INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
December 16, 1998
This document constitutes accurate minutes of the meeting held Wednesday, December 16, 1998
by the International Competition Policy Advisory Committee.
It has been edited for transcription errors.
James F. Rill
INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
Wednesday, December 16, 1998Taken at The Carnegie Endowment for International Peace, Root Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C. beginning at 10:00 A.M., before Bryan Wayne, a court reporter and notary public in and for the District of Columbia.
Advisory 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
Zoë Baird, President, The John and Mary R. Markle Foundation
Thomas E. Donilon, Partner, O'Melveny & Myers
John T. Dunlop, Lamont University Professor, Emeritus, Harvard University
Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York University School of Law
Steven Rattner, Deputy Chief Executive, Lazard Frères & Co., LLC
Richard P. Simmons, Chairman, President and Chief Executive Officer, Allegheny Teledyne Incorporated
David B. Yoffie, Max and Doris Starr Professor of International Business Administration,
Harvard Business School
Department of Justice Employees:
Joel I. Klein, Assistant Attorney General, Antitrust Division
A. Douglas Melamed, Principal Deputy Assistant General, Antitrust Division
Charles S. Stark, Chief, Foreign Commerce Section, Antitrust Division
Randy W. Tritell, Assistant Director for International Antitrust, U.S. Federal Trade Commission
Members of the Public Appearing before the Advisory Committee and Presenting Oral Statements:
IN ATTENDANCE:Advisory 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: 20
Reports or other documents received, issued, or approved by the Advisory Committee: None
PROCEEDINGSDR. STERN: Let's now bring the meeting to order. I'd like to welcome everyone. We have a very large complement of members in attendance. Clearly the Christmas season has brought out the public spirit, if nothing else. I think it's great to see everyone here. I'd like to welcome you to our third meeting of the International Competition Policy Advisory Committee.
Since our last meeting in September, the Advisory Committee has been busy with a number of activities designed to gain input from outside experts on competition policy issues. The centerpiece of this effort was our three days of public hearings held in early November. At those hearings, we heard from a really terrific roster of 48 participants including representatives of ten different foreign competition authorities as well as lawyers, economists and academics, not only from the United States but we pulled in folks from Canada, the European Union, Japan, Mexico, Venezuela, Poland among other places.
We're especially grateful to Advisory Committee members John Dunlop, Eleanor Fox, David Yoffie, and Steven Rattner who did an outstanding job of moderating the sessions during the hearings. By all accounts, I think everyone seems to agree it was a tremendous success. As an added benefit, the hearings have sparked offers from a number of individuals to aid our Committee in considering how to solve the problems associated especially with the exchange of confidential information between competition authorities.
We're getting assistance in other matters as well. You've all received the briefing books which contain a summary of the key points from those hearings and they're at tab A-1. This summary, which was prepared by the Advisory Committee staff, highlights the points of agreement and disagreement among the panelists on many of the issues discussed at the hearings. In addition, the Advisory Committee is currently preparing the transcripts of those hearings for publication on our Web site which we hope to have available shortly. I'd like to just take a few moments to identify some of the themes that emerged from those hearings and which appear in those summaries in your briefing books. There was broad agreement among participants at the hearings that enhancing cooperation among antitrust authorities is valuable. In particular, many of the representatives from the foreign competition authorities spoke approvingly of the value of cooperation with the U.S., and pointed particularly to the U.S.-EU and U.S.-Canada cooperation agreements as moving in the right direction.
Another theme that emerged at the hearings was the broad recognition that competition problems are increasingly transnational in character and that national responses may not be fully up to the task of effectively addressing competition issues absent cooperation from these foreign authorities. In response to this trend, a deepening of bilateral cooperation is important and further consideration of international approaches to addressing these issues is necessary.
There was considerable discussion among the hearing participants as to what form these approaches should take. In particular, participants debated what role the World Trade Organization should play in competition policy, if any, and whether it should proscribe certain practices or only serve as a broad advocacy forum. I hope that as we continue our discussions today the Committee can bring the expert views expressed at the hearings to bear on the issues that are under our consideration.
Just to take a couple of minutes to lay out a road map for today, first we'll hear some welcoming remarks from my Co-Chair Jim Rill and then from Assistant Attorney General for Antitrust Joel Klein. Then we'll move into the first session which will consider multijurisdictional merger review issues, and Tom Donilon has agreed to kick off the merger discussion. Joel Klein has kindly agreed to join us for that session.
At around 12:15, we'll shift gears and begin a working lunch where we'll consider the issues of the interface of trade and competition policy. Here Co-Chair Jim Rill will lead that session. During this session we hope to also hear an update from Deputy Assistant Attorney General for Antitrust Doug Melamed, particularly about the recent report of the Working Group on Trade and Competition which has been ongoing at the World Trade Organization. Our final session will begin at 2:15 and consider enforcement cooperation and Eleanor Fox has graciously agreed to lead that discussion.
We're now about a year into the two-year life of this Committee. At this time it would be useful for all of us to start a discussion about what the Committee's area of coverage and core recommendations might entail. Thus, during each session, we hope that all of you will identify issues and perspectives you think we should examine in the report that we produce in the coming year.
At this time, I'd just like to note for the record that this meeting is to gain the input of our members and as we stated in the Federal Register notice announcing the meeting, there will be no participation by the audience. We're pleased that the audience is here and that there is the interested public. Our format does not, however, allow for participation from the audience. We would welcome any reactions they may have to today's meeting in writing. And members of the audience may contact the staff of the Committee if they wish to submit these written comments to the Committee.
With these preliminaries out of the way, Jim, I'd like to turn the floor over to you.
MR. RILL: I have nothing to add to the logistical and overview comments Paula has made. I think we should move forward and give Joel the floor and get to the substance of what we're talking about. I would only say that today I think we've come to the point where we have enough in the way of recommendations and suggestions so that as a Committee we can start evaluating, discussing, indeed debating some of the prescriptive aspects of where we may be headed. And that really now moves us on to the task that we have in front of us. Joel.
MR. KLEIN: Thank you, Jim.
I'm delighted to add my welcome to Paula's and Jim's. Let me start with a very sincere note of appreciation for the extraordinary set of hearings that the Committee put together. Obviously, Paula, Jim, Merit, and staff worked exceptionally hard on that and I think produced a treasure trove of information that will, I think, long be viewed as important primary materials by people in the international community. I think it was really quite remarkable how many competition authorities sent their chiefs to help work with us on it and a true reflection of the significance of the work that the Committee is doing.
For my part, I continue to believe that with the evolution of the issues in antitrust and the globalization of our economy that what you are working on is critical. And even though it may not have the kind of short-term traction that certain trade or other issues might appear to have, in the long-term significance it is very, very important. I have spent a fair amount of time since your last meeting, meeting with groups such as the TransAtlantic Business Dialogue, National Association of Manufacturers, talking about these issues and hearing from them about their concerns.
The Hill has held several hearings on it. We will have a hearing in April on all the issues of positive comity, trade and competition issues. The WTO has gone through, as you will hear later today, a rather extensive set of negotiations about reauthorizing the Working Committee on Trade and Competition. It was reauthorized. It has a mandate for 1999 in which time we will, I think, try to determine what if anything the WTO looks at in the 21st century.
The Europeans will push hard for formal negotiations. As of now the United States uniformly -- the USTR, Commerce, Justice -- are opposed to formal negotiations, although we believe there ought to be a continuing working group. Other countries are, I think, more mixed in their reactions. There is going to be an interesting set of discussions going on in 1999, at a time when your report and recommendations will be perfectly positioned to influence, I believe, the outcome of those discussions.
Simultaneously there is going to be and continues to be these multinational mergers that are interesting more and more competition authorities. As I predicted not so long ago, the Japanese are now going to look at, if you will, out-of-country mergers, which up until now they never did look at. For example, they stayed out of Boeing/McDonnell Douglas even though the planes were sold to Japanese carriers on the theory that this was two non-Japanese companies merging. However they are now going to look at Mobil/Exxon.
So that is I think a harbinger of things to come. And at least in my meetings with corporate America, there is an ongoing concern about multijurisdictional review, what it will entail, the differences in substantive law, the differences in procedural concerns, timing, the ability, frankly, to play one jurisdiction off against another, as well as the ability of jurisdictions to leverage the process through their ability to influence other jurisdictions with respect to outcomes. And I see this as a significant issue, one which we will get to quite quickly this morning, so I will save any specific comments in that regard.
Paradoxically, while we've generally run into a fair amount of business resistance to sharing of confidential information, in the multijurisdictional merger review they have actually encouraged it as a way to facilitate the process. The experience we had, which I can talk some about if you like, on WorldCom/MCI, the overall comments ended up being enormously positive. There was a fair amount of misunderstanding in the reported media about this stuff, but in fact it worked incredibly well with us and the Europeans and came to a single unified result on a two billion-dollar divestiture, it's the largest divestiture in the history of American antitrust.
How that will play itself out on a going forward basis when we're looking at what's sure to be -- and I'm sure Steve will say this with a bigger smile than I do -- sure to be a multitude of these multinational 50 billion-dollar mergers in the next couple or three years, I think, is going to raise some profound questions and I would hope we will have some important answers.
Finally on the third front on the cartel enforcement, international cartel enforcement continues to move forward with astounding success. Every time we crack one of these things, we see that they've been long running and that they are not cartels that dissipate in the market. They have been long running, significant -- that is, 20, 25 percent price overcharges -- to, typically, American businesses that buy these products. These cartels are enormously well oiled and effective. These are not haphazard operations. Every one that we get an amnesty application or a plea bargain from leads us to a second or a third, so there is not an obvious end in sight and the dollar volume continues to rise.
That is, we were looking in some instances at cartels affecting hundreds of millions of dollars of commerce inside the United States alone. We are now looking at some that affect billions of dollars. We will probably go public in the next six months with one or two that are really quite remarkable. As a result of that, people throughout the world on that front are responding enormously positively. The Japanese have done work with us, helping us get documents, get evidence. The Germans conducted a search at our request not long ago. The European Commission appointed a separate cartel enforcement unit. The Canadians as a result of our leadership have prosecuted their single largest white collar case ever. Not just in antitrust, ever in the history of Canada based on one of our cartel cases. And as I say, this is a work that is still in its early stages in terms of uncovering what is out there in worldwide commodity cartels.
Let me end with a sincere and perhaps, from my perspective, foolish thing to say. I hope as you look at these recommendations that while you remain practical, you are willing to be bold. Because not everything you will say will I, or certainly the Division or the Federal Trade Commission, ultimately endorse or support or may even think is sensible.
But if you're going to do work that has medium to long-term value, it has to challenge some of those traditional assumptions that people in the agencies are comfortable with for all the obvious institutional reasons. And while you could create problems for us, I would urge you to push yourselves and try to think a little bit outside the box because none of these problems are obvious or easy to solve and there is a normal institutional view that we would like to go along with what we're doing in the hope that these problems don't become particularly significant.
And I think the Attorney General would not have appointed this Committee had she not believed that these problems are both important and not easily solvable. If they were easily solvable, we wouldn't bring this many people with this much talent together over two years. So I mean it sincerely that I would hope that there are things in this report that actually upset the current institutional forces.
DR. STERN: Thank you very much, Joel. And we've received our charge or recharge of our batteries here from Joel to be bold. And now I'd like to turn the discussion over to Tom Donilon to really start our work morning off.
MR. DONILON: I'm still reflecting on Joel's last comments there.
The first area of discussion this morning is that of multijurisdictional mergers. I think Assistant Attorney General Klein has underscored the importance of it. I think that's become clear with the extraordinary set of hearings that the Committee held in November. The way, Jim and Paula, we planned to do this today was have Merit give a presentation embodying an interim assessment of where we are on the various issues as a way to kickoff the discussion.
But before we get to that, I've never been one to turn down the opportunity to take the microphone for just a couple of minutes, I'd like to get some observations and point out some things I hope we can discuss today. One is, as Joel said, this is a quite important topic. Two, there's a lot right that is going on right now, I think, in the multijurisdictional merger review process. And Joel has pointed to an example I hope we can work on today in some detail which is the WorldCom/MCI deal.
But I think the evidence before the Committee to date would indicate that where there are in place institutional relationships, where there is in place structured communication, that in fact there is some degree of convergence and good work going on in the multinational, multijurisdictional merger area.
Now, that's the good news. The next point, though, is that that's only in place in a few places. Obviously, the most important of those being between the United States and Europe. And I think we've heard compelling evidence that one, global mergers are going to be increasing in number and that the number of jurisdictions reviewing those mergers intensively is going to increase. And I think we need to try to get ahead of the curve on that through our work here. I hope that means we can focus on a set of core principles that the rest of the countries in the world can look to as they develop their merger review policies.
I think we do need to discuss the appropriate role of international institutions in that respect and how the United States should relate to those institutions. We also have been focusing very hard on an area that I'm quite interested in, and that is procedural harmonization. Because I do think practice has shown that that will lead to substantive convergence over time, and we should test that proposition in our deliberations.
And last before I turn it over to Merit for an outline of the areas to discuss today, I know this is an issue of some controversy in our deliberations, but I for one as a Committee member do believe that we need to look intensively at our own practices -- Hart-Scott-Rodino practices in our own country - - for a number of reasons. One, because they do have effects obviously on the multijurisdictional merger review practice such as transaction costs, and they actually have special effects in a number of instances, with respect to the burden of gathering documents from around the world as opposed to one office and one city in the United States. We've heard testimony during the Committee's deliberations on translation burdens and other burdens.
Second, because I think that you want to provide a model and provide incentive for change around the world, and to do that I think this Committee has to demonstrate that it has looked at our own practices. And I think the same thing goes for multi-agency review of mergers which I hope the Committee could agree would also be on the table for its deliberations. With those personal opening comments, I'll turn it over to Merit for the official outline of our discussion today.
MS. JANOW: Thank you very much. Based on the discussion that Committee members have had at previous meetings, input from our hearings, and discussions with practitioners and firms, I would like to offer a very preliminary assessment of the range of matters that might be encompassed in the report of this Committee in the merger area, and second, a sense of direction on these matters. These remarks are designed to trigger discussion and obviously do not represent the considered views of the Committee. Instead, let me offer a brief interim assessment for you to react to.
I'll be brief.
Tom has just spoken about the need to identify first principles, or good practices. And in the merger area, one such principle that seems quite apparent is that jurisdictions should be free to apply their own substantive standards, but they should refrain from using merger control to address noncompetition issues. To the extent that such noncompetition issues are influencing the decision whether a merger is permitted or proscribed, that reasoning should be stated and made transparent. How to implement that notion, either through advocacy or agreement, I leave to our discussion.
Second, I'd like to make four observations about procedural aspects of merger control.
One direction of possible recommendations is to seek the reduction in the volume of applicable laws in a transnational merger. There are a variety of methods that can be used for that to work -- e.g. revisions to notification thresholds; modifications to exemptions. Hart-Scott-Rodino is possibly a useful model in this regard, since it has some exemptions -- e.g. for acquisitions of foreign assets or stock in a foreign company.
A second important procedural feature to consider is how the Committee might enhance the need for greater transparency and thereby reduce the ambiguity and uncertainty of laws and their application. The importance of transparency is applicable both to jurisdictions with established merger control regimes and transition environments, although they have different implementation consequences. One aspect, for example, for the U.S. system may be to increase transparency with respect to those cases that are not brought or, to include regular and explicated reasoning in speeches or other forms for increasing public awareness of the logic behind merger actions.
A third approach is to address defects within jurisdictions, and a fourth approach is to seek harmonization on those areas that lend themselves to harmonization and could make a difference. That might implicate timing of merger control review, which is an issue that has been identified by most analyses, such as the ABA, the Wood/Whish report. Previous studies have considered harmonization of triggering events, review periods and information requirements, among other features.
In broad brush terms, those are the four procedural areas. Let me highlight two additional aspects: One is the question implied by Tom Donilon regarding defects or difference within jurisdictions. This raises the issue of whether the United States should, too, address its flaws and lead by example, particularly if the U.S. is seeking to lead or trigger a global review of national merger practices.
In the Hart-Scott-Rodino context we have heard a lot of opinion that one might look more broadly at the exemptions for foreign transactions, reconsider the scope of second requests and the disproportionate burden that that places on transnational mergers given the language requirements, and the broad scope of firm assets and operations and other factors.
Another suggestion is that the Committee consider whether there are steps that could be taken to expand information sharing between U.S. and foreign authorities and perhaps even develop some sort of protocol for the exchange of information among agencies.
A separate aspect about the U.S. system that has been raised and for which we are getting more input from the bar and elsewhere, is the consequences of multi-agency oversight of mergers by different U.S. non-competition agencies. Are there steps that could be taken to reduce the domestic impediments to consideration of U.S. procedural issues so that these issues can be considered on the merits? There is the view, for example, that one problem may stem from the fact that agency budgets come from filing fees and this in fact may be creating incentives that are problematic.
Turning briefly to substantive enforcement, let me raise several additional points. Many have testified and spoken to the positive direction of enforcement cooperation and the soft deference that's occurring at least between those jurisdictions that have a high degree of confidence with the work that each are undertaking. And the area that I hope we can consider is how much further can that cooperation head over the medium term.
Some jurisdictions review transactions where there's only a de minimis impact on their jurisdiction. The question in that instance is whether we can find ways of encouraging those jurisdictions to defer to those jurisdictions with more significant competition policy concerns. And over the medium term, if we can have as a goal -- MCI/WorldCom may be a good example -- situations where U.S. case handlers work as a team with foreign authorities with appropriate safeguards for confidential information, so that there is cooperative review occurring to the fullest extent possible.
The challenge there is to consider whether it makes sense to permit an implicit or explicit lead agency, but to do so without losing the ability to apply differential remedies as necessary as the process proceeds. So the question that I'm trying to raise here is how far can we go down the road of cooperation to develop shared approach and experience so that agencies do not necessarily feel that each must undertake full review of a merger in circumstances of overlapping review.
There are a number of steps that could be taken along this road. For example, in the information sharing and coordination context, one could build much further on the U.S.-EC type structure to develop procedures where agencies routinely identify notified jurisdictions and share public documents and develop more routine agency cooperation, including, say, the development of waiver procedures and practices.
Further, in the area of dispute avoidance, comity can be developed still further, especially in circumstances where there may be an imposition of an extraterritorial remedy. And finally in the area of dispute resolution, this is an area where we need to think more fully, both about direct conflict situations and other forms of conflict, and what a dispute resolution approach might be under those different circumstances. And perhaps when there are differences in an analysis that lead to different agency outcomes, we may be able to go further down the road in terms of developing some proportionality of an extraterritorial response, depending on the nature of the transaction.
So these are a few broad brush observations of both procedural and substantive harmonization. Let me stop there.
MR. DONILON: Thanks, Merit. As we open it up for discussion, let me try to put a point on it. These are not formal proposals because we're not in the Committee's deliberations where we would do that, from my perspective here, but let me throw some things out of your presentation, Merit, and try to get some reaction from Committee members to try to drive us toward some recommendations and more concreteness.
One, on core principles, one idea would be to come out of this meeting with a determination or a decision that we would ask the staff to draft a set of core principles that could be endorsed by the Committee, with discussion then about the right way to recommend to the United States Government that it be pursued, as Merit said, either by advocacy or by agreement, and then explore that issue once we have a document in front of us.
And by advocacy, as we discussed, Dick in the last meeting, what does that mean to the United States? It means United States Government advocacy, it means business advocacy. But to try to have that as a discussion point, once we have a document in front of us about core principles, is one idea.
Second to try to reach a determination whether or not the Committee wants to have Hart-Scott-Rodino reform on the table and then to maybe have a subcommittee or have the staff work on a proposal for reform. Third, Merit, out of your discussion, one thing that I found particularly intriguing given the amount of discussion that we have heard about information sharing, would be to take a crack at drafting a model information sharing protocol that could be advocated by the United States Government, indeed used by the United States Government in places where we don't have formal understandings and indeed I think even deepen the understandings we have, let's say the EU, to go further, to discuss privilege issues, downstream protections, and things like that.
Fourth, out of your presentation, Merit, it seems to me we should ask -- at least I would like to ask -- Joel Klein his view on this soft deference concept that you put on the table. My reason for asking is to try to determine whether or not that's a non-starter, whether or not a lead country concept is a non-starter in terms of the obligations that antitrust enforcers feel under their own laws to enforce the law, and whether or not it's tenable to have a formal deference protocol put in place, or the best you might hope for perhaps is informal understandings, which I do think exist today, as to who is going to take the laboring oar on some of these multijurisdictional transactions. I thought that might be a good discussion item to have.
