Skip to main content

ICPAC Hearing Minutes From September 11, 1998

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.







6Washington, D.C.

7Friday, September 11, 1998






13This document constitutes accurate minutes of the

14meeting held September 11, 1998, by the International

15Competition Policy Advisory Committee. It has been

16edited for transcription errors.



James F. RillPaula Stern

20ICPAC Co-Chairs







5Washington, D.C.

6Friday, September 11, 1998



9Taken at The Carnegie Endowment for International Peace, Root

10Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C.

11beginning at 10:00 A.M. EST, before Bryan Wayne, a court reporter and notary

12public in and for the District of Columbia.












2Advisory Committee Members:

3Merit E. Janow, Executive Director

4James F. Rill, Co-Chair

5Paula Stern, Co-Chair

6Thomas E. Donilon

7John T. Dunlop

8Eleanor M. Fox

9Raymond V. Gilmartin

10David B. Yoffie

11Department of Justice Employees:

12Joel I. Klein, Assistant Attorney General

13     Antitrust Division

14A. Douglas Melamed, Principal Deputy Assistant Attorney General

15     Antitrust Division

16Donna Patterson, Deputy Assistant Attorney General

17     Antitrust Division

18Gary Spratling, Deputy Assistant Attorney General

19     Antitrust Division

20Charles S. Stark, Chief, Foreign Commerce Section

21     Antitrust Division


23APPEARANCES (Continued):



2Debra Valentine, General Counsel, U.S. Federal Trade Commission

3No Members of the Public made an Appearance or Presented Written or Oral



6Advisory Committee Staff:

7Cynthia R. Lewis, Counsel

8Andrew J. Shapiro, Counsel

9Stephanie G. Victor, Counsel

10Eric J. Weiner, Paralegal

11Estimated Number of Members of the Public in Attendance: 35

12Reports or Other Documents Received, Issued, or Approved by the Advisory

13Committee: None












1P R O C E E D I N G S

2(10:00 A.M.)

3DR. STERN: I would like to welcome each and every one of you

4here, particularly the Committee members. There are some who are going to be

5joining us at different times during the day.

6This is our second full Committee meeting. I'm Paula Stern; I'm

7Co-Chair, along with Jim Rill, of the International Competition Policy Advisory

8Committee. We're very honored to have here this morning the Assistant Attorney

9General for Antitrust Joel Klein, who will be speaking to us in a minute. And I'd

10like to also introduce to you Merit Janow, who is the Executive Director of the


12I'm mindful that we are meeting both in this smaller group here as

13well as in a public group. And I would like to welcome the members of the

14public who are in attendance, and want you to feel included.

15Since our inaugural meeting back in February, the Advisory

16Committee has been very busy. Members have engaged in outreach to a number

17of prominent business organizations, to law firms, and to other experts. Tom

18 Donilon, who should be joining us soon, Eleanor Fox, Jim Rill, Merit Janow and I

19have had several productive meetings both in New York, with law firms that

20handle an impressive array of international mergers with antitrust implications,

21and just this week Jim and I have met with a number of D.C. law firms to get their

22 input.

23We thank very much in particular John Dunlop, Ray Gilmartin,


1Steve Rattner, who is not here, and Dick Simmons, who we were planning to see

2but who apparently had a personal event that is going to prevent him from coming

3this morning. But they have all made important and useful suggestions to guide

4this outreach effort to the public.

5I would like to introduce the staff. Our Committee staff has grown

6since our last meeting in February. At the first meeting you met Stephanie Victor,

7(and you might just wave), who is now counsel for the Advisory Committee. And

8since then we have two additional attorneys, Cynthia Lewis, from Skadden Arps'

9Brussels office and Andrew Shapiro, from Covington & Burling. In addition, a

10paralegal, Eric Weiner, is assisting the Advisory Committee and has been very

11 hard at work.

12They're now fully constituted as the staff and they have been

13developing outlines to help structure our discussions and provide a skeleton for

14the eventual Advisory Committee report. You all have received this big black

15briefing binder for this meeting which contains annotated outlines reflecting a lot

16of the staff's sifting and sorting.

17I'd like to note, at this time that in order to gain input for our

18members, we have issued in the Federal Register the announcement for this

19meeting. There will, however, be no active participation, per se, of the audience.

20We're please that you're here as interested members of the public, but the format

21does not allow for participation from the audience.

22Welcome Tom. Just getting the preliminaries out of the way.

23We would welcome, however, any reactions you have to today's


1meeting in writing. So please contact one of our staff if you wish to submit

2 written comments.

3Just to lay out a road map very briefly on how we're going to

4proceed and where we have come heretofore. At our first session, back in

5February, you recall we had the Advisory Committee receiving formal

6presentations from a number of Department of Justice officials about the issues

7under consideration by the Advisory Committee. Today we have a different

8format. And I hope by the end of today's meeting we will have the opportunity to

9hear from each and every member, his or her views regarding the issues that were

10raised in the outlines that you received before Labor Day.

11Our first session this morning will address the interface of trade

12and competition policy. As I mentioned a moment ago, Dick Simmons has

13unfortunately been called away, and we are asking Merit Janow to read Dick

14Simmons' remarks that were prepared in advance by him. As you can see from

15the outlines -- the interface of trade and competition policy gives us a wealth of

16policy options. And we can go through that -- after we have heard from Joel, who

17is patiently waiting here.

18But quickly, we will then move on from trade and competition to

19deal with enforcement cooperation. And that second session will begin at noon

20with a working lunch and will discuss enforcement cooperation issues. Jim Rill

21will begin that discussion. And Gary Spratling at the Justice Department, who

22you may remember spoke to us at the last meeting has, yet again, taken a red-eye

23from California to join us for the enforcement cooperation discussions.


1We will then move on to our third and final session at about two

2o'clock, where we will discuss the multijurisdictional merger issues. Tom

3Donilon has been graciously willing to kick off that discussion. And we are

4expecting that Debra Valentine, General Counsel of the Federal Trade

5 Commission, along with Chuck Stark, who I see is sitting out in the audience,

6Chief of the Antitrust Division's Foreign Commerce Section, will join us and will

7be available to answer questions regarding the level of information sharing that is

8currently ongoing between antitrust authorities and to discuss tasks of dealing

9with different jurisdictions in multijurisdictional merger review.

10Let me close by saying that you'll find, in tab C of the binders, that

11the Advisory Committee is organizing hearings in November where we have an

12impressive array of talent who have agreed to participate, including

13 representatives from a number of competition authorities from around the world.

14It should prove to be quite an event and of course we're looking forward to that.

15At this time, I would like to turn the podium over to Jim to see if

16Jim would like to make some welcoming remarks and then we'll turn to hear from

17our esteemed colleague and leader, Joel Klein.


19MR. RILL: I think there is nothing left to say as we alternate

20chairing these meetings. For a change -- that normally wouldn't stop me -- but

21today it's going to stop me and I'm going to turn it over to Joel Klein.

22MR. KLEIN: People said there were no more miracles left in the

23world. I thought that when Paula said, "And now we'll turn it over to Jim to see if


1 he wanted to make some comments," I thought my schedule just got messed up.

2 Paula, I'm delighted by your opening comments and Jim's lack thereof.

3MR. RILL: Not necessarily in that order.

4MR. KLEIN: It's an honor for me to be here today and, first of all,

5to extend my welcome to all of you in the public and as well as the members of

6the Advisory Committee and the staff.

7I have stayed closely involved over the summer months with the

8really extensive work that has been done under the leadership of Paula and Jim

9and really with Merit and the staff, not just in terms of the outreach. But a great

10deal of research, analysis and discussion has gone into preparing the background

11papers. And I had an opportunity to read them in detail this weekend. I must say

12they're enormously impressive and I think should focus not just our discussions

13 today but the work that lies ahead in the year to come.

14I'm grateful; and I want to say to the staff in particular, this is

15really first class high quality work and you should be proud of it. It's in the best

16traditions of what I think the Antitrust Division represents and I'm glad to see that

17you've lived up to those standards. So, I am very pleased.

18In terms of what's going on in the Division in the international

19area, nothing has abated. If anything, I think some very interesting lessons were

20learned in the WorldCom/MCI merger. I think in the end it was a great success

21story in the way that we and the European Community were able, effectively, to

22collaborate. But, like many successful joint ventures, there were some bumps

23along the road in terms of both the efforts to play one jurisdiction off against


1another and some of the other involvement in terms of the press and even the Hill,

2as we worked through this.

3Having said all that, I think the work with DG-IV and the telecom

4section of the Division was really very professional, very successful, and a real

5meeting of the minds on competition policies -- and what I think people like my

6friend and colleague, Eleanor Fox, would call part of the ongoing evolution of de

7facto substantive convergence. That is, the mode of analysis, the thinking, the

8identification of the competitive problem really came together, I think, quite

9forcefully there and led to a strong and important conclusion.

10We are, as well, working hard on our first positive comity referral.

11As most of you know, we made an assessment that airline computer reservation

12system issues in Europe raised concerns in terms of market access involving

13 certain practices. We made a referral to DG-IV. They accepted the referral and

14that process is ongoing. We have spent time working with our colleagues in

15Europe to move that process ahead. And I look forward to a resolution of that

16matter in the not distant future.

17Beyond that, we have a series of important bilateral meetings

18coming up with the Japanese and Koreans which will be our first bilaterals, really,

19since some of the major economic shifts in Asia. And my anticipation is that

20some of those economic shifts and some of the new leadership we've seen in these

21countries will create a climate in which there will be greater opportunity for

22further discussions about effective international cooperation on competition

23policy and indeed to continue, as Ray Gilmartin and I were talking about, to


1continue the other half of the dialogue -- which sometimes gets left out on our

2part but it's certainly key to trade and competition issues. And that is not just

3antitrust enforcement but to sink a real marker for competition policy,

4deregulation, open markets and increased innovation. And we're beginning to see

5 at least the vocabulary in terms of our bilateral discussions moving with

6increasing enthusiasm in that direction.

7Two other quick points I should note before closing. This week

8we ended, I think as we talk the jury has gone out or the judge is instructing the

9jury, in the case against three individuals in the international lysine conspiracy,

10where we did prosecute three individuals from Archer-Daniels Midland after the

11company pled guilty and was assessed a $100 million fine. But that trial,

12actually, and the evidence that was introduced, is going to raise, I think, some

13 important issues in terms of understanding both the complexity of enforcement at

14this level and the nature of the problem for the American economy. And we will

15certainly be using materials from the trial, that are now in the public domain, as

16part of our educational opportunity and our educational efforts on a worldwide


18Finally I do want to commend the Committee for the hearings that

19will be coming up later this fall. They have really put together an all-star cast of

20international leaders who have agreed to come before the Committee and to talk

21about their perspectives on these very, very important issues. I just actually,

22before coming here, I just took a call from Dieter Wolf, who is the head of the

23German antitrust authority, and he was pointing out that he was eager to be here


1and have an opportunity to share his thoughts with us. But, in addition, in

2probably one of the two or three most well attended international meetings, the

3 meeting he holds every other year in Berlin, next year he's really going to take off

4 on our agenda and use that as a two-day seminar to basically broaden the

5international interest in the concerns of this Committee.

6So I think the efforts are working. I am enormously grateful for

7the time that the many, many talented busy people on this Committee have put

8into the effort. I sit here with exceptional confidence that these labors will bear

9great fruit for the administration of the United States and, indeed, those concerned

10with international competition policy and antitrust enforcement. So, I thank you

11all very much.

12DR. STERN: Joel, thank you very much for those gracious

13remarks, particularly about the staff and the hard work that's gone on. This is, I

14guess, the first chance to showcase what has been happening behind the scenes

15since our February meeting. And I know we all very much appreciate those kind

16words, particularly coming from someone who is so highly respected.

17We're going to now turn -- and I think we're actually on schedule --

18to the Trade and Competition Interface discussion. We did flip things around and

19are opening with Trade and Competition, although the book may not show that.

20Which tab, actually is Trade and Competition?

21MS. JANOW: 1 -- A 2.

22DR. STERN: A 2. As you can see from those outlines, the

23interface of trade and competition policy requires examining a wealth of policy


1options. Among those we have to consider are how to achieve our core

2objectives, how to craft policies that deter anticompetitive restraints; that reduce

3 barriers to effective prosecution of anticompetitive restraints with adverse effects

4on the United States; to address the problems of lax discriminatory enforcement

5 and to increase transparency. And finally, as a core objective, to promote

6effective competition in jurisdictions that do not yet have competition laws.

7Among the policy options the Advisory Committee may wish to

8consider are one, unilateral enforcement of antitrust laws against foreign market

9access restraints. Secondly, enhancing the bilateral cooperation, some of which

10Joel made reference to in context of Europe as well as in discussions with other

11countries, enhancing that bilateral cooperation through expanded positive comity

12agreements and through traditional comity approaches. Naturally, a combination

13 of unilateral and bilateral trade solutions can be envisioned and are being

14 considered.

15In the policy options that come under the rubric of international

16initiatives, we have Eleanor Fox's proposal for the development of core principles

17advanced through international fora or agreement. In addition, international

18initiatives will cover new or expanded dispute resolution mechanisms. We've had

19 a number of speakers in the past throw some ideas out in that area. Additionally,

20there are possibilities of pursuing expanded plurilateral agreements, not just

21 bilateral agreements, as well as developing initiatives at the World Trade

22Organization beyond the idea of a dispute settlement mechanism that some have

23 proposed be conducted by trade organizations.


1Another very important issue to this Advisory Committee concerns

2how governmental restraints themselves should be handled and whether this is a

3competition policy issue for the Committee to consider.

4These are some of the highlights that we should bear in mind as we

5go through this morning's discussion. Merit Janow, our Executive Director, has

6worked long and hard in this field for many, many years. We all know her well,

7and today she gets to do some additional work that was not what was on the

8schedule, and that is to try to represent Dick Simmons. Dick Simmons is not here

9 today. Dick had prepared some remarks and Merit is going to see us through

10those and give an opening to the discussion on the interface of trade and

11 competition.

12MS. JANOW: I have just a moment ago received these remarks

13that were prepared by Dick Simmons so I will apologize to you in advance for

14what can only be a stilted delivery given the limited time that I've had with it. As

15 you will see, I'm in the peculiar position of noting approvingly of my own

16 writing.

17And so I will start reading at this point.

18"Quoting from the June 19 draft memo from Merit Janow, which

19should be circulated to a wider audience, it's worth repeating what was stated

20under the heading The Interface of International Trade and Competition:

21'As many formal barriers to trade have been reduced or eliminated

22around the world, international policy attention is increasingly focusing on the

23role of private anticompetitive restraints of firms that can foreclose access to


1markets as well as government practices that may have such effects. Indeed,

2economic globalization has come to mean that competition problems increasingly

3transcend national boundaries. And the international organizations such as

4OECD and the WTO, as well as bilateral intergovernmental groups are engaging

5in debate about the extent to which private anticompetitive practices are in fact

6blocking access to markets around the world and what should be the appropriate

7policy responses.

8'And the Trade and Competition Subgroup of this Advisory

9Committee is considering the nature of the market access problem and what

10policy actions might usefully be undertaken to address those problems. In other

11words, how can the U.S. more effectively address barriers to foreign markets that

12stem from private restraints to trade and investment.'"

13Dick Simmons goes on to say, "In attempting to define the

14problem and identify the issues, at the May 18 subcommittee meeting, there was

15extensive discussion after a presentation of an overview and discussion paper on

16trade and competition. And to summarize, that discussion on May 18, focused on

17three points; the first was to consider the nature and magnitude of market access

18problems and whether expanded international policy initiatives are warranted.

19"There appeared," in his view, "to be general consensus that

20anticompetitive practices do impede American firms from selling or investing

21abroad. It should be pointed out that while there was general agreement in this

22matter that the level of anticompetitive practices can and do adversely affect

23American firms. The level can vary significantly, depending on the nation and


1the region of the world.

2"It was also clear that it was extremely difficult, if not impossible,

3to quantify the impact of such practices with any meaningful precision. I would

4add that, depending on the company and its focus, producer of proprietary high

5technology, whether it is produced in the country in question or (as compared to a

6commodity) was produced by many countries, one could arrive at completely

7different answers. And input on this matter from all of the members of this

8Committee, I believe, would be very helpful.

9"The subcommittee was in agreement that the best policy

10initiatives would be those that focused at opening all nations to free competition -

11- assuming that other distortions do not exist.

12"In my letter of December 23 to Merit, I suggested that the level of

13anticompetitive practices can and do vary depending on the nature of the

14economy of the nation involved: in nonmarket economies where there is no body

15of laws which prevent anticompetitive practices; in developing nations which

16protect home market companies from foreign competitors; in developed nations

17 which, although similar in form to the United States, may act in groups with other

18nations to protect home markets. The so-called East of Burma agreement is an

19 example of such practices.

20"The second point of discussion in the subgroup meetings focused

21 on areas of divergence and complementarity that exist in the objectives, reach,

22instrumentality of trade and competition policies. And third, it identified four

23possible approaches to international competition policy problems. Possible


1approaches, which were discussed and which are summarized, are also in the

2binders sent out for this meeting. Those options are included; and I won't review

3them in detail, but some comment may be useful.

4"The policy options range from what I will call 'soft options' to

5'hard options.' In the soft category -- and I mean only in using the word soft that

6international cooperation bilaterally or multilaterally is essential if progress is to

7be made in eliminating anticompetitive practices through this policy option.

8Whether it be through positive comity, the pursuit of international

9agreements, the convergence of competition laws throughout the world or other

10forms of voluntary normalization of different country laws in this area -- my

11 personal opinion is that progress will be very slow indeed.

12"I should also add that positive comity should be pursued as an

13affirmative step towards removing restraints. This should not be construed to

14suggest that such policy options are not, in my opinion, valuable options. It does

15suggest that to achieve meaningful progress in this area, other options may also

16have to be suggested or, in the final analysis, utilized.

17"At the other 'hard' end of the policy option spectrum is the

18unilateral enforcement of antitrust laws as a 'chip' to be played at the appropriate

19time. If violations of U.S. antitrust laws were prosecuted or the threat of

20prosecution existed for potential violations -- even those which occurred outside

21the United States -- if the participating parties conducted business in the United

22States -- this might prove a means for moving the entire process forward.

23"The Advisory Committee is soliciting and receiving the views of


1experts in the legal and economic fields in an effort to examine the impediments

2to such effective enforcement. The recent price fixing cartels identified and

3prosecuted by the Department of Justice, in the case of -- in graphite electrodes,

4(which my firm is directly involved as a customer) -- is an example of a

5worldwide cartel. The fact that U.S. antitrust laws involve criminal penalties, I

6 believe, promotes the unraveling of such anticompetitive practices. A policy

7initiative which would promote criminal penalties in other nations' antitrust laws

8could be a strong tool in developing a more uniform culture in avoiding such


10"Other related anticompetitive practices include: private restraints

11among foreign producers limiting exports to home markets; domestic cartels

12limiting exports; government restraints with or without private involvement

13authorizing or encouraging private cartels; government use of regulations to

14restrict competition, whether it be through price or through large store

15regulations, such as in Japan; and home market use of intellectual property

16controls. These are a few examples.

17"The Committee has determined that governmentally imposed

18restraints are within its purview and will study the incidents and implications and

19remedies, including such issues as foreign sovereign immunity and act-of-state


21"It was concluded that input from other interested bodies would be

22constructive, and a draft document was provided to us in June as a possible

23questionnaire to be sent out to interested organizations and individuals. Then, a


1question which needs to be discussed is: What is the appropriate recourse if

2progress is not achieved, or that which is achieved is not effective?

3"Once again, the United States might, under those circumstances,

4consider the use of government or private antitrust action. This option has

5obvious problems associated with it, including the difficulty of access to witness

6and documents. It also has the potential for increasing international frictions.

7The application of U.S. law to foreign companies which do business in the United

8States, regardless of whether the anticompetitive practices occur in the United

9 States, would not diminish tensions. It might, however, facilitate such cases.

10"The U.S. government or private antitrust cases might be pursued

11under the foreign country laws, of course, but the effectiveness of this option

12depends on the availability of private actions and the practical accessibility to the

13foreign court system.

14"An approach could be the use of an international organization's

15dispute resolution mechanism under those facts. As I understand it, the WTO's

16jurisdiction over private restraints remains unclear. However, the WTO could

17serve as a venue at arriving at an agreement on core principles. Another policy

18option which the Committee should examine is: How or if trade laws and trade

19law mechanisms should apply in situations other than government restraints?

20Such remedies may themselves be anticompetitive.

21"Finally, let me close by saying the world has changed

22significantly since we last met. Many of the large economies of the world,

23 particularly the Asian nations, and Japan as a special case, Russia, and now


1several South American nations, are facing severe economic and currency crises

2which become liquidity crises and result in severe economic contractions. I

3 would suggest that the world trading system may well be under a great deal of

4strain. Meaningful progress in the areas that we have discussed this year in this

5Committee may be far more difficult to achieve in the present situation than we

6could have anticipated just a few months ago.

7"Depending on which scenario one selects, the outcome of current

8difficulties -- whether it be in Japan, China, southeast Asia, Brazil, Argentina,

9 Russia -- and the resulting effects on Western Europe and the U.S. economies

10over the next 12 to 18 months, point out that the need for this Committee and for

11constructive remedies to the world's trading system will be even more important."

12That concludes his remarks.

13DR. STERN. Merit, do you want to add any parenthetical

14remarks? Or footnotes?

15MS. JANOW: I think not at this moment. I would rather hear

16from our Committee members.

17DR. STERN: Me too. I would like very much now to open the

18floor to comments. We're going to try to focus on trade and competition policy.

19The Chair recognizes Ray.

20MR. GILMARTIN: Thinking about some of Dick's comments that

21you read, but also really looking behind the tab in the binder on Trade and

22Competition Policy, just a couple of, I guess, observations or reactions.

23One is that in the material it suggests that there's no magic bullet.


1And based on our own experience as a company working in this area and also as a

2 -- working within a trade association in this whole area of competition policy --

3that we should certainly agree based on our experience that there is no magic

4bullet. So therefore, it may not be a question of choosing one policy option over

5another, as it is that each policy option has a role that will be of varying degrees

6 of effectiveness, but, nonetheless, probably should be pursued or used at one time

7or another.

8Just, drawing on our own experience, it's not clear that market

9 access is the significant issue, and whether or not, say, U.S. companies are

10disadvantaged over any other local companies because of a lack of competition

11policy or lack of a competitive market. As an industry -- the U.S. is the only truly

12market model in the world for pharmaceuticals. Every other market in the world,

13really, is based on price controls. And so we're at a stage in which we're trying to

14convince governments and regulatory agencies, ministries of health and

15politicians, that market competition is a source of economic growth and a means

16of stimulating innovation.

