom. Let me see, Paula or John?

9MS. FOX: I had wanted to ask some questions of Maureen

10Smith, if I can. Thank you all for your presentations.

11MS. SMITH: Thank you.

12MS. FOX: I had two questions. The first is this. I'm sure

13you've heard these arguments before. I hear these two arguments all of the

14time, and I would like to know your response to them. The two arguments go

15like this. Number one, you presented a very powerful case, but where are all

16the other cases? Is your case typical or not? Another way of asking that

17question is how big is this problem of blockage of market access by reason of

18private restraints, and how do we go about finding that. The argument is we

19don't have information, therefore it's not a problem.

20The second argument that's made is very interesting, but it

21doesn't make economic sense. Why would the Japanese, who need to get best

22executions, say the big buyers of paper need to get best execution in the

23marketplace, why are they going to deal with inefficient businesses, supplying

133

1them or inefficient distributors distributing their product? Why is a bank

2going to pour money down a black hole?

3So part of that proposition is we don't really think it happens,

4and if it's happening, then the Japanese, like everybody else in the world

5feeling the harsh pressures of competition, are going to have to shape up and

6get that best execution. So I would like to hear your responses to that.

7My other question, if we get to it, is whether an instrument in the

8WTO could help solve the problem by putting more pressure to enforce the

9law.

10MS. SMITH: I'll answer all three questions, how about that?

11First, absolutely not. I gave you a specific case because each

12episode or each case is different in the particulars, but I don't want to prejudge

13his remarks, but I have a strong feeling that Steve Farrar tomorrow is going to

14tell you a very similar story in flat glass. And let's not forget that a couple of

15years ago the U.S. documented a very similar case in photographic film in

16Japan, and you can go through the list of products. And what is remarkable is

17the similarities in every single case and the way these anticompetitive practices

18act to bar industries which are otherwise globally competitive from making any

19headway in the Japanese market, so we're not unique. There are abundant

20parallel kinds of stories.

21Second of all, why would the Japanese economy as a whole or

22why would individual enterprises tolerate this kind of inefficiencies? It doesn't

23fit. What is the U.S. profit-maximizing model? Well, I don't want to appeal to

134

1the chairman, but certainly the chairman and I participated in the SII exercise

2with Japan over the years, which again documented one after another where the

3Japanese economy as a whole is not economic efficiency maximizing. That is

4not the objective. It is replete with cross-subsidizations.

5 So if we look at this model through our eyes, we are, indeed,

6appalled. It does not make any sense. But just, for example, the one question

7you raised, why do the Japanese banks pour money down a rat hole? What has

8this whole financial crisis been about except for the fact that the Japanese

9banks have continued to pour money down rat holes. Why was Japan in the

10business of producing aluminum? The only thing that's crazier than Japan

11being an exporter of paper and wood products is Japan being a producer of

12aluminum. And, again, that was with the full connivance, support, direction of

13the government of Japan. And at the end of the day because that really came to

14a crashing halt at a moment in time, the government just told the banks, eat it,

15and they had to.

16So to Americans, it's pretty shocking, but this is not shocking in

17the context of the way the Japanese economy as a whole operates. Every sector

18is burdened by the collusive practices and the layers in the distribution system.

19I mean, again, that is not unique to use. All I've done today is really pull it all

20together and explain distribution system, financial arrangements,

21suboptimization in terms of cost. This is how all these things that may not

22make sense individually, how they all become a part of the strategy to protect

23the domestic market to preclude import competition, and when combined with

135

1an elevation plan turn an industry around to where they are an export-oriented

2industry.

3Your third question, this is a personal view because I will tell

4you that our members have not arrived at a position on this. But almost

5anytime that we have had a trade policy issue with Japan, the strong preference

6on the part of Japan is to multilateralize it. That becomes all too often a least

7common denominator approach, and it moves the forum to one where alliances

8are possible with other offenders. The only way that the United States has

9really made progress in changing Japanese policy and behavior is on a bilateral

10basis where we can pursue our own interests with Japan and candidly where we

11can use instruments such as the newly reinstituted Super 301 to pursue it

12aggressively. Thank you.

13 MR. RILL: Paula?

14DR. STERN: Thank you.

15Well, I wanted to thank this panel for bringing a little humor

16into this. I was thinking about the Department of Justice's cycle of dependency

17which usually applies to drug addicts, I think. And also I wanted to commend

18Mr. Bolerjack's comments in here that I thought were just priceless, as it were,

19on page 6 that talked about: It's critical that our team here studying possible

20harmonization include business representatives rather than just the law firms

21representing them, since lawyers preparing the various notifications lack an

22economic interest in reducing the cost associated with multijurisdictional

23review.

136

1I like that a lot because I'm not a lawyer, and also because we

2did work really hard to penetrate that legal veil, as it were, to get to the

3corporation and get to the individual business people.

4MR. RILL: So now we have in-house lawyers instead of

5out-house lawyers?

6DR. STERN: I think it's a little closer to the bottom line, let's

7put it that way. Their incentives are more aligned. Their economic interests

8are more aligned. So I want to thank you very much for the time that you did

9take to both cheer us up and to enlighten us as well.

10My question kind of goes back a little bit to Maureen's points,

11Ms. Smith's points, and that is whether you have seen in this paper industry as

12well as all the other industries you just mentioned in response to Eleanor's

13question, whether you have seen the practice of mergers and foreign investment

14being discouraged in Japan that adds to the other examples of closeness that

15you did talk about, the distribution system and the relationships -- vertical

16relationships, the keiretsu. But I would like to ask you just to specifically talk

17about the ability to invest in Japan in not only your industry or other industries

18as well.

19MS. SMITH: I have to confess I have no data with which to

20respond to the question. On the one hand, we have not seen it specifically

21being discouraged in my industry. On the other hand, haven't seen any major

22effort on the part of our industry to acquire assets in Japan, so I really have no

23data. I think taking it to a macro level, the point has been made repeatedly that

137

1the incidence of foreign direct investment in Japan as opposed to any sampling

2of OECD countries is really very, very low. And that perhaps might be looked

3at on a cross-sectoral basis as opposed to an individual. But as I said, I

4honestly cannot provide you with any specific instances in response.

5DR. STERN: I know it has been looked at. I've been involved in

6studies and in conferences. I think Robert Lawrence, in fact, did some work

7when he was over at Brookings about seven years or so ago on this. But I

8thought it was worthwhile to put it out as a question to each and every one of

9the business groups that might be testifying for our purposes since we are

10talking about mergers, and generally, in the context of developing countries,

11we are thinking that the so-called competition policies authorities have their

12own national champions that they are concerned about. But I just wanted to

13bring it in and ask on the Japan side.

14I know, for example, in the paper industry Scott Paper use to

15have a partner, and it got out of the investment that it made years ago in Japan.

16And it was my impression that Japan is made up of a zillion different paper

17companies and that there has been, as you said, more consolidation of late, but

18there had been a lot of competition amongst the individual paper

19manufacturers, and their profit margins were extremely low as a consequence.

20That and maybe other things. But I was wondering just what the story was to

21date. I have no other questions at this point.

22MS. JANOW: Just a question that we have perhaps been

23circling a little bit. First I want to thank every panelist here very much for

138

1your very comprehensive and thoughtful remarks and all the work that has gone

2into being able to speak today by way of polling your membership. It really is

3very important to us that you have undertaken that outreach and we're very

4grateful and appreciative.

5Several of you in the context of future policy suggested that the

6WTO was not the appropriate forum for rules and dispute settlement but had

7some role to play with some variation as to what role you saw. And yet I think

8even in some cases the same organizations pointed out that there were markets

9where American firms were not getting adequate access and suggesting that

10those same firms were doing well elsewhere, suggesting that there was some

11market blockage.

12My question to you is, what kind of inferences do you think

13should be drawn from what kind of data, both from an antitrust perspective and

14from a trade policy perspective? In other words, what is the implication that

15you're drawing from the fact that firms are doing well in some markets but not

16in others; what does that lead you to by way of a policy recommendation with

17respect to antitrust inferences of anticompetitive practices?

18I direct that at Steve because I think you made that comment

19directly.

20MR. BOLERJACK: Let me try to answer briefly, then we can

21get back to after talking to the Committee on a more detailed basis.

22But I think the point that we were trying to make is that in a lot

23of different industries -- it's not just paper. I work in the automobile industry

139

1and other people in this room are very, very familiar with the efforts that were

2gone through over a decade in attempting to change the effects of

3anticompetitive practices. And please forgive me, it's frustrating that -- and

4Eleanor also raised this point. In certain industries there seems to be trouble;

5does it really happen all that often? You're not questioning that it's real, I

6know that. I have heard others question that point. And so one struggles to

7some extent to be responsive to the point, but I --

8MS. JANOW: Let me clarify. I'm not challenging that it's real.

9I'm asking an empirical question of what would you look to by way of indicia

10of market closure in circumstances where you do not have complete evidence of

11anticompetitive practices that might meet traditional antitrust standards of

12evidence.

13MR. BOLERJACK: Well, the simplest one, and I think it's been

14relied on by all the speakers here, is the expected level of the market share of

15these companies who are making products that are accepted anywhere else in

16the world and that have sufficient share or at least a better share anywhere else

17 in the world than certain Asian countries where they choose to participate. It

18would be expected that it would be lower in other countries where they chose

19not to attempt to do business. That's number one.

20I think the other thing you can look at is the efforts they have

21put into gaining access, and obviously you need some information from the

22individual companies in this regard. In our particular example, Ford Motor

23Company in Japan goes back to the 1920s with the exception of the war years.

140

1But there was a Model A built in Yokohama, decades and decades ago. I think

2that should be some empirical evidence that would go to show that there may

3be some collusive factors in the market.

4I know there are other examples of folks talking about products

5not being appropriate for the particular market. Ms. Smith answered that issue

6very well. Standards for paper. The standards for paper are a very

7straightforward thing. It's not a big consumer preference item. Advertising.

8In any event, we can go through all these things, and as you go through this I

9think you make the case as you look at the different industries, some of these

10things certainly can be looked at as empirical evidence of a situation.

11MR. RILL: There are a lot of studies that are out there that deal

12with specific industries, and I think as you look at those they go beyond

13disparate market shares and efforts. You can look at dealer contracts that are

14available, look at rebate schedules, look at hidden rebates, look at tie-in

15agreements, look at other market factors. I think it goes beyond some of the

16things you talked about --

17 MR. BOLERJACK: You can look at the JFTC guidelines on

18vertical restraints that basically --

19MR. RILL: They would be much stricter than the U.S. law, if

20they were enforced. But let me ask -- I'm sorry, were you set on your

21questions?

22MS. JANOW: Oh, yes, thank you very much.

23MR. RILL: Let me ask Tom just a question, and then I want to

141

1come back to Steve on a bilateral agreement with Japan.

2Tom, the survey that the Roundtable ran, approximately 30

3percent indicated there was a problem with restraints of trade obstructing

4market access, and 41 percent of that 30 percent I guess suggested that it

5would be appropriate to institute some form of intergovernmental agreement

6that would deal with that issue.

7MR. LEARY: Yeah.

8MR. RILL: That's limited to private restraints in trade or did it

9take into account hybrid restraints in trade?

10MR. LEARY: The question was limited to private constraints. I

11don't have with me the full text of the answers and it may be there was some

12confusion there but the intention was to focus only on private restraints.

13 MR. RILL: We have had some testimony and I think members of

14the Committee have some knowledge, too that there is some confusion where

15the government encourages restraints in trade, is that a private restraint or a

16governmental restraint? And in this country it would be a private restraint. I

17think probably that application should apply elsewhere and that application

18should be held elsewhere, too. It would be interesting to know, although

19maybe the data aren't available for that.

20I want to commend the Roundtable on putting together a survey

21because it does, at least in part, address the question Eleanor raises, how

22widespread is this issue. Apparently a substantial portion of respondents

23thought it was an issue and a substantial proportion of those respondents

142

1thought an agreement would be appropriate to deal with it.

2 MR. LEARY: I'll tell you what I'll do Jim, is go back to the raw

3responses with that question in mind. We obviously did not want to provide

4them because we didn't have agreement to do so, but I think we can answer that

5question in a way that does not compromise --

6MR. RILL: If that's possible, that would be helpful.

7MR. LEARY: Sure.

8MR. RILL: Steve, you indicated that you didn't think there

9should be a bilateral antitrust enforcement cooperation agreement, along the

10line perhaps of the EU model although that's not your words, with Japan until

11Japan's Fair Trade Commission exhibits some greater commitment to

12enforcement.

13I wonder if there's not another side to that, and that is if you get

14them committed to an agreement, there's more leverage to cooperate and

15possibly give some strength to, say, the Department of Justice or the FTC in

16pushing for enforcement in the more transparent context. I do wonder if there's

17not another side to that story.

18MR. BOLERJACK: I think there is another side. I think the

19reason for the position expressed by NAM is a history of seeming agreements

20that turned rather amorphous as they are interpreted. Now I think that the

21ability to enter an agreement provides the greatest leverage; trying to

22encourage enforcement of an agreement with the Department of Justice

23provides less. And say we have these appropriate issues. It's been brought to

143

1the Department. We have absolute evidence. We would want to see you go

2forward, and absent any action -- you may have more leverage in that limited

3circumstance.

4MR. RILL: That would put some transparency on the issue, I

5think --

6MR. BOLERJACK: Uh-huh.

7MR. RILL: -- that really isn't there right now. Our experience

8going back to SII, and I hate impose on our panelists, but we did make some

9progress by putting the spotlight on the JFTC, modest progress perhaps, but

10progress in strengthening the JFTC in some respects. And I'm wondering if

11another step in that direction which might be welcomed by the JFTC would be

12a bilateral agreement. I just put that out on the table as another view.

13MS. SMITH: The analogy that occurs to me is that reaching an

14agreement at this point is a little bit like marrying a drunk, convinced you'll

15reform him afterwards.

16MS. FOX: We won't forget that.

17MR. RILL: You're on the record, Maureen.

18MS. SMITH: Not directed to any individual at the table. But --

19DR. STERN: It's precipitous. We've had a lot of problem here.

20MS. SMITH: There's got to be some demonstration that the

21JFTC has the willingness or the capability again to perform the duties implied

22in the marriage contract here, and that's certainly lacking from everything that

23I've seen. And I think that after such an agreement, the parties develop too

144

1much of an investment, they become constituents and develop constituencies

2for proving that the relationship is working. I think the only leverage, again,

3continuing my metaphor here, the only leverage is before the relationship is

4consummated, and that is to say we could contemplate such a relationship if,

5and there were things like staffing and a pattern of effective action, et cetera,

6et cetera. Then you would have won admission to what is now quite an

7exclusive club. But to grant admission absent any of the credentials that we

8would consider necessary or appropriate or that would bring any distinction to

9the club, I just don't see it.

