MR. RILL: I'm Jim Rill and together with Paula Stern we're co-chairs of the International Competition Policy Advisory Committee. Merit Janow, as you know, is our Executive Director.
I would like to open the meeting with expressions of gratitude to both the Attorney General and Assistant Attorney General Klein and his colleagues. They had the foresight to put together this Committee at an extraordinarily interesting and, I think, catalytic moment in the relationship between trade and competition -- the global nature of business and competition policy. They have asked us to deliberate and come forward with policy recommendations for the Department of Justice and the U.S. Government as a whole concerning the role of the United States in global competition issues, from the standpoint of substance as well as process and structure,
and to put forth these recommendations within what's scheduled to be an 18-month time frame.
I'm very honored -- as I'm sure my fellow colleagues are who have been selected -- to participate in what I consider to be a seminal effort by the United States Government to pull together the views of the Committee members, accepted leading authorities with diverse backgrounds in antitrust competition policy, trade, and very, very importantly, business.
I think the diversity in experience of this Committee, the Advisory Committee, is truly remarkable, and I think that the work that this Committee will do could truly make a difference. It certainly has the prospect of significantly making a difference in the U.S. policies on trade and global competition.
I'm personally very grateful to the very eminent academics, former government leaders, business community leaders and legal experts who have agreed to take the time to make this difference in formulating advice to the United States and the United States Department of Justice on the role of the United States in convergence of trade and competition and global
competition issues in this increasingly shrinking world in which we live.
Today we have a tight agenda. We're going to hear this morning from the representatives of the Department of Justice, starting with the Honorable Joel Klein, the Assistant Attorney General. But before we turn the program over to Joel, I wonder if, Paula, if you would have some remarks?
MS. STERN: Thanks, Jim. Good morning. I'm so happy to be here with each and every one of you, all 100 percent, which is testimony to your diligence and the importance of this Committee.
I just would like to invoke again how critically important this moment is for us as an economy, and so I would also like to express my gratitude to the Attorney General and to Joel Klein for taking the initiative, or seizing the initiative, to pull us together to grapple with some very significant matters.
Over the years, the U.S. economy and global economy have changed enormously, becoming intertwined nation with nation. And during those years we have had a great deal of successful trade liberalization and
deregulation. And we most certainly not only practiced it at home but we preached it overseas in international markets, therefore making what were previously domestic markets very much international, and making what were domestic competitors very much international competitors.
So equipping the U.S. Government and updating our regulations and grappling with the challenges that these changes in international economy will mean for our laws is something which I'm hoping all of us working collectively together will be able to come forward with some very good practical policy suggestions based on the collective wisdom of each and every one of you all here.
So thank you all very much for getting together in line so quickly and now I think it's time for us to do some listening to Joel Klein and our Justice Department colleagues, who have a lot of briefing to get us all up to the same speed, and at least, talking with the same vocabulary. Thank you.
MR. KLEIN: Thank you, Paula, Jim. On behalf of Janet Reno, the Attorney General of the United States, and the Antitrust Division, I am personally delighted to welcome each and every one of you here. I cannot tell
you how much pride the Department of Justice has in having been able to assemble such a rich, diversified, and talented group of people to look at some of the most important issues affecting our economy that you can possibly look at.
These issues, frankly, are as challenging as they are important, and we're going to need the skills and talent of all of you, I think, to work through this. I think the Attorney General, in her words, said it is difficult to imagine, given the pressing schedules of the kind of people who have agreed to serve on the Committee, that we could bring so much talent to bear. I am delighted.
Let me tell you as a matter of history, this is really the third outside advisory committee in 60-odd years at the Antitrust Division. It seems to me -- for reasons I'm not sure of -- but we appoint one of these every 20 years. The first one was appointed in 1955 and that one dealt with really the substance of the antitrust laws and produced a report that even to this day is still read, cited, and discussed among antitrust scholars.
The second committee was appointed by President
Carter in 1977, and that focused on the whole issue of streamlining the antitrust laws. Antitrust enforcement in the '60s had become cumbersome and difficult, and there was a real question about its extension and where to go in that respect.
Indeed one of the current Committee members, Eleanor Fox, worked on that project as well. She was quick to remind me she didn't work on Attorney General Brownell's project. I figured that out, Eleanor. Even I was able to make that determination.