17Nonetheless, to get those ideas across -- so, I guess, the first

18option that we're already pursuing to try to do this is -- would fall under the

19heading of "international initiatives" and really trying to arrive at core principles;

20 and transferring knowledge across markets around the world to reach agreement

21on core principles with regard to health care delivery, and stimulating innovative

22pharmaceutical industries. So, in arguing for the importance of market

23competition -- and describing to various parts of government, as well as those


1who are involved in a legislative process -- and in the case of Japan, the members

2of the Diet -- the importance of market competition.

3So, core principles -- and although we see it as a very long-term

4and difficult process, nonetheless, when you look back over the last couple of

5years, we've made progress. Therefore it certainly is a worthwhile option.

6The other thing, too, is, in supporting us in these efforts has been

7the advocacy of the U.S. government in terms of -- in its role of advocating the

8importance of open markets, of free trade. And that has shown up really in the, I

9think, more specifically for us, in sort of enhanced bilateral cooperation. Things

10like the Trans-Atlantic Business Dialogue, in which decisions are discussed and

11barriers therefore removed. But also as a means of educating everyone about the

12significance of these kinds of issues. And, at times, the potential for unilateral

13enforcement, as a means of gaining attention, has also played a role as well, I


15So it's not a question, as I said, of one option over the other. I

16think all of them have application.

17The final thing I would say is that, in the whole issue of trade and

18competition policy, I think it's important to be very clear about what are really

19trade issues as opposed to competition issues and getting the right issues and the

20right forum. Because, I think that taking a competition issue into a trade forum

21when it really doesn't apply, doesn't take us very far or actually, I think, can be

22detrimental to what we're trying to accomplish. So I think it's important to sort

23 out what are really legitimate trade issues as opposed to competition issues.


1Dick is concerned about time in his remarks. I think we've got to

2take a long view here. And it's a process of continuing to build relationships

3based on these core principles. And, I think, if we can agree as to where this all

4 should end up -- which is the approach we're taking, say, with market competition

5in the health care system, and try to reach an agreement on that -- then every

6 action that's taken can be evaluated in that context.

7Then also, an option, that isn't included here, that we are pursuing

8as an industry, which may not apply specifically to our task, is that, in effect, the

9legislation that's passed in these countries that have a big impact on regulation,

10competition and so on, is a very important element to consider. And so, therefore,

11in our efforts in Japan to stimulate market competition, we are literally working

12with members of the Diet in their home districts, if you will, to educate and alert

13them to what the opportunities are and the potential. So that's another avenue of

14establishing core principles, if you will.

15DR. STERN: Extremely helpful. Lots of different avenues, to use

16your word, to "pursue." I have some questions I'd like to ask, but I'd like to hear

17comments from the rest of the Committee, preliminary reactions to the outline?

18Are we on the right track in spelling out these approaches? And do you want to

19talk about core principles in further depth here?

20MR. DUNLOP: Well, I, perhaps, know the least about this of

21anyone. Let me give you a view about it which goes this way. I think it may well

22be that a lot of market access questions are in the eye of the beholder as much as

23they are in reality. That poses some very hard issues. And therefore, my


1experience in other fields has taught me that maybe the way we develop these

2principles is to take a problem that somebody thinks is important -- health care for

3example -- or access of construction firms -- and assemble a panel -- I guess I

4would want some lawyers but not too many, but also some economists -- to kind

5of do a fact-finding exercise to lay out what we know about the problem.

6This is a very large universe, trade and competition, so you try to

7get people informed about particular areas where you might have some ideas of

8wanting to do something.

9And after, I would like to see some numbers. This question of the

10magnitudes is a problem that Richard Simmons rightly comments on how difficult

11 it is. So get a group of people to study an area in various places that you see and

12just put it out for public review. I happen to think that transparency in this area,

13 as you've said before -- David and I were talking about this morning -- is in itself

14an important matter and, by the way, exposing some problems to more public

15scrutiny and to the scrutiny of various kinds of governmental bodies -- so

16transparency may itself be helpful, in some circumstances, as a practical matter.

17But, I would rather see our principles come out of a series of such

18long-term fact reports. So this is the situation in health care; or in

19pharmaceuticals and health care; or this is what it is in construction; or this is

20what it is in some petrochem problems -- and so to build from the ground up with

21the exposure of a careful set of facts about what's going on and then try to develop

22your principles from that. That is the kind of thought I had since this topic is so

23 large, encompasses so much, and I regard the principles as many miles above the


1real world, that it would be useful to try to put a little more content into it as we

2 go down the road. Anyway, that's one reaction.

3MR. YOFFIE: I think you're going to see a lot of overlap in

4people's comments because there are common themes that are emerging. The first

5relates to the question of data.

6We still don't have a clear sense of what the data is, what the scope

7is, what's included, what's excluded. And that really gets specifically to Ray's

8 comment about trying to find ways to separate trade from the competition

9 problem. Until we understand the core data, it's hard to make that separation and

10know how the significance of the competition piece. It requires trying to get a

11sense of the boundaries between these areas? And where there are not

12boundaries, part of our recommendations should also focus on U.S. government

13recommendations regarding collaborative efforts between trade authorities and

14antitrust authorities.

15But we shouldn't ignore the internal U.S. governmental dynamics

16here, where the boundaries tend to be very murky. And one of the things that

17might be extraordinarily positive in the long run is to create more effective

18internal mechanisms of dealing with these problems as they emerge. Because if

19we treat these purely as a competition problem, then there's inevitably going to be

20conflict in jurisdictions and that's going to ultimately reduce the effectiveness.

21Second, the notion of core principles is an idea that is worth

22pursuing. But we should think of core principles as a long-term policy solution.

23 We should not expect it to have really short term implications, particularly in the


1world that Dick Simmons was outlining. Nonetheless, if we're thinking of this as a

2 10 or 20 year process, it is certainly appropriate to start building that foundation,

3and obviously Eleanor has written about this. It is certainly an appropriate thing

4to start this Committee with, once we have the data.

5Third, I also agree that transparency is really fundamental to

6everything we do here. Jagdish Baghwati described this as the Dracula Effect,

7 which is, you expose these things to light and many of them disappear. And I

8think that's a good analogy for us to focus on. And many of these anticompetitive

9areas are, in fact, invisible. The simple fact of making them transparent might

10 make it possible to reduce their impact.

11We also talked about how you might make them transparent and

12that gets to my next point which is we must create the right set of incentives to

13make all these policies work. I think incentives have to have two forms: a

14positive set of incentives and a negative set of incentives.

15Dick talked about the negative incentive, meaning using the

16unilateral policy to coerce people. I'm not sure I see anything in these proposals

17that really focus on positive incentives, which are what are the things that we are

18 going to do to make it a positive inducement for some of our trading partners to

19 work with us in these areas. I don't have any solutions but I think that has to be a

20critical piece of the solution.

21As part of that process, for example, I was mentioning to John

22about the transparency concept: that if we were to create panels, for example, to

23investigate, then we should be considering having foreign members of the


1antitrust commissions of these countries being part of these committees; so that

2we make them part of the process, and it is not purely a U.S. imposed negative

3incentive. Ultimately, I don't believe we're going to get the kind of cooperation --

4from Japan and Europe in particular -- with only negative incentives.

5MS. JANOW: May I ask a point on the data question, because it's

6reiterated by several Committee members? This is a vexing matter. I think, for

7 our part, we have reached out to a number of trade associations and are

8developing questions and hopefully this will provide an opportunity for firms to

9respond with their own experiences, and provide as much detail as they wish to

10 provide.

11But as you mentioned the data issue, could you elaborate a little bit

12on what you think of as being the kind of -- that would be "hard" and quantifiable

13to help access the magnitude of the harms associated with private restraints

14 because most of what tends to be raised, of course, is anecdotal industry and

15sectoral evidence?

16MR. YOFFIE: This is a hard problem, and we are not going to get

17adequate econometric data to provide us with welfare implications of these

18restrictions. I do not have any illusions about that. A lot of it is going to depend

19on industry-level data.

20I'm not thinking about quantifying welfare implications, but you

21can get some sense of the size of the sectors that are potentially affected by

22restrictions; the industry trade groups do assessments of potential trade effects.

23You can get a sense of the orders of magnitude. But it's going to be by sector, I


1suspect. I don't think there's any other way to do it. Then we can identify some

2very large sectors -- health care, construction or other industries that have

3historically been identified with trade problems of this type.

4We need to have some sense of the industries that are effected; the

5revenues; the trade; employment. And then we can get into some of the details of

6the kinds of problems that exist within those sectors: whether they are

7 anticompetitive or whether they are purely trade related.

8DR. STERN: Right. Let me just put in a plug for -- on behalf of the

9whole Committee -- to the public. As Merit says, it's been vexing to try to get

10even anecdotes, much less any kind of data. And we are constantly calling trade

11associations, representatives of various sectors, academics, trying to come up with

12more information, particularly in this area, but just generally. So if there are trade

13associations who have information that would bear on any of our examinations,

14and if we have not contacted you, please know that this is recognized as a big

15problem for us.

16MR. GILMARTIN: I was going to say that -- picking up on John's

17comments and also yours -- is that it occurs to me that as an industry, as we

18pursue the objectives we have for creating a more receptive environment for

19 business, when we separate competition policy and trade, this may be

20oversimplified -- but when we're talking about trade -- that's when we're talking

21about access and the opportunity to participate in the market. And our big issue

22there is intellectual property. And that's handled through TRIPS and the

23enforcement reports. That's an area of access.


1When we go to Japan and talk about competition policy, we're not

2talking about access. We're not making the point that we're trying to open up

3markets or anything like that. We're talking about what the benefits are, in terms

4of economic growth and innovation to Japan, of creating market competition, a

5more competitive market in pharmaceuticals. So we're not arguing the point that

6we're being denied opportunity or markets because Japanese companies are as

7effected by these policies as we are. In fact, we ally with Japanese companies;

8particularly the ones that are the most innovative and would benefit from full

9market competition, as a means to work within Japan to create a more competitive


11So it's the harm basically to the patient; it's the harm to the

12economic system; it's the harm to innovation that we're arguing. We're trying to

13deal with anticompetitive behavior so we have better access. We get a good

14reception for that. I'm not sure on the access stuff that you get that good a

15reception because it's often in the eyes of the beholder. It's sort of like an "I've

16fallen and I can't get up" type of attitude. That is why it needs some help.

17DR. STERN: This is very important in terms of what the U.S.

18government can do in terms of positive and negative incentives. Later we'll have

19 a discussion on what the U.S. government does in assisting other countries to

20draft competition laws, often in the merger area. We're seeing a proliferation for

21 a variety of reasons. Maybe, we're promoting the proliferation of different

22merger laws. But there are things that the U.S. government can be doing in these

23bilateral discussions to promote the principles of competition and expand the


1focus on merger regs, to these basic economic principles.

2The other incentive I was thinking of is the IMF. Perhaps there is a

3silver lining in this cloud of the Asia crisis. It is dawning on authorities --

4Korea is a good example. Joel says that the Department will have more

5conversations with people that may be even more open to these ideas and

6recognize that a more open economy is a more healthy economy. It may be that

7Merit can give us a little insight on this.

8MR. GILMARTIN: May I make another point? Then the data that

9we're using to argue our case, that we've collected, is that the U.S. pharmaceutical

10industry is the most successful industry in the world. It discovers about half the

11world's drugs, growing rapidly and creates jobs. We do that because these

12enabling conditions are present in the U.S.

13So, we say to the Japanese government, "We have them, you don't;

14your industry is underperforming." Similarly, if I go to Europe, it's the same

15message, "You have some of these, but there are a lot you don't; you're at a

16disadvantage." Since we're confident we can compete in the world, we're looking

17 to create the same kind of conditions abroad that exist here that make us as

18successful as we are here. We're trying to do that in all parts of the world. And if

19Japanese competitors and European competitors benefit from that? Fine, because

20we'll just beat them in the marketplace.

21By defining the problem that way -- about competition -- that may

22be the data that you collect. It's different in terms of how industries prosper in

23some environments.


1DR. STERN: That is very important: this whole push towards

2deregulation, particularly in bilateral trade discussions. Charlene Barshefsky says

3she's going off to Japan next week. I certainly hope the emphasis will be on the

4deregulatory message. There are other messages that I think may come through

5louder and clearer, but this message that economies, even in the developed

6countries, are made stronger and sharper through deregulation, through this

7insertion of competition, is, in effect, a trade mission. At the same time, it is also

8an antitrust mission or a competition policy mission that the U.S. government

9should pursue more.

10MR. GILMARTIN: One last point, and I don't mean to dominate

11on the pharmaceutical industry, but basically we're saying there are five reasons

12 that we are the best in the world. I don't make it that blunt, but one of them is

13because of the support of basic research in this country. But also intellectual

14 property protection; free markets; appropriate and transparent and regulatory

15 environment; and access to global markets. These are the enabling conditions

16 that allow us to innovate and create jobs, contribute to economic growth, and to

17discover breakthrough drugs for the patient. So that's the basic message that we

18hammer on and it's very -- the reason I mention it is some of what you're talking

19about is that government, U.S. government, in other situations can make those

20 same --

21DR. STERN: I wonder if other sectors, say the construction

22 industry, and others have done --

23MR. DUNLOP: I doubt it. Some I do know, but that's one of my


1notions about fact finding. Find out what people have done, thought, rather than

2put a finger up in the air.

3May I raise a different sort of a question that may help us? As I

4was looking over our binders, in section D-3, on page 7 at the top, there is the

5 following comment about the matter of a study being done by -- under section

61504 of NAFTA. And what is says is this; "Establishes working group on trade

7 and competition." That's a -- a term we were talking about -- "establishes a

8working group on trade and competition to make recommendations on further

9work as appropriate within five years of entry into the force of the agreement.

10These recommendations are due at the end of '98."

11That's not so long from now. I'm wondering if we can get some

12idea about what NAFTA has in mind and whether that, under the same title,

13anyway, would be of some help to us in thinking about the parameters of this


15DR. STERN: We'll make sure the staff follows up on that.

16MR. RILL: Eleanor, actually, has been participating in the 1504

17Working Group. So, maybe she could add something to John's question.

18MS. FOX: Chuck Stark, who is here, has actually been

19participating more than I have because the working group is a government --

20intergovernmental -- working group. They will have a report, I'm told, by the end

21of this year and we should look at it with great interest and we'll see if it moves us

22along. I've done some background work for the ABA, and continue to do some,

23to try to be of help to the working group.


1DR. STERN: Is it broken down by sectors?

2MS. FOX: No. It probably will relate to the trade and competition

3interface of the three countries -- Canada, the United States and Mexico -- and

4whether more and different kinds of cooperation may be envisioned on this

5regional basis.

6MR. DUNLOP: Let me raise the question. Take the whole

7trucking industry. We're all well aware of the enormous rows that have been

8created in that situation, whether the truck's from Mexico, the weight regs of

9people who drive, how far you're going to let them drive, all this kind of stuff. I

10don't know whether that's trade or competition, but I assure you it's contentious.

11I'm wondering what that piece of paper has to say to us as we, it

12seems to me, seem to tackle the same problem but essentially on a global basis.

13MR. RILL: I'd like to come back if I may to David's point on data.

14There, actually, is a wealth of information available. There is a lot of data out

15there on a sectoral basis across a large number of industries. I could rattle off --

16 autos, glass, paper, semiconductors -- industries which have been at the forefront

17of concern over trade limitations. Those data are generally statistical data

18showing import flows, and export flows, production information and comparing

19the situation with country X with the situations in countries Y and Z.

20A lot of it emerges in papers filed with the International Trade

21Commission, papers filed with the Commerce Department and Commerce

22Department studies. We did some work on this, Merit knows well, during the

23Structural Impediment Initiative talks with the Japanese. At the end of those talks


1we got into sectoral discussions.

2It's interesting information and there are data. They don't get

3 beyond actual numbers of what goes in and what comes out of various countries.

4 With the limited, albeit highly qualified staff that we have, I wonder how much

5 we want to get into those data, because underlying that I don't see -- at least I

6haven't been able to find data that relates the import information to restraints of

7trade. Perhaps its easier with governmental than private restraints, but none of the

8 data can really tie the two together so readily. Maybe we can look at those data,

9 see what are there, and then talk further among ourselves to see if we want to

10pursue it further? There's plenty out there. I don't know, necessarily, what we do

11 with it after we take a look at it.

12MR. YOFFIE: Some of the sectors you mention probably would

13 not fit our definition here. I would imagine autos would be an example of a very

14large sector where antitrust concerns would not be the primary ones. They would

15be more traditional trade access issues. I'm just guessing.

16MR. RILL: There were inquiries made with respect to limits on

17distribution of automobiles in other venues.

18MR. YOFFIE: I suspect the Structural Impediments Initiative

19would probably have more of the data than we would want. Precisely because it

20was going after the kinds of restrictions that this Committee has the power to look

21at. I think it's a very good source. And the question is: Is there, in fact, some

22evidence of anticompetitive behavior, separate from purely market access



1MR. RILL: What we're doing -- I guess what we're doing, as Paula

2indicated -- we are trying to see what we can get from various trade associations

3and various sectors. Also sources of data, we hope, will come out of

4organizations that are not sector specific. But questionnaires are being prepared,

5reviewed and being sent out to get a sense of this type of problem. The U.S.

6 Council on International Business and the Business and Industry Advisory

7Committee to the Competition Committee at the OECD are participating in these

8efforts as well.

9Sometime in the Spring, when we have to sit down and start

10thinking about what we're going to write in our report here, we ought to be seeing

11what we're getting out of that as well. I don't know of a source where we can get

12a statistical fix on group boycotts in country Y. I wish --

13DR. STERN. And we're also getting the cooperation of the

14Committee for Economic Development in circulating the questionnaire. And,

15again, a plug: If anybody would like a questionnaire or has some suggestions

16of other organizations, we are really trying hard to reach out.

17MR. RILL: It's a really important question you raise.

18MS. JANOW: I think, as Jim is saying, we have seen recurring

19incidents of complaints about barriers to market access stemming from private

20restraints or some combination of private and public restraints. And this is being

21actively debated in international fora and the traditional characterization of such

22problems, as was commented on here by Dick Simmons, is either

23non-enforcement or lax enforcement or discriminatory enforcement with respect


1to those jurisdictions that have competition laws and market access or private

2restraints arrangements, as in markets that don't have competition laws.

3I suspect this Committee will have to think through those policy

4responses even without a full comfort level on the data. I'm concurring with Jim

5on that point. It's still important to consider what does one do in environments

6that don't have these laws? Do you think it is best to push for their creation as a

7matter of U.S. government advocacy? You have described so well the leadership

8of an American company, in your case, showing the benefits to the domestic

9economy of the measures. That's not always the nature of the complaint.

10Sometimes the complaint is that there is government support or encouragement of

11private arrangements that are designed to block foreign or that are designed to

12expropriate foreign technology. So there is a range here, and I suspect that range

13needs to be a medium-term perspective as well as a short-term perspective about

14what needs to be done.

15MS. FOX: I want to say a few words to carry that theme further. I

16do have a lot of respect for data, so what I'm about to say does not indicate I

17don't always want more data. But life is short, the life of the Committee is

18shorter, and global markets are becoming more global every day. And more and

19more we see that nations are treating the problem as national. But markets are

20larger than national boundaries. In view of globalization, it's very important to

21 develop some core principles that recognize the true dimension of problems. We

22need, first, a vision from the top of each problem. Whether it's a market access

23problem or a merger problem, the real boundaries are not national boundaries.


1And we need, secondly, principles to deal with nation-to-nation conflicts, not the

2least to head off the shifting of competition problems into a trade war. So, first,

3 we need to see the whole picture and grapple with it and, second, to have some

4rules in place to solve conflicts among nations.

5If we are going to think about broader-than-national interest, about

6international problems as international, first of all, I want to say it's not altruistic.

7We ourselves are benefited by looking at the problem as a world problem, trying

8to remove barriers, open markets to competition, and prevent cartels to the extent

9it's consistent and feasible with nations' proper interests to protect their own


11So we shouldn't really be thinking only in terms of labeling

12American firms' opportunities abroad, though of course we think about that, but

13 we should be thinking more about the openness of markets. We also, I think,

14have to think of the integration of trade and competition problems even while we

15think of the separation of trade and competition problems and the separation of

16some governmental problems from private problems. I think we have to move to

17really seeing and dealing with them together.

18I think one of the problems of the Kodak/Fuji dispute was that our

19existing system forces us to disaggregate what is government and what is private.

20And we don't see the whole picture and there's no place we can go to deal with the

21whole picture at once. It might look much different if it were a whole problem of

22governmental involvement and encouragement plus the private action. Rather,

23today: half a problem goes here, to the WTO; and half the problem goes there, to


1the competition agencies.

2MR. RILL: Can I react to that and make a couple of other

3comments that have been prompted by the excellent comments by the other


5I don't want to lose sight of the transparency point. I think that's

6critical. And I think, just based on my own experience in SII and in other matters

7that I've handled, transparency is an enormous barrier: transparency of what other

8governments are doing and sometimes transparency of what our own government

9is doing.

10In that connection, I think, a step in the right direction is the

11positive comity approach. I think it is slow moving, but I think that if we take a

12look at the 1998 U.S.-EU agreement, with its reporting-back mechanisms, I think

13those will move us in the right direction towards transparency of activity between

14various jurisdictions here and abroad.

15What I hear on positive comity, on the negative side of the positive

16comity issue, in our travels, has been one, "Well, okay that's a stick where

17foreigners can beat on our guys." Well, "So what?" is my reaction to that. There

18is a reciprocity in positive comity. And, two, it's an excuse for inaction. I think

19we have to examine that one. And it seems to me that if it's an excuse for inaction

20then it's a failure. And I, being one of those at the creation of positive comity in

211991, would view that as a great loss. But rather than that, I think it's an engine

22for action. I think once a serious positive comity effort is made, once there's a

23formal referral and action on the other side that would be positive, or action here


1on a referral to us that would be positive, positive comity will be viewed as a

2 success.

3But what we have to deal with, as a Committee, is this: What

4happens when positive comity breaks down, when there is a dissatisfaction by one

5side or the other as to result? I think that's where it becomes an engine for action

6because, I think, it leads to greater political acceptability to consider what Dick

7Simmons says in his statement: unilateral enforcement. That having tried positive

8comity, and it not being successful, then there's some political stigma removed

9 from unilateral enforcement. At least that's a thought we might want to examine.