10MR. RILL: Not to press the point again, the only thought that

11occurs is that there hasn't been great evidence in Europe, for example, of while

12it's a very active agency, of European actions being directed to what could be

13considered a pure market access circumstance in which the alleged restraining

14companies are purely European companies, which differentiates it from A.C.

15Neilsen's wars with IRI where two American companies involved. The only

16one that's happened now is the Statement of Objections, really more of a

17complaint against Air France, purely for French consumers but also to

18vindicate an American company's effort to enter the market. That's the first

19one which relates to and is part of the progeny of the U.S.-European

20cooperation agreement. So I only wonder whether or not the cooperation

21agreement first might focus more light on a recalcitrant agency and force them

22to operate more in transparency.

23MS. SMITH: Two observations. One is that in terms of DG-IV,

145

1in our sector two fairly recent developments that are interesting in terms of

2market access, one being the finding, the report in the Enso/Stora merger. The

3report is not out yet because it's still being translated into the various

4languages, and so my wording here is perhaps a little imprecise or sloppy. But

5apparently as a precondition, precondition being a very precise word, that's

6why I say apparently or I say condition of approval, there was a requirement

7that Enso and Stora undertake and get an undertaking from their respective

8governments that they would not oppose the establishment of a duty-free quota

9in certain paper products.

10That, in our view, was a very, very interesting marriage of

11market access and competition policy, and it is an argument that we have been

12making for a number of years that the tariff in the case of Europe precluded

13effective import competition in some of these areas. So that that's very

14interesting to see the direction in which that's going to go and to see what the

15report actually says when it comes out in the languages.

16The second interesting thing, again coming out of DG-IV is this,

17for people in my industry, bomb shell announcement now two weeks ago of a

18major investigation into cartel activity and specifically price fixing again in

19the paper industry. Again going to Enso and Stora and some others, and the

20estimation is that this is going to be a potentially very, very large case. So I

21just offer that as some indication.

22And to return to your other point, there is at the moment a

23consultative relationship, if you will, -- please, I am not directing this to you

146

1because you certainly know this but for the benefit of the group -- a

2consultative relationship between the Department of Justice and the JFTC,

3which to me could be a vehicle for injecting transparency and all of those good

4things, and if we want to we can develop a work plan or what have you for that

5relationship, but I would not really elevate them to a partnership which the

6bilateral would imply until, as I said, we get some performance or some

7confidence-building measures from JFTC.

8 MR. RILL: Thanks very much. I think we're entrenching on the

9time of the next panel. I want to thank this panel.

10MS. SMITH: Sorry.

11 MR. RILL: It's not your fault, it's mine. I asked the question. I

12think this panel has been very, very helpful to us, as Paula has said, bringing a

13business view to the ICPAC. It has not been easy for you to pull all this

14together, and we appreciate the effort that's been made by each and every one

15of you. Paula?

16DR. STERN: I wanted to ask Mr. Bolerjack who had said that

17there perhaps should be a place where all interested parties could know what

18the procedures are in this proliferating numbers of authorities. And I was

19wondering if you thought that the repository should be at the OECD or at the

20WTO or if you had any preferences. And I say that because I know we're also

21going to be hearing from the OECD.

22MR. BOLERJACK: I have no preference. What I would like is

23some publication in a variety of languages that listed up-to-date statutes. That

147

1was my whole point there.

2DR. STERN: Thank you.

3MR. RILL: Changing daily. That's part of the problem.

4DR. STERN: Well, that's what the Internet is for. Maybe the

5International Bar Association can have their own site and they can just put the

6stuff on there.

7 MR. RILL: And underwrite it.

8 DR. STERN: Excuse me, but a Web site, you know, I think that

9the costs of bringing the various people here probably would pay for it.

10MR. RILL: Okay. Thanks very much to this panel.

11(Recess.)

12SESSION THREE

13MR. RILL: Let's resume. I want to express my appreciation to

14our next two panelists for changing their appearance schedule to be able to

15present their views and the views of their organization today instead of

16tomorrow, since tomorrow isn't going to happen, at least in our context right at

17the moment.

18We have with us for our third panel of the day, two

19representatives of the Organization for Economic Cooperation and

20Development, OECD, headquartered in Paris, consisting of 29 member

21countries, a number of observers, a number of advisory committees, and

22perhaps in the course of their presentation they will tell us something about the

23OECD. It's been extraordinarily active in the area of international competition

148

1policy and international trade policy.

2Having said that, we have two former denizens of this side of the

3Atlantic Ocean, currently employed by the OECD in Paris, currently officers at

4the OECD. Joe Phillips spent eleven years with the Federal Trade

5Commission, an attorney from Stanford, and has been employed by the OECD

6since 1985. He is currently head of the Division of Competition and Consumer

7Policy, where he's responsible for developing and coordination obviously with

8the Member States, the agenda, the wide ranging agenda of the Competition

9Committee of the OECD.

10And Mark Warner, a Canadian and U.S. attorney, I believe,

11formerly practiced law in Toronto, Canada and here in Washington, D.C., is a

12legal counsel of the Trade Directorate of the OECD, so we'll see competition

13and trade interface in the course of this panel. They're both very kind to give

14us their views, and the views of their organization so that we can better be

15informed and advise the Department of Justice and others on global

16competition policy.

17Joe, do you want to start off?

18MR. PHILLIPS: We would like to thank the co-chairs,

19executive director and members of the Committee for this opportunity to talk a

20little bit about the work of the OECD at the interface of competition and trade

21policy. Merit Janow asked me to address the role of international institutions

22in the development of international competition policy, and the role of the

23OECD and the Competition Law and Policy Committee in particular in the

149

1trade and competition debate, and so I would like to begin with that.

2I focus first on how the OECD works to promote the

3convergence of competition law and policy throughout the world, on the

4substantive issues of how we work to promote enforcement cooperation. I

5would then like to have a brief digression on our work on regulatory reform in

6the OECD which is a relatively new project and link that back into promotion

7of competition law and policy, the debate we just heard about Japan. These

8things are all connected.

9 I will then turn to how we work to an understanding and

10agreement on the trade policy/competition policy interface and conclude with a

11few thoughts on what I see as the -- and I hate to sound like this is taking

12credit for too much here, but what I would call the leadership role, the

13catalyzing role of the OECD in this debate. The OECD is not a very visible

14organization to outsiders.

15But behind the scenes I think the organization does play an

16important role and I would like to share some thoughts on that.

17On the convergence of substantive competition law and policy,

18we work in a number of ways, and we have for years. We have produced

19monographs that have been agreed most of the time by the Competition

20Committee, topics like predatory pricing, vertical restraints, deregulation,

21broadcasting industry, professional services, and so on. This, for many years,

22was the bread and butter of the Competition Law and Policy Committee at the

23OECD. More recently we have roundtable discussions, substantive

150

1discussions, one off, on a broad variety of issues, whether it's regulation of

2postal services, regulation of the broadcasting industry, banking, insurance,

3substantive topics, analytical topics like the failing firm defense or analyzing

4dominance and so on. These roundtables we publish, we put on our Internet

5site. We also do framework papers. Previous presenters here discussed and

6complained a bit about the recent work on mergers and framework for merger

7notification. They were fairly critical, calling it -- it wasn't so much a

8framework for a model form, but one person said provide a menu for thousands

9of variations. Well, I'm not sure about thousands of variations, but for us it

10was a big step forward to get to that stage, and we had lots of very good and

11vigorous debate within the Committee, just to get to that point. And we'll be

12doing more framework papers in the future. We have one underway on positive

13comity that we hope will be finalized sometime soon. We have another one

14underway that was sent to us, if you will, by our joint group on trade and

15competition on rights of firms under competition law, which actually links

16back into the trade and competition debate again.

17If firms have the ability to bring a private action or to

18effectively demand action from a competition authority, can't that provide an

19avenue short of a trade dispute for many of the market access kinds of

20questions that were presented earlier today? If a firm that's unhappy about

21private restraints can either get into court or effectively force the competition

22agency in the country to act, isn't that a better solution than having it

23escalating into a trade complaint, a trade dispute?

151

1We are outlining what we see as a menu for what we call rights

2of firms or right to remedy under competition law, so you have some idea what

3a reasonable menu of rights would entail. Beyond monographs, roundtables

4and framework papers, we engage in a great deal of dissemination now of our

5work product. In addition to traditional publications and free publications, we

6use the Internet. We have recently come up with something we call the OECD

7Journal of Competition Law and Policy, our objective there is to repackage

8some of our best material in a way that abstracting surfaces and database

9services like Lexis/Nexis will pick up. Again it increases dissemination of

10these ideas.

11Finally, and most importantly, we do a lot of work, what we call

12outreach, dealing with nonmember countries helping them to develop

13competition legislation, helping them to learn analytical practice, how to

14review cases, working with the judiciary, how to review competition cases, and

15I'll give you an example.

16Development of legislation currently, we are working right now

17with the government of China helping them as they draft a competition law.

18We've been working with them a couple of years. I don't know when they will

19be ready to finally pass that legislation, but they're actively working on it and

20we work with them because it's something that's a very high priority for us,

21that they have an effective competition legislation. In the past we worked with

22countries such as Russia, Mexico, countries in Central and Eastern Europe and

23Asia and so forth on the development of legislation.

152

1Enforcement policy. We hold seminars, case discussion

2seminars. We've been doing this in Central and Eastern Europe, the former

3Soviet Union and Russia in particular for almost nine years now, and it's

4probably one of our best efforts, one of our best ways of bringing about good

5practice and a common understanding on how to look at fact patterns and

6analyze them. We've begun doing that recently in Latin America and East

7Asia. It's something we hope to continue for quite some time.

8Finally, working with the judiciary. Once countries without

9competition laws start enforcing them, cases percolate up through the courts,

10and the courts are as ill equipped as these inexperienced staff members to

11understand and to analyze a complex antitrust decision. And we've been

12working primarily so far in Eastern Europe and Russia with the courts,

13including supreme courts, the Supreme Arbitrazh Court in Russia, for

14example. Last year we helped them as they drafted binding guidance under

15lower courts for antitrust issues.

16This year we worked with them -- well, this was also last year --

17with very difficult issues that are presented in Russia's antitrust law. For

18example, there are two articles in the Russian law that apply to government

19officials, anticompetitive actions by government officials in the normal course

20of their operations. And last year alone the Russian antitrust agency brought

211300 cases against government officials, for example, instances where a local

22official imposed a high tax on a new entrant from another part of Russia,

23protecting a domestic incumbent or local incumbent. Very interesting issues

153

1on what are the boundaries of those articles. The antitrust agency brought a

2case against the mayor of Moscow for alcohol testing requirements which de

3facto discriminated against alcohol producers in other parts of Russia. They're

4bringing interesting cases, and we do what we can to help them improve their

5analysis and help the courts do their job better.

6 In enforcement cooperation, the next topic I would like to touch

7on, we have produced recommendations on cooperation since the 1960s on

8promoting enforcement topics such as positive comity, negative comity,

9traditional comity. This was said earlier. But these are concepts that have

10been promoted at the OECD for a long time. The most recent recommendation

11setting that forth was in 1995.

12 We also have a recommendation on hard core cartels that was

13adopted in 1998 to ensure the competition laws effective for the cartel's

14country should cooperate in enforcing their laws and respect positive and

15negative comity. We've discussed barriers to information sharing. We're

16having discussions, further developing the concepts of positive comity because

17there's a lot of confusion as to what it means. Adding to the confusion is the

18fact that these discussions are held using more than one language, and

19translating the concept becomes its own issue.

20I promised a little digression on regulatory reform. The OECD

21has had a project now for three or four years on regulatory reform. The

22Competition Committee has been worried about regulatory issues for 20-some

23years. Now the whole organization is concerned about it, concerned about

154

1making economies more flexible, more competitive, more efficient, and has

2begun a project whereby we are doing country reviews, looking at four

3countries a year, looking at their regulatory policies, looking at their trade

4policies from the perspective of regulation of their competition policies from

5the perspective of regulatory reform, looking at particularly sectors,

6particularly electricity and in this case telecoms. And in the first year we

7looked at the United States, the Netherlands, and Japan. The Japan report was

8just released, I think, last week. The press in Japan, the press reports that

9filtered back to us said that this was conveyed in Japan as a hard-hitting and

10highly critical report on Japan.

11It argued, among other things for a tougher competition policy in

12Japan, for more cartel cases by the Fair Trade Commission, for better private

13rights of action to petition the agency, to bring the follow-on cases when the

14Fair Trade Commission acts, to simplify proof of damages in follow-on cases,

15and also to be able to bring directly in court in Japan action for injunctions

16under the civil code. The report also said there are too few lawyers in Japan

17and at the current rate of growth -- the maximum foreseeable rate of growth of

18lawyers in Japan -- it will take 50 years to even achieve the penetration rate we

19have in Europe.

20MR. RILL: Paula would view that as a reason why they are

21more efficient than we are.

22DR. STERN: It shows that there's something wrong with the

23market there.

155

1MR. PHILLIPS: But from our narrow point of view, and, you

2know, even though I'm a lawyer, I'm no fan of lawyers. But if there's going to

3be more antitrust enforcement in Japan, the cost of bringing cases has to come

4down, and for that you need more lawyers. There is a scarcity of lawyers, a

5scarcity of judges. And so we say you need more lawyers, you need perhaps a

6special chamber in the court system to hear antitrust cases. And so this whole

7notion of increased avenues for private direct enforcement of antitrust laws is

8raised in the report.

9Now, we heard the previous panel. There is a lot of frustration

10directed at Japan. So, I should also mention, and this is my personal view,

11when regulatory reform will actually happen in Japan. I think we're some

12years away, although the SII and other efforts, bilateral efforts, I think have

13certainly been effective, and some of my Japanese colleagues at the OECD

14have told me that over time they were persuaded by the need for stronger

15competition policy.

16Ultimately this decision to deregulate and strengthen competition

17policy will come from demand within Japan. At some point there will be a

18change but, as I said, I believe that will come internally, and when it comes, I

19expect that there will be a great demand for deregulation and a great demand

20for strong competition policy and for strengthening the Fair Trade

21Commission. But I don't think it's there yet. That's a personal view.

