INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
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November 4, 1998
APPEARANCESAdvisory Committee Members:
James F. Rill, Co-Chair and Senior Partner, Collier, Shannon, Rill & Scott, PLLC
Paula Stern, Co-Chair and President, The Stern Group, Inc.
Merit E. Janow, Executive Director and Professor in the Practice of International Trade,
School of International and Public Affairs, Columbia University
John T. Dunlop, Lamont University Professor, Emeritus, Harvard University
Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York University School of Law
Raymond V. Gilmartin, Chairman, President and Chief Executive Officer, Merck & Company
Members of the Public Who Made an Appearance or Presented Written or Oral Statements:
Panelists - International Cartels in a Global Economy
Donald C. Klawiter, Morgan, Lewis & Bockius LLP
Mark Leddy, Cleary, Gottlieb, Steen & Hamilton
James R. Loftis, III, Collier, Shannon, Rill & Scott, PLLC
Mark C. Schechter, Howrey & Simon
Valerie Y. Suslow, Associate Professor, University of Michigan School of Business Administration
A. Paul Victor, Weil, Gotshal & Manges LLP
Leonard Waverman, Principal, Law and Economics Consulting Group;
Visiting Professor, London Business School; Professor, University of Toronto
Panelists - International Antitrust Cooperation -- Bilateral and Plurilateral Efforts:
Richard O. Cunningham, Steptoe & Johnson LLP
Anna Fornalczyk, President, Competition Development Center, Poland
Ana Julia Jatar, Senior Fellow, Inter-American Dialogue
Mitsuo Matsushita, Professor, Seikei University, Japan
J. David Richardson, Visiting Fellow, Institute for International Economics;
Professor, Syracuse University
Diane P. Wood, Circuit Judge, U.S. Court of Appeals for the Seventh Circuit
Panelists - International Competition Policy, Multilateral Institutions, and Foreign Economic Policy:
Harvey M. Applebaum, Covington & Burling
Donald I. Baker, Baker & Miller PLLC
Thomas R. Howell, Dewey Ballantine LLP
John H. Jackson, University Professor, Georgetown University Law Center
William E. Kovacic, Visiting Professor, George Washington University Law School;
Professor, George Mason University School of Law
Petros C. Mavroidis, Professor, University de Neuchatel; Visiting Professor, Columbia Law School
IN ATTENDANCEAdvisory Committee Staff:
Cynthia R. Lewis, Counsel
Andrew J. Shapiro, Counsel
Stephanie G. Victor, Counsel
Eric J. Weiner, Paralegal
Estimated Number of Members of the Public in Attendance: 57
Reports or Other Documents Received, Issued, or Approved by the Advisory Committee:
James R. Loftis, III
Statement Before The International Competition Policy Advisory Committee -- The Problem of Foreign Located Evidence
Leonard Waverman and David Salant
The Use of Standard Setting as a Mean of Facilitating Cartels and its Trade Effects
Competition Policy and International Trade
J. David Richardson
A Cooperative Unilateral Road Toward Multilateralism in International Competition Policy
Donald I. Baker
The Competition Treaty as Global Arbiter and US: International Cooperation on Competition Law Policy
Alan Wm. Wolff, Thomas R. Howell and John R. Magnus
Thomas R. Howell and John R. Magnus
William E. Kovacic
DR. STERN: This is our third and last day of our three-day hearings on behalf of the International Competition Policy Advisory Committee. I'd like to welcome you, and now to turn our attention to the agenda for the third day, which relates to two basic issues we are going to try to cover this last day: international cartels; and trade and competition policy interface.
We see a lot of new faces here. We are very happy to greet every panel member, and I'd like to recognize Raymond Gilmartin, who has been able to join us today as one of our esteemed members of the Committee. And the idea is for us to kick off with talks from each and every one of the panelists. We will have in Session 1 for today a panel on international cartels in a global economy, and John Dunlop, our esteemed colleague on the Committee, has taken the responsibility of leading that first session. So John, I'd like to just turn it over to you.
MR. DUNLOP: Thank you. From my perspective, we have had an extraordinary couple of days, Monday and Tuesday, with representatives from all over the world, you might say, and not only fine exposition, but a great deal of give and take in the informal discussion period, and I hope that we can have some of that same kind of exchange today.
My understanding is that we should start this morning on the subject of cartels. Yesterday we dealt with mergers and, of course, in the merger area, there is not much question that we have seen a surge in the recent years in that field, and it has been suggested that we start this morning in our panel by calling on the panelists to deal initially with the question of whether there has been a similar uptick in the extent of cartels, or is it only perhaps a more vigorous exposition and expose of them that has led to the more -- the larger increase? And also, why? Whatever the developments have been, what's the reason for it?
So with that format, I'd like to call first on Waverman and then Suslow, and then turn to the lawyers on the panel. So sir, if you would begin, we would like to know the answers to those questions.
MR. RILL: Or any others.
MR. DUNLOP: Or any others that may occur to you.
MR. WAVERMAN: I must say I'm triple honored today. First, to be here at this Committee hearing. I appreciate the opportunity, and as I say, I'm honored. Second, I'm honored that one of the great names in economics, John Dunlop, is chairing this session; and third, honored that economists go before lawyers. That might be the greatest honor of the day.
MR. RILL: We need a rebuttal, though.
MR. WAVERMAN: Now, what I'm going to be talking about is in fact not looking globally at cartels, but highlighting what I think will be a growing area of concern, which is standard-setting in high-tech industries as a means of facilitating cartels. And I want to go through standard-setting, what happens in the U.S. and Europe, and then look at two recent cases and, finally, to close with some recommendations. And this has both competition policy, and trade policy as well as market access results.
Standard-setting is crucial in many high-tech industries, as we all know. And it's crucial for a number of reasons because these high-tech industries, most of them have the characteristics of network industries -- that is, the customers will buy the product of the firm or the firms whose products attract the largest number of customers. So it's similar to network industries such as telecommunications, if you are looking at software or other forms of high-tech, and how customers move between suppliers.
Customers generally are better off with compatible products, and variety, and the trade-off between compatibility and variety is a key public policy issue. Now, firms, of course, can engage in policies which are designed to grow the market their way rather than the way which will increase public welfare, and they can do that by designing standards as a policy that -- and the word is tip markets, in the way of their products and in a way which will exclude their competitors. And they can engage in policies which will lock in customers early in order to have these network effects.
So being early and having a standard which excludes your competitors is an advantage in many of these industries. Now, standards can, of course, be set by the market, but there are, as you know, many voluntary groups around the world which engage in standard-setting, and for competition authorities around the world, nonmarket standard-setting is an agreement under the anti-trust laws. But these agreements can be both procompetitive and anticompetitive, and there are issues to try to distinguish that fine line, so firms can cooperate for standard-setting. In the European Community, that's recognized as procompetitive and they receive an exemption under Article 85(3) that it's in the public interest and overwhelms the scope of the agreement part of 85(1).
And in the U.S., industrywide standards, standards set by groups of firms have been found to be in the public interest. But there has to be an existence of a variety of safeguards to ensure that the standard-setting process is not captured and is excluding rivals anticompetitively. So that standard-setting then can also be anticompetitive if the agreement is exclusionary, if it's an anticipatory standard, you can try to freeze innovation by setting a standard very early in the process of an industry.
If you can get a standard early, then you can exclude your rivals and you can tip the market your way. Also standards can be too restrictive or too pervasive. There can be far too much embodied in the standard, embedded in the standard, including all kinds of ancillary characteristics, technological characteristics which are not really required to be set before. It can be evolved in the market by competition between firms.
And I want to look at one specific area which is of growing concern, which is the market for spectrum services. This includes the products for mobile telephony and for paging services. And there is a fundamental difference between the way the standards are set in the United States as compared to Europe. In the United States, there are a number of voluntary bodies. The membership is open. Votes are based on one vote per company. Multiple standards are accepted, and there are multiple current technologies.
If you look at, for example, the cellular market in the U.S., the mobile market in the U.S. at this point, you have Analog, you have CDMA and TDMA and GSM. You have a variety of technologies, all of which have national coverage in roaming and so customers can choose not only firms, but technologies. They can choose service suppliers and they can choose technologies.
But that does not occur in Europe. In Europe, there is one European institution called ETSI, European Telecommunications Standards Institute, which was established in 1988 with the very valid objective of basically ending the cacophony of multiple standards in Europe when they were attempting to form an internal market.
Membership in ETSI is not open. For a full membership a company must belong to one of the countries of Europe, CEPT, and you have to a priori agree to contribute to ETSI's work and make use of the standards produced. And that is I think an ancillary part of an agreement which, I'm not sure how it would stand under U.S. or Canadian antitrust law.
There is weighted voting in ETSI. The weights are based on telecommunications-related revenue and therefore incumbents have a much higher weight, much higher votes than do entrants. An entrant can have at most one vote if it has no telecom revenue but becomes a member of ETSI, whereas the largest incumbent firm, which is Ericsson, has 68 votes because of its size and its number of subsidiaries.
ETSI comes up with one standard unlike the U.S. where there are multiple standards. The standard is voluntary but there is a process whereby the European Parliament takes that standard and makes it what's called the European norm, which then becomes the mandatory standard for that service across Europe. So you have a voluntary standard that becomes through the European Parliament something much more than any standard in the U.S. And Member States generally impose ETSI standards.
If you look at the licensing directives of the European Commission, in fact, the licensing directive from DG-13 says that for telecommunications, Member States must apply the ETSI standard. And this then makes the process prone to cartel behavior. Originally, I don't think that was necessarily true back when ETSI was first formed in 1988, when you basically had no incumbents. But now you do have incumbents and incumbents as you can see from the numbers here, 4 percent of ETSI members, that is 15 in total, control 29 percent of the votes, and 30 percent of the votes block any standard. And 12 percent of ETSI members have 71 percent of the votes, and 70 percent is sufficient to force through an agreement on the standard.
The weighted voting process is that 70 percent of the votes make the standard. And I think that for these what I would call follow-on standards, which are standards that then take an existing technology and move it to the next level or into a new dimension, we have a problem. When incumbents are producing equipment and providing service under an acceptable standard that exists, the follow-on standard, I think, can be prone to cartel behavior.
And this cartel behavior favors EU incumbents. It limits consumer choice, and it has, I think, severe market access problems. That is, the ability for non-EU technology to penetrate the European markets becomes greatly limited. For non-EU technology to form an European standard, one has to get 70 percent of the votes of European firms, and that has proved impossible in the two cases I will discuss.
Now, because of this tipping effect, it affects the U.S. and global markets, because Europe is a 350-million-person market before expansion, and therefore the standard which forms the basis for manufacturing equipment and providing service in Europe then is a signal to other markets such as Asia. And in the U.S. where you have these standards competing with each other, this tipping effect affects competition and the U.S. market as well.
And the first example is a firm called Geotek, which bought an analog license for paging in the U.K. and tried to convert that to a digital paging technology using its own technology and that technology did not meet the ETSI standard. Geotek last year sold its licenses in Europe to a Canadian firm that agreed to use ETSI standards and Geotek is now bankrupt.
A second example that is occurring now is a dispute between Qualcomm and its version of CDMA for third-generation mobile and the European manufacturers Ericsson and Nokia.
These issues are really I think evolving as interjurisdictional conflict disputes and I have put up here a potential seven ways of dealing with these disputes. One is the "effects doctrine" and extraterritorial application of U.S. antitrust law in Europe or European antitrust law in the United States; it will work the other way.
A second of course would be positive comity. A third would be that no regime mandates a standard as an exclusionary standard. And since that's only done now by the EU, that will say the EU stops mandating. The standards remain as voluntary and don't go to European Parliament, but as we are speaking, European Parliament is voting on the standard for third-generation mobile, and that will be, I think, accepted as a mandatory standard which excludes U.S. and other world manufacturers.
There could be mutual recognition of standards, but that's not on the table either. The U.K. is presently auctioning off licenses providing third-generation mobile, and those licenses require ETSI standards, and so that the U.S. or other firms whose technology does not meet the ETSI standard cannot apply nor can their technology be used in the U.K. So if licenses were in fact not technology-specific but only performance-specific, saying that for third generation, we require roaming, we require guard bands of this size, then you could have multiple technologies. But the licenses, the indication is that the EU licensing provisions do not allow that.
You could have harmonization at the ITU which is occurring now. The ITU is another fora where standards are examined and set, and if there is some harmonization of these standards at the ITU at an acceptable level, that could be an answer. But one thing I would put to the Committee is that this, in these areas, we do have regulators. In telecommunications we have the FCC and in Europe we have a variety of regulators, but they are not involved in this in the slightest. That is, they are involved in the sense that the FCC and their European regulatory counterparts will be involved in auction design.
The FCC assesses the criteria for licenses, as do country regulators in the EU and across the world. In Japan, for example, where similarly third-generation mobile licenses are now being considered similar issues arise. There could be a common regulatory framework. I think we should begin at least with the regulators starting a dialogue with each other because these are also regulatory issues. And we can think instead of having antitrust as the way of handling market access, if we can have the regulators starting a dialogue with each other so they can maybe make more of a level playing field, then we could avoid a lot of the controversy that's going to come. Thank you.
MR. DUNLOP: Before you go, I must put to you a question on the requirements.
But would you say or would you not say that more generally this cartel activity is becoming more common or less common or about the same? What's your general impression to that?
MR. WAVERMAN: Let me step to the microphone. I think this is going to be an area of growing concern. I think this is an area which the Committee should be examining as an area where standards are crucial for firms to have market access and to compete and that, I think we have seen just the tip of the iceberg. There will be a vastly increasing number of cases in these areas.
MR. DUNLOP: Thank you.
DR. STERN: Are there others who might want to ask questions at this point or should we go ahead and hear everyone?
MR. RILL: Is your plan to go ahead?
MR. DUNLOP: To go ahead although a good question has never been suppressed.
MR. RILL: The plan as we talked earlier is that you should go ahead and answer.
MR. DUNLOP: The comment I would make for my colleagues is that in the cases that you developed, it is not just private sector cartels that are involved. There is very much involvement of public sector agencies in the process. Is that a general phenomenon in your mind or not?
MR. WAVERMAN: That's absolutely correct, Professor Dunlop. It is, both the procedures and the ways in which these institutions operate in some regimes, and the way that the government supports that procedure and makes it into a mandatory standard.
MR. DUNLOP: Thank you. Now we turn next to a second economist, Professor Valerie Suslow, to develop your presentation.
DR. SUSLOW: Certainly. I'm honored to be here and to participate. We were asked to think about two things. One is whether globalization of business is creating new opportunities for cartel behavior, and secondly, are there some structural factors that we can point to that are identified or associated with international cartels?
I would like to give my perspective on those two questions, take us back into history a little bit, just for a couple of minutes, and then give you my opinion of the economic literature, empirical literature on international cartels and U.S. price-fixing conspiracies.
First I just want to mention that in the questions that we were asked to think about, the question was posed in terms of cartel formation and cartel durability as one thought, and they are two very different phenomena.
How cartels form, what are the characteristics that might lend themselves to cartel formation and then separately, how durable are they? What conditions affect that?
The third area which wasn't mentioned is do they work? Which is also a completely different area. People argue about OPEC's success -- if we can't agree about whether OPEC has worked or not, I think we are going to have a hard time with some of the other cartels.
But to just take a second in terms of lessons from history, comparing now to the 1930s and '40s, which is when we saw the last flurry of activity in international cartels, one figure that's cited is that between say 1930 and 1940, about 40 percent of the world's trade was controlled by international cartels. And since World War II, although there have always been international cartels in natural resources, in rubber and copper and tin and so on, the predominant feature in manufacturing has not been so much cartels as the rise of the multinational corporations.
I think what we are seeing now, and I don't know all the reasons why -- I think the research is only beginning -- is a period where those multinational corporations are getting together to form international cartels. And so the question is what conditions have changed?
Are we seeing a resurgence of cartel activity? I don't know that it will overtake in numbers what was happening prior to World War II. My own empirical research looked at a sample of 45 industries before World War II that had international cartel activity. I did a quick literature search, very preliminary, looking at what cartel activity now is in the same industries as it was back in the 1930s and '40s. And of my sample of 45 I could find very easily about a quarter of the same industries.
Citric acid, acrylics, plastics, potash, etc.
So is it new? No. Cartels tend to come and go, even of the 45 industries that I looked at before World War II, about 16 of those had cartel activity before World War I. So there is a history of cartel activity in some industries, and the interesting question is possible reasons why it might be on the rise again. A slowing of innovation -- since cartels prefer a static environment. Increased barriers to trade. The pre-World War II cartels were often formed by national monopolies. It was fairly easy then for those national monopolies to carve up the world geographically.
One of the most stable international cartel arrangements is to have a geographic division, and so things that facilitate that will facilitate cartel activity. So one question to ask is: Tariffs are falling, but is access to markets falling as well in other ways? There has been a rapid increase in countries adopting anti-dumping laws. Have those been used to facilitate cartels?
On the other hand, we know that communication is much easier now. That makes it easier to monitor activity and possibly to police cartel agreements. That's a quick historical perspective.
The other question raised by the Committee is what generalizations can we make from the empirical economic literature. I had a grand idea that I could present to you on an overhead, a table that would show the different cross-sectional studies, the different variables included in each study and where they agreed and disagreed. It didn't work. The variation across studies, both in terms of statistical methodology and variables measured, is too great.
Instead, I have about six generalizations from this empirical work that I think almost everyone would agree on and I would like to start with a quote from Jeffrey Jones, who studied all of the cartels that British firms were involved in before World War II. Jones exclaimed, "How multitudinous are the devices by which industrialists have attempted to restrict international competition." I think it was true then and it's true now.
I have drawn together six statements that I think most economists would agree on when looking at cartels. The first is, you do need a favorable set of structural conditions, but that's a necessary but not sufficient ingredient for cooperation. Just having relatively few firms and a standardized product does not mean that there will be a successful cartel. There are other ingredients as well.
Most people would agree that it's easier with a few firms in a non-advertising-intense industry. It's a fairly homogenous product. There is another little thread of the literature that's not mainstream but I think it's interesting, where people have asked is it really the number of firms or is it the number of decision makers? As companies go to centralized management where the decision making can be made at a fairly high level, that might tend to promote cartel behavior. If decision making is decentralized and it's the front line people, they are a little bit more prone to cutting price or making their sales quota.
The second thing is that most cartel agreements do provide for sanctions or penalties. I note that some of the cartels that we are seeing now that Justice has prosecuted have fairly elaborate agreements. That is common. The agreements get more elaborate the more experienced the cartel is. Third, cartels are often formed during times of overcapacity. The fourth thing is that, and there is a lot of discussion of this in the literature, most cartels are unstable and short-lived, but not all.
Fifth, the trend in the theory and in the empirical work lately has been to recognize that there is a natural cycle of cartel activity in competition. Cartels will form and they will break down. But they expect to come back. And successful cartels tend to come back. In my own work, I found that there was an average gap between cartels attempts of two years, but I think that would vary depending on the period that you look at.
Finally, the most recent theoretical and empirical work has added a variable to the studies that wasn't there before, and that is demand volatility or uncertainty in the environment. Mistakes will happen where a cartel member guesses that another member is cheating, although its lost sales are really because of the demand shock, and so the price war occurs.
The empirical work has tended to support the notion that volatility in economic conditions will increase the probability of cartel collapse. But minor structural remedies imposed by antitrust authorities will not have the same effect. Because cartel organizations are so creative, if you have conditions that are not favorable to a cartel, it doesn't mean that there won't be one, it just means that the arrangement might be that much more elaborate.
I know that the Department of Justice is powerful, but unless they can affect demand, the most reasonable approach to affecting behavior of cartels probably is very strong price-fixing laws. I will end my comments there.
MR. DUNLOP: Thank you very much. Do I infer from what you have said that you would answer the same question I put? That there has been some upsurgence in recent years in this phenomenon which you hopefully classify?
Well it's at this point that I must turn to the lawyers. And see what they have to say about this subject, and particularly, we want to know from them, to what extent do they attribute the rise in U.S. prosecution, persecution as well, of transnational cartels involving both domestic and foreign defendants, and what is their appraisal of the incentives that there are for cooperation between the subjects of investigation, or defendants, and the U.S. Government, and between U.S. and foreign governments in the investigation and enforcement of antitrust laws?
And I think what I should do is turn to the lawyers to answer those and other questions that they may regard as relevant to our discussion this morning, and then we can have a general discussion when we are all through. I follow the alphabetical order of our program, and turn to Mr. Donald Klawiter.
MR. KLAWITER: Thank you very much. And thank you all for inviting me to attend and share some of my views on these subjects. As many of you know, I practice in the antitrust field and in recent years, primarily in the criminal antitrust arena. More specialized still is the area of the international cartel cases, where I've had the privilege of representing both U.S. and foreign companies and U.S. and foreign individuals.
Some of the insights that come from my practice and from some of the things that have been going on in this area may prove to be helpful, and I'm happy to be able to share those with the Committee today.
With respect to the issue of why cartels seem to be at the forefront these days, seem to be increasing or seem to certainly be in public discourse, I think there are several issues. Some of them have to do with the economy, and I'll defer to my economics colleagues on most of those issues since I am certainly not qualified to talk about them. But other issues deal with the enforcement program, about which I think I can share a few ideas.
First of all, from viewing the cases that have come in to public view in the last few years, I believe that the fact of globalization of the economy has in fact increased the likelihood, or the probability, of the cartels that we are seeing in the enforcement arena today. One of the things that has happened, if we look at the morality play that just played out in a courtroom in Chicago in the ADM case, and in other similar cases, is that regional or continental cartels that were in existence for many years have become global cartels.
Along the way, a U.S. company or a company with significant U.S. market share got involved with a cartel from another region of the world. Globalization of the economy really has brought this about because people are starting to deal with, communicate with, meet with their competitors and colleagues in all parts of the world. And in some instances, the temptation of getting together with these people in this context is irresistible, and I think that is what we have been seeing in enforcement over the last several years.
When a U.S. company comes into such a cartel it changes immediately the effect and impact of that cartel and obviously changes in many respects the possibilities for enforcement action if it is in fact detected. And so, on the simple fact of how or why or why now, I think that we may conclude that very much of it relates to the globalization of markets.
I would urge the Committee to look very carefully at some of the testimony in the ADM trial, and particularly at how the conspiracies in lysine and citric acid started, how the companies came into these arrangements, and what motivated them to join. I think that that testimony will give you some answers to the questions of why now, and what is really happening in global markets.
In terms of the enforcement activity of current times, I would raise a few issues for you to think about. First of all, the Antitrust Division should be congratulated for a wonderful effort in the ADM case itself. What you ended up having was not your normal, typical antitrust case where we antitrust lawyers who are representing clients prefer these things to be done rather quietly, and certainly not in the newspapers.
Here instead we did have a morality play acted out on the front pages of The Wall Street Journal and on the front cover of Fortune magazine. The effect of the publicity was much more than the fact that there was more than one conspiracy involved. This case brought to public notice, and certainly to the Division's notice, the fact that this type of conduct was probably very widespread.
I think it also brought home to people who might be involved in similar activities that there are high costs involved in such activities. At about the same time, the Antitrust Division was broadcasting very clearly the fact that leniency was a possibility. One of the things we have seen as a result is more and more people coming in and saying, "Hey, I don't want to be Mark Whitacre, I want to have a different result. I want my company to survive this thing." This has caused companies to go in the door and cooperate.
If you look at the statistics from the Division you are going to see that in fact a number of the international cartel investigations are directly the result of applications for the leniency program. This is a big, big factor that we did not see prior to 1993 when the present leniency program was put into effect.
A second reason why enforcement has changed in the way it has, and why the Division can now take these international cases to a very successful and serious conclusion, is going to sound strange. I think the reason for the Division's current success is that it lost the GE case a few years back. The fact that GE was acquitted at the end of the Government's evidence, in part because of the inability to bring in witnesses from other countries has had a dramatic affect on antitrust prosecutions.
In that case, as you know, there was one U.S. defendant, one international defendant, DeBeers, and two individuals who were European citizens. DeBeers and the European citizens politely declined the kind offer of the Division to come in and stand trial in the United States. That fact and the critical fact that important witnesses were not available at trial caused the Antitrust Division to sit down and think very seriously about how it is that they can make these cases work in the future. How can they get the evidence? What will the evidence be and how can they try these cases successfully?
As a result of the GE loss, we saw several things. One, the need and really the new commitment of the Division to go out and find the evidence, to use things like surveillance, to be able to find witnesses who were not in this country, who are not otherwise available, and begin to develop the means to make these cases come together.
Several things started to happen -- they were all there previously, they were all tools in some respect available to the Division, but there was, I think, a new incentive to do it well and to use the various new procedures that would make it happen. The first is border watches, which the Division has used much, much, much more since the time of the GE case -- and to great advantage. By having witnesses come in, be subpoenaed, be compelled to testify, the Division has obtained valuable evidence in its cases.
The second is the international cooperation issues that have really come alive, particularly through the efforts of Joel Klein and Gary Spratling in recent years. There are now various cartel-specific cooperation deals with foreign governments which have allowed, in a number of these situations, foreign governments to begin their investigations by a search for documents simultaneously with the U.S. authorities in a situation where there seems to be a single global enforcement mechanism that is really very effective.
Third, and very significantly, and the real problem in the GE case, is the cooperation of foreign citizens. The Antitrust Division has now turned in a very significant way to encouraging cooperation by foreign nationals who otherwise would not come to the United States. One of the ways of doing this successfully is the idea of a plea agreement with a fine and no jail sentence and no further recriminations that go with it. More importantly, the Division negotiated in 1996 the Memorandum of Understanding with the Immigration and Naturalization Service, which allows the foreign citizen to have his immigration status preadjudicated before he pleads guilty, allowing him freely to come to the United States afterwards and conduct the business that he really must do as an international businessman.
Those issues, coupled with the leniency program, have really made a tremendous difference in terms of how international cartels are now enforced successfully. Whereas the GE case obviously showed that there were cartel arrangements to prosecute, the Division had a long way to go, and they have now come very, very far along that way.
This will be my last point. One concern that I see if the Division continues to have the enormous success of using the foreign citizens as its sources of information, is the likelihood that U.S. companies and U.S. individuals will not be treated equally or in any way as fairly as the foreign individuals.
I don't say this as a criticism of the Division, because I think this is where the law takes us. We have a situation where, to obtain cooperation from foreign individuals and foreign companies, you need to give them something because they are outside the jurisdiction of the U.S. On the other hand, one of the results in both the corporate and the individual situations is that the U.S. citizens and the U.S. corporations are hit harder in these cases. Some would say perhaps they should be.
A few cases in point. With respect to the corporate fines, it is no accident that the two largest fines assessed under the Sherman Act were both assessed against U.S. corporations, and the simple fact is that in most of these cases, the U.S. corporation or a U.S. corporation is going to have a high volume of sales in the United States; therefore, under the Sentencing Guidelines, its volume of commerce calculation will be greater; therefore the base fine that you start with for the U.S. company will likely be greater.
That is not always the case, but it is often the case, and that's an issue because the other cartel members are often going to have their largest volumes of commerce in Europe and Asia and somewhere else. For purposes of the U.S. law, how do we deal with this? I think there are ways we can think about it, but the simple fact remains that the U.S. companies are going to get the worst treatment. Certainly in the early cartel cases we have seen this trend.
Secondly, a U.S. individual convicted of a Sherman Act violation these days is looking at a serious jail term. The Sentencing Guidelines provide for it. The Division encourages it, and that is the way things have been. Foreign individuals, however, because of these attempts to bring them within the Court's jurisdiction to use them as witnesses in these cases, have received fines, been given the blessing of the INS, and happily continued in their business.
In some of these, using the cooperating non-U.S. witness is the only way to get the evidence in the case. In others, perhaps, there are other ways and I don't know what those ways are, but I raise the issue because I think there is an increasing perception that there may be some degree of inequality, unfairness, or at least a question that needs to be raised. And that is simply the point.
The fact that the GE case demonstrated the need to do some of these things to crack these cartels is extremely important. On the other hand, as we go forward and we are really at the early stages of this, we ought to look at ways to deal with this issue to make sure that equality and fairness, to the fullest extent possible, are part of the system. Thank you.
MR. DUNLOP: Thank you very much for those perceptive comments. Let me turn next to Mr. Mark Leddy.
MR. LEDDY: Thank you and good morning. And I would also like to express my gratitude for being invited to join you today and offer some thoughts in response to the questions that were circulated to the group. I agree with most of what Don Klawiter said and I'll try not to be repetitive.
With respect to question 1, there are probably six or seven actual questions in there, but I will break them down into two. The first is: To what do you attribute the recent rise in U.S. detection and prosecution of transnational cartels, and secondly, what are the distinctions between U.S. enforcement and enforcement in other jurisdictions?
Maybe I should give you some background and reveal my biases. I spent 14 years in the Antitrust Division. To give you some idea of how long ago that was, in 1971, in my first criminal case in the Division's New York field office, I attended a hearing where a Defendant offered a nolo plea to a price fixing charge that had involved a conspiracy that had been going on for about 20 years. The judge accepted the nolo in about 30 seconds. The Government asked for the maximum fine at the time, which was $50,000. The judge imposed a fine of $8,500 on the Defendant.
As an eager young prosecutor, I was upset at this "slap on the wrist" and stormed out of the courtroom. Just to give you a perspective on where we are -- I think context is important here -- about three weeks ago, with Mr. Spratling in the courtroom, a judge in Philadelphia accepted a plea agreement of a cooperating defendant, my client, and we paid $31.5 million.
I think that offers some perspective as to what's happened with criminal enforcement over the last 26 years and I think the Committee ought to think about that historical perspective as part of this deliberation. Now, let me return to the questions.
I'm not an expert in the economics of cartels. I would defer to the economists on this. My own observation, however, is that there has not been an increase in the incidence of international cartels or cartels in general throughout the world. I think there have been cartels since the beginning of time. Cartels prosecuted today result from increased detection and enforcement and not from an increase in the propensity of tradesmen to collaborate or to collude. In short, I don't think there has been any surge in cartel activity over the past 20 years, only in its detection.
Secondly, as to the causes of the international cartels, I agree with Don to some extent on this. As markets internationalize, competitors compete internationally, and if there is going to be a cartel, the cartel is no longer going to be limited to, say, west of the Rocky Mountains. It's going to be an international cartel because that's the market in which these firms compete.
Back in the 1950s, a cartel of automobiles in the U.S. was not going to be an international cartel. It didn't have to be. But a cartel in automobiles today would by definition have to be an international cartel. So it is the globalization of markets that drives cartels to deal with their competitive landscape which is international.
Secondly, I think the rise in detection has a lot to do with the sophistication of the customers. Customers understand the input costs of the products that they are buying. They follow what the suppliers are doing in respect to price. Their own markets are much more competitive internationally than they were, I think, over the last 20 or 30 years. Most companies and most professions like the law are a lot more competitive than they were 30 years ago, and inputs or cost are monitored very, very carefully. A small increment, a small increase in the price of an input, can affect your downstream competition, and thus is a cause of concern.