10 While we examine also, possibly, the removal of some of the barriers, practical

11barriers, to cross border enforcement and what steps we might recommend.

12Further, on transparency, and this is kind of a wild thought, purely

13personal, which I guess by definition is wild, and that is: Whether or not we

14should think in terms of getting some kind of dispute resolution mechanism in

15place, à la WTO -- binding arbitration.

16But is there something to be said for nonbinding consultation by a

17third party? John, you and I talked about that, I think, at the break of the last

18meeting. There are a lot of bumps in the road, as I guess Joel said in another

19context on the way. But that certainly would enhance transparency if people went

20 at it.

21The OECD's 1986 recommendation, reviewed in 1995, provides a

22possible forum for non-binding mediation through the OECD Committee: the

23OECD now with 29 nations and counting. I think it's something we ought to look



2The only other thing I would say is that, I think, there is a very

3valuable discussion here on the interface between the trade issue and the

4competition issue. It's very difficult. It's difficult, as David says, within our own

5government. Some of us thought that perhaps USTR, from time to time, is doing

6antitrust work. And I suspect USTR thinks that antitrust is sometimes doing trade

7 work.

8I don't have a ready answer to this, but we need to look at it and we

9need to look, I think, beyond that. It's too easy to say government restraints, that's

10trade, and private restraints, that's antitrust. There's so much of a blend, we

11probably need to look at some of the ancillary issues, as Joel has said. We need to

12look at where government compulsion and foreign sovereign immunity end, and

13how broadly we should recommend to the Department and others to examine

14 those doctrines and their continued vitality in a globalized economy in hybrid

15governmental private relationships that exist throughout the world.

16Those are my reactions to the very helpful thoughts that have been

17thrown out this morning.

18MR. DUNLOP: Now I raise the question on this matter of

19principle -- I wonder if you have an answer to it. I need to know whether, when

20you say the principle of openness in trade and all that, does that mean -- and a lot

21of the world is a Third World -- does that mean you are inherently by principle

22opposed to the infant industry argument?

23MS. FOX: No, it doesn't.


1MR. DUNLOP: Then how do you combine the industry argument

2with free trade?

3MS. FOX: That's a good question, and here I also want to bring in

4transparency, that Jim recognized, because transparency of derogations can be

5one of the most important things one can do in dealing with specific fact

6examples -- it could also help us combine the conceptual with the reality.

7Specific fact examples that have happened in the past include, of

8course, U.S. trade with Japan and claims that we can't get into Japan. Future

9examples might involve developing countries.

10I think that we could do well by having a general principle that is

11most tightly linked with the trade principle. Here I'm going to focus on the WTO,

12just to say a word about how certain market access questions are on the other side

13of the coin of trade restraint that are now prohibited. If one wants to be part of

14the world trading system -- if a country wants to be part of the world trading

15system and have the benefits of open markets around the world, as already now

16given by the WTO, then it seems to me that that country also ought to be saying,

17"I guarantee that I won't make restraints that are inconsistent with the WTO; and I

18also guarantee that I'm not going to sanction business firms making those

19restraints so other people can't get into the market."

20If there's a particular problem about developing countries where

21they might need governmental protection, say for an infant industry, I would say

22they should be free to make transparent derogations; and if derogation is

23important to the national interest and is not really a beggar-thy-neighbor spillover


1type of thing, then they should expose this as what they're doing. There should be

2a register for these derogations. I think there should be a register for countries'

3cartels so at least it becomes transparent, and then maybe the derogation will

4disappear. In any case, we can see what we are debating about and even can think

5about what future rules to make to constrain derogations.

6You could have the possibility of a consensus of nations that either

7they will have an antitrust law that will prevent anticompetitive blockages of

8 markets or they will assure, otherwise, that there are no anticompetitive blockages

9of markets. Hong Kong, for example, might assure no anticompetitive blockage

10of markets even without a competition law, if it has a totally free economy where

11the market won't let the firms engage in such restraints. That's one example.

12The particular market access problem is so linked with what

13countries are bargaining for when they enter the world trading system that there

14really ought to be some undertaking of open markets in the first instance, plus

15transparency for derogations.

16MR. RILL: Madam Co-Chair, if I may, just for a second. The

17OECD, of course, has issued a Hard-Core Cartel Recommendation, as I think Joel

18mentioned as he was very instrumental in putting that through. We should be

19aware, at this Committee level, that the WTO ship is either going to be sunk or

20 somewhat further out on the ocean well before we submit a report. Because the

21Working Group on Trade and Competition, headed by Frédéric Jenny in the

22WTO, is due to be renewed or not at the end of this year; and is due to submit

23reports as to whether or not it will be renewed. I don't know that there's a


1mechanism for us to have an input into that, but I throw it on the table because

2maybe we would want to advise the Department of Justice on that issue, that

3fairly sensitive issue.

4MR. DONILON: This is not an area where I have a deep

5expertise, so I wanted to ask a couple of questions and make a couple of points.

6The first point is, although it may be difficult to get data, I think it's important for

7the Committee to at least define the problem with precision that it's addressing.

8And I think we should do some work on that. I would like to better understand

9exactly what problem we're trying to address here, what conduct by private firms

10would constitute something that we would like to see addressed.

11Second, with respect to the role of the Division and law

12enforcement agencies: I think it's an important question to try to better unpack.

13What are the real world capabilities of the antitrust authorities for addressing this?

14The Antitrust Division does not negotiate access to the WTO on behalf of

15countries. It doesn't negotiate trade agreements. It brings cases.

16And what would a complaint look like? What would a

17hypothetical complaint look like here? What are the challenges? We have Chuck

18Stark here who might be able to talk to us a little bit about this. Chuck, I assume

19there are real challenges here as to bringing a case against -- against what

20conduct? What does it look like? And we need to really try to understand what

21this section of the background paper means, what this option means in terms of

22unilateral enforcement. Is it real? What would have to be present for a complaint

23to be brought? Is it something as a matter of policy if a complaint is possible to


1be drawn? Is it something we would recommend? Does it risk politicalization of

2the Department and subject it to that kind of pressure?

3My instinct tells me that actual complaints brought in this area by

4the Justice Department would face real practical limitations -- as is outlined in the

5background paper -- and would be quite limited. Which brings me to agree with

6Ray's initial comments, which is: the way to go with this is to look at long-term

7multiple approaches -- bilateral, multilateral and government advocacy, both in

8the private sector and government sector.

9To do that, as he said, we need to decide, I think -- and this would

10be my next recommendation -- on a place for the Committee to focus; decide

11where we want to end up. What are the core principles that we can endorse to

12the United States government? And then lastly, think about concrete ways in which

13to advance those principles over the long-term. Where and how should they be


15Again, those are comments from someone who doesn't have a lot

16of deep experience in this. But I do think we need to define the problem, realize

17the limits or understand at least the possibilities and limits of antitrust

18enforcement here, and then think about concrete ways in which we can advance a

19 set of core principles that we might work through.

20DR. STERN: That's very helpful. The questionnaire, which will

21be on our website soon, is offered in our tab 2. So it's D 2. I think that will get to

22 you. And if you get to the page, where it says background material in the

23discussion -- 3. D3. It's Background Material and Discussion Questions. Is that


1where I had it? No. I moved my finger. Here it is. It is Background Material

2Provided, Questions Presented and it's right after the list of business outreach

3organizations contacted. So that is at D2.

4And on page 2 of that background material, one and 2, there are a

5series of -- 3. Page 3 of the questions. E3. Trade and Competition Policy

6Interface Issues and the questions are on pages 3 and 4.

7Tom, you've called our attention to it. What is it that we're asking?

8And if you've got further suggestions, this can always be improved.

9Now your point about what the Justice Department is doing about

10law enforcement, what else can it do --

11MR. DONILON: What can it do?

12DR. STERN: What can it do? And you talked about bringing

13cases. But they also might negotiate positive comity agreement with others, and

14extend outreach to other countries.

15MR. DONILON: The reason I brought that up -- that, I think, is

16correct and would be part of the multiple approaches point, which is advocacy by

17the government and by United States private sector. But where I wanted to try to

18get a better feel, because, quite frankly, I don't have a feel for it, is: What do we

19mean by saying that we should at least consider -- explore -- the option of

20unilateral enforcement, which would be bringing actual cases against specific

21conduct and specific parties? As a practicing attorney, the first thing I would do

22 is look at the complaint against my client and try to figure out whether it stands.

23And I'd like to get a feel for whether or not -- what the Justice Department will do


1with that.

2MR. RILL: Tom, there are cases. There are cases that have been

3brought. And we've asked the Department to advise us of the number of

4enforcement actions that, in whole or in part, related to conduct overseas,

5affecting both incoming, but particularly, outgoing commerce. I think we asked

6this at the first meeting. I haven't seen anything yet but I'm sure they'll give us

7 that. That will be at least a partial answer.

8In addition, part of our road show discussions with other law firms

9is eliciting that kind of information. All of which is by way of saying, I think,

10your question is really pertinent and one we need to get in up to our elbows.

11MS. JANOW: Can I add just a footnote on this point? Jim also

12took the lead, he didn't in mention it in this instance but, in the Antitrust Section

13 of the ABA. That was specifically a question we asked of them, was to try and

14 provide us a chronicle as well as an assessment of these so-called export restraint

15cases, not only those involving the government, which is not a terribly long list, I

16 should note, and is also not terribly recent. With perhaps a case list partly of the

17 barriers or the difficulties of litigation.

18We have in these outlines spoken to the difficulties of litigating --

19prosecuting these cases when transnational cartels are involved. We haven't done

20that explicitly in the export restraint case. Gary Spratling will be with us later, as

21will Chuck Stark. I think those difficulties become even more complicated when

22you're talking about an export restraint situation and maybe what you're also

23suggesting is that we might usefully develop a background paper to think about


1those difficulties in the export restraint context.

2So, I think there are things underway that will help us on that, or at

3least provide some background.

4MR. RILL: I think that's going to be covered, at least in part, in

5the paper that we're going to be getting from the ABA Antitrust Section. One of

6the thoughts that was given to us, as you recall, at one of the law firm visits was --

7we're not limited to advising just Executive Branch action. If there's legislation

8we think is appropriate, we can certainly -- maybe nobody would listen to us --

9but we can certainly recommend it. If there are impediments to enforcement,

10either cartel enforcement or if we find there are impediments to other types of

11civil enforcement, and we think that's a problem, we should examine it, identify it

12-- I think this is your point, Tom -- and then recommend ways that it might be


14MR. GILMARTIN: Picking up on Tom's point, as well, about

15defining the problem, particularly in this area here. And as you noted, Merit,

16there are a lot more, sort of, trade and competition interface issues being brought

17forward in the trade arena. And one of the things that we should probably

18examine would be sensitivity to the point that you made Eleanor, because the

19trade arena has been a very effective and high profile activity. To what extent are

20problems being defined to take advantage of that vehicle? Now these are really

21competition problems, which is what you were talking about.

22What happens when they get in the trade arena and they start

23developing the case and it's not there because you can't make it a trade case?


1Now -- and if there was a parallel effort on competition, if you will, that that was

2a venue by which you could really deal with these kinds of issues, then we get the

3problem defined properly and then would be more effective in resolving it.

4DR. STERN: When you stop and think about it, the U.S. Trade

5Representative has traditionally sat as a cabinet officer. It sits in the White House

6and gets ambassadorial rank. All of this because Congress made it so important.

7This was a creature of the Finance Committee and Ways and the Means

8Committee. So it's an interesting point. Are we now at a stage in our economic

9history that we are wanting to enhance the competition policy role as a public

10policy priority of the United States in the international arena?

11MR. RILL: That's a really good question I think, and one that we

12should address. I would certainly support giving the Assistant Attorney General

13for Antitrust a cabinet rank.

14DR. STERN: Ambassadorial too!

15MR. GILMARTIN: If you define the problem the other way,

16everything starts moving, just to an extreme; all competition becomes some big

17part of the WTO, which doesn't seem, necessarily, the right way to go.

18DR. STERN: It may be the tail wagging the dog.

19MR. GILMARTIN: The result of people trying to attack their

20market access issues and what they think might be a very effective arena, as

21opposed to what's the right WTO --

22DR. STERN: That is a very good point.

23MS. FOX: I want to say something further to Tom's very good


1question about what are we talking about, because this trade and competition

2question can be very broad. I want to start tackling that fight, talking more about

3why are we here, and to say something about what the European Commission is

4doing --

5DR. STERN: I hope you will also -- I do feel like we need to

6address -- I don't want to cut you off, but you're the core principle person. And if

7we can get a few core principles at least articulated, that's your assignment.

8MS. FOX: Okay. I could do that. But one thing I wanted to say --

9this relates to trade and competition and it relates to U.S. and the world, it relates

10to the EC and the world -- there are others, that is, not Americans, who are much

11farther than we are, having done more thinking and resulted in papers and

12proposals. They are farther along in thinking about internationalizing competition

13law. They recognize that because problems are international and supposition that,

14 because problems are international, we need to internationalize competition law.

15A piece of that is trade and competition, sort of narrowly defined,

16that is: barriers to market access, both public and private. That's just one piece.

17Then there's this big problem about: Do we need to and do we want to

18internationalize competition law?

19If we proceeded to internationalize competition law, rather than

20internationalizing at the point that trade meets competition, we might end up in a

21totally different place. We might end up with -- even if you ended up with

22something and you might shoot down everything -- you might end up with a new

23kind of collaboration, not in the WTO, that talks about international problems. Or


1there's some core principles of open markets and derogations, and what do you do

2about competition law on an international basis.

3The reason I am mentioning this now is because there's a huge

4debate in the world going on -- and the European Commission and many

5 Europeans and a number of others envision internationalizing competition policy

6in the image of EC law. Those are two different things. One: international

7 competition policy. And when you do it, of course you do it to be more like

8whoever you are. And the Europeans are very far out in front in putting forward

9this idea that there are problems that need an international solution. And they are

10also kind of expanding the scope of the European Community solutions through

11association agreements and trade agreements.

12And my point is that if we're not part of this debate, we default.

13Maybe in some cases the European laws are better than ours. I think they are

14with respect to state action within the European internal market. On other points

15our laws might be better than theirs are. But we're not engaging in the debate.

16My fear is, if the United States stands back and says, "We can do

17whatever we want to; we have our unilateral remedies if we don't like what's

18happening on in the world," and we're afraid to go into the international arena

19because we will get co-opted by trade policy or foreign competition policy, I'm

20afraid that is going to lead us to the default position. We will find an

21internationalization of antitrust and, whatever it is, and we will not have been


23DR. STERN: That's a superb statement, and may even suggest that


1we have been using the wrong term in, "the interface of trade and competition."

2Maybe we should be reshaping the definition of our examination to the

3"internationalization of competition law." And the EU not only may be shaping it

4in its own image, but also exporting it to central Europe, eastern Europe, and in

5negotiations with Latin America and other countries. Thank you, Eleanor.

6I'm sorry, Tom?

7MR. DONILON: I was going to add half a sentence to what

8Eleanor said. Not only that we are not part of the dialogue, but that the dialogue

9doesn't have the benefit of our hundred years' of experience. In this area we've

10seen a lot of pendulum shifts and swings in our antitrust enforcement/competition

11law. And I think that we have a lot to bring to the -- a lot to bring to the table, I

12 think -- that's number one.

13Number two, that's something I should have mentioned in talking

14about long term approaches. It's not clear to me that the lesson that every country

15will learn from the events of the last year, that the international economic system

16will be to open their markets, it may be -- they may learn other lessons. But to the

17extent that other countries, over the long haul, do develop open markets, we have

18a very highly stylized and deep relationship with most of our current trading

19partners -- between market economies. But as other countries develop market

20economies, I think it's important to get the core principles established and try to

21get out in front of development of these market economies with ideas that make

22 some sense.

23MR. YOFFIE: I just wanted to make a couple of quick points.


1One, to come back to the painful subject of data. If we don't get a good sense of

2the orders of magnitude that are involved here, our ability to recommend remedies

3will be limited. In other words, we can recommend stronger remedies if we can

4argue that this is a bigger problem.

5DR. STERN: We thought this was all going to be in the Harvard

6Business School data bank.

7MR. YOFFIE: I want to make sure we think about this connection

8between data and remedy. If, in fact, we can see a few anecdotal examples here

9and there, then we are likely to conclude that positive comity, for example, might

10be the most we can reasonably recommend under current circumstances. If, on

11the other hand, we can argue for a trend or argue that there is widespread

12evidence of the existence of these problems, we can make the argument that more

13important or severe actions can be taken.

14I want to make sure we don't miss that link. I want to make sure

15we remember when we are having people at our hearings in Washington in

16November, that we ask the foreign competition authorities, in particular, what

17they want from the United States. Because that is something that gets us into this

18realm of positive incentives. What are the things we may be able to offer as part

19of any new set of guidelines, whether it be international, multinational or even in

20terms of bilateral agreements that we're going to be able to offer?

21MS. JANOW: Well, if I may -- since my job as Executive

22Director is to try to operationalize some of your thinking in some drafts that come

23back to you -- just challenge a couple of notions that come forward to help me


1think about how we do that. First, David you caused me to challenge yet

2additional comments. Let me just point to one.

3Eleanor: the internationalization of competition policy. I think that

4naturally leads to the question, and I'm hearing concurrence on the importance of

5that framework, of: What are our objectives? What might be U.S. objectives with

6respect to the internationalization of competition policy? The European proposal,

7which may not be a consensus proposal, but their proposal has suggested some

8sort of international rules or principles, whether at the WTO or elsewhere. And

9so that's on the table to be addressed.

10But I think there is a debate as to whether the internationalization

11of competition policy needs to take that form or -- that form meaning some effort

12to reach a harmonized set of agreed-upon rules, which, as Eleanor said, would be

13in the European model. Is the U.S. objective here to develop it's own advocacy

14for its set of rules at the international level, or might the United States' objective

15in the internationalization of competition policy take other forms?

16I think that's an important issue. What are our objectives with

17respect to the internationalization of competition, and how would we -- this goes

18 to your point, Tom -- make it concrete? I think this Committee perhaps needs to

19debate that issue a little bit more.

20And then David, I just wonder on this point -- I'm remembering,

21for so many years in the trade context, arguing about issues, for example, like

22supercomputers, if I may say, where you couldn't say that the trade effects

23associated with supercomputer sales were that significant, but the perceived


1consequences of the loss of that market were. So I'm wondering, even -- if there's

2an analogy here -- even if we're not able to give a sense of the order of magnitude

3of commerce affected by anticompetitive restraints, does that really limit this

4Committee in thinking about remedies?

5MR. YOFFIE: In the case of supercomputers it was externalities,

6and everyone had a clear sense of what those externalities are. There, again, you

7were identifying relatively large scale effects: just not in the particular area that

8was being traded. So any way you look at it, you have to identify some effects

9that are going to be important to the economy.

10So, I don't think that these things are mutually exclusive. You can

11have, potentially, small industries -- particularly in high-technology, where the

12potential effects would be very widespread -- and that would be sufficient at least

13to argue that maybe more severe or impactful remedies are required.

14MS. FOX: As usual, Merit, your questions are very probing and

15really important. I want to say a word about our objectives vis-à-vis what seem to

16be European objectives.

17As you've mentioned, the European proposal seems to envision,

18ultimately, common rules for the world. I'm against that. It begins, however,

19with a very fruitful framework for building blocks of positive comity and

20cooperation, transparency -- which is one of the keys in the European internal

21market, but particularly with government restraints -- and nondiscrimination.

22I take Tom Donilon's point about our experience over a hundred

23years and about the swings of the pendulum on substantive law. This is so


1important. Nothing should be written in stone at a world level; you can't dissolve

2the stone. Things change, society changes, needs change. Different societies may

3need different rules or nuances; the same society may need different rules at

4different times.


6My thought is we should, first of all, engage -- that is the U.S.

7should, and it is not now -- engage in conversations about how to internationalize.

8There is a need for internationalization that fits the scope of world problems, and

9a need for articulating, in general, an open market, free market rule, certain rights

10of derogation, transparency of derogations, restrictions on excessive government

11protective or beggar-thy-neighbor restraints, and dispute resolution.

12And I'll give you one example of a law that I think is in need of

13internationalization: the Canadian merger law. The law says that mergers that

14are anticompetitive are potentially illegal. But they could be defended if Canada

15gains more than it loses. This includes producer gains from exports. If the

16producers and consumers in Canada have a net gain, the merger is okay in Canada

17even though the world suffers a net consumer loss.

18That's a nationalistic way to look at a merger that has international

19effects. If U.S. consumers are hurt by a Canadian merger, their harm, as well as

20Canadian consumer harm, either should not be offset by Canadian producer

21benefits, or all consumer and producer benefits should be taken into account. But

22if you literally apply Canadian law, it's discriminatory and shouldn't be allowed.

23This is probably the tip of the iceberg. There are probably many


1other national laws and their applications that look in this direction, because law

2is national. And nations are looking out only for their own immediate interests.

3Yet we're all better off if the standard is world welfare subject to what nations

4agree are rights to derogate. That's the kind of principle that I'd be looking


6I think it's very important to advocate that no detailed principles be

7written in stone. On the other hand, it's okay, it seems to me, to advocate

8adoption of an antitrust law against cartels. You can import the OECD

9recommendation itself, without all the exceptions. And you could advocate

10adoption of law forbidding anticompetitive mergers with serious spillover effects.

11The form could be a framework directive in the tradition of the EC,

12as advocated by the EC Experts' Report. A framework directive would lay out

13the objectives and say: All countries must pursue these objectives. All countries

14undertake to adjust their national law to implement these objectives, and no

15country may have discriminatory law.

16MR. RILL: Is the WTO the right forum in which the discussions

17to this end should take place?

18MS. FOX: Not necessarily. I think the problem -- or opportunity

19-- is that the WTO is there.

20MR. RILL: The elephant's on the table.

21MS. FOX: Yes, and there's an additional problem that -- and you

22can tell me whether this is the dog or this is the tail -- but there is one distinct

23issue which is a trade/competition issue: and that's the market access issue. We


1could agree, in the context of the WTO, that countries should not allow

2unreasonable restraints on market access by government or private parties. One

3could say that's the only trade issue. But we do have this problem of

4internationalizing to fit the modern world.

5DR. STERN: Only the WTO issue.

6MS. FOX: Thank you. The only WTO issue. We could say that's

7a legitimate concern of the WTO. Everything else is new and different. It's not

8trade. It stems from the fact that globalization of markets has internationalized

9 competition problems.