And last coming out of your presentation, I think we also need to think about whether or not we want to put multi-agency review in the United States on the table, for express discussion.
Now, those are, again, personal. I tried to put a point on some of the things coming out of Merit's discussion. And they're certainly not intended to be comprehensive. But I thought that might be a useful thing to do to open up discussion.
DR. STERN: I'm very interested. I mean, I have some views on all of this and I think it's very helpful what you've done, Tom, but I would really love to hear from some of the other members.
MR. DONILON: Absolutely. Anybody want to start?
MR. DUNLOP: May I have a preliminary question? And that is this: Is there, or does one expect there to be, significant -- I mean by that size, I'm only talking about size -- mergers in the United States or mergers covering several countries that do not get or do not warrant any agency review? Are we really talking about all large mergers or are there a class of mergers -- banks, I don't know, insurance companies, what not -- where mergers take place which, everyone starts by the understanding that it's outside of the jurisdiction of the sorts of people around this table.
I'm looking at the big universe and I want to know whether you've got it all, or whether there's some significant proportion of merger arrangements that are admittedly outside your tent. You may not want to answer. But have to look at the big world before I come to your world, as you put it in those transcripts. What's the answer?
MR. DONILON: We have one current and one former Assistant Attorney General for Antitrust with us today who could address that.
MR. RILL: I'll talk about the current policy and he'll talk about the former policy.
MR. DONILON: As a general matter I think we should consider it all in. The trend I observe in the law is for exemptions to be viewed increasingly narrowly. And there are very few exemptions from the antitrust laws in the modern economy.
There's a narrow exemption in the insurance industry which has been made even narrower over the last decade by court cases. There's an exception in mergers involving state entities, so-called state action exemptions, but the exemption, in terms of my understanding as a member of this Committee, is quite narrow. And I guess my answer would be all in, but I'll defer to people with more experience than I have.
MR. RILL: Let me just suggest that, I think you raise a very good point when it comes to the process issue as well. Just because a merger involves a lot of dollars doesn't mean necessarily that it raises a competition issue. Many large mergers, and I think we could all think of some, while involving a lot of dollars do not raise competition issues, but most of them do, at least in some segments of the market.
The DOJ/FTC merger guidelines do start with the smallest market concept. So if there's any market where there's a competitive effect, then that merger will generate review here and probably elsewhere, global.
On Tom's point regarding exemptions and other agency responsibilities, I think from my perspective, we have no restrictions in coverage, regardless of whether a particular merger may not be finally reviewable by the Department of Justice, for example, the Surf Board's control over railroad mergers, which have at least a North American/Canada/Mexico global impact.
That does not preclude us from taking the position, which I think gets to just a quick comment on your point, of multi-agency review. It seems to me that one possible approach would be to have competition findings by the Department or the FTC binding on the agency that has additional jurisdiction.
For example, in telecom mergers, the current debate going on right now, it would be at least possible for the Department of Justice to have jurisdiction and to make a finding on competitive effects, and have that finding binding on the FCC along the lines suggested at least by two FCC commissioners. And then the FCC could, against that fundamental tenet, against that paradigm, make its own decision with respect to such issues as universal access and other phases of public interest. That's at least something that we can debate fairly fully on the table. So I think that's at least a slight contribution to your --
MR. DUNLOP: Would you say the same about electric power?
MR. RILL: Yes. And international airline alliances. I would say at least for purposes of our deliberation and I think for purposes of my own views, but that's just one member of the Committee.
DR. STERN: I agree with that. There's one thing, though, in terms of the multi-agency review which I don't think we've really talked sufficiently enough about, and it's the references to foreign policy/national security consideration when it comes to transnational mergers, particularly in defense industries.
I believe that that is going to happen. And I believe that there will conceivably be cases where it might be troublesome from a competition policy point of view, but which may, from a foreign policy or national security point of view, be in the interest of the United States to approve that merger.
And I don't think that we have put that sufficiently on the table and I do think we need to do that. We've talked about your Surf Board and we've talked about--
MR. RILL: It's not mine.
DR. STERN: I heard the word Surf Board at first from you, and we've talked about the Transportation Department, but I do believe we need to talk with regard to the defense industry consolidation.
MR. KLEIN: Let me, just for clarity, John -- first of all, everything is in, John. I think that's the fair assessment. However, most everything is FTC/DOJ. But there are two other boxes that we'll just need to be cognizant of.
There is the issue that Jim raises here. It's rare but there are occasions where another agency has final decision-making authority and we at most have advisory authority. The two that immediately come to mind are the Surface Transportation Board on rail and the Department of Transportation on international airline alliances which are short of mergers but are in some way de facto mergers. That's a relatively narrow class, but neither the DOJ or FTC have final say on either of those. Then there is a second class that Jim alluded to of concurrent review jurisdiction that involves the FERC on electricity, the Fed on banks, the FCC on telephony and TV, and so forth, and there's probably a couple of others.
And there, basically, both the agencies are concurrently making some form, in our case of pure competition analysis and the other agencies a partial competition analysis. And we have various working relationships. Finally, I think Paula's point is an important point, but it's one that currently works pretty well on matters involving, for example, defense. We are intimately involved with the Department of Defense. We conducted essentially a joint review with them on Lockheed Martin/Northrop Grumman. And in the Boeing/McDonnell Douglas case, we actually went with the Department of Defense to Europe and said to the extent you have concerns about the defense rather than the civilian side of the merger, on those you ought to yield to paramount American interests, if the DOD thinks this is good for its defense procurement program. And the Europeans are quite sensitive to that. So that's actually a story that will work, has worked and I think will continue to work quite well.
MR. RILL: If I may comment on one thing Tom said, the notion of whether something's a non-starter, I think there should be a very strong presumption that nothing on our table is a non-starter.
MR. KLEIN: I think Tom's point is worth thinking about it. It's not a question of a non-starter. Deference in the form of nonbinding deference, that is, it's not like a court will say the Canadians didn't give enough deference to the U.S. It'll be a kind of spiritual thing, where they're supposed to do it. This may have a kind of feel-good quality but no substantive significance. Because I think in the end most jurisdictions are going to -- if you sell products into our market, most jurisdictions are going to say why would we defer?
And this came up heavily in Boeing/McDonnell Douglas because they said, look, even though these are two U.S. companies, there's all these European air carriers that have to buy planes. We're not going to defer. So I'm not exactly sure that it ought to be a non-starter, but I don't think that it would be a complete answer on that.
MR. RILL: It could tie in to the process issue, though, and that is, you could have, along the lines you are suggesting or Merit was suggesting, a consolidated task force -- effectively a task force of people working on a merger with consolidated discovery with the country or another jurisdiction having a principal consumer interest, perhaps dedicating more resources and timing to the work which is somewhere between -- it's more than "feel good" and it's less than binding. I think it would be a positive step.
MR. DONILON: I think it would be too, and I think you could do that underneath the umbrella of jointly working together on mergers, but it would be quite informal. The point of my question was to ask, as we go through these deliberations, how much time should we spend on trying to reach for things? My question, put more pointedly, is would a formal deference recommendation just be inconsistent with the statutory and political obligations that an antitrust enforcer sees himself or herself under in a particular country, especially in the United States? And I think the answer is yes, but I wanted to check it.
MR. KLEIN: In the absence of one, I mean to take Jim's point. If you have one merger where the impact on the U.S. market is quite small, the impact on a foreign market was very large, you might, then, at least feel in the exercise of prosecutorial discretion some willingness to defer. But if the impact on the U.S. market is considerable, as is almost just by the nature of our market, almost every case, then I think you'd feel an obligation to conduct a review.
MS. BAIRD: May I make just a small comment on this point? I would suggest that we look to some of the state regulatory examples to identify ways in which deference between states, certainly in the U.S. and perhaps within the EC, has been developed to provide for some deference without a formal acknowledgment of deference. For example, procedures when we have multistate insurance or banking review or whatever. Procedural steps that, for example, allow a record to be developed in a certain state which might have a primary interest, and the record reviewed by another state, to be considered whether it's adequate or whether they have some specific questions that go to their own market.
And I think there probably are some models of ways that you can get fairly close to deference and certainly good order in the same kind of factors and evidentiary bases for decision-making that could perhaps solve many of the problems that you're after when you ask if it's possible to achieve deference and make it more awkward for a regulator to come out in a different place, even though there isn't formal deference.
MR. RATTNER: Can I ask a question on your last comment, Joel? If you take the comment you made a little while ago which sounds perfectly logical to me, as time goes on, the antitrust authorities around the world are going to realize that many of these huge mergers have implications for them even if the two companies are not based anywhere near their home country, the Japanese example, and if you then layer on top of that your last comment, which is that from a U.S. perspective, which probably means from any number of countries' perspectives, it's difficult not to exercise your responsibilities as regulator. I'm not sure how you get to the third point which is fewer jurisdictions all trying to climb onto the same merger, causing inevitable bureaucratic and ultimately business impacts that I think we're all here trying to avoid creating more of.
MR. KLEIN: I think that's what the nut of the problem is. The solutions, for example, are to talk about things like procedural convergence and getting people on the same timetable. You could have -- and I'm not recommending any of this -- but you could do it. And I'd be willing to look at that. You take a merger with three or four countries, do the staff work together, write a report, an analysis, and then each of the countries working off of that will make a decision.
That would be quite radical; you would meet with a lot of resistance. That's very different from having each of a dozen countries do its own thing. It's one thing when you have a European-wide authority. It's another thing when you have 11 different authorities on the Pacific Rim. I don't think it's easy, but I think that there are ways that can mitigate some of this.
MR. RATTNER: The implications for the U.S. are pretty great. As time goes on, what we're seeing from a business point of view, particularly in Europe, are an increasing number of mergers of very large size where an increasing percentage of them, and ultimately a very substantial proportion, are going to include sufficient impacts on the U.S. that you or the FTC or somebody is going to say that we have to be involved in this, even though neither of the two companies are domiciled here or even have most of their operations here.
MR. KLEIN: Routinely, Guiness/Grand Met, the drug cases --
MR. RATTNER: Drug cases are the ones that come to mind.
DR. STERN: That's, in effect, what Japan did not do with the Boeing merger but is now doing with the Exxon/Mobil merger.
MR. RILL: I think Steve has put his finger on it. I think that a lot of it has to be done through process. One of the issues that needs to be dealt with in the coordinated staff work would be waivers on information sharing. Some view it as a detail; others view it with passionate concern. A lot of the testimony that came out of our last set of hearings indicated that in the merger context at least, waivers on information sharing is a no-brainer. If that's really true, we need to probe that more, I think, and we'll get a long step towards the sort of suggestions that you all are talking about, the coordinated investigatory work.
MR. KLEIN: I think you guys ought to get some input on WorldCom/MCI. Some made the comment that it was not a smooth-running experience, but I think that it would be interesting to see. That is a microcosm that is going to be expanded.
MR. DONILON: One of the important things that Merit and her staff are doing is soliciting views from the lawyers who are on whatever side of a number of mergers. I think it's a very important project.
MR. KLEIN: From my own experience, I think we ought to get the principal. That's always harder to do because the lawyers don't want them, but I find the level of discussion is much more direct and blunt and where the pain is felt. The lawyer discussion tends to be like lawyers.
MR. RILL: We may have to get both, but we always get the principles, too.
DR. STERN: We've certainly been endeavoring to do that, as you're well aware. We're, I guess, hoping again that the hearings in April will be an opportunity to probe again to get the business folk to come to the table. It's hard.
MR. SIMMONS: I'll just make an observation as a nonlawyer. Having been involved with mergers, several of them over the last several years having been reviewed by the DOJ with regard to Hart Scott, I do think that there's something to be gained by examining the procedures that we used. To be honest, I've tried to avoid that inward look because of my fundamental pessimism that we can really make any effective change in that area. But I do think that if you accept the fact that we live in a rapidly changing world and if you accept the fact that this is indeed a global economy, look at the multijurisdictional mergers that occur every day, then it seems to me that our procedures do bear examining with regard to not changing the philosophy but making sure that we facilitate the process and don't delay it unduly.
I think sometimes the process does get delayed unduly. The merger still gets approved, but in the world today, two, three, four months is a long time, the way the world works. So if Joel Klein says we ought to be bold, I would certainly think that examining the procedure that we would follow with regard to either U.S. mergers or multijurisdictional mergers would be useful.
The second point is an observation rather than a statement of fact.
It is my impression -- and I think I'm older than anybody else at this table, but I'm deeply involved --
DR. STERN: The gentleman to your left is taking umbrage.
MR. SIMMONS: I'm sorry, John. I thought I was older than you, but I'm wrong.
DR. STERN: Deference to the senior member.
MR. SIMMONS: You see, I go back to when John was the price control czar in 1974 and he and I still share a little exchange that we had when I went down there telling him what bad things he was doing, but that's another story.
It is my impression, I think accurately, that the philosophy that we follow and that other jurisdictions follow with regard to merger policy has evolved. It seems to me there is little doubt that mergers that occur today probably couldn't have occurred 20 or 30 years ago. You can look at financial institutions; you can look at fundamental industries in the U.S., less so outside of our jurisdiction.
It seems to me that one of the bold steps we could take would be to try and predict the direction that many of our trading partners are moving in with regard to merger policy, and I am going to use one very good example: There is one steel company in France. One. That one steel company was created because all of the steel companies effectively went through what we would call a reorganization in the early `80s. The government dealt with the problem by infusing capital and creating one nationally- owned company.
Now, it seems to me, and I have said this to Jim Rill over many years, that you really don't know what the policy of a nation, a trading partner will be until they go through difficult times. It's not words; it's deeds. And by the way, I would say that that's particularly appropriate in today's current global economy, for a number of industries and businesses.
And it really seems to me that this Committee ought to try and assess the directions that countries are going in; and I think probably within the next year, which is still within the purview of this Committee, are our trading partners moving in the right direction to increase the transparency of trade and making it easier to accomplish what it is we all want to accomplish?
I think that this is a unique time in the world today, unlike any I have ever seen in many respects, economically and globally. But I think the whole question of multijurisdictional mergers should be examined from both of those vantage points.
And the third point is to ask ourselves the question, when we're examining our own procedures, are two U.S. companies viewed with regard to the antitrust laws in a merger situation in the same fashion as one non-U.S. company and one U.S. company would? I would say as an observer, it may not be a fair comment, but as an observer, I would say generally the answer is I'm suspicious that there are differences. That a foreign company and a domestic company are not quite viewed the same way.
By the way, one of the reasons, of course, under antitrust policy is that there are the Herfindahl calculations to be made and there is always the debate in a merger, are they going to be using global market share numbers? Are they going to be using domestic market share numbers? There's a great fear if the domestic market share numbers are bad, even if the global market share numbers are good. So it seems to me that at least those three points -- and perhaps the third one is more of a self-examination issue than anything else. But that's based on personal experience.
DR. STERN: May I challenge you on your point about the tendencies over the last 20 years -- you've made this observation that things that might have been challenged previously are not being challenged now. I'm wondering if this is a secular trend or if it may just reflect changes in regulatory personnel from one administration to the next, or within administrations?
MR. SIMMONS: You have two experts here, but I'll offer once again as an observer that I think it's partly style. I think it's partly different administrations.
DR. STERN: But you still think there's a secular trend; it's not a pendulum swing or seesaw.
MR. SIMMONS: No, I don't. I think there are of course cycles, but I think the cycles generally make it easier for a merger. I happen to be on the board of a reasonably large bank that used to be $3 billion in assets and today is $75 billion in assets. Those mergers could never have taken place before, whether it be by state law, federal regulations or antitrust policy.
DR. STERN: I just wanted to get that kind of clarity out there.
MR. SIMMONS: By the way, I think to the degree this has improved competitiveness, this is good. This is what we want. There are some downsides to the kind of mergers that create 800-pound gorillas with huge coercive power as we see throughout the world today.
DR. STERN: Do you think we should opine on that? Do you think the Committee should say what you just said?
MR. SIMMONS: No, but I think we at least should examine it, but I think as long as you have people and opinions and philosophies and different political styles, you can expect changes in policy, but I think you might want to examine the trend.
MR. RILL: Dick, I think you raise some really good, challenging points. It seems to me, as far as your comment that it's easier now than it was in the late '60s.
MR. SIMMONS: I didn't say it was easy.
MR. RILL: Well, I'll say it. I think there has been a paradigm shift that was initiated probably by Bill Baxter, for whom we should all have a moment of silence, who passed a week ago. Probably he has had the most influence than anyone, present company excepted -- no, present incumbent excepted-- than anyone else on antitrust since Thurman Arnold.
I don't think you ever go back. I don't think you go back to the 60s, I don't think you'll go back to some of Bill's immediate successors either, by the way. And I think there is a secular trend.
I think the challenge that occurs to me that really goes back to Merit's first point on examination of core principles and transparency, is that we are in an interesting time to examine the prior criteria which our agencies and other agencies use to examine, not really mergers but joint ventures and other global transactions at a time when conduct may speak about its origin. We should also be recommending a way to flesh out those fundamental precepts through greater forms of transparencies in international organizations as well as through self-examination.
MR. DUNLOP: Let me ask a question. The question is, when is transparency a substantive decision, and when is it only a process decision? I have listened to you all talk about transparency now at a few meetings, and I thought I understood it. And now I don't. Sometimes transparency in this discourse is used as a process. We ought to know what's behind this, everybody ought to be factually responsible. When is it national security?
On the other hand, sometimes I hear you speak as if transparency was a substantive decision, and I'm a little confused, so I ask that question.
MR. RILL: It's really both. You have a right to be confused, and all the rest of us are, too. And if you accept the notion that it is both, then you address it on both fronts.
MR. DUNLOP: I would rather we be clear, if you don't mind.
MR. RILL: It is part of the work that we have to do. I would appreciate efforts in that direction.
MR. DONILON: I think that's an important point, Professor. Transparency, at least as I've been talking about it here, means that actors in the economic sphere should understand the substantive rules that are going to be applied to them. And I think that's a very important aspect of it. So that we know, for example, when we're trying to do a transaction, we know that there has been a paradigm shift in antitrust theory largely driven by economic theory advances.
When you're trying to analyze a transaction, whether you're trying to decide as a business person whether to do it or not, you need to know whether it's possible and what the likely standard of review is going to be. Secondly, at least as I think about, its clarity of process. So I think it has to be transparency and clarity of the substantive standards to be applied and then clarity with respect to what you're supposed to do. Are you supposed to file, aren't you supposed to file? When are you supposed to file, and what are you supposed to file? I think those are the ways I've been thinking about it.
DR. STERN: I'd like to tack onto your point another point about transparency but I defer to you.
MS. FOX: Now, I have everything to address, so why don't you --
DR. STERN: On the transparency, on the boldness issue, I feel very strongly. Tom knows this. Perhaps the members of this Committee should hear my prejudices on this, that in spite of the fact that it may constrain decision-makers for future decisions, we should push for greater discussions of precisely your point when there are paradigm shifts driven by economic changes, and that it should not be limited just to speeches. That it needs to be more regular and more predictable publications. The Supreme Court has to do it. Other agencies -- including my old agency, the International Trade Commission -- have to do it. I do know each have different considerations and concerns, but I don't think just more speeches is going to satisfy me.
I think there needs to be some appreciation of the huge consequences of each decision being made and that we shouldn't have to wait around and have a Committee every couple of decades to talk about the WorldCom case and then see what the inside and the outside is. I think there should be a greater body of information available to the next set of companies who may want to come and have their merger reviewed, but have not benefited adequately from a transparent, clear expression of why a decision had been made that may have a bearing on the thinking of the regulators going forward.
We had a discussion on this in a sidebar with some of the staff of some of the agencies involved. I just think we've got to move transparency, notch it up more than just more speeches.
MR. RILL: Eleanor.
MS. FOX: I want to start out by making one comment regarding the deference discussion and then I'm going to take Tom's list from the top. Some markets are really world markets with no separate national markets, and I think that there will be an increasing number of those world markets. If you look at what we were calling the deference issue before, I would say we shouldn't call it deference. What we should be thinking about is what's good for the world is good for all of these countries in the world. I mean, what's good for the market, which is the world, assuming we're applying liberal antitrust principles, is going to enhance everybody within that area and if the world weren't so big, we'd have a world enforcer to take charge of what is really a world problem.