22Turning to the understanding and agreement on trade

23policy/competition policy. I think this is related to what is the role of the

156

1OECD in all think this. We have been working on this trade policy/competition

2policy interface since the early 1980s, published reports on interaction of trade

3policy/competition policy. We have had a joint group on trade and competition

4policy since the early 1990s. They are sometimes under different names, but

5there has been a joint group operating for a long time.

6Some of the ideas that have been discussed first in that group

7have come into kind of conventional wisdom, if you will. For example that I

8hear in the WTO, by WTO delegates who have never been part of this group,

9and I see a number of substantive items that have they talked about. One is,

10and this is certainly not the case in years ago, that cases should not be

11reviewed in WTO dispute settlement, that it is not an appropriate mechanism to

12look at the complex factors of antitrust cases, that competition agencies, in

13addition to enforcing their laws, play a very important role as advocates for

14deregulation. I think people take this as conventional wisdom.

15Ten years ago people weren't talking about the advocacy role of

16competition authorities. Now they see how this can be a mechanism for

17deregulation of economies. And regulatory reform in general. This is an idea

18that -- I mean, it may sound silly in the United States, where people have been

19deregulating for 20 years and have had an advocacy function performed by

20DOJ and FTC for 20 years. It has been talked about in the CLP Committee for

21nearly that long. But now it's something that's conventional thinking. Ideas of

22positive comity that I mentioned earlier. Ideas of rights of firms, rights of

23private parties to pursue to have the competition laws apply. And I think all

157

1this comes from what I'd say is the proactive role of OECD. You cook up

2ideas, not just by the Secretariat, but by delegates, they circulate around the

3Committee and then move out into the wider world. It's liked a pond. These

4ripples propagate, and obviously it's splashing up in the WTO.

5And I'll mention just -- I want to save some time for Mark. I'm

6afraid I've been a little too long here. The OECD is not pushing for

7multilateral rules in the WTO or for that matter in the OECD. But one thing

8we are doing is kind of looking at the alternatives so that if governments decide

9to go down that route with the WTO they will have some idea of the pros and

10cons of different options. And Mark is going to develop some of these options.

11I think I have gone on too long, so I would like to stop there. Thank you very

12much.

13MR. RILL: Joe, thanks very much for your input. I have a

14couple of questions for you, but one you might be thinking of is to illuminate

15us a little bit on the speech that Joanna Shelton made fairly recently. Perhaps

16Mark will address that as well. Mark.

17MR. WARNER: Thank you. Let me share with you what a

18pleasure it is to speak to this commission. For me it's like coming home; I

19practiced law with a law firm across the street for a couple years.

20I want to talk to you a little bit about our OECD Joint Group on

21Trade and Competition, some standard work of our joint group on trade and

22competition. I think Joe has done a very good job of explaining to you the

23important work that the CLP does in developing a consensus on enforcement

158

1standards that contributes to the convergence of competition policies around

2the world. I wouldn't have earned my trip over here if I didn't also tell you that

3the OECD Trade Committee also does some work, on regulation and regulatory

4reform and on competition policy for some time.

5I think the reason we have a Joint Group is that the OECD

6leadership realized the organization would achieve certain economies both in

7terms of standards of analysis and resources if we would pool our efforts. I

8think the Joint Group has worked largely very well. But it has not always easy

9because we are bringing together two different communities in our work each

10with very different perspectives. For many years, as many of you know, there

11was no World Trade Organization, no official institution behind the General

12Agreement on Tariffs and Trade (GATT). The International Trade

13Organization died on the operating table. So the closest thing the world had to

14an institutional body for discussing trade issues was really the OECD Trade

15Committee.

16So our function is slightly different than that of the CLP. We do

17develop ideas and publish monographs -- but it is tied closely to a negotiation

18process down the road in Geneva. Now there is another institution in Geneva,

19the World Trade Organization, and it is developing some ability to analyze

20complex issues. Discussion and analysis do not fit naturally into the WTO

21which is largely a forum for rule negotiation and adjudication. That is why at

22the Singapore Ministeral Meeting in 1996, two working groups were created --

23one on the relationship between trade and competition policy, the other on the

159

1relationship between trade and investment. Because even within the WTO they

2do not yet have the experience that the Trade Committee has acquired, as a

3forum for preliminary negotiations or discussions of things that lead to the

4negotiation of what we now call "new issues". Among other key new issues, of

5course, is the relationship between trade and competition policy.

6So I want to take you through some of the ongoing work program

7of our joint group on trade and competition policy. There have been

8essentially three phases of our work. The first series of reports we did looked

9at the legal or regulatory exceptions, exemptions or exclusions in the existing

10competition laws. Luckily we don't have a translation here today -- but

11exceptions, exemptions, and exclusions are all very different terms and used

12very differently in different national laws. In many of our meetings

13delegations were hung up on the meaning of those words.

14That work culminated in the publication of a book by Barry

15Hawk, which I think has received some recognition here in the United States.

16It is a book that catalogs some of the exceptions and exemptions from national

17competition laws of all our Member States, basically attempting to look at

18where exceptions and exemptions might pose market access problems. I think

19it really is a state of the art book, and the follow-on work that others are

20looking at is to see how that framework might be applied to non-OECD

21Member States. We are not doing that work, but others might look at that one

22day.

23We also have been looking for quite some time at the issue of

160

1what we used to call the "rights of foreign firms", until a little agreement on

2investment met with some not great success last fall. So we now speak of

3something called the rights to remedy in national competition laws.

4That work in the joint group involved basically a notification

5exercise asking our Member States whether they discriminate against foreign

6firms. We received responses that I would have expected -- they do not

7discriminate against foreign firms. Then we asked our Member States to

8engage in a cross-notification exercise. And we received no responses. They

9were not going to do discuss that in Paris because those are bilateral issues.

10 Then we threw out the challenge to the private sector represented

11here by the chairman, Mr. Rill of BIAC, our Business and Industry Advisory

12Committee, and said you tell us where are there market access barriers caused

13by the nonenforcement or selective enforcement. And we are beginning to get

14some very different results. Joe and I were talking about that this morning. I

15think the Business Roundtable presentation this morning was extremely useful

16to our work. We are going to want to learn from that presentation when we

17return to Paris. Maybe even have that presented to us in a more formal format.

18That was precisely the kind of information that we need in order to do the kind

19of analytical work that the OECD Joint Group was set up to do.

20 We see that again as an example of the contribution that the

21OECD can make, in terms of putting out ideas and letting things percolate up,

22to the point that eventually people either have agreements or model laws. We

23do not need the end point of an actual agreement at the OECD in order to be

161

1successful. We work really in the building block stage of policy formation.

2The second round of our substantive work led to the publication

3of four papers this past fall and early spring, and those papers I'll just take you

4through quickly. One paper looks at vertical restraints and market access and

5really amounts to sort of an agreed framework for analysis. I think for the

6first time there is an agreed framework among trade and competition

7enforcement enforcers of the kind of substantive analysis that should be

8undertaken to evaluate the effects of vertical restraints in market access

9situations. Frankly, both trade and competition groups tended to agree to a

10large extent that the modern basis of vertical restraint analysis in the United

11States is the kind of approach that should be undertaken.

12But I think it is fair to say that there were a number of questions

13that remained outstanding. I think significant delegations or a significant

14delegation raised the issue that perhaps there is a different kind of entry that is

15provided sometimes by the foreign firm. Maybe that kind of qualitatively

16different entry is not something that is entirely captured by the essence of the

17analysis that is undertaken by competition enforcers generally. We did not

18solve that question. That remains a question for further discussion and

19thought. We did move the ball considerably down the field in terms of

20developing a common framework for understanding vertical restraints that

21should apply in the typical case. That is a good example of the kind of work

22we can do that can reinforce other policy developments at the national level

23and at some other level perhaps at some later stage.

162

1Another paper we did related to our work on conceptual issues

2relating to the interface between trade and competition policies. Here I would

3bring to your attention three papers. Let me start with one we call

4Complementarities Between Trade and Competition Policies. That paper

5sought to look at the ways in which trade liberalization supports the goals of

6competition policy by providing for open markets and for providing new

7sources of entry.

8We also looked at the way in which competition policy can

9contribute to the goals of trade liberalization in terms of competition policy

10enforcers leading the process for the demand for accelerated tariff reductions

11in some cases. One of the examples we have was given to us from Canada. In

12some enforcement cases in order to permit a certain merger that might

13otherwise cause competitive effects in the market, the Canadians showed us

14how they in effect agreed to let the merger go through on a number of

15occasions if it could be demonstrated that they would apply for accelerated

16tariff reduction. So we saw again how competition policy could further the

17goals of trade liberalization. We saw the interaction, a mutually supportive

18and reinforcing interaction, of trade and competition policies.

19An important outgrowth of that work was when we discussed

20something that Dr. Stern mentioned this morning, a paper on the Reference

21Paper to the Basic Telecoms Agreement of the General Agreement on Trade in

22Services (GATS). Our Member States asked us to look at the telecoms

23experience as a specific expression of the trade and competition

163

1complementarity. All the papers I am mentioning to you today are available on

2our Web site, so I won't go into more detail, I would commend this paper to

3you again.

4The third paper we have produced is a paper on Consistencies

5and Inconsistencies Between Trade and Competition Policies. That, again, as

6the title would imply is a very controversial paper so I will let you read it for

7yourself. We do look at certain trade remedies and aspects of intellectual

8property rights.

9The fourth paper that we looked at has to do with the

10competition elements in international trade agreements, particularly in the

11WTO agreements. We are not giving a legal interpretation of the existing

12WTO agreements but rather trying to look at what could be said to be there --

13what someone thinking creatively could see as competition policy provisions

14that exist in the WTO already. We looked at the Telecoms Agreement. We

15also looked at the GATS because the GATS, which underpins the Telecoms

16Agreement, itself has two provisions that deal with competition -- policy,

17Article 8 and Article 9. One deals with monopoly and leveraging, the other

18deals with some amorphous concept of anticompetitive practices. There are

19other older provisions that we looked at. Article II of the GATT of 1947 deals

20with import monopolies. We also looked very closely at the national treatment

21cases under Article 3.

22It has been a very helpful process for, I would venture to say,

23many of the competition delegates to our meetings to see that the people on the

164

1trade side have actually been grappling for a long time with some of these

2concepts and it was not simply a matter of teaching trade people about

3competition policy, that in fact the trading world has been grappling with the

4notion, in some cases a different notion of competition, for well over 50 years.

5And I think that is part of that learning exercise which people not only benefit

6from in Paris -- Paris is a great place to benefit from things -- but they benefit

7from it because before they come to meetings in Paris they have to sit in an

8interagency process and they have to discuss these issues. People who have

9never sat in a room together and discussed substantive issues have to come to a

10common position on the papers that we in the OECD Secretariat haggle over

11too before they are presented to the delegates.

12Those are the four papers that have been published and are

13available on our Web site. The most recent line of work we have begun is

14work on implications of merger review for market access. That paper will be

15discussed again in our next meeting in May. We also have prepared another

16paper on state trading enterprises or state trading companies and companies

17with exclusive and special rights. Again that work is really only in the starting

18stage, and so I won't go into any more detail on that. I just want to let you

19know that is what we are beginning to look at.

20What I thought I might do is then conclude by telling you about

21our current work that we're make some progress on, and that is the work where

22Joe ended his discussion, that is our work on options to improve the coherence

23between trade and competition policies. That work on options has been

165

1undertaken over the course of a two or three-year period, but we're now

2beginning to, I think, achieve some common language and some common

3understanding about framework that we should be using.

4Of course I want to stress here again that we are not arguing for

5the relative merits of any one option over another at this stage. We are simply

6trying to tease out the advantages and disadvantages among a range of options

7so that policymakers in capitals can at some point decide which options they

8want to pursue.

9Among the options that we have identified to look at are

10convergence and peer review, very good examples of what Joe spoke about

11earlier in terms of the work of the CLP. And I think there is very widespread

12agreement that whatever is done in the trade and competition area to improve

13the coherence between those two policies, convergence and peer review, will

14remain a crucial element.

15The second area that we have looked at as an option for dealing

16with the coherence between trade and competition policies is bilateral

17cooperation in the area of competition policy and the role that positive comity

18might play in addressing and dealing with those problems.

19The third option we looked at is something we call core

20principles, common approaches, and common standards. And I want to come

21back to that in a few minutes.

22The fourth option we have identified is an option about

23achieving some sort of plurilateral agreement on competition policy. We have

166

1looked at that and I think there is fairly widespread agreement in the Joint

2Group that it is not something that is likely to form the basis of the agreement

3now, but as I have already said, we are not really weighing any of these options

4at this stage.

5Apart from a plurilateral agreement, which would consist of

6some subset of countries, we thought also of a multilateral agreement or

7something that might take place in the WTO. Again, clearly there are divided

8opinions about that among our Member States and so we list that as an option

9without really going into more detail. A subset of that WTO option would be

10to find ways of building on the existing Trade Policy Review Mechanism, the

11TPRM, as a mechanism for fostering competition policy. As a personal aside,

12that did not receive a great deal of interest in a lot of our delegates, and I

13thought that was somewhat surprising, but it is one of the options that we

14looked at. It was also surprising to me that it was not necessarily the trade

15people that were interested in pursuing that.

16Also we are looking at questions of dispute settlement as an

17option, but again dispute settlement only kicks in once you have come to

18conclusions about some of the options that I have spoken about.

19The seventh option we have looked at has to do with the

20institutional setting for competition law enforcement. It really is not so much

21an option, but rather a return to our work on the rights of foreign firms, which

22Joe talked about, the work that we looked at in terms of promoting private

23rights of action and access to remedy. The joint group has now temporarily

167

1delegated or referred that work to the CLP to give the expertise of competition

2law enforcers in the particular aspects of enforcing competition policies

3through private remedies. We hope that at some stage that work will filter

4back to the ongoing work that we have done on options.

5Let me then turn to our work on the three concepts that I

6mentioned in the third option I listed, the concept of core principles, common

7approaches, and common standards.

8 It is clear that there is a terminological sort of divide among

9many of our members in terms of what they want to do at the multilateral level.

10So we spent some time trying to help to define what these terms could mean. In

11the event that someone wants to pursue some point of multilateral agreement,

12some people say, well, we ought to have an agreement that covers core

13principles. Others say we ought to have an agreement that deals with common

14approaches but not core principles, or common standards but not common

15approaches. It has caused a lot of headaches.

16So we have tried in our recent meetings at least to go one step

17backwards and come to a common understanding of what these terms mean.