10DR. STERN: Eleanor, you've been a wonderful, wonderful,

11clairifier and resolver, perhaps, of a lot of these conundra that we have been

12discussing, including defining "this elephant" called the WTO.

13MR. RILL: I thought you were talking about me.

14DR. STERN: No, Jim. I'm not getting "partisan" here. The WTO

15organization has also been the magnet for groups wishing to achieve other goals.

16Take the trade and environment debate at the WTO. Take labor and trade issues;

17some say why not the ILO, the International Labor Organization? The reality is

18that trade has become such a successful route, politically, as well as in other

19ways. And the WTO has grown beyond, perhaps, what its original missions were.

20But there aren't any competing institutions.

21It is, as Eric reminds us, the witching hour. And I would like to

22thank everyone for his or her contribution. Now we are going to switch gears and

23 go into both the lunch hour, but it is a working lunch. Ordinarily I'd like to give


1everyone a chance to give closing remarks, but I think that would be redundant.

2 And we'll have opportunities to continue the discussion as we go into

3International Law Enforcement Cooperation as well as Multijurisdictional Merger

4issues. So we will take a quick break. But Merit is not going to let us do that.

5MS. JANOW: I am. I really am. Just a footnote. We are

6preparing a set of questions, solicitations for papers on each of the three subjects,

7including this one. So if I could ask, before anybody leaves today, to be sure to

8take that with you so you react to it. We'll pass it out. That was one point.

9Second, we've mentioned before also the hearings. I know you

10can't necessarily speak to your calendars today, but if you have subjects on the

11hearing schedules that are particularly interesting to you, if you could just alert

12me and then I can work with your offices about the dates and so on. We have

13such a spectacular group coming and all of them are very much interested in

14being able to interact with you that, to the extent your calendar permits, it would

15be marvelous if you could reserve some time over those three days. Thanks.

16DR. STERN: Thank you. Okay. We'll take a five-minute break,

1710-minute break.


19DR. STERN: We get an opportunity to talk and eat at the same

20time. And we're now going to move on to item two on our calendar: Enforcement

21Cooperation. And we have the good fortune of having our Co-Chair, Jim Rill,

22lead off this discussion. And Gary Spratling is here now, having earned the red

23badge of courage for taking the red-eye again. And, also taking note that, Chuck


1Stark is also here and available. Jim, would you do us the honor?

2MR. RILL: Sure. Let's get right into it. Obviously, extraterritorial

3enforcement or, really, enforcement cooperation in the cartel context is one of the

4three legs of the Committee's responsibility. I want to start by not going over the

5turf that we plowed through at the last meeting, but to express my profound

6thanks to the Department of Justice, and, in particular, Deputy Assistant Attorney

7 General Spratling and his senior counsel, Scott Hammond, who both have been

8very, very forthcoming and helpful, in giving us a cornucopia of statistical data

9relating to the Department's global cartel enforcement program. Just makes me

10 wonder where were they when I was there, but never mind that. The fact is just to

11review some of the statistics.

12DR. STERN: I was just asking, are the statistics going to be made

13public? I guess so.

14MR. RILL: He said it's an update of what was presented February

1526. So, if that was public, this is.

16DR. STERN: The public is waiting to hear it.

17MR. RILL: The fact is that --

18MR. SPRATLING: The first section, Jim, is an update, but the

19other stuff is new.

20MR. RILL: I appreciate that. The discussion earlier this morning,

21Gary, focused, in part, on a desire to obtain some kind of data to give us an

22empirical assessment of what the scope of the trade and competition area problem

23might be. Based on the information that you've given us already, I don't think


1we're going to have that same unsatisfied thirst in this area. And if we do, I'm

2sure you'll come forth with more.

3Just to rattle off a few of the numbers: 30 current sitting grand

4juries are looking into suspected international cartel activity. The subjects and

5targets of these investigations are located on five continents and in over 20

6different countries. The activity is even broader than these numbers reflect,

7according to the information given to us -- implementing cartel meetings are

8 suspected to have occurred in 60 different cities in 25 different countries,

9including most of the Far East and nearly every country in Western Europe. I

10suspect some in the United States.

11The volume of commerce in some matters reaches over a billion

12dollars a year in some matters; and others, over $500 million a year. And in over

13half of the investigations, well over $100 million a year of commerce is affected

14by the suspected cartel activity.

15I feel so much chagrin that the comparison numbers that the

16Department provides compares fiscal year 1991 with fiscal '97 and fiscal '98.

17 And the --

18MR. SPRATLING: Well, Jim, the seeds of a successful

19prosecution, after all, are sewn much earlier.

20MR. RILL: Ever the diplomat. But I'll go ahead and say what

21they said about us. In fiscal '91, only one percent of the corporate defendants in

22cases brought by the Division were foreign -- that doesn't count Californians,

23right Gary? And in fiscal '97, 32 percent of the individual defendants were


1foreign based; '98 to date -- not much time left -- 64 percent of corporate

2defendants were foreign-based and 30 percent of individual defendants were

3foreign based. That's an awesome number.

4To David's request for statistical data, I think we have a wealth of

5it in the international cartel area. In fiscal '97, the Department had a record

6breaking $205 million recovery in criminal fines, almost 500 percent higher than

7the level imposed during any previous year -- at least I've got company. And in

8fiscal '98, over $245 million in criminal fines already have been recovered. I

9don't know as of what date this information is.

10MR. SPRATLING: That's as of yesterday, Jim; but we hope the

11figure will go up before the end of the year.

12MR. RILL: With about two weeks running.

13$450 million in fines have been imposed since the beginning of

14fiscal year '97. Nearly $420 million, or over 90 percent, of the fines have been in

15connection with international cartel activity. I think in fairness we'd like to know

16the percentage against U.S. firms and the percentage against foreign firms and

17how that might divide out.

18MR. SPRATLING: We will provide that.

19MR. RILL: The fact, I think, we should recognize, also, and I

20think it's a very important fact in our outreach as a Committee and in our

21deliberations as a Committee, is that the parties injured by the cartel activity are,

22at least in the first instance and quite often in the last instance, business firms --

23principally customers of the cartel's co-conspirators.


1And since the beginning of fiscal '97, the Division has prosecuted

2international cartels affecting over $10 billion in U.S. commerce. And, of course,

3as I indicated at the outset, there are 30 grand juries looking at international

4cartels that have not entirely finished their work. So this is really a number in


6Specifically, in the lysine area, worldwide sales affected

7approximately $1.5 billion; $650 million in the U.S. This is a very important feed

8additive for the agricultural economy in the U.S. Citric acid: worldwide sales

9approximately $1.2 billion; U.S. impact over $1 billion.

10Now let's talk about cartel activities currently under investigation.

11Looking at the shipping industry, where U.S. sales are over $200 million in

12services; metals over $750 million; construction contracts over $220 million.

13These are matters that are still being looked at.

14MR. SPRATLING: Which is the reason they're not more

15specifically defined.

16MR. RILL: I appreciate that. A good amount of the work that still

17remains to be done is very difficult -- in the trade and competition area -- I think,

18it's already done, in large measure, by the Department for us in the cartel

19enforcement area.

20It's not hard to answer the question, "Are transnational cartels a

21problem?" The numbers speak for themselves.

22The question then becomes: What is there for this Committee to

23do? And I think one would want to look at the obstacles to effective enforcement


1cooperation. Some of our partners I think are concerned. By partners I mean, not

2my partners, I mean foreign national colleagues are concerned about information

3being transmitted to the United States, in a variety of contexts, and being used for

4purposes other than the designated purpose for which the information was asked.

5How do we address that?

6There are issues that have been raised as to foreign sovereignty.

7The Japanese government opposed the prosecution efforts of the United States

8against the conduct occurring overseas that was prosecuted in a criminal context

9in the Nippon Paper case. The United States prevailed in that litigation. Access

10 to documents as well as to witnesses continues, I think, to be raised as an

11 impairment to fully effective enforcement.

12I know that Assistant Attorney General Bingaman, in several

13speeches following the General Electric/DeBeers case, which the United States

14lost at trial, suggested that part of the reason for the unsatisfactory result was the

15inability to obtain testimony of witnesses located overseas. And that, again, is a

16question as to whether this should be viewed as a problem by the Committee and

17what remedies should this Committee suggest to address that problem?

18There's also the question of obtaining extradition for those

19overseas who have been indicted. We have extradition treaties with a variety of

20 nations. Few of them mention antitrust as an extraditable offense. Is that

21something we should look at? Are there adequate border watches? Is

22cooperation with the INS fully effective in reaching individuals that are subject to

23investigations, or, for that matter, under indictment entering the United States, to


1find them?

2I think part of the problem, to the extent there is a problem, is that

3other countries are not fully in tune with criminal enforcement of antitrust

4offenses. Only, I think, eight countries in the world, other than the United States,

5have criminal sanctions for antitrust competition violations. I think Canada, of

6course, is one that does; Japan does. There have been some prosecutions in both

7of those countries. So the investigative cooperation may be limited by the extent

8to which foreign countries are willing fully to cooperate with us, a nation which

9has a very active criminal enforcement program.

10I think conversely, there has, at least in our conversations, been

11some concern expressed with the cooperation that can arise by an outflow of

12information from the United States to countries that may have serious penalties. I

13 think the government, as you said, Gary, won a very important victory in the

14recent Balsys case regarding the application of the Fifth Amendment, which was

15held in a different context not to apply to self-incrimination concerns arising

16under the laws of a country other than the United States. I think it's a concern

17raised more as a policy matter, in case there are serious sanctions overseas, maybe

18even arising under non-competition laws, perhaps fraud laws or other laws that

19would be uniquely severe. That would be a matter of concern to the United States

20companies' willingness to provide information if it would wind up in the hands of

21foreign enforcement officials, a subject we should probably look at.

22How can we improve enforcement? I think this is another subject

23that the Committee needs to look at. First of all, assuming we do want to improve


1enforcement and, at least, that's my own view. The US-Canada MLAT -- Mutual

2Assistance Legal Treaty -- works well. We can use more input as to how it has

3worked. But I think agencies on both sides of the border have extolled its

4effectiveness. I don't know that the MLATs with other countries have been so

5effectively implemented or that their coverage is so antitrust-express as with the

6agreement with Canada. We need to know that before we can recommend the

7expansion of the MLAT approach.

8Confidentiality concerns arise in a variety of contexts. They arise

9in the merger context, they arise in the trade and competition context, and they

10certainly arise in the cartel enforcement context. On the other hand, I don't know

11if I personally have a lot of sympathy for the confidentiality concerns of people

12who get together in hotel rooms and rig prices. I can see why they would want to

13 keep that confidential. But the public policy rectitude seems somewhat lacking in

14those circumstances.

15The Department has endorsed and supported the OECD Hard-Core

16Cartel Recommendation. I think that's probably a positive step. Are there further

17steps in the core principle convergence area that would apply to cartel

18enforcement that would be useful for this Committee to recommend? There is, on

19the table, a proposal to raise criminal fines from $10 million to $100 million for

20corporate offenses. I'm not sure I even right now know the status of that. It may

21be a while before that issue is addressed. You want to say something on that,


23MR. SPRATLING: No. The legislation is being held up until we


1get the comments of interested parties and then we expect it to go forward.

2MR. RILL: And the Judiciary Committee would be the one to

3consider that legislation. I'll leave that there. The Advisory Committee, the staff,

4Paula and I, and Merit have met with a number of business, legal, and academic

5types to try and get our arms around this problem and get the advantage of

6personal experience and economic and legal scholarship, and I think we're going

7to do that significantly more. We have worked closely with Gary and Scott and

8the DOJ staff, and we really are getting, I think, superb help in information from

9you all, but we need to continue that.

10Some thoughts. It seems to me that the case for the scope and

11magnitude is well on the way to being made. This is an issue; and we should

12recognize what the Department's done in this area. I think we need to look at

13bilateral and multilateral agreements both on substance and process to determine

14whether we should encourage the Department and the United States government

15to enter into these. At the same time, we should address legitimate confidentiality

16concerns and penalty concerns, if they are legitimate, that are raised by people

17that we talked to in the U.S. as well as overseas.

18And then I think we need to look at ways, if we believe it should

19be made more effective, as to how enforcement can be made more effective. In

20addition to legal assistance treaties, perhaps extradition treaties and other ways

21that we can break down -- recommend breaking down some of the barriers to

22 witness and document production, discovery, and enforcement that may still exist.

23Having said all that, I think the record indicates that whatever impediments there


1are have not stood in the way of the very strong, powerful, global antitrust

2enforcement activity against hard core cartels, for which Gary and his colleagues

3and Joel should be, in my opinion -- speaking as only one member of the

4Committee -- strongly applauded. That's it, as an opener.

5DR. STERN: Thank you so much, Jim. We have all had an

6opportunity to look again at the outline in the book that the staff has so carefully

7pulled together covering all of this. And Jim has been good enough to bring us

8up-to-date. I open the floor now to any comments, reactions, guidance, direction,

9advice from the members. Eleanor?

10MS. FOX: I have a small question on data. Gary, is there data --

11this is in my -- Jim's saying that great deal of the harm of international cartels are

12to businesses. And my question relates to competitiveness. Is there any data

13 showing the costs to our businesses that are doing business in international

14commerce, and the extent to which international cartels are handicapping U.S.

15firms in international commerce? How much are overcharges impairing the

16competitiveness of U.S. firms? Do you think that will be a useful statistic to look

17 at, if we could get it?

18MR. SPRATLING: We haven't tried to get that because our focus

19is on the -- we know there is that downstream effect, either in terms of the impact

20on consumers or in terms of the impact on the victimized companies' abilities to

21compete in whatever markets they're competing in. We recognize both of those

22downstream effects.

23 But to the extent that we collect information, most of it is


1anecdotal, some of which Jim referenced in his opening remarks. We are looking

2at the extent to which prices are increased to the victims of these conspiracies.

3And we know that, of those that we've prosecuted thus far, most are businesses.

4Consumers don't buy lysine; very large poultry and pork producers

5buy lysine. Consumers don't buy citric acid. Coca-Cola, Pepsi Cola are all

6companies that process foods using citric acid. Consumers don't buy the marine

7construction services; the oil companies buy the marine construction services.

8Consumers don't buy graphite electrodes, but the steel companies buy graphite

9electrodes to make steel. We have much anecdotal evidence, some of which Jim


11In one of the industries that we have not specifically described --

12we just called it the construction industry -- in one of those industries there was a

13markup on a 200 million-dollar bid of 70 percent. There was a -- we have

14markups in a series of bids in an industry where we have one prosecution thus far,

15and we expect other prosecutions -- there were consistent markups on bids, up to

1640 percent, after the conspiracy started. And so we have that type.

17You know in other conspiracies, we can identify from the point the

18conspiracy started as to the amount of increase that occurred right away. Not all

19conspiracies are perfect. Sometimes there's fluctuations and there's cheating and

20some outliers that conspirators can't control. So, there is some fluctuation.

21So, to the extent that we collect the evidence, it's at the point I have

22just described: that is, the immediate victims of the conspiracy. We know that, in

23the vast majority of the cases we prosecuted, they are businesses -- they are U.S.


1businesses. And of course one of our difficulties here has been -- we all said this

2at our very first meeting -- one of the difficulties is convincing people of the

3seriousness of this problem.

4I suggest that the businesses that have been injured as a result of

5these cartels which we've uncovered -- because otherwise they wouldn't have

6known about it -- they now appreciate the seriousness of this. They have

7examined the extent of what their injury is. They have now undertaken lawsuits

8to try to recover damages for those injuries. So, they appreciate the process.

9And in some of our sentencing there's indications that the judiciary

10is increasingly appreciating the problem. At a sentencing hearing that Joel Klein

11and I attended last Tuesday, involving some unusual circumstances that I don't

12think we need to burden the record here with, the government was actually

13seeking a lower fine against a corporation than the court had indicated it might

14impose. It's pretty unusual for the government to be seeking a lower fine. I can

15go into that privately with some people as to why that was the case.

16But at the sentencing hearing, the judge said, after imposing a

17higher fine, the judge said something like, "I recognize the extraordinary

18cooperation that this firm gave to the government investigation. Indeed the

19government has called it a 'vital' investigation. But in spite of that, this is a

20serious crime. This company stuck its hands into the pockets of American

21businesses and consumers as surely as if it had robbed them. We've got to deter

22this type of conduct."

23That's music to my ears of course but the fact is that there is not


1necessarily a general appreciation in this country, and certainly not in foreign

2countries, as to the seriousness of the problem.

3So one of the reasons that we provided the type of information that

4we have to the Committee, besides, of course, just simply complying with the

5request for information, is that we are trying to establish that case as well.

6DR. STERN: If we could extrapolate from the data that you did

7provide us, in response to Eleanor's question, which was how much is this

8perhaps impacting overseas competitiveness of United States companies. You

9had for example the citric acid. You said worldwide sales of citric acid was 1.2

10billion. The conspiracy was to have affected over 1 billion dollars in commerce in

11the U.S. We know that the other 200 million was in sales overseas. I mean, there

12 may be some -- if you just kind of look at the material, if you could just go back

13and just take a look. You may already have some of this information. But I don't

14want to belabor this point now because we've got a lot of other people who want

15 to talk. So we can follow up on how to get the data.

16MR. RILL: Eleanor, just to tag onto your question. We do have

17some of the staff and the Department putting together private actions that are

18pending in the wake of government prosecutions, that probably we ought to talk

19to some of the people that are representing some of the companies. Many of them

20are class actions.

21MS. FOX: Of course it's possible that everyone in the world is

22overcharged, which is also a problem. Or it's possible that there are unique U.S.

23barriers to make it possible to overcharge the Americans. Either way it's bad.


1MR. SPRATLING: Just so we don't have a misperception here,

2the international cartels, of course, are worldwide. They involve all of the major

3producers, and so the U.S. producers that are significant are conspiring with the

4major producers in other countries. They're conspiring to sell all the volume they

5want at a particular price. And so, in that sense, it's not the situation where you

6would think: How are the U.S. producers being harmed by international


8They've carved up the world. They have sat in a room and carved

9up the world, and decided what prices they're going to sell at. They are selling all

10they want at whatever price they want. So it's not the situation where you have a

11discreet agreement not engaged in by other major producers that may be

12impacting world producers. But instead it is the U.S. producer involved with

13other producers involved in a single worldwide cartel.

14MS. VALENTINE: Alan Wolff's group has been urging Congress

15to get that very data. So you might find something there.

16DR. STERN: I'm delighted to welcome Debra Valentine, who has

17joined us, representing the other major agency sharing competition policy

18jurisdiction, the Federal Trade Commission. And I appreciate all the cooperation

19we've received heretofore.

20MS. FOX: Just to add to the very good list of problems that we're

21working on, I want to add one other item that may be a subject for international or

22multicooperational agreement. That is, state action that permits, encourages or

23authorizes cartels. And here, I would first point out, it's interesting that the


1OECD Recommendation, which says member countries should prohibit cartels,

2makes an exclusion for cartels that are okay under the country's laws. Perhaps

3the Justice Department had to make that exclusion to get the agreement.

4I think there's a next step. I think it's possible that nations could

5agree what is appropriate state action endorsing a cartel, and what isn't. The

6transparency provision in the OECD Hard-Core Cartel Recommendation should

7be useful. It will provide us with hard data. It may give us a basis for discussing:

8Are there some kinds of state action that should be permissible because they're

9protecting proper state interests and others that aren't?

10An example that I would cite for us to think about, and perhaps to

11focus our thought and discussion, is the uranium cartel case that was litigated

12 about 20 years ago. The United States had an embargo against enriched uranium.

13The embargo order -- in the wake of prior U.S. encouragement of world

14production -- resulted in huge surplusses in the world. Many nations took steps

15for orderly marketing. Some of them assigned quotas, for example, Canada

16assigned quotas to companies producing on Canadian territory. Whether Canada

17and other nations sponsored further cartel agreements was shrouded in secrecy.

18The United States charged ahead and sued private cartel members, much to the

19anger of the countries that were part of the background of orderly marketing. And

20the United States created a lot of enemies in the course of it.

21So my thought is we could examine which of those actions are

22appropriate in a world system and which ought not to be, and perhaps come up

23with a recommendation prohibiting firms from hiding behind Act of State


1defenses unless their country's order is clear and transparent, and you can see

2exactly what the country ordered and you can see exactly how, if at all, the

3private parties went beyond the country's order.

4MR. RILL: Ray, something you were saying this morning about

5the encouragement of deregulation in open markets -- I know that in the SII talks

6and even the continuing ones, there's a continued effort reaching some

7acceptance, the elimination of the so-called recession cartels and some of the

8government sanctioned cartels in the government of Japan. Maybe we can pick

9up on what you were saying this morning about the positive incentives to take a

10look at, possibly, where those sanctioned cartels not only are illegal, but also

11counterproductive. And that, I guess, consumer welfare in their own countries is

12part of our ambassadorial mission. Perhaps you can comment on that.

13MR. GILMARTIN: I don't have enough specific information

14about that to say much about it. But I think the general principle is what is the

15 economic harm that's been done.

16DR. STERN: I guess I don't quite understand, Jim. Recession

17cartels, at least in Japan, which are permitted under the WTO as a safeguard for

18temporary purposes, are ipso facto retarding competition by putting quotas on

19restrictions of imports into the Japanese market for a period of time. So, I don't


21MS. JANOW: I think one of the ways in which cartels have been

22challenged is that cartels of this sort were often designed to deal with structural

23decline but they weren't being used for that purpose. They were being used to


1protect industries going through a cyclical downturn. The effort was to eliminate

2those temporary recession cartels and I think most of those are gone in Japan.

3And I don't know of their application elsewhere, particularly, but I guess that gets

4 to the question I had which Eleanor was talking about: perhaps you have in your

5mind what are appropriate and inappropriate state action type defenses? I mean,

6this cyclical structural would be one example, perhaps.

7MS. FOX: Actually, if Canada ordered the companies that were

8producing on Canadian soil to abide by mining quotas, that should be fine.

9However, if it orders them to boycott Westinghouse, that shouldn't be fine. The

10companies that boycotted Westinghouse claimed state action. There are ways you

11can draw the line one way or another. There might be choices to be made, but I

12think there will be some things that will clearly fall on the side of what is

13permissible and what is not. Transparency of state action would be extremely

14helpful. The lack of transparency was a big problem in the uranium litigation

15cases because nobody knew exactly what Canada ordered. It wanted to help its

16companies at one point, and tried to shield them behind its state action by holding

17its own orders in secrecy.

18DR. STERN: Using these state ordered cartels is a mask for

19special treatment.

20MS. FOX: Countries tend to come to the aid of their companies

21when they find themselves in trouble. That was a part of the problem in Uranium.