Why this Committee at this point in history? I think the answer, in a word, is globalization. In a speech by Principal Deputy Assistant Attorney General Doug Melamed not so long ago, I think he pointed out the crux of the problem, and why we need some new, creative thinking. And that is: We are essentially living in a world of nation states that are now being asked to regulate, to the extent regulation is appropriate, a global economy. And that is the challenge we face.
And so for the first time, in a sense, we need to really think through, in a systematic way, a series of unilateral, bilateral, and multilateral arrangements, the
differences in laws and policies and -- once you're on the playing field -- the relationship with antitrust and trade as well as other economic considerations. And how it is that we in America, who now stand here today at a time when our economy is the strongest in the world, it also happens to be the most competitive it has been -- and those two factors I submit are not unrelated to each other -- how, in a sense, we can export, if you will, our view of competition policy to prevail in a global economy? So that, in the broadest sense, is the assignment before you.
Just to give you some sense of the dimensions from our point of view, our Co-Chairman, Jim Rill, when he was in the job I have now, which ran until 1992, he was probably the first person to really look ahead and see what was coming in terms of globalization and the need for internationalization. He probably did more to put us on the map in that regard than anyone had done certainly until that time.
In one sense he showed his foresight; because I went back and looked and at the time probably 2 percent of our cases had an international dimension. Today which
is, what, seven years later, now probably almost a third of our cases have an international dimension. And that doesn't reflect the significance of the resource commitment, because the really big cases are often international cases such as the international cartels that my criminal Deputy, Gary Spratling, will talk about.
So we are heavily, heavily involved in these matters, and that will only increase. You read last week that there were four different enforcement authorities reviewing the KPMG merger, and that I think is a harbinger of things to come, things that we need to consider.
And I think for us in particular there are two specific challenges that we are looking at. One is our institutional capacity to enforce our domestic law in an international environment -- both practical as well as conceptual limitations; and, second, and as importantly, how when we and our colleagues and what will soon be numerous other countries review the same transaction, what problems that will create both for us and the businesses that are affected when people have different legal time tables, different criteria, different
policies, different views of international trade and competition?
At least, as we see it sitting here today, there are three areas that we would like the opportunity to brief you on this morning that are front and center on our agenda right now, but this is, I want to assure you, a very involved process.
First, the area of international cartel enforcement. Let me say I was actually surprised when we got into this at how deep and serious a problem this is right now. Gary will go into detail, but essentially what we are seeing in modern markets is an extraordinary number of international cartels, and in essentially every major city people are meeting on every continent in any nation and country to set prices and sell products at 10, 15, 20, 30 percent above fair market value.
And for us this creates serious practical problems. Because of the limitations on our jurisdictional reach, we need to depend on access to evidence in other countries, raising issues of trying to extradite people and so forth.
Now, we have had some extraordinary success in
this area. What our success has taught us is that we're just beginning to scratch the surface of the problem, and it is a serious problem for American consumers. I believe American consumers are losing literally billions of dollars a year as a result of international cartels selling a product at inflated prices.
The second issue that we can't avoid dealing with is the whole set of issues growing out of the multi-jurisdictional merger review. Everyone is aware of the intense focus and conflict that arose this past summer in the Boeing/McDonnell Douglas merger, and that the U.S. and the European Union reached divergent results, which leads to a very serious set of international issues. Ultimately, I think it was resolved in part through the intervention of the Department of Justice. But that problem, and those sets of issues, are going to continue to be before us.
As we sit here today, I found out recently that the Japanese are for the first time seeking jurisdiction to be able to review a merger like Boeing/McDonnell Douglas as well, and I suspect when you really have a global economy, you are going to see mergers that affect
product in virtually every country. More and more countries are going to want to review these. Problems for businesses that try to go through these processes are going to be serious.
On the other hand, there is a legitimate sovereign interest for each country -- since product is sold in your country -- to be able to review and consider the competitive implications of a merger. That is something both we and Federal Trade Commission discuss. As I sit here today, in the past couple of weeks I had discussions on British Airways/American Airlines matter and probably two or three others in that respect.
Then the third set of related issues are perhaps in many ways the most difficult because they go to the core of how you deal with issues of competition policy in the globalized market, are those at the intersection of trade and competition.
This raises a series of questions -- really, essentially two -- and they are: How do we effectively coordinate, blend, work out arrangements between the paradigms of trade and competition; and whether these are paradigms that will merge, whether they will have to
remain separate but respectful, and how do we facilitate that kind of process in a world in which issues of market access are critical to an effective global economy? If you have disparate market access rules, either governmental or certainly private in terms of antitrust policy, this can have significant implications in terms of the way one company can be protected at home while another company doesn't have the same protection.