So the suppliers are a lot more sophisticated at detecting artificial increases in their input costs, and a lot more sophisticated in respect of how to deal with that. They can call the Antitrust Division or the Federal Trade Commission or DG-IV and have an investigation begin rather quickly. On top of that, you have, at least in the U.S., the lure, for better or for worse, of a treble-damage, joint and several liability, pot of gold at the end of the rainbow. So you have more sophisticated customers and you have a very powerful incentive for those customers to detect and then to punish their suppliers if they see a cartel.
With the internationalization of markets, and the sophistication of customers, the third reason I would cite for the detection and prosecution of cartels is the rather elaborate criminal and civil enforcement system in the United States. Number one I would cite -- and it has to be distinguished, to answer a further question down the list, from other jurisdictions around the world -- you have individual liability. People can go to jail. On the other side of that, you have immunity.
When you couple the ability for an individual to be immunized with the ethical rules that drive a corporate counsel to hire an individual separate counsel, that creates a very powerful incentive and context for that individual to go to the government and try to get leniency. You get immunity, you get a separate counsel. If I represent an individual, and I do some of this work, my only loyalty is to that individual, and I want to get that individual immunity and I want to get that individual out of harm's way.
The first question you ask an individual -- not the first question, but the point of your first interview with an individual who may have criminal exposure is, "Do you want to be a defendant or do you want to be a witness?" While neither is very pleasant and both have tremendous costs personally and professionally, at the end of the day, 99.9 percent of the people the next day call back and say, "Well, I prefer to be a witness rather than a defendant."
Cooperating individuals are a very powerful source of information for the Antitrust Division and a very powerful incentive that the system has created to cooperate with the Government early on.
The second reason, I think, as Don has mentioned, is the amnesty/leniency program. There are two schools of thought on this, at least in my firm. I think the prevailing thought is that the amnesty program has created, as with individual immunity, a very powerful incentive for a corporation to cooperate early on with the Government. And if you just look back over the last five years on the incidence of early cooperation with the Government as opposed to the prior 15 years, you have to cite the amnesty and leniency program as a very important part of that increase in detection.
And it's absent in most other jurisdictions in the world. I can't think of a jurisdiction that has that kind of program. The EC has recently, within the past year, adopted it, and I'll talk about that separately in a second. But it's not as powerful as the U.S. Obviously, since the combined criminal and civil penalties in the U.S. are so much more severe, the amnesty is a lot more of an incentive.
You combine that with the Sentencing Guidelines, which start out as 20 percent of the sales of the cartel as being the baseline for the corporate fine, and the incentive to cooperate is enormous. By the way, I think the 20 percent baseline is wrong, frankly. Twenty percent is much too high. I do not think that it is anywhere near an average overcharge in these cartels. But that's what the Sentencing Guidelines say and that's where the Division rightly starts the bargaining. The results are fines way above the $10 million statutory maximum, way above it, as witness fines of over $100 million -- obviously 10 times the statutory maximum Congress passed.
Because of that mountain of money that companies have to pay, the earlier they get into the government, the more cooperation they offer, the lower the initial fine. And that, coupled with the individual's incentives to get in to avoid jail, will create an extremely powerful and fast race to the Justice Department when the subpoena arrives and when there is even, I think someone said before, even a whiff of an investigation, you are going to see a cattle stampede down to the government in order to take advantage, again rightly or wrongly, of this system.
So those are the reasons I think that there has been increase in detection. I'd like to see the evidence of an increase in, empirically, of cartel behavior. Maybe there are waves of cartels, maybe not, I don't know, and perhaps because I lived in Europe for three years I understand that cartels have taken place from time immemorial at least there, if not elsewhere.
The second question, as I break it down, for the lawyers in number 1, is commenting on enforcement in other jurisdictions, what elements of the U.S. legal system distinguish it. I think I already mentioned most of them. I practiced for three years in Europe and did a lot of cartel work there. The absence of criminal sanctions is an extremely important difference between Europe and the U.S., and for the rest of the world for that matter. In their jurisprudence, the way they treat individuals is extremely important.
Secondly, as a practical matter, the lack of a plaintiff's bar or damage cases elsewhere in the world, and I think that will change over the next 10 years or so, but in the United States, you have a very well developed, highly sophisticated plaintiffs' bar. As soon as there is that whiff of an antitrust investigation you have the plaintiffs' bar with a great incentive to find customers who are damaged in order to bring treble damage cases. They get their fees paid by the defendants. The class action is a well-known tool for use in antitrust cases. Those are absent elsewhere. So the whole architecture, the whole system for both civil and criminal enforcement, is profoundly different outside of the U.S.
The second question, and I'll try to finish up quickly here, I think breaks down again into two questions. What incentives are there for cooperation between the U.S. and foreign governments? I think there are powerful incentives for cooperation and like most markets there are powerful incentives for competition. The way I see the landscape, having dealt with multiple enforcement authorities across the world, is that most of those jurisdictions are envious of the United States' aggressive enforcement program, at least the people who work in those enforcement agencies. I have had a lot of conversation with people in DG-IV in Europe who wish they had the same arsenal of weapons that exist in the U.S. I think that's just human nature.
I do think there is competition between the agencies to try to outdo one another in respect of who gets the highest fines, whether that's a good thing or a bad thing I'll leave to the judgment of the Committee. There is an awful lot to be learned from the United States, good and bad, and I think that's taking place.
There has been an ongoing exchange of information between and among the prosecutors around the world. I think that's generally a good thing because it does help enforcement and I'm a firm believer in antitrust enforcement. I think that's a good thing. On the other hand, I don't think the U.S. system is perfect. I think it has its flaws, for example, if there is to be my own tradeoff, if you will, if there is to be an increase in the penalties for criminal violations in the U.S. to $100 million, as many people seem to think is a good idea, I think treble damages perhaps should be rethought in the process.
There is a huge amount of liability out there, and at some point someone has to think about whether or not there isn't a little bit of overdeterrance, that the cost of the system isn't perhaps catching up with the benefits. Again, I'm a firm believer in it, but at some point I think there has to be thought given to the balance between criminal and civil enforcement.
There is one question that Don did not address and I think I'd like to address, and that is: How should the U.S. approach cartels in which the activities of some or all participants are state-sanctioned, state-mandated actions? My own view of that is that that should be a political rather than a criminal process.
I don't think the U.S. should use criminal enforcement process against state-mandated cartels. I think the political process is a lot more effective. Now, how you define state-sanctioned, state-mandated is a very important part of that. And there are situations, I think, in which the words, "state-sanctioned" would mean really a private cartel in which the company received a wink and a nod from the government. I don't think that ought to escape criminal prosecution. I think it should be fair game.
On the other hand, if it's a government decision to enter into a cartel, for whatever its political reasons may be, I think the idea of U.S. government using its criminal penalties to attack that is problematic.
And that takes me to my last point, which I'd also like to offer to give some historical perspective from those who were practicing in the '70s. I know there are some around this table who were. During the '70s and early '80s, there were a series of so-called blocking statutes and claw back statutes passed by various governments around the world. The U.K., the Netherlands, France and elsewhere, in direct response to their perception that the Antitrust Division had overreached in a variety of circumstances, some criminal and some civil -- the Uranium cases, the Freddie Laker grand jury -- and I think there was a reaction, a disproportionate reaction by the foreign governments to the efforts by the Antitrust Division to assert extraterritorial effect or jurisdiction over behavior that had taken place abroad.
And I think that retarded the growth, healthy growth and spread of antitrust throughout the world. It was a setback for antitrust and, I think, a very important development. And I think people should keep that in mind today, because my own view is there is no individual cartel case that is as important as the export of market-driven economies and the philosophy of the market-driven economy worldwide. Market economies are much better for the world and much better for the United States than centrally planned economies.
We have more or less at least for now, I think, prevailed on that front, and the export of the market-driven philosophy has in its wake antitrust as the regulator of markets, as opposed to central planners sitting in the Kremlin. And I think that's a very, very healthy development over the last 20 years. And I guess that my plea is that the antitrust authorities here and elsewhere do not create a perception abroad that antitrust has more costs than benefits. Because I think that would retard not only the spread of antitrust but possibly also the spread of the philosophy of market-driven economies.
I think I have probably gone on longer than I should have so I'll end there and let my colleagues follow me. Thank you.
MR. DUNLOP: Thank you very much. I find your distinction of the role of the Antitrust Division, public against private, to be useful. I can't quite imagine what they would do with OPEC if it was left to their devices. Thank you. Now we turn next to Mr. Loftis.
MR. LOFTIS: Thank you. Thank you very much, Co-Chair and members of the Committee, for the opportunity to appear here today. I suppose it is no coincidence that the five lawyers who are here have come to know each other extraordinarily well in recent years. I suppose it's no coincidence that the five of us are all members of joint defense agreements formed to assist in the defense of cases involving international cartels.
In some cases, we each are members of the same agreement. And multiple agreements. And, given the watchful presence of our friends from the Antitrust Division, I will not go further into the joint defense agreements, but it is the case that there are two factors that have changed in recent years the prosecution, the defense, the detection, and the punishment of international cartels. And those two are the Antitrust Division's amnesty program or leniency program, and the implementation and development of international information-sharing in the context of criminal antitrust enforcement.
Those two factors, however, don't work entirely in harmony. And in the prepared statement that I brought today and I will leave with the Committee, I suggest that there is a way that they can work in greater harmony. Sitting and listening to the presentations, I'm not sure that we want them to work in greater harmony, and let me explain just what I mean.
The amnesty program, which from the Antitrust Division's point of view and I think from the point of view of American business, has been successful in accomplishing its goals, as it operates in the United States, the amnesty program provides an opportunity for individuals and corporations with varying degrees of culpability to end the uncertainty of how and when the cartel that they have become enmeshed in is going to unravel and present them with the very real expectation of being caught in illegal criminal activity. It gives a degree of control over the future.
The important thing from the point of view of international cartel enforcement with the antitrust, with the amnesty program, the important thing to keep in mind is that as the program operates in the United States, the availability of the program depends on relative culpability. The Antitrust Division's guidelines for the amnesty program specifically state that the originator of criminal activity or the cartel leader or ringleader does not have amnesty available ordinarily as an option.
When we take the amnesty program and put it in the international setting, as Don and Mark indicated, we get a somewhat different result, and the result is due to the unavailability of evidence. The availability of amnesty turns not on relative culpability but on the asset holder's ability to provide evidence that is otherwise unavailable simply because it is foreign-located.
The parallel development in recent years that not only has brought the five of us together, but that has impacted the amnesty program, is the development and implementation of treaties and bilateral agreements for the sharing of information. The way that that impacts the amnesty program is that the leverage inherent in otherwise unavailable foreign-located evidence disappears.
The United States Government can contact the Government of Canada, cause searches to be conducted in Canada, and reap the benefits of that evidence that otherwise would be sequestered abroad. That's due to the Mutual Legal Assistance Treaty between the United States and Canada.
With the expected implementation of further bilateral agreements such as the pending one with Australia, we can anticipate similar information-sharing in the criminal international cartel context will take place. That will remove the imbalance that now exists in the amnesty program that causes U.S. firms and individuals to be worse off than their foreign counterparts, regardless of relative culpability.
So I submit that the further implementation of sovereign-to-sovereign sharing agreements will restore a relative balance to the amnesty program and end the problem that Don Klawiter referred to in his remarks, of U.S. firms and individuals being relatively worse off despite their degree of culpability or lack of culpability than their foreign counterparts. That imbalance now exists simply because of the problem of foreign-located evidence and its unavailability to U.S. enforcement authorities. End the unavailability, and you end the imbalance. Thank you very much.
MR. DUNLOP: Thank you. Now Mr. Schechter.
MR. SCHECHTER: Thank you very much. I am very pleased and honored to be here this morning. The advantage of, or disadvantage of going first is that, is that no one has yet said anything but if you fail to mention some important point, you are subject to ridicule by your colleagues. Don didn't make that mistake. The risk of going last or near last today --
MR. VICTOR: I have the real problem.
MR. RILL: Paul is always griping about it. You ought to change your name.
MR. SCHECHTER: Essentially everything has been said that can be said, so I will try and be brief, although I'm not particularly good at that. I was with the Antitrust Division for 18 years. That distinguishes me not at all from other of the panelists. I have for the most part represented companies that have been, and individuals that have been targets of Antitrust Division criminal investigations. That doesn't distinguish me from the other panelists.
I have also represented companies in the follow-on civil suits. That doesn't distinguish me either. I think perhaps the experience that may differentiate me somewhat is that I have also represented plaintiffs against defendants who are or were the subjects of international cartel criminal investigations and convictions.
Let me say from the outset, it's not clear to me at all that there is more international cartel activity now than there previously has been. On one hand, the overall globalization of economic activity would suggest that there would be a greater likelihood of international cartels. On the other hand, because there is more competition that's being engendered by virtue of the fact that companies, foreign companies, are often able to compete as well in the United States, it may be more difficult to create and sustain an international cartel.
I don't know on balance how that cuts. What is clear is that there has been significantly more antitrust enforcement directed at international cartels and it's clear that if international cartels were encouraged by an earlier perception that there was a low chance of detection, that perception clearly has come to an end, and it is to be seen as the shape of the enforcement mix in the future.
In this regard, it's always been the case that when there is a significant change in the direction of antitrust enforcement priorities, that in the short run there are going to be many cases because people are caught somewhat unsuspecting. I don't say innocently. I simply say unsuspecting.
I don't think there is any doubt by anyone on this panel, certainly there is none in my mind, that international cartels ought to be stopped. No doubt but that they should enjoy no preference vis-à-vis domestic cartels. I think the problem historically for the Antitrust Division, speaking from my own experience, is in successfully trying to investigate and prosecute international cartels. There is a real serious problem with documentary evidence that's located abroad, and business operations that are centered in foreign places with documents that are more likely be located in those foreign locations.
There is also the witnesses located abroad problem. This is not just the problem of can you get access to a witness, but it's the dynamic impact of having some number of conspirators who generally are outside the reach of the investigative process. Because the entire game theory surrounding a witness' decision to cooperate, a conspirator's decision whether to cooperate is largely a function of how many other potential witnesses are available to the government.
You can imagine in the extreme case of one domestic witness and five foreign witnesses, the domestic witness is going to be very unlikely to cooperate because that witness will perceive very little likelihood that someone else will cooperate if he or she doesn't.
And so the real issue for the Antitrust Division, I think, has been how do you have an effective criminal program to stop international cartels in light of these problems? And quite logically, the Division has centered on two solutions. You either have to get access to those foreign-located documents or you have to substantially increase the likelihood of and quality of the evidence that you are able to obtain from domestic or U.S.-located companies and witnesses.
As to the likelihood and quality of evidence, the benefits of cooperation to a company or an individual have to exceed what the company or individual perceives as the cost of that high-quality cooperation. And on the issue of obtaining foreign-located documents, to the extent it involves cooperation with foreign governments, it's simply a question of whether the governments perceive that there is some benefit to their mutual collaboration. And that converts parochially into a consideration whether each will be able to bring cases that they would not otherwise bring -- a point I want to get back to, and a potential source, I think, of a problem. And also less parochially, governments also may conclude it's just a good idea to have more open and competitive international markets. I agree with Mark Leddy that the United States ought to play a leadership role in this regard.
Let me just mention that I think there are three tools that have driven the Division's increased effectiveness in investigating and prosecuting international cartels. First and most important, and I agree entirely with my good friend Jim Loftis, is the amnesty program. Second in importance, and alluded to by Mark Leddy, is the entire criminal fine structure, and in particular, the double the gain, double the loss basis for calculating a criminal fine. The need to negotiate to resolve uncertain and potentially huge criminal fines in a way that doesn't bust the bank, if you will, can drive a corporation to settle and cooperate with the government. And third in importance, in my view, is cooperation with foreign antitrust authorities. And I think a distant third, at this time.
I would like to make a couple of points on amnesty, to make clear my view as to its overriding importance. There are real and powerful benefits to a company that enters the amnesty program. A company avoids the very large fines that have been alluded to. Fair enough. Second, you can, or the company can, obviate the prosecution of its officials and employees who, absent amnesty, may be very unlikely candidates for immunity. You can get immunity for a CEO who is very involved, who under normal circumstances just simply wouldn't get immunity, and would be a target of the investigation. But as part of the amnesty package, those type of officials can secure a pass.
Third, and importantly for reasons that Mark alluded to, if you settle with the government, you are in a position to settle with the private litigants in treble damage cases. And it's certainly true that historically, that the first to settle has been able to strike a better deal in damage settlement with the private parties.
Third, I guess I'm up to fourth, you are well positioned to avoid or to settle any kind of debarment claims with the Federal Government. Oftentimes, companies supply or some division of companies supply to the Federal Government, and there is a serious issue of debarment. And if you are in the amnesty program, you are in a much better position than your co-conspirators to resolve debarment issues.
And finally you are better positioned to deal with foreign antitrust authorities, essentially for the reason that the Justice Department, in order to maintain the integrity or the effectiveness of the amnesty program, is I think going to go to bat for you with foreign authorities.
I want to, so as not to take too much time, I want to just make a point or two on the area of cooperation by DOJ with foreign authorities because I think it is an area of concern. It's certainly an area where there is a perception by corporations resident in the United States that the program easily can run amuck. Securing information from foreign authorities that either secure it on behalf of the Department of Justice or otherwise supply information they secured for their own purposes, and in turn the Department of Justice supplying information to the foreign authorities, raises the following concern.
The Department of Justice, as a prosecutive agency, develops evidence before the grand jury, both through its subpoenas and more importantly through the witnesses that it calls, through the witnesses that it immunizes. It tries to develop the best case that it can. It certainly at the same time wants to understand the defenses of would-be defendants. But, first and foremost, it wants to develop the best case it can develop. It's a very one-sided process.
I don't think anyone, aside from perhaps the government, would suggest that it's not a one-sided process. The balance is in the judiciary. In the final analysis, the government has to prove its case beyond a reasonable doubt. And in the final analysis, the defendants, corporations and the individuals, have the ability to develop the best counterarguments and counterfacts to the government's case.
The simple fact of the matter is that to a greater or lesser degree, foreign systems and foreign enforcement is not structured as it's structured in the United States. It's often the case that the foreign antitrust authority is the investigator, it is, as a practical matter or actually, the judge, and it's the jury. Therefore, there is the concern that the United States Government in providing information to foreign enforcement agencies, that cases abroad will be brought against U.S. companies that the United States Government itself might not bring based on that one-sided evidence.
Because the foreign agencies often do less independent investigative work themselves and rely on that which comes to them, there is a real risk that the U.S. companies will be treated in a manner that is less than entirely fair. And I think that's a serious issue and that's an issue that the government should be concerned about, and it's an issue that I think requires some great deal of care and great deal of consideration.
I have taken longer than the time that was allotted to me and I'll reluctantly give up the microphone. Thank you very much.
MR. RILL: Very provocative. May I just for a moment, Mr. Chairman?
MR. DUNLOP: Sure.
MR. RILL: I'd like just to acknowledge with thanks Paul Victor's willingness as head of the Task Force of the American Bar Association which is assigned to help or perhaps watch us. Paul and Harvey Applebaum, who will be appearing this afternoon, co-chair a Task Force of the ABA Antitrust Section, whose sole duty is to help us.
MR. VICTOR: Thank you. It's a pleasure to appear here before this Committee, and it's equally a pleasure, in a professional context, to appear before my daughter, who happens to be one of the staff. Going last, I'm not quite sure what I'm going to say but I'll say it anyway. By the way, there are some benefits of having a last name that starts with a "V". And that is, you weren't called upon very much in school.
On the subject of detection, I guess Gary would be the best one who can answer that because he really knows how these things get started. But I would venture to say a lot of it is luck. I know from the lysine case it was pretty lucky because the FBI had been called in, by ADM itself, in connection with a different situation, and there was some suggestion of either industrial espionage or other industrial problems with people from other countries. And that resulted in the spotlight being placed on Mr. Whitacre, who finally understood that he was in trouble and once he saw he was in trouble, he apparently decided that maybe he can get out of that trouble and maybe even get out of all trouble by blowing the whistle.
And so from that situation, at least three grand juries that I am aware of, of the 29 to 30 that are probably currently existing with international contexts, are going forward, and maybe even more, for that matter. So luck is one thing. Of course, one investigation breeds another.
Our grand jury system is a pretty good system for ferreting out problems, I think. The availability of the immunity mechanism is very helpful. Of course, the amnesty program that we have been hearing about is very helpful, and the recognition that once a problem begins to surface someplace, it's likely to surface all around the world, is another stimulant and aspect that has to be taken into account.
Somebody was mentioning that, at yesterday's panel, there was some suggestion about detection coming out of merger reviews. I haven't seen very much of that, whether you are going through a second request or not. In merger situations, what's really being looked for is prospective collusion, or the likelihood of collusion. I haven't seen much detection of actual collusion in merger reviews. I don't know. Maybe some of the other panelists have, but I haven't seen anything there.
What are the effects of the sanctions? One of the questions is what are the effects of sanctions on prosecution and litigation of international cases?
Well, as some of the panelists were mentioning, the U.S. is a very important business venue and these international business people do want to be able to come here freely. Therefore, when they get involved in a criminal investigation, there is an incentive for them to cooperate if the right deal can be made because they do want to continue to come here. The MOU with the INS has been helpful in this regard, although I have been involved in some glitches with that process which I hope the government will eliminate in the future.
MR. RILL: Special committee.
MR. VICTOR: And that is a helpful thing. On the other hand, we do have people like Mr. Yamada in the lysine case who was actually indicted, but never came, and so there is going to continue to be that sort of a situation.
Treble damage sanctions are a real problem in terms of deciding whether or not to cooperate in a criminal case. And this brings to mind a broader issue. Mark was mentioning the possibility of going too far, breaking the bank, and the treble damage aspect is part of that. That really has to be thought through, especially by those in government. If you are trying to encourage more international cooperation and enforcement, and getting potential defendants to cooperate, somehow or another, some rationalization of this system, rather than the accumulation of penalties around the world, has got to be thought through. Otherwise, you are going to have real economic resistance, and people will fight.
Remember, when one does fight, and I don't know, Gary knows the statistics about how often the government wins, I don't, but I don't think they are too good. When you fight a criminal prosecution, you have a pretty good chance of winning. When the government actually has to try the cases, they frequently lose. Most recently, in where was it, southern Kentucky, or someplace or southern Ohio, in the explosives case, 21 of 22 people and companies pled guilty and the government tried a case against the one individual who held back and the government lost.
The government still has to convince a jury of 12 people, beyond a reasonable doubt, and there can be lots of documents that show that there is real competition in the marketplace notwithstanding the "agreement" which is being put forward as evidence. Some people may not agree that there was an agreement, and so that's a real issue. As a matter of fact, it would be interesting, if the government would ever publish the results of the polling of the jury in the lysine case, to see how the jurors might have come out had there not been any tapes. How often are there going to be tapes? Maybe more often than I would like to think, but that was a very unusual situation.
Concerning the issue of what are the effects of cartel activities, now that's an interesting question. Most of the time, I suppose it's pretty clear cut. If there is price fixing, usually you can get an idea of how much the price went up and how much people suffered. The lysine conspiracy is a very interesting situation, though.
I suppose I would have liked to have had the opportunity to have been in court with the government on the twice the gain or loss concept there, because that was a commodity situation. There was a ceiling on the price of lysine by virtue of the so-called "shadow prices," which was related to the price of soybean meal and corn. And it is not at all clear what the real impact, economically, was in that situation. And I don't know how this plays out in other situations, but certainly it's not a slam dunk all the time.
Problems with cooperation from the defense side, in light of the fact that today most of these kinds of situations that are not purely local are really going to have international ramifications, include what's going to happen in Europe, what's going to happen in Canada, etc. In Europe, where they do have a leniency program that's relatively new, and some of us have been involved with that situation, it's quite different from the U.S. I mean, you are buying a pig in a poke because you can't know what the fine is going to be until it's all over, until you have already cooperated and given the damning evidence. This presents a real problem, I think, ultimately for the Europeans.
Also, if the Europeans are the ones who are starting an investigation, rather than the Americans, that could be a disincentive to cooperation in many situations. It really depends upon the timing, where you are involved in various parts of the world in different antitrust proceedings that are going on at different times of the life of an international cartel investigation. Access to the file problems in Europe exist. For example, will the Member State countries individually seek to do something and prosecute? The fact that the EC puts out a statement of objections, which has a detailed description of the evidence, creates an issue of whether to cooperate with the EC in light of potential treble damage actions and criminal proceedings in the U.S., if the European case began first. I don't know why I'm -- well, I'm saying this in case it's helpful for the U.S. authorities when they talk to the Europeans, so that maybe they can figure out how better to cooperate with them and still encourage cooperation from potential targets. If they can be more sensitive to potential multiple penalties, perhaps they can provide greater incentives to the defense side to try to figure out how to play all of these different pieces of the puzzle together.
Let me see. I don't want to take much more time, but I wasn't completely sure I understood the thrust of the question on the incentives for cooperation between subjects and defendants in the U.S. vis-à-vis foreign governments in transnational cartel investigations. If that means, how can there be better cooperation by the parties involved in a U.S. criminal investigation internationally, will the defendants want to work with everybody internationally at one time, such as happened in the coordination in some merger investigations, again, I think that really requires that enforcement officials around the world somehow bring their enforcement mechanisms and potential penalties together more rationally to apportion the potential fines to avoid duplication and breaking the bank. They have to work that out a little bit better together to encourage people, I think, to work on a multiple jurisdictional level in cartel situations.
As for the issue raised by Leonard earlier, obviously there are defenses, for example, the sovereign compulsion defense. This is on the issue of standard-setting vis-à-vis a government mandate or sanctioning. If you are really attacking a foreign law, that's another problem, so I agree with, I think it was Mark who said that it's really more of a political kind of a situation. I think opening up the European mechanism is probably a wise effort.
On the other hand, there are lots of U.S. companies that are actually based in Europe through subsidiaries. I don't know whether they can be participants to those standard-setting organizations and, in effect, have an opportunity to compete under the local rules in that area.
One other thing, amnesty. I think, Mark, there is an amnesty program in Canada. I don't, I don't remember if you mentioned that. And that program does have some teeth in it. It is one where, at least up to now, if you are the first in, you have a shot to get some real benefits for your client. I think I'll stop there. Thank you.
MR. DUNLOP: I think I want to thank all seven of our presenters for their informative contributions, and I think we have reached the stage of our discussion when members of the Committee who have been artificially quiet for a while would ask whatever questions they may have, and more than one member of the panel can respond to it.
MR. RILL: Let me just seek help in a particular area. And really the first and the last presentation, by Leonard and then a comment by Paul Victor. And that is the difficult question of hybrid restraints which applies to standards and applies to other areas as well. This is a subject we have talked about on the Committee from time to time.
The question is what position should we recommend the Department and perhaps anyone else who might listen to us take with respect to (A) civil, and (B) criminal prosecution of standard-making activity which is, or similar government hybrid activity which is encouraged, mandated, delegated, or implemented by a foreign sovereign?
MR. SCHECHTER: I'll maybe take a crack. The issue that is raised in an international context is precisely the same kind that comes up in a domestic context. That is, when ultimately a government agency sanctions the standard, you are left with an antitrust case that is based on how much of the impact of the collaboration is separate from the governmental action.
To the extent that it's separate, it's a reasonable target of a footnote 159 case, if you will. The other alternative is U.S. government advocacy abroad. And in fact, I'm recalling, and I believe it's the case that the Division made reference to its involvement to some extent in just such a situation. I believe I recall an ETSI case in which the Antitrust Division had some involvement, and it was just this kind of concern about unreasonable exclusion of a U.S. technology in a foreign market.
The bottom line here is that there is a political dimension to it. There is a trade side, informed to some extent by the competition folks. And there is a pure and simple, stand-alone antitrust side. And I think it's fair game for the Antitrust Division or the FTC to consider such cases. Indeed, as of at least, Jim, your time, those types of cases are cases that the Division has said it is prepared to bring and it has brought. Advocacy on the trade side is equally important, however, if not more so.
MR. DUNLOP: You called on more than one person?
MR. RILL: No. I just wanted to see if there was a consensus in this area because it is an area we are grappling with.
MR. WAVERMAN: Let me add a footnote to that. Let's assume there is an institution such as ETSI, or it could be in any country, that sets the standard. And there is not a parliamentary vote on making that a norm. Would that by itself violate antitrust laws?
I think there are two separable issues here. Even without the European Community establishing these as norms, once ETSI comes up with a standard, any country that then wants to use another standard thinks it may be an odd man out, that the market is going to go the other way because this is the ETSI standard. So when you do have these kinds of processes, unlike the processes within the U.S. or Canada, even without this, the government side of it, I think you have a fundamental problem in terms of market access and competition.
DR. STERN: I'd like to make sure that the discussion that we are having this morning addresses some of the fundamental issues, in addition to pursuing the discussions of how to prosecute these cases. And if I could take the first presentation, Professor Waverman, which you made, which was extremely helpful, along with your presentation, Professor Suslow, on what is pushing and generating whatever volumes of cartels actions exist, and I think that's a very fundamental question which we are trying to tackle here.
The standard-setting is becoming an increasingly critical piece of any technologically sophisticated globalized economy. And you were good enough to put up on your chart a number of ways of tackling what might be deleterious aspects of standard-setting, including a more unilateral reach which most of the discussion this morning has focused on. But you also talked about mutual recognition agreements. You talked about harmonization. You talked about performance-based standards which can be manufacturers' recognition of each other's standards.
All of these are areas that go beyond the Antitrust Division's cartel enforcement, and nevertheless, have extremely important provisions. My question to the group, which I know is heavy with lawyers, but I would like to put down at least for the record, is whether we are coordinating our public policy with other arms of the U.S. government, including the Department of Commerce and NIST -- National Institute of Standards and Technology -- and the other standard-setting bodies adequately. Or whether we are looking at the important issue of standards just in an uncoordinated way in which the prosecutors will go after footnote 159 and other footnotes to footnotes.
I would like to get on the record whether this is a significant issue and whether we, as a public policy in the United States, we are using all the instruments available to us and using them in a coordinated fashion. Because I agree with you that standard-setting is going to be extraordinarily important and I have been working very much with U.S. and European business folks on standard-setting. There's a lot of work going on but I have a feeling this conversation is not informed by that conversation, and that conversation is not informed by this conversation.
And so we are here to make recommendation for public policy, so I put that out, both as rhetoric, and also to try to elicit some discussions here.
MR. DUNLOP: Who wants to respond? I want some answers to her.
DR. STERN: No, no, I'm satisfied. I'm trying to frame some of this discussion. And if Mark wants to comment, please do.
MR. LEDDY: Well, I'll defer on this topic to Eleanor. She knows a lot more about it than I do. I have been involved for clients in situations where they are extremely concerned about standard-setting elsewhere in the world affecting their ability to compete. There is no question about that. And I think it is important for the government on the one hand to be vigilant and make sure that anticompetitive standards aren't set elsewhere that affect the ability of U.S. corporations to compete.