22The UK, Australia, Canada and France were all mad at the United States; they

23thought that we had overstepped our bounds by just going ahead and suing. So


1they were circling their wagons. If countries agreed to a set of rules -- what's

2permissible and what's not, and what information must be posted -- we'd have

3fewer problems. During the uranium litigation, there was a huge problem of

4extraterritoriality and the legitimacy of attaching government-sponsored cartels

5that led to the Foreign Trade Antitrust Improvements Act of 1982.

6DR. STERN: David?

7MR. YOFFIE: I just had a question of clarification. Is this piece

8of the Committee focusing on transnational cartels or all cartels? I thought that

9domestic cartels would have fit under the heading of trade and competition, and

10 that here we were specifically looking at transnational --

11MR. RILL: I think that's right, David.

12MR. YOFFIE: -- where firms across different countries were

13working to conspire to raise prices.

14MR. RILL: I think it's the global or the transnational conspiracy

15issue that's focused on in this segment of our work.

16DR. STERN: Yeah, but we didn't have a chance to talk about

17everything we needed to this morning.

18MS. FOX: But to clarify that, if French, South African, British

19and Canadians are conspiring to raise the price of uranium into the United States

20-- I mean this, to me, fits transnational --

21MR. YOFFIE: That would fit the transnational.

22MS. FOX: -- oh, okay, yeah.

23MR. YOFFIE: I was just trying to separate something where --


1DR. STERN: The recession cartels --

2MR. YOFFIE: -- recession cartels in Japan --

3DR. STERN: Right.

4MR. YOFFIE: -- which may affect the United States but in most

5cases probably don't impact U.S. companies trying to do business in Japan, but

6wouldn't necessarily fit into what we're talking about here. That's why I was

7confused by where we were --

8MR. RILL: I see where you're at. Right.

9DR. STERN: Right. That's why --

10MS. FOX: I think it could fit both places, and we shouldn't limit


12MR. YOFFIE: No, no, I agree.

13DR. STERN: -- but we need to discuss that.

14MR. YOFFIE: I would put the recession cartels under trade and

15competition because they really affect market access. Unless the Japanese firms

16happen to have a monopolistic position in some product like ceramics where a

17few Japanese firms dominate production and then raise prices for all consumers

18around the world.

19MR. RILL: Well, that's, I mean, that's the nexus, to the extent that

20this cartel activity inhibits, if you will, the inbound freight into the U.S., I think

21that would be of a concern to the hard-core cartel area. So it's probably a bit of


23MR. YOFFIE: A real borderline case. The DRAM case in 1987


1would have been a borderline case as well. Though again, there you have

2problems where the U.S. government in fact encouraged certain kinds of action.

3DR. STERN: Right.

4MR. RILL: I mean, yeah, that's a bit of a tricky one because it's

5government involvement on both sides.

6MR. YOFFIE: That's right.

7MS. FOX: But that's state action.

8DR. STERN: Well, it might be useful for the staff to take a look at

9the safeguard provisions/recession cartel provisions in different countries, and get

10us up-to-date. There have been changes for example in Japan on recession cartel.

11And what are the transnational effects of recession cartels, so we can know the

12extent to which this is a problem or not.

13MR. YOFFIE: I think we need to sort those out, but I think the big

14problem here is in fact a problem of transnational cartels by largely private


16DR. STERN: Yeah.

17MR. YOFFIE: So government-sanctioned activity is a piece of it

18but that's not really the big problem. The big problem is firms getting together in

19relatively narrow segments and figuring out ways to raise prices to consumers

20around the world.

21I wanted to come back to something I suggested last February

22again. It may be more mercantile in its approach, but this is a collective goods.

23All consumers are benefiting from our action and one of our problems is that we


1get a lot of free-riders at the edges and we don't have a way to get the foreign

2governments to work with us. It's not clear that they necessarily are going to get

3any of the benefits.

4So I come back to the question of positive incentives, which is:

5Should we be looking at formal recommendations that would create bounties --

6DR. STERN: Yeah, right.

7MR. YOFFIE: -- potentially for foreign governments to identify

8firms and cases that might be useful for us and, second, some sort of formulas for

9sharing the penalties associated with the prosecution of these cases? This could

10be a powerful incentive if we raise the bounties to $100 million. If you start to

11say to certain governments around the world there are material benefits to you if

12we prosecute and win this case, and we have a formula for making that happen,

13we may create the incentives that will make this a little easier to execute.

14MR. RILL: I was looking for something radical to say in this area,

15and you've done it. That's terrific. I don't mean that as anything other than a

16compliment. It's a fascinating area.

17DR. STERN: Particularly in the developing countries if they're in

18a squeeze on, budgetary squeezes -- like Indonesia.

19MR. YOFFIE: You might identify in developing companies a lot

20of people willing to -- cooperate with the bounty system or with a sharing of the

21 penalty system.

22DR. STERN: Interesting.

23MS. FOX: I wonder if you could give South Africa enough


1incentives to prosecute diamond cartels? South Africa has no interest because its

2big business and its producers gain so much. Would your incentives work in that


4MR. YOFFIE: It may not work in South Africa but it might work

5in Zimbabwe or half a dozen other African countries which are major diamond

6producers and part of the central selling organization of DeBeers. In other words,

7it doesn't have to be in South Africa.

8DR. STERN: Exactly, to break the cartel.

9MR. YOFFIE: The whole point is that a cartel by definition is

10several players. We're not talking about monopoly positions. The way you break

11up cartels or any kind of oligopoly is by providing incentives to the peripheral

12players. And that's exactly what you'd be trying to do here.

13DR. STERN. The weak underbelly. Do you want a percentage of

14that, for that idea?

15MR. YOFFIE: Absolutely. I'll take my commission.

16DR. STERN: Okay. Well, I think that's -- thank you. I see Gary

17taking notes.

18MR. SPRATLING: It's an interesting idea. The idea of incentives

19is of course the -- it is the positive side of the forbearance. What we offer as an

20incentive for people who do come forward in terms of offering no-jail deals, very

21favorable dispositions and, perhaps most importantly to a lot of the individuals

22involved, immigration relief in connection with them coming forward which

23otherwise they wouldn't have -- so they can maintain their status as a freely


1traveling international business person. And so it's those types of incentives that

2get people to come forward, because before we did those things, nobody came


4DR. STERN: Yeah. Well, this is an incentive for enforcement

5cooperation by authorities in other countries. Yeah, it's great.

6MR. SPRATLING: I understand, and that's what I'm saying. It's

7analogous to that. And just because of the -- we have even looked at the aspect of

8providing a bounty reward system for domestic conspiracies. Because of the

9difficulties just within our own country in effectuating something like that, I can't

10imagine our Congress authorizing part of the collection of our fines going to some

11other country. I can't imagine that, but that doesn't mean you folks can't

12recommend it.

13But I wonder if something more practical might be to talk about

14the benefits to them as a result -- if we had a way to share confidential

15information, which is one of the proposals that I know staff has recommended.

16That is, if there was a reciprocal basis for sharing confidential information so that

17 the benefits of our investigation -- they make a referral to us, we do all the work.

18Just imagine if right now we had the ability to dump information in various

19countries who have antitrust sanctions in place. They quickly would get their

20own reward by riding on -- your coattail theory -- riding on our coattails of

21development and prosecution.

22So there may be a way to achieve the incentive without the direct,

23and perhaps more difficult, approach of hanging a bounty on them.


1MR. RILL: Go ahead. I want you to discourage us from taking a

2look at the direct approach.


4I think it's creative and I think it's done in other areas and I think

5we ought to look at it.

6DR. STERN: Well, they're not mutually exclusive, what you're


8MR. RILL: The approach that Gary raises is one that is there now

9in the cooperation area and they should realize this is good for them because

10they'll get information too. I mean, we can go beyond that.

11MR. SPRATLING: Well, the thought is there, but the

12implementation mechanism isn't there.

13MR. RILL: Yeah, and that's what we're looking at for the

14international agreement benefit.

15MS. JANOW: Could I ask a clarifying question? If you look at

16the countries that have criminal antitrust, it's an unusual mix. I mean, you have

17the U.S., Argentina, Canada, Mexico, South Korea, Austria, Brazil, France and

18Japan. So it's a kind of surprising mix. How important do you think that

19comparable criminal sanctions are in effecting enforcement efforts with respect to

20hard core conduct?

21MR. SPRATLING: If I were a witness right now I would ask you

22to read the question back, because I think there are two different dimensions of it.

23Let me just split it up. My answer is different depending upon whether or not


1you're talking about really achieving effective deterrence of cartel activity, versus

2assisting us in cooperation.

3I do not believe thatcriminal penalties need to be available in

4foreign countries in order for countries to cooperate to a greater extent. Now

5obviously the availability of criminal penalties will effect the due process -- will

6effect the discovery that the country can conduct -- and if there were criminal

7penalties available, they would have stronger discovery provisions which would

8assist us to a greater extent in the investigation. But I don't think that's essential.

9I think there are steps besides that. I'm being careful here too because I don't

10want to violate the ground rule that Co-Chair Rill set up in terms of stifling

11creative thinking here. So --


13MR. RILL: Those are unilateral ground rules.


15MR. SPRATLING: So sure, if all countries in the world thought

16that antitrust violation were serious enough that they should be treated with

17criminal penalties, would that be tremendously helpful both in terms of deterring

18cartel conduct and in terms of making available the type of discovery in those

19countries that if shared with us would help? Sure, that's a perfect world; that's


21But short of that, I think that there are -- again discussing a range

22of possibilities here -- I think that even without countries going to the criminal

23sanctions, that there are bilateral agreements providing for the reciprocal


1exchange of confidential information that would be tremendously helpful.

2For example, the EU has had, in the past, information which

3probably would have been very significant in our investigations but there's an

4inability to share it. The EU has no criminal authority. They were still able to

5acquire the information, obtaining information as a result of what we call "dawn

6raids" and they call inspections.

7MR. RILL: I think they call them dawn raids, too.

8MR. SPRATLING: I used that expression at a DG-IV meeting

9recently, and they said, "Well that's okay between us, but please don't say that



12DR. STERN: And so you didn't.

13MR. SPRATLING: I'm aware that there are press here. But it's a

14term that is used colloquially. But in any event, I hope you understand my point

15there. Even a civil enforcement authority can develop information that if we had

16the ability to receive it and provide it on a reciprocal basis, would be very helpful.

17MR. RILL: Gary, there's a related issue on the paucity of criminal

18statutes overseas, not exactly the same, but where a country doesn't have criminal

19penalties for competition violations for even hard core violations, the constituents

20of that country are concerned that any information going to a country like the

21United States that has a very aggressive criminal enforcement program, any

22information say, related to a merger is somehow going to filter from another

23Deputy to you and then will be used aggressively by you to bring what the


1constituent of the other country would consider to be a draconian criminal

2prosecution. I think that stifles some sharing of information.

3Now, there are two ways to address that, I suppose. One is to

4recommend to the country with the concerned constituents -- let's call it, the

5country, the UK -- that they institute a criminal antitrust law, and I think that

6probably would be about as useful as the Children's Crusade.

7The other is for the Department to generate some level of

8confidence that the kind of information requested for one purpose isn't used to

9produce criminal investigations and prosecutions, subject to whatever exceptions

10there may be. Again, this is something that you and I talked about, but I think it's

11 a worthwhile subject.

12MR. SPRATLING: And I think that's something that's entirely

13workable. It's in the discussion draft for today. The statement I'm about to make

14is in the discussion draft and I can't immediately put my finger on it. But, to date,

15none of our international cartel prosecutions have been initiated as a result of

16information produced in connection with a merger review. None. And I know

17that there's a perception that there's a great danger in that, that the type of

18information produced for purpose of merger review will result in cartel

19prosecutions but, to date, not one of ours is the result of that.

20DR. STERN: It's my impression, actually, from talking with some

21practitioners, particularly in Europe -- we had these conversations, I think, only

22yesterday -- that that is a diminishing concern based on, just as you said, on the

23experience that it has not happened. And there's been so much more merger


1cooperation between the authorities. So that may be more of a red herring.

2MR. RILL: I wish we could kill the red herring.

3DR. STERN: Exactly. And so that's why --

4MR. SPRATLING: One of the reasons why it probably remains an

5issue is that there are examples domestically where the reverse is the case. We

6have engaged in very large prosecutions in this country that were developed as a

7result of, where we got the leads as a result of information in merger reviews. But

8we have not done this in international --

9DR. STERN: And would you suggest any kind of tying of our

10hands in order to -- although I think it is increasingly a red herring.

11MS. VALENTINE: Gary, if you could actually make the

12commitment that in no way would you ever use any, let's say, 4(c) information

13that was provided in a transnational merger, that sort of foreign concern and fear

14and vague apprehension is much easier to cabin-in in many ways in the criminal

15area, where it's just you as the prosecutor. In the other area, which is the spillover

16to the private actions, we can say all we want -- that we never, never, never give

17information, you know, to third parties; that it never leaks -- and people will still

18think that it does. But, you know, the Wall Street Journal is there and the private

19attorneys, you know, plaintiffs' lawyers are going to pick it up.

20Actually yours -- non-use of certain information in the criminal

21area -- I think that would be real simple to cabin-in.

22DR. STERN: Well, Congress would feel that that's a good idea.

23It's a matter of tying your hands. So it's a policy issue.


1MR. SPRATLING: I assume, Debra, that what you're talking

2about is tying our hands with respect to information that came from a foreign


4MS. VALENTINE: Right. Right.

5MR. SPRATLING: Because a transnational merger -- if we had

6access to the information anyway and a U.S. company was involved in that --

7MS. VALENTINE: No, I'm not trying to over-tie your hands.

8DR. STERN: I think it's something that --

9MS. JANOW: Let me just underscore something. Why would this

10be in the U.S. interest?

11MS. VALENTINE: Well, because others would then agree to

12share information with us because they wouldn't have to fear that if their

13information were given to us, we would immediately hand it over to Gary so he

14could prosecute them criminally.

15MS. JANOW: Yeah, that's what I'm just trying to underscore.

16Because if it is the case, even though these cases haven't emerged in the

17transnational context, the question I'm raising is: Would we be tying our hands


19MS. VALENTINE: Well, we could get it independently.

20DR. STERN: Okay. I think we've seen both sides of that

21argument, which I think is clearly important. Are there other areas we want to

22 pursue?

23MS. FOX: Merit, you had mentioned this to me some time ago.


1There are a number of blocking statutes. Blocking statutes are meant to frustrate

2discovery. When they are set into motion it's a race to the bottom. Of course it

3would be nice not to have blocking statutes so I was thinking: Should we be

4thinking about incentives to get our trading partners to lift their blocking statutes

5or not to apply their blocking statutes? In fact, the more we build trust among our

6agencies, and the more we agree on what's appropriately extraterritorial and

7impermissibly extraterritorial, the more we might hope to lift the pressures that

8cause blocking statutes to be invoked.

9DR. STERN: That's a very good point. You just don't have the

10concern and, therefore, you don't have the need and you've built up this whole

11level of trust based on experience. Is that something that's for negotiation? Is

12that something that should be on a list of negotiating matters in the cartel

13enforcement area?

14MS. FOX: I would have to think further about it but, at the least,

15blocking statutes should be on a list of negative measures, because they're

16nationalistic, race-to-the-bottom type law. And I think there should be an

17objective: In the middle or long run, we should try to get consensus within the

18world system that would dissipate the need for nationalistic action. So right now

19 it's just a list. I don't know.

20DR. STERN: Well, I ask this again for the staff to think about

21 more after this meeting: Can we design a model treaty in international

22competition law, in the internationalization of competition law? What are the

23various things which we would want to see negotiated?


1MS. FOX: Well, as a matter of fact, perhaps once nations have a

2positive comity agreement which says they are going to assist one another in

3discovery, it becomes much more inappropriate for them to have laws that say:

4 But when we want to, we're going to block you from discovery.

5DR. STERN: If you're going to do one thing, you need to adjust

6the other.

7MS. FOX: Yes.

8DR. STERN: And we've only seen the action on the positive

9comity direction.

10MS. VALENTINE: So in a sense, Eleanor, wouldn't almost any

11cooperation agreement or positive agreement be an implicit override of a blocking

12statute, to some extent?

13MS. FOX: It might be. It should be. But for government actions

14only, not for private actions.

15MS. VALENTINE: That's fair.

16MS. FOX: And it should be, but it may not be.

17MS. JANOW: And it would only therefore apply in circumstances

18where one invokes positive comity, would it not?

19MR. RILL: It seems to me that this is an area that transcends the

20cartel enforcement area and gets into the trade and competition area as we were

21talking about this morning. One of the objects -- and it applies to both areas-- one

22of the objects of the effort we're looking at now is: What are the practical/

23procedural -- and they're not always the same -- impediments to cooperation in


1enforcement efforts against foreign anticompetitive conduct?

2MS. FOX: Right. And, we have to ask: What are the causes of

3resistance to cooperation? The blocking statutes stem from perceived

4 inappropriate extraterritoriality.

5MR. RILL: One of the concerns that is continually raised is that

6what, eight countries plus the United States have criminal penalties. I know of

7only one that has treble damage sanctions. I leave that implication on the table.

8DR. STERN: Well, some things we may be able to propose -- I

9mean, there are going to be sets of recommendations as well as identifying

10impediments. So that's why I was suggesting that we ought to take a look at all

11three areas in the scope of this study and see where there might be proposed

12negotiation initiatives.

13MS. FOX: Right. And picking up what Jim just left on the table,

14we must have in mind that there are some things that we could offer to get rid of

15blocking statutes but the cost would be too high. For example, if we were to

16dilute our treble damage penalties against hard core cartels, that would be

17counter-productive. We may choose not to sacrifice important tools of

18 deterrence, even though the sacrifice could dissipate a blocking effort.

19MR. RILL: We've had some papers that have been prepared by

20 Dan Rubinfeld, previous to his current incarnation, looking at the extent to which

21treble damage -- or multiple damage penalties in this instance -- in the antitrust

22area are symbolic of over-enforcement or a result of over-enforcement.

23I think the conclusion is they are not, but I think we should


1circulate those papers to the Committee and you all take a look at it and give us

2your own thoughts. We can recommend anything, including de-trebling. I'm not

3sure we're prepared to do that, but at least we can propose anything that we find to

4be desirable.

5DR. STERN: Merit, are there areas that you and the staff feel

6needed delving-in deeper for greater clarification, that are on your wish list?

7MS. JANOW: No. I think we've covered a broad waterfront. I

8myself very much appreciate this point about thinking of incentives and those

9things that we could do that would be attractive to foreign jurisdictions. I think

10the statistics are marvelous. Thank you Gary, very much for that. I think a little

11more difficult, though, is for us to assess the extent to which blocking and

12clawback statutes, things that are clearly objective impediments to effective

13enforcement, are surmountable. That's not a quantitative objection, it's a

14qualitative one. And my perception is that although those are real obstacles, they

15can often be surmounted. Maybe, Gary, if you just offered us, you know, a

16generalized comment as to how serious an impediment those are. Clearly in a

17more perfect world their elimination would be useful, but as we try and think

18about what would be the price, we need to also assess the consequence of their


20MR. SPRATLING: Well, they remain very serious impediments.

21I was very appreciative of Jim's remarks when he said it's not hard to conclude

22that international cartels are a problem and I'm glad that our statistics at least

23show that. But if any of you sat in my chair for just a short time, I don't mean


1here, I mean at the Department of Justice -- sat in my chair for just a short time,

2you would have a perception of a problem that is so much greater than anything

3that we can provide you statistically.

4The reason for that is one of the things that we just focused on

5recently as a measure of the seriousness of the problem, that we shared with Jim

6and Paula recently, is that in approximately one half of the matters that we

7investigate a conspirator, in an attempt to obtain leniency from us on the sentence

8that it will receive, provides us evidence of a cartel in a completely different


10Now, when you couple that along with the results of our amnesty

11program, which is where most of our international cartel cases are coming from,

12those are also situations where someone is coming in and telling us about a cartel

13that we don't otherwise know about. So, you take in combination those two facts,

14and you know that we are just catching the tip of the iceberg here. But we're

15catching it in situations where someone is cooperating. I mean, they are trying,

16they are provided amnesty, and therefore they're making witnesses available that

17we otherwise wouldn't have access to. They are making documents available that

18otherwise wouldn't be in our jurisdiction.

19In that situation or in the plea agreement situation where the

20 person is seeking leniency and a better deal, they're doing the same thing. And so

21it is the attempt to get the deal and the incentives that we've set up -- which are

22new incentives. One of the reasons it wasn't happening in 1991 was because we

23 didn't have these incentives, the incentives we've set up for people to come


1forward and to make these deals as they're coming forward and they -- and

2because of their cooperation we circumvent the traditional obstacles.

3But if we're going at a matter -- We've got some we're going at, we

4have got a grand jury investigation that's been going for more than three years;

5we're nearing the end of the statute of limitations on an international conspiracy

6that is some of the most egregious conduct you can imagine -- affects billions of

7dollars -- and we can't break it. We can't break through it because we can't get the

8discovery. We can't get hold of witnesses and it's a lack of cooperation of one

9country, it's a blocking statute of another country and so on. We can't get to it.

10And so they represent very real obstacles. And if we didn't face

11some of these obstacles in cases, Jim said -- I tried to write down what Jim said

12towards the end. He said whatever impediments exist, they have not stood in the

13way of strong enforcement by the Antitrust Division. Well, this -- without the

14impediments what we have been doing would look like child's play -- we would

15really be out there. I mean, I said it in another context once when a member of

16 the defense bar said something to the effect that you guys are just knocking the

17cover off the ball. Well, it may appear that way. But in another sense, we're not

18even getting the ball out of the infield.

19MR. RILL: You're not up to 62 homers yet?

20MR. SPRATLING: No, we're not. We're not. And we're in the

21early innings of a game. And so anything that the Committee can do, in terms of

22the recommendations that have been suggested for consideration by staff, in terms

23of reciprocal agreements and encouraging bilateral agreements and encouraging


1reporting by countries -- whatever incentives we can offer -- and encouraging

2reporting by foreign governments of international cartels that affect U.S.

3commerce, or assistance in our investigation, any of those things will dramatically

4improve our international enforcement effort and will really help American

5 businesses and consumers.

6DR. STERN: Okay, Gary. I feel like we should get out the flag

7and salute it. That was very, very forceful and puts the whole discussion in


9MS. VALENTINE: You want evidence and cooperation from a

10country and that country might either have an interest in entry into an IAEAA

11agreement, even if they're just going to be getting civil evidence; let's say they

12don't have criminal powers. Or they might be interested in an MLAT for other

13reasons: tax or securities reasons. I mean, is there any way of really pushing

14countries that might want agreements like that with us -- maybe not even for the

15 reasons that you want them -- that we could work with in terms of trying to crack

16open some of the countries?