We in the United States are, I think, quite vigorous in our enforcement of the antitrust laws without fear of favoritism in terms of issues of national origin of the company. And we do that because we believe our consumers benefit best by getting the product that is the most advanced at the best price. And if that happens to benefit a foreign competitor, we have been known to enforce the law in a way that does that.
I think it's fair to say not every country has the same history and tradition in that respect, and that obviously creates a disequilibrium in the world markets that we need to be aware of. As governmental barriers are coming down this is going to become increasingly important. In a nutshell, those are the issues we seek
your guidance and your assistance on.
I think, at its largest level, as I said, it really will be a question of what role is there and what methods are there for dealing with regulation of a global economy by sovereign nations, and what kind of arrangements is that going to require. Is the WTO the kind of forum that offers the necessary opportunities? Do you need a separate forum? I said this somewhat facetiously, but I think it is something that needs to be considered. Do you need a world competition organization that is charged with a different set of important priorities? Are there bilateral relationships that can facilitate these kind of goals?
Putting aside procedure, how are we going to get substantive agreement on policy? There are many developing nations that really view antitrust law from a different perspective, and in some respects who are just beginning to learn about this and how they will factor into a world trade/competition environment.
So those are the issues. There is a tremendous amount going on. It is almost remarkable in one sense that just this past week, the Competition Law and Policy
Committee of the OECD for the first time got the leading industrial nations of the world all to agree essentially on the importance of enforcement cooperation vis-a-vis international cartels. It took two years to agree on what is a hard core cartel. Can you imagine when you start to look at vertical restraints, exclusive dealing, market definition, and other important issues in other nations, what kind of congruence can one expect there?
After two years, vis-a-vis hard core cartels, the OECD recognized that there should be mutual support and enforcement efforts. We know of two occasions when we conducted a search, and on the day of that search, documents were destroyed in other countries because we had no means of conducting parallel searches in other nations. By contrast, we had one Canadian case where we were able to do parallel searches.
The WTO is in the middle of its own proposal with respect to a global competition policy. The Europeans are far ahead of us in terms of what they see as a useful movement towards possible dispute resolution. At the WTO, I think we are reluctant to bring a move toward multilateral dispute settlement.
This is the short run and we will certainly consult with you in this regard, and we are evolving here today a very sophisticated, mature relationship with the European Union, one in which there will be interstitial inputs, I suspect, as we go along with this Committee.
The primary charge of this Committee, as I see it, is to produce a landmark report and offer a vision for the next 20 years of how we move toward effective trade and competition integration and effective antitrust enforcement in a global economy.
If it is to be -- and I have no a priori view on this -- if there is to be a multinational coordination of these problems, we need guidance on the steps to get there. Premature efforts in that regard will be highly destructive. If there are meaningful bilateral ways to tackle this problem, we need guidance on both the processes and limitations. So this is a big charge.
And let me make it absolutely clear this is not a Committee we brought together to rubber stamp some series of ideas that we at the Department of Justice already have. This a Committee we hope will be able to work, think, and bring new ideas to the problems. In the
end we may not agree with every suggestion of the Committee, but it would be a waste of your time and waste of our time to pretend that we have some agenda we're working towards.
We have people from business, people from public policy, people familiar with international events, people from the Academy all sitting around this table bringing collectively hundreds of years of experience, knowledge to these problems. Give us that. Don't worry about the fact that we may create some difficult discussion at times. What we need is the best thinking we bring together on these issues of critical importance, I submit, to the future of this nation.
As I view it, competition policy will become more important in an increasingly globalized economy. I want to thank you for your time and commitment.
MR. RILL: Thank you.
MS. STERN: Thank you so very much. We're running a few minutes ahead of time which I think will give us an opportunity to get started. You'll be introducing your team to us, and I thought it might be a good idea just to go around the table and have everyone
who are Members introduce themselves, and you should just say if you have any short comments.
I want you all to know we do anticipate having the whole afternoon for discussion. That will be much more open, whereas this morning will be virtually a briefing from the whole Justice Department team.
So, Mr. Dunlop, would you?
MR. DUNLOP: John Dunlop, Harvard University. Main interests are in the world of labor, management and government interactions.
MS. FOX: Eleanor Fox, New York University. I, like the others, am very honored to be part of this group, and I am very excited about your charging statement, Joel. Conversations of this sort are going on all over the world. They're even going on in the European Union on the relationship of state restraints to private restraints. I'm very hopeful that with your leadership, we can make a serious contribution.