18Having regard to the experience that we have built up in two contexts, in the

19context of the trading world and in the context of the competition world

20through the recommendations -- the OECD Council recommendations that have

21been sponsored by the CLP.

22I think we are again getting a wide degree of consensus now

23about the meaning of these terms, although we will know really whether we

168

1achieved that consensus in two weeks time when have our next meeting. But I

2think it is fair to say there is an understanding that core principles could be

3seen as principles of broad application that are rather general. Think of them

4as being things like national treatment, transparency, most-favored nation,

5nondiscrimination in the trading context. And you would think of these things,

6as in a trading context, subject to dispute settlement, binding across the board.

7Then we looked at the WTO Agreements and said we can identify a second

8category, not that those agreements use the phrase common approaches but that

9we can see that looking at those agreements, we can find different types of

10agreements, agreements on the interpretation of Article VI of the GATT, the

11anti-dumping agreement -- the word I don't like to use very often. There we

12can find that countries are not shown an exact way, an exact dumping law that

13they need to enact. Rather they are shown the kind of elements, the kind of

14check lists that need to be included in a dumping law. We can say, therefore,

15that we can see examples of a common approach, not a common standard, more

16than a core principle, something that is more detailed. So there is something in

17the middle.

18Looking at the WTO agreements again, we can say we can see a

19few examples of common standards and we look to what we call the TBT

20agreement, Technical Barriers to Trade agreement or SPS agreement, which is

21unpronounceable, having to do with standards. So we look at those things and

22we see that there are very few examples in the WTO where we can find binding

23agreements where countries that have more or less agreed to a harmonized

169

1standard. But we can identify a few agreements like that. So we can again see

2a difference between harmonization, which is a common standard, common

3approaches, something less than that, and core principles, something more

4general. Across the board we can ask what particular kind of competition

5policy practice might fit into any of these categories.

6And what we tried do was, say, look, we can also do the same

7thing, by examining various OECD Council recommendations. We can identify

8certain core principles and common approaches. We can identify no common

9standards at this stage. But what is significant is that none of those are

10binding. Nothing we do is binding in terms of the Recommendations of the

11OECD Council. So we see an immediate distinction between the trading world,

12which uses the three concepts in a binding way, and the competition world,

13which uses the three concepts in a nonbinding way. What does that mean for

14policy development? Stay tuned! But at least we think getting to that stage is

15helpful.

16One more thing that becomes obvious once you start looking at

17these things analytically, in the trading world there are not that many common

18approaches in the WTO agreements and there are not that many common

19standards, either, and there are not very many common standards in the OECD

20Council recommendations, and there are not very many common approaches

21either. So you begin to sort of say, do you want to do something multilateral,

22which leads you down the road to the conclusion that it is going to be hard to

23do something more than at the core principle level. But that is for another day.

170

1Getting the terminology straight is hopefully a useful starting

2point for thinking about how we would, how we might bring some of these

3things back into the discussion about competition policy on a multilateral

4level. Again, those are just options and at this stage more terminology than

5options, but we hope that it is a helpful discussion. Before coming here Joe

6and I were in Geneva for a meeting of the working group, and it is quite

7interesting to see that people are picking up on these terms, benefiting from our

8papers, and again we hope that this proves helpful to the process as we move

9on to Seattle and beyond. I will stop there, Chair.

10MR. RILL: Thanks very much, Mark. Joe or Mark, do you

11want to describe, and I think it picks up on some of the things that Mark was

12saying, the statement made by Joanna Shelton, Deputy Secretary General, a

13couple months ago that I think got a lot of attention on this side of the Atlantic,

14at least.

15MR. PHILLIPS: This is perhaps what I mentioned earlier an

16example of the proactive OECD speaking out. In this case, Joanna Shelton,

17speaking in a personal capacity, presented some views on competition policy

18which asked for international rules, a topic which she was asked to address at

19this Wilton Park Conference. And I should emphasize that she did not argue

20that there should be international rules for competition policy. Rather, she

21looked at three kinds of alternatives and assessed their pros and cons.

22One alternative she looked at is we call the Munich code, a kind

23of bête noir of this area: binding multilateral rules, cases reviewable and

171

1dispute settlement and so on. And I think it's fair to say she concluded that

2this wasn't on, it's not on for practical reasons, countries will never agree to it,

3and it also shouldn't be on for very, very substantial reasons that as I

4mentioned earlier, complex fact-intensive antitrust cases are full of

5confidential information, are not amenable to being reviewed by an

6international organization. And I think that view has become fairly widely

7accepted among OECD countries.

8She also looked at sectoral rules as we discussed earlier today,

9the possibility of more sectoral rules with competition elements like basic

10telecoms. And she pointed out some downsides there, that whereas we have

11been promoting convergence within the OECD across national competition

12policies, a variety of sectoral competition rules can lead to divergence within a

13country and poses all kinds of problems, potentially. We can have abusive

14dominance or market definition meaning one thing in telecoms and something

15else in financial markets or what have you. She raised some real concerns with

16going down that road.

17Then turn to the notion of the core principles, and there I think

18you have core principles, such as countries agree that they will each adopt a

19competition law. The competition law will respect some basic WTO norms,

20such as transparency or nondiscrimination, that the law would have procedural

21provisions, due process provisions, such as the ideas I mentioned earlier about

22providing rights to private parties, including foreign private parties to have the

23law apply to conditions, protective petition rights to the competition agency or

172

1the right to go into court directly.

2And she pointed out, I think correctly, that an agreement at that

3level avoids many of the problems that you see in proposals like the Munich

4Code because you needn't get into individual cases. You can readily decide in

5dispute settlement if a country's adopted a law if that law contains these rights

6and so on. And she further proposed that there might be something in addition,

7there might be some kind of agreement, whether it's a common approach or

8however we term it, on providing some guidance as to how you apply the law.

9But she made the point that any additional agreement like that should not be

10binding, should not be subject to dispute settlement. And I want add a

11personal footnote to that, that if you really want it to be nonbinding, maybe it

12need not even be in the WTO agreement. That could be outsourced. There is

13plenty of guidance in national guidelines, in product of United Nations,

14UNCTAD, the World Bank, OECD, that provide that kind of guidance. You

15don't even need in a WTO agreement. But she didn't say that.

16MR. RILL: Mark, did you have a comment on that?

17MR. WARNER: I would come back to it and say that the speech

18 by the Deputy Secretary General was written a little bit before our work on

19some of these issues had progressed in the Joint Group so that on some of this

20stuff I would just caution that, you know, it's important when you think of

21what is the OECD view, to keep that in mind. We worked hard on some of

22these issues when we did our paper on Telecoms, which again was a specific

23application of the Complementarities paper. I think that in the discussion in

173

1the Joint Group by both the trade and competition authorities, there was

2perhaps a little bit more receptivity to the sectoral approach, not across the

3board, not as a replacement to an overall horizontal approach, but there was

4the recognition that there is something of significance in the Telecoms

5Agreement and while there are obvious caveats that had to be borne in mind

6going down the sectoral road, that there might also be certain things we can

7learn about even how one might approach a horizontal architecture by

8examining the work that worked.

9I think that is what I would say, again, rather than specifics,

10more in terms of the sort of gradual and sort of incremental process as we think

11and work through these things benefiting from our discussions among our two

12sets of colleagues that our work will become even more precise, and maybe one

13day germinate into an OECD Council recommendation much more than a

14speech by one of the two Deputy Secretary Generals responsible for this file.

15 MR. RILL: We do have OECD recommendations on substantive

16issues such as the hard core cartel recommendation which I think is a landmark

17in OECD for getting into substantive areas. Let me see if my colleagues have

18 any questions. Eleanor?

19MS. FOX: All right. Thank you. You've mentioned the

20possibility of developing core principles. My question relates to relationship

21between OECD and WTO or perhaps even a stand-alone agreement. Have you

22given thought to whether there are some issues that belong particularly in the

23WTO, like at the point of intersection of trade and competition, market access,

174

1and of course telecoms, telecoms market access, it's a kind of market access,

2it's a kind of access to an essential facility which is probably going to be with

3cross-border implications. So have you given thought to whether there is any

4reason if one thinks at all of an internationalization, any reason to do it

5particularly in WTO for true and tight trade competition issues and elsewhere

6or not at all or whatever for other issues?

7MR. PHILLIPS: One thing I would say at the outset is the idea

8of having an agreement in the OECD has not been discussed, and we have not

9done any comparison of the relative advantages of WTO versus the OECD. It

10has simply never come up. The other thing I would mention, just on a strictly

11personal note, it's not something I would personally seek for the OECD. We do

12very well, I think, promoting convergence, doing substantive discussions,

13in-depth analytical issues, that kind of thing. That's our bread and butter. We

14don't have a dispute settlement mechanism, don't have a tradition of that, and

15so, I'll stop there.

16MR. WARNER: I would reiterate that our work is optional at

17this stage. We have not reached that stage of analysis where we have looked at

18a possible WTO agreement. Instead we have listed sort of the continuum along

19which our options work is proceeding, and at some point it may well be that we

20will turn our minds more precisely to a question like that.

21MR. RILL: Do you want to put in a plug for the June seminar?

22MR. WARNER: Yes. In June, we will be holding a seminar on

23the 29th and 30th of June for our non-Member States to engage our nonmember

175

1countries and with our civil societies, environmental, labor and other groups

2around the issue of trade and competition policy. We will have three different

3panels. First we will look at the regulation in competition and trade. The

4second panel will look at options -- the kind of work I have been describing --

5generally, how would we get a degree of coherence between these two policy

6areas. The third panel will then assume the option of multilateral rules and ask

7what kind of multilateral rules, would be desirable, feasible. And again the

8idea would be to have a broad representation of our non-members in the room

9as well as having different elements of civil society who have not been part of

10this debate to this point, but who will be part of this debate as we move on to

11Seattle and beyond.

12MR. RILL: Merit?

13MS. JANOW: First of all I wanted to express my appreciation

14to both of you for rearranging your calendars to be here today. It's really a

15contribution. Thank you very much. I personally also have long admired the

16OECD's contribution as the principle fora that has been thinking about

17competition policies internationally for so long, and has always been an

18intellectual testing ground for issues that were often taken up at the

19multilateral level and so I really do appreciate your coming here today.

20In the WTO Uruguay Round agreement on investment contains a

21reference, as you know better than I, to look at the relationship between

22investment and competition policy. And the one place where there has been a

23real engagement on investment was at the OECD. And so my question to you,

176

1which perhaps I apologize for sort of springing on you, but is how is

2competition policy itself surfacing in the context of those investment

3negotiations? Did it surface? If so, how and if you don't wish to respond now,

4could we just get some sense of that at some point?

5MR. PHILLIPS: I think we're getting ready to deal with

6competition policy. For example, review the guidelines for multinational

7enterprises, updating of those guidelines. There is a chapter in those

8guidelines on competition policy for what it's worth. But as we all know the

9negotiations ended and never took that up.

10MR. WARNER: There was work also on state monopolies and

11public monopolies in the Multilateral Agreement on Investment, MAI, or the

12Multilateral Framework on Investment, MFI, but again, that work is sort of

13stillborn as well. Work obviously continues on Article 9 in the WTO

14Agreement on Trade-Related Investment Measures (the TRIMs Agreement).

15There is clearly a linkage between the two WTO working groups that I

16mentioned earlier. We have not addressed that linkage ourselves directly in

17our work in the Joint Group, although that is clearly related to the kind of work

18that we are doing. The same discussions about competition policy occur in the

19working group on trade an investment as occur in the working group on trade

20and competition policy. There are linkages there because of certain developing

21countries have made the linkage expressly and they are the ones who have put

22it on the table for discussion and negotiation and it will stay there for the

23foreseeable future.

177

1MR. RILL: Okay, thank you very much. Paula, do you have

2anything?

3MS. FOX: Could I ask one more? Never mind.

4MR. RILL: Go ahead. We're only 20 minutes over.

5 MS. FOX: I'm steered back to your bread and butter. Perhaps if

6there is not time you can think about answering in writing. Since you are

7considering convergence of competition policies and you want to process

8standards, I want to know your reaction to the fact or proposition that there are

9various countries like the United States that are rather sharply

10efficiency/consumer welfare focused and there are various other countries that

11whether or not they say they are consumer-focused are fairness-focused. And

12there is some argument, at least some people say that if you bring on stream a

13law that is essentially a fairness law rather than a consumer welfare law, you

14might degrade efficiency more than you add to it by including within that

15vessel a cartel law. So I was wondering if you find this a problem and whether

16you recommend that people have competition laws no matter what the

17competition law said.

18MR. RILL: In one word or less, no. I'm kidding.

19MR. PHILLIPS: And I apologize for having dragged this over

20time. Again, personally, I think the idea of the efficiency objective is going to

21prevail around the world. I see it, for example, in our work on regulatory

22reform, that governments are very concerned about having our economies to

23better the OECD's economics department, studying the macro-micro link, a

178

1good micro policy producing better macroeconomic performance, and that's all

2about economic efficiency and I think it's going to sooner or later come out.

3MR. RILL: Thank you both very, very much, and especially for

4readjusting your schedules and the really good work you've done and that

5OECD is doing. We undoubtedly will be having more questions to put to you,

6if we can, as we work our way through this report.

7Thank you both very much. Let's just stretch. Lock the doors

8while we set up for the next panel.

9(Recess.)

10SESSION FOUR

11 MR. RILL: Okay, we're all set, most importantly our panel is

12set.

13MR. BAKER: I think what's important is that you all have

14survived the whole day to be here to greet the panel.

15MR. RILL: We're resilient in spite of our longevity, at least in

16my case. Let me welcome our fourth panel of the day and express our

17appreciation for your being here. This panel is a knowledgeable expert group.

18I don't know whether I can say they are representing the International Law and

19Practice Section of the American Bar Association or simply representing

20themselves as leaders of the International Law and Practice Section of the

21American Bar Association.

22MR. LIBOW: I think, Jim, we're all current or former leaders of

23the International Antitrust Law Committee of the International Section, and

179

1any of the views that we have set forth today are not the views of the Section,

2are not the views of the Committee, in Byowitz and Baker's case not even their

3own views.

4MR. RILL: We had a disclaimer earlier when some of the

5leaders of the antitrust section said that it wasn't their partners' views.

6MR. BYOWITZ: Having been quoted at a conference and

7quoted in The New York Times on a deal as the reason why someone rejected

8my client's unsolicited offer being the remarks that I had made at a

9getting-the-deal-through conference of the ABA Antitrust Section, I started my

10next speech by saying the views expressed herein are not necessarily my own,

11and I've been doing that ever since.