17MR. SPRATLING: I don't know, and I would turn to Chuck Stark,

18who is the expert in this area and who has worked on developing so many of these

19agreements, as to what incentives -- if he's still here.

20DR. STERN: Let's take a break now. We're going to resume at

212:00 for the discussion on Multijurisdictional Merger Issues to be led by Tom

22Donilon. If he gets back before 2:00, I suggest we start as soon as we can. So

23 don't go too far away. Thank you very, very much. Thank you, Gary.


1MR. SPRATLING: Oh, you're welcome. Thank you.


3DR. STERN. That is the sound of applause, Tom has arrived.

4Okay. We're ready to resume. We still have our quorum. I'm afraid we may start

5to lose people.

6Thank you so much, Tom, for being willing to begin discussion of

7the third and last leg of this three legged stool. And we've also got Doug

8Melamed here and Donna Patterson. And Chuck has decided to actually show his

9face at the table. So we're ready to roll. We've got the Justice Department and the

10 FTC ready to intervene and comment. But Tom Donilon, as our stalwart member,

11has volunteered to come forward and open up the discussion on

12multijurisdictional merger issues.

13MR. DONILON: Thank you. I apologize for being late. I am

14glad to see our colleagues from the Justice Department and Federal Trade

15Commission here. I think there's a lot of information we need to explore as we

16start on this to make sure we're not reinventing the wheel or are not totally aware

17of everything that's actually being done in the area of cooperation and merger


19A couple of opening points. First of all, there's a lot of very good

20existing information on this. Eleanor has done a very good paper, which has been

21circulated to the Committee. The ABA several years ago had a Special

22Committee which did a lot of good work on these issues and Merit I know is

23following up with the ABA with additional projects here. There have been a


1couple of good EU explorations of these issues and I think they provide a good

2resource for us in terms of issue spotting.

3As I see it, and I'll just try to kick off the discussion, Paula, as I see

4it, the question presented would be this: At a time of unprecedented international

5merger activity, and merger activity in general -- mergers, acquisitions and joint

6ventures in general -- and the resulting multijurisdictional review that takes place,

7how can the United States government best pursue three goals? One, how to

8reduce the transaction costs involved in merger review for United States, United

9States companies. Two, how can the United States best reduce the friction that

10might come about between jurisdictions engaging in multijurisdictional review.

11And three, how best can the United States government promote substantive

12antitrust law convergence, via unilateral, multilateral and bilateral efforts or


14The setting, I think, is important to understand as well before we

15get into some of the details as to why we find ourselves in this situation. And it

16really has two or three elements. One is globalization. The force of technology

17and trade barriers coming down and market economies on the rise, at least until

18the last few months, around the world, has produced unprecedented levels of

19economic activity generally. And this economic activity obviously manifests

20itself in a lot of different ways including in companies' ability to organize

21themselves on a global basis in the most efficient way that they can.

22The level of economic activity, the level of merger activity is seen

23in the statistics in 1997. There were 10,700 mergers. The value of which was 50


1percent over the value in 1996. According to a recent speech by Bill Baer,

2currently half of the mergers analyzed by the FTC have some international

3component to them. Many involve interaction between the competition

4authorities of this country and the competition authority of other countries.

5When you combine the forces behind this globalization and

6increased economic activity with another fact, you have the problem that we're

7trying to address. And that factor is something that Barry Hawk went over with

8us, he calls the problem the sheer volume of competition regulation, and Eleanor

9has identified that in her recent paper as well. By the way, much of this is

10encouraged by the United States. And of course when you have increased

11economic activity, and an increase in the sheer volume of merger regulation, you

12have a lot more multijurisdictional merger review.

13Today the staff reports indicate that some 60 jurisdictions maintain

14some level of merger review process, whether it's in the form of mandatory

15prenotification or voluntary notification or post merger review. And with that

16comes the need for companies and antitrust counsel to engage in, literally in some

17cases, global review of merger notification requirements. It could involve in a not

18atypical merger of a large international company looking at a couple of dozen

19jurisdictions as to requirements and actually having to file some sort of form in

207-10-12 jurisdictions. That's not an atypical case today faced by United States

21companies and their antitrust counsel.

22Of course, with this comes the pitfalls that we're trying to address,

23 the cost, increased cost, potential pitfalls to closing, and obviously in some cases,


1outright conflict. Of course the best example of that is Boeing. Although, as I'll

2discuss in a minute, my own personal view and this view has been formed largely

3by an article by Debra. The conflict chances are actually overrated I think. I

4think in most cases these things work quite well. But we can do better.

5Just to open it up, I would see the issues in four baskets. The first

6basket is, I think, we can generally call harmonization. The paper that is

7presented by the staff indicates this is the first basket of issues. And this includes

8the obvious things, but most importantly, harmonization of forms and procedures

9and information requests.

10You have lurking in there, as I said, forms with the two principal

11types that companies face, the United States form and the EC form. One quite

12front loaded but with a less of a burden as you go along in investigation. The EU,

13the EC form. One not front loaded at all but a process that could become quite

14burdensome at the second phase of the United States approach. But the bottom

15line of course is that the forms are quite different and the requirements are quite

16different and is there a way to form harmonization?

17That's one of the things that we want to talk to our government

18representatives about, as to what the prospects are for that, what the difficulties

19would be, hurdles and barriers to doing that. I'm not sure exactly -- from a

20personal perspective -- what the cost of that is to the United States companies.

21But it would seem to make sense that if you can make progress in terms of

22reducing transaction cost, you should do so. Then there is the issue of thresholds.

23When do you have to file or what are the filing requirements. That's a


1complicated issue here in the United States because of the relationship between

2thresholds and budgets at the Federal Trade Commission.

3Third of course is timing. There are various time frames that are

4set forth in statutes around the world. Some of them are quite precise. Some of

5them are so imprecise that you're not really sure if you can close or not close on a

6transaction. But again, I'm on the key countries with competition laws. There are

7different time frames and is it possible to bring them into harmony? And last I

8think here would be information requested in the forms; and again, that's a point

9to discuss in the general topic of harmonization. I think that's the first basket.

10The second basket of issues, I think, would come under the topic

11of cooperation among merger review entities. Notice, dialogue, relief

12coordination, deference, comity, and one of the most difficult issues, information

13sharing. It sounds like a fairly uncomplicated thing at the front end, that two

14jurisdictions will be reviewing the same transaction that you would be able to

15share information. Of course that's not the case with respect to confidential

16information absent a waiver and the two most highly developed -- in the

17jurisdiction with the most highly developed relationship, the United States and the

18EC, there are still quite strict limitations on the exchange of information, and with

19good reason in some cases.

20Why not have a free flow of information between entities? There

21are issues lurking there of privileges which are treated differently in different

22jurisdictions. And how do you justify those in an information exchange regime?

23 It's obviously clearly one that we need to look at.


1I, for one, think the cooperation on an informal basis spurred on by

2the formal arrangements that are in place, the EC/US arrangements that Jim Rill

3negotiated and put in place in 1991, under those regimes, my experience and

4practice has been there's quite a bit of informal cooperation between the EC and

5the United States. Joel Klein, this morning in his opening remarks, mentioned a

6transaction that Jim and I are quite familiar with, the WorldCom/MCI transaction.

7I think there was quite a bit of useful interaction between the United States and

8the EC, and they ended up endorsing the same remedy in generally the same time

9frame. That is the second basket.

10The third basket is dispute resolution when the jurisdictions come

11to different conclusions about the review of the same merger. And the fourth

12basket is convergence on substance. My own personal bias, if I can take the

13opportunity to throw all of my own personal biases out in this presentation, would

14 be this: That actual cooperation and procedural convergence ultimately leads to

15substantive convergence and I think that's the case between the EC and the United

16States that there has been a convergence in substantive analysis.

17With that, Paula, that's how I see the general issues. I'm not sure

18that's totally comprehensive. I certainly haven't tried to unpack each of those. I

19think it's a reasonable list to start with.

20DR. STERN: I totally agree. It was very, very helpful.

21Comments? Reactions to --

22MR. DUNLOP: Can I make a suggestion? One thing I would like

23to hear, from our government representatives, is what is the current degree of


1cooperation between the United States and other jurisdictions and their judgment?

2Is it formal enough? Does it happen when it needs to happen? And second, are

3there efforts under way within the government to think about reduced transaction

4costs on the first basket of issues, the harmonization basket?

5DR. STERN: I agree. And the other thing I would like to put on

6the table is a thought that came up in discussions yesterday, I believe it was, that

7 Jim and I had the opportunity to participate in which I guess comes under your

8third basket of substantive convergence. That is the suggestion that one other

9form of bridging, in addition to just getting procedural cooperation, which then

10should lead to substantive convergence, is on the question and definition of

11relevant market. How much that can help move into levels of agreement, between

12the U.S. and the EU at least, toward some ultimate convergence?

13MR. DONILON: I left out one thing, which is, I indicated that I

14thought, in the last point here, that cooperation, procedural cooperation, working

15together would ultimately lead, I think, to substantive convergence. But that's

16between highly developed competition authorities. And one thing I haven't talked

17about, which Eleanor can talk about in some length, it is one of the themes in her

18paper, is the source for competition laws for developing countries. Where they're

19looking and how we can try to get ahead of the curve on that.

20DR. STERN: So we can ask the government folks, too, what

21they're doing in terms of proselytizing, and whether they are contributing to the

22 problem by proliferating more of these reviews or contributing to the solution

23through, perhaps, some effort to come up with a middle ground that would work


1for the entire world, including taking into account the EU model that you quickly

2spelled out for us, at least as far as the forms are concerned.

3So Doug, if you and Chuck or Donna want to -- and Debra. That's

4right. Debra's over here. That's right. You're on the right side of the table.

5 Please jump in. It looks like you're ready to jump.

6MR. MELAMED: Let me if I can go, before answering some of

7these questions, comment a little bit on what Tom said at the outset with respect

8to the goals. Although I think that his analysis is very useful, I'm not sure that he

9got the goals in exactly the way I would have put them. The three goals, as I

10understand it, were reducing transaction costs, reducing international friction and

11promoting substantive convergence. I would have thought that an additional goal,

12and a very important one, is promoting the sound resolution of merger issues --

13sound antitrust policy.

14You could look at that as a fourth goal, or I suppose you could

15wrap it in to the other three. You could restate one, for example, not to mean just

16reducing transaction costs, but reducing enforcement costs, and you can define

17enforcement costs to be the sum of transaction costs and the costs of enforcement

18 errors, and enforcement errors would include both false positives, that is to say

19challenging a merger that really wasn't anticompetitive, and false negatives,

20letting a merger go through when you should have challenged it.

21Another way, or perhaps an additional way, to take account of

22sound policy as a goal would be to revise the third of Tom's goals so that it didn't

23read promote substantive convergence, but rather read promote the widespread


1adoption and enforcement of sound antitrust policies. I think, in a way, that's the

2root of the problem, in part because it means that differences between competition

3policies are not just political questions up for negotiation and compromise and in

4 part because it may be that what is sound competition policy for developed

5economies or large economies, such as the United States, would not be sound

6competition policy for an emerging economy or an economy of a different


8To the extent that, for either reasons of differences about what is

9sound competition policy or for other reasons, there are substantive differences

10among nations about what they think they ought to be doing in the area of

11competition policy, we have a potential for conflict. That, I think, is the

12fundamental reason that we are here today.

13A couple of thoughts in response to Paula's questions, and I'll let

14my colleagues elaborate. My sense is that cooperation among agencies,

15particularly with our sophisticated counterparts in Europe, and in particular in

16Canada, is really very effective, and there are good working relationships, both

17interpersonal relationships between the staffs and substantively among them.

18It is also my sense that, at the professional staff level, there are

19fewer differences about what is sound competition policy and about how to assess

20any particular merger, than would appear if you were to ask the agencies to

21negotiate a common code or even a common premerger notification form. When

22you put the questions in the abstract, you isolate differences in national style and

23perhaps differences in substantive policies. But when you get down to the


1concrete, and ask what's really the problem with a particular merger and how do

2we solve it, my impression is that, in the day to day work of the agencies, there is

3a high degree of good will and procedural cooperation, just as Tom surmised, and

4that that good will and cooperation leads to a kind of substantive agreement at

5least with respect to the application of competition principles to the particular

6case at hand. There is therefore reason to believe that more and more cooperation

7on specific cases will lead to some kind of de facto convergence among the

8 different competition authorities. My colleagues may want to elaborate.

9MS. VALENTINE: I fully, fully, support everything that Doug

10said, and I guess you had one other part of that, which was: Is the cooperation

11 different, shall we say, with more sophisticated, experienced authorities than our

12work with less experienced authorities. For the most part, I guess all of it is very

13fact based, practical, cooperation. With the EC we can talk like brothers and

14sisters and basically can talk about things like market structure and barriers to

15entry and even about types of market definitions in industries; that dialogue seems

16 to automatically click. With the fair number of South American countries, they're

17asking absolutely the right questions, but it will be much more, for example, can

18you get me a case that explains dominance or monopolization in a way that is

19useful given these facts, or what can you tell me about essential facilities in this


21They're not questions like: How do you deal with small retail

22 stores from an employment perspective? I mean, they're really very serious

23competition based issues. When we get into your tougher questions about what


1do you do, I guess one question is how much you all are willing to take on and

2push. We obviously thought hard at the OECD about whether we can agree on

3some sort of common form, and immediately you run into a problem with

4committed national interests. There is a huge constituency here that believes in

5the HSR process and believes in the HSR form as it is, and even believes in SIC

6codes to determine whether there are overlaps in proposed mergers.

7There's obviously a strong EC commitment to its form, and a lot of

8this is in legislation that we can't just change overnight. So, in a sense, it seems to

9me that you and/or businesses have to think about what really matters most.

10One of the things that I was struck by when you first started

11thinking about this was the thresholds. I think the one thing that Barry Hawk said

12that I thought was brilliant was: You know what my hugest transaction cost is --

13the thing that takes me the longest to figure out -- simply whether I should file or

14not. That seems to be something that we, in fact, ought to be able to do

15something about.

16Thresholds that are vague or unclear aren't particularly useful for

17us or any country, and they're certainly not useful for you. And I was actually

18surprised in reading through your materials, Merit, to see how broad and vague,

19particularly the eastern European standards were, Poland, Romania.

20What I wonder about there is whether in fact the EC can't exert

21some more persuasion or pressure on these countries. Because obviously they

22want to join the EC, and they thus far have set out to adopt EC-like laws. There's

23no particular reason to make thresholds so low that you capture every merger that


1ever occurs on the face of the globe. But the trouble is you always love what

2 you've got. We can't say that Congress hasn't asked us to work hard at our

3thresholds, and are they keeping up with inflation and things like that. Yet we

4still are finding problematic transactions at those lower thresholds. One thing that

5I'm finding sort of interesting is in tricky areas like software and IP where you

6 have intellectual property assets that may not yet have much value, and yet the

7combination of two firms with IP with little value now, but the whole market

8tomorrow, can be a huge problem. So I'm not sure I'm going to say our thresholds

9should go away, but we should at least seek clarity in thresholds and thresholds

10that are related to the impact of a transaction on that country. I guess -- this is no

11offense to Eleanor's great one world jurisdiction, but another interesting thing

12about your comments throughout was, in fact, you did seem to be always asking

13why are these countries looking at the merger and is there an effect on them?

14And I did have a sense that there was almost a concession that, in fact, national

15competition agencies each do have a right to be looking at mergers in and

16affecting our country and nobody was saying we should hand over Boeing and

17McDonnell Douglas to a world merger review authority to pull a straw out and

18decide whether Boeing or Airbus was going to win.

19So I guess I would pick a couple things to focus on, like

20thresholds. Time frames I'm sure are also very, very important for the business

21side. That, though, would take a real push from the business people precisely

22because our time frames are set in legislation and the EC has a somewhat

23different system in hard law as well. So I'd pick my battles, I guess, in terms of


1how to do this. Because it's not easy.

2MS. PATTERSON: I basically agree with Debra that those are

3basically the two items that would make the most sense. At least, from my

4experience in private practice. It is whether you have to file, and then lining up

5all the time frames that are the tricky problems. Just filling out a form may be a

6little onerous, but that's really the least of it.

7MR. STARK: The only thing I would add to that, and I think it's

8implicit in what's already been said, is just to note: We've had discussions in the

9OECD as you know and occasionally bilaterally about the issue of bringing more

10consistency into the forms and filing procedures in the U.S. and other

11jurisdictions. And one thing that always becomes clear in these discussions is that

12 the choices that each country makes in terms of what it asks on its form and the

13threshold it chooses are all interwoven with the other aspect of the system. It's not

14 an easy matter, for example, simply to choose between U.S. filing forms and EC

15filing forms without also affecting other choices. For example, the level of

16thresholds in the U.S. are very low relative to EC thresholds and go hand in hand

17with our choice of having a very low -- small amount of information in our initial

18filing and the possibility of more information later. The EC, by contrast, holds to

19a relatively small number of transactions, and so the relative burden of asking for

20 more information up front is in the aggregate smaller, and so many of these

21considerations are interwoven, and also go even more deeply than that into one's

22philosophy of merger enforcement; the degree of interventionism that one

23chooses, the nature and manner of intervention and so forth.


1This is not, I think, intended to be inconsistent with anything that's

2been said, but I think there is this other dimension that needs to be taken into

3account in looking for solutions.

4MS. VALENTINE: But I think there's still room for them to

5accomplish something. Even-- I mean, obviously we did not adopt a federal

6system. Thankfully Tom does not have to make a decision between filing with 10

7states or the feds. We have the feds. And we've got an efficient federal-state

8protocol. And the EC did adopt a very different system there which is partly why

9the EC's thresholds are high, and you've got member states running around in the

10ground floors cleaning up the smaller pieces. You still could, at least, ask or hope

11that countries would have clear thresholds and thresholds that are related to the

12impact of any transaction on them. You know, regardless of whether you set up

13at a higher or lower threshold, or a national or federalist sort of system.

14MR. RILL: I have a couple of observations if I may. One, the

15problem is going to get more difficult, not easier, with -- I forget Barry's words--

16but the proliferation of merger control, notification forms, and I don't think we

17should give up on the notion of trying to deal with Tom's first basket.

18In the cooperation area, I'm a little perplexed. I heard when I was

19at DOJ, I continue to hear some concern that the ability to share information is

20limited by confidentiality statutes, protections here and else where. The IAEAA

21does not apply to mergers, or at least it doesn't apply to Hart-Scott materials.

22What I'm hearing today is that that's not a real problem, and that cooperation can

23 be perfectly effective without any modification of confidentiality protections here,


1or for that matter, elsewhere.

2MS. PATTERSON: Assuming the merging parties want there to

3be cooperation. That's something that parties gain.

4MR. RILL: What I'm hearing is -- that's an important part. If

5there's a waiver of confidentiality protections, then there's not a problem because

6it's waived. But I'm hearing that it's not a problem even where it hasn't been

7waived. If that's the case, then we can get that off our agenda and go on to think

8about other things. Before we do that, it would be very interesting from both

9Debra's jurisdiction and Chuck's to know precisely what is being shared now. I

10mean, obviously not in specific cases, but what information do the agencies feel

11that they can share now with our foreign counterparts, so that this cooperation can

12go as smoothly as it is, without our needing to tamper with the system or

13recommend tampering with the system to break through confidentiality

14restrictions by suggesting a modification to the IAEAA or whatever.

15MR. STARK: There are different modalities of cooperation. What

16may be an adequate level of cooperation for one transaction, may just not do the

17job in another transaction. The recent WorldCom/MCI transaction that we've

18already talked about --

19MR. RILL: That was a waiver.

20MR. STARK: -- Precisely right. Because of that waiver, we were

21able to engage in close coordination with DG-IV. It would have been wholly

22impossible in the absence of that waiver. The cooperation in that case would have

23been considerably different and more limited, and I think that would be less


1effective had we been unable to operate as closely together as we did because we

2weren't inhibited in sharing information that the companies had provided.

3MR. RILL: What I'm hearing you and Donna say is that absent a

4waiver it is a real problem.

5MR. STARK: Absent a waiver, we certainly could not cooperate

6as closely as some cases would seem to call for.

7MS. VALENTINE: I can try to give some examples at a slightly

8less abstract level. What we share is what I might call agency confidential

9information, and what we don't share is obviously company confidential

10 information. There are times when you can talk somewhat abstractly about

11product markets or geographic markets, and if you both say, gee it looks like in

12 this particular transaction the product markets would logically be X, and you both

13come up with the same thing without seeing or sharing any of the confidential

14data on which you're basing it, you're fine. If you end up with different

15approaches and interpretations, and there's no sharing of confidential information,

16you're totally stuck. You don't even know where to go with each other for the next

17step. That's one place where you sort of get bogged down. So as long as you

18have very like minded authorities thinking along similar lines, even without being

19able to share confidential information, it occasionally can work by sort of perfect

20chance, everyone's thinking alike. But there are many things that we may not

21know about their markets, and they don't know about our markets that we can't

22share, and we start coming up with different approaches, and we can't figure out

23why the other one is thinking about it that way.


1The second problem is in the remedial area. There we often get to

2a point where it's pretty clear that one or the other of us wants a slightly different

3remedy, but without being able to truly share confidential information, we can't

4come up with perhaps the remedy that would work for both authorities and in fact

5be best for the parties and not impose conflicting obligations on them. So there

6are times when we've come up with beautiful remedies that satisfy everybody's

7concerns because we have had the information and there's been a waiver. And

8there have been times when the parties will go through the whole remedial

9process with the EC, maybe hoping that they'll have to give less there, even

10though they knew that we had a bigger problem. They'll come to us, and they'll

11find out that yes in fact they have to give up more and then they have to go back

12to the EC and renegotiate the whole thing.

13MR. RILL: But just a quick follow-up on that, waivers are

14obviously very important. Without being company specific, do you find that

15there are more difficulties getting a waiver from a company located -- domiciled

16overseas than there is from a United States company? The reason I ask is that in

17some conversations I had with some in-house counsel and others in the context of

18ICC, U.S. Council and other meetings, there's a real reluctance to encourage

19information sharing with the United States; suspicion that it will get to the states;

20suspicion that it will get to other private treble damage litigants; suspicion that it

21will somehow be leaked; none of which, in my experience, is justified, but

22nonetheless is there. And I wonder how much of a practical problem it is to get

23waivers from companies located overseas.