MR. DONILON: Tom Donilon. Again, Joel, I appreciate the honor of serving. My only initial comment would be, listening to you this morning, this may be an opportunity for us to get ahead of the problem, which is
unusual in government and which I think would be a really quite useful thing to do particularly in this area where forces are moving so powerfully. I appreciate it.
MR. KLEIN: I think in the 4 years you served as the Secretary of State's Chief of Staff, you were way ahead of the problem.
MR. RATTNER: Steve Rattner, of Lazard FrÂres, and we're, I guess, reasonably active in the merger area, and deal almost every day with a lot of issues Joel was looking to, and I'm sure we'll talk about it a little bit later.
MS. BAIRD: I'm Zoe Baird, President of the Markle Foundation. It is a pleasure to participate in this. I too join Tom in complimenting you in being ahead of the problems and thinking in advance about what Government policy ought to be, rather than responding to the next crisis we may have, like when we have a merger situation that someone attempts to block. So I appreciate the approach you're taking.
MR. RILL: Jim Rill. I'm with the law firm of Collier, Shannon, Rill, and Scott, and I would like to commend Joel on the increasing activity of the Department
in international antitrust and on the steps that have been taken to enhance global cooperation. It has been truly remarkable over the last several years.
I also, as is the case with Eleanor, am very excited about the charge you've given us and fully anticipate a full-court effort to make the contribution you look for.
MS. STERN: Paula Stern. I guess I bring the international trade piece and economic analysis to the table, having chaired the U.S. International Trade Commission and spent a great deal of time in the trade field.
I would like to introduce everyone to Merit Janow who is the Executive Director of the Committee and who has already been bearing a great deal of the burden up until now. And, Merit, why don't you say a few words?
MS. JANOW: I am a professor of international trade law and policy at Columbia University. It is a great honor for me to be part of this effort which is enormously timely and deals with problems of real immediacy, not only for the U.S. economy but the global economy. Although discussions on these subjects are
occurring around the world, I know of no other effort of this sort to bring together diverse leadership and experience, and so I'm delighted to be part of this. It's a great pleasure. Thank you very much.
MR. SIMMONS: I'm Dick Simmons, CEO of Allegheny-Teledyne, a producer of metals and composites. I've had the unique opportunity over the last 25 years to appear before Paula many times, as well as having had the perspective of the way that the world is changing with regard to trade and competition. So I welcome this opportunity. I appreciate the fact I was asked to serve. I'm sure I will learn a great deal about this blurring of the lines between trade and competition.
MR. THOMAN: I'm Rick Thoman. I'm Chief Operating Officer of Xerox. I think when you postulate a period of 10 to 20 years, one of the things that has been most interesting to me is the degree technology has changed these issues. If you think about the Internet and consumer sales over a 20-year period, how do you talk about -- there is a whole series of technology issues that I think will be relevant that I'm most interested in learning with you.
MR. GILMARTIN: I'm Ray Gilmartin with Merck and Company. We have a number of joint ventures as do many of us, across borders with French and Swedish firms. Also our industry has been consolidating with a couple of very high profile merger opportunities or about-to-be mergers which didn't occur, such as the Glaxo-Wellcome/ SmithKline-Beechum opportunity. I think they're very representative of the global nature of our industry and the kinds of business combinations and relationships that will occur over time -- and also since we are all pursuing emerging markets which have varying rules and so on, market access and competition is also of very keen interest to us.
So given our experience in these matters, we look forward to contributing what we can and, at the same time as the others have said, learning a great deal.
MR. JORDAN: I'm Vernon Jordan. I'm here very simply because Joel sent for me. Having said that, I want to say I'm happy to be here. I'm glad that he sent for me.
Joel, what you did not tell us in your opening statement is, after you have drained us of our intellect
and our creativity and productivity, you didn't tell us what you're going to do with all of this or what you anticipate doing with all of this. Is it going to end up on your bookshelf or the Attorney General's bookshelf? Are the results going to be publicly distributed? What is going to happen?
MR. YOFFIE: I'm David Yoffie, professor, Harvard Business School. I have studied international trade, written several books over the last 20 years. I also wanted to second what Rick Thoman said. We can easily get trapped and focus on commodity businesses and the existing economy as we've known it for the last 50 years. And we're at a major crossroad where intellectual property, information technology, is transforming almost every aspect of international trade and competition. So I think it will be critical for us to think about intellectual property questions because that's where a lot of the future of trade dynamics are ultimately going to be vested.