12 MR. RILL: Did it work?

13MR. BYOWITZ: They did of course misconstrue my views, and

14I explained it at that speech and will not bore you with the details here, why

15the New York Times article is wrong and my remarks at the conference really

16meant that they should have accepted my client's offer rather than not.

17MR. RILL: Now that we're into it, let me introduce you for the

18benefit of the press and perhaps some of the panelists on the Committee who

19don't know you all. I'll just go around the room and then perhaps Daryl you

20can pick an order for the group.

21Mike Byowitz at the end of the table here is a partner at

22Wachtell, Lipton, Rosen & Katz, a longtime antitrust and global competition

23practitioner, expert in mergers, has had officerships and council positions and

180

1committee chairs in not only the International Law and Practice Section but

2also the Antitrust Section of the American Bar Association. He has the honor,

3as do several of us, of being an alumnus of the Department of Justice's

4Antitrust Division, and someone I've had the pleasure of working with on a

5number of matters, sometimes with a good result.

6MR. BYOWITZ: I've learned a lot in that work with you.

7MR. RILL: We have, both of us.

8Don Baker who is next to Mike is an extraordinarily well known

9international antitrust practitioner, a former Assistant Attorney General in the

10Ford administration and spilled over into the Carter administration where he

11gained fame by recommending the repeal of the Robinson-Patman Act, a

12worthy goal. He has written widely and spoken often on antitrust and

13particularly on international antitrust. Don also has been an officer of the

14various bar associations that have a particular interest in the field. I'll give

15you a plug, Don. I think one of the more comprehensive publications I have

16seen is Rowley and Baker on International Mergers, which I think should be a

17desk set for anybody practicing in this area. May I recommend you take up the

18habit of pocket parts, put it on the Web site, and update it daily.

19 MR. BAKER: We're looking at that for the third edition. As to

20what you have just said, we'll make sure it gets on the next dust cover.

21MR. RILL: Paul Crampton is a partner at Davies, Ward & Beck

22in Toronto and also an officer of the Canadian Bar Association's antitrust

23section. I first met Paul when we were working together on merger guidelines,

181

1the Canadians and U.S. were going forward at the same time. At that time

2Paul was a senior official, I think special assistant to the director of the

3Bureau of Competition Policy. And then went after that into private practice.

4He is a very well-known Canadian lawyer.

5Daryl Libow is a partner in Sullivan & Cromwell's Washington

6office, which I suggest means he probably is one person at Sullivan &

7Cromwell not involved in Microsoft. He is Co-Chair of the International

8Antitrust Committee of the Section of International Law and Practice, and a

9graduate of, in addition to Cornell Law School, Harvard undergrad and the

10London School of Economics.

11Daryl, do you want to suggest the order of presentation?

12MR. LIBOW: Let me briefly explain what we hope to do today.

13We're members of the International Section and all of us spend a great deal of

14time representing foreign clients who have had experiences with the U.S.

15merger review process. We thought what we hoped might be of assistance to

16you and helpful to the task force would be to spend a little time talking about

17the non-U.S. perspective of the U.S. merger review process and some of the

18problems that foreign clients perceive or encounter in trying to get their deals

19through the U.S. merger review process.

20We have four separate topics that we hope to cover. Each of us

21going to take a few minutes to take the lead on one of those topics, and then we

22want to have a lively discussion amongst ourselves and with you about some of

23the issues we're going to raise. I will just note that we all are very impressed

182

1with the staff's draft working papers on some of these topics that came out in

2late March. I think you capture a lot of the same issues that we are going to

3talk about today. I think in a number of instances some of us would say you

4should go further, probably in some instances not far enough or maybe too far.

5We're going to start with Mike Byowitz, who is going to kick it off and talk

6about the burdens of second requests in foreign transactions.

7 MR. BYOWITZ: A subject near and dear to every practitioner's

8hearts.

9Foreigners have the view, and I think correctly, that second

10requests impose massive burdens on merging parties that are far greater than

11are warranted in order to achieve the law enforcement objectives of the U.S.

12authorities (which are to determine which deals to challenge). Foreigners

13believe that second requests impose burdens that are considerably greater than

14are imposed in second phase or what I can call globally second phase

15investigations, that is, more intensive investigations by antitrust jurisdictions

16abroad.

17Now, I should say that the ICPAC staff report correctly notes

18that the HSR form imposes burdens that are relatively modest, and I

19underscore the word relatively, but relatively modest vis-a-vis some of the

20foreign filing requirements. So the initial form in the U.S. is better, easier to

21deal with even though it requires a lot of SIC code information. It's something

22that a transaction-minded company can keep current, which is a good thing.

23Even though it's a lot of work, you do it once and then you've got it for the year

183

1until the base year changes, then you do it again. The transaction-specific

2portions of the Form are relatively easy to deal with, and I say again relatively.

3In any event, what I would submit is that getting to the second

4request and the meat of what I want to talk about, the refusal of the U.S.

5authorities to change the U.S. system, if that's where we end up, may have a

6chilling effect on efforts to harmonize the procedural dimension of competition

7laws.

8The U.S. system, I believe, in second requests is an outlier

9because of its very document-intensive nature. I know that some of the panel

10members have had experiences with it directly and others by this stage in the

11proceedings have heard the horror stories. I would just say very briefly that

12nowadays parties are routinely in second requests forced to produce hundreds

13if not thousands of boxes of documents, many of which have only a peripheral

14relationship to the key issues in the case.

15Some of the problem arises from that second requests call for a

16comprehensive search for nonidentical duplicate documents; a little check mark

17on a document that it went to a different person means that document's a

18different document also which must be produced. Second requests cover

19literally entry level people and people with very peripheral involvement with

20the relevant products -- and sometimes even personnel that the staff attorney

21would agree have no involvement with the relevant product, on the theory that

22it can't be ruled out that the employees in question incidentally might have

23received some documents of interest.

184

1I would submit that that kind of system gives no weight to

2burdens on parties and that's not appropriate. Normally you have a balancing

3test between probative value or likelihood of achieving something useful versus

4burden. There's no credit given for burden in the second request process.

5Second requests also call for searches of electronically stored documents, and

6anybody who has had to deal with the joys of what kind of archival tapes

7people keep, what happens when you delete a message and put it into trash, is

8not thankful, to say the least. That kind of issue is not something that when I

9graduated from law school almost 25 years ago I had a burning to get at, and

10I'm still not burning to get at that.

11The cost of responding to second requests is very substantial in

12terms of usually millions of dollars. The delay factor is considerable and has

13an effect on the businesses of the merging firms that a lot of times is

14unwarranted -- that is, not proportionate relative to the competitive concern the

15deal may raise. You can have what is at the end of the day an efficiency

16enhancing procompetitive deal that gets held up for months and the parties lose

17out on substantial business prospects while their management is focused on

18dealing with CID depositions, dealing with responding to second requests,

19dealing with helping the lawyers develop substantive positions.

20 One of the problems with the U.S. system is that the length of

21time is uncertain because it's based on responding to second requests. I can't

22believe, if anybody has addressed this issue before, you haven't heard of the

23perverse incentives that this creates on the part of the agencies or at least the

185

1perception on a very substantial part of the antitrust bar that it creates the

2wrong kind of incentives, as opposed to every other -- I think pretty much

3every other system of which I'm aware which has a finite period of time. The

4HSR period can be stretched out by staffs being not responsive to requests for

5modifications of second requests.

6I would say also that many experienced practitioners believe that

7second requests are used for purposes that are not what was intended. They're

8used to build a case as opposed to determining if a violation occurred. They're

9used as one-way preliminary injunction case discovery. There is a perception,

10and I believe foreigners have this perception to a considerable degree, that

11second requests are sometimes used to create additional leverage on the part of

12the agencies so that the agencies get divestitures that are greater than might be

13warranted by the facts, or at least some people's view of the facts.

14I will tell you that I advise my clients to respond to second

15requests, notwithstanding all of that, because you must seize control of the

16clock; if you don't, you're at the agency's mercy in terms of what relief you're

17going to be giving them.

18The burden I would like to focus on that really comes into play

19with foreigners is the translation burden, which is very substantial. Anybody

20who has dealt with second requests knows that most documents that are

21produced in response to a second request have very little utility, and if there

22are lots of them in a foreign language and having to translate them, which the

23rules require, imposes enormous burdens. The staff has made a useful

186

1suggestion which I do not think goes far enough, but a useful suggestion in that

2regard.

3What I would suggest is that I agree the agency should have

4access to people who are proficient in foreign languages. What I would

5suggest is that they retain foreign antitrust counsel either in cooperative

6relationships with foreign agencies where there are many people who speak

7foreign languages and/or through hiring foreign antitrust counsel to review the

8documents in the original language, determine which ones have any utility at

9all, and then translate those. I think the parties could be prevailed upon, given

10the substantial expenses involved, to pay for a portion of that. But I would

11strongly submit that it should only be a portion, because the agency's

12appreciation of the burdens would be enhanced if they had to pay for some of it

13themselves.

14I would close by saying that the U.S. system imposes significant

15burdens on deals involving foreigners. I'm aware of deals where people have

16simply, because of the danger of getting a second request, cut the U.S. part out

17of the deal (that I think at the end of the day would have been efficiency

18enhancing) rather than go through the second request process. I am not

19proposing a separate rule for transactions involving foreigners. I believe many

20of the same issues are involved in transactions involving two multinational

21U.S. companies. With that I'll stop.

22MR. RILL: Thank you, Mike.

23MR. LIBOW: If I could just add to what Mike was discussing.

187

1Mike, I found that in a number of transactions involving

2non-U.S. parties that they have become so terrified of the second request

3process. Typically after they have gone through it once, they will immediately

4ask to come in and find a fix or remedy and often give up more than is

5necessary to give up or certainly give up the U.S. part of it which might not

6have been justified under strict competition analysis, to avoid a second request.

7And that is not a problem unique to foreign companies, but is perhaps

8exacerbated in the context of foreign companies. We have very low thresholds

9to require a Hart-Scott filing, so a lot of cross-border deals are picked up that

10have very little to do with the United States, and I think there is a perception of

11the tail wagging the dog in many instances.

12MR. RILL: Those are abandonments even where there is no

13perception of any competition problem?

14MR. LIBOW: There might be a de minimis problem, Jim. Once

15you get to the point where you're being told there is a second request or a

16likelihood of a second request --

17MR. RILL: Hopefully those wouldn't happen unless there is a

18competition problem or the agencies aren't cooperating with each other, and

19don't decide who has clearance until the end of the day.

20MR. LIBOW: Hopefully.

21MR. BYOWITZ: That is a problem. I'm glad you mentioned

22that because that is a very serious problem. Four years ago the agencies very

23highly touted the fact that the agency clearance process had broken down, but

188

1they had fixed it. It is completely broken again, and getting your first phone

2call from an investigating staff on the 28th or 29th day of the first waiting

3period is not something that is helpful.

4MR. RILL: Gee, I just got a clearance phone call and I really

5need a second request because I don't know what this deal is all about phone

6call?

7MR. BYOWITZ: Yes.

8 MR. CRAMPTON: I think we're going to follow up on what

9Mike just said. Just on this chilling effect point, I've been involved in a

10number of discussions and even yesterday I was involved in one where U.S.

11counsel for the vendor made it quite clear that a particular bidder is going to

12get discounted by the vendor because the vendor perceives that the bidder's bid

13is likely to entail a second request. As a foreigner, I find it surprising that

14your process could get in the way of your industrial restructuring and put it at

15a competitive disadvantage relative to the rivals of U.S. firms in Europe or

16Asia or wherever.

17MR. RILL: I think we have all had experiences where the cost

18of complying with the second request appears to be so awesome and there's no

19quick-look option that the deal's been abandoned. We all have had that

20unhappy and really uncalled-for experience.

21MR. BYOWITZ: And also it gets more difficult because

22increasingly strategic use is being made of the whole HSR review process in

23the United States. You'll get complaints from competitors, oftentimes not well

189

1founded, and that will result in a second request because the agencies are very

2responsive to potential witnesses, given their litigation orientation these days.

3Sometimes you can get through those issues in the first 30 days but sometimes

4you can't. When you can't, you go through the whole process. I've been

5involved in deals where I've told clients, there is a 50/50 chance we will get a

6second request, and on a deal where there's a 90 percent chance we will get

7through without any divestiture.

8MR. CRAMPTON: You might be interested to know that about

9a year and a half ago the Canadian Competition Bureau adopted administrative

10timed deadlines, and they positioned them as being a quid pro quo for user

11fees, but it's worked rather well. They have three categories, straightforward

12transactions they guarantee or virtually guarantee that they will complete the

13review in 14 days. And they have a middle category that's ten weeks. And

14then the most complex transactions would be five months. These are deadlines

15that they impose upon themselves, so they don't require statutory amendment,

16something very difficult to achieve. They are a form of soft harmonization.

17Here we have something that has some potential for soft harmonization. I

18know the Canadians specifically tried to harmonize that latter period with the

19European five-month review period, so that's something that you may want to

20think about.

21MR. BAKER: Can I just add a couple things. One is, my work

22probably compared with the others at the table is more balanced between

23objecting to mergers and putting them through. Like everyone else I've

190

1probably put more through than I object to but because I have so few conflicts

2in the law firm I get to object more.

3Mike's perception that someone objects and you get a second

4request, I don't have as good a record as that. I'm sometimes pleased for

5someone to issue second request. I think the staffs are a bit more reluctant. I

6think an objector clearly does improve the chances of the agencies issuing a

7second request.

8The second thing is, I think that the real weakness in the U.S.

9system is the absolute lack of any independent force in the process in terms of

10determining substantial compliance or any other question. Give me a federal

11magistrate or somebody who you can go into and say, look, this is ridiculous.

12And that I think is more the problem than the fact of an uncertain deadline. I

13have some sympathy for the agency that if they're subject to a five-month

14deadline, then the merging parties can sandbag you on being very slow in

15getting things out. But I'm totally with you on the point of you have to tell

16your client, foreign or domestic, and it's worse when it's foreign, you've got to

17comply with the second request because otherwise you lose the clock and that's

18the only weapon you have in the whole process.

19MR. LIBOW: Before we move on to another topic, unless you

20have questions, there is one other point I wanted to make about the translation

21requirement, which I think is a really onerous requirement on foreign parties.