We have national law, and we're trying to have a collaboration, more than deference. Several of you spoke about ways for more collaboration such as seconding people from our country to their country or working in a team. This is a kind of different model, a different way of thinking about it, if you're thinking of a team of these experts from the U.S., from the EC that are doing the factual investigations, and having the record of whether competition is or isn't impaired in this market. I'll come back to principles, but whether there is an increase of market power that is predictable and then what to do about it. And if there is no certain national policy, like defense, if it's not a defense issue so there's no legitimate national policy interference, one should be getting the right rule and the right relief for the whole market.
Now, I'm coming back to deference, but I just wanted to put that on the table, that there are certain issues where you should really be looking at them as the whole market issue rather than nations against nations; nations deferring to nations. They're really collaborating.
MR. DUNLOP: What is a world market? As an economist, I can make no sense out of the distinction between a world market and national market.
MS. FOX: I would give as a definition where buyers buy all over the world without tariff barriers, and sellers sell all over the world.
MR. DUNLOP: Is clothing a world market? Is apparel a world market? U.S. purchasers buy all over the world for apparel from 175 different countries. Is apparel a world market?
MS. FOX: There are too many tariff barriers. I'd say you have to look at consumers prices and whether they're going to go up, and consumer prices could go up in a nation that has tariff barriers. I'd rather do it by way of example, after my first statement, and say Boeing/McDonnell Douglas was clearly a world market because there were no barriers to buyers or sellers. Sellers look all around the world, and buyers look all around the world.
MR. KLEIN: Just to make it easier, some of these questions any economist could spend years on. Hospital care is, say, a local market. People don't come from Paris to Des Moines and when we look at a hospital merger in Des Moines we don't consider consumer preferences in Paris.
MR. DUNLOP: The King of Jordan.
MR. RILL: Except tertiary care.
MR. KLEIN: Sure. People can always go to Sloan Kettering. When you look at what people who price hospital services in Des Moines do, they do not study consumer demand in Teheran. By the same token, when people who are thinking about buying airplanes, or these days buying automobiles, they look at a Mercedes every bit as much as they look at a Chrysler. Now they are one and the same, but it doesn't matter.
MR. DUNLOP: There are two ends of your spectrum, but operational or intellectual property, I would reject it.
MR. RILL: John, if you look at the Merger Guideline analysis, the answer to your question would be if price in one producing area goes up by a small but significant nontransitory amount, will suppliers from other areas move in? Or does demand move out from that area to pick up suppliers from other areas? And if the answer to that is yes, if they'll move out in a global framework, then I would say you have a world market.
So the answer is, I don't know the answer to your apparel question, but I think once you decide what the product market is, you ask those questions about what would happen in the case of a price increase, and that would answer whether or not there's a world or some narrower market.
MR. DUNLOP: Let me put on the record that I regard that as a totally non-operational question. I would be happy to give you literature on it, and I will dissent from that as an essential element of any analysis.
MS. FOX: Dissent from what?
MR. DUNLOP: Dissent that there are world markets that are markedly distinguished from national markets. I don't deny that there are markets that are predominantly local and that there are other markets that have competitors and suppliers around the world, but that's not what the argument is.
MR. RILL: In acknowledgment of your statement, you are not the first person to suggest that the small significant nontransitory price increases are a difficult operational problem.
DR. STERN: I think you can bridge it with the word local as opposed to national. And then I think that would help bridge these two points of view.
MS. FOX: I'm starting from the top of Tom's list now and you had five points. The first one was should we develop core principles and ask our staff to draft them. And this I take to mean substantive. I think that this is a very good idea. However, I think that there's an easy way of saying what I think is the right core principle, and it is what the U.S. uses, which might cause resistance in other countries.
But the question is whether a merger creates market power or facilitates its exercise and there are ways to test it and most countries are involved in thinking about that question and the answer to that question. If it does, the only question left over is if there's some national industrial policy like defense which those policies, like defense, could be listed.
As to whether preserving jobs is an admissible defense, that's a much more difficult question with less agreement on all sides of the ocean. I see that question coming in as to what would be a good reason to authorize a merger even though it creates market power.
Other countries that don't have the same principle have sometimes at least often very close principles. If it is a dominant firm problem, the European analysis is virtually the same. If the merger creates an oligopoly, there's a problem because the European Community catches it only in the small case where the oligopolists have links between them like stock holdings. I don't expect Europe to be changing that principle in the near future, even though they probably think our law is right on oligopoly.
In other words, if we try to get core principles in the world, we're going to run into different countries' law that's sticky, very hard to change.
There's a third kind of principle or model which I would say is less principled, which goes something like this. A lot of countries have a law that says something like this: The agency is to consider whether the advantages of the merger outweigh its disadvantages, and at that point they will count almost anything in disadvantage including loss of jobs.
Here is where I'm coming back to the point of transparency, and I'll define what I mean and I think Merit started with a principle like this. I think it's also very good to try to get agreement on a principle that would say nations will do their analysis to determine whether competition is harmed. If they find competition is harmed and think that nonetheless the merger should be authorized because of other criteria, and it has spillover effects in the world, then they must be very clear about what these other criteria are.
The last kind of law I mentioned, advantages outweigh the disadvantages, causes very muddy analysis. A number of the Eastern European countries have laws like this and what they usually or often will do is to say, without a serious competition analysis, well, we think this helps jobs and exports. The market shares are high but we think it helps jobs and exports and therefore it should go through. And I think we should encourage countries not to do these messy and nontransparent analyses.
So going down to the second point, Hart-Scott-Rodino, and should it be on the table for reform, I definitely think it should be on the table. I think it would be a great idea, as Tom suggested, to get staff to work on the proposal. We've seen a lot of papers on various people's proposals, and I think it would be nice to see how the staff puts it all together and comes up with some recommendations.
The main question here is whether Hart-Scott-Rodino imposes enormous unnecessary transaction costs on companies that may be required to file. Of course, as I said, the problem is the filing fees and also an incentive/disincentive problem that budget is based on filing fees.
Third, on information sharing, I think it's a very good idea to have a draft model protocol. I'd love to see the staff draft a draft model protocol, including privilege, which is one of the very difficult questions. It would be nice to see a draft with maybe some options in front of us.
Fourth, on the soft deference and is it a non-starter? I guess that's what we have to figure out. I think that it would be interesting to get some statistics. I think it's probably the case that there's a number of large transnational mergers where we don't suspect that we're going to have a different point of view or different driver or motivation from another major jurisdiction that might be the one chosen to do the analysis.
And if there are a lot of mergers that fall into that category, it makes it more fruitful because it gives up less, even by going into teamwork where one country goes first. And as I said before, I love the idea that if we do that, we do get a system where there's a mixing up of personnel so that countries that have a major interest in vetting the merger are on the ground floor at the same time.
I also think that getting a world principle that could be a deference principle would be extremely useful to the United States. Here, however, I think it's mostly going to be the deference of very small countries that I would be proposing. It's not because they're very small countries, but where you have a big merger and the sales are enormous in five countries but minuscule in Bulgaria and Lithuania, it may be appropriate to have a model of deference or a protocol of deference provided that these countries where there are some sales, but which represent only a very small percentage of the transaction, are first of all not a separate market, meaning that the trade barriers in that country are not so high that you would expect to see a price rise in that country even if you don't expect to see a price rise elsewhere, and have only a trickling of the sales --
So, I would like to see something drafted regarding either who should go first, or even who should give up the idea or right of vetting the merger for itself. Vetting often leads to holding up the merger, and often it's holding up the merger by a country that doesn't have much of a claim of interest.
Where you have a large merger, take Boeing/McDonnell Douglas, where the United States is very interested and the EU is very interested, especially if you can see the significant possibility that the two sides are going to come out in different directions, I would not think that one ought to even imagine a principle of deference.
When you have a merger -- if it was price-raising, it's price-raising all over the world. I think it's also correct to say that any country with a significant impact ought to be respected as having jurisdiction over that merger. I think the United States, at least, antitrust authorities agree with this, the fact that the assets are all in another country does not discredit that country's authority. And I think that we ought to put that principle on the table, too, so it doesn't become a contested principle.
It seems to me in Boeing/McDonnell Douglas that there are certain people in our own administration that didn't realize that this was an operating principle of jurisdiction within our antitrust authority and that our antitrust authorities respected the jurisdiction of the EU. There was a tendency, at least as we put it in the paper, by some officials or ex-officials saying that Boeing was our merger and nobody else should touch it. And I think we should put in our record that we don't claim that to be the case.
As to multi-agency review, which is the last of the five points that Tom raised, we discussed the case of an agency like FERC or an agency like Surf Board having jurisdiction in one case and then in one case having exclusive jurisdiction.
I do like the idea, Jim said it here, that it would be very useful if in our own house, the United States, there could be recognition that the antitrust agencies' antitrust analysis is the antitrust analysis that is accepted. And if the agency wants to find that there's a different public interest -- it's a kind of similar problem where you have a national industrial policy that might compel a different result - - that should be clear. Transparent.
Nobody yet mentioned the states' review of mergers, and I'm sure that that should be on the table. I'm not planning to suggest that states should not have power to review mergers, but I think clearly it's one of the factors that comes up when we talk about putting our own house in order.
It also gives one a perspective on checks and balances even within systems themselves, and therefore within the world system on possibly having jurisdictions with stake coming in and vetting a merger, especially when nobody else is there minding the store. Our states did take an enormous role on mergers at a time when in the early 1980s there was a philosophy of laissez-faire concerning federal enforcement. The states came in and vetted a number of mergers, and that was the point at which they staked a ground out for themselves which they have kept.
They do have a mode of cooperation, very great cooperation now with the Federal Government. Now they work like a team, whereas before the states and the federal government were working with great hostility against one another. It might be worth exploring more, from that experience, what helps different agencies and jurisdictions who are like teams rather than hostile fighting partners.
MR. YOFFIE: I wanted to propose a procedural question for the Committee. On the one hand, I'm encouraged by Joel's suggestion that we should be bold, though as I learned at the last hearing, being bold is not always welcomed. If you remember, my proposal to share penalties was not welcomed by anybody, foreign as well as domestic.
So we have to recognize that bold will not necessarily be welcomed in many cases. But if we want to be bold again, I think there are two approaches. One is to look at the various aspects of multijurisdictional reviews and try to look for incremental improvements on a variety of different lines. That's basically what we've been proposing here.
The other way to look at it is to say let's start with a clean sheet of paper and start out with a couple of assumptions. Assumption number 1, that more mergers of a global scale are going to take place for a set of economic reasons that we can pretty much outline and expect should be more important going forward, rather than less important going forward.
As a consequence we can make incremental changes, but those incremental changes are not likely to serve us well in the next 20 years. They may serve well for the next two or three but not the next 20. And then if we consider starting with a clean sheet of paper, let's put on the table a set of issues that would be much more significant. I would say that Hart-Scott-Rodino and multi-agency procedures should be on the table. In addition, do we want to specify an ideal set of procedures for U.S. review of multijurisdictional mergers?
Could we go beyond streamlining what we're doing? Are there ways to coordinate internal U.S. policy and to significantly reduce transaction costs as opposed to adjust at the margin? Then we can ask what would be the proposals we might get from the staff, if you had that clean sheet of paper internally within the U.S.? What would those procedures be?
And second, we made the argument before about timing. Can we actually get some more radical thinking about timing of these reviews? I suspect that DOJ might not like it, because it will put enormous pressure on getting reviews done in a timely basis. It is quite clear that this environment is entirely different than it was ten years ago in trying to make these mergers work and thinking about very strict deadlines that we would impose on allowing these mergers to go forward. Maybe a potential for subsequent review in case things were missed, might still allow us to think more radically.
Third, and I actually like Joel's notion that instead of thinking generally around the question of harmonization, should we be thinking about real collaboration in terms of actual multijurisdictional reviews. It would be a much more radical proposal for potentially thinking 20 years out, where we're really looking at many countries involved. That would potentially allow us to do things far more efficiently and quickly, especially if we have guidelines in place for timing. What we might want to think about is under what conditions would we want to propose that there be a collaborative effort rather than a harmonized effort? Do we put teams together and lay those out specifically?
Finally, I want to raise a question. I don't know what the answer is, but I think there is some danger going down the path of saying any country should have some rights of jurisdiction when a merger is going to affect them. In the case of McDonnell Douglas/Boeing, for example, it's hard to imagine any country that's not going to be in some significant way potentially affected. I can see even Bulgaria saying we've got to buy Boeing planes. If this leads prices to go up, this is a huge percentage of our economy. We have some difficulties if we go down this route, particularly if we think these markets are inherently more global. Again, I want to pose that as a question. How do we prevent Bulgaria from saying they have a right to review this when at some point it gets to be absurd? And yet, if we just use this rule of, does it have an effect on their economy, we're going to be left in that position.
MS. BAIRD: I'd like to make a comment. It's a framing comment because I'm very self-conscious as to what this is going to sound like. When I was a corporate general counsel, and every now and then Senator Metzenbaum would say to me, "My God, you really are a Democrat," so I'm very self-conscious of what this is going to sound like, but what I don't hear in this conversation is a commitment to defining what the public interest is.
I hear general comments about the market and market power. I hear general comments about efficiency in speeding up the review process, but you know, the seasoning of review can be very important to allow the public interest to surface. And so before we get caught up in how fast the world changes and how much we might be inhibiting things because the government takes 30 or 60 days, and that even two months is too long these days, I really think this Committee has an obligation to look at what is the public interest we want to preserve and fortify, and in fact even are there new areas of public interest? And to very consciously help define those as much as we might define legal principles of antitrust review to test recommendations we make against what we would define as public interest issues.
Because if we look at this only as business people or only as legal analysts of market power, I think we're going to miss a lot. And so I say those are very general comments. They are very vague comments. I realize that. I realize I also gave you my framing comments. I know that they sound out of sync with the conversation here, but I think that they are terribly important.
And I think if you look at these issues of efficiency, for example, and you say, we need to streamline the data and we need to streamline the time frame and we'll still make sure that we are able to evaluate what's the relevant market and do our Herfindahls, and we can do it on a computer now so that it's a lot faster than we used to have -- we used to have to use an abacus -- I just think that we miss some of those public interest issues of allowing people who don't have the business infrastructure to do their analysis, of allowing impacts to season and surface, and some of these other issues that I hope we might be able to define.
MR. YOFFIE: This is going to be specifically a follow-up: there are two ways we can look at this. One is that we need to ensure there is an adequate time for these issues to be digested, for interests to be able to mobilize and to have a complete debate before making decisions, with potential efficiency effects being discussed.
The other way to potentially think about structuring this, again with a clean sheet of paper, would be to say in this world we can make decisions faster, precisely for the reasons that you said, and we may also be able to revise decisions at a subsequent date if more information becomes available. And then the question becomes, are we better off waiting to make a decision until we're sure we're making the right decision? Or the alternative is can we make a faster decision with the right to review and potentially change it as new information becomes available?
MS. BAIRD: Well, I just have to respond to that. I think that that's fine in theory, but my own experience in the business world is that it is a lot harder for a government to come in and say we're going to disassemble a business than it is to not allow it to be merged, and that you would find, I would guess, almost no, if not no, examples of ever being able to come back in and take steps. Because then government's running business. That is really a very different environment.
MR. SIMMONS: Well, there are situations where the government says hold separate, until we decide what it is we want.
MS. BAIRD: Oh yes, absolutely. I'm sorry; I didn't understand David to be saying that. And certainly that's a good point.
MR. SIMMONS: If I may, ZoÃ«, my comment initially about speeding up the process is not debating whether it takes one day or 60 days. How about 12 months? How about a potential merger that's delayed for a year as more and more input is obtained, as more and more different constituencies offer their opinion?
That's what I'm really talking about. I'm not talking about some modest length of time. I would be the first to admit that 30 or 60 days is what we would be very happy to get. But what we get under Hart-Scott is we get the first time period, and then on the day of the expiration we get the second request or, in due deference to DOJ, what we get is, "Give us another 60 to 90 days. We won't give you the 142 questions that we normally send out, but you give us enough time." And of course we always say -- business always says, "Of course, we understand how the process works."
I'm personally familiar with one, it has nothing to do with my company, that did go for a year. If, in fact, we choose to examine our own processes and procedures, I think that there is an area that reasonable people on both sides, whether they be from the private sector or the enforcement sector, could reach an agreement that, in a world that is indeed changing rapidly, there is some reasonable basis to come to an agreement on it.
I would like to challenge Eleanor on one point she made. I can't conceive of why you would want to give states review. There's transparency at the borders of all of our states, at least last time I checked, there was. There is no such thing as a local state market for anything of any consequence that I know about. We don't have tariffs back and forth between New York and New Jersey and Connecticut.
If in fact, as you said, that the states work more closely with the federal agencies responsible, it would seem to me that that would really become a technique to further delay the process, for reasons that might have nothing to do with the fundamental antitrust issues connected with the merger review. And so perhaps that's both a statement and a question. I mean, why on earth would you want to get the states --
MR. RILL: If I could just footnote your state comment, I think perhaps the states do not play a major role in global transactions, but I would like you to spend one week dealing with a supermarket merger before you push aside the states' ability to intervene.
MR. SIMMONS: And I'm saying why would you want that? Or why would you want to exacerbate it?
MR. RILL: Some of us are not really thrilled with it.
MR. DUNLOP: I want to get at a question that's central and definitional. We've all talked around here this morning, about the rest of the world, and I don't know -- when you're talking about the rest of the world, you're talking about other states that have had antitrust regimes. But there are an enormous number of major countries, in Saudi Arabia, Brazil, places like that, where I'm not entirely clear what you are talking about impacting them.
Now, also when you get to questions of transparency, it seems to give some credence to the general defense, going back to Ricardo, the infant industry argument in those kinds of countries is alive and well, and I'm not in any way willing -- modern economics, that is most cutting edge today, does not throw that idea out, as David Ricardo did.
So the impact upon countries like that of what you are proposing to do, to the rest of the world, is a question that I want to be pretty clear about -- what is the rest of the world? And I'm not trying to define it. I can understand if you have an antitrust regime in which you are in a position to consider making deals about -- I'm very much aware of the enormous disputes going on in the WTO, as it seeks to admit or not admit a number of the countries Joel Klein has made reference to, and some of the things they are trying to impose on those countries as a condition of entering the WTO. But I'm just asking for us to be a little clearer about what's the rest of the world.
MR. KLEIN: There's one parting comment I want to make. I think this has been a very, very productive discussion. I think, as you think on whether it's on a sort of clean sheet basis or so forth, one of the ways to deal with the issues that you and Zoe are talking about is to, it seems to me, think about resources and to make sure that the agencies are properly staffed up to do things within a proper time frame. Hart-Scott itself actually has tight trigger points. It's often when you have multiple jurisdictions and multiple agency review, since you can't close until the FCC approves it or somebody else approves it, that's where we have maximum flexibility and obviously, like most people, we would use it.
And I think it's fair to think about all these issues. I don't think they are off the table. What I think you need to think about, though, Eleanor touched on it, you touched on it, others have touched on it, other countries are going to have more or less say.
When China starts to do merger review, which they will start to do, people are talking about the impact of being able to sell goods -- it may be that Bulgaria could oppose the merger, but if that's true, Boeing/McDonnell Douglas could decide that that market is small, that they'll sell elsewhere. If everybody else agrees to it and Bulgaria opposes it, Bulgarian Airlines can fly an Airbus. But you can't take that position in Europe. And you're not going to take that position in Japan and you're not going to take that position, to be sure, in China.
And then the question will become how all of those people -- because for example, if in fact the Chinese Fair Trade Commission can drag this out for a year and a half, it doesn't matter what timetable you put on me. Because if they don't close the deal, I'm going to be able to take as much time as I want.
I agree that you don't ignore history. The reason we have the Hart-Scott statute or whatever improvements there might be, I think undoing mergers once done -- holding them separate is no answer to business. If you tell me I can hold you separate for two years, with all the efficiencies, the world has moved on. So holding separate is no answer. And second, Bob Pitofsky studied this at some length looking at the Canadian experience of being able to undo them after a certain period. That, it seems to me, is a non-starter. Seriously, it's going to go no place. Once the employment contracts are drawn, and so forth and so on, you're not going to undo the merger.
MR. YOFFIE: I just want to add one clarification. I certainly didn't mean to suggest you could undo the actual integration of the two companies. However, often what takes place in many of these reviews is a discussion that certain assets need to be disposed of. And that's the kind of thing that can be done at a subsequent date.