MR. RILL: Joel, I don't know whether you want to answer Vernon's question now or whether you want to proceed by --
MR. JORDAN: I want him to answer my question.
MR. RILL: -- letting the response to the question unfold in the next 18 months?
MR. KLEIN: I'll answer it. I would say there are three things I expect of the work product: a very thorough report on these issues. Already, obviously, there are some interesting ideas that have surfaced in terms of changing technology. The work product of this Committee will not only be published and disseminated, but it will be a definitive statement with respect to what is going on with these issues in the world. I think our staff is already pulling together their -- with Merit's direction -- is pulling together a great library and so forth.
I hope, Vernon, it will certainly inform, if not define, policy of the Justice Department with respect to these issues. And if that would occur, I'm hoping to take it and see if we will define the Administration's policy with respect to these issues.
Our timing is such that realistically we ought to look to somewhere in the Fall of 1999 to complete these reports and analyses and then to let us, with your
assistance, then make this the basis of policy. I don't think this is simply an academic study.
MS. STERN: It's also your time.
MR. KLEIN: It gives me great pleasure to be here with so many people on our staff, and we have one of our colleagues from the Federal Trade Commission with us as well this morning to report to you on these issues, and I do hope that in the course of this we will have time for questions and answers. That would be helpful.
First I would like to introduce Chuck Stark who is two seats to my right. Chuck is the Chief of the Foreign Commerce Section of the Antitrust Division. The Foreign Commerce Section is actually the part of the Division that coordinates all of our international efforts, and Chuck is a 25-year career veteran of the organization. He's been Chief of Foreign Commerce for some 10 years. He's not only well-written but well-known in all of the international matters we're discussing. I thought it would be helpful if he could give you some background of where we have been and where we are. Chuck.
MR. STARK: Thank you, Joel, and thank you
members of the Committee. Joel has identified vividly the issues as they face us today, and what I'm going to offer is some background on how we've gotten where we are today in three areas of particular broad interest.
First, I'll offer some history of and description of how our U.S. antitrust laws apply in the international setting. Second, I'll describe how the U.S. antitrust regime has over the years interacted with other governments because, of course, everything we do in the international area potentially impacts on the interest of other governments, and other governments have, in many instances, felt very strongly about that impact.
Finally, I'll say something very briefly about the way we, the antitrust agencies, and the Antitrust Division in particular, interact with other parts of the U.S. Government in the increasingly important area in which antitrust policy and trade policy come together.
The intensity and importance of the international dimensions of U.S. antitrust policy is greater today than it ever has been. But it has to be noted, to understand where we've gotten today, that the
application of our antitrust laws to international matters is not something that has emerged only recently. In fact, it goes back to the very beginning of our antitrust laws -- to the Sherman Act in 1890 which from the beginning has applied to not only restraints of trade and monopolization of our domestic markets, but also international markets.
In early antitrust cases -- for example, the American Tobacco Trust Case, which involved a global arrangement to divide world markets in tobacco, -- the Supreme Court confirmed the application of antitrust laws in this kind of setting.
But the case that really set the tone for the law's modern application didn't come until 1945: the famous Alcoa case which established the so-called effects test in U.S. antitrust law. Basically, it established the proposition that even foreign conduct by foreign firms is within the sweep of the American antitrust laws if that conduct was intended to have an effect on U.S. commerce, and it did have an effect on U.S. commerce.
Now, at the time of the Alcoa decision, in 1945, U.S. antitrust was, as a practical matter, the only
game in town when it came to antitrust. That's not to say we had the only antitrust law in the world. Historically, Canada's antitrust law is one year older than the Sherman Act. But as a practical matter, antitrust was an American monopoly well into the post-war period.
Because of that, and because the U.S. was unique in the vigor of our attack through the antitrust laws on international cartels, those attacks frequently came up against the interests of foreign governments. What were efforts to preserve competition in the world, from our perspective, were often seen by other countries as efforts to frustrate their mercantilist policies.
Because of that, for many years antitrust enforcement in the international context was more a matter of constant confrontation than a matter of cooperation, as it's come to be today.
Before I describe that in more detail, let me describe some of the ways in which U.S. antitrust laws do apply in international commerce. The general proposition is they apply to conduct wherever it takes place if it has a direct, substantial, a reasonably foreseeable
impact on U.S. commerce.