And I think the Department of Commerce and NIST, for example, are very much aware of these issues. Whether they coordinate, I don't know, but know they are made very much aware, by lawyers like myself, of the importance competitively to U.S. corporations of standards that they can compete with. And the U.S. has not always prevailed in those situations, as I'm sure you are aware.
As far as the Antitrust Division is concerned I think I have to defer to Gary and others from the Antitrust Division to figure out whether they are involved in the intergovernmental discussions about standard-setting. I simply do not know. When I was in the Justice Department they were. As of today, I'm just not sure about that.
I guess my last point is, I would like to respond to Jim and your question, with an example. I don't think criminal enforcement in respect of standard-setting that is sanctioned by foreign governments is a wise use of resources, and I think we'll have a backlash effect that I worry about.
On the other hand, I think, and my own example involves ETSI, we represented a U.S. company when I was in Brussels, which was very concerned about a standard that ETSI was about to implement. They contacted the Antitrust Division and DG-IV and the Department of Commerce and USTR and I'm happy to report that that result was effective, that that implementation did not take place. It was put back for reconsideration, ultimately a standard with a more -- to my kind of perspective -- equitable and procompetitive result, was effected. So I think governments are important to that. I think the Antitrust Division has a role in that. I do not think criminal enforcement is always the best resource.
DR. STERN: Thank you.
MR. WAVERMAN: Can I just add one thing to that? I think that's a very important question because for standard-setting clearly it's not the detection which is important, because this is in the open. So it's a different animal. The question is: When does a standard become anticompetitive, and what are the tools which a country can use to effectuate a solution to that? So as you said, a lot of discussion is on how do you detect, how do you know there are international cartels? Standard-setting is a somewhat different animal.
MR. RILL: There is a small modicum of protection in a sense of what is the body, how are the inputs set and so forth.
MS. FOX: I want to take up Paula's challenge to put this in a larger context and end up right back with the ETSI market access problem, using perhaps some of the ideas also that Professor Suslow has put on the table. One of the, I think, important themes that came out of certain remarks, including particularly Professor Waverman's and Professor Suslow's, is that there are new forms for and opportunities for cartelization in the globalized world and in the high-tech world.
Now obviously globalization also has increased opportunities for competition but sometimes those increased opportunities for competition also feed right back into chances and desires for cartelization. So one of the things we saw coming out of your presentations was companies that in the past maybe did not meet one another, now are meeting one another and they have an opportunity to cartelize.
Another thing is that nations, companies that had been big in their own national market now suddenly feel threatened in their national market and they may want to have market division agreements of some sort.
And one of the very interesting points that both Professor Waverman and Professor Suslow said was that barring market access is a very important tool, whatever the tools are for barring it, for facilitating cartelization. And market access can be barred by standard-setting, and can also be barred by anti-dumping, as Professor Suslow said. It could also be barred by specific anticompetitive restraints, some of which may be private some of which might be public. And going back to Jim's question, some of which might be hybrid, and we are seeing all of these today.
One of the paradigms I keep coming back to is what we can learn from the European internal market, because the exact same thing happened there and it is a microcosm for the world. It was, in forming the internal market they removed market barriers, so there was opportunity for much greater competition, and there was much greater competition. But there was great incentive for recartelization and market division.
So what did the EC do? I mean, it did of course several things. One is it put limits on state trade restraining action. And what are those limits? And I want to use this in answer to the question of: Should we be thinking more about an international conversation on limits to state trade restraining action? They also abolished dumping in the internal market and they also provided, of course, for common antitrust policy focusing very specifically on market access.
So coming back now to whether there should be an international conversation on state trade restraining action, and drawing from the EC internal market microcosm, I think, as Professor Waverman gave us in his example, he said there are various levels of the nation state order or encouragement or some other kind of more flimsy authorization, of what the private companies are doing. And Professor Waverman also said something else which I thought was very important and makes this a world problem. One of the things that you said that I thought was so interesting was that perhaps the EU is developing a European-champion policy, because there is a single standard in the EU and there are diverse standards, competing standards, in the rest of the world. And because of the network externalities, everybody is going to gravitate toward the EU standards.
So one thing I was wondering was: Is the EU standard-setting going to a common standard simply efficiency promoting? Or is it really European-champion promoting? Can you separate the two?
If you can separate them, should there be an international conversation against the standard-setting that's going to be a severe market access barrier, but not just a market access barrier, because it affects the whole world very much? It affects the U.S. competition even within the U.S. and that's why it's not strictly a footnote 159 issue. We are not talking just about American firms being kept out of the European market, we are talking about one country setting the standards through the world, through what starts out being private and maybe goes up to being public.
MR. VICTOR: Yes. This is not on standard-setting. Am I allowed to make two proposals or offer some thoughts for consideration by the Committee?
MR. DUNLOP: You are part of the process. Yes.
MR. VICTOR: Okay. I guess I didn't say this before, but two possible things to think about in terms of how cooperation might be improved, either internationally amongst enforcement agencies or even with respect to individual targets, whether they be persons or companies. One thing, for companies in particular, is to consider the possibility, and I know it's sort of heretical to say so, but to consider the possibility of offsets in treble damage actions with respect to situations where, in effect, a kind of restitution has been paid to the United States in the form of criminal fines under the alternative fine statute, where the concept of twice the gain to the wrongdoers, or twice the loss to the victims, is involved. I haven't thought this through. I don't know whether the --
DR. STERN: Well, we had some discussion on this actually on the first day stimulated by one of our members, David Yoffie, related to where you are going.
MR. VICTOR: Oh, okay. I see. Happily, I was totally unaware of it. As far as I was concerned, this is an original idea. For whatever it's worth.
Secondly, for the U.S. enforcement officials, who have obviously been striving hard in this respect to make the program more compatible internationally, what can be done to get our foreign friends in the competition law enforcement world, and their governments, to view hard-core cartel-type conduct as criminal conduct? Or, if great strides cannot be made in that direction, maybe the U.S. should back off a little bit and not prosecute all of these situations criminally, but instead consider prosecuting these cartels civilly in return for cooperation from foreign officials through their own enforcement mechanisms abroad. Again, maybe there should be some treble damage offsets in that context. Something to think about at least.
MR. LOFTIS: Paul --
MR. DUNLOP: We can see you disagree with that, so let's have it out in the open.
MR. LOFTIS: I'm glad you said that, Paul, because I do disagree with your last observation and I do so for this reason. I think it's important, for context, to have in mind that two different discussions have been going on this morning. The label cartel is a label that covers activity which is far, far broader and often much more ambiguous in structure and effect than the activity that is the subject of U.S. criminal antitrust enforcement.
U.S. criminal antitrust enforcement has credibility because the charges that are brought are against alleged conduct on which there is an absolute consensus, I would offer, international consensus, that it is wrong. And to suggest that cutting back on that kind of enforcement program, I think would be yielding to a definition of, of cartel that is also incorrectly applied in this context.
MR. GILMARTIN: Just a general question to the panel. I really appreciate the presentations and the opportunity to participate with such a distinguished group on these topics, as a CEO engaged in a strategy of globalization. We have discussed the fact that globalization could lead to increased cartel behavior. And let me ask the panel if you see any evidence to the contrary? Because in addition to exporting market-based economies, in many respects I think we are exporting competition. We have a group of companies and executives who see the way to win is to compete.
And therefore, just as in some of the examples you gave, U.S. companies I think are interested in breaking up cartel-like behavior and in what way will the enforcement and the policy issues we're talking about help us, in effect, break up cartels? Because I don't think we should make the assumption that all of us as we get into global economy are therefore happily entering into cartel arrangements. The fall-back position is not to go toward lack of competition or the full orientation is to go for competition.
MR. LEDDY: I'd like to respond to that. I think it's a very good point. Part of what we do as antitrust counsel in the international arena is to help our U.S. clients, and sometimes non-U.S. clients, fend off invitations to collude, by in effect arguing not only that it's not in the interest of the client because the client does want to compete, but because there are these tremendous penalties if you do collude. And there are situations where U.S. companies, because of their competitiveness, have obliterated pre-existing cartels by entering into markets that were formerly cartelized.
There is a very procompetitive mentality in the U.S., much more so I think than abroad, and I think it has brought tremendous competitive benefits to consumers everywhere and to U.S. corporations.
I just wanted to respond to what Jim said, very briefly, and go back to this. I think, I do believe in the criminal enforcement process and I do think it's an effective tool, but if, Jim, you meant that there is worldwide agreement, that there is moral opprobrium attached to price-fixing, I wouldn't agree with that.
I think there may be more or less international agreement that it is unambiguously anti-consumer, but I don't think other countries and other cultures attach the same kind of moral opprobrium that we do to it, and that is really what creates the drive behind the U.S. criminal process, especially in respect to individuals. So I think there is disagreement worldwide on the use of criminal sanctions.
MR. LOFTIS: I think just to explain myself, I offer no moral judgement. I think one of the beauties of antitrust is that it is amoral.
MR. SCHECHTER: There is an interesting corollary to which Mr. Gilmartin pointed. I really do agree with him. There is both a culture in the United States built on competition, but it's also true that the U.S. firm that's entering a foreign market has also a different incentive structure. It's not the incumbent; it has no stake in any existing cartel.
This might explain why some foreign authorities take a more protectionist view towards antitrust, it may indeed originate from the fact that in the United States when there is foreign entry, it doesn't have a big impact on U.S. firms in the sense of the price effects. On the other hand, when U.S. firms penetrate foreign markets where there isn't a tradition of competition, antitrust enforcement does have a big impact on the bottom line of those foreign firms, which kind of explains why there may not be the same level of enthusiasm towards antitrust enforcement.
While I have got the microphone, I would like to make a last point. In the context of HSR, it's certainly the case that foreign-located documents have to be produced and it's self-enforcing. If you don't produce them, you are not in compliance with HSR and you are subject to big fines. I wonder, at least with respect to corporations that have a presence in the United States, whether some thought might be given to empowering subpoenas, grand jury subpoenas to reach foreign-located documents? The theory would be something like, to the extent that a company has chosen to do business in the United States, to avail itself of the rights and privileges of doing business in this country, there are likewise certain exposures to doing so. And one of those is that you have to produce materials that are relevant to criminal investigations. You have doubtlessly thought of it, and I'm, I'm doubtlessly behind the curve on the counterarguments that I'm sure my friends will point out. That said, it seems worth considering.
MR. DUNLOP: I have four or five people who have asked.
MR. WAVERMAN: I wanted to ask Mr. Gilmartin in this way, which is again a different mechanism. If I take the case of Geotek, and I only know this secondhand, a small U.S. technology company who wanted to compete in Europe, but could not get its technology licensed. This is for paging for which roaming is unimportant, there are none of the internal market arguments that the Commission tries to bring. And it went through the Department of Justice. It went to State, it had all of the good noises. But it decided it's a small firm, small pockets and they finally sold and have gone bankrupt. So the ability to compete was there -- the desire to compete was there, but the ability to enter was not present.
MR. KLAWITER: As somebody who has been involved in a number of these cases -- and I'm feeling a little bit like the historian of these cases -- there are situations that have come out in the course of the investigations that demonstrate that where a company, and in at least one case a U.S. company, did not accept the invitation to be part of the cartel, and actually stayed away, it did have the affect of immediately eroding the value and the significance of the cartel. And I'm sure we will see that repeated in many, many situations of that kind.
I think the ultimate issue is going to be will the U.S. company when confronted with this global situation of a European or an Asian cartel or a regional cartel already in place. Are they going to take that perspective which is what the assembled lawyers here who do compliance programs are going to tell them to do every time, or will they, as came out in the context of the ADM trial, want to know what those other guys are up to?
They say to themselves, "I'm not going to agree to anything, I'm not going to be part of it, but I have got to go to that meeting because it's going to affect my business." That's the thing I worry about the most in terms of this whole process, and again, I think they do it in good faith. I don't think they go there to collude or agree, but you can so easily get pulled into that and the results are very clear in what we have seen in these cases.
MR. GILMARTIN: Just a quick comment. You see, my, you know, our discussion this morning was more around the situation of U.S. companies that did, you know, engage or apparently engaged in this kind of cartel behavior, and how do you deal with that from an enforcement standpoint and how do you get cooperation and things like that.
Whereas from my perspective, the issue is more along the lines of the case that Mr. Waverman talked about. It's where you, because of a hybrid private sector, set up either through standards or whatever, are in effect precluded from it. So what are the avenues that are available then through the judicial, through the legal system and so forth that would allow you to take on these situations?
And therefore, how do the things we are talking about fit together, that would allow U.S. companies to be even more competitive as we enter globalization and we export market-based behavior? Because there is a tendency, I'm sure, where if a U.S. company coming in is going to disrupt the local companies dramatically, there is probably a tendency to be less enthusiastic to cooperate on an antitrust-type situation. So how do you enforce then?
DR. SUSLOW: I just want to make a few comments on some of the issues that have been raised. One is to clarify something that economists are used to saying. We don't know. I don't think we know whether cartel activity has increased substantially. I don't think that we can know because so much of it is underground, although it's an issue that's worthy of study.
I think the interesting thing is that there seemed to be a fall-off in cartel activity after World War II, and there seems to be a bit of a resurgence, but I think that any effect of increasing cartel activity is swamped by the effect of the increase in enforcement. The lawyers on this panel raised this as a significant issue.
One of the things to observe is that we could have had an amnesty or leniency program in the 1950s or '60s or early '80s, and I'm not sure that the companies would have come forward. So something else has changed their internal calculation of the probability that the price-fixing scheme will be detected and that a large fine will be levied. Something has changed so that they are willing to come forward, and I don't think they would have before, so I think that the enforcement can't be ignored.
The other quick comment pertains to other countries and how they view price-fixing schemes. They will often call them price stabilization agreements instead, and so I think that in terms of exporting our views and asking for cooperation in terms of antitrust enforcement, we will encounter some resistance because sometimes they are seen as pro-consumer or at least pro-downstream industry, if it's price stabilization.
MS. JANOW: In the interest of time, I will defer.
MR. DUNLOP: I'd like to take one more from our overseer.
MR. VICTOR: This is just an effort to respond to Mr. Gilmartin's point, which maybe I'm completely off-base on, but as things currently stand, you have just a few options. You can go and complain. Let's assume this was in Europe. You can go can to complain to the European officials and see if you can get anywhere. You can complain to the U.S. officials and see if they will go to the European officials or do something on their own to assist you in that situation. I suppose you can go to the USTR and evaluate the possibility of a 301-type proceeding. Or, if you feel you can get evidence on your own and it would really show some type of collusive conduct and activity, you can consider bringing your own case here and see whether or not you can get jurisdiction over these companies in the United States and proceed that way. Maybe there are others as well, but I mean if I understood --
MR. GILMARTIN: You know, and that's well recognized and everything. All of those avenues are available and are used, and with varying degrees of success. But in the spirit of what we are working on here as an Advisory Committee in terms of world cooperation and what kind of policy changes might be made that would make that an easy, you know, a more effective process, let me put it that way.
MR. RILL: Let me just, I want to leave one question on the table regarding detrebling as a tradeoff for criminal sanctions and cooperation. Are we talking about detrebling for cartel behavior but not for noncartel behavior? How do we deal with that situation?
DR. STERN: Okay. I would like to wrap up this session with a question that I would like to put on the table as well. In response to the provocative remark from Professor Suslow about companies that are now willing to come forward more, and that something has happened, I would say that we ought to look at that in the context of another conversation going on in international discussions about bribery and corruption.
Somehow the OECD has been able as a matter of public policy in the international community to negotiate and agree to -- and Congress to ratify the signature on this OECD agreement on bribery and corruption. I think the reason has to do with the demise of the Soviet Union. U.S. authorities and some of the authorities in the Western alliance have now been willing to look under the carpet and acknowledge things, some dust that may have been swept under there while we were busy fighting the Cold War. That's a provocative statement but I think it is worth putting on the table since we are searching for reasons for these major, fundamental shifts.
I would like to put on the table particularly for the attorney practitioners to talk or add in later discussions to the issue of confidentiality.
Paul Victor was good enough to bring up the point that he has not seen in the context of merger reviews, the Hart-Scott-Rodino review, the documents that you, Mark Schechter, were starting to extend through subpoena authority. In merger review, has there been any leakage, to your knowledge, of information that goes into cartel enforcement?
This is an interesting issue because, as we have discussed in our previous panels on merger cooperation among the authorities, there are business people who have been very reluctant to share information for fear that there is some kind of leakage. And we are just looking for facts, factual data points.
With that, I would like to say that we appreciate very, very much all of your preparation and your presentations this morning. We are going to close this. We have allocated a 15-minute coffee break but now I think we'll have a 10, 5? A 10-minute coffee break and we'll resume at 25 to the hour with our next discussion on trade and competition policy interface. Thank you.
DR. STERN: I'd like to bring to order this next session of the trade and competition policy interface. We have now assembled all of our panelists, who I believe have been listening, if not for the last three days, all day today. And in fact, I think we may have had a good segue into this discussion, and I'm going to turn the chair now over to Professor Eleanor Fox, who will lead us on this panel on international antitrust cooperation and bilateral and plurilateral efforts.
MS. FOX: Right. Thank you. To the panelists I'd like to say thank you very much for appearing here today. We are very much looking forward to your comments. We have a most distinguished panel, just going around the table from Professor Matsushita, the leading Japanese antitrust law and trade law expert, who is professor at Seikei University and on the World Trade Organization dispute panel. You have so much to add to all of our various points of view.
And Professor David Richardson, who is a leading professor and writer and scholar and consultant in the field of international economics, and is a visiting fellow at the Institute for International Economics and has just coauthored a major book on global competition.
And next to him, my dear friend Anna Fornalczyk who was the first head of the Polish agency, the Polish Competition Agency in the post-Communist times in Poland and was there for five years and built that foundation up very strongly, and we are all very proud of that, Anna.
And coming over here to Richard Cunningham, who is a senior partner in international trade at the law firm of Steptoe & Johnson, who is a major participant as lawyer in the international field in anti-dumping cases, countervailing duty cases, World Trade Organization issues, and is the Chair of the ABA International section, Committee on trade and competition.
And next to him, Ana Julia Jatar, who is the first head ever of the Venezuelan Antitrust Agency and made a wonderful mark while she was there. And next to her, my dear friend Diane Wood, who is a judge in the Court of Appeals for the Seventh Circuit and a professor of law at the University of Chicago, and was Deputy Assistant Attorney General for Antitrust when Anne Bingaman was Assistant Attorney General for Antitrust. And Diane was on the ground all over the world collaborating and facilitating cooperation of nations that has brought international cooperation to the high point that it is today.
So we are very, very happy to have you here. As we know, this session is about the interface of trade and competition, and particularly we are asking about the comparative advantages between bilateral cooperation, regional cooperation and plurilateral cooperation. There is another panel following, on multilateral cooperation, but we invite your comments on that too because we know you are experts in those fields also.
You all have gotten the questions that we handed out. Let me just let you go on and address them in the way that you would like, and then we, of course, will have our follow-up and our discussion. We are going to do this in alphabetical order again and that means that Richard Cunningham will be our first speaker today.
MR. CUNNINGHAM: Thank you, Eleanor. And I'm grateful to speak here. I'm pleased both because I think this is an important issue and because it's an area where I have had a lot of experience and a lot of frustration in my own practice.
I want to particularly focus on the issue of market access and the extent to which we have or can develop means to deal with the problems in that area. And I want to start with an observation that I think most of the debate in this area ends up being unproductive because it goes at it the wrong way.
Most of the discussion of competition policy and trade policy, in dealing with private practice market access barriers, starts out saying well, let's look at competition law and let's look at trade law instruments, and let's see what they deal with and how we can apply them to the market access issue. That leads you to a dead end, certainly for the United States.
It leads you to a dead end because unless there is substantial government involvement in the market-access-denying practices, what you have to deal with is essentially what a competition policy lawyer would refer to as vertical restraints. And vertical restraints are largely tolerated by current, I'll underline the word current, and I hope somebody will ask me why I keep saying current, U.S. competition policy.
And that puts us in the position that essentially makes unilateral and bilateral action, bilateral efforts to address that issue impossible. It makes unilateral effort to address the issue impossible, even under Section 301, which has a provision which allows the United States Trade Representative to move against a foreign government that tolerates anticompetitive practices.
And it makes unilateral action with regard to antitrust enforcement equally impracticable, because in both cases, you are going to the mat with a foreign government on a practice which we ourselves say in our competition policy is not a forbidden, certainly, and absent rather unusual circumstances, not a realistically challengeable anticompetitive practice.
It also makes bilateral negotiation of such issues as a trade matter unproductive, and lest there be any doubt on that, and I can see Merit wincing at this point, one can think back to the framework discussions with Japan on these issues, in which the U.S. sought to discuss with the Japanese the issue of structural, which was an euphemism for private, anticompetitive structural practices, keiretsu practices that the U.S. felt were access-denying private practices. And that never got anywhere for a very good reason.
The United States was in a position of not coming down on such practices here in the United States. Why the Japanese would say that "Gee, we have a problem doing the same thing that you don't object to when it's done in the United States." That same argument was the crux of the response argument in the Kodak/Fuji case by Japan, and therefore we are in a position on private-practice market access barriers where we are not in a position to use current bilateral or unilateral mechanisms to go after such practices.
And therefore it seems to me not a productive exercise to say all right, let's look at what remedies we have, what procedures we have and see how they can deal with private market access barriers. Instead it seems to me that the analysis ought to go more like the following: Is there a real economic problem out there? If there is, what can we devise to deal with that problem?
I come to that with something of a conviction, I confess, and it's a conviction that grows out of my own practice. As Merit will recall, I often represented the American Electronics Association in the years leading up to the framework negotiations. We were asked by that association to prepare for them a strategy to devise an approach to dealing with their industry's access problems in whatever form in Japan. Hopefully through bilateral negotiation, not through belligerence.
What we did was we surveyed the industry, comprehensively, and what we, as trade lawyers, thought we were going to get is governmental practices, discriminatory standards, discriminatory government procurement, tariffs, tariff escalation, things that you normally experience in dealing with as a trade lawyer. And we got some of that, as you would get dealing with any country, including the United States.
What we did not expect was the overwhelming preponderance of responses that the main problem was private sector market access barriers. Distribution system restrictions in which dominant sellers controlled or influenced the distribution system in such a way that a seller of retail products was not able to get into the established distribution system and thus was faced with the Herculean and expensive task of setting up a separate system in a foreign country.
And for component suppliers, the overwhelming concerns were of exclusionary business relationships. Keiretsu is the term that most people use for this. But they are a relationship which a finished product manufacturer buys from a group of or maybe one supplier that usually is a member of the same keiretsu group. That is a established purchasing pattern and a U.S. manufacturer or other foreign manufacturer or indeed other Japanese manufacturer of components has no access to that manufacturer's finished product manufacturer's purchasing.
And so on both of these, in both of these contexts, U.S. companies that were world leaders in their product, offering undeniably competitive design products and offering prices which, in many of the anecdotes we explored, were acknowledged by the Japanese purchaser or by the Japanese distributor to be not only competitive but significantly lower than the price offered by the competing Japanese supplier, were not able to make a sale because there was an established relationship.
Now, what that ended up being, in terms of our USTR, it ended up being translated into major aspect but I must say, a pretty totally unsuccessful aspect, of the framework negotiations. I also want to hasten to add, this is not a Japanese problem. In my practice, I have seen similar types of private exclusionary relationship situations, distribution situations in other Asian countries, in Latin America and even in certain industries in Europe.
What it is is a problem that's very difficult to deal with through bilateral or plurilateral means from the United States, and I would suggest to the issue, suggest to you that the issue is not whether U.S. competition policy can deal with that. I would agree with Diane Wood, who made a speech on this issue a while back, and who said don't put on competition policy the task of dealing with this complex of private market access barriers.
I think it's a trade issue. I think it is a substantial economic issue. The issue is does U.S. competition policy in its current treatment of vertical restraints stand as a barrier to our finding a trade law approach to dealing with that? I believe -- many of you know me know that I get most of my ideas from other sources either from learned professors or from 1960s rock groups.
In this case, I would commend to your attention a lot of the writing that Eleanor Fox has done in this area, which shows a lot of creativity. She is, I will reveal her past as a member of a rock group here. It seems to me that there is ample room for U.S. competition policy to coexist with the concept that vertical restraints as a market access barrier in international trade raise different issues and thus can be treated differently than, than U.S. policy would deal with them domestically in terms of competition law.
I say that for two basic reasons. One is that there is a competing policy issue, a competing policy that the U.S. fervently adheres to and that the world trading system fervently adheres to, that doesn't exist in the domestic sense, and that is the policy that underlay the GATT in the WTO from day one, which is that what we were trying to do in the world is to remove barriers to the flow of trade and increase trade flows as a means, as the basic driving force of the U.S. market -- of the world market.
Second thing that seems to me is different about the international situation is that our view in competition policy, that vertical restraints can be assumed normally to be done by companies because they are efficiency-increasing, efficiency-maximizing is a view that may not apply, for reasons that was touched on in the last panel, in other countries that have other views of the motives that corporations have for doing things that are not entirely profit-maximizing.
There are, the views of corporation's role of society, role towards its society, role towards its communities are very different in other countries, and may lead to a fully justified, in their view, reason for putting together vertical restraints, even though they are not efficiency-maximizing.
I say to you, though, and I will close on this, that unless we find a rule, a way to deal with this, a way to develop an international rule, whether it be plurilateral or whether it be multilateral, you leave in place a phenomenon that I think will increasingly undercut the fundamental premise of the bargain that is at the heart of the world trading system.
Since the 1940s our bargain in the WTO and the GATT has been for each country, saying to all the other countries, I will reduce my barriers to your exports, whether they be initially tariff barriers or whether they be governmental regulation or standard, discriminatory standards or whatever, I will reduce and ultimately eliminate them. The quid pro quo is that you will do the same for me.
We leave a situation in which the bargain instead is you will reduce your governmental barriers to market access, and that your system -- speaking of the United States now, will leave essentially free market access to my, other country's, goods. And I will do the same for my governmental barriers. But be warned, that doesn't mean you are going to get access to my market, because my business community, my economic society is set up in a different way such that you are not going to have effective access.
And I'm trying not to be pejorative. I'm trying not to call these schemes or unfair practices. Let's just call them differences in the way corporations operate. If you leave that situation intact, I submit that you risk real danger to the world trading system. And particularly, and the danger will increase as we have stripped away more and more of the governmental barriers to trade, and we are left with the issue of private conduct and does it impede trade flows.
And I would urge attention to a, a market access code of some sort. And we could talk a little bit about what that might be.
MS. FOX: Thank you. Thank you very much. Very stimulating comments. And we are going to turn right now to Anna Fornalczyk.
MS. FORNALCZYK: In my first words, I would like to thank you for the opportunity to be here. I thank you indeed. Well, let me very shortly present my general remarks on the hearings, which I have followed very carefully since the first hour of our meeting here. It's very interesting to me.
Well, I think that all of us, we agreed that competition squeezes efficiency from the companies and protects consumer welfare. And we agreed also that the globalization of the economy is a fact. From this point I think that the cooperation, bilateral and multilateral cooperation among competition agencies, should not be questioned. In spite of many obstacles, many difficulties resulting from differences in procedures and resulting from difficulties with confidentiality of information.
But I'm deeply convinced, according to my own experience when I was the head of the anti-monopoly office in Poland, I'm deeply convinced that the competition agencies, especially when we discuss about trade and competition policy interface, they must cooperate.
Well, let me say that it seems to me that our discussion has been dominated by the enforcers' point of view. It would be well to highlight that a soft harmonization of competition law and cooperation of competition agencies may be very good for activity of business in a global economy. I wouldn't want to be a cynic, but I think we have to convince the business community that the harmonization of competition regimes in a global economy may facilitate the activity of especially big business.
I may say that from my own practice as a private consultant, I met many foreign investors who came to my office and who asked about competition regime in Poland. And when I started to explain to them which are the main points of our competition law, many times they said to me oh, that's similar like in the European Union and it's similar like in the United States. And this is very important for business community, to have similar conditions for its activity.
The next problem is cooperation on the competition matters, among competition agencies, but not only among them.
According to my experience, when I was the head of the Anti-Monopoly Office in Poland, I may say that especially from the point of this interface between trade and competition policy, it's very important to have good relationships between competition agency and other agencies and ministers in the same government.
Our concept since the beginning of the implementation of competition law and policy was to inject competition provisions into different laws. For instance, as you know, we have got the antitrust provisions in law on securities in Poland, in law on public procurements, in energy law, and in many different laws.
It means that the state administration as a whole is obliged to respect competition policy and competition matters. This is very important to have support from the side of other ministers and other heads of agencies. Of course, I am not so naive that I think that the competition agency may be supported, for instance, by a minister of agriculture.
I know very well that this is a very, very sensitive problem all over the world, even in the United States. I have even said because the United States has a very, very long tradition. I remember after the first month of my tenure as the head of the Anti-Monopoly Office, Jim Rill and Janet Steiger visited me and told me that just in 1990, where it was the first year of my activity -- the antitrust activity in the USA had an anniversary of 100 years.
MR. RILL: 100 years.
MS. FORNALCZYK: Yes. Well, I am used to saying in every forum that the most important problem is to have a competitive environment. It means, the competitive economic policy. I may say that it is a little bit schizophrenic situation when the competition agency fines monopolistic practices exercised by the national champion, who is protected by other ministers. This is an absolutely abnormal situation.
When we look at the essence of competition, we have to see that competition means equal conditions of activity for all economic entities, and from this point, we may distinguish many, many instruments, many tools which may be set out by private action or by administrative action, and these tools and instruments may harm competition very much.
When we look at this interface between trade and competition law and policy, I may say that liberalization of trade because of WTO activity, because of European Union, NAFTA activity, all of these activities bring us to the situation that we almost have no tariff barriers. But of course we know from practice, Professor Waverman told us in a very interesting way about the special administrative barriers created by standard-setting systems. It was absolutely interesting to me because we are just starting our negotiation with the European Commission about our association with the European Union, and one of the most important points in our negotiation is the anticompetitive character of the Polish standard-setting system. And now I know that the United States claims the same against European Commission. It sounds very, very attractive for me.
State aids are the next method for some kind of discrimination, not only against foreign companies but also some of national ones. State aids are monitored very carefully by the European Commission and because of our European agreement, we have to harmonize our subsidies regulation to the European Union's standard. But I am used to saying that we have to do it not because of our European agreement, but because of our bad custom, inherited from the past from the command economy.
In that time it was normal practice that the companies were subsidized by the government and now we have to set up quite new market-oriented financial disciplines. It's very important for us.
Well, the next field of cooperation, especially very important for countries in transition, is cooperation among international financial organizations. We touched this problem on Monday. I may say that if you are interested in it, I may give many examples how much bad policy from the side of the World Bank supported old monopolistic structures, and some examples when loans given by the World Bank supported just competition development. But I know very well very brave competition people in the World Bank, but I think that they are alone, that there is the same situation like the competition agency and the agriculture minister in the government.
Which means that it should be very, very, very important point of discussion about new international financial policy. We see it now in present Asian crisis.