MR. KLEIN: Not always, but in a lot of cases we will allow the deal to close, subject to divestiture, let's say, of a defense plant that Texas Instruments owns.
MR. YOFFIE: Or in Exxon/Mobil, there may be a lot of divestitures of individual stations or refineries or whatever, and those can always be done at some subsequent time. So you're right, undoing Exxon/Mobil would be impossible, but a lot of pieces could be broken off at a later time, if that turned out to be anticompetitive.
MR. KLEIN: It's a complicated question based on that. But that is conceptually possible if you know ahead of time. The problem is, particularly if it's a major divestiture that's going to compete with the merged company, their incentive to divest it to a less powerful competitor may change the impact of the previously imposed order, court or otherwise.
MS. BAIRD: I also can't imagine that any business person would prefer to have the deal closed in a shorter time and have the government continue to watch its operations from an antitrust point of view, with the option to require that they behave. We're probably beating this in a direction that's not helpful, but --
MR. KLEIN: Anyhow, the basic point is you ought to think about the fundamental deal closing or not closing.
MS. BAIRD: Right.
MR. KLEIN: Well, let me thank you all. I'll have to excuse myself. I'm going to miss what I know will be a very lively discussion on trade and competition policy.
DR. STERN: Thanks, Joel, for joining us.
MR. DONILON: Anybody else on the merger review front? Merit?
MS. JANOW: I just want to add one footnote. I think the term deference is a very loaded term, and I think no jurisdiction wishes to give up rights over a significant transaction. But when we talk about real collaboration, I think as a practical matter, it is the case that some agencies have started the review process first, ahead of other agencies.
And I think what I was trying to get at in the initial remarks was the notion of how far we can go down the road of collaboration without necessarily invoking full-blown investigations in all jurisdictions that are affected, while preserving the rights for a jurisdiction to apply different remedies if, as one goes down that road, it becomes evident that substantive law leads you to different remedies.
And I think that kind of collaboration, I have been thinking of that as a fairly significant development, were the United States and foreign jurisdictions to really go down that road. And not a procedural one. That would be buttressed, in your words, by strict deadlines, would make that operationally dramatically different. And I just wanted to get a sense whether David saw that as a significant or a procedural directional change.
MR. YOFFIE: I'll have to see it once it gets into some written form.
MR. SIMMONS: One comment. I believe that American business, the private sector, really trusts the confidentiality of information supplied to FTC and DOJ. They really do. I've never, ever heard of anyone questioning that. But as you discuss, as we've discussed the kinds of information-sharing, the jurisdictional reviews, it seems to me that is important. Some of this information, of course, is very, very sensitive. And the more different jurisdictions that have access to it -- I'm not quite sure that perhaps a foreign country might not trust our enforcement agencies, any more than we would trust them, but as you widen the circle, I think that there's an issue here that at least has to be addressed.
MR. RILL: It's an issue that's very much being focused on by those who are helping us out. I would say, though, Dick, that as experience just within the merger realm has increased in dealing with, for example, the Advisory Committee to the European Commission's Merger Task Force, as experience has broadened, I think we're getting more confidence across the Atlantic, at least, in the confidentiality of what is --
MR. SIMMONS: How about Bulgaria or Lithuania?
MR. RILL: Well, they're not a part of the European Commission yet.
MR. SIMMONS: You see my point.
MR. RILL: Yes.
MR. DONILON: I think that's a very good point in advising companies on mergers. One of the very important things that a counselor can say to them, in the United States, is, we don't know of a single instance when any information that's been turned over to the enforcement authorities has ever been leaked or improperly used. And that degree of confidence will have to be built up, I think.
But one way to start is to put in place model guidelines for protection. But I agree with you, Dick. It's a very important counseling point here and it really undergirds the proper functioning of the system here, and that type of confidence will have to be built before business accepts it in other jurisdictions. I agree with that.
DR. STERN: Tom, thank you very much for directing us. Everyone has agreed that this has been very lively. And it's wonderful to get some new kind of challenges to what we have been doing heretofore. And on the information leakage issue, your observation from a business point of view is very welcome.
We challenged in the hearings the authorities from these different member states of the EU, plus the EU authorities plus Brazil and all these other countries that came, to ask them what their experience had been in working with the United States. And again, no examples of any leakage. So it's extremely important particularly to get this message over to other business communities, say in the EU, so that if we do push for greater collaboration and greater teaming up to advance the public interest in competition policy areas, that the business communities over there will be comfortable.
I have observed that there are some concerns there that may slow down the collaboration among the authorities. So it's very good to get the business community's expression of confidence.
I would just like to say one final thing on the materials for this morning, which were all very helpful from the staff. The overview of the experience in multijurisdictional merger review, and particularly the Hart-Scott-Rodino activities, was extremely helpful. I'm sitting here trying to find it now. Here it is. The U.S. Premerger Notification System.
I would ask that if these three charts, which talk about the Hart-Scott-Rodino transactions over the years `89 through `98, can be broken down to break out the DOJ versus FTC, so we can see if this experience holds true for both agencies equally, in terms of the numbers of transactions, the numbers of second request investigations and the number of merger challenges. I think it just will be more revealing.
And also if we had data, which I thought we had requested, on how long these cases generally do take, is it a 60-day matter, is it a year matter, and are there some trends in this observation. We're still working on that.
MS. LEWIS: The breakdown of statistics between the DOJ and FTC is available. As to the length of review, it's a question of whether it's publicly available or not.
DR. STERN: On the second point, well, I'm wondering if it might be available if the two merged, if you will, the data. I don't understand why that shouldn't be publicly available, frankly.
May I ask a question? It's not a loaded question. Has the GAO asked these kinds of questions? Has the Congress ever asked the GAO to ask these kinds of questions? Has the Justice Department, the Antitrust Divisions of Justice or FTC been subject to any GAO auditing?
MR. RILL: The answer to your second question is yes. The answer to these kinds of questions, in my recollection, have not been asked by GAO or Congress.
MS. JANOW: They're just concerned about waste, as against efficiency.
MR. RILL: There are periodic GAO inquiries into every aspect of government, including antitrust.
DR. STERN: Absolutely. So I just thought there might be some data sets available there. But these are the kinds of questions which I think the GAO would sometimes ask and I'm not suggesting that there be such an investigation, but if we could get the data, I think it would be helpful.
I think that we should adhere to our schedule and now adjourn for a working lunch. Let's take a break, get ourselves back together in ten minutes. Is that satisfactory?
MR. RILL: And work through lunch.
DR. STERN: And work through lunch. We'll have a working lunch.
Okay, great. Thank you.
DR. STERN: All right. Let's bring the meeting back together. And I'm going to turn this thing straight over to Jim Rill who is rip-raring and ready to go on the trade and competition policy interface. Jim?
MR. RILL: Before I get started, I would like to acknowledge the presence of Doug Melamed, who is indulging in his dessert. But basically Doug has a limited amount of time with us, and I'd like to ask Doug what remarks he wants to make up front, before we get into the portion of the Committee meeting itself on trade and competition.
MR. MELAMED: Well, I don't have any great remarks, but I was asked to update the Committee on the state of play of the WTO. There was, of course, a working group to study, for educational purposes, the interface of trade and competition. Its chair was Frédéric Jenny of France, a very sophisticated and terrific guy for this task. Its two-year mandate has come to an end. I'm not precise about the dates but in any event, the time was ripe to decide whether to extend it, and the mandate of that group has been extended. First the group decided, and then the Council of the WTO agreed on December 11, to extend it for six more months. So the anticipation is that there will be two more meetings devoted to the study and discussion activities of the group.
There are three topics that have been agreed upon for this ongoing discussion. One is the relevance of fundamental WTO principles of national treatment, transparency, and most-favored nations treatment to competition policy. Second, approaches to promoting cooperation and communications among WTO members in these matters, including technical assistance. And third, the contribution of competition to achieving the objectives of the WTO, including particularly promotion of international trade.
Two points of elaboration here. This decision by the working group, by the WTO, to proceed on these terms reflected a careful, and sometimes it appeared very precarious, compromise within the WTO community. Let me first talk about the compromises within the United States and then talk a little bit about those within the WTO community.
There are, I suppose, three strands of thought in the United States about what should have been done in terms of extending the working group. The competition agencies, the Antitrust Division and the FTC believed it was important, or valuable at least, to have a continuing dialogue as a way of spreading the wisdom about competition in the largest international commercial forum. And in particular, these agencies thought it was important that we not appear to be opposed to the continuation of such dialogue because, it was feared, that might diminish our influence in ongoing matters of this nature within that group.
USTR in some ways had a more aggressive agenda in that they are very interested in competition in particular as a means of aiding their market-opening access agenda. By the same token, they were very sensitive to a matter that seemed to be of primary concern to the Department of Commerce, which was that this not be used as an occasion for those countries in the world, particularly some Asian countries, to challenge our antidumping policies by saying that they are not really procompetitive policies.
So it was important to the United States, in terms of the consensus position that emerged in the administration, that it be made clear that the continuing WTO dialogue would not involve trade remedies. Some of the other countries insisted that trade remedies be on the table as a condition of carrying on the dialogue. And what came out was the agreement that I tried to summarize a minute ago.
Looking forward in terms of where we go after the six months are up, the issue will be what, if anything, will the WTO take up in the 2000 agenda. And I think the candidates are: nothing, continuing talk and study, or some kind of negotiation-anticipating agreements ranging from the most general -- such as a general agreement in principle that each country shall adopt and enforce some rudimentary competition policies, for example, policies that prohibit cartels -- to more detailed agreements. And then there's a question of what kind of dispute resolution if any might be agreed upon. Dispute resolution would range from very general -- such a dispute as to whether a particular country doesn't have or enforce a competition law -- or, at the other end of the continuum, case-by-case dispute resolution where there's disagreement about the resolution of individual cases.
Again, there are likely to be very diverse views within the WTO community. There will be some Asian countries that will want to use some kind of continuing trade and competition work as a device to beat us up on trade remedies and antidumping laws. The Japanese might prefer talk as a way of forestalling action. The EU is going to push very hard, with perhaps tacit support from Canada, for negotiations leading to some kind of agreed-upon principles.
The present inclination of the antitrust agencies continues to be that talk and discussion is wonderful as a way of trying to forge international consensus and broaden understanding of the important policy issues and of the value of competition policy, but that negotiations would be imprudent for two related reasons. One, there really isn't enough international consensus on what the policy resolution ought to be to enable us to envision with much confidence a principled agreement other than simply a kind of ad hoc compromise. Second, there is a concern that the WTO might not be the right forum, because it's a forum that historically and currently has been dominated by trade interests of the member countries, which are likely to treat competition issues as simply additional items for negotiation. The fear is that they might agree or disagree about particular competition matters in order to get a better break on textiles or whatever and that that kind of process is not likely to result in sound policy decisions. But come the end of 1999, when the six-month extension of the working group is up, or maybe beginning earlier in '99, there will be a lot of energy focused in the administration here, and in the WTO, about the question of what, if anything, should the WTO do after the expiration of this six-month period in the trade and competition area?
Have you finished your sandwich, Jim?
MR. RILL: No, but I'm working on my dessert. Let me just ask you a question. You mentioned that the USTR was looking towards or thinking in terms of a more aggressive stance in using competition policy to deal with market access. Can you tell us a little more about that?
MR. MELAMED: I think maybe I overstated it because I'm reading more between the lines here. I think USTR perhaps sees a potential upside there, and I think they were very instrumental in achieving the compromise result that the WTO actually reached. I think frankly they were under some pressure to just say "no" from those who were terribly concerned about the trade remedies issue and the fear that it would sneak in somehow in the back door. USTR did not do that and I surmise, more than I know, that that was in part because they see some upside here.
MR. RILL: Thanks. Any other questions for Doug about the continuation of the WTO working group?
MS. FOX: I just wondered whether our agencies said anything positive in terms of an end game at the meetings other than saying talk is good? Like opening market access, as an example.
MR. MELAMED: I don't know. Chuck or Randy, do you know if the actual dialogue there --
MR. STARK: Ed was at the meeting. If the question, Eleanor, is whether we said anything positive in the sense of opening the door to a positive attitude toward some sort of negotiation, the answer is no, there hasn't been any change on that.
MS. FOX: No, I didn't mean on that. I meant in terms of what affirmatively could be done if one were talking with a view to getting agreed principles, perhaps it was inappropriate to even talk about the upside, but I just wondered if anybody did talk about the upside.
MR. MELAMED: I would guess that that's a hypothetical that they didn't want to talk about.
MR. RILL: Okay. Any other questions? Picking up on this morning's format --
Randy, I'm sorry.
MR. TRITELL: I was just confirming what Doug said. Actually I was present then and there was no specific substantive discussion of what might come out of future discussions of the working group.
MR. RILL: Okay.
MS. FOX: Were the Europeans specific about what might come out in terms of agreed principles?
MR. TRITELL: No.
MR. MELAMED: My sense from discussions I had with some of the EU people and others in the weeks prior to this is that they are less specific now than it appeared some months ago. I think they like the idea of negotiations but haven't yet figured out exactly what form or what end game that might have.
DR. STERN: Is the report --
MR. RILL: I've got it. It's very short. It's here somewhere; it was on the WTO e-mail Web site.
DR. STERN: Maybe we can just circulate it among the Committee.
MR. RILL: If you can just pull it up -- I pulled it up from the WTO Web site.
DR. STERN: Doug, you've just kind of given us a review of the status today. Do you have a specific comment on the report itself?
MR. MELAMED: No.
DR. STERN: I knew you were going to say that.
MR. RILL: Moving along --
Picking up on this morning's format, but modifying it slightly, I'm going to try, I'm sure with only minimal success, to emulate what both Tom Donilon and Merit did. And given both their status report and some of my own thoughts, with the disclaimer that my thoughts do not necessarily reflect the views of anyone else on the Committee, do not necessarily reflect the views of the staff or the executive director, and probably do not reflect the views of many of my partners. So with that in mind --
MS. FOX: They do reflect yours?
MR. RILL: They do reflect mine, at the moment. Today.
DR. STERN: Let us know if you change your mind.
MR. RILL: Well, I may do that during the course of the presentation. Basically on the question of core principles relating to trade and competition it is even more difficult, it seems to me, to develop a consensus within the United States as well as overseas as to what is the objective of an analysis. What are the underlying premises of analysis of the issue of trade and competition?
I would posit that enhancing the elimination of artificial barriers to open global markets is a good start. That, for our purposes, we should look at the source of those restraints that create those artificial barriers. The source of those restraints I think within our purview cannot only be private anticompetitive conduct, but hybrid, that is, conduct encouraged by government and essentially implemented by private parties -- in standards organizations is an example. And indeed, governmental restraints. I don't think we should feel barricaded from considering all three of those types of restraints.
And perhaps less controversial, we should look at those restraints as they affect not only inbound but outbound commerce as well. And indeed, commerce that indirectly affects inbound or outbound commerce by affecting restraints in another jurisdiction. For example, if Country "A" and Country "B" agree that they'll stay out of each other's market, the natural effect of which is to affect Country "U.S.," I think that's also within our purview.
Not all competition problems are trade problems, not all trade problems are competition problems, and I think that has to influence our analysis as well. And not all restrictive practices are competition problems. There may very well be restrictive practices -- I think in terms of questionable labor standards, environmental standards -- that if they are not pretext for effecting competition problems, they are in fact probably beyond our purview, at least in my initial thought.
So let's turn to, as Tom and Merit both did, what are some of the substantive areas that we can examine with those possible a priori analytical principles? I think, and I pick up here on a point Eleanor has made, that we ought to have a very narrow -- we ought to recommend the Justice Department take a very narrow view of immunized conduct by foreign governments. That the so-called doctrines, to be legalistic for a second, of foreign sovereign immunity and foreign sovereign compulsion should be very narrowly construed by the U.S., so that we can reach conduct that is encouraged by but not mandated by -- specifically expressly mandated by foreign governments and where foreign entities, foreign instrumentalities behave in the commercial context. For example, if a government-owned competitive entity, hypothetically an airline, is behaving as a commercial entity rather than an instrument of foreign policy, it should be reachable under the U.S. antitrust laws. It's a thought for our recommendations.
I want to extend from the merger area to the trade and competition area the notion that consultations should be held to advance convergence on these core principles. Specifically, discussions as to what is the international view of hard-core horizontal restraints. There's already an OECD principle, an OECD recommendation out on that, perhaps hedged a bit more than I would like, but nonetheless it's there, and it's a step in the right direction. Then move from that to convergence discussions and debate and evaluation of abuse of dominance position, what we would call monopolization or attempted monopolization in the U.S., and if possible even open up to discussion of vertical restraints. And the circumstances and market conditions under which vertical restraints are procompetitive and perhaps anticompetitive.
I guess I'm taking up Joel's challenge to reach out fairly far. This isn't going to happen tomorrow. It's important these consultations include emerging nations as well as the core nations that have an antitrust tradition, and that nations without or with newly-enacted antitrust laws should be involved in these consultations. We now have 90 countries and rising that have some form of antitrust law, and I think I'm probably on the low side of that total number. Chuck and Randy are debating that now. But I think that the fact of the matter is that there is a need to embrace these countries in that kind of consultation so that whatever knowledge and understanding can be shared is being shared in all senses.
When we do this and when we share these ideas, we have to be cognizant of the fact that other countries have other ideas on occasion, and a convergence may produce consensus in some areas that we may not find particularly attractive from a business standpoint in the U.S., where principles that are other than perhaps consumer welfare principles, or even consumer welfare-related principles, might be turned on us. In my view, okay, well, so be it, if that's the outcome of discussions.
And I want to emphasize I'm not talking about negotiations. I agree with Doug's premise, the Department and FTC premise, that negotiations at this point are probably premature. Discussions certainly are not.
I think the priority in negotiations should be the elimination of internal -- of course, antidumping and countervailing duty issues are not on our agenda -- so I emphasize internal government laws and regulations that also artificially inhibit open global markets. I'm thinking there in terms of at least a look at government standards which are not government-encouraged private standards, but purely government standards. And I think we need to look also at the use of government trade regulation laws, here and elsewhere, that while purporting to be trade regulation laws really inhibit global competition. I think intellectual property laws in some areas, limits on licensing, discriminatory non-national treatment of foreign filing and notification requirements, and various miscellaneous market-blocking restrictions that have popped up from time to time deserve our attention. From my experience in the SII talks with the Japanese, I think of the large retail store exceptions, there are the preclusions, and elimination or the prevention of the use of new-entry pricing practices such as premium codes. I think that the government should probably enter into negotiations, focus on negotiations that would eliminate those kinds of restrictions.
Just in the interest of being controversial, I think we should consider at least whether or not we want to recommend a repeal of the Webb-Pomerene Act. Webb-Pomerene is a stick that's been used to beat up on U.S. antitrust by foreign jurisdictions. The jurisdiction of the Sherman Act itself does not reach purely export trade. There's no spillover effect in the U.S., so export cartels that have no spillover in the U.S. are not amenable to attacking that under the Sherman Act, so why is an exemption necessary? The thought that occurs, though, is then if foreign governments decide to pursue those cartels, as they can now, with the U.S. cooperating and giving them discovery, as I think the U.S. would find difficult now to do, I think that's an area that we need to examine.
I think we are entering into truly global markets, John, in the area of electronic commerce. I think as electronic commerce evolves, national boundaries will become irrelevant for this purely commercial matter. And the question then is how do national antitrust laws accommodate themselves to those truly global transactions.
Finally, in the substantive area, the question is to what extent should the DOJ act as an advocate of its own best practices and vision regarding competition policy. And whenever I say DOJ, in case you're reporting back to Bob Pitofsky, please assume it's including FTC. That, it seems to me, could strengthen its advocacy within the United States. It could certainly strengthen its advocacy overseas.
Turning to procedural recommendations, we're going to have these convergence discussions, what are the appropriate fora? It occurs to me that OECD is engaged now in a Trade and Competition Working Group that involves both the Trade Committee and the Competition Policy Committee of the OECD. It has a fairly substantial business input into the working of that Committee. It, of course, consists of representatives of both the Justice Department and the FTC as well as the top competition authorities of the 29 members of the OECD.
But I don't think we ought to limit our scope, our recommendation for fora to OECD. I think we probably should applaud the continuation of the WTO working group as one that would reinforce national treatment, provide an educational function, and reach out further down the road to increasing an agreement or at least transparency on antitrust principles in a framework or in a forum that is much, much broader than OECD and would bring in many of the newly emerging antitrust authorities in the world.