22Sometimes the agencies can use it substantively in that if you

23have a company that's doing an acquisition in the United States and that

191

1company has subsidiaries in Hong Kong and Japan and all over the place, if

2you go in and you say you can't really mean I've got to translate all these

3documents on this product in all these offices across the world. And as you all

4have experienced they usually ask you to put together a flow chart to show you

5the offices and who works where. They will say to you, fine, you don't want to

6do it, let's accept a market definition of the U.S. market only, which can have a

7fairly significant effect. It can take a weapon away that gives you the

8opportunity to argue that there is a broader market and therefore you should

9ignore the HHI numbers strictly in the U.S. market, so I think it can have a

10substantive effect as well.

11 MR. BAKER: Or an efficiency defense or any number of other

12issues.

13MR. RILL: Merit has a question, and then I would like to move

14on to the next topic. We can always come back to other questions on this

15point.

16MS. JANOW: I have a practical question I can't avoid asking,

17given that at this table we have two former heads of the Antitrust Division and

18others who have worked in the Division.

19How will the agency be able to afford being able to undertake

20this kind of enterprise? That is to say, hiring enough language-competent

21lawyers to do a translation of key documents?

22MR. RILL: Since you've put it to me as a former head of the

23agency, I didn't know I was going to have to answer any questions. I would

192

1say by being more discreet in what they ask for.

2MS. JANOW: Okay, that's one answer.

3 MR. BAKER: The second thing I haven't thought through is that

4you could possibly have a different fee structure for cases that involve

5substantial numbers of foreign language documents. I agree with Mike's point

6that the agency should be required on an incremental short-run cost basis to eat

7some of the cost as a check, but the agency will still have to be supported out

8of public funds and fees.

9MR. BYOWITZ: It would probably save the parties money to

10fund a substantial portion of that by agreement as opposed to translating. I

11want to follow up on Jim's point because it is very important. You end up

12arguing that foreign producers count because there will be a supply response

13as a result of an attempt to exercise market power in the U.S., and you get a

14request then for documents relating to everything about competition in

15Germany and everywhere else abroad. Everything about competition in

16Germany is not relevant to the key issue. If a focus was made on what's the

17key issue about foreigners and what does the staff need to know about them in

18the instant investigation, the universe of documents would be much, much

19smaller than it is and then it wouldn't present that big a burden.

20MR. CRAMPTON: Quite apart from the translation issue -- go

21ahead, we can talk about this later.

22MR. RILL: We can come back on this issue. I want to be sure

23that before we run into the NATO celebrations that we cover all four subjects.

193

1MR. LIBOW: The second topic is something I'm going to talk

2about, which is what I see as the burdens of increasing state involvement, state

3merger regulation of cross-border transactions. I don't want to overstate the

4problem. I think to date state interference in cross border deals has occurred

5in relatively few instances where it has had significant effect, but I think the

6state attorney general has become more and more active domestically. Their

7activism will undoubtedly extend to cross-border deals as well. I think this

8provides some very significant problems. I think the concurrent jurisdiction of

9federal regulation and state regulation in cross-border deals can be both unfair

10and inefficient, and I do note that the staff's working paper noted this problem,

11and I agree with them.

12The thing that's interesting about state intervention or state

13regulation of cross-border mergers is that in contrast to the multi-agency

14review "problem," which I think is a problem as well, for example if you had a

15foreign airline that's trying to get statutory immunity for a transaction which is

16essentially the same as a merger but you're prohibited from merging because of

17foreign ownership restrictions, you not only need to get approval on immunity

18from the Department of Transportation but obviously the Justice Department

19actually has a very formalized role in the process as well. And you could have

20a situation where the Justice Department could recommend X divestiture and

21you'll find that the Department of Transportation may recommend X plus five

22in terms of divestiture and the goal of the Department of Transportation

23requiring X divestiture may not be competition related, or they may use the

194

1transaction to leverage a trade policy, such as an "open skies" regime with a

2foreign government.

3 In that situation, however, I don't think the United States is very

4unique to a lot of foreign countries. I think the concurrent jurisdiction of

5multi-agency review occurs in many places. I think where we're unique and

6what really aggravates some of our foreign clients is the notion that the states

7can intervene after the federal government has undertaken review, and I think

8there really is no analogue to that. In Europe if the transaction reaches a

9certain threshold it goes to Brussels and nowhere else. If the transaction is

10below a certain threshold, yes you can have a number of Member States in the

11European Union that might review a transaction, but if the Federal Cartel

12Office in Germany approves the transaction, you're not going to get some

13subdivision in Germany saying they'll impose an additional divestiture

14requirement. Similarly, in Canada or Australia or Mexico, if the federal

15government approves the transaction you'll not have provinces, its almost

16unheard of that provinces will be imposing divestiture requirements.

17So I think that it is a uniquely U.S. problem, and I think it is a

18problem that grates on foreigners in deals particularly because their

19cross-border dimension means there is already going to be a number of merger

20clearances required, they may be required in Europe, Asia, as well as in the

21United States. And there is a number of burdens that come from this. There is

22the possibility of additional discovery burdens. We're all familiar with the

23voluntary disclosure compact. I have had experiences where the state AG has

195

1asked for documents beyond what the federal enforcement officials have done.

2There is a substantive difference, too. There are actually a

3number of substantive differences between the DOJ-FTC merger guidelines and

4the state and NAAG horizontal merger guidelines and some of them are very

5significant. Some of them go to fundamental philosophy as to how to look at a

6transaction. And, there can be conflicting, although this is rare, there can be

7conflicting remedies. One recent example, a very recent example, is the BP

8Amoco transaction where the State of Ohio actually enforced remedies beyond

9which the federal government, the FTC, had required, and that's an example.

10What I think is a concern to many foreigners is that some of

11these remedies are not purely competition driven. And I will quote a former

12assistant attorney general of the Antitrust Division who once said: "State

13attorneys general are often more interested in headlines than sound law

14enforcement, have begun to use antitrust enforcement as a means of advancing

15their political careers."

16MR. RILL: I don't think I ever said that.

17MR. LIBOW: It wasn't you.

18MR. RILL: I just wanted to make it clear.

19MR. LIBOW: It wasn't Jim and it wasn't Don, that's all I'm

20going to say.

21MR. LIBOW: I think high level Justice Department officials

22have recognized the issue, and I think the issue goes beyond, just to be fair to

23state AGs, it's not just to advance their political careers, there are actual

196

1different legitimate motivations. And in fact the NAAG guidelines actually

2recognize in section 2 of the NAAG guidelines noncompetition-related issues

3as something the state attorney general should look at.

4And I think the final thing is -- and I have had foreign clients say

5to me, to add insult to injury, Daryl, they make us pay for the investigation.

6For those of you who have not had the joy and pleasure, the state attorneys

7general will ask you in the consent decree to pay for the cost of their

8investigation. I had one foreign client who likened it to the old form of

9Chinese execution where the family was billed for the bullet.

10I think it's not necessary, because federal regulatory officials

11look at local markets as well. The Clayton Act specifically talks about a

12section of the country in dealing with commerce, and I think it is not necessary

13to have duplicative state review because I think the federal government should

14and very often does protect local interests and localized markets.

15The solution to the problem. I would propose that Congress

16pass legislation amending the Clayton Act to preempt the state laws dealing

17with international cross-border deals. And I think there is a difficult question

18that can be debated which is what is the threshold. Is it only cases where the

19Justice Department or the FTC have acted? What does it mean to act? If the

20Justice Department or FTC reviews the transaction and doesn't issue a second

21request, have they acted? I think this is a difficult question, but I would

22strongly urge that we at least limit the opportunity for state attorneys general

23to get involved. I think this is justified in the Foreign Commerce Clause. The

197

1Supreme Court has said in a number of other contexts that the federal

2government in dealing with international intercourse in commerce, the United

3States should speak with one voice. I think this is a perfect example where we

4can do that and I think that's something that should be considered.

5MR. RILL: Let me just press you a little bit on that because I

6think you raise an issue that's been an issue for a long time. You've got

7Supreme Court law on the subject of the power of the states, but I wonder if

8this is an issue that is one that is particularly or even largely germane to local

9competition. It seems to me it's perhaps even more germane to domestic

10competition situations. You raised the question of BP Amoco. What if BP

11didn't happen to be a foreign-owned company, but instead was the Libow

12gasoline company headquartered in Washington, D.C. that happened to have

13stores, gas stations in Ohio, and Amoco headquartered in Illinois had gas

14stations in Ohio, and those two companies had the only gas stations in Ohio

15and the Federal Trade Commission, perish the thought, was asleep, looked at

16it, took a pass didn't issue a second request.

17Should the State of Ohio be barred from bringing an action to

18vindicate the rights of the people of Ohio? And they can argue, yeah, maybe

19they should, but does that make it an international transaction?

20The second point. I question whether the states really do get

21into, other than a situation with BP Amoco which I view as essentially a local

22market, get into global mergers. States were not, insofar as I know, in

23Worldcom/MCI or any of the major nonretail transactions.

198

1Third, whether the states have authority to get into a transaction.

2I'm thinking now of Illinois Brick. Other than in those situations where there's

3an actual direct consumer purchase because the state attorney general, at least

4as insofar as he's enforcing the Clayton Act, stands only in the role of the

5consumers of the states, so unless there is a direct consumer nexus, I wonder if

6the state can bring an action. With all respect that's a very interesting topic. I

7wonder if it's one that's particularly on our home ground.

8MR. LIBOW: Let me react quickly to a couple of things you

9said.

10MR. RILL: Please.

11MR. LIBOW: First, I think it's more of an acute problem in the

12cross-border deal philosophically or intellectually because the Supreme Court

13has recognized that there are greater burdens imposed on states under the

14foreign commerce clause than under the commerce clause. And I think you can

15make the argument that when it arises and you have a cross-border deal,

16leaving aside your question of whether states have the power or not, I think

17there is a much greater argument to be made as a matter of law intellectually

18that the United States should speak with one voice.

19I do think that there are a number of other instances where I've

20found that states have gotten involved in cross-border deals. I've come across

21one in Texas where the Texas Attorney General got involved in a deal

22involving Mexico in an acquisition in the United States. I found instances

23where the New England Attorneys General had gotten involved in a deal where

199

1a foreign supermarket chain bought a U.S. supermarket chain, but I will grant

2you those are all in the retail area, which is your point. That is where it

3becomes more of an issue.

4As to the Supreme Court precedents about states having rights, I

5would note that the California v. American Stores decision, which I think is the

6one you're probably focusing on, specifically addressed the equivalent of

7Section 7 in a domestic transaction, it didn't reach the issue of cross-border

8deals.

9MR. RILL: That's true.

10MR. LIBOW: Finally, I think it raises an interesting question

11when the states have parens patriae jurisdiction only where they would be

12permitted to bring an action where there wasn't "consumer benefits," but I

13think the potential is there and I think Congress could avoid the problem by a

14amending the Clayton Act.

15MS. FOX: A related question. This issue came up in a cartel

16case in uranium in New Mexico, United Nuclear against General Atomic, in a

17private action. And I wondered if you also recommend the preemption of

18private action. New Mexico was a producer, not a consumer, and the New

19Mexican Supreme Court said there was no preemption from federal commerce.

20Would your concept lead us inevitably to say also that private

21actions should be cut back?

22MR. LIBOW: I think you make the argument that intellectually

23flows from that. I would practically draw the distinction between the state

200

1attorney generals who may often be motivated by other goals and the private

2right of action, but I think you're right, from an intellectual point of view, it

3flows.

4 MR. BAKER: I've wondered on this one. As I understand it,

5we've had some trouble getting people interested in IAEAA agreements and so

6forth. It seems to me that one of the possibilities is that we could include in an

7international treaty negotiation the possibility of trumping the states on merger

8enforcement decisions. So we're saying to Germany or somebody like this, if

9you have one of these new modern antitrust agreements, one of the things we'll

10give you is the treaty will say there won't be any local enforcement,

11 non-federal enforcement, and under the Migratory Bird case (Missouri v.

12Holland), the federal government can trump the states.

13MR. RILL: Was that an executive agreement?

14MR. BAKER: There was a treaty.

15MS. FOX: And the statute?

16MR. RILL: If it's a treaty, it takes two-thirds of the Senate.

17MR. BYOWITZ: The treaty has the same effect as a statute.

18MR. BAKER: I don't know the answer on executive agreements.

19MR. BYOWITZ: What I would chime in on this is that I think

20the real issue you have to differentiate is between cross-border deals where I

21don't think the states are really involved as opposed to what I call foreign

22owner deals where foreign firms are involved to some degree. A German firm

23buys a supermarket chain in New York and then buys a second one, why should

201

1they -- my argument --

2MR. RILL: Or perhaps a Dutch firm.

3MR. BYOWITZ: Right. Why should they be treated any

4differently than a U.S.-based firm.

5MR. BAKER: Some nice person from Kansas City.

6MR. LIBOW: My response would be, well, if the Kansas City

7Supermarket Company wanted to buy a German or Dutch supermarket, they

8would only have to worry about one set of regulators telling them what the

9competition analysis is and what the remedy should be.

10MR. RILL: I understand the equity of the point. You responded

11to my questions whether we agree or disagree with the response, you've given

12 me some thoughtful answers. Paul?

13 MR. CRAMPTON: One aspect of what Daryl had to say that I

14certainly think has an important international dimension is this whole area of

15use of competition laws to promote noncompetition objectives. And it certainly

16has been my perception, based on my reading about U.S. merger policy, that

17the states do use their antitrust laws to advance noncompetition and

18nonefficiency goals. To the extent that a lot of us in this room here and others

19are spending an awful lot of time trying to convince other countries around the

20world to use their competition laws or to enact competition laws to promote

21competition and to use different policy instruments to promote noncompetition

22objectives, I think it's critical that the U.S. show some leadership in this area.

23And so, to the extent that somehow this Committee could be led to say

202

1something or to take steps to reduce the extent to which the states use U.S.

2antitrust laws to advance non-antitrust laws, I think that would be very

3important.

4MS. FOX: Do you think as a practical matter there is a way to

5work with the states on a cooperation agreement and that that might be more

6practical than the gain that we could get from preemption?

7MR. LIBOW: I clearly think there is merit to that. The staff

8recommended some of the ABA Special Committee Recommendations in 1991,

9which are much less draconian alternatives. I'm trying to be thought

10provoking. I do think it has the potential to be a significant enough problem

11we ought to think about legislation. But I agree. I think there could be a

12consultative process set up involving NAAG, the DOJ, the FTC, so perhaps

13there can be some, you get in this one or you don't get in that one, we're not

14going to look at this, if you want to look at this, go ahead, some type of

15consultative process that might reduce duplicative investigations.