Well, maybe I'm dominated by the problems of the transition countries, but I would like to remind you what Mr. de Leon from Venezuela told us on Monday. He told us when we look at the trade and competition policy interface, we have to ask ourselves about preferential treatment for national producers, especially in developing countries, in transforming countries, transition countries.
I think that we may discuss in many sophisticated ways all of these problems connected with trade and competition policy matters, but we have to remember that the core problem is the difference of economic development between the United States, Asian countries, and European countries. For instance, now Poland, Czech and Hungary, just have started negotiation on membership in European Union. It means that we will go into the trade system of the European Union. We are very interested in bilateral discussions, between the United States and the European Union on trade and competition.
For instance, when we discussed in 1991 the European agreement, we didn't agree to put into this agreement merger control from the side of the European Commission, because we would like to be open to foreign investors from various countries, not only from the European Union. We don't like to be monopolized by the investors from the European Union. Of course, this is a reasonable solution that I believe is the best solution -- that Poland, Hungary, Czech and other Eastern European countries will be members of European Union.
But on the other hand, we have to remember about competition as a global process in a global economy. I'm going to stop there.
MS. FOX: Thank you very much. Before we go on, let me just mention one question I hope we will return to. This is linked to a question raised two days ago and addressed a bit by Professor Jenny.
Some of the post-Communist countries, the Central European post-Communist countries have been under pressures of pro-liberalization and pro-competition from the European Union. And a question is: How important was it to have an overarching authority applying pressure and explaining the values of pro-competition? How important was that to Poland? How important is that to countries in transition? Do we have a voice from above which is expressing and maybe giving information on the virtues of a liberalized, pro-competition society? So that is something for us to think about a little later.
We turn now to Ana Jatar, who might have some comments on that.
MS. JATAR: Well, thank you very much. I'm also very happy to be here. And I think that I agree pretty much with what has been said from Mr. Cunningham and from Anna. Let me begin by saying that maybe one of the problems that we are facing in the interface between competition policy and trade is that whereas we all agree in the globalization of markets, we probably don't agree on the globalization of industrial policies.
And where we are constantly seeing friction is between. We all agree that we need to have access to all the markets, but when it comes to national industrial policies in its wide sense, there is no agreement that we really need like a global sort of view. And I'm going to tie that with what Anna was saying at the end and Eleanor's comment, which I think is very, very important.
In the beginnings of the European Economic Union, I think that what was very clear to them is that they had to promote competition, but basically in the formation of a European firm, a European company which set up a series of competition policies to the inside of the Union that prioritized competition over vertical restraints, for instance, and also left for later any regulation of mergers. So that was a clear strategy to develop a common market, but also a common industrial policy.
I think that that is not the case in most of the other trade agreements, and one of the reasons I think was basically the origin of the European Economic Union, which was also very political, right after the Second World War, there were interests in political union, economic union.
And so when we see NAFTA, for instance, obviously the objectives are not the same. When we see Mercosur, the objectives are not the same. And when we see the Andean Pact in South America, the objectives aren't the same. It's basically free trade, market access. But nobody is thinking on an economic union with a concept of a regional firm as the objective.
I say this because I'm going to devote the few minutes that I have for my duration this morning to my recent experience advising the Andean countries in developing a common competition rule. And I guess the main question when you try to advise countries that are under the same trade agreement is: What kind of objectives do you have? Do you want to follow the European Union? Do you want to follow NAFTA?
Those are basically the two extreme points. Because I agree with Anna that not having any kind of agreement is out of the question. It's out of the question because, more and more, it's more difficult to get information when there are spillover effects from anticompetitive behaviors. So even though you only want the information in order to prosecute a company or cartel that has spilling effects over to other countries, you need at least an agreement on information sharing. That is very basic.
Then the next question is: Do we need more than just a simple agreement on information sharing in the case of regional trade agreements, or in general trade agreements? And I think that it also depends then on the kind of agreement. I think that NAFTA probably works pretty well. I think that the competition rules on NAFTA basically say, we agree that each country is going to enforce its own law and when there is a case that needs information from another country, we are going to share that information. That's basically what NAFTA says.
Now, on the other extreme is the European Economic Union with a supranational law that very much takes the place of national enforcement. The rest of the countries are looking, speaking from the Latin American perspective, we are looking at these two models and saying: Well, which one will suit us better? And I'm going to maybe give you my experience in why I think, at least in the case of Latin America, it is better to have something more than just an information sharing agreement.
And a lot of it has to do with the fact that we haven't made up our minds on the conflicts between competition policy and industrial policy. And I think that that's the basic point. I think that a supranational law or rule or regulation that would set up the basic orientation of the competition policy would be very beneficial for countries that have recently liberalized their economies, for the following reasons.
First, I think that it works well for defending national competition agencies from the pressure of private interest groups. If a national agency has a supranational authority to refer to, it can defend itself from antagonistic executive powers from other government agencies that are pressuring to change the policies, and from private interest groups.
I think that in that sense, it's important, at least at this stage, to have a supranational rule. And we all know that increasing the autonomy and independence also increases the credibility of the agency. And the developing of credibility for these agencies, it's a major issue in Latin America now.
The second reason why I think that we need more than an information-sharing agreement, is because I think that a supranational law also will provide the criterion for harmonization. Obviously one of the reasons why NAFTA only can be an information-sharing agreement is because the Canadian law, the U.S. law, and the Mexican law have more or less the same objectives and philosophies.
That is not the case of other regional trade agreements. That is not the case of Brazil, Argentina, Paraguay and Uruguay taken individually, and that is not the case of Venezuela, Colombia, Peru, Ecuador and Bolivia who form the Andean Pact. Their laws are totally different. They have different philosophies. Some of them are inspired by EC, others are inspired by the United States. So the supranational regulation I think would bring at least some guidance for very much needed harmonization between the laws of the same regional trade agreements.
Also, the third issue, it is what Anna already mentioned and has been mentioned through all the sessions, is the government subsidies and also the government policies in general. There is also conflict between tax policies and competition policy. Tax policies not only at the tariff level but also at a municipal level.
I have just come back from Peru and I found out that there is a big fight going on there between the competition agency and a mayor because the mayor of an important city in Peru has just decided to give Coca Cola the rights to sell only Coca Cola in specific beaches, in order to get, you know, some more taxes for his office. So there is definitely tax implications, and I mean not only at the national level in tariffs or higher or lower tariffs, but more in the decentralized governments now, we are having the same conflicts.
And last, number four, my feeling is that a supranational regulation would be very useful in establishing the basic criteria for information sharing on merger enforcement within a specific trade agreement. The way it is now, I think that Latin America right now has very conflicting views, each country has a different view of how to enforce merger regulations. There are countries that are totally against it: for instance, Peru, and Bolivia are totally against any kind of merger regulation. Venezuela and Colombia have had a different view and also Brazil.
But all countries agree that if you are going to develop a trade area, you need to cooperate when there is a merger and you want to identify the geographic market. So I think then, an information-sharing agreement sharing for merger enforcement, it's is very important.
And the last point, I'm going to take just one minute to make a comment on the vertical restraints. I definitely agree with Richard when he mentioned that one of the basic problems on bilateral enforcement is vertical restraints. And we are looking at these kind of restraints more and more closely in Latin America.
I have to also mention that one of the ways that companies are finding in order to overcome the huge barriers to entry of distribution channels is through mergers. So that is why we have to keep in mind that maybe we have to be a little more flexible on vertical mergers and structures that are highly vertically integrated, because sometimes it's the only way to promote competition in certain sectors. And I think that competition agencies in Latin America, some of them are taking this view.
Fifty percent of the direct foreign investment in Latin America is made through mergers. Therefore it is important to keep in mind that also you want to promote foreign investment through competition policy, so in mergers, vertical restraints, it's also a very important issue that we have to keep in mind. Thank you.
MS. FOX: Thank you so much. And here I want to highlight a question that we will put on the table later, which is the following. You have made a very forceful argument as to why supranational rules within Latin America are very important, and one question we have is: Are your reasons able to be generalized for the world? Do they also apply or do they not apply to a need for certain supranational rules for the world? And here let me just refer to one aspect of all that you were saying.
You mentioned at the outset, and I couldn't agree more, that we haven't made up our minds on the balance between national industrial policy and competition. And I think this is true even within every nation and within European Union. So is there any reason or any way in which we as a Committee should be thinking about a regime that might in some way limit national industrial policies with large negative spillover effects to the rest of the world?
One small point I also want to make in response to your mentioning how such limitations can help nations have a defense against private lobbying that they think is against the public interest. Within the European Union, as I guess you all know, this is often said regarding the subsidy regime: that because there is a subsidy regime nations can resist subsidies. And that is exactly the concept you were telling us about. Should we think further about the concept of a regime from above that can help nations defend themselves against the passage of unnecessary, anticompetitive private interest regulation?
We will turn now to hear Professor Matsushita and let me just reflect on our program for a minute. We will be taking a lunch break and that probably is either at 12:45 or maybe at 1:00, depending on how this works out. And we do have a continuation of this session right after lunch, giving us a little breathing space. So let us turn to Professor Matsushita now. We will see where we are when it comes time to think about lunch between quarter of 1:00 and 1:00. Thank you, Professor Matsushita.
MR. MATSUSHITA: Thank you very much. I would like to express my appreciation for your inviting me to speak before this distinguished Committee. Now, I understand that the subject matters of this panel cover wide areas of the bilateral, plurilateral agreements, and also the speakers so far spoke about a very wide variety of subjects.
I do have some comment on those things but I think as far as my presentation now is concerned, I will focus on a narrow issue of bilateral agreement between the U.S. and Japan. Because that is under negotiation and I did not participate in the session on Monday so I don't know what our government people have told you.
MR. RILL: Yes, you do.
MR. MATSUSHITA: Whatever they have told you, is a government view and what I am going to say is my private person's view. So now, not much has been disclosed yet, as far as the content of the bilateral negotiations between the two governments, but the JFTC has announced that there are five points that should be discussed between the U.S. and Japan. Among those I think there are two very important points. One is that of positive comity. The other is that of the exchange of information, and so I would like to briefly speak about those two aspects.
Now, speaking about the positive comity aspect first, it has been used already up to a certain point, I think. For example, there was in the case of soda ash some years ago where the USTR requested the Japanese Government to step in and then the Japanese Government applied the Japanese Antimonopoly Act on that soda ash import cartel. I understand that there is some dissatisfaction about the result of it, but nevertheless, it is true that the law was applied. So this is one example.
The other example is the Yokosuka Naval Air Base case. This is a bid rigging case of the construction of something at the naval air base in Yokosuka. There the JFTC applied the Antimonopoly Act, and I believe that a U.S. company brought a civil suit in Japan. Now this is the second example.
The third example is the Yokata Air Base. This is essentially the same sort of thing. So that is being done already up to a certain point. But I think it's useful to have a provision in the bilateral agreement for positive comity because that will give the reason for the JFTC to step in if there is some sort of an international case.
Now, in this connection, I'd like to mention something about the Fax Paper case, where the U.S. and Canadian authorities have cooperated with each other and prosecuted the cartel. The cartel was entered into in Japan. Now, what happened there was that there was a price fixing agreement among the manufacturers of fax paper in Japan. They sold the product to trading companies and trading companies sold it in the United States and Canada.
Now, Canadian and U.S. law were applied on that cartel. Well, what about Japanese law? I think this is the question. There it seems to me that there were transactions between the cartel and Japanese trading companies in Japan. So as far as jurisdiction is concerned, I think the JFTC could have stepped out into the scene, but I don't think JFTC has stepped into the scene as far as that particular cartel was concerned.
I do not have information as to the reason why JFTC did not intervene. Probably the reason is there was no incentive because their cartel was to fix a price in the United States, and so there was little incentive on the part of JFTC to step in, and if JFTC did step in there would have been this kind of complaint domestically, that Article 1 of the Japanese Antimonopoly Act says that this law is to the promote national economy. And, well, if the Japanese FTC applies its law on the cartel that fixes prices in the United States, what did that have to do with the national economy? Well, this may be a parochial view, but I think there will be this kind of a complaint.
Now, if there is, if there is an international agreement where the positive comity is enshrined, then the JFTC will probably give some priority to cases of this type, and so in that respect, I think it's very important to have some kind of positive comity language in the agreement between the United States and Japan.
But on the other hand I have to say that there is a limit to the effectiveness of the positive comity, because there are some exemptions, for example. An export cartel is an exempted under the export and import transactions law, and also I understand that in the United States an export cartel is exempted under the Webb-Pomerene Act and Export Trading Company Act.
And so what happens if the U.S. government asks the JFTC to do something about an export cartel in Japan? Well, a Japanese agency would have to say that this is exempt, therefore we have no jurisdiction to control. And so this is it.
Suppose the Japanese Government asks the U.S. Government to do something about the Webb-Pomerene association -- well, then, the U.S. Government will say well, this is exempt. So there is a limit to effectiveness of the positive comity.
So this now will lead to the proposition, I think, that to make the positive comity more effective, I think some degree of convergence of competition law is necessary. It has to be premised on some sort of similarity of the competition law, if you want to make positive comity more effective.
So this is about the positive comity, but what about the exchange of information? I think that the core of the problem here is exchange of confidential information. If the exchange is limited to nonconfidential information, well, that's easy, but I don't think this is so useful. The core of the matter is whether or not you can exchange confidential information.
Well, let me tell you a little bit about the Japanese legal association on it. I think it's very difficult at this point, because the Civil Service Law prohibits civil servants from disclosing the confidential information, so this is one of the problems. The other problem is that the Antimonopoly Act itself prohibits disclosure of confidential information. And so there are legal obstacles for this sort of thing.
But aside, setting aside political and other problems, I think strictly speaking about it as a legal problem, I think it's useful to cite Article 26 of the U.S./Japanese tax treaty which provides that confidential information can be exchanged and the exchanged information can be used by tax agents, only for the purpose of taxation. So if there is that in the tax treaty, why not in antitrust?
You need to have a treaty, a formal treaty, not just the existing agreement to be able to overwrite the national law. And so -- but if you have that, then I think at least in theory, you can have the exchange of confidential information. So this is another point that I just wanted to raise.
Now, before, and maybe I might elect to make just a little bit of general comment about the bilateral agreement. I think that the bilateral agreement is of limited use, but it has the useful function in the sense that generally speaking, the standard of enforcement will be higher, I think, in the bilateral agreement as compared with a plurilateral agreement or multilateral agreement. Because in a plurilateral or multilateral agreement you have to satisfy 10 parties, 20 parties and so forth, and then standards will get lower and lower if you negotiate. So this is sort of like a race-to-the-bottom suggestion there.
But if you have two parties negotiating, the standard can be much higher. And if you have many of those bilateral agreements, that may pave the way to a plurilateral agreement which is of a higher standard than otherwise. And so in that respect, I think a bilateral agreement is a useful device. And also this is probably the only agreement that can be enforced today.
Before I finish, let me just make a few comments that are related, but on a different subject matter. In Japan, the Ministry of International Trade and Industry -- MITI -- organized a task force to introduce so-called injunctive relief into the Japanese law. The report has been announced already some months ago. And JFTC has organized the task force and that task force is studying the issue at this point. I think the report is going to come up in a few months.
But I think that this injunctive relief is very important. If foreign companies have some complaints, they could go to JFTC under Article 45 of the Antimonopoly Act, but JFTC is under no obligation to hear the case. Essentially Article 45 is regarded as for the purpose of information gathering, and so you get the information and JFTC is free to do nothing. But if you have injunctive relief, this means that you can sue a company in court. Of course, that doesn't guarantee that you will win the case, but it guarantees that there is access to the judicial process. Which I think is pretty important.
So far, this injunctive relief is granted in things like that, industrial properties, and so on. But there is no prohibition in the Antimonopoly Act granting this right. And so I think it's very important to have this in our legal system. Of course, you need the more, more of the legal infrastructure to make it effective.
For example, you probably need many more antitrust lawyers in Japan to make it effective. In this country there are, I don't know, are there 30,000 antitrust lawyers?
In Japan there are maybe 30 antitrust lawyers. But this is a chicken and egg argument. If there is injunctive relief I would expect there will be more lawyers, and if there are more lawyers, there will be more suits, so this is what's essentially happening in this country.
But in any event, I think this aspect is important. I don't know if this should be in the bilateral agreement or not. Maybe that should be in the plurilateral agreement but I would advocate it for international policy. Thank you very much.
MS. FOX: Thank you, Professor Matsushita, for those very interesting remarks. We will want to consider flowing from that other people's experience with positive comity, as you yourself have laid out for Japan. When has positive comity been invoked? And has it been successful? And would the same success have been achieved or not even without a positive comity agreement?
Another issue that you raised implicitly is: Should nations agree to prohibit export cartels and catch the problem at the source? And a related or different way to state the same problem is: Should nations change their law, if necessary, to agree to cooperate in sharing information regarding their own nation's export cartels, even if their own law cannot catch the export cartel?
I believe that the United States is able to do this under the IAEAA.
DR. STERN: We've fought very hard for that.
MR. RILL: That's correct. There is not, however an IAEAA in place.
MS. FOX: Yes, I know. But maybe soon with Australia. David Richardson.
MR. RICHARDSON: I'll add my thanks for the privilege of being able to speak to you this morning, or this afternoon as it is now. And if you would like, Madam Chairman, I would hurry my remarks so as to be about five minutes along if Judge Wood would like to be five minutes as well, otherwise I'll try to take 10.
MS. FOX: Let me step in to that bargaining just to say I think it would be a very good idea to hear from both of you before we break for lunch, and please, somewhere between 5 and 10 is fine for each of you.
MR. RICHARDSON: I will try to be very fast because we'll have a chance to comment on each other's comments later. As was mentioned, my colleague Edward M. Graham and I at the Institute for International Economics have actually employed a number of you as our co-authors and co-thinkers on these matters and we appreciate your help in them before. And we have developed some proposals, Graham and I especially, that bear importantly on the place of bilateral, unilateral, regional initiatives in a broader confidence we have that, sooner or later, we will have a multilateral agreement on competition policy and trade policy.
Let me summarize Graham and my proposals, especially in the bilateral and unilateral area. We proposed a sequence of three stages that we imagined would take decades to walk through entirely. The first stage was one that featured, importantly, almost unilateralism -- but a kind that we called "cooperative unilateralism."
It was very procedural. It might take years. It involved heavy reliance on consultation, and even a mandatory consultation that would be the next step if positive comity broke down. Mandatory in the sense that agencies, either trade or competition policy agencies, would be forced to take, in some sense, the other country's interests into account.
We emphasized that national sovereign difference and national sovereign distinctive was maintained completely. There was no overarching agreement, no supernational authority, just consultations and eventually mediation if consultations broke down. And the mediation we proposed would be informational mediation, not dispute settlement at all. The mediation would at some point lead to publication of a mediator's report on a dispute, but nothing more. We think that's all tolerable and we imagined that it could cover cartels, M&A, and national treatment for investors in particular.
When we moved on to the second stage of our three stages, we envisioned a plurilateral setting. The first stage, the cooperative unilateralism is inherently really bilateral. Has to be. In the second stage, we imagined an explicit agreement on minimal standards for cartels, especially export cartels, but we had more in mind. And on national treatment and on M&A, notifications and rules on standing and agency co-laboring.
In a plurilateral minimum-standards agreement there would not necessarily be any regional boundary, but it would certainly be one step shy of a full WTO code. And I won't tell you the third stage because you can imagine where it would be and we will hear more about that third stage from others this afternoon who, like us, are optimistic about it, about five decades.
I want to emphasize, however, that our proposals are explicitly aimed to be experimental, meaning we explicitly aimed at trial periods and backflow from failed experiments. For example, on the matter of vertical restraints that's come up here, experimentation with vertical restraint codes of different kinds an a time-limited basis would be exactly what is done in either stage one or stage two. And we would see what experience was like under those trials. It's exactly the spirit of every country's competition law anyway, which has always been historically quite experimental.
I won't say more about our recommendations but I will say more about the frequent comment we have heard, which is that they are rather optimistic and rosy. We think not. I'll mention one important parallel agreement that we think sets a nice set of analogs for what could be done in merging a competition policy and a trade policy perspective.
The analog agreement is the Basle Agreement on international capital standards for commercial banks. Those of you who have studied the ten-year old Basle Agreement know that a bilateral subagreement was an important part of getting the Basle Agreement on capital standards for banks everywhere. The bilateral subagreement was between the U.S. and Britain, and it essentially scared, shocked the rest of the committee into negotiating the entirety of the agreement using the U.S.-U.K. agreement as a model.
We think that strategically chosen bilateral agreements could in fact have exactly the same impact with competition policy. Strategically chosen, not a web. Your questions involved a web of bilateral agreements. We don't think a web is very wise, but we think that targeted bilaterals between large players might be wise for the same reasons that they were in the Basle Agreement. And I'll remind you that involved immensely complex issues with cultural differences across countries just like competition policy.
That Agreement also took 10 years of mere talk, mere chat, 10 years of just sitting down at the table before any agreement came forth with any tangible effect. It involved more than one agency in the 1990s; it involved securities regulators, insurance regulators and commodities and derivatives regulators as well. Inevitably trade and competition policy has to involve more than one agency, agencies that are often in conflict.
And finally, the Basle Agreement left a very strong legacy of national sovereignty to the national governments, especially in what was called its second tier capital requirements, where every nation decided itself what the second tier requirements were and implemented the nationally selected quota.
I mention this because I think that critics have had too much scope who say there is nothing here to do in trade and competition policy. I would like to have that argument one more time, if not many more times. I'd like to close by saying that as we discuss these issues further, I want to emphasize that Graham's and my proposals always stressed the concept that we called by a different name but that I will call this morning, this afternoon, "market accessibility."
Market accessibility is a different concept than market access. We think that it's important to emphasize market accessibility, which is the way in which competition is facilitated, competition that puts both incumbents and entrants on exactly the same footing. Emphasizing market access has the problem of putting incumbents in a strong position, necessarily tilting the playing field toward incumbents, and sometimes toward collusion as well. And our emphasis on market accessibility is more than rhetoric.
MS. FOX: Yes. Thank you. We certainly know the important work that you and Monty Graham have done and we will study it more and perhaps discuss it more even today. We turn now to Judge Wood.
MS. WOOD: All right. The pressure is on because I stand between all of you and lunch, but I do appreciate very much, as others have said, the opportunity to comment on these things. I will be commenting, I should stress, at a very high level of generality in certain ways. I have no intention of influencing any particular case that the Justice Department may or may not bring, since they are a very frequent litigant in my court, and they will do what they wish, I hope regardless of what I say.
This is a very broad topic, and it seems to me it blends two separate points, each of which is independently important, namely, the question of the mechanisms for cooperation between or among antitrust authorities and the somewhat different topic of how antitrust law itself relates to broader issues of industrial policy or trade policy.
My remarks will focus more on the particular mechanisms for antitrust cooperation, but in order to place even that in some perspective, I thought I might begin with a very brief overview of the way I would analyze a case coming before me that simply raised antitrust problems, whether there was an international dimension or not.
I would ask: What's the source of the restraint? Is the source of the restraint a federal law? Is the source of the restraint a foreign government's law? Does it come from a state government's law, or finally, is it a private restraint? Sometimes the answer may be some or all of the above, but I think it's critical to dissect the case, if you will, to the point where you understand exactly what it is that's causing the problem. Because then the tools available to solve the problem will become more clear.
If there is a different federal law, we know from Supreme Court decisions that our obligation is to find the balance that the Congress chose to draw between the antitrust laws on the one hand and the other federal law. So for example, there is a case, Silver v. New York Stock Exchange, that tries to harmonize the securities laws with the antitrust laws. Many other cases are along the same lines. And as judges, we need to respect the balance that Congress has chosen to draw.
If the source is a foreign law, we have touched a little bit on this today. There are again sources of law in the United States from the Supreme Court that tell us what weight we are supposed to give the foreign law. Paul Victor earlier today mentioned the foreign sovereign compulsion defense, something which is frequently invoked and not very often actually applied; but it's a very important concept, nonetheless. And I think its existence in the background is something that constrains the reach of antitrust law. There are ways that we would take that into account.
If the source of the restraint is state law, we know in the United States, that Parker v. Brown is the doctrine that applies. That creates a very federalism-driven balance that seems a bit counterintuitive but gives a lot of room for the states to operate. If we were talking about the European Union, there would be Article 5 of the treaty, and I don't know if it has a new number, or if it's going to get one, but anyway, that notion of Member States being obliged to implement the policies of the treaty is an important one.
So then we get finally to the private restraints and this in part is in response to what Dick Cunningham was saying. If it's a private restraint, of course we are going to ask first, is this a horizontal restraint, or is it a vertical restraint? What kind of problem do we have here?
And again, just as with the case of governments, it's not necessarily either/or, and in many of our "market access" cases, quote, unquote, there may be a cartel that is enforcing itself through a network of vertical restraints. That is quite reachable by antitrust law. There is nothing inconsistent at least with the U.S. antitrust laws in requiring companies to make whatever distributional decisions they want to make independently, not in conjunction with their competitors.
And I think if we bear that point in mind and try to see which vertical restraints arise out of the manufacturer's own individual interest versus which seem to arise out of a network of companies trying collectively to protect a market, we may find that there are fewer problems than we thought.
So all of that goes to say that within antitrust law itself, there are a lot of tools for understanding where international activity is likely to be most useful and where it's likely perhaps to be less useful. To the extent we are talking about government-based restraints, I think there is a great deal of important work that can be done at every level we have identified, the bilateral level, the plurilateral level, the WTO level. Government restraints are inherently amenable to that kind of attention.
If it's a private restraint, I think for now and for the future that I'm able to foresee, we are much better off with national enforcement tailored to a national situation, done with cooperative relationships when it's an international case with other countries. Antitrust cases are fact-specific. One can fine-tune much better with particular bilateral relationships, and there is a lot I could say about that, but since we are about to go to lunch, I will restrict myself to one or two comments.
We have talked about the question whether it's important before these bilateral cooperative efforts can be successful to have laws that are fundamentally compatible. On the whole, I think that's less important than having a framework in place that permits cooperation when compatibility exists. And as some of you have heard me say before, I think of it in terms of Venn diagrams, one of my favorite mechanisms. Even if the overlap is small between two laws, if you have found an overlap, then there is room for cooperation there. And I believe over time one might find that overlap getting larger. If it is a big overlap, then so much the better. Then the framework for cooperation will be useful much more often.
So, substantive harmonization should evolve on its own. I'm not an advocate of forcing that on people. Indeed, in today's world I would say that the crisis in Asia and some of the other problems we have been seeing have been leading to more questions about the direction in which industrial policy is going, not to fewer questions. And I think there are many who are asking whether an unfettered, unregulated market is really going to be the best thing for people or not.
Now, on the procedural side, procedural coordination is an important factor and I think that has stood as a real barrier. And again, there is much one could say. I would just call to your attention, since this is what I live with all the time, a fairly recent United States Supreme Court decision which relates to this question of information sharing and the freedom with which information can be shared among authorities.
One question we faced when we were negotiating or working on the evolution of what became the IAEAA was what happens to confidential information that's collected by the United States authorities, particularly in a criminal case, which is likely to be most hard-core cartel cases, when that's the same cartel another authority wants to investigate? What happens specifically if there might be privileges available to witnesses who are involved in this investigation?
On June 25th, 1998, the U.S. Supreme Court decided a case of real importance for this called United States v. Balsys, in which the court held that a witness cannot invoke the Fifth Amendment right against compelled self-incrimination if the witness is claiming a fear of a foreign prosecution. The privilege may only be invoked if the fear is for a federal or state level of prosecution. It's an interesting opinion, and there are a couple of dissents.
But importantly for our purposes, the court also says that it is leaving for another day the question whether, if the United States and its allies had enacted substantially similar criminal codes aimed at prosecuting offenses of international character, if it could be shown the United States was granting immunity from domestic prosecution for the purpose of obtaining evidence to be delivered to other nations as prosecutors of a crime common to both countries, a witness could invoke the privilege. They elaborate on that issue a bit.
DR. STERN: What's the date?
MS. WOOD: June 25th, 1998. This is why federal judges should be generalists. We run across everything sooner or later. Balsys involved a person who was concerned that he might be prosecuted by some other countries for collaboration with the Nazi regime, where the statute of limitations had expired on that particular offense in the United States. There were two other countries in particular where the Court said he was in fact still subject to criminal prosecution, Lithuania and Israel.
This is enough, the Court says, to establish that he has shown an interest. It was also true that he had shown that the United States has shown an interest in foreign prosecution. There was a Justice Department mandate. There were American treaty agreements requiring the government to give Lithuania and Israel any evidence that he provided, but, the Court said, this interest does not rise to the level of cooperative prosecution. There is no system of complementary substantive offenses at issue here, and, critically, the mere support of one nation for the prosecutorial efforts of another does not transform the prosecution of the one into the prosecution of another. So no privilege.
Now, the Court has opened a door and it has closed a door, as I read the case. If there is an agreement that's negotiated between parties that's sufficiently specific on these matters and that can be shown to be based on a sufficiently complementary system of law, I think they have said that it's possible that this kind of privilege could be invoked. But they have also set the bar pretty high, given the nature of the agreements in this case, and these are certainly activities or potential crimes that we would all regard as among the most serious one could commit.
So I suppose my message in the end, in addition to saying that there is a lot of law out there on this, is to say that the information-sharing concern is going to lie at the heart of effective bilateral cooperation. Professor Matsushita had mentioned this issue with respect to the Japanese laws; you could repeat his remarks for every country that I know of. Every country has laws that are very strong that protect the confidentiality of information and I believe that these can only be addressed country by country, bilaterally. Thank you.
MS. FOX: Yes. Thank you. We have a lot of virtual food on our plate and we are going to get some real food on our plates in a moment. That was really stimulating, and I want to ask my bosses, what time would you like us back from lunch? So, ok, at a quarter of 2:00 we'll reconvene.
MS. FOX: We have several things before us. The market access theme is the very big theme. Market access/market accessibility. Some of you think there is a problem. Perhaps some think there is not a problem and that existing instruments are sufficient. We also have the question of whether unilateral, bilateral, regional, plurilateral or multilateral would be the best ways of dealing with the problem. I see two hands up, Jim Rill?
MR. RILL: Thank you, Eleanor. Dick Cunningham, I feel that somehow or other I have gotten through two reels of a very exciting movie and all of a sudden the third reel has gotten lost. I think your point is that, to address market access issues you can't really use extraterritorial enforcement, positive comity doesn't work, and Section 301 has been taken off the boards. Your conclusion is that we should have a market access code; but what should that market access code contain and how should it be enforced? I wonder what the remedy would be?
Is the answer to impose structural remedies? Or are we going to go back to some kind of legislatively mandated market share target agreements or market share target impositions with the threat of sanctions? These are all troubling issues.
MR. CUNNINGHAM: Well, I certainly would not be an advocate of the latter, although I understand the difficulties that have led in some negotiations to that result. But I certainly think as a matter of policy that's very much more a bad than good.
In an area where you start with the proposition that you do not have an international substantive consensus on the vertical restraint issue per se, but you do have an international consensus on the more general proposition that barriers to the free cross-border flow of goods are to be avoided and eliminated where possible. And where you have taken that to the very closely similar context of government procurement, where what you have done is provide nondiscrimination rules, presumption against single tendering for the areas in which governments operate as purchasers.