I think regional organizations have a real role to play here too, such as APEC, NAFTA. Eleanor's had experience heading a tri-national bar group that's attempted to deal with Section 1504, that's the NAFTA provision calling for convergence of antitrust policy -- U.S., Canada, Mexico. I think that experience has not been very satisfactory, not through any fault of Eleanor's. But some tensions within the U.S. Government I think have produced an unsatisfactory result there.
Some of our discussion at the last hearing dealt with whatever role IMF might play in this area. The IMF, although some would view its image as slightly tarnished at this point, the IMF has encouraged the enactment of antitrust laws in emerging countries in conjunction with its financial role and has among its memberships some people like Shyam Khemani who are very knowledgeable in this field, is there a role there to play?
I guess what I'm saying is we should look at perhaps recommending a wide range of fora in which the trade and competition issue can be debated and vetted. I think most of the people who have testified before us, both governmental and nongovernmental, have advocated the increasing network of bilateral agreements along the lines of the U.S.-EU agreement in 1991, expanded in 1998, particularly regarding trade and competition.
I think this is going to be something that we're going to see more and more of. The press is now reporting that a U.S.-Japanese bilateral agreement is imminent. I don't know if Doug wants to comment on whether that imminency is, depending on your point of view, overly optimistic or not. But I think when you heard virtually every one of the governmental officials that appeared before us in early November saying that bilateral agreements are a good thing, you're going to see more of that.
I think in conjunction with those bilateral agreements one needs to take a look at the confidentiality issues that we discussed earlier. There is not yet an IAEAA in place, unless something's happened in the last week or so that I missed. U.S. and Australia have negotiated one. I think the U.S. has cleared the decks and is waiting for final action by the Australian government. The IAEAA will permit under very tight downstream protections the sharing of confidential information and this may be a model that will enhance the effectiveness of the enforcement agencies both in the framework of positive comity and in overall enforcement cooperation, which Eleanor's going to be talking about.
Positive comity. That is, where country A requests country B to take action against anticompetitive practices unlawful under the laws of country B that adversely affect the foreign commerce of country A, and also violate, perhaps injure consumer welfare in country B. Positive comity is a relatively new concept in practice. Every time I say it's a new concept somebody goes back farther in history and tells me there's an agreement, now I think 1936 is the most remote date I've picked up, where there's a positive comity agreement between the U.S. -- and perhaps this is a terrible historical reference -- and Germany that had incorporated that concept. Nonetheless, it is a new concept in practice. Chuck is making a note to check that out.
The success at this stage -- the obvious success has been I would say somewhat mixed. But there are ways in which it can be improved. More effective reporting obligations, perhaps greater transparency should accompany modified agreements and the implementation of positive comity. I think before positive comity is resorted to, there needs to be a full understanding on the part not only of the requesting country, I'm going to say on the part of the U.S., our primary target of recommendation, of the likelihood that effective action can be taken in the foreign country, not merely in an analysis of its laws, but its discovery process, its resource availability, and its incentives to really effectively respond to the request before great confidence is put in the request. This involves increased communication between the agencies, regular updates of status, more involvement by the requesting country, and a timetable for referral.
One of the recommendations on the positive comity agreements that was made by the representatives of the government of Japan was that positive comity agreements are only applicable where there is reciprocity. I'm not sure what that means, but if it means that when one refers a case to another jurisdiction, then the referring jurisdiction should forever hold its peace, I don't think that's a very good idea. And probably not consistent with U.S. law.
A thought that I just want to put on the table is whether or not in dealing with market access disputes there's a role to be played by an international body, and I'm not sure which international body, in dispute resolution only to the extent that some form of voluntary non-binding mediation would be made available. I don't know whether it would be utilized or not but I think it's something worth looking at. The OECD has had a recommendation in place since 1986 -- I don't think it's ever been used -- that makes that forum, makes that mediation/consultation service available through the OECD Competition Law and Policy Committee. And it's not true that I'm looking for a retirement job in suggesting that a consultation body be formed.
I think the question, then, becomes what happens when positive comity fails? And then one looks at unilateral enforcement. Not surprisingly, there was no enthusiasm for strengthened U.S. unilateral enforcement voiced by our guests, the foreign enforcement officials, at the hearings in early November. It was about the same level of enthusiasm that I was greeted with when I erased footnote 159 from the 1988 international guidelines that had suggested it was an inappropriate use of U.S. antitrust enforcement to go after foreign cartels that inhibited U.S. foreign commerce under certain very specific circumstances.
The effects-test-based enforcement along those lines has not been widely used in the U.S., although perhaps more widely used than some might suspect. Chuck, you provided us with some 30 cases where it's been actually used, most recently in Pilkington.
I think it should be examined for the view of possibly strengthening under traditional antitrust concepts the possibility, when all else fails, of effectively using the U.S. unilateral enforcement mechanism, effects-test enforcement. Problems with discovery -- certainly there are political problems, but beyond the political problems, problems with discovery arise, but there are ways of dealing with that which we might want to take a look at. I don't want to get technical/legal right now; I probably already have. But there are ways of drawing inferences adverse to a party who refuses to turn over information under the federal court rules we might want to take a look at.
Eleanor has a thought that maybe she'd like to expand on at some point, that is, the possibility that U.S. courts in these contexts would be less politically vulnerable, the unilateral enforcement would be less politically vulnerable if they were enforcing the foreign law. It's worth looking at, I don't know whether it could be done, or whether constitutionally it could be done, but it's certainly an interesting and creative proposal that Eleanor has come up with, if I'm stating it correctly. In fact it's creative even if I'm stating it incorrectly.
We talked about multi-agency enforcement and multi-agency review in the U.S. context. I think there's a multi-agency issue that transcends -- that is an important issue in the trade and competition context, and that is the role of the Department of Justice in any intra- and intergovernmental deliberations involving trade and competition. Again, speaking only for myself, I think we should recommend that the Department of Justice and the Federal Trade Commission have a core role in any intra- and intergovernmental deliberations dealing with competition issues.
There are a number of other recommendations that were put on the table during our November hearings. Someday we'll get the transcripts, I hope, but I want to call your attention particularly to three proposals. Dick Cunningham suggested an approach -- I hate to characterize these proposals because I'm not sure I can do it fairly -- an approach that through some agency would require that there be a remedy where one could protest against structural barriers to open markets. He focuses particularly on vertical restraints which he argues are not amenable to antitrust or to trade law (traditional 301 remedies) and suggests that there needs to be yet another remedy where it's demonstrated that a market is structurally closed to open competition. And I think Dick is going to prepare a paper for our review that will discuss that issue.
Somewhat similar, but in many instances different, Alan Wolff and Tom Howell proposed an analysis of market access to disputes to determine whether or not market access exists other than looking at specific practices, whether there's a functioning market in place, and whether or not trade policy tools -- I think it's their current proposal -- trade policy tools should be expanded to address practices that then would be identified once it is determined that the threshold of the market barriers are in place. Again, we'll have to look more at the papers as they come in to see where we go with that.
And then I think both Konrad von Finckenstein of Canada and Karel Van Miert, Commissioner of the EC, propose an agreement in the next round of the WTO, which would be in the year 2000, which would involve an agreement on core competition principles. Countries would agree to establish laws prohibiting what everyone would agree are anticompetitive offenses, agree to enforce those laws, and then have some mechanism of dispute resolution to see whether or not that agreement's been adhered to. I think Doug has suggested the position of the Department is not favorable at this point to that kind of proposal. But I think as a courtesy we need to look at all of these proposals.
Another area we might want to look at is the extent to which sectoral work done within the WTO is appropriate. We have the telecom experience which is sectoral, we have topical experience with TRIPS, intellectual property. Are those areas that might appropriately be expanded in the interest of more open markets?
We continue to try and get our hands around the extent to which anticompetitive practices (private, hybrid and governmental) constitute a serious impediment to world trade. The statistical information is hard to come by. We're increasingly getting anecdotal information. And surveys by both the Committee staff, and, for example, the Business and Industry Advisory Committee to the OECD are being pulled together to see where we go with that. I don't know that we're going to come to any strong statistical formulation for this practice. So with that, I think what I'd like to do is open it up for any discussion or further ideas.
MR. MELAMED: I have one brief comment to add to this. I don't have an agenda here and this point is in one sense obvious, but I fear it might slip through the cracks so I thought I'd mention it. I think there is a potential loss from thinking of trade and competition as one set of issues and cartels and cooperation as another and mergers as another. I see it sort of this way.
Trade and competition discussions, not just here but everywhere I've participated in them, often ask whether there is something in the area of competition law that might enhance international trade.
In that context, it is often suggested that competition-type laws should proliferate throughout the world because they tend to be congenial to open markets and I've heard proponents advocate private remedies in other countries so that excluded firms or others injured by anticompetitive practices might have private remedy -- a fair topic and an important one for discussion.
But when the discussion turns to mergers -- I wasn't here this morning, but I can imagine -- discussion of multinational merger often focuses on the problems that arise when many different nations have antitrust laws applicable to the same firms or the same transactions. I just hope we don't lose sight of the potential tension between those two concerns by compartmentalizing the discussions.
MR. RILL: Good point.
MR. SIMMONS: Where do I start?
MR. RILL: Wherever you'd like.
MR. SIMMONS: It seems to me in the interest of being bold -- I love that word -- that we've got to identify clearly that there are indeed anticompetitive situations that have occurred and do occur and will probably continue to occur around the world. Now, we also have to be willing as a Committee to agree that there are long-term anticompetitive results if firms in one nation are in effect disadvantaged or driven out of business as the result of short-term actions, anticompetitive actions carried out by firms in another nation. And while I would hope you would agree that does have long-term anticompetitive effects, there is a whole body of opinion that says what's wrong with that, I say there is something very wrong with that and it is truly anticompetitive.
I think also that it is important for this Committee to identify that there are an awful lot of opaque trade barriers that continue to exist in the world that create anticompetitive situations for firms that are outside of that nation, not just the United States but other firms. I think it is also very important that this Committee be willing to identify that there are trade flows with some certain nations that are so distorted that circumstantially there has to be a reason, and the only reason can be anticompetitive practices that are practiced by that nation.
I hope as we urge the rest of the world, if in effect we do, that reducing trade barriers or reducing the anticompetitive barriers whether they be formal or informal, and that that in effect is something that all of the trading nations in the world should embrace, that we would be willing to point out that there are anticompetitive practices and perhaps -- and by the way, there have been a whole series of papers done on this over the last five years with regard to individual nations around the world.
My concern, and the reason that I talked about being bold, is this is the way the world really is. And so cartels in Japan, which are created either with the direct or the indirect support of the government, are designed to prevent companies from outside of Japan from participating in the Japanese market for whatever products that cartel was created to restrict. And you can look at a wide body of products, and of course the vertical system of integration in Japan in which all companies are in effect divided up into a handful of keiretsu provides the way of limiting the distribution of products that they don't wish to come in.
My concern, my great concern, is that if we do enter into any type of dialogue, discussion or, God forbid, negotiation, they will start from where they are and we will start from where we are, and invariably like GATT negotiations, we always wind up giving more than we're getting. And with regard to GATT, of course, it was originally to reduce tariff barriers. And our tariffs were always much smaller than the other people and we would negotiate that over a period of 10 years, each of us would reduce our tariffs by, for example, 10 percent or 10 percent per year. But if you're starting with a tariff that is 10 times as high, the parties on the other side don't really give up very much over the time period. And my concern is that in the area that we're talking about, which is nontariff, the same philosophy would be accepted as an appropriate way to reduce anticompetitive practices throughout the world.
Now, we don't have cartels in the United States. But there are other nations in the world that do and those nations, by the way, don't need antidumping laws. They have their own antidumping laws, which are called cartels, which simply exclude 98 percent, in the case of certain products with which I'm familiar, from that market. It doesn't matter what price they're offered at. You can't get them distributed. So why would the Japanese ever have to file an antidumping case or a CVD case or any of the other trade remedies that are open to countries -- not just the United States, EU countries -- that resort to the use of unfair trade laws.
I would say to you I'm not very optimistic that we're going to change the fundamental drivers, which I believe are as much cultural as anything else in some of these countries, but the fact remains I think that this Committee ought to attempt to identify the anticompetitive practices so that we can at least provide DOJ with the fact that it exists, and to the degree that we're able to document it satisfactorily, to document where these practices exist.
I'm going to leave that point for a moment because there's another aspect to this that I think this Committee has to address, and this was touched on in the memo I sent to Merit a year ago, or over a year ago.
There are three kinds of trading partners: There are the industrialized nations, the OECD nations, if you will. There are the emerging nations by however you choose to define emerging. For example, is Taiwan an emerging nation or Korea? But they're still called emerging nations. And then there are nonmarket countries and we have the classic example of that when you have the kind of serious economic problems is in the former CIS countries, and where these countries and the companies within these countries don't have a clue, nor do they care, what the difference between cost and price is.
You don't really think that when the Russians or the Kazakhs ship magnesium to the United States, that they have a clue as to how much money they make on it or whether they can accurately determine whether they make any profit on it. And then that goes back to the first point that I made, that is, we've got to decide whether or not anticompetitive practices which might in the short run mean lower prices for the American consumer, might in the long run be truly anticompetitive by driving competition out, whether it be from nonmarket countries, emerging countries, or from certain industrialized nations in the world.
I think we have to be willing to segregate the difference between the kind of dialogue we want to have with the EU and the kind of dialogue perhaps we have to have with the former CIS countries or with emerging countries whether they be China or some of the others. I think this is a real challenge, but I do think that it's terribly important that we try to be sufficiently specific in identifying that all anticompetitive practices are not the same.
They differ by not just the techniques that are used; they differ with regard to whether they are export-focused or import-focused. And they have differing impacts on the countries that are affected by those anticompetitive practices. I really think that as you look at our self-interest as a nation, which I assume is still uppermost in all of our minds, that we've got to be able to distinguish between the kind of competitive practices that benefit everyone in the long run as compared to the kinds of anticompetitive practices that will certainly hurt the U.S. economy over the long run.
And if I have any impatience, it is because we view so many of these issues, whether it be in this Committee or many of the others I've been involved in over a long period of time, we view them at an intellectual level that tends to avoid addressing the real pain and long-term damage that occurs when we aren't willing to identify these practices throughout the world.
I've taken a lot of time and I tried to touch on a lot of points. But as I've looked at all of the things we've discussed since the Committee was created -- and then again only read the section because I'm intimidated when I get a book this thick, but I did go through most of the trade and competition and read Jim's memo last evening. It seems to me that there is a realistic level that we have got to address and if we don't address it in a realistic level, devoid of a lot of the jargon that lawyers like to use -- I never heard of positive comity until I joined this Committee -- but I know a lot about anticompetitive practices. And I know an awful lot about what goes on in the world of trade and I say that we have to take this to the practical level. And we have to be willing to be specific, at least in identifying that these anticompetitive practices exist.
My last point: It's not enough for us to try to accomplish the reduction of anticompetitive practices. We've also got to deal with the question of whether or not whatever it is we do and whatever it is the world agrees to do, will it really happen? Will there actually be a reduction in anticompetitive practices? And at the present time there are no penalties that cause people who choose to practice anticompetitive practices that cause them to care. Because all of the penalties that are imposed are prospective after the damage has occurred. And the damage of course is in varying degrees. The ability and one of the suggestions that I will continue to make, the ability of a private company to file an antitrust action or the ability of the DOJ to file an antitrust action against a foreign company even though the antitrust action may be occurring in a third country, and just like the case that Joel Klein used that Boeing may choose to walk away from Bulgaria, I would apply here. If we had the right to file antitrust actions or if any nation had the right where there was a great deal of this kind of anticompetitive behavior, I can assure you that there would be a lot less of it and there would be far fewer trade cases filed because there would be no need to. The problem is that there's no penalty for doing it.
If you file an antidumping case and you prove egregious dumping margins, all the exporter has to do is raise his price or demonstrate that his home market price has been raised and he is off the hook. He's caused all the damage but there's no penalty. And by the way, under our last GATT legislation we even put a sunset provision on trade cases so that where at least before an antidumping action went in effect in perpetuity in terms of the reporting requirements, now there's a five-year sunset. So we've diminished even that minimal impact on the country or the nation that practices this.
And while I didn't want to belabor the point when Joel was here, indeed currently we are seeing the worst kind of anticompetitive practices in terms of our ability to export to nations and our inability to stop anticompetitive imports sold below cost. And that isn't part of our agenda but it peripherally is related to the broader issue, and all these cases that you read about -- by the way, they're not products my company makes. All of the cases you read about in the final analysis will provide little or no relief when they win them and they will win them except for the Russian case -- as, Paula, you and I said -- where the government will determine that they will impose a suspension agreement because it is not in our broader interest for us to do anything that would hurt the economy of Russia at this point in time.
Once again, I'm going to stop here. I could go on for another hour and a half. But the fact remains that I think it is terribly important that this Committee address these issues, certainly most of these issues, and identify that they do exist. And I would hope that the staff would attempt to collect the kind of documentation that would provide validity, to provide bona fides.
MR. RILL: On that subject, there is an effort underway to ask various sectoral organizations to provide us what information --
MR. SIMMONS: I'm familiar with that. I think I was the one who suggested it.
MR. RILL: You've given us a lot to think about. The only thing I'd highlight now for us to think about is your recommendation that there be DOJ or private actions under the antitrust laws to go after foreign cartels that preclude U.S. export opportunities. The legal basis is there now. Legally that opportunity is there under the Foreign Trade Antitrust Improvement Act and reiterated again fairly recently, in fact there is yet another bill to say yes indeed, the authority is there, by Senator Abraham.
MR. SIMMONS: By the way, I should have completed that sentence. For foreign companies who do business in the United States.
MR. RILL: Right. But that is there and has not been generally used and part of the problem is the evidentiary problem. And you point to perhaps a gap that we need to focus on and that is something along the lines of what Dick Cunningham was talking about too: Should we be drawing assumptions on cartel behavior based only on statistical evidence of an imbalance of exports to one area compared to exports to another area? And I hear it, I see it, and even if I'm confident that that could be the result of some cartel behavior, anticompetitive behavior, can that behavior be inferred only from that export imbalance. And I don't know the answer to that. I think it's certainly not under current law.
MR. SIMMONS: In the case that I think you're referring to and I'm referring to, the East of Burma agreement, there is a lot of circumstantial evidence and testimony by people who were involved in it that that agreement currently exists, which of course then supports why Japan exports one-twentieth to Europe as it did to the United States. It isn't distance.
MR. RILL: Well, certainly that kind of evidence is something that I'm confident that the Department of Justice would like to have, if it doesn't already. I raised the issue of how far you can get with -- when you say there's more than statistical evidence, but I wonder how far you can get only with statistical evidence.
MR. SIMMONS: You're the lawyer, Jim.
MR. RILL: David.
MR. YOFFIE: Well, actually I wasn't planning on talking but I may as well. Let me be potentially provocative again, if I can. But before I get potentially provocative, is there any argument against recommending the repeal of Webb-Pomerene?
DR. STERN: No.
MR. RILL: Is there any principled argument or will people oppose it?
MR. MELAMED: I think one principled argument would be that, if you're going to recommend that governments take action that you desire, you might want not to squander your political capital on quixotic ventures.
MR. YOFFIE: So a bargaining chip would be a reason not to recommend it.
MR. RILL: Not a bargaining chip but something like that.
MR. YOFFIE: How long has it been around now, for 75 years or so? I was going to say 1918, I thought. So that's 80 years. I'm just wondering, it seems like of all the trade laws, that's a law that has had very little utilization, has had very little value and may in fact have a negative impact. So I was agreeing completely with Jim.
MR. MELAMED: I think the short answer for the Committee is that you should call it as you see it.
MR. YOFFIE: It seemed to me it was an obvious thing to do.
I wanted to pose a second question, which I'm not sure we thought through adequately. In the context of thinking about the next 20 years -- that is the role of E-commerce.
As we start to think about trade over the next twenty years, electronic commerce is certainly going to play a much more significant role, and I'm not sure whether that advocates more attention to antitrust-related activities or less and that's part of the reason I wanted to pose it. I think we at least need to puzzle through that and think about what potential consequences of the growth in the electronic commerce might mean for anticompetitive policies of all types. It's just a question of thinking it through as opposed to having a recommendation.