16MR. RILL: One proposal that was put to us, the "us" hat I'm

17wearing at the moment, is the old DOJ hat, where we negotiated the 1991

18agreement, was that where the federal agency had looked at the issue, not just

19taken a filing and let it pass but actually conducted an investigation and

20thought the merger was okay or okay with some divestiture, any private

21plaintiff including a state, goes further and brings an action under the

22agreement the Department or FTC would have to at least appear as an amicus

23and give its conclusions regarding the investigation. That seems to be a fairly

203

1modest proposal. I won't go into the details of why that didn't get into the

2agreement. It sounded to me sensible at the time.

3MR. LIBOW: I think it is sensible.

4One interesting point, there is a California Supreme Court case

5that actually held -- this is not a cross-border deal, this is a domestic deal. But

6actually held that the state antitrust laws were preempted in a transaction

7where -- not a case where they took a flyer and let it go -- where the U.S.

8government had investigated, entered a consent decree, required divestitures,

9and the California Supreme Court held that it had so fully taken the space that

10in that particular instance the California law should be preempted.

11MR. RILL: All I'm thinking of is the possible persuasive effect

12that that kind of brief might have on a court reviewing merger. It is a fairly

13modest proposal to that extent.

14I think we better move to the third topic.

15 MR. CRAMPTON: And that would be me. The principal point

16that I'm going to make is that shifting the U.S. process away from an

17adversarial litigation-oriented process towards a more consultative process

18would help to achieve some of the best practices, I think, that are highlighted

19in the staff document. If we step back and think about the HSR process as a

20whole, first stage and second stage, I think most people would agree that it's

21really not designed, it's not structured to facilitate, an expeditious resolution of

22the issues, whether it --

23 (Laughter.)

204

1MR. RILL: I'm not laughing at you. I'm laughing, I share your

2pain.

3MR. CRAMPTON: Yeah.

4I think, first of all the initial filing doesn't require parties to

5identify horizontal and vertical overlaps. If the staff doesn't identify these

6overlaps, as a result of their review of the SIC code information or the 4C

7documents, the transaction probably won't suffer the issuance of a second

8request. Now, that raises the separate issue of type two errors.

9Conversely, if they do identify, if something in their review of

10the SIC codes or the 4Cs leads them to have questions about the deal, then

11they're going to issue a second request without really knowing where their

12specific concerns should be directed, and as a result the second request is

13going to be a lot more expansive than the issues would warrant had they had

14more information. And then a significant amount of time winds up being spent

15negotiating back the second request after it's been issued. I think that that

16process leads to an adversarial or litigation-oriented approach because the

17merging parties have no incentive at all to take positions and address

18horizontal or vertical overlaps, they don't even take positions on market

19definition. I won't say they don't, but my understanding is they typically don't,

20whether it's market definition, entry, market shares and other specific issues,

21until much later in the process, and this in turn leaves the DOJ or the FTC to

22its own devices based on limited information. It has to issue this large

23information request, this overextensive information request, and that gives a

205

1lot of foreign lawyers the impression that the FTC or the DOJ goes into hard

2ball mode fairly quickly, and rather than trying to ascertain the facts, they're

3really preparing for litigation.

4Now, the adverse implications for foreign merger reviews would

5be to the extent that U.S. counsel often quarterback the filing of submissions in

6Canada and Europe and in other jurisdictions, they would be reluctant to give

7us the green light to take positions that we would normally take up front on

8market definition, market shares, barriers, and the like. And this results not

9only in significant delays in our jurisdiction, but it also gets us off on the

10wrong foot with our agencies, who are used to us taking these positions at the

11outset of the process, and when we don't, the goodwill that would typically be

12there evaporates rather quickly and they start wondering what our hidden

13agenda is.

14An alternative and less costly approach as identified in the staff

15document is to require merging parties to provide at least sufficient

16information in the initial filing, or if not in the formal filing, maybe in a

17voluntary submission filed with the formal filing, to enable the agency to

18ascertain the extent to which there may or may not be material horizontal

19issues, material vertical issues, and then if so, to narrowly craft the second

20request to those issues.

21Now, I can give you some sense of the Canadian approach,

22which roughly approximates something like that. I know many of you are

23familiar with it. For those of you who aren't, it's a much more consultative and

206

1open-door approach. It's similar to the European and Australian approaches.

2Typically, we have a formal filing that people have to make, but

3because of the consultative open-door orientation of our Competition Bureau

4traditionally, parties go in with a supplementary voluntary submission.

5Depending on the nature of the case, it could be a two-page letter (such as in a

6completely conglomerate transaction) to a very substantial document that I

7think you might call a white paper, which addresses in detail market definition,

8barriers, market share and the like. The resulting process is much more

9friendly in tone, flexible, fluid. It promotes goodwill.

10It enables parties to cut to the chase much more quickly, and ask

11much more intelligent questions, at least on the Competition Bureau's side of

12the equation. It saves the merging parties the expense of responding to an

13overly burdensome information request, so it really is a win-win process.

14Another dimension to that process is the ability to go in and get

15confidential guidance on a number of key issues, which is very helpful. And I

16know that this is something that has recently been embraced down here and I

17would simply encourage you to encourage the greater use of that, because it is

18very valuable to merging parties. So really the bottom line is that perhaps the

19U.S. process could move towards a more consultative, open-door approach,

20and that should save parties on both sides of the equation significant costs and

21burden.

22MR. RILL: And I think that does reflect some of the thoughts

23that were put together in the staff paper. Thank you for referring to them.

207

1MR. BYOWITZ: Paul's topic and my topic have got to be

2considered together because if you're going to adopt that reform, and I have to

3go in and tell the staff that I've got a 30-percent market share, 25-percent

4market share, today I'm getting a second request, and I would much rather hide

5out in the weeds, particularly in the deals I referred to before where there are

6enough players, there are supply responses, there is a 90-percent chance I'm

7not going to have a problem at the end, but even if I take the whole first 30

8days, particularly if I hit a time where a staff attorney's on vacation or they

9have a clearance problem, I'm getting a second request, and they are so

10burdensome that I'm not doing that.

11MR. CRAMPTON: Maybe what you would need to do is adopt a

12practice pursuant to which parties could take positions on a "without

13prejudice" basis. I don't know whether that's something that might work, but I

14gather that the reason why you don't take positions is because it can come back

15and haunt you later in the process if you wind up in litigation. And maybe if a

16practice were adopted that could permit parties to take positions that would be

17potentially very helpful to everyone involved. This is what we often do in

18Canada. We will often go in and say, look, even if the market is as narrow as

19this, which we don't necessarily accept, but we are prepared to assume solely

20for the purposes of facilitating an expeditious review, the market shares would

21be low. But I gather that today people don't like to do even that.

22MR. BYOWITZ: It's more than that. If you have bad numbers,

23a lot of the issues that you win on at the end of the day are fact issues, and fact

208

1issues are issues where a staff attorney can very legitimately look at you and

2say: if everything you say is true, Mike, then I agree with you, but I don't know

3that, so I've got to check, and that's a second request.

4MR. BAKER: I think the other part of caution on this, and I've

5seen this both in the government when people were filing things with me in the

6pre-Hart-Scott period and in the post-HSR world, and that is very often one's

7client will sound like you. "We ought to go in and tell them what the story is

8and get on with it." And I'll say, but how sure are you of these key critical

9facts -- because we're not going to look very good if we write a nice little letter

10that says A, B, and C, and then by the time we get through interviewing, and

11everyone delving into documents and things, we find that at the best this was

12wildly overly optimistic and at worst it was just flat wrong.

13So we get into the process of being cautious. The innovative

14market definitions that are presented to the government are really quite

15breathless. You would think that two banks not too far away on the same

16street in the same town were in the same market, but you find one was in the

17"east end" market and the other was in the "west end" market.

18 MR. CRAMPTON: You always have to pass the blush test.

19MR. BAKER: What really may be going on is that there are so

20many fewer of you in Canada that you're more likely to blush and then have to

21come back the next time. I say this with a smile on my face, but it is true that

22you know you're going to be back in the Bureau and when you tell them some

23idiotic story, if you ever did, hypothetically, that you're going to hear about it

209

1the next time you come back. Maybe lawyers in the United States could learn

2from you.

3 MR. CRAMPTON: Our credibility definitely is on the line every

4time we go in there, so we can't take the approach you describe.

5 MR. LIBOW: As a practitioner who spends most of his time

6trying to get deals through the Justice Department and FTC, I like the first

7phase of the Hart-Scott form. I think there are a few pieces of information on

8it that are unnecessary in terms of some of the item 6 information and things

9like that, but this gives you the flexibility to do what Paul wants if it makes

10sense. You can always go in on day one, we have all done this, when you

11announce a deal, you know it's going to be perceived as having big problems,

12you go in on day one or before you even file and you lay it out for them and

13you start working with them. Or if you've got a deal that's going to be

14perceived as having a real problem, you know, you may put a white paper in

15with your Hart-Scott filing pretty early in the process, but you retain the

16flexibility to hide in the weeds as Mike said and a lot of deals slide through

17that don't necessarily merit sliding through, but in this format you'll never slide

18through.

19MR. BYOWITZ: Also there needs to be a culture -- in Europe

20and Canada there is a different sort of culture or relationship between the

21enforcement agency and the merging parties and the bar. The level of

22suspicion that exists by the agencies towards the bar in this country is very

23unique in that regard, I believe, and it is troubling. And it doesn't exist in

210

1every sector because when you deal with banking transactions, the culture in

2banking deals here is European. It's very much a European culture because the

3Federal Reserve is there and the Justice Department gets an automatic stay.

4The Justice Department people don't see themselves as a litigator. They see

5themselves as a responsible policymaker, and merging parties go in from the

6outset and state everything, they file applications that have far more

7information than any Form CO or Canadian filing or anything.

8In defense industry deals nowadays because the Defense

9Department is so concerned about competition and about understanding what

10your products are, in those sort of deals you go in at the outset. I've gone in on

11some defense deals before it's cleared and I've gone and talked to both antitrust

12agencies because I want to get to them and I want to get ultimately to the

13Defense Department, so I don't get questions on day 25 of the first waiting

14period about what do you make and what does the other guy make, and they

15better issue a second request in order to find that out. But the culture in those

16other areas is unique, it's an un-American culture.

17MR. RILL: Lest we say it has anything to do with the people at

18the different agencies, I think it has to do with the structure of our system

19which requires court appearances that are up for grabs which creates a level of

20insecurity.

21MR. BYOWITZ: I agree, Jim.

22MR. RILL: Understandable insecurity at the agency staff level.

23I don't think you're implying that this is --

211

1MR. BYOWITZ: You're exactly right in that. The people at

2Justice who do the bank deals either today or two years ago or two years from

3now are going to be people behaving differently when they're in a litigation

4mode because of the different culture and the fact that this really is an

5adversarial system. Everyone wants to cooperate but this really is an

6adversarial system.

7MR. RILL: Let me put another thought to you, that maybe it's

8voluntarily an option, but I think that doesn't work. That is, not to define

9markets and markets shares, although this may do it, but have an option to go

10in with customer lists, supplier lists, top ten, pick a number, top ten of each,

11last three, pick a number of years strategic plans, they're going to ask for them

12anyway if they look at the deal. The trade-off being that if the second request

13is issued, you can still have the option to make your case and arguments during

14the 30-day period. The staff would then have to specify with precision the

15concerns that justify the second request and be bound by it in the second

16request investigation. Think about it.

17MR. CRAMPTON: That kind of touches on something that was

18in the OECD model form. Which is, you don't go in with positions on market

19definition but you go in and maybe identify lines of business.

20Now, just one other --

21MR. RILL: But there's got to be a benefit to that, and the

22benefit would be forcing the staff to position itself on market definition and

23other concerns in context of the second request, which I think would have an

212

1automatic cut back on the scope of the second request or they would look

2rather fulsome, in the worst sense of the word, in that market in their statement

3of concern.

4But I think we need to move to the next topic and then with the

5time left we can come back to all the topics.

6MR. BAKER: Okay. Well, you'll see what my colleagues left

7over for me.

8MR. RILL: Don, you'll always make use of whatever is left over

9in a very, very good and useful way.

10 MR. BAKER: Okay. I wanted to talk about the interplay of two

11sets of ideas. One is consultation among agencies, and the second one is public

12information. So I put a title on this called "Transparency, Consultation and

13Occasional Confusion."

14MR. RILL: I sense an article coming.

15MR. BAKER: Basically we start from two fundamental points.

16One is that consultation among government competition agencies on policies,

17facts, case selection and relief is more likely to produce rational and consistent

18public policy decisions across borders. We also start from the idea that public

19information is important to a government of laws rather than pure bureaucratic

20discretion, and that distributing information will tend to encourage more

21consistent agency decision-making, and therefore to some degree limit present

22and future discretion by the government enforcers. Some may think this is

23good, some may think it's bad. This dissemination of information also will

213

1tend to encourage better risk appraisal by those contemplating mergers and

2those who advise them.

3Now, let's take the interplay of these two ideas. Suppose the

4agencies regularly consult with each other on both case and policy decisions

5but issue little public information. Then you have a vast imbalance between the

6two sides -- the public side and the private side of the table, in transactions.

7And it seems to me you open up even more agency discretion because the

8agency knows both what it knows and what the foreign agency knows and the

9private parties don't know what's up.

10In the alternative, let's suppose they issue a lot of public

11statements, but they don't consult with each other. Then the private parties are

12left more at the whim, sort of random chance -- because the chance that one

13agency will go for this kind of relief and the other agency will go with the other

14kind of relief. And the agencies are left with the situation that it's more likely

15that the parties will tell them inconsistent stories as between Ottawa and

16Brussels and Washington.

17The third possibility is the agencies neither consult with each

18other nor talk publicly, and then of course what you've got is a regime of

19parochial, secretly exercised governmental discretion, which no one can think

20is a terribly good idea.

21I reach the conclusion that the only efficient solution is both

22consultation and public information, and that the two are, in fact, related, that

23confidence in the process requires consistency of results across borders, and

214

1the visibility of seeing it.

2Obviously the consultation process covers the full range from

3quite formal consultations and notifications and the OECD process and so

4forth to case-specific consultation under formal agreements. And I obviously

5note that this is more in the criminal area than in the merger area. Under

6formal agreement, Jim, the IAEAA agreements exclude mergers.