It seems to me that there is, there is room for a code which either sets forth in very general terms an obligation to have domestic rules dealing with imposition by the private sector of burdens on cross-border trade. And leaves some degree of discretion as you do in TRIMs, for example, trade-related investment measures, to the governments to do that. Perhaps you can become somewhat more substantive on that.
Perhaps also you could do what the procurement code does, which is provide a requirement, impose upon the government, the signatory government a requirement to provide a means of protest, domestic means of protest and therefore you are left with the government-to-government confrontation or dispute resolution dealing with the question of whether the system which was set up was adequate rather than dealing on a case-by-case basis with the individual transactions.
It seems to me there is potential for working out something, some combination or permutation of those concepts into a viable multilateral or plurilateral agreement. I have a concern about the plurilateral as opposed to the multilateral, and as much as I appreciate the difficulties of negotiating this on a multilateral basis. The problem with the plurilateral is that sure, you can do a plurilateral, it's easier to do a plurilateral where you have, in this area, where you have let's say, as in NAFTA, a group of countries whose ideas for competition policy are relatively similar, relatively congruent.
But that's not really where you need this so much. Where you need this so much is where you have a country, you have Country A believing that they have a private practice market access barrier problem in Country B because country B's idea of what constitutes appropriate competition policy internally is different.
And therefore, I suspect that you need to find a way to get a generalized agreement, it may be a least common denominator agreement in the market access area, and evolve to something more specific. Rather than do it, and I haven't read Mr. Richardson's stuff, and I am certainly open to being persuaded that there is a way to do it by moving from the bilateral to the plurilateral to the multilateral, but the problem I have is that it seems to me you are likely to go to the plurilateral of common minds, and then when you get to the area where you really need to bridge the gap between the common minds and the minds that don't think that way, you run into problems. You have an unbridgable chasm. That's my concern.
MR. RILL: One follow-up on this, Eleanor. You are talking about the institution for reaching a substantive result, but I'm still unclear what might be the substantive result you are trying to get the institution to reach. Now, let me pick up on something that --
MR. CUNNINGHAM: Think procurement code.
MR. RILL: Let me stay with my question, and then you can ask me one.
MR. CUNNINGHAM: Okay. That was my answer.
MR. RILL: To pick up on an answer earlier -- well, you don't have to. But then the record will be a little blank and then I won't have a third reel.
MR. CUNNINGHAM: It's just that people tend to confuse my answers with my questions.
MR. RILL: I indicated earlier that there is nothing unusual in common antitrust. I think there is consensus among most nations that in the antitrust law today a cartel enforced by vertical dealer relationships is something that can readily be attacked. Market dominance implemented through vertical relationships can somewhat readily be attacked.
But nonetheless, if in Country B some vertical relationships exist, we looked at them, and determine, they do create some inability of other people to penetrate, but we think that these vertical relationships are very efficient. That's our conclusion. Is that something that would fall under your parameters of attack?
MR. CUNNINGHAM: I'm not offended by that in the terms that you put it. I'm not offended by a result, a conclusion that has evaluated the vertical relationship and determined that it is justified by being efficiency-enhancing.
MR. RILL: Within Country B?
MR. CUNNINGHAM: Within Country B. I am concerned, however, that that's not remotely like what business people tell trade lawyers for the U.S. government. What business people tell trade lawyers for the U.S. government is that the areas where they have problems are areas where the exclusive relationships, the exclusionary relationships exist, without reference to efficiency enhancement, or at least with only curious justification on that ground. Where they can, where the complaining foreign exporter can demonstrate a clear case of having been rejected despite offering a superior product at a lower price, take my hypothetical, and where no one then is put under the burden of demonstrating that yes, well then, it's a justified refusal because the exclusive relationship is efficiency-enhancing.
That question doesn't even come up. And because of the different way in which the foreign society proclaims itself to be confronting -- I have been in discussions with the Taiwanese, for example, Taiwanese government officials that say you have to understand we are very relationship-oriented country and that that's important here, and even if it's not efficient, that it's something that societally is important for us to maintain. Now that's the situation I have problems with in international trade.
MR. RILL: If others have questions, I begin to understand. So --
MS. FOX: I have a queue, and that is Merit, Professor Janow, Professor Matsushita, and Professor Wood. Are all of you going to speak to this general market access issue or ask a question about it?
MS. JANOW: Actually, I have a different question so if they are prepared to speak to this issue, perhaps we should stay on that.
MS. FOX: I'm sure Professor Richardson also wants to add to the market access issue. So is that okay for me to be asking this question first? Are you talking to the market access issue in this conversation?
DR. STERN: I have a question, too, to the same issue.
MS. FOX: Okay. Professor Matsushita.
MR. MATSUSHITA: Thank you very much. I just wanted to make a few comments on Mr. Cunningham's remarks this morning. The first thing I'd like to mention is about the so-called keiretsu. I don't claim that I am an expert in keiretsu, but let me tell you something about the auto distribution system in Japan which I know something about. Okay. There was exclusive contracts between manufacturers and dealers up until about 10 years ago, I think, 10 or 15 years ago. Now that was taken out and replaced by a provision, I would say, that when dealers wanted to deal with cars of other manufacturers, then dealers would have to consult with the manufacturer. Now, that was taken out some years ago. And so if you look at the contract between dealers and the manufacturers, there is nothing actually.
But still, the dealers deal with their manufacturers' cars, like Toyota dealers will handle Toyota cars and so on and so forth. Now if you look at the relationship between the manufacturer and the dealers, I think it's something like this. In the past 20 or 30 years, there have been very few cases where the dealers went bankrupt. Many of them run them in deficit, but still they operate. The reason is that manufacturers come and provide them some kind of subsidies or some sort of financial assistance of some kind, because the manufacturers don't want the dealers to go bankrupt because this would be a big shame as far as manufacturers are concerned.
So you have a de facto insurance system operating there. Now, can you prohibit that sort of thing by antitrust law? So this is one of my questions. I share many of the concerns you have that even if the government and so forth liberalize trade, still you have got the private, the impediment to market access. And so I also share the view that there should be some kind of code on market accessibility or something like this.
But the problem is, what are you going to put in there, as Mr. Rill pointed out. There seemed to be two kinds of things that you might think about when you draft a market accessibility code. One is a sort of in the U.S., what I may call industrial policy approach. In a Japanese context, for example, the Ex-Im Bank, Industrial Development Bank and so forth provided financial assistance to General Motors and so forth for the purpose of getting into the Japanese market.
When they built a warehouse, for example, government finance was available. This is the industrial policy approach. That I think has more immediate effect on the market access. But on the other hand, this is more interventionist, so I think the question is whether you like it or not, it depends on your philosophy about the relationship between the market and the role of the government.
But I think if you need a quick result, I think something like that is more effective. Now, on the other hand, if you don't like it, then I think you have no choice but to have some kind of, some kind of competition code, including a cartels boycott, and so forth. That will have a very slow effect, I think, if there is any kind of effect. And that probably would not satisfy the immediate political purpose. So where are we now?
MR. CUNNINGHAM: Could I respond to that? Or if you -- why don't you go ahead and get the others, Eleanor?
MS. FOX: I think it would be a good idea if I did that, and then you will get your response.
MR. CUNNINGHAM: Yeah, let's do that.
MS. WOOD: Okay. Thank you. I wanted to begin with the simple proposition that we all know, which is that all contracts exclude somebody. You have decided to buy from A so you are not going to be buying from B, at least for the quantity covered in your contract with A. And when we discuss this question of market access, I think it's very important to remember that there are a great number of entirely legitimate contracts that will exclude somebody for some period of time. And I wanted to make four points in addition to that general observation.
First of all, I think it's very important to remember how the burdens of proof operate in this area. It is not the burden of a defendant to show that a particular practice is efficiency-enhancing. It is the burden of a plaintiff to show that a particular practice harms competition. Those are really different when you recall how difficult it is to make these predictions to begin with, because you will judge a lot of cases based on whether somebody has convinced you one way or the other. And in the entirety of antitrust law, it's the plaintiff's burden to show that that person has identified a practice that harms competition.
Now, vertical practices as we know can cut both ways. That's why on the whole and by and large, they are judged in the United States under the rule of reason. And I think it's worth remembering that even in these markets that have been difficult to penetrate, new entrants are the most likely candidates for the use of vertical restraints. They are the ones who are going to want to get the loyalty of an exclusive dealer.
They are the ones who are going to want territories that are territories from which that person can reap the benefits if the new entrant invests enough in that area. And it becomes very, very difficult to say well, we are going to let you, new entrant, have an exclusive territory but we are not going to let the incumbents do the same, if the incumbents look more or less like the new entrant. The United States has tried this line in the areas such as tying arrangements and other areas, and it becomes very difficult to do.
Furthermore, I think that we need to remember that at least the philosophy that underlies U.S. antitrust law is one that allows manufacturers, if I can put it this way, to make mistakes. A manufacturer might decide it wants to have a network of vertical restrictions, and that might, from the point of view of the philosopher king, be the stupidest decision it can possibly make. It may lose sales. It may fail in the market because of that, and our response has been well, that's your problem, the market has punished you and maybe you'll learn and change your practices after some time.
One can think of stores like Sears and Radio Shack as two examples of stores that were very, very restrictive from a vertical point of view, but they realized that strategy was not succeeding in the market, they opened up their practices to others, and they are quite different now. I would find it very unfortunate if we went in the direction of the old French concept of refus de vente instead of our own theory of allowing manufacturers to decide to whom they wish to sell and on what terms, in the absence of significant market power.
Third, Dick had mentioned the point about distributional barriers and whom they harm, and I think it's worth underscoring that at least in many of the countries we are talking about, these barriers harm not only foreign new entrants but domestic new entrants. And if you have a situation where there is no discrimination against foreigners, again I would say you should let general antitrust law, general competition law solve the problem. Even though I wholly agree with Professor Matsushita that you are talking about a long-term solution here, you are not talking about something for which you can wave a magic wand and fix it.
Finally, I want to introduce the subject of private rights of action, because much of what we are talking about is underutilization of a competition law that on its face is a perfectly sound, appropriate competition law -- a law that prohibits the right things, that permits the right things, but no one uses it much. If you have private rights of action, that objection largely falls away. And it's very interesting for me to see private actions encouraged more and more not only in the United States, but in other countries. Thanks.
MS. FOX: Thank you very much. Merit?
MS. JANOW: Thank you. I think Judge Wood has opened the door to the range of things I was hoping we might talk about a little bit. In framing these questions we thought to ourselves the question that Frederic Jenny posed the first day. That is, what are those problems of a competition nature that are amenable to resolution through bilateral arrangements, and what are those that are not and that could arguably lead to broader arrangements? And I think this discussion has started to sift out those differences.
But I wanted to return to one aspect that Professor Matsushita helped us think about. I don't know the content of the bilateral accord that is currently reportedly being negotiated between the United States and Japan, but let us assume for the sake of argument that it is state of the art. At the end of the day, if it is state of the art, it represents analogous arrangement to that which has been negotiated, say between the United States and the European Union.
The question then becomes, what is the best way for such an arrangement to mature? This can be a Japan-specific or it can be more general response. I don't wish to just limit your responses to Japan. Your answers might help us get at the questions of what are the problems that bilateral arrangements can address, including the role for positive comity on those matters that have a market access implication.
MS. FOX: That's a very important question. And I'm going to throw a couple of examples into your question, Merit. And that is, as we all know, and as Merit just mentioned, market access is not just a vertical problem. And there were various problems that Professor Jenny brought up also that were not vertical problems but world market access problems. And Professor Waverman brought up a very important problem today which is a cartel problem with state action that is not a vertical problem.
So here are my two examples, and I would love us to think about that in the context of Merit's question, which is: Are these solvable within a bilateral arrangement, or unilaterally, or is something else necessary? The first example is to think about Professor Waverman's example of Geotek, an American company that could not get into Europe because of standard-setting that was first private and the standard-setting was blessed by the EU. Can we handle that under our EU bilateral? Or do we run up against the Act of State wall? And if so, should something be negotiated even in a bilateral about limits, possible limits of the state action doctrine
The second example is from an old EU case, which is a monopolistic exclusion case. Some years ago British Telecom, a monopolist within the U.K., took unto itself to handle all signals in and going through the U.K. And it kept signals from outside of the U.K. from going even straight through U.K. out the other side. And this increased prices of telephone service, clearly, so it was a monopolistic exclusion. It was also you could say a state action question, but the EU held that it was an impermissible exclusion.
If this happened say with United States and EU, United States and Japan, or Japan and United States, could we handle a problem like that unilaterally or bilaterally? And if not, what else do we need?
We have these two thoughts on the table right now and I know, I believe that Professor Richardson probably wants to come back on what is market access, market accessibility and what should be the standard for thinking about when we have blocked access, and --
MR. RICHARDSON: I'll wait, though.
MS. FOX: Oh, okay. And Anna, where do you -- because your namecard has been up?
MS. FORNALCZYK: The same.
MS. FOX: When we come back to access.
DR. STERN: I still have a question also on the access?
MS. FOX: Why don't you.
DR. STERN: No, I was --
MR. CUNNINGHAM: Can I make one quick comment on your example? It raises a real danger to me.
MS. FOX: Oh.
MR. CUNNINGHAM: Remember where you just said -- you just said that, you posed an example of a set of standards that were initially privately done. Then you said okay, then they were blessed by the government. Now, when they were all blessed by the government --
MS. FOX: And we didn't know quite what that meant. It could be different -- we --
MR. CUNNINGHAM: Well, it's two possible meanings. One is the government said it's not a violation of antitrust law to do this; second is the government adopted the standards as its own. Clearly in the latter case, you could get at it under WTO. Step back and think about it. Does it make a lot of difference? Policywise does it make a lot of difference that the government was involved and did it? Should it? Why should it make a lot of difference?
Take that, talk about the difference between the procurement code and a market access code. Procurement code, we're perfectly willing to say, don't discriminate. And you're going to say, ah, but that's the government. But it's the government acting as a commercial entity.
MS. FOX: This is clearly a question that's inherent in that. All right, let's just to be methodical now, let's think about Merit's question and Merit, you seemed to be, I think, posing it to Professor Matsushita, were you? Or --
MS. JANOW: Not exclusively. I think there is a specific Japan dimension to it and since many of our disputes alleging trading restrictive private restraints have involved Japan, it's perhaps useful to comment on how that relationship could evolve. But I wasn't trying to limit the discussion to Japan.
MS. FOX: Right. So can we deal with these questions in a bilateral way? And we'll start with Professor Matsushita.
MR. MATSUSHITA: Thank you very much. May I just make a very brief comment about your comment? It seems to me that each market has its own features or structure, that offer some kind of uniqueness. And so in that respect, I think, a bilateral agreement cannot risk that particular unique nature. And so in that respect, the substitution of a bilateral agreement may be more appropriate than a multilateral. For instances where these kind of structure problems are concerned, like a distribution system.
Now, let me make one or two comments about this vertical restraint, which is, it's a very important part of the U.S.-Japanese problem. Now, vertical restraints are never ruled by a proceeding in any country, I don't think, including Japan, U.S., Europe, and so on. It's very difficult having to break up a vertical restraint.
So I mean, should you emphasize to affect the vertical restraint, trying to break it up, trying to get into the keiretsu network that has been created by somebody else? Or should you try to build a little keiretsu of your own? I think that the latter approach is something that one must think about.
So that for example, some attempts have been made by American auto companies in Japan, like Chrysler and also Ford Motor Company bought one distribution system. So this is an attempt to create a keiretsu in Japan. And so instead of 10 keiretsu, you have 15 keiretsu and 15 of them are competing, then. This may be one type of approach.
I don't think that this would resolve all of the problems, but my view is that, if you concentrate on breaking up keiretsu vertical arrangements, I doubt how successful that is going to be. But in a way you have forced, you are forcing dealers to deal with the products and so dealers will need some kind of incentive to deal with the products that they have not dealt with.
Well, my conclusion is that challenges to vertical restraints by the antitrust law of Japan or the U.S., by a country, I think, is one means. But I think we need to seek some other alternative means also.
MS. FOX: Thank you. And are there other comments?
MR. RILL: I don't want the goose that's just been put on the table by Dick Cunningham to go unanswered. Is there a difference in your hypothetical? You bet there is. Legally, it is less important. Legally in the United States, based on Wickard v. Filburn, a government blessing doesn't give you any immunity. In Parker v. Brown, government action does provide immunity.
Economically, the cartel you just hypothesized that got the government's mandate imposed on it, that cartel could only exist as a cartel with that government mandate. It's got utterly nothing to do with a free-market solution. The other collective action presumably was taken because it was procompetitive, because there is no government mandate that's going to protect it from antitrust liability. Therefore, one must presume either that it can be challenged or that it's procompetitive.
MS. WOOD: Well, mostly we presume that it can be challenged. It's a horizontal agreement. It's subject to the horizontal rules. Cartels that are protected by the government, the economists will tell you all the time, are far more durable. You don't have to worry about concealing them. You can enforce them; you can even get the government to help you enforce them. You have far fewer concerns. That's a line that runs through our law, anyway. If you think of Allied Tube & Conduit Corp. v. Indian Head, Inc. and compare it to cases like Sessions Tank Liners, Inc. v. Joor Mfg., Inc., it's clear that this is a line that's drawn.
MR. CUNNINGHAM: How would that analogy play over into -- how would you argue that in distinguishing between the government entity, procurement purchasing and the regulations we put on that, and the private purchaser?
MR. RILL: Diane?
MS. WOOD: The Federal Government?
MR. CUNNINGHAM: Any government-owned entity purchasing in a commercial marketplace? Which we govern under the Procurement Code.
MS. WOOD: Sure, I know, it's under the Procurement Code. Well, if it's the Federal Government buying, then that's a different matter so I'll take a state or local government.
If it's a state or a local government acting as a commercial actor in the market --
MR. CUNNINGHAM: TVA [Tennessee Valley Authority].
MS. WOOD: Well, TVA is the Federal Government again.
MR. CUNNINGHAM: Try TVA, though. I think it's a good example.
MS. WOOD: If it's TVA, then it's creating policy in its own purchasing decisions. And there may be international constraints on how that's done but as far as the U.S. antitrust laws are concerned, since the United States isn't a person, it's not --
MR. CUNNINGHAM: I'm addressing it to the international policy considerations. Why should there be a difference?
MS. WOOD: The reason is because we do draw a distinction between government policy and private policy, and we can constrain government policies but with private policy we have to decide, and we have the antitrust laws there to say these are the background rules, unless it happens to be a regulated market, which is the case of one of Eleanor's examples, the BT market, one pervaded by regulation.
And many of the problems that arise in regulated markets, even if they are private conduct, are a secondary consequence of the regulation that exists to begin with.
MR. CUNNINGHAM: Well, I guess I'll just read that back and you'll see, I presume, the answer.
MS. FOX: Ray said in our last session, one of our missions is to ask whether things should be different from the way they are. For example, take that BT problem within Europe, there was a law in the U.K. that gave BT the sole power, the monopoly power, and yet thinking of that as the European Community, rather than as only U.K., the Community decided that that was an overextension, an unreasonable and excessive state action that has to be struck down.
And so one of the points that is put on the table by our thinking of this issue and the Geotek issue is, are there points at which states in an international economy may be legislating in a way that goes beyond what's necessary for reasonable efficiencies, as suggested by Waverman, perhaps desirable in a country to give it national champion status?
And is there the possibility that we ought to be thinking about some disciplines on state trade-restraining action where there is a combination that all of you have mentioned, these various combinations that may have exactly the same economic effects of hybrid action, private plus public?
Did you want to jump in and say something here?
DR. STERN: It may continue to sharpen. I think we keep kind of coming back to I think the first presentation that Dick gave us before lunch. And we keep saying well, we want to talk about this, do we all want to talk about that, but we all keep coming back to, I think, whether as a matter of public policy, the United States is equipped adequately to deal with market access or accessibility when there are blockages in another country, and whether we have, on our own books or in our own practices of our own laws, heretofore handicapped ourselves.
And I'm, again, going to throw this thing out. You talked about how we have practiced and permitted or not permitted certain vertical restraints, which then makes it very difficult for us either to negotiate or to talk about other countries when there are similar actions. We heard somewhere along the line the last three days reference to the Webb-Pomerene Act. Also, I think it was you, Mr. Matsushita who made reference to that, too.
MR. MATSUSHITA: Yes.
DR. STERN: So I would like to just have you all either answer now or later, in follow-up, whether there are identifiable areas that have accreted -- laws, regulations, practices that have accreted in the United States which are holding us back from pushing open markets overseas for competitive new entrants that may be American-based companies.
MS. FOX: We must address this, and also, I have to ask forgiveness because two namecards has been up for too long. David Richardson and Anna Fornalczyk, and I would like to call on either of those.
MR. RICHARDSON: A direct answer to Paula's question is, there's lots of areas where we've presumably held ourselves back and it's not until we get through three or four of them that we come to market access. I think. Webb-Pomerene is a good example of an area where we have something to offer in a bilateral or a plurilateral and we have something to receive and get back for it.
Cartels more generally are a good area to negotiate in the sense that they are manageable. The same is true of national treatment conventions for investors. That's a good area. I see no reason to tackle the moose of vertical arrangements when there is lots of good game for eating dinner that helps us to learn how to track the moose anyway. I'm amazed that we've spent as much time on the moose as we have, because the moose is a dangerous animal, and there are lots of reasons why this isn't the time to hunt moose.
Let me mention what these reasons are very quickly, to review. It's an aphorism that antitrust people get tired of but it's always worth mentioning, and here is a time to mention it. Competition policy should protect competition -- not the competitors. It's said again and again.
MR. RILL: We don't get tired of hearing that, David.
MR. RICHARDSON: But trade lawyers and trade economists forget that, and the WTO forgets that, and I think any meaningful measure of market access, or a market access code, is going to forget that important aphorism. Every measure of market access I know has to do with market shares. I don't know any other measure than that. But remember that market shares are assuming a smaller and smaller and smaller role in antitrust for a very good reason. They are flawed indicators of anti-competitive behavior. So why are we going down this route in international antitrust?
As opposed to market accessibility. Any good measure of market accessibility involves the kind of indicators that antitrust people are looking at these days, relations of price to cost, relations of price with something to price without something, whether there is foreclosure or not, somehow defined.
And then if at the end of the day, Dick and others and the trade lawyers insist on a stronger identification of vertical arrangements as anticompetitive in themselves, I say then is the time perhaps for a bilateral with the EU. Let's see if we can move our treatment of vertical arrangements toward the EU's treatment of vertical arrangements, which is much more skeptical.
If that's the route to go, then I may actually be in support of that route because that is a bilateral route, and it's a route with a well-established set of precedents and cautions as well that's different from ours.
Finally, it's amazing to me to think that government procurement has been the illustration of an area to imitate in competition policy codes? Surely not, Dick.
MS. FOX: He meant the opposite, I think. You meant the government code of discipline.
MR. CUNNINGHAM: A code establishing fairness in government procurement may have some lessons for us on the vertical restraints issue.
MR. RICHARDSON: I think it has some negative lessons, especially as illustrated, say, in U.S.-Japan bilaterals. I understood you perfectly well.
MR. CUNNINGHAM: Hmmm. Interesting.
MS. FORNALCZYK: Well, I would like to respond to Mr. Richardson because I think elimination or even relaxation of the market access barrier should be treated as the absolutely crucial problem in competition law enforcement, especially in developing countries and in countries in transition, but not only.
When, as I know, according to my information from competition agencies in countries in transition, the majority of my colleagues treat this problem like the crucial point of their competition policy. When we start to investigate, I'm thinking about competition people in the staff of the competition agency in Poland and antitrust lawyers and antitrust consultants in Poland, we use market share only as a presumption for a definition of dominant position of a company in the market.
But first of all we pay, we used to pay attention to the barriers to entry in a market and this is a very important and relevant point.
Let me say very briefly, from this point of view, about our soft harmonization of Polish competition law and standards. Not only because of our European agreement but I would like to answer Eleanor's question. But because this soft harmonization is very useful for our market-oriented reform, not only in Poland but every associated country. I'm deeply convinced that pressure makes, from the sides of the European Union connected with our association, our membership is absolutely useful for us.
I may say that in our internal discussions with the Minister of Agriculture, Minister of Economics, Minister of Telecommunications -- because we have a monopolized telecommunications sector -- the competition people and people with pro-competitive orientation, we used to use rational economic arguments, legal arguments. And our last argument is that we have to harmonize our competition law and jurisdiction to European Union standards because of our Europe agreement.
But I would like to explain what that soft harmonization means. For example, when you start this soft harmonization in January 1992 after the signing of our European agreement, we have now, up to now, we have now block exemptions to exist in the European Union, a competition law block exemptions focused on franchising, selective distribution agreements, collective distribution agreements because we wouldn't like to have any exemptions in our economy. Taking into account that it's is a very tough process of restructurization and privatization of our economy, every sector is specific, absolutely specific.
And the people and politicians who are connected with the various sectors would make pressure on the government, it's called to make exception for such and such a sector. Apart from that, as you probably know now, it is big discussion among member countries of the European Union just about the stipulations on block exemptions. And they hope that next year, the Commission will enact new regulations and for us, harmonize a new law. Because this is also a question, for each law we have to harmonize our competition codes. Thank you.
MS. FOX: Thank you. Diane Wood.
MS. WOOD: Thank you, Eleanor. I wanted to tie this discussion back to what I understand the purpose of the Committee to be, which is a study of international competition policy in its broadest sense. In that context, I would argue that the issue of market access is at best secondary, if not tertiary or lower because what we should be thinking about is how do we create, in the sense that David Richardson just said, "competition, not competitors," competitive international markets, and there it seems to me there is a fairly straightforward agenda.
First of all, make sure that the right balance between regulation and open, unregulated markets has been reached, and we all agree I think that the WTO or other fora are quite satisfactory for talking about government interventions in the market of that kind. There is plenty of work to be done there, whether it's agriculture or telecoms or you name it.
Secondly, to the extent that national laws include what I regard as fairly silly provisions, like the Webb-Pomerene Act, those can be repealed or kept. It makes almost no difference economically. They are hardly used except for in a couple of sectors and if it would make somebody feel better we could recommend repealing them, but it would make very little difference.
My argument there has always been that there should be some sort of international consensus that the country whose consumers are hurt is the country with the greatest claim to take antitrust action against a particular practice. As Professor Matsushita has said, that's the country that has the incentive to do something. And even if you were to repeal the laws and pass international cooperation obligations, a country that was only benefited by a particular cartel, if it has limited prosecutorial resources, (which all countries do) is probably not going to put harm to foreigners at the top of the list. And no international agreement will require you to put somebody else's interest ahead of your own governmental interest.
So can we repeal those laws if it creates better window dressing? I think you would find that it's politically difficult to do but that's another dimension of the problem.
And third, that all leads up to the most important thing, which is serious international enforcement of core antitrust laws. By that I mean anti-cartel laws, and laws prohibiting market sharing. We should make sure that those laws are enforced as effectively as they possibly can be, and for that, I think some unilateral action is still inevitable and will be necessary, because things happen in the context of particular markets.
Sometimes there really are world markets, but much more often the consequences of practices vary from country to country, depending on how much of a presence those companies or that company has in a market, depending on other conditions of the market. Bilaterals that include the possibility of exchanging confidential information and having joint prosecutions will be certainly the most effective way to improve enforcement, if you can develop between the partners enough confidence in each other's enforcement regime that they will trust the partner with that kind of very sensitive confidential information.
And there are many countries, I think, that are already poised to do that or are already doing that, but it will take time to develop that kind of confidence in the less experienced countries' regimes. And I think there that a progression from soft agreements, working at a more informal level, working at a less compulsory level, and then moving on up, is the most fruitful way to go.
MR. MATSUSHITA: Thank you very much. Judge Wood spoke about the export cartel issues and so forth. I just wanted to mention a few words about it. Now the -- well, first of all, let me say that it should be not so difficult to agree on the prohibition of the export/import cartels and the international cartels, at least those three. Because even in the framework of WTO, what you have is liberalization of trade by a lower tariff and so on. And those three kinds of conduct directly counteract the effects of liberalization.
And so if you agree with the WTO, I think it should not be difficult to agree that those three conducts should be prohibited by international agreement. So I think for those things, maybe bilateral is not so good an idea. If you cover those three things, maybe a plurilateral agreement if it is in the framework of WTO, that probably is the -- Annex IV approach which is optional often rather than compulsory. So this is one of the points I wanted to raise.
If you go beyond that and try to include the vertical restraints, mergers and acquisitions, I think it will be much more difficult, and so I will limit myself to those three types of conduct, as far as initial stages are concerned.
The second and my last point is that there are certain provisions in the WTO agreements with some competition policy implications, and so those should be utilized. For example, there is a provision in the TBT agreement, the Technical Barriers to Trade agreement, which says that the government should not encourage private organizations to engage in restrictive processes in enforcing of standards and so on, and so if that happens, this is a violation of TBT agreement.
Now, if the private organization complies with it, I think this is the problem of antitrust, and so it cuts across the trade law and the competition law. And so there are several other agreements with some provisions that have something to do with the competition policy. And so to try to introduce something new is important, but I think to try to utilize something that you already have, I think is also very important.
MS. FOX: Thank you. Let me follow up, Professor Matsushita. On, I guess it was Monday, Commissioner Itoda spoke just a little bit about the bilateral with Japan, and that is, the negotiation of a bilateral between U.S. and Japan, and he said that if there is a problem of an import cartel in Japan and say, the United States has a problem, the United States ought to go to Japan because the consumers are in Japan.
So this could be, say it's a glass case or say it's a car case or a Fuji/Kodak case, that if it's an import restraint, Japan should be the forum. Do you see such a positive comity allocation as part of an international agreement? For example, we have an international agreement, it prohibits export, import and world cartels and United States, and maybe the EU alleges that there is an import cartel in Japan. Do you see the international agreement to have a provision on positive comity that says the allocation must go to the JFTC or to agency of the excluding nation?
And if you do see that, could you tell us what happens if the harmed nation feels dissatisfied, unsatisfied? It goes to the nation that is allegedly excluding; that nation says I have looked at everything, I don't think there's an anticompetitive restraint, and the exporting nation feels quite certain that it has proof that there is an exporting restraint. Could you foresee that this problem might be take be care of by some provisions in an international agreement or bilateral agreement?
MR. MATSUSHITA: Okay. Thank you very much. I think it really depends on where are you going to put this provision on the export cartels. If it is going to be a part of the WTO agreement, I think positive comity is probably not so necessary, because then you have a competition code or something and the members are obligated, particularly for an import cartel or export cartel, and so on. If they don't, that will be put into the description of the process and possibly authorize retaliation against them, the non-enforcement of it.
And so there I think there would be less need for the positive comity, but if it's a soft law approach like a U.S.-Japanese agreement where the contents of the agreement are not fully binding, I think a positive comity concept is quite useful. But I think it really depends on where, in which kind of fora you are going to have it.