1MR. YOFFIE: Before we get to that, John and I are going to have

2to leave in a second. I wanted to throw out one other piece that Debra raised just

3to keep on the agenda. If we were thinking about the problems of mergers going

4forward for the next 10 years, the issue of compressing the time frame becomes

5more of an issue rather than less of an issue. In high-technology, particularly

6electronics, computers and software, the delays that are experienced in today's

7reviews can be deadly to the mergers themselves. If we start to extend those to

8multinational reviews, you potentially destroy their value. I think that's much less

9of an issue up to now because there haven't been that many significant electronic-

10based mergers, but that is likely to become more significant just because they are

11becoming larger in number and more important in the economy. Therefore

12compression of time frames becomes far more important going forward. I have

13seen through my position as a board member of Intel, that the Hart-Scott-Rodino

14process has led to significant destruction of value. Just that six or nine month

15process, which you would think would have been less, can lead to huge

16destruction of value because of the inability of companies to do what they wanted

17and the loss of business that happened in the interim.

18DR. STERN: To add to that, we were hearing yesterday from one

19of the counsel involved in a number of mergers the point that there's a chilling

20effect on R&D, on melding cultures together, particularly in high-tech areas

21where the R&D scientists are important and they don't really know where they're

22going to be doing their science because physically they may have to move. These

23costs are hard to quantify, but as you said, they can destroy a great deal of the


1 value of a merger. And I think it's easier for business people to understand that

2problem than it may be for those who are busy in the trenches trying to fill out the

3forms and cross all the Ts and perhaps even prepare for a possible appeal of a

4regulatory decision.

5MR. RILL: Former commissioner Terry Calvani, two of his

6former executive assistants are in the room, used to say that he would require

7every new lawyer and economist at the Federal Trade Commission and the

8Department of Justice to comply with a second request and to fill out a Hart-Scott


10MS. VALENTINE: Just maybe one defense there for the agencies:

11Often the deals would be two years in the formation. Often there would be

12information requested that's not given. Often there will be suggestions for

13modifying proposed divestitures that are struggled with for a year. It happens on

14both sides and both sides are able to increase the speed of the process I'm sure.

15MR. MELAMED: One thought from my perspective. I think this

16is a very important topic because we often hear from the parties that we're going

17to kill the deal. And I assume that is sometimes true. But it's very hard, from my

18perspective at least, to get our arms around it and to know when it's true and how

19much of it is true and so on. It might be, I think, very useful for this Committee

20to draw on academic literature or whatever and to be more precise about the

21magnitude of this effect, the circumstances in which it does or doesn't exist and so


23DR. STERN: You're right. And that's part of our questionnaire


1that we've sent out, please give us some examples and perhaps David you ought to

2give us -- well you've already put it on the record what you've just said, but if

3there's more elaboration based upon your experience --

4MS. PATTERSON: I think those concerns are true in every

5industry not just high-tech industries.

6MR. YOFFIE: There's a special problem in industries with very

7short life cycles. If the process of review goes through the entire cycle of a

8product, then a variety of things happen during that merger process: very highly

9 qualified people leave, deals don't get completed, slippages can take place, and in

10some cases, in a matter of weeks or months. And if that happens, then you

11destroy value, which is not as true in the automobile industry or service industries or industries

12in which the cycles themselves are inherently slower and are much

13less contingent upon small events.

14MR. RILL: I think Doug is right that we need to find a way to get

15our hands around it because I think it's a very thoughtful point. It's a good one.

16MR. YOFFIE: It's a new problem. High-tech mergers have not

17been around -- there haven't been a lot of high-tech mergers that have been

18subject to these kinds of reviews in the past.

19MR. MELAMED: Is this really different? Is it qualitatively

20different, from a public policy point of view, from the more old-fashioned

21problem that intervening changes in financial markets can crater a deal?

22MR. RILL: I think it's more like a problem that quite often affects

23the acquired company, in a variety of industries which are particularly susceptible


1to employee mobility and public reaction to a merger. I think of retailing, for

2example, where a delay after public announcement can cause a deterioration of

3the acquired assets.

4MS. PATTERSON: And make it really not at all what the

5acquiring company wanted.

6MS. VALENTINE: His problem is somewhat inherent to any

7product with a six month life cycle.

8DR. STERN: It's additional. You can get the cratering of the

9stock market and the financial changes. And you can also get the customer's

10wondering if the company is still going to be around and be a reliable shipper and

11supplier. But then it's compounded when the product life is only six months old.

12MR. STARK: I wonder whether the value to society is different

13than the case David described, in which the value is lost because some kinds --

14MR. RILL: The whole issue is the question of the impact of delay

15of agency review to the extent that that has a negative effect.

16MR. YOFFIE: Again, it's hard to know. In some cases there may

17be a loss of innovation, for example, because you acquire a work force that is no

18longer able to work collectively on the problem. That is a very hard quantifier.

19DR. STERN: Has there ever been an attempt to measure?

20MR. YOFFIE: No. We might ask Mike Scherer when he's here in

21November. If anyone had tried to do it, Mike would have been the one, I suspect.

22MR. DUNLOP: Give him a ring on Monday.

23MR. YOFFIE: Well, John and I actually have to catch a plane


1back to Boston.

2DR. STERN: Well thank you so much for your participation.

3MR. RILL: I thought I had a question pending. I forgot what it

4was. Does anybody remember?

5MR. STARK: You asked if there was a difference in foreign firms

6versus United States firms regarding waiver requests. I can't speak to the FTC's

7experience. I don't think ours is extensive enough to give you a reliable answer.

8Of the firms I can think of that have been willing to waive in those situations, the

9majority have been U.S. firms; the foreign firms I can think of are firms that are

10used to dealing on a global basis and have a history of dealing with the U.S. as

11well as foreign authorities. So their perspective may not have been a wholly

12foreign perspective in that sense. At the same time, though, I can't think off hand

13of any specific situations in which waiver requests have been denied either by

14U.S. or foreign firms.

15MS. VALENTINE: I think what we tend to see is that, for the

16most part, there's no difference probably because these firms tend to be

17represented by the same sophisticated U.S. lawyers. In fact, what my sense is is

18that the more experienced the lawyers are in working both with us and DG-IV, the

19more likely they are to in fact agree to a waiver.

20MR. RILL: Maybe this is a problem, like the discussion we just

21had, that is a deteriorating problem and one that's going away with more

22experience and greater comfort levels dealing with both agencies. I'm really

23reflecting -- things like comments of foreign organizations when the 1998 US-EU


1agreement was put on the table. There was virtually a hysterical response, and I

2don't mean funny, from one of the foreign companies which I shall not name, that

3this was going to divulge trade secrets to the Attorney General of any one of the

450 states here. I think you're right. I think it probably is a problem that's going

5away and maybe it's not one that deserves a great amount of attention from this

6end but we need your input, and also input as to types of things that Debra is

7talking about, what is being shared now.

8DR. STERN: I'd like to follow up on Tom's question. Chuck and

9Doug and the others of you can tell us what the status of negotiations to advance

10and formalize and build on cooperative agreements, which started to take form in

11'91 and again in the '98 agreement that was recently signed. It's my

12understanding, based on the federal register notice of U.S. Trade Representative,

13that, at least in the context of his Transatlantic Economic Partnership talks that

14President Clinton and Prime Minister Blaire kicked off in May of this year, that

15competition policy is on the negotiating agenda. Therefore, I would like to know

16what role Justice and the FTC are playing in shaping the U.S. wish list, the U.S.

17negotiating agenda with the European Commission in that negotiation. I guess

18the question was clear.

19MR. RILL: The question was very clear. I'm just not sure of the


21MR. STARK: The easiest part of that question to answer while we

22are here is to the extent that these talks do involve competition policy, antitrust

23specifically, the antitrust agencies will be the ones who shape that agenda. But I'm


1reluctant to be any more explicit about what that might be.

2DR. STERN: I don't understand your response. What did you

3 say?

4MR. STARK: That I'm inhibited about being any more explicit

5about the content of what might be discussed in that context.

6DR. STERN: Do we have a list of -- a wish list -- an interagency

7wish list for negotiation? Has it been drawn up?

8MR. STARK: I don't know what I can appropriately say in

9response to that, Paula. I'm not trying to be coy. It's just that by custom, we don't

10tend to talk about, at least in the antitrust area where we have had antitrust

11negotiations in the past, the subject matter of those negotiations in advance of

12their conclusion. So I'm only responding by habit. I don't mean to be

13uninformative in that context.

14MR. MELAMED: To the extent that what we think of as

15competition and antitrust-type issues are to be talked about, we are very much

16involved in developing the position of the United States. And, there is dialogue

17within the government as to what the broader wish list will look like.

18DR. STERN: Is there a time frame? Does this Committee, in

19order to be relevant, need to be aware of the status. And if you're reluctant to talk

20about it in public, is it possible that we can get some sort of a briefing memoranda

21 that gives us --

22MR. RILL: As a lawyer, let me say this, Paula. We have a

23problem receiving confidential information because we can't protect it.


1MR. MELAMED: I am not aware of any short-term event that

2will materially affect the relevance of this Committee's work.

3DR. STERN: Because I understand that the TEP had an 18 month

4time table starting last May. Okay. I guess we'll have to define short term.

5MR. RILL: Do you have anything to add to that answer?

6MS. VALENTINE: No, but I'm happy to return to waivers.

7DR. STERN: Go ahead.

8MS. VALENTINE: I was just following up on your question.

9MR. DONILON: It's my previous experience that the State

10Department with respect to negotiating positions, was that it should be made

11public way in advance of negotiations.

12DR. STERN: Sir Leon has told us what he wants.

13MR. DONILON: I have some more specific things I want to nail

14down to take advantage of the government representatives being here. One is on

15waivers and confidentiality. One of the principal recommendations of both the

161991 ABA Special Committee Report and of the Wood-Whish report was that

17steps be taken by countries to change legislation to allow greater exchange of

18confidential information. Is that something that we should look at hard because

19we've discussed there are a lot of issues lurking there if you really get into it. But

20is that something from the government's perspective, that is a useful thing for us

21to examine and spend some time on? I guess better put, would it be material in

22terms of effective merger review in a multijurisdictional setting, for you to have

23more ability to exchange confidential information without us seeking the waiver


1of parties.

2MR. STARK: I have to defer to the people on either side of me,

3and Joel, for that from a policy level. But I believe a little bit of history may be

4relevant to it. When we first developed the idea of what became the IAEAA, our

5initial proposals were not limited to nonmerger investigations. But in our

6discussions with both the Congress and business community representatives, it

7 became clear that the limitation that eventually was incorporated in the bill was

8the only way in which we were going to get legislation. So we agreed to that

9limitation in order to get the information sharing leeway that we have in other


11MR. DONILON: But limitation -- it sounds -- I'm following up

12on Jim's point that the limitation hasn't been a huge barrier to effective

13multijurisdictional review to date.

14MR. MELAMED: I think that the bottom line is that, purely from

15the standpoint of expediting cooperation among the agencies and perhaps both

16reducing frictions and improving the quality of their decisions, you would not

17want to have that limitation. On the other hand, as Debra points out, increasingly

18sophisticated counsel and sophisticated clients are consenting to the exchange of

19information and, thus, in effect, are working around the fact that we don't have a

20legal right to do it without consent. So you have to weigh the incremental benefit

21of changing the law against the likelihood of getting that change made.

22MS. VALENTINE: I guess what I would add to Doug, as I pretty

23much agree with him, is that in the best of all possible worlds, you can propose


1that all countries should enact statutes that allow them to share confidential

2information. We'd love to have IAEAAs with all sorts of countries, and so forth.

3As a practical matter, what you might be able to do that would be almost as

4effective, would be to come up with a sort of model waiver form. I think what

5we're finding -- sophisticated counsel is one thing, and they're happy to waive

6because they know what's going to happen and they trust us. I think if other less

7sophisticated parties and counsel understood better their rights; what in fact

8would be shared, what wouldn't be shared; that it would not be passed on, all the

9procedural protections that, in fact, it would facilitate the process. It doesn't have

10to be that this model would be used, but just that it would serve as a template that

11 people could fall back on so they understood what it was all about.

12MR. DONILON: I wanted to ask a question about timing. And I

13understand the number of enforcement issues that you might get into if you adopt

14a proposal like the one I talk about. What would be, do you all think, the practical

15implication of having a deadline on merger review, beyond the obvious one of it

16would have to be dealt with of the companies involved not cooperating fully

17 within a relevant time frame. I assume you could address that and get extensions

18in the face of noncompliance. Obviously there are deadlines in the EC system,

19and I'm asking this without any prejudice, what would be, you think, the practical

20effect, the ability of the agency to actually do its job of having certainty, which I

21think there's a certain value to.

22MS. PATTERSON: We have a deadline now which is keyed off

23the parties' compliance. Then we have 20 days. There are negotiated extensions


1in many, many cases, although not in all that cause parties to understand the

2reality of our alternatives. We have to sue them. If they really think they can

3convince us not to sue them, they continue to talk to us rather than undergo that. I

4would be reluctant to have a deadline that didn't impose a deadline on the parties

5for their compliance because I think we have enough problems now with

6compliance that we try to work around. We need the information in order to do

7our job.

8MR. RILL: I want to react to that. You're absolutely right.

9Legally there is a fixed deadline, 20 days after substantial compliance.

10Substantial compliance can and has been a bear. It is, I think, for purposes of the

11purview of this Committee, a particular bear in transnational mergers where

12you're dealing with locations around the world and translations. If the Europeans

13can make a decision, the European Commission can make a decision within a

14fixed time frame -- maybe four months after the beginning of Phase Two, isn't

15that the right number -- and subject to Tom's very important assumption that

16 there's a way to make sure that the parties cooperate, and we'd have to work with

17that, why shouldn't this Committee at least consider whether or not a similar time

18frame might not serve two useful purposes. One is uniformity and the other is

19quite frankly, responding to the, I think we have to say not always wrongly based

20concerns of the business community that compliance with a second request is

21sometimes unduly burdensome and on occasion even documents that are

22 submitted aren't always read.

23MS. PATTERSON: Well, Debra graduated from law school and


1she was a class ahead of me so I'll let her go first.

2MS. VALENTINE: I don't think I'll take on the scope of the

3second request except to say that I think we are narrowing it more and being more

4careful in crafting it. But seriously on the time line, an arbitrary deadline, I think

5 if we go back to Doug's reworking of what are our goals, that you probably would

6 have more type 1 and type 2 errors. I think that there have been instances where

7we have had a little more time to look at a transaction than the EU has, and where

8we have gotten more sound economic result and/or a remedy is more precisely

9crafted and targeted at the real problem. I would not want to give up superior

10results for just arbitrary deadlines.

11MR. RILL: Only comment I would make is -- I don't want to

12infringe on Donna's time. But the only comment I would make to that is that,

13presumably, there would be a way for the parties to voluntarily extend that time


15MS. PATTERSON: Chuck appropriately just said to me that a big

16difference between the U.S. enforcements and the EC is that they have to make a

17decision. We have to be prepared to go to court tomorrow. There is that

18difference in our functions. But I think the scope of a second request and the

19difficulty in complying often gets used when it's not the real problem. My

20experience in private practice was if you're willing to be very open with the

21agencies and go in when you make the first filing -- and you do this all the time --

22and start making your pitches and pull together what you know is the information

23that the agency really wants, you can expedite these things. They don't have to


1take forever.

2I think people get into struggles sometimes that are completely

3unnecessary because either the client doesn't want to do it that way, the lawyer

4doesn't, the agency, but I think these are solvable problems that don't necessarily

5have to do with whether second requests are --

6MR. RILL: I think it's something we should look at.

7MS. PATTERSON: And I don't disagree with that.

8MR. RILL: The argument that you have to go into court, whereas

9 all the EU has to do is in effect wave a magic wand and the merger dies, I'm not

10persuaded by that argument. You're ready to go up and recommend a challenge;

11 you can fill out around the fringes. You're not blocked from getting further

12discovery. You're ready to recommend a challenge. I think you can do that in a

13reasonably -- and have -- in a reasonably expeditious time dimension.

14MR. MELAMED: One comment on that. It is not just that the

15agencies need more time to prepare for the trial. In that sense, what you're saying

16is largely correct. But there's another dimension to the fact that we're engaged in

17law enforcement, not regulation, which is my shorthand. The focus on law

18enforcement is a discipline to our process that I don't believe necessarily exists

19elsewhere in more regulatory contexts. We don't just look at a few facts, take a

20few depositions and intuit that the merger is a good thing or a bad thing. We have

21to ask ourselves, how do we prove it? How is this going to look to a judge? How

22are we going to reconcile our position with the law? I think it's a healthy

23discipline on the agencies because I think it prevents them from being too hasty to


1reach and announce conclusions. But it also means that we need a more detailed

2and labored process.

3MR. RILL: I take your point. I just think it's one that we've heard

4enough from private practitioners and some of us from our own experiences that

5think this is an important issue and one that's particularly relevant to global

6mergers. And I appreciate your input as part of our looking at this.

7DR. STERN: Right. And listening to some of the practitioners, I

8guess some of the arguments include the fact that often regulators on both sides of

9the ocean come out agreeing on the merits of a proposed merger. And

10practitioners comment that they feel that there is an increasing thoroughness on

11the part of other authorities as well. We have also been hearing that there seems

12to be increasing cooperation. So all of that suggests that there is convergence of

13standards. So if you have convergence there, it suggests U.S. authorities desire to

14prepare for going to court may not be dictating a difference in completeness that

15is conducted by different authorities. So we need to get the stories straight here.

16And we're now, I think, honing in on it.

17MR. DONILON: I take it -- the point about the philosophical

18principle approach is an important point for us to understand. There's the

19Department and the Federal Trade Commission trying to do something; are trying

20to, through a disciplined process, make a law enforcement decision about whether

21they should act against private parties. I think his point is well said in addition to

22you have to go to court point. But nonetheless, I think it's something we should

23take a look at because you do hear from business, and among private practitioners


1a lot about the cost of this process and the delay. And David made a good point

2before about that the increasing importance of that in the high-tech industry and I

3think it is, Doug, a qualitatively different issue than a financial issue when you

4have whole products that may or may not be created in a relevant time frame

5 because the deal can't go through. Jim's point, in a period where we are having a

6dramatically increased number of multijurisdictional or multinational mergers, the

7burdens are increased because of document production, translation, et cetera. I

8want to correct one thing -- make a comment on one thing on the record here in

9response to, I think, what Debra said, about thresholds. I think it is a very

10important issue and one we should look at given that most mergers are not

11challenged. Although I take your point that you have seen mergers near the

12threshold nonetheless can have a significant impact, an adverse impact from a

13competitive point of view. You don't lose the ability, obviously, to take

14enforcement action against such a merger because there hasn't been a filing.

15MR. RILL: That's a very good point. If the merger is going to

16cause a problem, I think the likelihood is overwhelming that you're going to find

17out about it from customers or competitors, even if there's not a filing. I don't

18think anybody's going to be so reckless in the face of a CID to close -- well, some

19might -- if you asked them for an opportunity to take a look at the transaction.

20MR. DONILON: Admittedly --

21MS. VALENTINE: It's a question of whether HSR should exist

22and whether Congress was actually right.

23MR. DONILON: I want to respond to your point that we should


1look at whether or not the thresholds here are too low. But you had a caveat to it,

2which is, in fact, there can be a transaction that can be in the low end of the

3threshold but nonetheless, in an emerging industry particularly a high-tech field,

4 can be an important merger at the beginning of the creation of a product or a

5system. I just want to make the point we don't pass totally on it. You don't have

6the same leverage that you have but you don't have the inability in the law to

7challenge that merger.

8MS. VALENTINE: I don't debate your legal point. Obviously,

9yes, we can challenge it. Would assets be scrambled? Would work forces be

10combined? Would confidential information be shared, et cetera, et cetera? Yes.

11So, all things being equal -- and we haven't really even gotten into whether all of

12these other countries should be having premerger notification laws -- I think, my

13personal belief is that premerger review really does serve a very important

14structural purpose and that preventing a new concentration before it happens is a

15lot more effective than trying to bring monopolization cases later.

16I can understand why premerger review has become something of

17a gospel and why developing countries might well think it's worthwhile. Eleanor

18and I had a little sidebar before we started: Peru is an example where they haven't

19adopted premerger notification and they actually would like foreign investment

20and possibly some sort of breaking up of whatever, the 20 old families' intense

21concentration of assets. But at base I believe in premerger review.

22MS. FOX: Did you want to make a proposal?

23MR. DONILON: I was waiting for the response that they were


1going to raise the threshold.

2MS. FOX: Your first question, Tom, was how can the U.S.

3government reduce transaction costs for U.S. companies. We might expand the

4question to add: How can the government eliminate unnecessary transaction

5costs? We might try to eliminate unnecessary transaction costs for multinationals

6-- not necessarily U.S. companies -- and hope that other countries will do the

7 same.

8On the transaction cost problem, I participated in conferences with

9a number of our colleagues where we met with private bar, and one overriding

10problem seems to be multinational mergers require filings in so many

11jurisdictions, in so many inconsistent ways. Only a small percentage of those

12 mergers result in competition problems, and a very small percentage is

13challenged. There has been a proliferation of premerger notification

14requirements, with agencies in many countries trying to do the same thing, trying

15to figure out whether the merger is anticompetitive (though of course sometimes

16markets differ and sometimes standards differ).

17It seems rather bizarre to me to have so many costs, so many

18delays, for such little yield. Should we rethink thresholds? Maybe nations that

19represent only a very small share of a transnational market could waive their

20 requirements. Maybe if, say, five of 10 filing jurisdictions are only marginal to

21the market, the marginal jurisdictions could accept mutual recognition of forms

22filed elsewhere, or simply no filing. Experts who do multijurisdictional filings all

23of the time should propose solutions that make practical sense.


1Your second question was: How can the U.S. government reduce

2frictions between jurisdictions? And on that, were you mostly talking about

3substantive frictions? Let me hold that until last. I wanted to say a little more on


5The third one, how best could we produce substantive

6convergence. I agree with everyone that a lot of substantive convergence has

7been produced. I think there are a couple of sides to this problem. One is that the

8jurisdictions that aren't so familiar with antitrust really want to learn. And the

9more we cross-fertilize the more they learn. And the more they are on our

10wavelength, or EC's, or whatever, they'll accept what the industrialized countries or the countries

11with a lot of experience are doing.