7MR. RILL: No, no, they exclude the sharing of

8Hart-Scott-Rodino materials, period. There are lots of other things that can be

9shared.

10MR. BAKER: That's a fair comment.

11The next version is obviously case-specific consultations by

12agreement and waiver of the parties as we had in Worldcom/MCI and so forth.

13The next thing of course is the informal consultations that go on among staffs

14of the different reviewing agencies. I don't know as a practical matter how

15much there is of, "gee, I think you ought to ask those people about the reverse

16spinning widget market" or "what kinds of trade flows there really are in the

17product from A to B?" I don't know how much of that goes on. I should say I

18suspect quite a bit.

19 The last thing is the interesting thing where the agencies use

20their compulsory process to get the merger submissions that have been made to

21each other. In other words using -- it's hard because of our timing for our

22agencies to use the second request to get a Form CO response -- but it is

23possible, obviously, for agencies to get these things from the merging parties.

215

1We have this consultation process which is important, and it's

2important on mergers, and I've tended to encourage that kind of thing. On the

3whole business of sunlight and public pronouncements, it has seemed to me

4that the important thing here is that the agencies in their communications play

5it reasonably straight in the sense that the issue is sort of how accurate and

6how specific the agency disclosures are.

7I say this as the person who thought it was a good idea and still

8thinks it was a good idea, to issue international guidelines way back in 1977

9-- when it was the first time the agency had done anything quite like that

10because the 1968 merger guidelines didn't have that level of guidance and

11analysis.

12Well, it was one hell of a fight internally because people didn't

13want to take positions on things. And yet the guidelines were sort of

14worthwhile. I had a funny time way at the end of my tenure after I was on the

15way out the door, and I was speaking at the ABA Antitrust Section, and I sat

16down to what seemed like an awful lot of applause, and my friend (and, it

17turned out, successor) Bill Baxter, who was sitting next to me there says,

18"Don, I don't understand why you're so popular with those people considering

19how tough you are." And I responded, "they don't care how tough I am as long

20as I don't double-cross them with their clients." I think one has to be sort of

21careful.

22Anyway, we've got several issues that you will hear highly

23diverse viewpoints from our panel. The first issue which I know is one you

216

1thought about, Jim, over the years, should the U.S. provide case-specific

2explanation of decisions not to challenge substantial mergers -- which is a

3Canadian and European practice?

4And the second question of these four is: how useful is the

5U.S.-required explanation of settlements, which has the effect of slowing down

6the settlement process.

7The third one is this: should the Hart-Scott-Rodino process be

8quite so nonpublic? In a lot of countries the agencies or the companies have to

9release information that something has been filed, and this has some

10implications for objectors.

11And the fourth is should the agencies be allowed to compel you

12to produce by second request or CID what you have produced to foreign

13agencies.

14I have views on all these subjects, but I've talked enough so I'll

15let my colleagues leap all over them and then I'll come back.

16 MR. RILL: Colleagues?

17MR. LIBOW: This is one area where I would counsel restraint

18in amending or changing our system. I think we would have a negative effect

19from a practitioner's point of view if the Department or the FTC were required

20to publish a decision as to why they did not go forward with the investigation.

21I think the flexibility that the staff has now and the front office has, to decide

22to let something go when something is borderline, they would be much, much

23more hesitant to do that if they had to publish an opinion justifying that

217

1decision. So from a practitioner's point of view I actually like the fact that

2there's nothing published because we know what the standards are anyway. I

3don't think you're going to learn that much every time there is a published

4opinion and I think the other side would have a chilling effect.

5 MR. RILL: Let me press you on that if I may, sorry to

6interrupt. I think you're absolutely right if you have a requirement that every

7one of 4,000 some-odd mergers that don't get challenged there has to be an

8explanation or even pick the number, the 200 second requests from both

9agencies together as to why they don't all end up in challenges has to be

10explained. I think the agencies could be encouraged, though, to make selective

11disclosures or reasonings behind nonchallenged, invisible, or doctrinal cases,

12difficult as it may be. I tried to do this in two cases, one was tires and one was

13when Big 8 went to Big 6 in the accounting business. Now of course it's Big 5.

14The fact is that one of those was a unilateral effects analysis and

15one was a fringe capacity analysis which I think anticipated and put some meat

16on our enforcement policy that made some sense. And I'm not saying, yea, me.

17I'm saying this is something I think the agencies could do more of on a

18selective basis where there is an important point made in a decision not to

19challenge. I think in that sense Don is right, you are absolutely right to do it at

20all, pick the number 4,100 --

21MR. LIBOW: Second requests.

22MR. RILL: It puts a bad burden on the agencies that would not

23be particularly useful. I do think that the impact statements can be very

218

1helpful. I think the FTC statements in aid of comment are next to useless,

2although there has been some attempt at improvement made there. I think the

3impact statements are more useful because they go to a court and they're

4public. People get to comment on them in a court proceeding if they choose to

5do so, so they have to be a little more forceful.

6MR. LIBOW: The other point I was going to make, two quick

7points, on the question of whether or not the agency should release a list of

8second requests, I would be very much against that as well. I think it doesn't

9really serve any purpose. It tends to encourage troublemakers.

10 Second, in many cases, particularly if it involves a public

11company, they have to tell the shareholders there's a second request anyway. I

12think in most large transactions involving public companies, everyone knows

13there's a second request.

14MR. RILL: I think the marginal value there is not equal to the

15marginal downside. Competitors and customers know when a merger that

16affects them is happening, whether there is a Hart-Scott filing or not.

17MR. BYOWITZ: There's a real policy issue, which I have not

18fully thought through. I worry about a system like the European system where

19they're publishing opinions on every deal. They don't have that many deals, but

20they're publishing an opinion on every deal and they're starting to cite their

21opinions. We decided that in some other deal. You start getting into what was

22decided before being the standard instead of what's going on in the marketplace

23being the standard. That's a danger that I see in the system. It's a danger of

219

1ossification over time, hardening of the arteries to a certain extent.

2 MR. RILL: I'm smiling so I don't cry. I find sometimes the other

3 side in our cases, we use that argument that it's been decided before. They say,

4well, that was a different -- fill in the name of the agency.

5 MR. BYOWITZ: Well, that's why it's a tough question. I've had

6that experience as well.

7MR. RILL: Oh, yes.

8MR. BYOWITZ: I thought I lost that argument in the last deal,

9I can't lose both ends of it. Oh, yes, you can.

10MR. RILL: Different people.

11MR. CRAMPTON: It depends on the status of the decision or

12the document that is being released. In Canada we have exactly what you

13described, Jim. We have press releases and backgrounders, and the Bureau

14may issue an eight-page backgrounder or it may issue a two-page

15backgrounder, but it will issue a backgrounder in cases that have interesting

16new wrinkles that wouldn't have been contemplated at the time of the merger

17guidelines.

18As a practitioner, and I know most of my colleagues in Canada

19feel the same way, those press releases and backgrounders are extremely

20valuable because they give you insight as to how the Bureau is looking at a

21particular industry or a particular issues like the two that you just described.

22Other tools we have in Canada that assist in that regard are the annual report

23of the agency, where, again, there will be some discussion of specific cases,

220

1although more recently because of budgetary constraints that's been getting cut

2back and there have been a number of complaints about that. Speeches, you

3know, back in the early --

4 MR. RILL: Speeches are useful. I think to cut to the chase on

5this one, what we can do here as a committee is strongly recommend that the

6agencies in the interests of transparency do something more on a voluntary

7basis, if you will, and I think many people at both agencies would like to see

8that done to the extent they don't use too many resources, make sure they're

9right in their statement, don't box themselves in, and so forth.

10MR. BAKER: One thing, Jim, that might be worth thinking

11about is where -- and I am all for volunteerism -- where the agency ends up

12looking at a merger that crosses international borders, I think that would be

13useful to have an explanation. I think it would be useful, frankly, to have from

14Canada and the U.S. what kinds of situations they end up looking at North

15American markets for particular products and services as opposed to U.S. or

16Canada markets.

17MR. RILL: In the Boeing/McDonnell-Douglas case perhaps

18under some duress you got a fairly comprehensive statement ultimately out of

19the FTC on why it had decided not to challenge that transaction. Whether that

20would have happened had Europe not done what it did, who knows.

21MR. BYOWITZ: One of the policy aspects of this that is good

22and that legitimizes -- I'll point to an example -- is the Department of Justice a

23number of years ago, I think in a speech by Connie Robinson. The speech

221

1discussed differentiated products analysis and discussed the

2Maybelline/L'Oreal case, and the white pan bread case. What that did was

3explain to the bar in very real terms that this analysis cut both ways, that it

4was a new analysis that the agencies really believed in it (whether they should

5or not is a different matter), but they really believed in it, and if it helped you

6to say you weren't the next best substitute, you were a very different

7substitute, one party from the other, you were going to get your deal through

8on that if you could prove it.

9MR. RILL: One of those cases was actually not brought, the

10Maybelline/L'Oreal. So that is a good example of what we're talking about,

11such as Connie Robinson's George Mason speech.

12MR. BYOWITZ: I think it would be more in that there is a new

13mode of analysis, this is what it is. Here's the case we didn't bring for this

14reason where it cut one way, here's a case we did bring for this reason where it

15cut another way.

16MR. RILL: The threshold analysis, cutting-edge cases. We're

17running out of time, let's run a few minutes longer. Can we jump to

18fulminations on some of Don's other proposals.

19MR. LIBOW: Don talked about consultation as well as

20transparency. Everyone assumes that consultation is good, and I do think it's

21good, by and large. But I think there is the danger, and again I'm talking

22perception from non-U.S. companies and non-U.S. lawyers, that consultation

23can have negative effects as well. And two areas where I would point to is I

222

1think there is a perception, right or wrong, Boeing/McDonnell-Douglas being

2the exception, that the consultation tends to raise or make more aggressive the

3approach of the non-U.S. agency sometimes, and that there is often

4encouragement for them to take a more aggressive position than they would

5ordinarily take. Whether that's true or not I think there is some perception.

6I have heard this from clients and I have also heard, for example,

7and I think it would be inappropriate, for example, for the agencies to ask

8foreign agencies to delay approving a transaction even though it was ready for

9approval and complied with the time periods in the non-U.S. system in order to

10give the agency more time and more leverage, and I think there is a danger of

11that I think people ought to be conscious of that.

12MR. RILL: That is a timing issue that's relevant to some of the

13other things we have been talking about. We as a committee, Merit has asked

14the counsel in a number of these trans-border transactions in which there have

15been multi-agency review to comment to the extent that they can on the nature

16of how those reviews were handled, and by and large I think that what we're

17finding is that consultation is probably a good thing to get to a common result.

18I don't want to go into what people say because I don't know I'm saying --

19MR. LIBOW: On balance I think that's right. You could pick

20some good examples of that. But there is a downside to it potentially.

21MR. CRAMPTON: As long as you have safeguards and

22protections on the receiving end.

23MR. RILL: Let's assume there are adequate confidentiality

223

1protections. We're talking about consultation qua consultation, not at this

2point a very important question but nonetheless let's assume that there has not

3been a waiver of confidentiality.

4 MR. BYOWITZ: I would just add that the need for transparency

5 is particularly acute in this area because the agencies know what they're doing

6and really nobody else does. I would submit that they have really not made it

7terribly clear to the bar and the business community, what the benefits are to

8the bar and the business community of consultation. There are some

9 conclusory statements, there are some citation to a couple of examples, and

10what's becoming the norm is that foreign jurisdictions are now saying, just like

11state AGs are saying, check the box, in effect. We want you to waive

12confidentiality. You have a right not to waive, and you don't necessarily have

13to justify why it is you don't want to waive, but the world has moved in a

14direction where you really do, where you're going to face a very difficult road

15with the agencies abroad if you do not waive.

16 And I would just submit as a responsible matter of policy a little

17bit more light should be shed on that process, and perhaps a little bit more for

18the merging parties to understand. When you're dealing with people

19cooperating, a European system where the complainants all have to be out in

20the public at some point in time and a U.S. system where they're whispering in

21the ears of the agencies behind the scenes and you don't even get a look at what

22they're saying until, God forbid, you're in a preliminary injunction hearing.

23MR. RILL: Once again it's the nature of the system that creates

224

1a lot of that problem because of the very fact that the preliminary injunction

2hearing is the specter at the end of the road, whereas in Europe there is a

3theoretical court review but the agency decision is the ball game.

4 MR. BYOWITZ: Absolutely. If I want to wait three years for

5a court decision while they translate the record into 15 languages, or whatever,

6that's fine.

7MR. RILL: I think we're going to be pretty close to ending if

8there is any concluding remarks that, Daryl, you or your colleagues would like

9to make. I would just like to say we're at end of a long day, and I really

10appreciate the panel's input because it's been stimulating to all -- at least it's

11been stimulating to me -- to get this interchange and get these views. We hope

12we can continue to communicate with you. It's been very lively, if you know

13what I mean, at the end of a long day. It's terrific.

14 MR. BAKER: Can I just say one last thing, Jim? We appreciate

15 being asked and made a part of your busy agenda.

16You are in a position -- and I'm following up on your comment,

17Mike -- to do what we aren't, and that is to ask the agencies to tell you what

18they're really doing on the consultation process in the merger environment. I

19am one who tends to think consultation is a good thing and I'm not particularly

20sympathetic to parties being able to tell different stories in Ottawa and

21Brussels and Berlin.

22MR. BYOWITZ: That you can't do. That doesn't work

23anymore.

225

1 MR. BAKER: But it is an interesting process, and I just think

2you are in a position where you can ask them questions wearing your

3Committee hats that we can't ask as humble supplicants before them.

4 MR. RILL: Some of us wear two hats.

5Let me just say thank you all very much and thank you to my

6fellow Committee members, particularly my Co-Chair, and Merit and staff for

7putting together a terrific program throughout the entire day. Please note that

8day two of these hearings has been rescheduled to May 17 at the American

9Geophysical Union, 2000 Florida Avenue. Thank you all very much.

10MS. JANOW: I just want to echo that thank you. This has been

11a marvelous discussion and a terrific group. I really thank you very much.

12 We'll be looking forward to your submission in due course and hoping to get

13your reactions to our drafts as we proceed.

14MR. BYOWITZ: As you can tell from the discussion it will be a

15challenge to it put together.

16MR. RILL: Thank you. Thank you, audience.

17(Whereupon at 5:54 p.m., the meeting

18was adjourned.)

19

20

21

22

23

226

1
Updated June 25, 2015

Was this page helpful?

Was this page helpful?
Yes No