DR. STERN: Well, just a quick question. It seems to me that one can be pursuing advances in competition policy, cooperation, coordination, and dispute settlements in a variety of different tracks at the same time. That you may be able to get the U.S. and EU to agree on certain things faster than you can elsewhere, but then you may be able to still move ahead plurilaterally or ultimately multilaterally. I mean, I don't think it's an either/or kind of question. Isn't that obvious?
MR. MATSUSHITA: Well, yes. I think that the proper approach is to try to deliver something in WTO. But at the same time, to start with some bilateral agreements with positive comity in them.
DR. STERN: Plus this soft harmonization which is going on in mutual recognitions and a variety of other efforts, but I think the extent to which we articulate the relationships between these different tracks, we might be able ultimately to keep score on how close we are getting to the goal, which is a worldwide pro-competition regime.
MR. CUNNINGHAM: I just wanted to make sure it doesn't escape notice here that the question I asked in my opening presentation has been answered. The question I asked, you remember, was: Does U.S. competition law and policy, in the view of the competition people here, prevent the addressing of private market access restraints as a trade issue?
And while what we have heard today unanimously from the antitrust people is a resounding yes --
MR. RILL: No. No. That's not what we said.
MR. CUNNINGHAM: Let me -- just hold a second.
MR. RILL: Fair enough.
MR. CUNNINGHAM: If that is in fact the question, that the vertical restraints, private vertical restraints can't be addressed because of competition policy concerns, I suggest to you what you are saying to some very substantial segments of the American business community, and indeed some of your leading, highest technology, most world leaders in their area sectors, is that the problem you are complaining about is something we refuse to act on.
And the second thing I would suggest to you is you really ought to think about what the long-term meaning of that is for the bargains we make in WTO negotiations and other international trade negotiations.
DR. STERN: I just want to say, Dick, I asked your question again a couple of minutes ago because I think we do need some clarity on where this was. I think we heard from Judge Wood some views that did seem to confirm your worst fears, but perhaps Jim Rill will do the same to confirm your worst fears.
MR. RILL: We'll address the question to the U.S. antitrust lawyers here present. Eleanor and I and Merit I guess, are the ones on the panel.
No. That's not what we're saying.
MR. CUNNINGHAM: Good.
MR. RILL: I am saying that there are a number of private practices, any number of practices, some of which were suggested by Diane, some of which were suggested by me earlier, that are perfectly reachable under antitrust approaches, here or wherever those practices are being conducted.
You posited a hypothetical of a perfectly legal vertical restraint that is not attackable under any antitrust law anywhere. Is there anything I can do about it? It's purely private so there is no governmental solution. Maybe there isn't something we can do about it under current instruments.
I question how pervasive that particular kind of unilateral, non-market-dominant, noncollusive, simple vertical restraint might be in the global context of denial of market access. But I think to the extent that you're saying, "Is that reachable under antitrust?" I would have to say, "Probably not."
MR. GILMARTIN: You know, just one voice of a very high-tech industry, the pharmaceutical business. I do not in my experience see where the U.S. competition policy on vertical restraints disadvantages us in the international markets in any way. So I'm not necessarily sure you can generalize that U.S. industry, trying to compete in global markets, is disadvantaged by our competition policy.
And it just says that that avenue, and at the end of the day, you have to compete, and certainly foreign competitors trying to get in the U.S. market, unless they have something to offer that's unique and different, are also unable to establish distribution. So I don't necessarily accept that by having this position that we are disadvantaging a big chunk of U.S. industry.
MR. CUNNINGHAM: That's what I urged you analyze. Analyze to what extent it is a problem.
MR. RILL: The business community might have --
MR. GILMARTIN: Well, others will disagree with me.
MR. CUNNINGHAM: Let me repeat. That's what I urge you to do. Begin with the analysis of whether it is in fact a problem and how serious it is, and then you can deal with it. Don't start with, "we know what our tools are, and we'll only address things that fall within our tools."
MR. RILL: Dick, in fairness, we are attempting to communicate with members on the problem, as you know.
MR. CUNNINGHAM: I know that, Jim.
MS. FORNALCZYK: If I might, well, let me say that all of these discussions about bilateral, plurilateral and multilateral cooperation and agreements is very useful, but I believe in a very strong, very concrete bilateral negotiation and agreements, like the negotiation between United States and European Union, but it doesn't mean that I'm against multilateral discussions because it's very important from the point of competition and focusing in international markets. It's very important.
I don't know why nobody mentioned during this two and a half days about the forum which is the Committee on Restrictive Business Practices of the United Nations. I don't know what happened with this forum because I took part three times when I was the head of the Anti-Monopoly Office and I remember when I was in Geneva in 1991, that just 77 developing countries required something like competition, international competition code.
It was, it was their requirement, and I don't know what happened after this very, very emotional discussion.
MS. FOX: Other comments like that? Is there sentiment that UNCTAD ought to be a forum for considering exclusion from market access?
MS. FORNALCZYK: For competition and focusing, I don't know.
MS. FOX: Are there any other comments?
MR. RILL: I just want to thank Richard for provoking this discussion.
MS. FOX: Yes. I thank you, too. And I have -- I want to say some words in closing, including picking up on the debate this morning by Richard. But I wondered, do our panelists want to say a word in closing? Do you each want to say a word?
MR. CUNNINGHAM: I have closed.
MS. FOX: Professor Matsushita, go ahead. I didn't realize your namecard was up.
MR. MATSUSHITA: Okay. Do we still have time?
MS. FOX: Well, a minute. Just give a few thoughts.
MR. MATSUSHITA: This is a comment and question to Mr. Cunningham, actually, on the relationship between the competition policy and the assault on anti-dumping measures.
DR. STERN: On the what? I thought we weren't talking about that here?
MS. FOX: There is no prohibition; it's just not on our agenda.
MR. RILL: You should understand, that the issue of the anti-dumping laws in the U.S. is not on the recommendation or the analysis plate.
MS. FORNALCZYK: We should realize anti-dumping measures by competition regime, like is between New Zealand and Australia. I would be delighted.
MS. FOX: Okay. Let me say a word in closing. It was a very interesting and stimulating session. We started out talking about various ways of thinking of the market access problem. We were led off by Dick Cunningham, who said that he thinks there is a problem and there is a problem that can't be addressed by using the tool chest of antitrust versus the current tool chest of trade, and indeed that there is some kind of overarching issue that is falling by the wayside because we have too many blinders on and we are unable to dig out of our standard way of seeing things.
This was challenged very much by others on the panel, including Judge Wood, who -- I think you interpreted her correctly. I believe that she did present a case for saying if you are talking about vertical restraints, and you want to challenge in the world vertical restraints that are generally legal under antitrust, what you are probably doing is pushing inefficiencies onto those who want to use the vertical restraints in efficient ways.
Then we were prodded on by Jim Rill who said, "Well, if you want a market access principle, what is it? And is there anything implementable?"
The other theme that ran through our discussions, two other themes that ran through our discussions was the one highlighted by Merit Janow's question: If there is a problem, what instruments are best for dealing with the problem and are there different instruments for different levels? And of course Paula came in and said we might be looking at a multispeed world with different instruments for different problems. And yet another theme was that presented and represented, I guess, by Anna Fornalczyk and Ana Jatar, thinking about industrializing economies and their incentives to liberalize and their competition policies and their problems and troubles in doing so. And what are the helpful pressures that promote competition policy and harmonization?
So I want to take up Jim Rill's challenge, but Jim knows I've said this elsewhere. I have always thought that if we are thinking about a market access problem that might be greater than U.S. antitrust market access, we ought to at least think about a concept of -- if there were an agreement in bilaterals or plurilaterals or regionals or even multilaterals -- that no nation shall have unreasonable, anticompetitive restraints of market access, they may define in their own law what they mean by that, they may use their own antitrust tools on their own territory. So you have a choice of law rule and the choice of law is the rule of the excluding nation.
And that's what gets off the table the question of how would you do it, because it puts it down to a national level and it lets nations use what they have as reasonable tools today. And then you could think about some of these problems in the context of such an agreement of nations basically to keep their market open, free from anticompetitive restraints as they define them. And we could think about whether certain kinds of restraints are done better bilaterally or plurilaterally.
One of the very hard issues we have is the question of if there is, say an import cartel and there is non-enforcement, whether or not we have an international agreement or a bilateral agreement, how shall we solve the problem if the nation that is charged to be the excluding nation does not solve the problem itself? And so that raises the question of what procedural tools to implement and, what kind of dispute resolution, how and when one goes to dispute resolution. It raises the question of: Who decides? And once you come to the question of who decides, it raises the specter in many people's minds of bureaucracy and loss of sovereignty.
And those are the questions that we are dealing with. So I guess I've repeated a lot of the questions that many of you have put on the table and we are saying to you, "please help us." We would like to know what you think are the good solutions. So if you have further thoughts about any of these ideas, we really would like very much to receive them by mail, telephone, memo, or whatever. And thank you so much for your excellent participation.
DR. STERN: Thank you. I think you have done a fabulous job of chairing this, Eleanor, and pulling together many of the different strands which were out there on the table, and at this point, with deep thanks to all of our participants for coming from very far and near, we would adjourn, we will take a break now for coffee and we will resume at 3:15 and be on time for our last and third panel on international competition policy, the multilateral institutions and foreign economic policy. Something tells me we will be continuing this conversation. Thank you.
DR. STERN: We are resuming, the third day, the third session, our last session. I'm sure it will be a grand finale. So far it's been a fabulous show, and I want to-- I'm doing a little filibustering, to see if anyone else filters in. I'm going to go ahead.
The most important person is here. It's the reporter, who is getting all of our gems, I'm told, down beautifully. Some people have been sitting behind her looking at the screen and we're very grateful for that because it is quite often that we get these pearls of wisdom thrown out on the table at conferences, and by very, very busy, learned, experienced individuals such as those assembled here, but they are not recorded.
And these individuals are so busy doing their work that the pearls that they have been reflecting on don't get written down. And therefore, they don't get shared beyond those participants at the conference. So the fact that this is a federal public agency, advisory group that is meeting and being recorded, and therefore, thanks to the Internet, will be available to the public around the world, is I think really phenomenal. And I just hope that it means that these pearls of wisdom will be shared by a much broader public and perhaps we can advance cooperative notions in an accelerated fashion using the Internet, so our reporter is very important here.
Okay. I would like now to recognize that all of our panelists are seated. And Harvey asked if we were going to go in alphabetical order.
MR. APPLEBAUM: Usually I prefer that, but this may be a different case.
DR. STERN: And I said that I didn't have a particular preference, and some of the folks have been sitting through a number of the days' proceedings and may want to continue the strand. The topic of this session three is international competition policy, multilateral institutions and foreign economic policy. It is very closely related to the previous discussion, and frankly, I would love to see anyone who wants to volunteer to go first to go first.
MR. APPLEBAUM: I will do it if no one else wants to. I had suggested maybe one of the learned professors would like to lead us off but if they don't want to begin, then I will.
DR. STERN: That's a good sport.
MR. APPLEBAUM: Sometimes it's an advantage alphabetically to have A and sometimes you can argue the other way. The topic of trade and competition law interface is one I personally first addressed in 1971 at the ABA annual meeting in Hawaii and at that time was somewhat ridiculed for wasting antitrust lawyers' time for 45 minutes or so speaking about the trade laws, and that included the trade remedy laws such as Section 301 and the like.
One of the things I'm grateful for is, and this panel and many others are examples of how the subject of interface is treated now very seriously and it's on the agendas and dockets of most of the world's trade organizations, including of course the WTO Working Group on Trade and Competition Policy. It seems to me that most of the time that's spent on this subject in all of these international fora comes down to two topics, one of which the last panel and this panel address, that is market access, particularly market access when private restraints are involved.
The other topic is, whatever one wants to call it, the interface, the relationship or the tension between the trade remedy laws and the antitrust and competition laws, and the anti-dumping law in particular. That is a subject I have addressed on many occasions. I do understand that it is not on the agenda here, so I will just refer to it and remind you that in the considerations of the international bodies, it remains a very important subject. I personally believe that many individuals and countries who support some kind of harmonization or world competition body have as at least one of their objectives some cure of what they perceive to be a problem in the anti-dumping/trade remedy law interface with the antitrust laws.
Traditionally, the market access issue has been: Which of the two sets of tools, or which of the two sets of laws are used, the antitrust laws, whether governmental or private suits, or the trade laws? The trade law in this context ordinarily has been Section 301 of the Trade Act. The WTO, and what it has done to the use of Section 301, obviously, has changed this somewhat.
For a long time we had a Department of Justice policy that the U.S. antitrust laws could not be used to go after foreign import cartels as this panel has been using that term. That, of course, was clarified when the infamous footnote 159 was eliminated and Jim Rill was largely responsible for that.
In today's world, if you are facing market access and advising a client, and I'm here obviously as a private practitioner, the two choices are not necessarily mutually exclusive. You can pursue at the same time both trade and antitrust approaches to a market access problem. Kodak in my view could have either sought to have an antitrust suit filed or filed one itself while also pursuing the trade remedy.
I will come back to Kodak in a moment, but in considering private restraints and governmental restraints, it is usually clear that if it's a governmental restraint you are probably better off with a trade approach. And if you file a private antitrust suit and you have a Kodak-type situation with considerable governmental involvement on the foreign side, you may run up against the sovereign compulsion defense. So if you bring an antitrust suit against a private restraint that is supported by, subsidized by, or encouraged by governmental action on the foreign side, you may have a pretty strong defense on the part of the private parties that they were compelled to engage in the alleged anticompetitive acts.
Obviously, an antitrust suit involves a whole host of jurisdictional and practical discovery problems in any event. It seems to me that market access comes down to, whether it's a private company or a government considering whether to invoke the antitrust laws or the trade laws, that to the extent comity may be the answer, we always talk of comity on the antitrust side. As the last panel suggested, if you get the foreign government to cure the problem of an import cartel that is a nice solution.
But if you go the trade route, by and large, you are also seeking comity -- you are seeking through the trade mechanisms to persuade the foreign government either unilaterally or bilaterally through the WTO to remedy the situation. The overall issue for this panel of whether there should be in the WTO some overview or master ability to cure this, putting aside whether it's competition or trade but giving the WTO some jurisdiction over competition, I think is great for this group to discuss, but it is very impractical right now.
The Antitrust Division says it's impractical because there are 40 or 50 different types of antitrust laws around the world and many countries have no antitrust laws. We even have a variety in trade laws. So Madam Co-Chairman, that is hopefully a starter for the rest of the panel as to what the issue is we are addressing on the market access side.
DR. STERN: All right. Thank you very much. Mr. Baker?
MR. BAKER: Sure. I'd be delighted to go next and thank you for having me. The Committee really well knows that the problem we face is much more one of politics than economics. You've essentially got inconsistent mandates which Harvey alludes to -- with anti-dumping being off the table for this Committee. We have a bit of a "ships in the night" problem and the task of the Committee, it seems to me, I respectfully say, is to come up with something that's rationale, efficiency-minded and acceptable to enough diverse interests to get through.
MR. RILL: In that order, Don?
MR. BAKER: Yes. Whatever -- you can have your own order.
This is really the same problem that I faced when we in the Ford Administration embarked on a campaign to deregulate some highly regulated, highly protected, heavily unionized industries that enjoyed antitrust exemptions. Today, I want to offer a modest idea which is basically a process idea that I think borrows on some of the things that Dick Cunningham was talking about. I call it a competition treaty, and I provided the Committee with a copy of a two-page article from the Global Competition Review that I wrote last summer and started thinking about last night after I had listened to a couple of days of deliberation here. It shows the way the Baker mind works. I would be glad to provide others with copies, as it's not very hard to copy.
Basically the idea is that there be a treaty embodying a very simple access rule which said that enterprises with market power in the importing country may not engage in practices or agreements that have substantially affect or restrict imports.
Now, you have a market power screen and an abuse of monopoly test. You could work in a vertical restraints rule that could be different, as Dick Cunningham suggests, from the normal domestic rule. Then you've now got this limited set of substantive rules.
Initial enforcement by the importing country through its own agencies and courts. You could hope to have good normal enforcement processes. You could have it triggered by a positive comity reference.
Under my proposal, if the exporting country were dissatisfied with either the inaction of the importing country or the rules as they were being applied, it could kick the thing up to a competition antitrust tribunal, which would be a panel of competition experts drawn from countries other than the two in the dispute. I'll come back in a minute to where it might be located.
Finally, I then added in to my basic idea that this treaty process could not be invoked where the exporting country had an export cartel exemption in place so you couldn't have it both ways.
Now, the key questions here are, sort of: Would you do this treaty process bilaterally or multilaterally? And here I think I would come back to what was said about the Basle agreements on the bank capital. You could start it off bilaterally and if it worked, you could expand it.
Would the treaty have to cover all industries and all things? No. Not necessarily. You could make it sector-specific. Indeed, I first started thinking about this idea almost 20 years ago and the person at the other end of the cricket pitch was Bob Ayling, then a British government official -- who is now the Chief Executive of British Airways; and this occurred in an industry -- air transportation -- in which the foreigners thought they were being treated to a lot of market restraints at the big American hubs. And so you could do it -- or at least start it -- on a sector basis. You could do it bilaterally.
Paula, I'm now picking up a little bit on your practical approach. Where would you locate this? Would you locate this in the WTO or in the OECD? Or you could simply, by treaty create the place of the tribunal and how any panel was to be put together.
The question of private antitrust remedies is tricky. They are very important in the United States and very much opposed in many places abroad. You could either carve them in or out. You could have the government, or both exporting and importing governments, be required to opt in for a private case to be taken by the panel, or not.
But, regardless of the details, the basic idea would offer you several advantages. First of all, you could get a principled regime where there were a common set of very limited principles but they would have to work both ways. In other words, our domestic trade lawyers worry about foreign restraints. They don't worry about domestic restraints very much. And if we were going to have a rule that was different on verticals, that gave people with market power less ability to impose vertical restraints, the same rule that we wanted to apply to say, a Fuji in Japan would be something that Heineken or someone like that could seek to have applied to Anheuser Busch in the United States.
And the second thing, is that it has the advantage of avoiding what I'll call confrontational unilateralism of the 301 variety.
The whole idea could be attractive to efficient firms in the business community, both here and abroad. In other words, I think such firms figure they would do well in a world in which things were a little bit more opened up. And it really can apply equally to services -- where the U.S. is strong overall -- even though goods are traditionally where an awful lot of the trade disputes are.
Anyway, I think it's great to have this forum for progress. I offer up an idea like this competition treaty with some humility knowing how much more most people around the table, starting with Professor Jackson, know than I know. But I hope you will at least think about it and send me back some more questions and make me think some more.
DR. STERN: Well, thank you very much. It is true, I have been looking for some practical solutions. I believe in the snowball theory that you can get a good core agreement between a smaller group, whether it's bilateral and sectoral, and then it can then be built upon and it can snowball. I just want to get the ball going, and so I appreciate your giving us this article, and amplifying on it here today, and I would like now to call on Thomas Howell.
And excuse me, before you start, I just wanted to alert the rest of you all to what I just found out, which is that Robert Lawrence is ill with the flu so he will not be part of the panel, unfortunately. So we are down to six good men. Okay.
MR. HOWELL: The conundrum that was raised by the prior panel was that of an import cartel that blocks market access, there is no domestic enforcement of the anti-monopoly, antitrust law, whatever you want to call it, and what is an exporting U.S. industry to do? And I think that the dilemma that we now face, those of us who represent U.S. exporters facing these kinds of problems, is that there is not a multilateral answer that's clearly evident.
Having worked very closely with the U.S. Government and with Europeans on the film case, I think that it's safe to say that case was the best shot that U.S. and Europeans are likely to give an issue like this in the WTO system, and it failed. It failed big time, and I think neither the U.S. nor the Europeans are likely to try that avenue again. At least not without some very significant changes in the WTO.
The bilateral answers are not evident either, both because 301 is not really a practical option for U.S. exporters now in most cases, and also because bilateral agreements with Japan that have covered a lot of these kinds of issues are not always being adhered to. Frankly the leverage is not there any more to enforce them, and you can't enforce a bilateral agreement in WTO, at least one that doesn't cover -- an issue that's covered by the WTO agreements themselves.
Now, Judge Wood said on the prior panel that it really doesn't matter, that market access is really a tertiary problem, so the conundrum may well exist, but it's not a conundrum that we should worry about very much. I think that's unclear. That's a hypothesis, but it's not one that's been tested very well.
Because I think the dimensions of this problem are not well known in terms of the volume of trade affected, in terms of how these groupings, international cartels that were addressed this morning -- there's also the domestic variety that one sees in Japan -- how much trade is affected by them, how they operate, how they affect the competitiveness of our own industries.
The group that's been meeting in Geneva for over a year has not really looked at that question very closely. They have looked at the tools, the various policies that are used by various governments. They haven't looked at the actual problem. And I would propose that the first real step that should be taken is an empirical study of the problem itself -- not a comparative analysis of antitrust policies in the various countries but a look at cartels and how they affect trade in the real world.
Now, there's a lot of ways to come at this. The U.S. has actually done this before. Our government did in around 1916 and '17 when they were considering legislation. The Federal Trade Commission did a very good, very encyclopedic study by contacting embassies around the world, talking to businessmen and so on. This was done again in the late '40s when a number of grants were given by foundations to examine international cartels. And there was a wealth of information developed back then.
It could be done again now. The ITC could do it. The Commerce Department could it, the Federal Trade Commission could do it. It could be done by a number of agencies, in conjunction with each other. There are different ways to come at the problem. One would be to look at where there is no trade. Right now there is no trade in flat rolled steel between Canada and Japan, for example. There hasn't been for 10 years. There is virtually no trade between Europe and Japan in flat rolled steel.
Look where there are no exports from one country to another, where one would expect to find exports logically. Look at anomalous price differentials that don't seem to have any economic explanation and then take a look at why those things might be occurring. There may be rational, perfectly innocent explanations for such phenomena. But also read the trade journals in the various industries that one looks at. A lot of time the answers are right there.
So some of the stuff that, for example, Mark Tilton raised at Brookings about the Japanese steel cartel is openly reported in the newspapers in Japan and everybody can just read about it. It's very simple to gather the information. It just takes people, a staff, footwork, to do that sort of thing.
And I would propose that until this kind of study has been done by our government we shouldn't be sitting in Geneva talking about things where some of the parties, at least, have got objectives that are maybe not necessarily the ones we would share. Having done our homework -- then we could go back, perhaps after we have done that. In the longer term, if the problem is real, and assuming that there is a problem of very significant dimensions out there, what might we do?
I will submit to the Commission today a paper with some ideas. I'll just summarize them now. It might be that there can be a multilateral rule or a multilateral answer which would be a simple one. I think Monty Graham at IIE has suggested this, a modification of Article 23. And I'm not sure if that's necessarily the best way but it's a possible way.
Focus on the market access and whether it exists or not rather than on the practices per se. When we enter a tariff negotiation, there is an assumption on the part of U.S. negotiators there is going to be a market there behind the tariff once the tariff comes down. That's not necessarily the case, it hasn't proven to be the case in a number of our recent negotiations and the question is whether one should get a tribunal involved in investigating why that market access is not there or what the causes are.
In other words, is the government supporting a cartel? Is the government tolerating a cartel? Is a cartel operating without the government's knowledge? Those are hard things for an international tribunal to get their hands around. But it's also very hard for a petitioning U.S. industry to demonstrate. Although heroic efforts can be made in that direction, it's very difficult.
We have a rule right now in terms of tariff concessions of essentially caveat emptor -- buyer beware. If you enter into the negotiation, you don't know -- a U.S. negotiator typically doesn't know whether or not there is going to be a nullification of that benefit. They won't know all the things that are going on behind the border.
We bring China in for example under the WTO. I can assure you we don't know what's going on in China in most sectors that will affect our access there. And instead replace that with a notion of a warranty, that the country making the concession warrants that there is a functioning market behind the border once the concession is made. To the extent there is a dispute resolution panel there will be a simpler set of issues that they would look at, not the kind of complex analysis that one sees in an antitrust case, but simply, is there a functioning market or is there not -- for whatever reason. If there is not, there would be a basis for a withdrawal of concessions on that product.
We have also suggested some amendments to 301 here in the U.S. that would make some of these types of foreign practices actionable under 301. I don't see that as an answer to the problem, I see that as a way of getting ultimately to the multilateral rule. I think that one does not normally find these kinds of things adopted at the multilateral level without some concern about what the United States might do unilaterally if progress is not made. So I see the 301 amendments as a stepping stone to a simple multilateral remedy.
DR. STERN: Club in the closet. Thank you very much. Professor Jackson.
MR. JACKSON: First of all let me say that I probably know less about this subject than anyone here, despite Mr. Baker's statement, because I have not been very close to the competition policy area. On the other side, the GATT institution side, I may have something to offer and perhaps more as a response to questions and issues that are presented.
Also, I thought about this a little bit in the last few weeks. Not too much, I must admit, because of some other tasks. But there are a couple of points, a couple of general points I would like to make.
One is I fully agree that this is an area that needs a lot of study and a lot of empirical study. Now, my agreement may be evidence of my own ignorance. There may be some studies out there that I don't know about, but I have the impression that there is just a lot that we don't know about these various activities. I think there are some very important conceptual questions.
First, we can look briefly, and maybe you have already done this, at the history of the GATT and the WTO, and you will recall that in the ITO charter, which failed to come into force, there was a very big chapter on competition policy. And most of you are very well familiar with the fact that because the ITO failed, at least partly for that reason, the GATT, when faced with these kind of issues, felt it wise to avoid them. That is, you could argue in the early years of GATT that the sovereigns have spoken. They don't want that kind of a measure taken up at the multilateral level because they wouldn't accept the ITO. Of course, it was basically the U.S. Congress that wouldn't accept the ITO. But in any event the GATT sort of wanted to stay out of this.
In addition, it is true that the GATT generally, and this really represents a lot of the state of thinking about treaties and foreign relations, the GATT generally imposes requirements and obligations on nation states and not on private parties. And so when you get into this area of competition policy, you are beginning to break through that curtain, if you will, and you have to try and think about that. What does it mean? Does it mean that governments will have the responsibility to see to it that private parties do such and such? Does it mean some kind of an individual responsibility of private parties, like what we are beginning to develop very extensively in the human rights area of international law, but in very few other areas of international law? Does the law apply to specific individuals, and so on?
Maybe there is a trend in the economic area that will parallel human rights. This is something else I have been speculating, because, for instance, we begin to feel that there are certain kinds of economic and other structures in states that are damaging and dangerous to the total world economy -- this governance of various kinds and so on, which touches on subjects that several decades ago sovereigns would have thought would be impossible for the international system to take cognizance of.
Well, those are some sort of general beginning comments here. I liked Mr. Baker's proposition, but that's sort of the end of my story, not the beginning. I think there are ways that one could construct something that might be useful. I'm not sure how acceptable your last choice is.
Now, let me add two more things, two more subjects. First of all, if we ask, should this subject be one of cognizance of the WTO, you are too late. It already is. I did a quick look at some of the agreements this morning. The Services agreement, for instance, has it flat in the middle. There is a clause in the Services agreement that says as to concessions that are scheduled by a country, there must be an opportunity to reach monopolistic practices. I'm roughly paraphrasing but it's definitely part of the cognizance of the Services agreement.
More traditionally in GATT, you can see these subjects already mentioned in the area of anti-dumping, but also in the area of countervailing duties and subsidies -- subsidies being sort of the reverse side of countervailing duty. A lot of subsidies are used to keep out goods and arguably relate to some of these issues.
State trading: state trading is another form of diminished competition. It's been a troublesome issue for the GATT all along. It still is. The GATT has not been able to cope with the rather gaping hole that state trading can provide to the discipline of GATT. Government procurement is another area that some of these issues arise in.
We have seen it also in intellectual property, of course. Intellectual property, of course, is another one of the new issues pulled into the GATT. There are a number of competition policies; indeed intellectual property is essentially a competition policy; it's a relief from competition or antitrust laws, if you will, and giving an absolute monopoly as an incentive for certain purposes. So you are weighing some of these policies against each other.
And then we know in the recent Telecoms agreement, we have this very interesting Annex which addresses this issue. So I guess part of the study, it seems to me, is to look at where we are already and some of that has been done in the WTO committee, as I understand it. And it turns out to be really fairly complex and how this would mesh with new proposals we would have to think about.
And then the other thing I will add and then I'll stop, but hope to come in later when other people have more important things to say than I do. There is a conceptual basis here, a policy basis, basically relating to traditional economics. We know that traditional economics, i.e. market economics is a starting point, and not everyone would agree that economics should be the starting point of everything, but let's use it as a hypothetical anyway. And one of the starting points is to keep governments out of the market. Let the market work and so on.
The exception that is very standard is when markets fail. There is market failure. And there are a number of reasons for market failure, among which are monopolistic practices and competition problems but also information asymmetries and public goods and so on.
Now, with the kind of world market we have, a globalized world market, you really have to ask the question: What does globalization do to the decision about market failure? In other words, if you look at market failure in the traditional scope which most often is taught in the colleges and in the textbooks, you don't often see that approach. Basically the approach is within a given economy.
But today you have to ask "what does globalization do?" And globalization might change the result, might change the answer to the question, "is there market failure?" Because globalization will change the dynamics of what's going on in a market. It could create a market failure where one, assumedly, did not exist, or did not appear to exist if you viewed only the national market. And of course, it could go the other way. The competition, if you have open and free trade, may be such that what seems to be a monopoly in one society and one economy in fact is not.
So that's a question. Now, the next traditional economic question is, all right, if you have market failure, if we can show market failure and if the globalization has changed our minds about whether market failure exists under particular circumstances, what is the relief? What is the response? And there, traditionally, you look at basically nation-state responses, for which there is a battery of tools. There is regulation, there is taxation, there is subsidization, there is rejiggering the market, making certain rights traded, and so on.
One of the problems at the international level, when you begin to look at this, is many of those nation-state responses are not available, are de facto or practically not available. It's very hard for the international system to tax in order to subsidize. It's hard for the international system to do some of the other measures -- to tax directly as a way to intervene in the market.
And indeed, most of what happens is at the international level you fall back on regulation, that is, you fall back on a mandate that you say governments should do this or that and maybe now what we want to say is individuals or private firms should do this or that, and then you have to figure out a sanctioning process. And the sanctioning process, of course, at the international level is, to state the obvious, extraordinarily different than the possibilities at the national level.
And so it seems to me that's part of the analysis that one ought to be going through. Now, you might work through this analysis and say, "Aha! Globalization says in situation A, B, C that appeared not to be a market failure, the addition of globalization suggests there is a market failure, therefore we need a government response." So then you look and say, "well, could you do this by a national government response?" and the answer might be, "Well, only awkwardly." It's more and more difficult for national governments to regulate because of the global context.
And so then you could say, "Well, this seems to be a prime case where we could go to the international institution such as WTO or a totally new one, or OECD or all the other turf fights involved in these questions." And you look at those and say, "Well, that's a first best option but it turns out to not be very practical because they don't have the tools."
None of those international institutions have the tools, and so, bang, you are back to a national level response which is really a second best. And then you usually have to sort of figure out some kind of an interrelationship between those two, something that is partly national response and partly an international response.