12There is a core, though, where there are different goals and we

13might claim that ours is the best. We might claim that we may know how to

14decide which are good mergers and which are bad mergers, but other countries

15might disagree. I really think that, at least unless there are significant spill over

16costs like raising consumer prices in the rest of the world, we should definitely let

17countries choose how they want to skew their merger law. If, to them, there is a

18principle of market access in mergers, we ought to let them apply their principles

19up to the point where they're sanctioning a merger that has significant

20anticompetitive costs, consumer costs, outside of their country. So I'm all for a

21lot of freedom of nations to write their merger law the way they want to; to write

22their standards the way they want to. There is one anchor. I think almost every

23country will say it's interested in looking at consumer welfare in one way or


1another. Some countries apply different considerations as well.

2I guess that also covers, in some way, Doug's proposition. We

3should promote sound resolution of merger cases. I think that it's really fine and

4good for us to be giving information to countries, like Indonesia or Bulgaria or

5whatever, to explain how we understand the merger law and what are the costs of

6disallowing mergers that have no anticompetitive effects. I think that's a very

7good thing that we should be doing.

8As to substantive clashes, I think that one of the problems is

9national industrial policy, and national champions. And I think there's a

10possibility of an agreement among nations to not let anticompetitive mergers with

11large spill over effects go through for national industrial policy reasons. Mergers

12in one country or several countries may have large anticompetitive spillover

13effects in the world. I don't think the home country should "beggar its

14neighbors," basically. I think also that when countries apply values that are not

15competition or even not consumer welfare values, they ought to make them

16transparent. I think it's very useful for every country to have guidelines so that

17people are clear what is the standard in that country. And if they are going to use

18national industrial policy trumps that may be permissible, like national defense, it

19ought to be out in the open.

20I think there's a possibility, on clashes, of having some rules of

21priority, although they are very difficult to design. One can think about

22McDonnell Douglas. Should the United States have had priority on the question

23whether to prohibit the merger? I'm a little nervous when I suggest this because


1the only claim for priority is that the assets are here and there are no assets in

2Europe. But the market is worldwide. There are a huge amount of sales into

3the EU, and there could be a clash of law. I think the best thing to do to prevent the

4clash is to make sure that countries talk out the problem.

5If there's a rule against a national industrial policy trumps, it

6should be clear. Countries should stay in the antitrust framework and not slip

7over into the trade framework, and they should understand the nuances of one

8another's law. And if there is a clash, e.g. because of one nation's extraterritorial

9relief, I think we probably need some kind of dispute resolution to keep that issue

10an antitrust issue and not let the dispute spill over into a trade war. I think that's

11all for right now.

12MS. JANOW: Can I ask a clarifying question? When you spoke

13of foreign effects, were you suggesting that if there were no harm at home from

14the merger but the anticompetitive effects were felt abroad that the home

15jurisdiction should take that into consideration?

16MS. FOX: I do, but I was saying something narrower because it

17would be extremely unlikely to have no sales at home. Suppose the

18Boeing/McDonnell-Douglas merger was price raising, but U.S. authorities

19support it because it creates a strong national champion.

20We shouldn't be able to use national industrial policy if the merger

21is anticompetitive. Many people, especially in Europe, think that the Boeing

22merger was price raising, and that the U.S. was using industrial policy, though we



1I think that where there are world anticompetitive effects that are

2significant, a nation should not allow the national champion trump. It's a much

3easier question if there were no sales in the jurisdiction at all. A country can

4decide, if there were no sales in the jurisdiction, that it is not going to act. It

5could decide that.

6MR. MELAMED: Can I ask a question? What if you have a

7global market and two merger authorities looking at a merger among megafirms.

8Both agencies have what we all agree are legitimate, sound competition policies.

9The former gives a pass to the merger, having determined by its analysis that

10consumer welfare would be benefited by the merger. The latter does not dispute

11that conclusion. It simply says the efficiencies are not cognizable and, therefore,

12the merger violates the law. Is the latter entitled to prevent the merger?

13MS. FOX: I would start out thinking -- either one has the right to

14have whichever rule it wants. What I would like to see, I've said this about

15Canada because Canada counts total welfare rather than a consumer welfare: If

16Canada wants to apply that formulation, it ought to apply total welfare to the

17whole area affected. So if a merger in Canada affects Canada and the United

18States, it should apply total welfare to Canada and the United States, not just take

19the sum of Canadian producers' interest and Canadian consumers' interest; that

20seems to be very unfair.

21MR. MELAMED: Are you going to run for office in Canada on

22that platform?

23MS. FOX: No. But nations might reciprocally come to an


1understanding -- it's the same way nations have finally decided to keep lowering

2the trade barriers. There's always a political claim: I don't want to lower my trade

3barriers; I want to protect my industry against the foreigners. But when you have

4both sides saying: I realize there are joint gains to be made and there are more

5gains to be made by agreeing to end discrimination, yes it's possible the countries

6would agree.

7Of course, we could allow clashes to happen and not mandate

8nondiscrimination. We could have one nation saying: it's okay for this merger to

9go through -- and sometimes the nation might support the merger. (We don't

10 usually say we have a policy to promote a "cleared" merger; we say it doesn't

11violate our law.) Another country may say as to the same merger: it violates our

12law. It may give credible reasons why it violates that country's law. And as long

13as that country is not marginal to the transaction, I think it ought to be able to

14apply its law.

15DR. STERN: I was trying to think of a hypothetical where you

16have two companies merging in the United States but they do not produce in the

17United States. I keep thinking uranium or nuclear reactors, where you have

18manufacturers who are doing that, but were just not -- I guess, the U.S. company

19might produce the turbines and the generators, but not produce the plants. I don't

20 know if there's an example of where you have two home based companies not

21selling in the U.S. market. They're producing here but they're not selling.

22MS. VALENTINE: That you can have easily. In the chemical

23industry you can have that. There is a fascinating case right now, involving some


1German and Swiss companies with a mass urinalysis test that all U.S. employers

2use to screen employees.

3MS. FOX: There is an example in Germany. The merging

4companies were producing in Germany and Italy. The merger would hurt China.

5This was steel tubing for oil wells and it was obsolete technology in the

6industrialized world. It was a difficult problem. Germany looked at it -- Dieter

7Wolf -- and said it's not our problem. Giuliano Amato looked at it and said it's

8unfair for our producers to go ahead and merge where the merger harms the less

9developed world. And the Italian Competition Authority actually ordered some

10relief. It was not to not merge, but licensing relief was ordered.

11I think that is an interesting example and a good example. And I

12really think in the end you're going to have to start thinking globally on those

13mergers. This is my problem, because I don't know who is going to be the super

14authority, and I'm not eager to move to a super authority, but this really is a super

15authority question.

16MR. RILL: Should we apply our law or the law of China in that


18MS. FOX: Sometimes that question doesn't really arise. This was

19the merger of the last two companies in a field. By anybody's standard, it created

20monopoly power. Very often, and it is the same with a lot of vertical restraints,

21it's not a question of whose law to apply, because the merger or restraint is illegal

22by anybody's standard because it's a core restraint. I think that there's going to be,

23in the future some time, some way to view the problem in a cosmopolitan way


1rather than in a national interest way.

2MR. RILL: You think the United States would view with

3equanimity the notion that we should apply Italian merger law where there's no

4effect on the merger law in the United States but only in Italy?

5MS. FOX: I think that, first of all, Italy or EU would take care of

6the problem.

7MR. RILL: It's more of a law school exam question than a

8practical problem.

9MS. FOX: On the China aspect, this was a merger to monopoly by

10anybody's standard. And it was clearly so, apparently. So it didn't matter. But

11China didn't have the law to stop it. You could say, I don't care about China; or

12you could say, look these are really world standards. We don't merge to

13monopoly. There was no national industrial policy. It's just private parties

14wanting to merge to take advantage of consuming nations that don't have

15competition law. It's a question. It's there, it's somewhat altruistic; but why do

16we have a bribery law that says we can't bribe foreign officials? It's because that

17is the way we do things.

18MR. MELAMED: Instead of perhaps agreeing on substantive

19standards that allow each jurisdiction to take into account the interests of the

20whole world, which would be a massive undertaking, maybe Jim's notion of an

21effective law principle is the right one with one slight twist. You wouldn't have

22the United States enforcing Italian law. What you would do is use choice of law

23principles to say, if Italy is really upset about this merger, even though the United


1States likes it, under these circumstances, Italy gets to win that one. In a different

2circumstance, the United States gets to win.

3MS. FOX: I do think that choice of law is the solution to a lot of

4these problems. Especially, I think, choice of law is a solution to the following

5problem. We have an export problem; say exporting going into Japan; we are

6blocked out of Japan by private restraints in Japan. I have said before, I think that

7if there are companies in Japan on Japanese soil conspiring to close their market,

8it seems to me that under usual principles of choice of law, it's Japanese law that


10I think that's one way to think about the export restraint problem --

11or, really, the import restraint problem -- that would solve most of the problems

12when people say, what's the law? It really is the law where the acts took place,

13where the effects took place, where the principal effects took place. It's the usual

14choice of law principle. You could say, if it comes down to the United States

15trying to enforce, in the U.S. court, the court should apply Japanese law, unless

16the defendants want to wave and say, okay, I'll take U.S. law.

17MR. STARK: To some extent, aren't you basically saying that

18there are -- comity principles and making that operational by suggesting that those

19principles might be applied in any number of different courts.

20MS. FOX: Comity? I'm not sure what you mean by that. I wasn't

21thinking comity. I was thinking agreement.

22MR. STARK: But comity is -- principles that we described as

23comity principles are very closely related to choice of law --


1MS. FOX: Oh, they are. Like we ask the Japanese to enforce and

2they sign the comity agreement.

3MR. STARK: Or we decline to enforce or moderate our

4enforcement because, in fact, the interests involved are --

5MR. GILMARTIN: I was going to say that, stepping back from

6the discussion, just thinking about it from say the perspective of a company or

7CEO that -- yes it's good to lower the transaction cost, eliminate friction,

8therefore, make the process more streamlined and so on. But at the end of the

9day, before you undertake any activity, the major concern is, will it be

10challenged? Is it doable? Can you get it done? And having some predictability

11about that because of transparency is probably the most critical question.

12Beyond that, the mechanics of it, with sophisticated lawyers and

13experience and things like that, can be done. But the biggest damage that can

14occur is that you undertake something and because you didn't anticipate the

15challenge that came out of nowhere, because of a totally different mind-set or

16principles, that's the most damaging thing that can happen. So therefore, to the

17extent there's great uncertainty, that would have a chilling effect on mergers. So,

18therefore, predictability, I think, is something that is very important.

19MS. VALENTINE: There were some interesting suggestions in

20the staff work here about encouraging transparency of reviewing authorities'

21work in terms of both reports on, let's say, the number of mergers reviewed,

22number challenged, issuing guidelines, issuing decisions where you took

23affirmative action, doing speeches, which I think would be of infinite value for



2DR. STERN: Would it be useful to have the WTO, if it's going to

3do anything in this area, and I am mindful that Joel has spoken out on some of his

4views on proposals for what the WTO ought to do. But, if the WTO is to do

5anything, it could be perhaps a repository of decisions -- while not necessarily a

6mechanism for settling disputes but --

7MR. GILMARTIN: I think you would rather deal directly with the

8enforcement agency.

9DR. STERN: If you don't have Romania set up to translate.

10MR. GILMARTIN: Yeah, but you can deal with that.

11DR. STERN: Everybody gets it on the Web these days.

12MR. GILMARTIN: We can gain access to the information. So

13what Debra is saying about principles, guidelines, speeches, so there's some way

14to gauge what the reaction is going to be, is very helpful. And we can gather that

15information. People are involved in global mergers have presence, enough global

16presence that you really have access to that information and you can assemble it

17quite readily.

18DR. STERN: So it is transparent?

19MR. GILMARTIN: If they do. And what you can see down the

20road is more and more people get interested in this. If they are not -- the odds are

21that it would be pretty murky.

22DR. STERN: If you're a member of the WTO, for example, there

23would be an obligation to achieve a certain level of transparency.


1MR. GILMARTIN: Maybe there's another track among other

2agencies that are involved in this and which they work on competition policy. I'm

3just speaking very theoretically here.

4DR. STERN: And I was trying to build on if there was a practical

5recommendation that would advance that.

6MS. VALENTINE: A couple of comments on some of your

7issues, Eleanor. You're clearly searching for a way to reduce transaction costs in

8the filing area by handling multijurisdictional mergers differently, by sometimes

9creating exemptions for them from filing. I guess if you're going to be successful

10at doing that, I think one thing you've really got to think about is, how is it going

11to look politically when we are perceived as treating foreign companies and

12multinationals more favorably than domestics. And I think that's a hard sell, quite

13frankly. I cannot imagine the U.S. Congress buying into a system that made

14multinationals or foreigners file less often than they would be required to file here

15if they were domestics.

16MS. FOX: You do it as a neutral principle, though, and say -- I'm

17probably saying the wrong principles, but trying to find some neutral principle --

18suppose there's a merger and the merger is filed in jurisdictions of principal

19impact, if there's any impact. Then does it have to file again? Or should the

20United States and all other non-principal jurisdictions have to give mutual

21recognition to filings that have already been made, unless there's a separate

22market in their country?

23MS. VALENTINE: It takes some real political persuasion is all


1 I'm saying. I don't object in any way to this agreement not to allow mergers for

2national champion purposes. I actually like that. On the other hand, I'm not sure

3I see how you draw the line between that and what you would permit, which is,

4presumably, to take nonconsumer welfare considerations into the merger review


6So what if there were an employment/jobs creation rationale. At

7what level is that a legitimate employment consideration in your merger review

8process and at what point is that creating a national champion? I don't know how

9you're going to draw that line either. I'll be happy to agree to a national champion

10prohibition, but I'm not sure, unless you can enforce it, it's going to do a lot.

11MS. FOX: It's the same thing. If the jurisdiction really thought it

12could preserve jobs by letting through a clearly anticompetitive merger that had

13large spillover effects in raising consumer prices abroad, it's exactly the same

14thing. I guess I'm struggling to put the transparency principle in the forefront, and

15sort of develop a record through the facts revealed by transparency -- to see the

16competition analysis separately, and then understand the weight of the "jobs

17trump" -- which never really works anyway, I mean it never really preserves jobs.

18But if an antitrust authority applies a jobs trump, I'd like to see it on the table.

19DR. STERN: That's just what you were saying in the previous

20discussion with reference to the recession cartels, that, in effect, there may be

21derogations for infant industries, as long as it's transparent. You want to get that

22as a minimum.

23MS. FOX: Yes, and there's one other aspect, going back to Merit's


1and Paula's previous question. Suppose that in Boeing/McDonnell Douglas, the

2merger was price raising but we let it through because we thought it was good for

3us. The European Union brings proceedings and it tries to block it. I would

4construe circumstances like that to fall into an area where that first country has to

5recognize the right of the second country to block the merger because it's

6anticompetitive and price raising in their country. We shouldn't then start a trade

7war because the second country is going to block "our" anticompetitive merger.

8DR. STERN: Do they have to say that they've done that for

9national defense purposes or national security, I should say, purposes?

10MS. FOX: As a matter of fact, this is the one thing where, if the

11government -- the Pentagon, I guess -- had said from day 1: (I never noticed that

12they did this, incidentally, until after FTC closed the investigation -- but if they

13said from day 1) this merger is very important for defense; and if that was on the

14record when the FTC vetted the merger, I would think the national security

15concern would have been a legitimate trump. A country has to be able to claim

16national defense. It has to have breathing room in claiming national defense.

17MR. RILL: It's not very likely, it seems to me, that a defense

18agency is going to put on the public record exactly why the merger is important

19 for national defense, because they are dealing with top secret information.

20MS. FOX: I'm not sure I would require them to. But if they had,

21then you come to the difficult problem. Again I'm assuming contrary to fact here,

22because it's a great example if you assume, contrary to fact, that the merger

23actually is price raising in the United States, because otherwise we don't have an


1anticompetitive merger -- and we've said from day 1, we want it for national

2defense. And then you vet it. And half the sales are in the EU, and it's

3 anticompetitive, and we don't want to stop it. That's difficult.

4MS. VALENTINE: Eleanor, the EU did say that we are not going

5to touch any of the defense aspects of the deal. They literally said that. That was

6a comity gesture on their part. Now, what if, this goes back to Jim's problem,

7what if there was a spillover from the commercial into defense? Are you going to

8make them 'fess up and say it when the EU blocks the commercial side of the deal

9and not the defense side of the deal?

10MR. RILL: We have this wonderfully secret electronic operation

11here that can only be done by the two companies together. And oh, by the way

12it's also useful in commercial, but we're not going to tell you what it is because it's

13critical to our national defense.

14MS. FOX: The military assets -- our Pentagon, only, would have

15to pay for any price-rise. The military asset part of it was not a problem for the


17MR. RILL: Now we're talking two different things. We're talking

18Boeing/McDonnell Douglas, in which this did not arise, in a hypothetical

19situation in which it would. It is an area in which I think certain considerations

20would trump competitive situations here and maybe call for some --

21MR. MELAMED: Why can't they be manifest in application of

22traditional notions of comity? Like we have today.

23MR. RILL: If the other side respects its efforts.


1MS. FOX: You have to believe that the other side respects our

2national defense argument and respects our representation that we couldn't have

3tailored the transaction otherwise to eliminate the national defense problem, and

4will respect our interest. We haven't been so great in respecting what other

5countries are doing.

6MR. RILL: I think defense is almost easy. What if you get into

7employment considerations or foreign policy considerations.

8MS. VALENTINE: What do you mean by foreign policy?

9MR. RILL: Well, what if you have a hypothetical merger, an

10acquisition by a U.S. company, which is the first acquisition ever made since the

11Wall came down and the Soviet Union collapsed. It's very important to the

12foreign policy of the United States and of the home country that this acquisition

13take place. I'm doing a hypothetical now. And therefore --

14DR. STERN. Is that where we take over the Red Army?

15MR. RILL: Well, if you want it. That the president believes is

16that this investment is very important for U.S. foreign policy considerations.

17Doesn't he -- first of all, obviously, he constitutionally has the power to enforce

18the laws of the United States. Doesn't he, in that situation, have not only the

19authority but perhaps a valid public policy basis for telling the Attorney General,

20that even though there may be some imports from country X of product Y that

21would no longer compete with the domestic production of the acquiring company,

22not to bring that case?

23MS. FOX: That is not only a question of prosecutorial discretion, but


1it's a question of presidential power. Consumers Union against Kissinger

2raises that question of when the president agrees to an import restraint --

3voluntary import restraint -- are the importing companies still exposed to antitrust

4 laws?

5MR. RILL: I'm really dealing with government enforcement.

6You're right. The president can only decide if the Justice Department will bring

7the case. Otherwise any court can throw out a private action case. So, you are

8right about that. But you haven't answered my government question.

9MR. DONILON: The president would have the authority to -- the

10chief law enforcement officer of the United States to make a decision of whether

11to bring a case or not. Unless it involved a conflict.

12DR. STERN : Well, we're getting to the witching hour and I want

13to make sure that everyone has an opportunity to speak and exhaust their fellow

14members with questions. We didn't talk about intellectual property rights

15 so-called ancillary issues at the very end of this, but we will have an opportunity

16to pursue this. This is not our last meeting. In fact, what I'd like to do now is

17announce that the next time we meet officially we invite the attendance of as

18many members as possible to our hearings that will be held from November 2 to 4

19-- here?

20MS. JANOW: No. We thought we might have a substantial

21crowd, so it will be at something called the Geophysical Union.

22MR. RILL: In Paris?

23MS. JANOW: Regrettably not. And that's up near Dupont circle,


1so it's quite close.

2DR. STERN: Then our next meeting is December 16. And at the

3very last page in your book is a whole list of other meetings and plans. Staff

4members have carefully and diligently checked with our calendars and we very

5much appreciate the attendance of everyone and their contribution. So, Merit,

6you want to give the final benediction?

7MR. DONILON: Can I raise one question, while we have the

8folks from the Federal Trade Commission and the Department of Justice here? I

9think it's very important for the government to review the materials that the

10 Committee has and make requests to come see us. You see things that-- you see

11an agenda that's missing something or we're going in a direction where the

12government has --

13MS. PATTERSON: They're very good about sending them to us.

14MR. DONILON: I really think that the government should make

15frequent requests to come visit with the Committee, and to provide expertise and

16reactions, add agenda items and advise if they think we're going in the right or

17wrong directions. So, I appreciate that.

18MR. MELAMED: I appreciate that, Tom. I think these materials,

19particularly the latest batch, are really terrific. And I appreciate the invitation.

20DR. STERN: Thank you. Joel was very gracious at the beginning

21of the meeting and you've been very gracious at the end to praise the staff who

22have done so much hard work under the direction of Merit Janow, who will now

23give us the final benediction.


1MS. JANOW: I won't be as ambitious as that. But I have a plea

2instead, a prayer of sorts. I got very good advice at the outset of this process, that

3maybe one way of advancing this process would be to develop a paper or papers

4that could be a kind of skeleton, and over time build on that. And that's what we

5have tried to do here.

6So, I think that is what we will do, going forward, is build on this.

7So it's really important to get your input on parts of this, points of emphasis and

8de-emphasis, not only from our colleagues in the Division, but also from the

9members. Tell us if these are the right range of things that you would like to see

10covered in a report, eventually. That's one plea.

11Second is, as we've mentioned repeatedly here, we have started an

12ambitious outreach effort. And I think you will see in our scheduling the hope

13that those business groups and interested parties that do submit comments to us

14might have their day to speak to their submissions in the Spring. So I'm expecting

15there will be a day of hearings in the Spring for those interested parties. That

16gives us a little bit of time. So those who have not yet organized along those

17 lines, there is plenty of time to do that. So if you see -- and I'm saying this really

18to the public at large -- an interest here or groups that have not been properly

19identified or need to be, I think we have that Spring agenda item.

20We also have on the agenda the notion of going abroad in the

21Spring. We need to know if this is a good idea, from your perspective, or not. If

22we did it in the Spring, at that point I'm expecting that the Committee's work will

23 be far enough along to test out ideas to foreign audiences. That would be the


1purpose. One could imagine a public process occurring abroad, of debate with

2experts and interested parties. Is that a good idea from your point of view, or a

3good idea that you could actually find time for? Those may be separate questions.

4 I appreciate that.

5So those are the sorts of things -- and of course we will be putting

6on the web very shortly a list of paper solicitations, any reactions that you have,

7and together finally on the hearings again please let us know your availability.

8And I'll stop there.

9DR. STERN: Great. Thank you all very, very much. This

10meeting is adjourned.

11(Whereupon, the Advisory Committee meeting was adjourned.)
Updated June 25, 2015