That can include international or foreign cartels that raise prices to U.S. consumers or allocate markets. It can include transnational or even foreign mergers or joint ventures that affect competition in the American market. It can include with increasing importance, as was recognized and noted by some of the panel members, intellectual property licensing arrangements, and it can include anticompetitive conduct here or abroad that limits the export opportunities of U.S. firms. I'll say something more about this last proposition.
The application of U.S. antitrust laws to export restraints -- that is to say, anticompetitive conduct abroad that impedes market access by U.S. firms - - has been part of U.S. law as far back as you can go. But in terms of enforcement policies, for the U.S. agencies or at least the Antitrust Division, it has been a subject of some variation.
As nobody around the table knows more vividly than Jim Rill, there was a time in the 1980s when the U.S. Department of Justice took the view that,
notwithstanding the broader scope of the law, as a matter of enforcement policy the Department would not bring cases unless there was a direct impact on U.S. consumers. Jim Rill undertook to reevaluate that policy at a time when we were deeply involved, under Jim's leadership, in the Structural Impediments Initiative talks with the Japanese Government.
We had as one of our principal objectives in those talks convincing the Japanese to more vigorously enforce their antitrust laws, which were already on the books but which were not aggressively enforced. This raised the issue as to the extent our own antitrust laws could be used to reach export restraints, one of the kinds of conduct about which we were concerned.
Jim reversed a policy that had been in place for some four or five years at that time and announced we would no longer limit ourselves in this way, and that we would, in appropriate cases, use our antitrust laws to attack anticompetitive foreign conduct that restrained U.S. exports.
It should be noted that this had long been part of the law, though it had never been the main thrust of
U.S. antitrust enforcement in the international area.
The main thrust in terms of number of cases and number of investigations we have brought has never been, for quite obvious reasons, on the kind of conduct impacting on exports from the U.S. These export restraint cases always had peculiar problems both in the terms of our ability to get evidence abroad, in terms of being able to get cooperation by foreign governments -- since we're talking about cases that are and have always been very controversial with foreign governments -- and in terms of our ability to impose and enforce remedies abroad. But this is an important area, and I know Joel intends to speak about it in greater detail later this morning.
I started to say that U.S. antitrust was at one time the only game in town. International antitrust meant extraterritoriality. That was a term that was applied by those resisting it rather than by us in our own description of what we were doing.
But that has changed radically in the current world. When we were the only game in town that was controversial. Today some 70 countries around the world
have antitrust laws -- antitrust laws that are, it has to be said, enforced with differing degrees of vigor and sophistication.
But beginning especially in the late '80s, with the fall of communist regimes and fall of the central planning paradigm and the more or less universal appreciation of marketplace economics as the ordering principle for a global economy, antitrust has come to be recognized as an important cornerstone of the regulatory structure that has come to underlie this marketplace system, both nationally and at the international level.
Increasingly, as the economy has become more global, more and more countries have come to recognize that antitrust enforcement is not an exercise that can realistically be limited to conduct that occurred exclusively within one's own borders. What was once looked at as an aggressive and imperialistic exercise of jurisdiction is now the mainstream view of most countries that have serious antitrust regimes. It is not the universal view, but on this issue the U.S., I would say, is a leader and at the same time a mainstream player in the antitrust world today.
The U.S. has developed, in order to implement this, cooperative relationships that we look at today as an increasingly important cornerstone of our program. These agreements with foreign governments go back initially to some that were designed to deal with the conflict arising out of our enforcement efforts when these were a more controversial item.
Our early agreements with Canada and Australia in the early 1980s were really designed to alleviate the kinds of conflicts that arose when our anti-cartel activities ran up against efforts by foreign governments to protect their own cartels.
It's ironic when we look at the world today, that some of these early controversies were with countries like Canada and Australia. Some of the most intense controversies, indeed, even reached the level of Presidential-Prime Ministerial discussions, in those early days with those countries.
Canada and Australia are among our closest partners in antitrust enforcement in today's world, and that is really a concrete reflection of how the world has changed over the last decade and a half. We now have
antitrust agreements in place with Australia, Canada, Germany, and the European Communities.
The 1991 European Communities Agreement was the first of what we tend to think of as our modern antitrust agreements. It was hammered out in its key elements by Jim Rill and Sir Leon Brittan, who had the competition portfolio in the European Commission at the time. It was the first of the modern agreements in the sense that it looks not only to conflict resolution issues but it also looks ahead to the need to cooperate and coordinate in an increasing number of cases that will be of common concern to antitrust enforcers on both sides of the Atlantic Ocean.