Now let me make my third comment. Maybe this goes directly to Dick's point and more broadly this whole general area. I'm still not convinced after reading through the material in our binder that antitrust policy in most of these areas should be pursued or whether trade policies would be more effective. That's the question I wanted to make sure that we somehow address. Most of the questions that were being posed already can be largely addressed through trade policy today. They may not be done effectively and maybe we need to strengthen trade policy considerably to deal with some of the questions that Dick was posing. But there is the question of do we really need to have a strong separate competition policy when trade policy can handle maybe 90 percent of the problems, if trade policies were appropriately strengthened?
I'm not sure of the answer, but I'm not sure we've made a compelling case, at least in what we've presented so far, that the right solution isn't to strengthen trade policy as opposed to creating a separate track on competition policy. I think we need to raise the question that if we want to make a case for stronger competition policy, how do we make that case and not simply say we can address these things through better trade policies.
MS. JANOW: If I may make a request to David on this E-commerce point. I think you have great depth of experience in thinking about this emerging area. Could I ask you to please give us any thoughts you have, for example, of who might be thinking about this area, any studies you're aware of, because I think it's fairly uncharted territory in competition policy analysis, separate from privacy issues.
MR. YOFFIE: The answer is that there are no studies. There is just speculation.
DR. STERN: Informed speculation. Do you have articles or essays?
MR. YOFFIE: Nothing about the relationship between competition policy and electronic commerce that I'm aware of. That's why I'm saying that we need to puzzle through it ourselves.
DR. STERN: There's this whole discussion, following up on Merit's, on tariff-free regime, which is where we are now. And there is a very significant amount of resources being devoted by the U.S. Government in negotiations at the WTO, with WTO members, with the EU in particular, to make sure that it remains tariff free, as well as tax free. But that's a little more complicated.
MR. SIMMONS: I think that E-commerce goes beyond that.
DR. STERN: Oh, I do too.
MR. SIMMONS: Just so we agree. If I could offer an opinion, not a fact, because it is all too new. The countries who practice anticompetitive behavior, whether they be through vertical distribution cartels or horizontal cartels, will figure out a way to control E-commerce as compared to, say, the United States and some other nations where E-commerce is exploding. But you don't really think that they're going to, I say rhetorically, that they're going to allow their control to disappear simply because of the worldwide Web in E-commerce. It won't happen. They'll figure out a way so that the same people who control distribution today will control distribution and be able to maintain the kind of pricing that they choose. I just believe that as certainly as the sun comes up in the east.
DR. STERN: East of Burma.
MR. SIMMONS: And I am going to leave. Thank you very much.
MS. FOX: I have a few comments. I'll just start where David put some issues on the table. Regarding the issue we're talking about last, the E-commerce, I think you're right, we have to be thinking about this. And I just want to pose the possibility that what has happened in liberalization over the last 10 years might be some clue, give us some clue as to what countries and businesses do in the wake of liberalization.
Here I think we could draw on some of what Professor Suslow said in one of her studies. As liberalization proceeds apace, businesses that have been accustomed to having the business in their own backyard try to find ways to keep that business in their own backyard. They will try to be ingenious about it, even as we get to liberalization and we get more forces of competition. So on the one side we're saying we don't have to worry as much about antitrust because forces of competition are stronger, but on the other side we should know that business is going to try to find a way to maneuver around liberalization, or maybe simply because they're threatened by the liberalization they're going to try to be ingenious. So that's just some hypotheses.
Let me turn to David's interesting question about whether on this trade competition interface we should be thinking more about the trade side than the competition side. Let me say a couple of things that might foster that, though they could cut in the other direction. When we're talking about footnote 159 enforcement, we're talking about what the United States sees as a trade problem, not what the United States sees as a competition problem, which lends some credence to the idea that this is a trade problem.
Let me just say a few more things and see where this leads us. I loved a lot of the things that you proposed, Jim, and I think that your opening sentence was just right to say that we should be getting the conversation going to find convergence around the principle of elimination of artificial barriers to open global markets whether they're public, private, or hybrid.
I think that that is right, that that requires some additional limits, as I think you said also, on state action that is unnecessarily trade restraining. And I think fitting within that is the obligation of governments not to let their own country's businesses be trade restraining. Now you can say competition restraining but we're talking about trade restraining, and of course that's exactly where there's the convergence of the two.
And we could be thinking more -- and should also whatever we do, be thinking more about fostering some trade remedies. I think, for example, maybe someone is doing this, but we should have before us a proposal about strengthening the nonviolation violations which caused the downfall of Kodak. At least is it possible, for example, to get language on obligations of nations under the GATT-WTO where open markets don't depend upon our reasonable expectations before we found out the market was closed. And maybe where they don't depend upon discrimination. I mean, say 20 years ago in Japan there are lots of Keiretsu and the Japanese not in the Keiretsu have a hard time piercing the market and we non-Japanese have a hard time piercing the market, should it matter that that's nondiscriminatory? I think it shouldn't matter that it's nondiscriminatory.
DR. STERN: That's what you had in the auto case.
MS. FOX: Yes. And I also think that if the GATT rules are now written with a view to open markets but only open according to the expectations at the time of the negotiations, I think that they're a little out of date and that the rule should be applicable to markets that aren't closed rather than markets that aren't closed more than we had a right to expect on the wave of negotiations of lowering trade barriers.
DR. STERN: Can I build on your point about shifting the presumption of a market being open until proven otherwise? It sounded like that's what you -- you're speaking in very, very subtle terms and I'm probably vulgarizing what you were saying there. But is that one of the things you were saying, that somehow there should be a shift away from a presumption that a market is open unless it's demonstrated to be closed?
MS. FOX: Not exactly. Maybe I just don't know the GATT-WTO well enough. Kodak, or the U.S. case that was for Kodak, failed in part on the shoals of a particular provision which you all probably know better than I. To prove that Japan and Japan's trade-restraining legislation was illegal, the United States had to prove that the United States had a reason to expect that those trade-restraining laws were not there at the time we bargained for lower tariffs, and also that we couldn't win unless we proved that the laws were nondiscriminatory. The laws on their face were applicable to GATT as well as to the United States. So I think those two points ought to be revisited as to whether a proposal ought to be made to revise, to amend the GATT so that a state can run afoul of the GATT by law that is excessively trade restraining, period.
DR. STERN: Regardless of whether it's discriminatory or not.
MS. FOX: Right. If it's too trade-restraining, it should need a justification. The justification shouldn't be able to be either you knew it was there or our own people have a hard time getting --
DR. STERN: Also. Right. Okay. Building on that, it has been in the past -- again we're talking about Japan -- that some commentators have tried to say that the evidence of noncompetitiveness is that foreign investment investors have been few and far between. And that that is a telling piece that the market is not contestable. And I'm wondering if that is a criteria that should be used.
MS. FOX: Under GATT?
DR. STERN: Under GATT or under this changed GATT that you wish to usher in.
MS. FOX: I think that is an evidentiary question, and I think along the lines Jim said before, it's an interesting piece of evidence if it's proved but it's not enough. For example, again, Kodak tried to make a statistical case to say I can't get into Japan and look how much I've gotten into Europe. And that might give you some information but I surely would want to know what did Kodak do to try, and was there a problem about Japanese consumers not liking the color mix of the Kodak film because it does have a different mix of colors. So I guess I'd want a plaintiff or complainant to prove a little more.
On the other hand, there are times when statistics really do make a case and some people have led me to believe that the East of Burma case has astounding statistics about flows of trade where they're not flowing where you would expect them to flow if there were not a cartel. It is a question and we have a lot of learning in the antitrust cases, what kind of statistics make a compelling case if all things are in place where you'd expect trade to flow in a certain direction and those trying to get it to flow are unsuccessful, there may well be a good reason for an inference from the facts. I view it at the moment, maybe I shouldn't, I view this as a secondary question at the moment. I think that we have to get some bigger sort of principal policies --
DR. STERN: Well, yes and no. Because if you talk about the scope of the problem, first you have to assume either that there is a problem and how do you deal with it. But if you don't want to assume that there's a problem and would like to have some empirical evidence that there's a problem, then it's not a secondary question.
MS. FOX: I actually want to address that question, whether we need all of these stories or anecdotal evidence that amount to more than anecdotes because they're so powerful. And if we do, I would certainly want to look at what statistical evidence we have, but you have to look at statistics with a few other facts around it. Like if it turned out that U.S. automobile companies weren't making the right-wheel drives that were needed in Japan, the statistical case goes away. So you need sometimes to pierce behind the statistics.
Let me address this other question. Can you turn the question on its head and say: We're moving in the world, we're moving toward more liberalization. Lots of countries have laws that impede that flow which would be greater with more liberalization, and we're trying to move further in that direction by galvanizing the world around an open competition principle so that they and we will try to get our houses in order. We'll look to see and take on obligations to see what are our own trade-restricting laws, laws that have the effect of being trade-restricting even if they're not intended to be, and whether there are artificial private restraints that are preventing the flow from coming in.
I think that it's an obvious proposition that the world is not as liberal as it has the potential to be, that there are many artificial barriers; we can all name a lot. And some are government and behind that you suspect that some are private and we know the tendency when liberalization happens for the private firms to get together to try to put those barricades back up because they want to protect what has been theirs. This happened. We have documentation that it has happened over time, and Suslow's own study supports this too. It's really like the tendency of business to protect themselves when they are suddenly exposed to competition.
In addition I wanted to say this. Looking at it that way and thinking of trying to galvanize support around the world, which I think there's a lot of momentum going right now, so galvanizing more support around the world, eliminating artificial barriers, private or public or hybrid, if one thinks, as Jim painted it, of smaller countries and countries with emerging enterprise systems, not just the big four, five or six, countries without big antitrust laws, there might be a community of interest. Take Indonesia. There's a legacy of cronyism. The favors were given out to the cronies so there was a lot of blockage of trade and flow into Indonesia. There are a lot of people in Indonesia who would like to see their nation enter into a free market economy without goodies to the privileged. A huge number of businesses want to try to pierce through the privilege.
The kind of system where you've galvanized world support and there's some momentum in the world for the competition on the merits idea, this would be helpful to those companies. It would be helpful to the business that wants to get into the country. It would be helpful to the businesses that haven't been the cronies within the countries.
I wanted to go from there to say this: It fits with David's point about only talking about trade or competition. I think that we're talking about liberalization. If you look at the European Union, and you see when they started to talk about the problems, they are mostly talking about problems in terms of freedoms of movement although competition law is there also to work hand in hand the freedom of movement. And it is talking about liberalization and if there are barriers to liberalization, they simply want it to be justified, not to say that there can't be public policies that interfere with liberalization, but they have to be clear, out in the open, nonparochial and tailored so they won't more than necessary block the flow.
So that's why the problem is at least a liberal trade problem as a competition problem. And I know a lot of antitrust people get very unhappy when you start talking about a trade problem they say it's an illiberal trade problem. They think if you're looking at this as a trade problem you're handing over your mantle to those who want to apply nationalistic laws to restrain trade from coming into their country when it's really quite the opposite. It's a liberal trade problem and it's how to anchor down the policies of liberalization that are now in place and they're gaining more and more momentum and trying to anchor the whole world that is interested into the system.
Just one or two details I wanted to raise at this point. In accordance with that principle, which incidentally was also the principle that the Carter commission came out with, it's very close to the centerfield principle that we should all examine our own law, countries should examine our law, and get rid of artificial barriers.
Should we repeal certain laws that are artificial barriers or at least look like it? Webb-Pomerene is not an artificial barrier anymore because it's not a meaningful thing in the industry right now. But it probably ought to be repealed. And if it's repealed, the Export Trade Certificate of Review Act also ought to be repealed because the Export Trade Certificate of Review Act is for companies that don't have associations abroad and they can go to the FTC or Department of Commerce and get a certificate of review that says this is not affecting the United States in a negative way and they're free to cartelize or whatever. That also ought to be repealed. You might be spending political capital you don't want to spend.
I think it's a good idea for countries to take stock of their laws that seem to be trade restraining, competition restraining and try to get rid of them. And I think the OECD recommendation requires countries to do that and I also think that maybe we ought to take a closer look at the OECD recommendation to see what strengthening we would like to do.
The one other -- and this is a very minor point I want to make -- question I want to raise is forum. Jim, you mentioned the OECD as a forum and you also mentioned that the OECD has provided its services for mediation since 1986. So why didn't any glass company, Guardian Glass, go to the OECD? Why didn't Kodak go to the OECD? Nobody expects anything to happen if we go to the OECD. This could be a major reason. On the other hand, one might say, well, it's the best available right now.
The related point to that is to say if we recognize or think that this trade competition problem is really a liberal trade problem more akin to that than an antitrust problem, then the WTO is the most logical forum. And people might not like that, but I think that it is. And I think that sooner or later and probably sooner rather than later the WTO should and probably will contain at least the principle which is the other side of the coin of existing GATT prohibitions. The GATT prohibitions say that states must not restrain trade in certain ways, where the other side of the coin is they must not allow their businesses to restrain trade and block access to markets. We might consider, even if it's for this one point only, whether we would want to recommend such an obligation in the WTO (if people aren't too frightened of putting it in the WTO) to say more affirmatively than it is said now that states must not allow companies within their borders to block or erect artificial hurdles to market access into their countries. One would let those countries fulfill that obligation as they wish. They might fulfill it by having an effective antitrust law. They might fulfill it by having a law they don't call antitrust but having a law.
MR. RILL: Are you proposing an agreement that would then be subject to some kind of deliberative resolution of whether or not the country actually has enforced that law?
MS. FOX: Yes. It would probably come up in a particular instance, for example, it might come up in a claim that Japan has not enforced its law and is allowing its private firms to block its market.
MR. RILL: I guess the question we have to deliberate is that of fact-finding and adequate fact-finding and expert abilities within the WTO and if the country is willing to surrender sovereignty to the WTO in enforcement of policy.
MS. FOX: I wouldn't put too much of a burden on a panel, and therefore my proposals go in the direction of less teeth, fewer teeth. One way I think a country can carry out its obligations under my proposal of stronger teeth in the GATT requiring countries not to allow blockage of markets, one way is to have an antitrust law even if it's limited to this one point. You can't artificially block markets, barricade your market, and after that if there's a complaint against companies the antitrust authorities would have a duty to investigate the complaint and by procedures and practices that are recognized as seriously investigative. They would certainly have to receive evidence of the complaining country and if they have carried out what looks like their duties with due process provisions and they have applied their law in a credible way, I would not second-guess them. That's why I say it turns out to have little teeth. It's like NAFTA article 19, where the scope of review is to see whether the country has credibly applied its law but it's not intrusive more than that.
MR. RILL: Any response to Joel's challenge to be far reaching?
DR. STERN: So you bring a case but you wouldn't have a dispute mechanism per se.
MS. FOX: I wanted --
DR. STERN: Where due process has been used you wouldn't second-guess them.
MS. FOX: Whether it's been a credible application of their law but I wouldn't have them retry the case.
DR. STERN: Fair enough.
MR. RILL: Good. That's a view.
DR. STERN: Can I -- because I know we're coming to an end of this and I would just like to underline some ideas that just haven't even been discussed yet today. And I want to make sure that it doesn't fall off the table. And that is the role of the U.S.-EU agreements as a paradigm. Given the Transatlantic Economic Partnership negotiations that are ongoing with the short time frame, in fact a time table that kind of coincides with our own time table, I think that whatever experimentation that we consider -- you talk about experimentation with the mediation process at the OECD -- whatever experiment might more quickly be done within the U.S.-EU context, then move on from there into a snowball to multilateralize if it makes sense. I think the U.S.-EU relationship can be a testing ground for a lot of these ideas. I don't think I need to elaborate any further. That was one of the main points I wanted to make.
And I guess there was one other point. And you touched on it, Jim, with the role of the IMF/World Bank, and that is the role of competition policy in our foreign policy. In our foreign technical training contracts for institution building, the U.S. should encourage governance practices and processes that help assure independence of nascent institutions, and not only how to adopt technical legal principles. We had some good testimony, particularly from the Brazilian authorities on this.
MR. YOFFIE: Can I ask you one question? I want to come back to this question, using 301 versus an anticompetitive approach on a number of the issues. If you go through all of the problems that Jim started laying out around horizontal restraints, vertical restraints use of dominant position, aren't those all things that could at least hypothetically be handled under a 301 complaint?
DR. STERN: Are you looking at me?
MR. YOFFIE: You were head of the --
DR. STERN: We didn't bring this case. The International Trade Commission does not administer Section 301. The USTR does, and Merit has given us some good papers analyzing the effort of Kodak/Fuji.
MS. JANOW: Let me offer a perspective. I leave it to USTR to answer that with any definitiveness. But as you know, it was only 1988 that the definition of unreasonable practices under 301 was elaborated to clarify that it also applied to toleration of egregious anticompetitive practices. Not egregious under U.S. law but egregious under the foreign law of which the United States will be the judge. And we've had only one case that has actually been accepted and to my knowledge that had to apply that statute. So it is conceivable, surely, that with sufficient evidence that a foreign government was aware of say a cartel or horizontal agreement and chose to ignore it, then it could proceed with the 301 investigation, but to me that doesn't answer the question of would it be effective. Is it able to gather the evidence? Is that likely to generate negotiation by foreign jurisdictions to produce that evidence? Even if USTR was able, to its satisfaction, to conclude that there was a private restraint, the remedies are, after all, primarily tariff or other kinds of sanctions that violate potentially the WTO or fines.
MR. YOFFIE: Remedies are fairly open under 301.
MS. JANOW: Yes, Section 301 remedies are open-ended. We could discuss that endlessly. WTO consistent withdrawal of concessions are more limited.
MR. RILL: They tend to be market foreclosure.
MS. JANOW: In the face of unilateral measures, there's a question of legitimacy and effectiveness when associated with a response to private restraints. So those are all questions. It's certainly conceivable that USTR could go down the road.
MR. YOFFIE: I'm trying to puzzle through this question adding another layer of the potential approach of remedies that would be effectively parallel to 301. So you can imagine the potential of firms following parallel tracks and all the problems that ultimately creates and then you go back to the question, you go to clarifying strengthening creating legitimacy around 301, are we better off having an alternative track? That's the reason I'm proposing the question.
DR. STERN: Let me take a crack at that. I think that one of the diplomatic realities to date is that virtually every country in the world has objected to U.S. Section 301 law as amended in the sense that there's a feeling that the U.S. is trying to be judge and jury and maybe even executioner. So I agree with you that let's not reinvent the wheel if the wheel just needs oiling, but it may be that people have a problem being transported on this wheel at all and they may want to try a new vehicle -- a hydroplane or something. I think that is a diplomatic consideration.
MR. YOFFIE: I suspect anything we do in this area might ultimately be viewed in the same way. If we start to attack vertical restraints and horizontal restraints that are being done in certain countries explicitly for the purpose of keeping out U.S. goods are most likely to have the same kind of reaction. 301, I think, gets the reaction that it does because it's a unilateral U.S. Act. Even though the U.S. often doesn't negotiate solutions. That's a preferred approach. Here, again, it would be the same thing. Presumably we would try to negotiate some outcome and if not, there would be some remedies that would be 301-like, otherwise it would not be very effective.
DR. STERN: You can argue that many countries have affirmatively established antitrust laws, new competition laws, and so in doing that, they have unilaterally taken those on. That they have demonstrated a desire on their own part without any kind of diplomatic pressure or allegedly unilateral action by the United States so that there is, if you will, again a greater diplomatic comfort level with the competition laws than perhaps with Section 301.
MR. RILL: The issue there is commitment to enforcement.
DR. STERN: Exactly.
MR. RILL: Japan has, for example, had a very comprehensive competition law since 1947.
MR. YOFFIE: And a miserable record of enforcement.
MR. RILL: And many people would say, and many Japanese would agree, that the enforcement record has not been strong. I think the writings of Professor Iyori are a good example. What we're struggling with and have been struggling with since our inception and before is the difficulty of bringing adequate incentives to bear for the Japanese or anyone else to enforce that law. The Americans can't enforce that law through the use of positive comity and other incentives. The fact is that it may not always work, and then what happens? Extraterritoriality or Section 301 actions, I think, present a lot of difficulties -- one is not even applicable to private restraints. How can one assess tolerance and then at the end of the day I'm not sure there's authority to impose a fine under Section 301. I don't know. If there is, there is but I'm not sure there is a fine against a national authority and if Section 301 only applies to a national authority, are we going to fine the government of Lower Slovenia or are we going to simply prevent American consumers from enjoying the fruits of imports from Lower Slovenia?
MS. JANOW: You have all sorts of possibilities.
MR. RILL: None of which are very appealing.