So I think that is basically a part of the conceptual framework, the logical framework that might be interesting to some in terms of motivating how we approach this question.
DR. STERN: Thank you very much for your contribution. Professor Kovacic.
MR. KOVACIC: I want to thank the Committee for the wonderful opportunity to participate in the proceeding, and I'm honestly grateful to be here. I'd like to focus on two dimensions of the agenda for this session, to talk a bit about what should be the U.S. vision of competition policy as it goes overseas, principally in transition economy environments, and then to talk about the role of multinational institutions in establishing competition policy foundations, again, principally in the transition environment.
To begin with the first, that is: what vision of competition policy should the U.S. advance overseas?
The transition economy environment is one of the most fascinating frontiers of competition policy today. If we had had a conversation a half century ago about competition policy, we would be talking about the United States antitrust system. To have the discussion today means that we would be talking about over 70 nations that have antitrust laws. Approximately 40 of those have been adopted since 1975, all of which are in the transition economy environment. About 20 more transition economy countries are likely to adopt antitrust laws by within the next decade.
It is possible, in short, that by 2005, 2010, approximately 100 or over 100 countries will have new laws, many of them in the transition environment. What has the standard package of antitrust law-related measures looked like in the transition arena? It has looked strikingly similar to either the EU system or an elaboration of American doctrine translated into codified form. A complete package of substantive prohibitions dealing with monopolization, vertical restraints, horizontal restraints, merger enforcement and in many instances, premerger notification and review in some form. And yet for enforcement, often either an executive agency, sometimes an independent commission and in a striking number of instances, a private right of action in the nation's courts.
What should be the U.S. approach for the future and indeed working with countries that already have these institutions? I want to suggest that an evolutionary alternative to the standard approach, beginning with a relatively full-blown law is appropriate, and to suggest that a proper conception of competition policy involves more than adopting an antitrust law and perhaps should focus on several of the other approaches that many of the speakers have addressed this week.
One important starting point is to develop the institutional framework within which competition policy can develop. It's remarkable in looking at our own experience to contemplate on the extent to which the effectiveness of our own system depends on the operation of collateral institutions such as effective courts, a university system that trains the specialists who work in the field, the operation of a private bar that serves as a vital conduit through which information makes its way to individual affected business operators. And yes indeed, a robust information system consisting of a business press, scholarly publications and others.
In many respects in the transition environment, these institutions have to literally be built from scratch. Indeed everything so fundamental is creating a vocabulary for competition. I remember my first trip to Mongolia in 1992. I was trying to talk a bit about the American premerger review system. And began talking about the safe harbors created by the Hart-Scott-Rodino process. The translator grabbed my sleeve and said, "You know, in a landlocked country, the metaphor of a safe harbor has no significance at all."
You'll have to do better than that. And she said, "In an agrarian economy, with lots of herders, 'peaceful pastures' is the right metaphor." So in Mongolia, the discussion focused on the peaceful pastures that a premerger notification system might create. One fundamental starting point is to build the agencies themselves, and in many instances this means equipping them most fundamentally with the resources they will need to function at even a barely adequate level.
I think many of us are familiar with the desperately low salaries that public servants are paid in many of these environments, and you can think about the daunting possibilities for corruption in the former Soviet Union where you have a public official with a monthly wage of $20 having responsibility for approving a transaction worth tens of millions.
A second basic dimension in developing the agencies is to create some sense of creative process, a sense of the basic procedural controls that we rely upon routinely to control administrative discretion. In one project in Morocco, I was suggesting to the Moroccans that they might submit a proposed regulation for comment in advance. And they said, "Isn't that the wrong way to do it? Here we prefer to adopt the regulation, then have the debate. Much more efficient that way." Indeed it is, but not the approach that we ordinarily associate with the development of transparent institutions.
Building courts can likewise be a daunting exercise, especially in environments in which the judiciary historically has been seen as being hopelessly corrupt or simply an extension of the state's efforts to apply and administer oppressive government controls. In Vietnam, for example, which is in the process now of developing a market-based system and relevant legal institutions, I spent a day with the courts, and I was informed that virtually all of the judges have no legal training at all. What is their background? The judicial positions have been distributed to war veterans as a reward for faithful service.
If you are going to be developing a judicial system, a court system, again you are faced with the possibility of having to construct, in many instances, entirely new institutions. Likewise, it was intriguing in Nepal to spend a day in the country's intermediate appellate courts and to realize that all legal practice is done in the basis of an oral tradition. No published opinions, but lawyers and judging searching back through memory, the random access memory of the human mind, to find previous examples that might inform the decision of new cases.
Universities, a third major institution. Simply finding texts that have modern western microeconomic knowledge, the knowledge of competition policy, is very difficult. I recall again the trip to Mongolia, seeing how the Mongolians carried, almost like the Ark of the Covenant, Russian translations of western articles. One in particular I remember being asked, do you know a man named Donald Baker and a man named William Blumenthal? I said I happen to know both of them. They said, here is an article in the Antitrust Bulletin translated into Russian. It had been curled, written, highlighted, annotated, and literally carried from person to person across the country.
These are the holy documents we use to learn about competition policy. And yes, last, Professor Matsushita mentioned before the importance of having antitrust lawyers. The private bar in most of these national settings truly has to be reconstructed from the ground up. You have no antitrust lawyers. You have no lawyers with much experience in civil law.
Given this institution-building prerequisite, where might you start with competition policy? I think the appropriate vision in most of these countries is to begin with what we would call a program of competition advocacy and to emphasize a pro-entry policy. In many instances, it means making initial adjustments in the way in which the government does business.
And why is "competition policy" a better label than "antitrust"? Because in many instances it involves looking at policies that we don't ordinarily associate with antitrust policy. Take company registration as a basic example. In Vietnam, this is the basic approach that you go through to register a new firm. You have to submit an application in which you have to identify, among other things, the purpose of your new business and your business plan, in order that the People's Committee and the Ministry of Industry can evaluate whether you have chosen a wise plan.
Now, imagine that the young entrepreneur comes in and Mr. Fred Smith is told, "Mr. Smith, we don't need your express delivery service, we think you have a bad idea and what's more, we have a state-owned enterprise that already delivers the mail. Your proposal is rejected, why don't you be a dentist instead?"
What the state is doing through the registration process is making its own fundamental assessment about whether the entrepreneur's idea is a good one. Imagine the minor kind of adjustment and the beneficial adjustment that would come about if the registration process simply involved writing a check for $100 and filing a simple form, which is what does the trick in the United States.
What might enforcement look like over time? Again, as an evolutionary process of development? I think, as several have suggested today, it might wisely begin by looking at cartels, but I want to suggest to you that even a simple prohibition on cartels is not going to be easy to accomplish in many of these environments.
The first thing you have to do is define the concept in a statute. Okay, you are going to prohibit hard-core cartels. I defy you within the next 10 minutes to quickly write a single paragraph that's going to go in the statute that draws the necessary distinction between the hard-core cartel, but the legitimate ancillary restraint that supports the operation of an effective joint venture. You have got to be able to distinguish between the two. I'm going to suggest to you that's not always very easy to do, specially in an environment in which that notion and concept doesn't exist.
Second thing you are going to have to do is to gather evidence that proves agreements. In the former Soviet Union, when I have gone through the illustration of the way in which American enforcement authorities gather information that prove agreements, there is some initial horror at the thought that a formerly, recently totalitarian enterprise might start using wiretaps and body wires. That idea is offensive, but the second idea, if you simply ask for documents and submitted a CID or a subpoena, the typical response I get is, "How do you deal with the fact that there will be a person standing with a pistol on the other side of the door saying, 'This is my answer to your request for documents?'"
How does the enforcement agency operate in an environment when a basic sense of lawlessness and the failure of government institutions to function in an effective way is a fact of life? Thus, even although I accept the idea that cartel enforcement is a good idea for institutions starting out, I simply want to suggest that enforcing even the most basic of prohibitions on which there would be general agreement is relatively difficult.
Let me turn and finish with the second point I'd like to make, and that's responding to what the role of international institutions might be. I want to identify a handful of what might be called soft harmonization, soft measures that do not involve compulsory decisions that would apply generally across the board. And I want to focus on what these institutions might do in particular in the transition environment.
And by these institutions I have in mind the multinational donors such as the World Bank, which through its addition of conditions to lending arrangements has enormous ability to shape the activity of individual countries. As well as USAID, TASIS and other technical assistance organizations.
First, technology transfer. I think one of the most effective uses of resources of these institutions has been the placement of advisors full-time, in-house in the new competition authorities. One of the little-known but greatest success stories of the U.S. Department of Justice, the FTC, the OECD and TASIS over the past 10 years or so has been the placement of officials on a long-term basis in country. It's a story for which they won't get much credit, but I think in each instance the institutions in question have accomplished a great deal.
I'm sorry that I can't call on Anna Fornalczyk, who is not here right now, to give her own firsthand testimony along this point but that assistance, that kind of effort has been very valuable a way of developing in real time the know-how necessary to make a new competition system work.
Second, valuable role, to promote regional cooperation. Ana Julia Jatar was speaking about this earlier today. In doing some work in West Africa, I have become convinced that the development of a rudimentary competition policy system will require the cooperation of the Francophone countries that shown an interest in this kind of work, beginning with the Ivory Coast but perhaps extending to countries such as Benin and Togo.
Third, training programs. The OECD's efforts to educate judges and enforcement officials have provided a premiere example of the kind of work that these institutions can do to enhance the capability of the new groups.
And yes, fourth, after-the-fact assessments. OECD performs what might be called antitrust audits, and assists the new agencies in evaluating their experience and suggesting how that experience might be enriched in the future. That audit process, I suggest, could be expanded on a country-by-country basis and yes indeed, to Western countries as well. One could examine the appropriate degree of institutional complexity within an individual country as a determinant of the ability of foreign firms and indeed domestic market participants to operate.
I'll take the United States as an example, and close with this point. Let's take a look at the enforcement landscape in the United States. We decentralized the decision to prosecute to an extent that I think foreign observers would find breathtaking. We have two federal competition policy institutions that do indeed coordinate their activity.
We have separate, independent enforcement decisions made by state governments and we have decisions made by private plaintiffs. If you want to overlay an additional layer of complexity to the situation, let's think about mergers involving formerly or recently deregulated sectors, such as telecom or energy. If it's a telecom merger, in addition to all of the players I have mentioned so far, the interested parties would include the sectoral regulator at the federal level, that is, the FCC or FERC; at the state level, the gatekeepers include every single public service commission in every single jurisdiction in which you do business.
A Ukrainian competition official drew for me a map of this process once and said you are the professionals in this area, you must know what you are doing, but isn't this irrational? And the simple answer is: it is unmistakably irrational. No one would propose that kind of labyrinth. Yet an after-the-fact audit and evaluation of individual systems would be useful in suggesting approaches for simplification. And this finally would facilitate I think a useful degree of comparative study.
There is a wonderful degree of diversity within the competition policy community. We have individual antitrust agencies that combine the trade and competition function. Some that do consumer protection and competition. Some that do regulated sectors and competition policy. Some that do intellectual property plus competition policy. A useful role for the multinational institutions is to undertake, as Professor Jackson was suggesting, the empirical task of evaluating experiences under these systems and to suggest best practices that emerge from these arrangements -- controlling, of course, for the individual national circumstances. Thank you.
DR. STERN: Thank you very much, Professor. It was to me very interesting to hear your comparative legal and institutional reflections, not only as they relate to each of those individual countries that you have traveled to, but as they relate back to our own experience. So it was very thoughtful, and I appreciate it.
Professor Mavroidis, you have the privilege of being the last speaker before we open up the panel for discussion.
MR. MAVROIDIS: I don't know if it's a privilege, but thank you very much for inviting me here. Let me say just one thing in the beginning. All I can offer to this Committee is an evolving thinking, because on this issue by definition, I have no definitive thoughts.
MR. BAKER: Thus separating you from the rest of us.
MR. MAVROIDIS: Damien Neven, who was here, and who unfortunately left a few minutes ago, keeps reminding me all the time that when we discuss international antitrust, market access is only a subset of the whole discussion. Now, I understand that in the context of these discussions my comments should be limited to market access since we discuss the potential for a WTO role when it comes to restrictive business practices.
But by no means do I understand international antitrust as a discussion confined to market access issues. In this perspective, the way I understand the discussion, I pose myself two questions.
The first question is: Does it make sense to negotiate additional rules for market access? And the second question is: What is the role for the WTO in this endeavor?
Now, the first question, if I would rephrase it, I would say: Do antitrust-related concerns segment markets on the international plane? Undeniably, yes. I mean, anybody can cite a series of examples where negative externalities can stem from lax enforcement of antitrust laws.
But the issue to me is: Do I have to treat this on a priority basis? And why do I say that? Because the mandate of the WTO is trade liberalization. If there are ten sources creating problems and all of them have different effects, if I want to enhance efficiency, if I want to be efficient, I should better start from those cases that are the major hurdles in trade liberalization. Practice, to me, at least suggests that competition-related disputes are, if at all, anything but a serious impediment to international trade. And I refer to your Section 301 and how it's been used since 1988 and to the experience in the EC when it comes to the Trade Barriers Regulation.
There are studies around. Michael Finger did a study on Section 301. Marco Bronckers did another study on the Trade Barriers Regulation. Both times authors saw one, two, or three competition-related disputes. Most of the disputes about the market access concerned other noncompetition-related issues.
The other reason why I feel that this discussion is not a priority discussion is that when I check the WTO, what do I see? I see that we still have basically no liberalization on agricultural -- farm -- products; very little liberalization on textiles, almost nothing in government procurement; shallow, if at all, commitments in services; use, misuse and abuse of anti-dumping laws. And instead of seeing all of that, we start discussing what should we do with respect to private practices that might impede market access.
The last point I would like to make in this context is the point that both Professor Jackson and Professor Matsushita referred to and which has occupied most of my interest so far in this field: What can I do within the existing system? You see, applying the theory of regulation, I would say that before we move to something new, let's see how far we can go within the existing system.
I endorse everything that was said and I would add only that one week ago we had the privilege of having Karel Van Miert at Columbia Law School, he is one of the proponents for common competition laws, and he made three points. He said, "We have to have common competition laws," and by this what does he mean? He means first everybody should apply competition laws in a nondiscriminatory manner. Two, since most of competition is worldwide, positive comity makes sense; and three, we must do something against export cartels.
My response to this is, the first point is already taken care of because of Article III.4 of the GATT. Article III.4 of the GATT covers antitrust laws. And Article III.4 says that I have to apply antitrust laws in a nondiscriminatory manner. Positive comity, to the extent that it's a part of national competition law, I must give it to everybody. Even though the EC might have an agreement only with the U.S., since they have to apply their antitrust laws in a nondiscriminatory manner, they must extend it to everybody.
And when it comes to the third point, export cartels, there I would make one distinction. To what extent are export cartels linked to the government -- since as I said before, the WTO cares about government behavior -- to what extent not? I cannot speak for the world, but I can guarantee to you that there is no way that in the EC you can have a cartel, import or export, which does not have the government's blessing. I must notify all agreements to the Commission, that's how Article 85.1 reads, and I must get the letter of comfort.
Such a case, to my mind, would be condemnable under the existing Article XI of the GATT. After all, wasn't the semiconductors panel a case against the Japanese, against a Japanese government-induced export cartel? This law is part of the GATT, acquis as the Appellate Body told me in 1996, and it's a powerful case law. Therefore all panels can be inspired by this case law.
Now, you see, this time element that I suggest, let's focus on the trade agenda and before we move to anything else, entails a quantitative -- I'm sorry, a qualitative assessment, which is the following. The picture is different in the free trade world. In a world with no classical trade barriers, government induced, then I can see how much of a problem this strictly business practices attributed to private companies -- only how much of a problem they are. But then and only then.
When it comes to WTO, and to what extent this is the appropriate forum, I belong to the people who suggest there are other courses of approaches. And I have four arguments against the WTO, and to avoid any misunderstandings, I talk about the WTO the way it is now because I cannot predict a different WTO, how it might evolve.
But when I say the WTO, my first point suggesting that we should not go too fast, is that the WTO is a negotiating forum. The WTO is a forum where I say, "I'll give you 3 percent for cars if you give me 2 percent for wheat." Now would you like to see a discussion for example on premerger review or whatever discussed in such a context? I think the experience in the trade, in the Working Group on Trade and Competition clearly supports this argument.
My second point: is don't you think that the WTO is already quite overburdened? You see, I don't suggest that you have to finish first the negative integration before you move to positive integration. Not at all. I mean, there are integration schemes that went the other way around sometimes. But all I'm saying is when I check the most successful of them, the EC, what do I see? I see that in the EC they started discussing seriously Cassis de Dijon 30 years after the EC came into place. Nobody was discussing a common harmonized minimum in the free movement of goods before '89. Or am I wrong?
And they have an institutional infrastructure and architecture which permits active enforcement, which we don't. There is no counterpart to the Commission on the WTO. The WTO is there to manage nondiscrimination.
My third point is a point which has been invoked by other people as well, so I will spend no time on it. It is the existing expertise in the WTO. I mean, as you know they hired the first guy with a respectable competition background a couple of years ago and nobody ever since. This is how much competition policies is embedded into the WTO Secretariat.
And the fourth point is that people keep reflecting, and I don't know why, this idea that if I got to the WTO I'll get its dispute settlement mechanism. But wait a second. The most important part in antitrust enforcement to my mind, and you might think it sounds a bit un-European to you, why in the U.S., antitrust functions -- or one of the reasons at least, is very effective remedies. And this is what distinguishes the WTO from your system right here. The WTO to my mind is about ineffective remedies.
At the end of the day, if I don't want to change my domestic policy, I will not. And all you can do against me is take countermeasures. The threat of countermeasures can be effective in the U.S. against the EC or U.S. against Malawi scenario, but by definition it's not effective in the Malawi against U.S. scenario.
Now maybe I sound a little bit too negative --
-- so I will tell you very, very briefly where I stand. I stand for the following proposition, which is a threefold proposition. I say yes to an enactment of domestic competition laws, and for my taste, as close as possible to what industrial organization has to offer in this field. But enactment at the domestic level. I say yes to positive comity, not because there is a credible threat, which is institutionally embedded in the positive comity, but because it might change the behavior of domestic antitrust authorities. Domestic antitrust authorities will start understanding that their actions impair throughout their national boundaries.
And I finally say that for the time being, the WTO should pursue its trade agenda and concentrate on it rather than starting a discussion on the interface between trade and competition, which in my mind would deviate our attention from where it should be. Thank you very much.
DR. STERN: Thank you very much. I'm glad you had no definitive views on the subject.
I want to know, when you do, let me know. Well, we'd like to just open this panel up. I have a feeling there are a lot of questions and probing that each wants to make of the other and I recognize John Jackson first.
MR. JACKSON: I love the nondefinitive statements also. Because I think they are all wrong. I think Petros is looking at a GATT of five years, maybe even ten years ago. I think we have already crossed the Rubicon on a lot of these issues that he has talked about.
Negotiation forum, well, we are smack dab in the middle of some heavy regulatory issues, for instance, the Shrimp/Turtle case that just came down from the appellate body and the Hormones case. We are beyond a negotiating atmosphere. That's quite clear, and in fact it's a bit traumatic to some of the diplomats who recognize what's happening but are uneasy about it because it's unfamiliar to their normal turf.
In terms of overburden, I recognize that the WTO is vastly overburdened, and that is your second point. The third point, the expertise point: i.e. but of course, that's changeable. That has to be factored in and maybe that's a constraining influence. Maybe that should be the major constraining influence and in other words, maybe the countries that provide the resources for the WTO have to face up to this necessity for resources if they want the service in certain areas.
Taking expertise, for instance, I think it was true that -- I had forgotten the exact date that I could count this from -- maybe 10 years ago there may have been no one in the Secretariat that was an expert on services. Now we have a whole section there and a fair amount of expertise. If there is no one on competition policy there, it is because of the perception in the Secretariat and by the Director General that the Member States do not want that competence at the WTO at the moment. If they want it, they can pay for it.
And finally, the dispute settlement system, I think Petros really misdescribes the effectiveness or lack of effectiveness of the dispute settlement system and he pins too much -- as I must say, many people do -- on the notion of very concrete or so-called hard sanctions. The fact is that the dispute settlement system in the GATT has been really quite successful in its outcome in achieving implementation and conformity to the rulings, despite the lack of concrete sanctions.
And so there is something else going on. There is kind of a reciprocity notion, a feeling that the system has value to complainants as well as defendants. And so, if you oppose it and don't implement it in this case, you may find that in the case you bring, you will receive similar treatment. And so there are a lot of subtle things going on in this process, but so far, in the new process, it looks like there is a reasonably good record of compliance. Now, we are coming up on a couple of issues that are being disputed now, and so on. But I just don't think that is a major issue.
Now, having said all that, I think there may indeed be other reasons why we don't want this issue to go to this particular institution. And I go back to the notion that there is a lot that we don't know, that we need more studies. We need more understanding in a lot of different respects. So maybe there are alternative institutions or maybe we should create a new one. It seems to me those are the things we could evaluate.
DR. STERN: Harvey?
MR. APPLEBAUM: I'd like to talk a little about what the WTO currently does and does not cover. Professor Jackson suggested we've crossed the Rubicon. I think he mentioned the Services agreement, the Anti-dumping and Subsidies codes, state procurement and state agencies. But in what we in the United States think of as common antitrust, anticompetitive practices, and what Professor Kovacic outlined, as what you would expect in a kind of generic antitrust law, including horizontal and vertical restraints and acquisitions, I don't believe that is currently covered by the WTO.
But what is covered -- my colleague next to me suggested that the WTO outcome of the Kodak/Fuji film dispute did not suggest that there is coverage. I would like to point out that the United States Trade Representative stated, when it did not appeal the Kodak panel finding, that the U.S. won on the law even if it lost on the facts. This suggests that the principles enunciated by the WTO panel were acceptable to the United States for future cases of a similar type. In fact I have heard several lawyers assert that the facts may not have been as strong as they might have been in another context. I have already suggested reasons why Kodak might have had some difficulty in an antitrust case.
John, we may have some principles in the WTO which suggest competition policy is already there in various ways. But what we are discussing here today -- market access which, from an antitrust lawyer's point of view, concerns a foreign cartel or a foreign horizontal and/or horizontal/vertical boycott -- that would violate the Sherman Act, either because it's per se unlawful or unlawful under the rule of reason.
A question I would ask Professor Mavroidis concerns the use of Section 301 since 1988. The 1988 amendment has only been used in full one time and that was in the Kodak/Fuji film case. Presumably, it's always been tough because Section 301 only applies to governmental restraints, but one of the provisions there that was added in 1988, which I have always thought was a potential candidate for WTO use, defines a governmental restraint to include a foreign government tolerating anticompetitive practices under its own competition law.
The U.S. Congress in 1988 was that kind of neutral, thoughtful in providing that the toleration of the foreign anticompetitive practice that would violate U.S. law, had to be a violation of the foreign government's law.
One of the issues that raises is how does the USTR as the enforcement agency develop a record to decide whether there have been anticompetitive practices? And in particular how does it decide whether a foreign government has failed to enforce its own antitrust law? Thus, John, I am not sure we have crossed the Rubicon, but there is a lot of potential in the WTO.
MR. JACKSON: Let me respond just a little bit to that. Of course, Harvey, it was you who mentioned anti-dumping. So I don't know.
MR. APPLEBAUM: You know I always mention anti-dumping.
MR. JACKSON: Okay, but I guess my point was that I thought you were demonstrating that in fact there was already a cognizance there of the broader concept of competition policy. It may be that this conference and this exercise is only going to take a 10 percent slice of that. Because there are many broader, kind of -- and indeed, Professor Kovacic, very amply, I think demonstrated some of the really broader implications.
Let me just read the section from the Services agreement that triggered my thinking or some of my thinking on this, and it still has to be fleshed out and it could be that it's a dead stop, that there are lots of reasons not to push to the frontiers of this, although the Kodak case obviously was trying to push the frontiers of some of these concepts in the goods area.
It says that each member shall ensure that any monopoly supplier of a service in its territory does not, in the supply of the monopoly service apply in the relevant market act in a manner inconsistent with that member's obligations under Article 2 and specific commitments. Pretty broad.
MR. RILL: What is Article 2?
MR. JACKSON: Article 2 is MFN, nondiscrimination. Well, and the commitment, and the specific commitment.
MR. RILL: Let me just come back for a moment to the metaphor I use, that means the rich and poor in Paris likewise can sleep under the bridges. Nondiscrimination doesn't get you very far if it's not enforced at all.
MR. JACKSON: No. I think that you have chosen maybe a 10 percent slice of the problem.
DR. STERN: Did you want to follow up on this thought?
MR. BAKER: No. I'll let someone else go. I'll come back.
DR. STERN: Because we have had the Fuji/Kodak invoked a number of times, and so I thought we'd try to keep this strand in common.
MR. BAKER: I'll keep to Fuji/Kodak.
DR. STERN: Go ahead.
MR. BAKER: I got interested in this dispute because I had to work as an expert on trying to figure out and report what the United States antitrust agency would have done had Kodak complained to it under Section 6A of the Sherman Act. And my conclusion was that most of the practices that Kodak complained of would not have been prosecuted under the U.S. law even if they had occurred in the United States.
Given Fuji's dominance in Japan, the answer might have been different had there in fact been exclusive agreements rather than relationships that seemed exclusive.
And that the Kodak position was fundamentally inconsistent with Alaska Airlines and cases like that.
And so I was not so surprised to have the USTR take the position that the panel was right as a matter of policy that you couldn't proceed. Non-enforcement of accepted principles didn't give rise to liability where there weren't sufficient facts to justify enforcement.
Related to this, the Committee ought to think a little bit about what we can learn from our own dormant Commerce Clause jurisprudence in the U.S. -- where we have, via the Commerce Clause, dealt with a whole variety of restraints that are mixtures of public and private action. Here the Supreme Court says, "No, you can't do this --you can't compel the local shrimp to be peeled in Louisiana or prohibit the freight train to go through Arizona with more than 70 cars." And there is a lot of room, I think, in our own experience to think about access questions.
DR. STERN: Tom?
MR. HOWELL: Yeah, I want to speak to a couple of comments. First, just to set the record straight on the Kodak case and the decision not to appeal. Kodak opposed an appeal. USTR I think wanted to appeal because of the damaging legal precedents that were being set by the decision. A couple of them I can mention. One is, there was an implication in the case that you can't challenge nullification of prior rounds of tariff concessions once there's been a subsequent round. So for example, we were challenging a nullification of Kennedy Round and Tokyo Round concessions. The panel decision implies that only nullification of Uruguay Round concessions could have been challenged. The USTR was quite upset about that and wanted to challenge it.
There was also the notion throughout on the nullification case that the United States should have known various things the Japanese Government was doing, when even the Japanese Government itself wasn't fully conversant with what it had been doing itself. That kind of precedent was damaging.
Kodak opposed an appeal because the factual findings could not have been overturned on appeal. The scope of review is too narrow to reach the factual decisions so there was no practical benefit to Kodak for an appeal, and a lot of cost to Kodak for doing it. That was the reason that that decision was made.
I'd also like to speak to Don's point about the paper that you did. You know, we had our antitrust guys look at the paper and they said that indeed, the executive summary did conclude that what Fuji did in Japan would not have been taken up by the antitrust authorities here. But the paper itself, the text of the paper suggested that there was a very significant ground for investigation of anticompetitive practices here. There was a disconnect between the executive summary and the body of the paper, and we have certainly found that a lot of these, sort of, overt horizontal activity that took place in Japan, in particular, and I think your paper also concluded, would have warranted a serious investigation by the antitrust authorities.
DR. STERN: I don't think we are the court of appeal here.
MR. RILL: Thank you. My point.
DR. STERN: Good. We have been working together so long, we are reading each other's minds.
MR. BAKER: Could we get it translated into Russian -- I mean Mongolian.
DR. STERN: Mongolian, that's right.
DR. STERN: Okay. Doug, and then Eleanor.
MR. MELAMED: I'm always troubled when we talk about private restraints as a market access problem or nullification of an international trade agreement because I suspect that the trade community and the antitrust community have very different understandings of what that might mean. Let me apologize in advance: if it comes out the way I intend it, this will be a very long comment.
I think we all agree it would be nice if, through some kind of a dialogue, the entire world came to have a shared understanding of a sound role for competition law that would effectively eliminate private restraints to entering markets and thereby facilitate international trade.
Let's suppose we are not quite at that point yet and assume that we have a nation that has a coherent law, enforced the way it understands that it ought to be enforced, and that, as a result, it tolerates certain private conduct that impedes imports from another nation. What is the principle that one might use to say that this nation has done something wrong by being true to its own laws, but doing so in a way that tolerates private restraints on trade?
Now, if that law is discriminatory, in the sense that it does not protect importers, but does protect domestic industry, I think we all agree that would be an unacceptable. We would have a principled basis for saying that's not good enough.
The harder questions arise when we go beyond a nondiscrimination rule. Suppose, for example, a nation's law tolerates inefficient private arrangements because the nation has domestic objectives other than maximizing efficiency or consumer welfare but the law is not discriminatory. Suppose, for example -- this is probably counterfactual -- that the law in Japan tolerated arrangements between Fuji and its trading partners which disadvantaged Kodak and also Konica. What would be the principle for saying that that is an unacceptable law for Japan to select?
Go a step further. Suppose Japan, or any country, has a set of antitrust rules much like what we think of as the United States rules -- that is to say, a single-minded focus on consumer welfare and efficiency -- but the result is that they tolerate, for example, parallel vertical restrictions among the five domestic firms, the effect of which is to exclude, as a practical matter, entry into the market by a sixth firm, be it domestic or foreign, where no market power is created and where the vertical arrangements are efficient.
In the United States, we would probably say that's okay. The Seventh Circuit recently said that in a newspaper case, as a matter of fact. The selection by five companies of similar forms of distribution, for example, is presumptively efficient.
And yet there are those -- Dick Cunningham earlier today might be one of them, although I wasn't here so I may have misunderstood -- who would say we should adopt a new principle that would go beyond what the Antitrust Division would consider to be sound antitrust, to maybe something like or beyond the EU's notion of vertical restrictions, and that we should have vigorous government enforcement whose objective is not to serve our antitrust goals of efficiency and consumer welfare, but rather to maximize opportunities for imports. Is that the principle that the trade community thinks we should invoke?
A final thought. As we move away from a nondiscrimination principle to one that involves second-guessing even nondiscriminatory domestic laws, we need to keep in mind that we are up against some of the exceptions and limits to our antitrust laws, such as the state action doctrine.
DR. STERN: Eleanor?
MS. FOX: Yes. Now I'm going to change course and hope I reserve time for my original set of questions of Petros Mavroidis' priorities, because Doug Melamed had stimulated some questions I have in answer to your question. I think if Dick Cunningham -- Dick is here. I'm going to say it any way, Dick, because I think this may be what you had in mind, but I think it is partially what you said.