Up through the US-EC Agreement, and this applies to all of our earlier agreements, there were important limitations. That is, none of these agreements provided for what has become a more and more obvious need -- the ability to share evidence with foreign antitrust agencies that are looking at the same deals we are looking at, as well as the ability to get assistance from foreign antitrust agencies in getting evidence abroad.
All of these needs were subordinated to
provisions in our law and foreign law that made it impossible to leap over confidentiality protections in order to share evidence, even when there was a clear and common interest in doing so.
Now we recognize increasingly, as Joel has described, that we need that kind of ability. We need the ability to get evidence from our foreign counterparts; we need the ability to get evidence from foreign countries in order to effectively enforce our own antitrust law. We recognized a few years ago, under Anne Bingaman's leadership, that in order to get that, we were going to have to be able to offer reciprocal arrangements to our foreign counterparts.
That recognition led in 1994 to legislation called the International Antitrust Enforcement Assistance Act of 1994, the IAEAA, something we can say because we have been practicing it for a long time.
This is important legislation which allows us to enter into mutual assistance agreements with our foreign counterparts. These agreements have to build-in very strict protections against the improper use or disclosure of confidential business information, and
require us to ensure that our giving assistance in each particular case is consistent with our national interest.
Subject to these important protections, the IAEAA gives us a very powerful tool to cooperate with our foreign counterparts in exchanging and obtaining evidence in order to meet our mutual need to enforce the antitrust laws in these global economies.
Just last year, we announced the first of these agreements with Australia, and we hope this will be the first of a number of agreements around the world.
We've also negotiated a path-breaking new agreement with the EU -- really an elaboration of a provision that first appeared in our 1991 US-EC Agreement -- built on the concept of "positive comity." That term was coined at the time we negotiated the 1991 agreement with the European Communities. It simply means that when there's anticompetitive conduct abroad that affects the interest of the jurisdiction in whose territory it is taking place and it also affects our jurisdiction, we can go to that other jurisdiction and say: You are better placed to deal with this conduct than we; it affects your consumers; it affects our interest -- perhaps, in
particular, our export interest. You're in a better place to deal with it than we are, and we are prepared to help you deal with that conduct rather than undertake the difficult burden of investigating it ourselves if we have the confidence that you can and will adequately deal with it.
This is in our '91 agreement with the EC, and we have now worked out -- subject to final approvals and, we hope, very soon to be put in place -- this new agreement that will elaborate on this concept and put much more stringent assurances that this will work with the European Union. It was spearheaded by Joel and his counterpart on the EU side, and we think this concept has tremendous potential in the future where conditions for its use are right.
Very briefly, let me say something about the way in which we work on a multilateral level. Joel has referred to the OECD as the most important forum historically, because it's a forum in which industrialized countries with established antitrust regimes get together, at senior levels, to work out ways to work more effectively together. Recently at the OECD,
as Joel described, officials met and reached an agreement on international cartels.
I'm not sure Joel mentioned that this was a U.S. initiative. It was hammered out in a working party that Joel chaired and into which he put tremendous personal initiative. It was a pleasure to work with him on that, an initiative which will have an important impact in the years to come, I think.
We are very cognizant and committed to the work that is going on in the WTO, looking toward how to deal with the interface between trade and competition policies, and examining how that work should proceed in the future. This area is a most important one and an area that is unresolved.
Finally something about how we work within the U.S. Government in the area of trade and competition policy. This is an interface which is increasingly important but one with which we and our counterparts on the trade side have been dealing for many, many years.
We tend to come to it because, as an Executive Branch agency, we are part of a network within the Executive Branch which deals with the intersection of
international trade and competition policy at both the policy and legal level. We come into this in part because the many arrangements that our trade negotiators work out are arrangements on which they need advice to make sure they are consistent with U.S. antitrust laws.
It is sometimes observed that one person's solution to a trade problem is another person's cartel. We work with other agencies in making sure these arrangements fall on the right side of that line, and it is an important function on which we provide advice at the policy level, too.
There has been a growing number of instances in which U.S. firms have identified the problem of anticompetitive behavior abroad as an impediment to their ability to fairly compete in foreign markets. This is an area where the intersection of trade policy and competition policy is not yet fully developed, where both we and our trade colleagues have an important stake, and where we have worked closely to advise our trade colleagues and find solutions to come to optimum solutions which bring together and reconcile the diversity of interests that the United States has in this area.