MR. YOFFIE: 301 has the advantage that the remedies are very open-ended. The problem is whatever the remedies are, it's very hard to actually impose them and not feel some pain because usually it involves taxing the foreign authority in some way which in turn leads to taxing consumers or otherwise having some negative impact --
MR. RILL: One of the things antitrust laws can do in the case of private restraints in jurisdictions, assuming you have personal jurisdiction, is to permit the entry of injunctions, the violation of which can produce fines and for that matter be criminal.
MR. YOFFIE: The fines can only be collected by virtue of tariffs and goods coming in.
MR. RILL: They can be imposed assuming you have personal jurisdiction on individuals who violate that injunctive decree.
MR. YOFFIE: I guess that would be the difference. You probably could affect seized assets, for instance, of foreign corporations.
MR. RILL: There's a little-known provision of U.S. law that we used once in an antitrust proceeding during my time called asset forfeiture.
MS. JANOW: I'd like to put one footnote on the table. I thought when you were starting, David, that you were leading us in a different direction, which is to say when you made a distinction between trade and competition, I think there is a very robust area of trade liberalization that profoundly affects competition in a marketplace. And that is very much part of the trade agenda, whether it's technical barriers to trade, effecting standard-setting behavior, or access to deregulating markets in telecommunications or other regulated industries. I think one could go through the current and likely future trade agenda and find many features that profoundly affect the way competition operates in a marketplace and some mixture of private and government conduct. But that is different from what you then led us to, which is the 301 purely private. Whether this report wishes to speak to both --
MR. YOFFIE: I was trying to raise the broader question of thinking about the relationship between trade and competition.
MR. RILL: We certainly need to address both.
DR. STERN: Okay.
MR. RILL: We haven't exhausted it, but we've exhausted our time for trade and competition.
DR. STERN: Right, Jim. I agree. I think it's time to take a 10-minute break and then we'll go on to the cartel enforcement issues. And we certainly intend to close by 4 o'clock.
DR. STERN: Let's get back to our third and last tranche of our discussions today. I'm going to turn it right on over to Eleanor to lead our discussion.
MS. FOX: This is the section entitled Enforcement Cooperation, and I am going to make some comments causing me to change the name of the subject to Agency Cooperation. And also I want to link this tranche of our work with the other tranches because I think that it's really totally integral. Jim?
MR. RILL: I'm just trying to figure out what the plural of tranche is.
MS. FOX: Not tranches?
MR. RILL: I don't know.
MS. FOX: I think this is very integral to all of our work and it seems to have been segregated at various times. And I think that Doug Melamed made this point about integrating our work rather than putting it in separate boxes.
I'm thinking of the agency cooperation in the following way. That we're talking about transnational issues and we as Americans, but so are others, are trying to get the right level of enforcement in the world for various transnational issues. So we want sometimes to be able to enforce more and enforce better, and, in a few minutes, I will want to say that sometimes we might want to convince others that there should not be enforcement because there's not an antitrust problem.
So I want to think of the agency cooperation as part of a network of cooperation to get the right amount of enforcement in the world, and also to think of it in terms of the following analogy: since there are issues that span continents as well as being national, we ought to think about a certain amount of inter-operability of the national law. In other words, so that when it needs to fit together, it fits together better; and if there are conflicts that there's a concept for resolving those conflicts.
So what do you do?
On the point of needing to enforce more, let me talk about cartels for a few minutes. It seems to me that the cartel enforcement in the world is lopsided. The United States does an extraordinary amount of the cartel enforcement for the world. When I say for the world, I mean U.S.- plus. It might be U.S.-plus Europe or U.S.-plus one other nation. But I think that a disproportionate amount of the enforcement is done by the United States, partly because we have a very well-seasoned staff, enforcers, and very well-seasoned ideas about anticartel enforcement. And we have very strong remedies and we have very strong means of getting the information.
That has led us into those various subjects that we've discussed before about how to get our trading partners to help us with the enforcement, even if it's in terms of giving us the data to do the enforcement. And David Yoffie came up with one important idea, because one way to get them to help us is to give them incentives, and one way to give them incentives is a reward. There are other ways to get better cartel enforcement in the world, and I think we've been working on this. And one way is to get our trading partners to do more and better enforcement of the competition law. We have seen very recently that the European Community has just developed a unit for stronger cartel enforcement and, one doesn't know cause and effect, but I think U.S. advocacy against cartels may have been some spur, and that one way we ought to proceed is to get more nations to enforce against the cartel law.
Under this subject of getting more enforcement because we need more, we have been entering into bilateral cooperation agreements and we are hoping to enter into -- have more countries, that is, sign on to the IAEAA. One of the things on our agenda is, of course, how to give more countries the incentives to sign on to the IAEAA and then also how to give countries the incentives to have more MLATs.
Some have suggested that to reduce barriers to effective prosecution of hard core cases we need to increase incentives for other people coming forward and to decrease hostility of other nations to our enforcement, and some have put de-trebling, question mark, in that category. I don't know whether we want to continue this as an item on the agenda, but one thing I do want to say is if we de-trebled or decriminalized, we are weakening our incentives against cartelization. And we certainly don't want to so weaken them that we're creating more cartel offenses while getting more information to enforce against cartel activities. That would be an imbalance.
We also, of course, have on the table positive comity -- and we have positive comity agreements. We have the agreement with the EU. There may be more that can be done to help this agreement work better. Some have suggested that it would work better if there are more teeth in the positive comity agreements requiring, for example, that the country that has acceded to the request to do the investigation have more obligations to report back and tell us the state of the investigation.
Probably that issue should be worked on. I'm sure that from the other side of the ocean, say it's a Sabre-type case, from the other side of the ocean there might be claims that the enforcers need a certain amount of time and privacy before they report every detail to us, but I'm sure that we should be thinking about making the positive comity agreements stronger. We can possibly be thinking about a broader network of bilaterals -- en route, possibly, to a multilateral, if we are thinking of a multilateral.
And as we do think about bilaterals as a possible stepping stone to multilaterals, we could think of the bilaterals as vehicles for experimentation, if we have a list of things we want to do. Like take Jim's list of trade and competition matters. One could start thinking about whether there are some principles -- even mergers, merger cooperation -- whether there are some principles that one wants to launch in a bilateral situation. And one might want to add dispute resolution in a bilateral situation -- with nonbinding mediation to begin -- to launch these ideas. One might want to work out, for example, a more detailed anti-cartel recommendation, more detailed than is in the OECD Recommendation, with more obligations of the countries to get rid of excessively trade-restraining laws, or at least to make their trade-restraining laws transparent and to justify them.
Now, I want to mention the state action and the excessive state action issue. And that definitely comes up under this heading when you're thinking about, say, it's the U.S. wanting enforcement against cartels and wanting to enforce better. If the cartel is purely private, fine. Fine and we're more likely to get cooperation from the country on whose shores the cartelists are. If the cartel has been facilitated by governments, then we definitely run into problems of cooperation and, even if we have a positive comity agreement, we're not likely to bring this cooperation forward very easily.
One of the cases I keep coming back to and thinking of as an example, a laboratory example, is the Uranium situation -- the uranium cartel situation of many years ago where the United States had a criminal investigation going against the cartel and there were several private actions. I want to focus on the U.S. here.
Supposing the United States did want to proceed with its criminal cartel enforcement against the members of the uranium cartel, they faced not only noncooperation but the hostility of various countries. And that's quite understandable because the United States first had enacted an embargo against enriched uranium, and distorted the market so that there was overproduction in the world. And about five countries reacted by saying oh, my goodness, we need to have orderly marketing because there's overproduction in our countries.
And then there were various meetings between foreign country officials and cartel members because it later turned out there was a cartel. And in the United States there were various suits against the cartel members, some of which were countries themselves. There was some foreign government action and it was unclear the extent of the foreign government action that ordered or encouraged some of the cartel activity. The countries circled around their own, and they didn't even want to make that transparent at that point because everyone non-U.S. was so offended that the U.S. was suing.
My thought is we should be getting ahold of a problem like this. The number one suggestion was the suggestion of Bill Baxter: of truth in cartelization. If a country wants to facilitate a cartel, it puts it on the public record. If a company, like the Canadian uranium company, wants to join a cartel and do activity which it's ordered or advised to do by its country, that it put that on a record and say this is what I'm doing, this is what my country told me to do, country has to sign off on yes, it's what I told you to do.
At that point, first of all you would have a situation in which the companies are probably much more likely to stay within the bounds of what their country told them to do. You're more likely also to get vetting of whether the ordering country went beyond bounds in unreasonable cartel demands. And you're also much more likely to get the foreign country to cooperate with you if the company went beyond the bounds of the cartel. Also, it seems to me, then you have to see what you're going to do to forgive in some way the company that has merely followed the country's order. And this is the one area where I think that de-trebling is possibly useful, that if a company did nothing but follow the demands of its country to get together with its competitors to effect orderly marketing -- and it's all on the public record, and maybe the United States hasn't been successful in challenging it under trade-restricting state action -- then probably there should not be a treble damage remedy. So you'd probably get rid of the hostility and you'd probably get more cooperation.
Another subject I wanted to turn to is the possibility that there can be overenforcement of law. We were talking about underenforcement of law, or at least we need more cartel enforcement. If it's a cartel, we need enforcement. But there's also the problem that law can be overenforced. And here I would see the United States as having an advocacy role, which I think it has taken in the past. But it's a very good idea to have communities of enforcers talk out certain problems and think about the scope and limits of antitrust law. An example would be the IBM case in the 1980s. When the United States decided that it was really anticompetitive to proceed with that suit and the EC proceeded and got a settlement agreement. At that point there should be a lot of advocacy and interaction.
Maybe our agencies are pretty good at that. In the 1980s I think they were pretty hostile to each other. I think in Boeing, for example, there was not hostility when our enforcers spoke with each other knowing that they were on different wavelengths about what was a violation. And I think a useful aspect of agency cooperation is to pave the ways for calmly, dispassionately conveying one another's views and really trying to understand one another.
So this just brings me to the last point which is about general competition advocacy. I think the United States agencies actually have played a very strong role on competition advocacy and surely they should continue, so I'm not sure what is new here. But I think that we should consider what further recommendations we can make along these lines. I would think it's not just the U.S. agencies who have an interest in this. In fact, one should think that probably most agencies around the world have accepted competition policy as a good thing and would want to be advocates for competition policy.
One recommendation that Merit suggested to me, which I thought was a very good idea, was to have more technical assistance programs. We do already have technical assistance programs, but more support of programs that could cause seconding of officials so that people can become more cosmopolitan -- that people who are trained in the competition law can actually have been in various systems and understand how various systems works and be part of conversations in various systems -- so that technical assistance programs will lead to developing broad ideas of competition policies through this interchange.
One idea is to expand a stagiaire program. Another thought I had really even goes to prior stages of education where, for example, my students -- and sometimes they do become a référendaire or a clerk at the Court of Justice, the EC Court of Justice, which has a considerable number of competition cases but not all competition cases. But I think that the more that we get this interaction, this cross-fertilization, the understanding of other systems, the more we will develop as a world community in favor of competition, the more we will develop both the understanding and the commonalities.
So, are there comments and contributions and recommendations that we should be making that I might not have mentioned?
MR. RILL: Gary Spratling has suggested an extension of the Mutual Legal Assistance Treaties that we have with Canada to other jurisdictions. Is that something we ought to be thinking about?
MS. FOX: Yes. I didn't mean not to mention that.
MR. RILL: Not a very dramatic recommendation, although I suppose some would think it is. But nonetheless is that something that ought to be on the table?
MS. FOX: It should be. I meant to mention it in the same breath. MLATs, bilaterals and the same for IAEAA Agreements. These should all be on the table. But I don't know what's new that we'd be recommending. They are points of interest of our agencies and we've been trying very hard. They have been trying very hard.
MR. RILL: Another recommendation that Gary has put on the table is expansion of extradition treaties, so that we can get extradition of antitrust criminals from other countries. I don't know what the international reaction to that proposal might be, but I wondered if you have a thought of putting that on the table.
MS. FOX: I don't have a thought of putting it on the table. I would have to hear others out on it. I'm a little concerned about extra efforts along criminal lines, especially because extradition has special international implications and complications.
MR. RILL: I'm trying to think if there are other issues. Once again confidentiality, of course, rears its head. The thought is there is less rectitude in a confidentiality claim by a cartel member than perhaps by a merging party.
MS. FOX: Yes. Incidentally, when Tom Donilon suggested information exchange agreements with respect to mergers before, and suggested that the staff might work out a model for information exchange agreements, I actually thought at the time and would suggest now that that be expanded generally. Information exchange agreements generally with the privilege and confidentiality points covered as thoroughly as possible.
MR. RILL: The American Bar, International Bar, and International Chamber of Commerce have volunteered or at least their leadership have volunteered to do some work on the whole confidentiality issue, and we look forward to getting that.
MS. FOX: Are they doing it only with respect to mergers?
MR. RILL: I think it's got to be more broadly based than that.
MS. FOX: I hope so, because we need it as broadly based --
MR. RILL: I think it is designed to be more broadly based than that. I'll be very candid. I get the impression that there are a lot of controversial issues, a lot of interesting issues, a lot of discussions that we're going to be having in the merger and trade and competition area. I have a feeling that where we're headed with the enforcement or agency coordination is sort of in the direction of more of the same. That's not bad. I mean, if that's where we come out but I don't see anything radical coming out of that. Plus we advocate that every country have a criminal antitrust law.
MS. FOX: I think, however, that when we think about the cooperation issue that mergers should be under that heading, not a different heading; that cooperation and mergers is a part of agency cooperation.
MR. RILL: As it is in trade and competition.
MS. FOX: As it is in trade and competition. That's right.
MR. RILL: When we deal with those within those segments, and then when we get over to enforcement cooperation we sort of focus on hard core cartel enforcement cooperation. And nobody has yet come to us to testify in favor of hard core cartels. When that happens I think maybe we can get some debate going, but I'm not holding my breath.
MS. FOX: The one area there is the extent of government action defenses. And I'm not sure where in our report we'll bring that in, but I agree with your statement on government action defenses before. It should be brought in, and there should be a reexamination of what seemed to be excessive and trade-restraining government action. I have suggested that I think it could be along the lines of the combination of the European Community rule for its internal market, when it finds Members' trade-restraining actions impermissible -- a combination between that and some of the U.S. law like Midcal Aluminum. And we should think about whether we actually want even to shrink some of the defenses available under U.S. law.
MR. RILL: I'm ready if you are.
MS. FOX: Yes, I'm ready. I think, for example, Southern Motor Carriers is a state action case that allows much too much room for anticompetitive action.
MR. RILL: I agree. But there it is. The Supreme Court said it and our last --
MS. FOX: There it is. So if we made a recommendation on it, it's bold because it would require a change of law. But I think that going into a global economy, or more and more in a global economy you do need a change of law because if you look at the action of a state within the United States you can always say, as the Supreme Court did in Southern Motor Carriers, well, if you don't like the restraint, there can always be federal law that preempts and cuts back the restraint. Or you could vote out the Congresspeople. But if you had a state action which is beggar-thy-neighbor, you have no process.
MR. RILL: I haven't seen people demonstrating in the streets against the state action exemption.
MS. FOX: But if you notice, it comes up in almost every think-tank group that considers the problem. There's, first of all, an awful lot of deference given to the state, and the point is that where you have a beggar-thy-neighbor restraint, which is the harm is outside of the state, and you don't have the democratic process to cure it within, as we do in the United States, you have a more serious problem.
MS. JANOW: Let me raise one question. The point was made earlier, that the hard core cartel recommendation of the OECD is an area of consensus and that it might find its way to the WTO, or there might be room for taking areas of consensus. But even if you look at that one recommendation, note that it carved out government-exempted cartels.
So I guess my question is how would this Committee think about narrowing? It's easier to narrow looking at our own law and experience, but as you were thinking about how one might encourage narrowing by other jurisdictions, do you have any thoughts as to how we might do that, what would be the principles by which one would propose doing that and what would be the incentives to countries?
MS. FOX: One might think about it by taking examples, and I think Len Waverman's example of ETSI was a very good example to start with: where you have private industry forming standards in a network industry where if you have one standard the people following that one standard are going to get more users adopting their standard, and people trying to compete with another standard might find themselves totally out of the market. So there you had private industry in Europe only, a trade association that admitted only Europeans, deciding on the standard and then, as Len Waverman said, this will probably go to the European Parliament. The European Parliament would probably sign off on the standard. The way he posed the problem was this is very anticompetitive and there was no process that admitted non-Europeans even to making the standard.
So I would say in a problem like that, one should think about whether it's impermissible to have state -- I'm calling the European Union a state -- state action that rubber-stamps a private industry cartel? And whether you could write a principle which is also in the U.S. law, if it's a state of the United States rubber-stamping the cartel, you could write a principle that state action is not recognized where it simply rubber-stamps and does not in effect sit as a commission to understand the problem and adopt a rule?
MR. RILL: This brings up a point that Doug Melamed has made from time to time: that these could be double-edged swords, depending on the details of the case. We're making a lot of assumptions and many of them may be counterfactual. But Japanese television manufacturers might very well say fine, the decision of the private Advisory Committee to the FCC to go into digital instead of analog or digital HDTV is preclusionary of our analog standard for HDTV and all the FCC is going to do is rubber-stamp it. Therefore we ought to be able to bring our case.
DR. STERN: I might add to that a situation in which you get an industry leader or group of leaders making a standard without the rubber stamp, if you will --
MR. RILL: Well, they're vulnerable.
DR. STERN: -- of the government. But merely saying it's a standard, that doesn't preclude other people from adopting the standard. In other words --
MS. FOX: If it's a standard without a boycott.
MR. RILL: When I say they're vulnerable I overstate. I say they are vulnerable if they then engage in an unreasonable restraint of trade through their standard.
DR. STERN: No. I'm saying they are saying we're going to set a standard and you can follow it.
MR. RILL: Happens all the time.
DR. STERN: Happens all the time. Now, are we talking about a problem here that can be acted against when you get a government authority rubber-stamping it that precludes or discriminates against actors who are not from that country, that are not European in your case? It's a very slippery slope.
MS. FOX: It's difficult. They're very difficult problems. But one way to handle a piece of it -- Merit, you were mentioning to me before -- is there is a provision in a WTO agreement that apparently could go farther with respect to trade-restraining standards. But I don't know what you can do to justify it. There has to be some ability to justify a standard. And you might mention that or else the staff could write us a proposal if there is a provision that ought to be strengthened because it allows anticompetitive standards that are not justified. There always has to be room to justify some kind of standard.
And then if it's justified, it has to be transparent. And also it may be the case that companies can take maximum or minimum efforts to make it hard for others to get into their market if the others don't have the standard -- and they should take the least anticompetitive.
MR. RILL: You know where we're running a risk here, it seems to me? This is a role issue for us. Areeda/Turner, Areeda/Hovencamp are now into, I think, volume 12, 13, 14 of their treatise. If we start getting into the rule of reason analysis of industry standards and starting to parse every antitrust issue, (a) we're not going to be finished in a year; (b) we're going to have a 12, 13, 14-volume work when we're finished; (c) I'm not sure we're going to add anything by way of recommendations. So what we really need to do, I think, is focus on the global implications and the recommendations of what we're doing. Our conversation is interesting but drifting off into what are legitimate standard-making activities.
MS. FOX: You're right. We shouldn't drift off into that but there are some principles that you can draw out of a problem. The one I started with which I thought was easier --
MR. RILL: I'm not being critical. I was doing it too.
MS. FOX: -- is the gauzy cloak. There are a few standards that we can propose. And one could be not recognizing action as state-compelled action if it's a gauzy cloak over private cartels. It's really naked. It didn't get clothing on by reason of parliament's rubber stamp. That's one.
Another that I think we ought to take on is when a state, which is sometimes acting as a market player, does something that is rather obvious that keeps the foreigners out of the market or prefers its own, and somehow it falls between the crack and isn't caught by GATT-WTO. This is an area where it's important to know what is caught by the GATT and whether there is a gap, which I think there is, where state action protects the private firms and it's looked at as private action under the GATT and not caught. But it is anticompetitive and excessive state action with spillover effects that are clearly not necessary to achieve a nonparochial national end.