Should we, in the world trading community, be looking for a principle and negotiating for it, if it's not there yet, a principle that says nations should have open markets, at least to the extent that they are not shut by artificial, unnecessary or excessive state or anticompetitive private action, which may or may not be discriminatory?
Let me give the example which Dick Cunningham gave of keiretsu, but let me go back 20 years when keiretsu were much tighter. And Dick Cunningham also gave the relationship of Thailand. I don't know about those relationships, but it certainly sounded like you were saying that the country tolerates and encourages and wants dealing within the family.
Which means no discrimination, if it's Japan 20 years ago, a Japanese firm has as hard a time breaking into the market as a U.S. firm, but the market is closed substantially to flow of imports on the merits, because of national industrial policy practices. Now, a question is whether nations believe, including Japan and Thailand, that they should go to a bargaining table and negotiate that markets should be open and not closed by artificial restraints?
Those countries have access to other open markets in the world. Should other countries reciprocally have access to their markets? So that would be a principle that on the face of it seems to go beyond antitrust principles. In fact, it's probably not going to go much beyond, and may not at all go beyond antitrust principles, because to me there is probably an overlay that virtually coincides with the antitrust principle, that says you have no unreasonable restraints that bar market access. So to me, that's the principle.
Should nations be looking forward to this reciprocal open markets with a legal principle which might, for example, on the private restraint side, be related to that country's antitrust law?
On the nondiscrimination, I simply want to say, there's a very rich body of law and debate in the European Union as to whether restraints of trade within the European Union by Member States should be prohibited and caught, whether or not they are nondiscriminatory. There is an enormous amount of literature on this which is very, very interesting. Is there state trade restraining action that violates the principle of open market access? And we can talk another time as to exactly how that principle is coming out, but basically, there is a principle that does go beyond discrimination.
I also want to talk about another point. Should we rechallenge the state action defense which you have put on the table? And I think it's very important to rethink the scope of our state action defenses. I think along the lines of Diane Wood's writing on our own Parker Doctrine. I am suggesting that ought to be on the table.
I'll end there for the moment and then maybe later I'll get this chance to ask Donald Baker and Petros, Professor Mavroidis, some questions about their theories.
MR. RILL: I think I agree, I know I agree with the premise of the hypothesis that you have stated, Doug. I think it's difficult to find a principled basis to go after that particular hypothetical situation, but let me tweak it a little bit. There's evidence that at the horizontal manufacturing level, there is some agreement, however one would define agreement, to block the market using the distribution channels on an exclusive basis as a vehicle.
Second tweak, different situation -- now he's going to have to run. Second tweak, it's not five or six firms, that there are five firms that have this arrangement, it's one firm which insists on exclusive dealing downstream, as a method of maintaining its monopoly power. You still, you have no difficulty finding a principled basis for the application of antitrust to those particular situations.
MR. MELAMED: As I understand it, Jim, you've changed the hypothetical now. You said that the conduct that might be tolerated by the government is not conduct which is efficient and therefore would be lawful in this country, but rather is inefficient and probably would be unlawful in this country, so it goes back to the first of my two hypotheticals.
MR. RILL: But you would have no problem in application of positive comity. You are seeing at least that antitrust principles might be applied to that particular situation, and condemn them.
MR. MELAMED: I would have no problem with saying that kind of conduct is probably anticompetitive and ought to be condemned, and I would urge every country in the world to have our kind of laws and to condemn it. But I'm not sure it follows that, if a country chooses a different set of objectives for its law -- one that does not discriminate against, or countenance discrimination against, foreign firms, but does permit the creation of market power under certain circumstances -- that there is a principled basis for not permitting that country to have the law it chooses.
MR. RILL: If I may respond, positive comity would not apply in that situation because the local government disagrees. There is no basis for exercising it. So therefore the question would be, principal Deputy Assistant Attorney General, do you bring a Footnote 159 case? You don't have to answer that.
DR. STERN: Okay. Professor Kovacic.
MR. KOVACIC: I'd like to address the last of the questions that Eleanor posed and it's one of the questions that Doug Melamed posed earlier before. I think there is a tendency in international circles for us to think about competition policy thinking about what can foreign governments, especially transition economies, learn from the United States and I think that is an instance in which reverse osmosis, both from the European Community and from transition economy experience would be useful for us, and it does focus on state action.
I greatly wish we had something that looked like Article 90 in the Treaty of Rome. I think that would be a helpful, useful step in the direction of confining the discretion of public decision makers. And even more when you look at the new transition economy laws, given their experience with the role of the state, it is striking to see how many of them apply their laws directly to behavior involving public institutions, both state-owned enterprises and government agencies themselves.
There is usually a very narrow escape hatch, at least in theory. That is, if at the highest levels of the government, parliamentary decision making, the nation declares that a specific ingredient of competition suppressing policy is the national policy, that can be effective. But broad delegations of power to individual government ministries, regional administrations, municipal governments in most instances are presumed to be invalid.
I think, I think if we look in the mirror at our own experience and think about whether A, we would have the legitimacy as a nation to propose significant reductions in foreign trade barriers of this kind and second, what kinds of adjustments in our own policy would perhaps make us better off, revisiting Parker seems like a very sensible approach if only to start as a limited matter and revisit the Court's assumption in Parker that the raisin cartel only affected Californians, when in fact every little kid in Boston staring into a bowl of Raisin Bran was going to pay for the decision being made by the California agricultural authorities.
And I think Don is right as well. Another approach to this would be to revisit the dormant Commerce Clause and begin to ask, maybe in a bolder manner, whether the Court has been too permissive of state prerogatives in allowing restrictions that truly spill over state borders in a dramatic way. But I think this is an excellent example of where comparative assessments, comparative analysis using an international body as a forum for discussion, but simply reflecting on these experiences, is a good way in which you can create at least an intellectual awareness and maybe some policy movement in the direction of adjusting our own statutes.
DR. STERN: Merit?
MS. JANOW: One of the issues that this advisory body has periodically considered over the last two meetings is the extent to which this kind of discussion is itself occurring within the U.S. Government. And so I think maybe it would be useful to ask this panel their own perceptions of that question and the extent to which competition versus trade perspectives are part of U.S. foreign economic policy making.
DR. STERN: And if they are doing any empirical studies that everyone is asking for. Merit, it's usually I who asks questions which nobody is going to touch.
MR. RILL: I think it's a terrific question.
DR. STERN: Tom is going to take it.
MR. HOWELL: I'm not sure if I can give a perspective on what's going on. I can give my own perspective, which is one of mostly walking back and forth between the USTR and the Department of Justice with a problem and getting a very different perspective on that problem. It's usually a market access problem with a competition dimension and also a government action dimension. It can involve Japan, but it can also involve China or other countries.
And then going to the Hill and finding that there is the same cleavage between the judiciary committees and the trade committees. And then going to academia, really, and finding there is also a cleavage between the people who have got antitrust backgrounds and the people who have trade or political science backgrounds. And finding that there are a lot of rocks being thrown back and forth across the divide, but not a lot of real dialogue or problem-solving really occurring.
There is this question of toleration, one that's been written into 301. It is something that USTR is authorized to enforce. The Department of Justice takes strong exception to the notion that a foreign activity -- will take strong exception to a finding that a foreign antitrust authority's tolerating anticompetitive activity in its own market. And it has its own institutional reasons for worrying about that, because it could be turned around against us at some point, and perhaps it could be said that we are tolerating activity perhaps of a different nature -- a Boeing or a Microsoft or whatever -- maybe Microsoft is not a good example now -- or an when Intel or whatever, and we might not want to face that situation down the road.
I think one of my suggestions was, as a possibility of breaking out of this, to get away from the notion of toleration, at least in terms of the ultimate remedy that might be sought, and look instead in terms of outcomes. If a foreign market is not open to our products, that's an issue really of the tariff concession that we negotiated and whether we're getting what we bargained for or not, whether it's by result of toleration or active participation in a cartel by a government or they just don't know what's going on. That should perhaps not be such a prominent issue, but rather the issue should be are we getting the benefit of our bargain, and if not, in a sense, get our money back.
MR. BAKER: This is absolutely the fundamental difference! Antitrust is concerned with the competitive process. The Adam Smith ideal is indifferent to the identity of winners and losers, which the whole trade law approach is totally about the identity of winners and losers. It's the invisible hand versus the visible hand.
DR. STERN: Well, in fact I was going to ask a question related to your comment. What happens if you have an outcome which suggests that there is not the flow of trade that had been hoped for or anticipated or even projected, but there is no demonstrated fact-based record that the reason is because of some action in the overseas market? Rather the reason has potentially to do with all kinds of things, worldwide depression, you know, no flows of commerce anywhere, airline strike, global warming, whatever -- that the flows just didn't occur?
Are you suggesting that if there aren't those flows that are projected, that that is the sufficient record for there to be declared a notion that something is anticompetitive in that target country?
MR. HOWELL: Let me stick my neck out. First of all, let me say that if there is no evidence of, no concrete reason why goods are not flowing in a market, I don't think that rises to the level of something you have a nullification finding. But I think if there is not a functioning market there, and for example, let's say that a country dissolves into absolute chaos and it's not safe for U.S. companies to do business there, but there are exports flowing into our market from that country, large quantities of exports, but we can't export to them -- we have paid for our access to that market in terms of reductions in our own tariff law.
We haven't gotten what we have bargained for, our bargain has been nullified. And I would submit, and perhaps John Jackson will be scowling at this, we should have the right to redress. In other words, we ought to be able to get back what we paid for that, access to that market, because there is no market there.
DR. STERN: Even though they are in chaos we are going to be able to get some redress from them?
MR. HOWELL: Uh-huh. I think-- in other words, if we can't, and particularly if we are confronted with a situation where we have not, there is no market there, essentially when we entered into a concession, in a belief that there was a market there, yes.
DR. STERN: I keep thinking of Russia, but they are not a member of the WTO so that can't be who you are talking about. Professor Jackson?
MR. JACKSON: I'm just intrigued with that train of thought and it relates to the question of the foreign policy aspect. What you are suggesting is if a foreign country is in chaos and still somehow able to ship to us, we ought to cut that off so as to increase the chaos there, is that right?
MR. HOWELL: Good question. Well, of course, you can always flip a trade issue into a foreign policy dimension and complicate it, you can add a defense element as well, or as you wish. But yes, I would say from a trade perspective if we were talking about a balance of concessions that has been broken, it ought to be rebalanced.
MR. JACKSON: Let me be a little bit more serious. I do not think that the balance of concessions is the primary motivator in all of this. I do not think that that is really, I don't think you would lay that on the international trade community. I think there is a lot of individual thoughts agreeing with that, but you know, economists have been saying, in fact I better not name names but a very eminent one recently, I think, said that -- but they have been saying for years that -- the notion of reciprocity is really fallacious.
Reciprocity is not really a good economic principle for trade, it's a political principle. It's a locomotive. It has political appeal. I have said that in my writings and other people have said that and the economists have taught that lesson and I'm pretty persuaded of that. The economists will say unilateral disarmament on trade barriers is very, very good, very beneficial for the world and our government. The only hesitation--
DR. STERN: And I might add, it is argued by economists that it is self-rewarding.
MR. JACKSON: Yes. The only hesitation is that there might be some additional bang for the buck by using, restraining your unilateralism in order to get multilateralism, because then you have got even a better approach. But I don't think this system is about reciprocity.
DR. STERN: Harvey, I recognize you.
MR. APPLEBAUM: It seems to me that what has been suggested by Tom is either a foreign economic principle or a trade principle. But this suggestion has nothing to do with the interface of trade and competition policy. I question whether when the United States and the other parties, first to the GATT and now the WTO, negotiate tariff and other concessions, that has been assumed to be carte blanche access to foreign markets.
There are still a whole host of WTO codes which we wouldn't have needed if there were unimpeded access. For example, the United States has a long list of regulations that impede or restrict imports until the importer satisfies the restriction, whether it's an agricultural product, whether it's a safety restriction, etc. Such regulations may have absolutely nothing to do with competition or trade policy.
It does seem to me there is a fundamental question as to whether this is separate from a competition policy or trade policy issue if the United States because of chaos or whatever is blocked from the foreign market, I question whether the nullification doctrine or the tariff concession doctrine ever meant they were intended to give all members of the WTO full and unimpeded access to foreign markets, given all the other codes, all the other restrictions, all the other obligations of the GATT, and now WTO, in a variety of subject areas. For example, there is clearly no carte blanche access among the WTO members for a variety of agriculture products.
DR. STERN: Jim, you want to jump in?
MR. RILL: Let me come back to what I think was Merit's question and that's: What is the relation between foreign economic policy and competition policy? First of all, there is not a clear consensus as to what's the relationship between domestic economic policy and competition policy in some circles. But passing that one -- and I'm not sure this is process-related, Don.
I think Professor Jackson's comment -- there is much to be said for unilateral disarmament with free trade -- is consistent with the policy of the United States, at least from 1934 perhaps up until, unfortunately quite recently. And that's not a partisan -- the fact of the matter is that we, I think have a fundamental belief that markets will promote the optimal economic result, that free trade is consistent with that underlying consensus philosophy, if you will, of the United States.
I think that's what brought about the Trade Agreements Act of '34. I think that's what produced unilateral, much unilateral free trade disarmament following World War II, and I think that's now what's producing the interest, I hope at least in large part, the interest of the United States in preserving the right of foreign commerce to be free from clearcut antitrust violations that distort that free-market opportunity, that distort the opportunity for an efficiency outcome.
And I think to that extent, we have a philosophic underpinning that relates our foreign economic policies, I perceive, or as I would like to perceive it, and our competition policy.
DR. STERN: Eleanor?
MS. FOX: I'm moving back to more mundane trade and competition problems and want to ask Petros and Don questions that come out of your original presentations. And I would like to do this by asking you what you would do in three particular instances. And I would like also to get this away from WTO on the assumption that if we have an agreement it does not have to be within the WTO, so let's put the WTO to one side.
Petros, I'm first addressing these to you. If there were a claim, say, by U.S. firms in the glass industry that they cannot get into what they say is a closed foreign market, as they claimed in the Japanese situation, they claimed that they could not get into Japan by competition on the merits. And there is some reason to believe that there is a horizontal cartel, but I don't even know how solid is the evidence? There is some significant claim maybe both ways, that there is a horizontal cartel. So the United States and our glass companies go over and complain to the JFTC and the JFTC looks at the matter and says we do not see a cartel.
The question is first for Petros, do we need anything to handle such a problem? Do we need either a bilateral or a multilateral agreement? Alternatively, should we proceed unilaterally under the deletion of Footnote 159?
My question on this problem to Don is going to be if the U.S. firms have an argument that this substantially restrains imports, at what point does that problem get kicked up to dispute resolution if the country that's allegedly excluding takes no action?
I have two other examples. I'd like to put them on the table, because, you see, they are all related and they raise a question: Are there gaps that need filling? The second one is coming out of the Geotek example that Len Waverman gave us this morning, where Geotek, a competitive U.S. firm which provides telecommunications, cell phone technology, which is the technology that makes the cell phones run and is very good, but can't get into Europe because the European industry has gotten together to set standards that essentially block it out, and the European Parliament might be and probably will be endorsing and adopting those standards.
So the U.S. complains to the EU and the EU says, "Oh, but we have given them an exemption because this is good for Europe," and indeed they may not say it, but part of the reason why it's good for Europe is that it puts Europe out front as the prime mover in a networking industry which makes it much more likely to be a national champion in the world. And the United States tries to use positive comity but gets no result.
Do we need something to solve this problem? And even if one might say we need a bilateral or a Don Baker solution, do we also need to think about international agreement on limits to excessive state actions that bar international trade?
The third problem is the Boeing/McDonnell Douglas problem which Petros will be very familiar with, as well as of course, everybody here, and this particular problem is that Boeing/McDonnell Douglas merger does not raise prices anywhere. And there are various exclusive contracts that Boeing has entered with American buyers of big jet aircraft. These exclusive dealing contracts do not raise prices anywhere, but Airbus in the EU say, "These contracts are excluding our market access to the U.S. market and therefore we are going to seize the Boeing planes as they go into Europe if Boeing doesn't admit to concessions in getting rid of these contracts -- with or without merger, it doesn't matter." It might also deal with the whole merger.
So do we need any solution to this problem? For Boeing, the solution is, of course it's a kind of flip side. Do we need an international regime that's going to put some limits on jurisdiction to have some rules about what's permissibly extraterritorial or not? Or a rule that if it's a market access question it's U.S. law that applies -- if the U.S. is allegedly the excluding country here -- in which case there will be no problem? But if it's EU law, there will be a problem. So do we need a solution?
And also, this is also a problem for Don Baker because it's also the question of does EU now have a good case that this substantially restrains imports and do you worry about that? Or could you deal with it by a choice of law of the excluding country?
MR. MAVROIDIS: I --
MR. BAKER: We have agreed to share the time. He is going to take it.
MR. MAVROIDIS: I think essentially I see two questions out of your three questions because the private cartel and the TBT question in my mind is essentially the same question. Just like 159 and Boeing/McDonnell again, there is quite an overlap. And it reflects what Harvey Applebaum -- I don't know if it was a question to me before about the matter of lax enforcement, but it's along the same wavelength.
You see, I'll tell you how I approach this. To my mind the WTO is an international agreement which imposes limitations on government. It's part of public international law. The most authentic document, to my mind to see how governments should behave at the international level, in the absence of an international law of obligations, is the draft of the International Law Commission on state responsibility. And there the key notion is, is a behavior attributable to the government. Attributable means not necessarily that I have to take an action, but even an omission can be attributable to a government.
Now I grant you that the GATT falls short of that. No matter how you see the GATT, the word there is "measure." Measure to my mind suggests some positive action which means that inaction is not covered. But in the TBT example, there is no case for inaction because you said the Commission granted an Article 85.3 exemption. This is a positive action. Any time the Commission does that. I say the behavior by definition is attributable and falls under the notion of measure as incorporated in the GATT. Therefore without doing anything more, I would attack the Commission based on the existing GATT regime.
MS. FOX: Is it really better to go through WTO? I was really pushing the question of do we need competition standards to deal with that?
MR. MAVROIDIS: But why should you overregulate if the existing regime can provide an answer?
MR. BAKER: I love your examples, and I think I have answers for them if I can remember them. My idea of a competition treaty with its basic rule that dominant enterprises with market power shall not impose unreasonable restraints on imports could be applied to glass examples.
Let's start with your glass example. The U.S. goes to Japan, let's say. Japan says there is no problem under Japanese law. And we say if there is a problem, it still contravenes the treaty and since you are unwilling to pursue it under your own law, we will now invoke the panel process and the treaty rule. And you would then face the next question of whether the absence of ability to get into Japan is tied to intellectual property rights and what you do about that, but I put that on the side. But at least you have a process that works.
Your EU example of standards and cell phone technology raises the fascinating question of whether the panel should be allowed to trump positive government action. And perhaps more broadly whether it should be able to trump domestic exemptions, whether case-by-case or exemption-by-exemption. But you at least could have a try and go to the EU. The EU may say, "Sorry, we have exempted it under Article 85(3)." It would be possible to write my treaty that the issue still could be brought up to the competition tribunal, just as if the EU were complaining about the State of Alabama having done something under the state action doctrine to restrict EU imports into Alabama.
Your third example, the Boeing/McDonnell Douglas case, is particularly charming to me because I believe that the EU really wasn't dealing so much with a merger problem as with a jurisdictional hook that the merger review process gave it. It was saying, "Dear Boeing, since you have to come here to get your merger approved, we will now run your whole collection of competitive laundry through our machine and we find that these agreements are dirty."
Now, it would be to me a better process for the EU to be able to say, "United States, we think that these agreements should violate your law. And if they don't violate your law, we think they still violate the reasonable access provisions of the treaty" -- rather than shoehorning the issue into the merger review process.
Let me give you back one, though, to think about.
MS. FOX: On Boeing, if those agreements were not a violation of U.S. law -- this gets to Doug Melamed's question and to Dick Cunningham's proposition, is it possible to have --
MR. BAKER: Yes!
MS. FOX: -- unreasonably exclusionary and not a violation of our law and what is the standard and who is going to set it?
MR. BAKER: Well, the standard --
MS. FOX: And does it matter if it's efficiency-justified?
MR. BAKER: My view is that if in order to close this political gap between the Section 301 world and the antitrust world, you will have to write a standard of access that goes beyond what we think is antitrust law, though maybe some other countries don't. Still that's probably a more orderly and principled way to deal with access disputes. I understand your --
DR. STERN: Finish your sentence.
MR. RILL: Go ahead. Don't let my stomach ache bother you. Go ahead.
MR. BAKER: Sorry, I was just trying to write a minimum access rule. Now, the problem I see, being perfectly honest with you, is in our Colgate doctrine, which is probably one of the most fundamental ideas in American antitrust law. Namely, anybody but a monopolist can refuse to deal for any reason. That rule may well work to the advantage of leading American firms vis-à-vis importers, because the leading American firms can in essence say, "We'll simply not deal with you if you handle certain other kinds of goods -- like imports." There is no "agreement" but a lot of persuasion when the word comes from an industry leader whose position falls short of a "monopoly" threshold.
And so then we say, then we end up with a situation in which the European Union comes and says, "the application of the Colgate rule, in the beer industry, discriminates against imports. You ought not to have a Colgate rule. Look at our rules. We might compel a firm as strong as Anheuser Busch in the U.S. to deal in the European Union, and why shouldn't you do that, in order to let our imports in?"
MR. RILL: Well, I suppose if the Europeans were to adopt, as long as we are dealing in an unreal world, if the Europeans were to adopt an effects test for export trade, that type of action could be brought. The notion however of having a worldwide arbitration panel suggests that it could handle that kind of situation. Seems to me.
MR. BAKER: Well, my view on it, I regard worldwide arbitration panels as sort of a last resort. What I was trying to do was to create an environment in which the country in which the restraint is going on has the maximum incentive to do something about it because if it doesn't do anything about it, it may in effect be answerable.
MR. RILL: Begs the question whether anything should be done at all.
DR. STERN: Okay. Petros?
MR. MAVROIDIS: I did not respond, I responded only to your first question; I didn't respond to your 159 argument. Assuming that in the Boeing-McDonnell there is no price-raising, in my mind what the EC did resembles strikingly to a deletion of Footnote 159. And to my mind if there is one principle in customary international law in the absence of allocation through a treaty of jurisdiction, which has been observed, it is territoriality.
Now, when it comes to in-bound trade, the classical effects doctrine worked up in United States v. Aluminum Co. of America "Alcoa" and Timberlane Lumber Co. v. Bank of America, there is no dispute that I can exercise jurisdiction and there is very good policy argument. Why? Because I dictate behavior only in my market. I protect my consumers in my market. If you delete 159 the opposite is true. You have very, very shaky links with territoriality. You essentially dictate behavior to the rest of the world, not behavior in your own market. Precisely because, in the case of in-bound trade, I can see the strong links of territoriality which I cannot see in the case of outbound trade, I believe the exercise of jurisdiction in the first case is perfectly reasonable, following the term in paragraph 402 of your Foreign Relations Restatement. In the second case, the exercise of jurisdiction is unreasonable in my mind.
MS. FOX: What do we do about that then? Or what does Japan do to us if we enforce our outbound extraterritoriality, what do we do to EU if EU is enforcing it against us? Do we need an agreement?
MR. MAVROIDIS: The point is how much of an externality do we talk about here? How many times have you seen this thing? The EU until Boeing/McDonnell, if you talk to some European lawyers, they will tell you "we never accepted the effects doctrine." Sinclair went on the record saying that, "in Wood Pulp, we did not say effects, we said implementation of conduct within our market." I think we overestimate something which happens extremely rarely but if it does, and if you think it is that much of a problem, then yes, take them to the ICJ to declare that this behavior is completely illegal.
DR. STERN: Jim. And then I think we are going to wrap up. So if there is anyone who wishes to make some final comments.
MR. RILL: This is almost a matter of personal privilege, as one who held the eraser on Footnote 159. I'm not ashamed to have done so. First, it's not an invasion of another country's sovereignty because there is an effect on commerce of the United States consistent with the U.S. views on open markets. Two, the effect on the domestic business of the United States is not, it may be difficult to see, but it is not remote in a dynamic sense, in a sense that maximum scale opportunities and efficiencies are diminished by anticompetitive practices overseas that interfere with efficient allocation of resources.
Three, in an even more dynamic sense the capital reserves for innovation, market development and, expansion -- now you are having a stomach ache -- market development and expansion are inhibited by overseas, clearly anticompetitive activities.
DR. STERN: Opportunity for any individual wishing to take a last shot? Harvey?
MR. APPLEBAUM: I'll take one. Well, as I have listened to the panel, the question of whether there is a need for a rule, an international understanding, Doug Melamed called it an agreement on sound antitrust principles, if that's feasible, is driven by the fact that absent such a rule, there are going to be continuing collisions. One can argue pro and con on whether the United States is expanding extraterritorially, but it's clear with Jim Rill's infamous deletion of footnote 159, it's clear that either the Department of Justice or a private party can go against an outbound cartel, and you can also pursue it on the trade side under Section 301.
One cannot be sure about the Section 301 route after the WTO panel decision in the film dispute. And although it may be that Kodak opposed an appeal and USTR was interested, that is not what USTR said at the end of the day publicly as to why it did not appeal. With Eleanor's questions, and with all of the different points of view, it seems we face a serious practical problem which I think this Committee is addressing. Given both the competition and trade laws that are designed to permit either a government or a private party to seek access to a foreign market, and the fact there are all these collisions, and in the absence of some institution, whether it's the WTO, whether it's a separate international code of principles, I am coming to the conclusion, which I wasn't sure of a few months ago, there is a reason for the International Competition Policy Advisory Committee on the United States side.
DR. STERN: That's good.
MR. RILL: As long as you are a Co-chair of the Task Force at the ABA that's supposed to be helping us, I'm glad you came to that conclusion.
MR. APPLEBAUM: Well, you know, serving the ABA is like serving the government, Jim, you have no choice when you are asked to serve.
DR. STERN: We want you to deliver.
MR. RILL: Having done both.
MR. APPLEBAUM: In any event, all I am saying now is that this issue isn't going to go away nor the questions that have been asked in different ways by members of the Committee and members of the panel as to what to do in these situations, or what should you do. And the question of should there be a mechanism, whether it's the WTO, an international code, sound antitrust principles, sound bilateral principles, positive comity on the antitrust side, settlement on the trade side, which ultimately provides a means for an accommodation with a foreign government.
MR. BAKER: I want to remind us that as we go to a world that's increasingly service-oriented, and instantaneous, that the extraterritoriality issue may well be a not very helpful one. And in other words, if the European Community says for good antitrust reasons, United and Lufthansa, you have to cut down on the number of flights between Frankfurt and Dulles, in Washington, is that extraterritorial? I don't know.
Both, when you have something like that the parties at the end of the line have equal sort of interests. And a lot of our thinking, including the Kodak kind of thinking has been built up on goods, physical goods flowing from A to B, and I don't know that that's, I don't know that that's where we are, when you look at an MCI/WorldCom kind of merger or some of these issues. And I think we probably have to have some principles that go well beyond territoriality in order to deal with the real world that you have to answer to.
DR. STERN: Anyone else wish to make any comments?
MR. HOWELL: Just briefly, I was looking at the Baker proposal for the antitrust tribunal and I think I was trying to find something wrong with it because Don --
-- was on the other side of Kodak/Fuji.
DR. STERN: Did you look at the executive summary?
MR. HOWELL: But in fact it is sort of, I think there are elements here of what I was trying to get at myself -- really I'm intrigued by the idea, and there is a question of what the standards would be by the reviewing body and how deeply we can probe into the practices of another country. I think that's an important question because it's very hard to get at those factual issues. And I think if the tribunal were somehow limited in scope so there wouldn't have to be a wide-ranging inquiry, like an antitrust case essentially in a foreign country, that could be a workable mechanism.
The other question really is: What remedies would be authorized? It could be tariffs, or essentially suspension of tariff concessions or something like that. That's something that seems to me would be workable. I'm not sure about private remedies but certainly I think that there's elements here that could work. So I must reluctantly concede there is some merit in this proposal.
MR. BAKER: There's what?
DR. STERN: Well, maybe we should get -- well, there is a lot -- maybe we can get some collusion between you, Tom, and you, Don.
MR. HOWELL: I'll raise my prices if you raise your prices.
DR. STERN: And come back with an amplification, since if it was only a two-page article, that's just the executive summary. We want to see the full treaty.
I want to thank everyone for their attention, their willingness to contribute their reflections based on many years of experience and practice in the field, and thank my fellow panelists for their attention and their dedication to this effort, and I want to thank the staff again for preparing us, bringing everybody here. There has been an enormous amount of work behind the scenes.
As you can see, we have a lot of work ahead of us. We shall be having another hearing in the Spring. We would like very much to hear directly from more business folks. And we hope we have demonstrated to the public that while we have tried to tee up a number of issues, our minds are still very open, and we are willing to reframe questions and reframe the way we are thinking so as hopefully to come ultimately to some constructive public policy recommendations. With that, I -- Mr. Baker?
MR. BAKER: Can I just say one thing. Those of us who contributed modestly to this process by coming here through these three days have done nothing compared to what you people at the head of the table and your staff have done, and somebody ought to say thanks to you.
DR. STERN: That's very kind of you.
MR. RILL: Thank you. Let me echo also what Paula said and add a point. I think there has been an enormous amount of, for some of you nonbillable time -- I assume nonbillable time that's been put into very careful preparation for today and yesterday, and public service time. I think that's a real tribute to the Attorney General and Assistant Attorney General and to us, that people are coming to do this to aid our efforts.
I would like to view this as a continuing process, though. I know for example Dick Cunningham was the Ghost of Banquo at our dinner table here the last time. I would invite Dick to comment -- not now.
As I would invite every one of you to continue to comment to us, in writing, by phone, by email, by carrier pigeon or by BA-AA joint venture.
DR. STERN: Merit, you have the last say as our executive director.
MS. JANOW: Well, thank you. I just wanted to say as the organizer of this set of hearings that I wanted to extend my personal appreciation to several: first of all, to all of the hearing participants. Over the course of these three days, we have had participation by more than 48 individuals, all of whom have been enormously generous with their time, not only in attending each of these three days, but in preparing background papers for our consideration. Many have promised to undertake still more to educate us further. It is really a remarkable tribute to each of you, that you have been so generous with your time, and for no reason other than your interest in U.S. antitrust policy and sound public policy.
And secondly, I wanted to extend my personal appreciation to the Committee staff that has worked very, very hard on the substance, as well as the logistics, literally day and night, to assure that this hearing went smoothly. Others have also contributed greatly, notably Sarah Bauers of Collier, Shannon and others whom I may not have mentioned at this instance.
We have raised a lot of questions here and still more are contained in the set of requests for papers that are on the Committee's Web site. I invite anyone who should read these transcripts or be in attendance here today to visit that Web site and consider contributing to our effort over the coming year. And finally, I want to extend again my appreciation to the Committee members. Thank you.
DR. STERN: With that, and a cordial invitation to the panelists to have drinks at my house, which you have all received that invitation, these sets of hearings are adjourned.