I can give you some examples especially from European law because the Europeans in their internal market deal with this kind of problem every day, and they have substantial jurisprudence. So I could give some examples that would just go under that general principle. And indeed it seems to me, as this is the next step in the OECD Recommendation, of course, it would be predictable that no agreement could have been reached on the OECD Hard-Core Cartels Recommendation if that Recommendation also said, "and all you nations have to get rid of your anticompetitive law." That's not necessary, of course. But I think it's like the pregnant clause, with the clear next step to start attacking that because government action is just much more serious than private action.
MR. YOFFIE: I only have two comments. I definitely agree that we shouldn't stray into standards-making. It's a very murky area and we will run into trouble very quickly.
Second, we should be very sensitive to looking at cross-issue recommendations, because I think they'll have more power if we can do that. It's like what Eleanor was saying earlier. Information-sharing, for instance, is something that is going to cut across virtually all these areas. We don't want to compartmentalize it. We should think about constructing some recommendations that will, in fact, cut across all of our issue areas.
Confidential information-sharing is one, and I think it's worthwhile thinking about what are the other things that will cut across all of the issue areas and give the set of recommendations that we have potentially more power.
DR. STERN: Transparency maybe.
MR. YOFFIE: Maybe transparency. That's come up in several different contexts. I would have to go back to my other notes to see what are the other issues that might cut across all the various issue areas.
DR. STERN: A little of that relates to your core principles that you have articulated in the tab that's attached.
MS. FOX: That's right. It's called market access but it doesn't have to be just market access.
DR. STERN: It's in the tab on market access, that very last tab.
MS. FOX: And it definitely doesn't have to be limited to market access. It's things like we should have certain agreements on transparency and certain cooperation, et cetera. You might like some but not all of the principles, but they do cut across.
MR. YOFFIE: Right. The third thing comes back to Jim's point about whether there is anything novel or new in this area. I think the answer is probably no, because if we're going to focus in on hard core cartels -- it was amazing to hear the consensus when we had the people here in the last session. Everybody agrees that hard core cartels are bad and that they're all willing to help in the process.
However, I'm going to come back to my favorite recommendation, despite the criticism, and pose the question whether we can consider some alternatives that might be more palatable in the longer term. The way I originally constructed the idea of positive incentives was constructing an incentive like a bounty, essentially, which I think was being construed as a bribe. In other words, what the foreign officials at our hearings were all saying is that they would be perceived as having taken a bribe from the United States in order to betray their local companies. That clearly is not the right way to construct a set of positive incentives.
DR. STERN: You've had some diplomatic training in the last hearing.
MR. YOFFIE: I understood that quite clearly. On the other hand, there might be other ways in which we can still create the same kind of positive incentives. I would like the staff to think of a couple of alternatives. Let me throw out one to think about.
One possibility would be to say that part of the funds that we collect as part of the damages would be put into a multilateral enforcement fund. In other words, for future actions against hard core cartels there will be a fund that will be available to be utilized not only by U.S. resources but other resources. We would be building up a set of resources that would be available to attack future problems rather than rewarding a particular action in the past. And then it would be perceived as a multilateral fund, the equivalent of creating, like, a multilateral agency or something that would be available to do this. Maybe even the first step towards the creation of a multilateral force or agency of some type in the longer term.
MS. FOX: Do you think this would induce them to sign an IAEAA?
MR. RILL: Couldn't hurt. It's an interesting idea.
MS. FOX: It is an interesting idea, but I'm just skeptical as to whether it's really going to induce them to do something they wouldn't otherwise do because they don't see the fruits of it right away.
And one other thing I want to say about IAEAA is since the United States has the best discovery resources available to it in the world, you would think that other countries would jump on being able to get the United States helping with their discovery -- because they have more to gain by using our enforcement discovery resources than we have to gain from using their discovery resources. We come up and have the power to come up with much more documentation.
MR. YOFFIE: I think we need to think about this in the longer term. Remember, we're looking over a 10 or 15-year period. Now imagine that we can set aside, let's pick a number, 20 percent towards future multilateral enforcement. If you continue collecting fines at the rate the DOJ is collecting fines now, you could actually build quite a war chest that would be potentially available in the future.
In other words, it may not induce immediate cooperation or immediate change in behavior, but people see that there is money dedicated to enforcement. When the United States makes a request, and foreign authorities argue they don't have the resources to assist, there could be money set aside to make that happen. Again, I'm thinking more prospectively now rather than a reward for specific behavior.
The other question is whether in our hearings we were talking to countries that are least likely to be interested in sharing the consequences of a remedy. I would imagine that many of our problems are not with Europe. I should ask the question: Europe versus developing countries, where are the problems greatest in terms of getting cooperation on hard core cartels?
MR. STARK: I don't think the issues tended to arise as much in developing countries. It tends to arise in those countries where major global firms are based.
MR. YOFFIE: So it's home base as opposed to operations.
MR. STARK: I think so. It would be the location from which the cartel activities are directed.
DR. STERN: Do you include OPEC in that?
MR. YOFFIE: Yes. I would have included OPEC in my definition of potential countries that might be interested. The other question we should be thinking about is: Are there other incentives besides money? Other positive incentives the United States could be offering in order to induce cooperation? I'm coming back to Joel's suggestion of thinking out of the box. What are the other benefits, political, economic, technical?
DR. STERN: We were talking about this kind of technical advice, this fund could be used for that.
MR. YOFFIE: Rather than giving money, there may be other mechanisms by which we can make it more attractive for the creation of a cooperative environment.
MS. FOX: I think we need the data to know, to the extent we know, why all of the countries that we visited and hoped would sign on to the IAEAA didn't. And maybe it's only intuition as to why they didn't, or maybe it's express words as to why they wouldn't. Of course, confidentiality of information was always one of the things that would come back to us. People were of afraid of the loss of confidentiality of information. Beyond that, I don't know what they said.
MR. RILL: I know what some of the foreign lawyers say, and you do too. The concern is that where there are cross-cutting issues, cooperation in a context such as mergers is going to result in information being transmitted from one section of DOJ to another and result in a grand jury review and possible indictment.
MS. FOX: That's what I meant by loss of confidentiality for information.
MR. RILL: It's grossly exaggerated but nonetheless a concern expressed by a number of European lawyers who I've dealt with in various organizations, such as the ICC.
MS. FOX: Suppose we gave them greater cause to be comfortable. Do you think they'd come back with another reason?
MR. RILL: I don't know. Take the reasons off the table one by one.
Incidentally, on your point, David, two points really. One, the states now in their settlements in the antitrust area take the settlement money and do put it into a fund for antitrust enforcement. Secondly --
MR. YOFFIE: That's good. That means there's a precedent for doing this.
MR. RILL: Secondly, I think the Justice Department probably would be delighted to have enforcement fines rededicated to Department of Justice enforcement of the antitrust laws, which I always fondly looked at as a nice way to solve budgetary problems. But we're not bound by that.
MR. YOFFIE: But again, if we're targeting this toward multilateral enforcement, as opposed to DOJ internal budget enforcement, it helps solve the problem.
DR. STERN: On the information point, I think the staff is doing a very good job of amassing some good papers that respond to this bugaboo about leakage of information.
MR. RILL: I was amused when we asked all the foreign officials, are leaks a problem in your agency? Well, gee, funny thing, they all said no.
DR. STERN: But they also didn't point fingers at the U.S., and vice versa.
MS. JANOW: Let me give you a piece of data, since this a data-interested group. We did a very quick effort to find out what kind of technical assistance is provided by the United States to foreign jurisdictions. And according to this very rough information, the Antitrust Division with the Federal Trade Commission has provided technical assistance to over 30 competition offices around the world since 1990.
And the approximate dollar amounts associated with sending short or longer-term missions are quite modest, as you would expect. The highest amount was $2.4 million in ‘95/'96. It was $300,000 in 1998; $600,000 plus in the early 1990s. So it reached a peak of $2.4 million and does fluctuate quite a bit. This is according to USAID numbers; rough numbers, I was told.
MR. RILL: I'm actually looking askance at Chuck.
MS. JANOW: This was a preliminary number provided to us by USAID. In any event, these numbers are quite modest if these are the right numbers.
MR. YOFFIE: There is clearly an opportunity to raise it, if you were to create a fund of this type.
DR. STERN: And there's an incentive to get even more information on that, if this information is still too rough.
MS. JANOW: It didn't say in which country, and it wasn't broken out by agency either.
But the fines collected in cartel cases go to the DOJ Crime Victims Assistance Fund, which is obviously of importance in an American context to show that this is not just going into the general treasury but is going to victims of violent crime. So I don't think there's anything analogous in foreign jurisdictions.
MR. RILL: That's not what I understand. David's not saying you should do it on the past offense. You're putting it into a pot that will be used to go after the next offender as I understand.
MR. YOFFIE: Right. But what Merit is saying is that currently the money is being used for this other activity. And I would be suggesting something like 20 percent be set aside for future antitrust enforcement on a multilateral basis.
MR. RILL: I think that's different money. If you carve it out, that's State Department money she's talking about.
MS. JANOW: No, I'm talking about fines.
MR. RILL: In the AID money?
MS. JANOW: No. I'm making this point about Antitrust Division fines, that they go into a victims' relief fund. So there's a public policy purpose, you could say.
MR. YOFFIE: I think we'd want to make this very specific and targeted, which would be international cartel fines as opposed to U.S. domestic cartel fines. Some percentage of those would be set aside for future multilateral enforcement that could be used to help provide assistance of monetary, technical, or other types to foreign jurisdictions to prevent this from happening in the future. And that helps solve some of the political problems, because again it will be focused on the international side. And it might make it a little more diplomatically acceptable to foreign governments, because it would not be seen as a bribe or a bounty.
MS. FOX: I don't mean to undercut this idea, because I think thinking of incentives is a very good idea, but I have this general question. Our question is: How to get other governments to cooperate when they're not otherwise inclined? Sometimes they are otherwise inclined: they see a cartel, their citizens are at stake too, they want to help. So when they are not inclined, why are they not inclined? It may be there's some kind of national policy. It may be there's some kind of lobbying of their own to get them to circle the wagons. And so I'm wondering whether we're really going to make headway.
The other question that I have is: How much information are we losing because of failure to be able to exchange confidential information when they're even inclined to cooperate but they have to hold back the confidential information? And I know of course the GE case problem, but I'm wondering how big a problem that is? So I'm wondering what both of those margins are.
MR. RILL: We'll have to look at that. I don't know.
MR. YOFFIE: At one of the earlier meetings it was said the one of the reasons for lack of cooperation was a problem with lack of resources. That may not be the main one, but that was at least one of the reasons cited earlier. Maybe it was in our very first meeting.
MS. FOX: The positive comity agreement says that we may pay. Right? It says if we ask for somebody to do discovery for us we may pay to offset their expenses?
MR. RILL: Chuck, I don't recall that being in the agreement.
MS. FOX: It's in IAEAA. It's not in the positive comity agreement. It's in the IAEAA.
So if it's in the IAEAA, we could already pay them for that. So if that was their reason for not signing the IAEAA, it's not a very good one. So I'm suspecting they have other reasons that are not on the table that we're not going to get at, but that's too negative a view to take.
I think the main reasons are our system is so different from theirs. They don't like our criminal enforcement. They certainly don't like our "you can go to jail" remedies, even though maybe they ought to, maybe they would get better enforcement, maybe there would be fewer cartels. They like treble damages less. They like our broad discovery less. They like our class actions less. It's that whole set of the discovery or remedies that make our enforcement so strong and much more effective than theirs that they culturally do not like.
MR. RILL: Do you realize what you're saying about the efficacy of positive comity? I'm not disagreeing, but think about it.
MR. STARK: Can I offer an observation, Eleanor? Would it be inconsistent with the Co-Chair's dictum about not inviting audience participation?
DR. STERN: No. You're a resource here, Chuck. All along you thought you were part of the audience.
MR. STARK: I think there are two possible responses to your question as to why we haven't gotten more IAEAA agreements and more cooperation. One is we have gotten more cooperation than it seems from the absence of a larger number of IAEAA agreements, but let me go back to the first question.
Your suggestion that there are concerns about U.S. remedies and the like may have merit, but I think even as a threshold matter before you get there, it's a question of cost and incentives from the standpoint of other governments. There has to be from their perspective a significant incentive, a significant benefit to them that outweighs the need that almost every country has to go to its legislature and get new legislation that would enable them to share information in the way that the IAEAA contemplates. And I think the vast majority of countries do not themselves extensively enforce their laws with respect to international cartels in such a way that they perceive themselves as having an ongoing need for information.
Now hopefully the demonstrations we provide about the pervasiveness of their international cartels may change that. But in the long run, I think, with respect to many jurisdictions it would simply be that from their perspective there is an absence of significant benefit as weighed against the difficulty of getting new legislation.
MR. RILL: Can I touch on that? There is an experiment that the staff ought to look at relating to Canada where the government of Canada strongly endorsed the notion of an IAEAA which has not yet been -- although I think it will be at some point -- has not yet been put to Parliament to have the authorizing legislation. And I think if one wanted to look into the undercurrent there from the Canadian Bar and other sources, one could say it's not just the government, and in Canada certainly not the government that was reluctant or tepid about entering into a greater information-sharing undertaking with the U.S. So I'm not disagreeing with you. I'm just saying it occurs to me that that is worth looking at, because it tends to touch on your question.
MR. STARK: I agree with you, Jim. What I was suggesting, Eleanor, is that for many countries that set of interests doesn't come into play because the government doesn't have the necessary incentive to make the changes that might surface them. Canada and the EU are exceptions to that. From the standpoint of their public policy, they believe that they do have an incentive to enter into those kinds of agreements. And at that point they run up against the inhibitions expressed by domestic business interests.
But having said that, I think the absence of IAEAA agreements overstates the difficulties of international cooperation, because there's been an enormous growth in international cartel cooperation in recent years, since the IAEAA has been passed. Joel alluded to much of it this morning when he talked about cooperation from Japan and Germany. And there are a number of other countries, most of these in matters that are still nonpublic, that provided similar assistance, and that number seems to be growing. So I think there is a trend in the right direction. It's just not where we're shining the spotlight.
MR. RILL: Slow, glacial study.
MR. STARK: I think actually quite rapid in the sense that none of this had taken place up until a handful of years ago, except for Canada.
MR. YOFFIE: I would still like to argue that if that's correct then we're moving in the right direction. Our challenge then becomes how do we push things along further, faster?
DR. STERN: I'm with you on this, David.
MR. YOFFIE: I don't know whether the incentives will work or not, but I think the principle of saying that the United States is going to prosecute and benefit unilaterally is the wrong principle.
DR. STERN: I think that's right.
MR. YOFFIE: And we want to create an environment in which we are saying we are trying to do things that are going to have multilateral effects and that the benefits will be shared multilaterally.
MR. RILL: Put it on the table and let's take a look at it and see if it works.
DR. STERN: And as you said, systematically. To the extent that we can, in fact, know why there have been hesitancies, when there are hesitancies, and which ones are bugaboos and which ones can be removed by virtue of using incentives, let's see if we can --
MR. RILL: We ought to see what our colleagues and our resources think about it. It would be a good idea.
MR. YOFFIE: Again, don't just stick with the one proposal that I threw out. There may be other creative ideas that we can think about that would create a set of positive inducements over the longer term.
MR. RILL: Joel challenged us to be creative. That's good.
MS. FOX: And I do agree with you, David, despite the questions I was raising. I do agree it moves us forward in an international sense, and I think that's very useful.
MS. JANOW: Let me raise another question of philosophy. There are a lot of transition economies introducing competition laws, and this Committee is suggesting that it have an advocacy role in shaping or encouraging that process to occur, even as we are talking about ways of reducing the application of those laws with respect to transactions that have de minimis effects within that jurisdiction. But it's also true that any kind of new authority in many transition environments produces its own abuses.
So then the question becomes: What role, if any, for the WTO or some other forum for reviewing not just whether or not jurisdictions are having laws and enforcing them, but whether the introduction of these new regimes is creating its own abuses? Some speak of the blessing of antitrust, others the plague; what is your philosophical reaction to that two-edged sword?
DR. STERN: One of my reactions is it's not just laws, it's institutions.
MS. JANOW: That's what I'm speaking to.
DR. STERN: And to the extent to which our report focuses -- I mean, I think that it's going to happen anyway, and so it might as well be benefiting from what our values and experience has been.
And again, I put a big emphasis on the points that the Brazilian authority, and maybe the Venezuelan raised; they said we need help as competition policy authorities in our own countries to be able to raise questions about what anticompetitive activities are occurring in other parts of our own government.
And I think that we don't have to rely on the WTO to be our megaphone. I think the U.S. has to make this a part of our bilateral dialogues with all these different countries.
MS. FOX: Jim, you look like you have ideas about this.
MR. RILL: I was just reflecting on what Paula said. I don't disagree at all. I think we're past the point of saying we're not going to advocate the enactment of antitrust laws because there are too many antitrust laws out there. But I think we do have to be vigilant along the lines that you're talking about that they're not trade regulation laws that in effect are trade restraint laws. I think the premium code prohibitions, price -- God help us, price discrimination laws that are even more rigid than the Robinson-Patman Act are being enforced. And I think the last time a government Robinson-Patman Act case was brought in this country was about 15-17 years ago and I don't think that's a bad step.
The other one that -- there's a whole range of laws of that sort, alleged intellectual property law protections that inhibit licensing. But having said all that, that doesn't mean we don't endorse the enactment of antitrust laws and be careful also not to be too preachy about it and say do what we do.
Chuck Stark in so many instances has given me wonderful metaphors. And the metaphor I take with me is we really want to endorse the enactment of U.S. antitrust principles; do we want to do it as of now or as of 1965? And where would we be if everybody had 1965 U.S. antitrust enforcement? Welcome to the world of the Von's case.
MS. FOX: I think it's an important issue. I don't think it should deter us from advocating certain laws. But I think this really means that we ought to be very focused on what we do advocate. And it's anti-cartel, and at least monopolistic or dominant market-blocking that has no efficiency benefits, and perhaps anticompetitive mergers with big spillover effects where they're price-raising in the world.
But I'm not sure we want to advocate a wholesale, just get an antitrust laws on your books, approach. When I was talking about overenforcement before, without being preachy, I think it's a valuable function to show how laws that prevent low pricing, et cetera, that find predation at the drop of a hat, can have high costs. That's all. I don't want to be preachy. I really think countries have a right to adopt their own systems, at least when they are not hurting us. Usually those unfair competition laws that are applied perversely hurt the countries themselves, and that harm doesn't have a whole lot of spillover effect.
MR. RILL: Maybe we ought to be preaching to some of the non-antitrust enforcement agency arms of the U.S. Government.
MS. FOX: That too. I would like to mention your point about overuse of intellectual property protections at some point.
MS. JANOW: We had spoken in the past about a trip this spring to test our recommendations with a non-U.S. audience. But the concept would be that some sort of trip would occur, probably in June. And that it would require blocking out perhaps three working days.
MR. RILL: Staff is smiling.
MS. JANOW: So please let me know if this is an attractive idea, and I'll put some specificity to it, and we'll be getting back to your offices about dates.
MR. RILL: I think it's important that people who want to talk to us do so.
DR. STERN: You'll get your subpoena in the mail.
MR. YOFFIE: One other thing I would say is important, given the timing of this, you'd like to feel like there was some reasonably specific recommendations, even in draft form, that would be tentatively available for discussion. You have to be very concrete. Much further along than we are now.
MR. RILL: I think we've made a lot of progress today. I think we're into talking about a lot of potential recommendations.
DR. STERN: And everything that was in this book that nobody objected to -- oh, we forgot to say that at the beginning of the hearing. Silence means --
MS. JANOW: There is the question of -- not to drag this into the ground, but there will be those who are interested in speaking to this Committee. But the question is, also: Does this Committee wish to test its recommendations to a non-U.S. audience? And so that's also what I'm trying to put on the table here. So we'll get back to you on specifics, with the next scheduled date for this Committee to meet on March 17.
DR. STERN: I just have one teeny little thing as we do write more specifically. Going forward, this is a pure stylistic thing, and with no knocks to antitrust lawyers. There were a couple of times when in some of the papers it said antitrust lawyers felt such and such, when we went and talked to the public. I think if we could -- if indeed it's true, and I think it was, that some people had views who didn't happen to be antitrust lawyers. On that matter, it may sound a little more inclusive and may even be more compelling, so as we go forward in writing this thing.
MR. RILL: More inclusive.
DR. STERN: Now I want to thank the staff for preparing us so well for today and to thank the participation of each of the members for their input and without further ado I would like to adjourn this meeting, hearing no objection.
MR. RILL: No objection. So ordered.