The Kodak-Fuji dispute is the most recent and most well-known and vivid instance in which we worked together, but it is not a unique instance at all.
This background, I hope, will help set the stage for what we're talking about this morning and over the next 18 months.
MR. RILL: Joel, if I may. Chuck, thank you. Let me tell those who don't know that Chuck is unduly modest regarding his own role in the 1991 US-EU Agreement. The real work was done between Chuck and his counterparts and the competition director of the EC. Chuck still has his job; his counterpart is off somewhere else. I don't know what that says.
Chuck, I think that was extraordinarily valuable to me, and I hope to my colleagues. I wonder if it would be possible, while the thought still occurs to me, if you and the Division could put together not merely what Chuck said but some kind of briefing memorandum that gets into the history of the global competition involvement of the Antitrust Division? For those of us who are lawyers, maybe also an appendix with cases that
basically summarizes the story, perhaps from at least 1945 forward, so that we can have before the Committee the context in which we're working, at least insofar as the Department of Justice is concerned. We tried to put some of that together back in the early '90s. I think there is a lot written but it is scattered. And if it were put in one place, it would be very helpful.
MR. STARK: We'd be happy to do that.
MS. STERN: May I ask at some point if you could provide me, at least the Committee, the cases, the list of cases -- Joel, you mentioned the increasing international flavor that -- and if there is some kind of a list that can give us that, it would be helpful. Thank you.
MR. KLEIN: I think you'll get more of that as we go forward and as the people give us all the background material on it. Thank you, Chuck.
Let me now introduce Gary Spratling who is the Deputy for Criminal Enforcement at the Antitrust Division. Gary is a 27-year career veteran who has prosecuted many cases and is widely viewed as the most decorated career official in the Antitrust Division. He
has just received a special one-time award today, given out by the Attorney General, for his work in criminal enforcement in the Department of Justice.
He was selected this year by President Clinton for the highest Presidential rank award given by the United States Government. He has been chosen as antitrust lawyer of the year in California this year. I only selected this year because it was actually a bad year and I didn't want to take up all your time. He is an extraordinary public servant. While working for the Division, he also served as mayor of Tiburon where he lives and --
MR. JORDAN: Where?
MR. KLEIN: Tiburon. Is that acceptable?
MR. JORDAN: I just never heard of it.
MR. SPRATLING: You've missed a wonderful city.
MR. KLEIN: It's a place on the hill that overlooks the bay in San Francisco. And the only thing I would say is really his efforts and the people working with him in busting open these international cartels have been truly extraordinary, and he's going to have a chance to report in detail on this.
But I know, from the Attorney General's point of view and throughout the Administration, his work is sort of featured as a great career prosecutor. It is my pleasure to introduce Gary Spratling.
MR. SPRATLING: Thank you, Joel. Vernon said he was here because Joel sent for him. I'm here because Joel told me to be here. But, I want to tell you it would be hard to overstate how much I was hoping Joel would tell me to be here. I'm absolutely candid when I say I'm honored to be sitting at a table with the rest of you.
The Antitrust Division's criminal enforcement program has gone international, and it's gone international in a big way. We haven't yet developed a recruitment poster that says "Join the Antitrust Division and See the World," but if we did have such a poster, it would fulfill its promise.
We look at the enforcement of the United States antitrust laws against international cartels as one of our highest priorities. We take that priority very seriously. And the reason we take it so seriously is because we have found out in our investigations and
prosecutions that international cartels pose a greater threat to American businesses and consumers than their domestic counterparts. And they do so because they are generally more sophisticated and they have much broader scope in terms of geographic area covered, in terms of the number of victims, and in terms of the amount of commerce affected.
And so we have trained a huge amount of our resources into the investigation and prosecution of international cartels.
Let me pass in both directions around the table a few facts about our international enforcement effort.
You will see, in looking at the first full subtitle, "Grand Jury Investigations," that we currently have 25 sitting Federal grand juries looking at international cartel activity. That, of course, is the highest in the Division's history and under any standard is an extraordinary number of grand juries looking at separate international cartels.
The subjects and targets of these investigations are located in over 20 countries on five continents. But even those numbers, as impressive and
surprising as they are to someone like me in the enforcement field for a long time, still don't capture the real geographic scope of cartel activity currently in the world.
To give you a better idea of that, we've prepared an exhibit.
MR. KLEIN: See what happens when you have a criminal trial lawyer.
MR. RILL: That reminds me of the Division's Pacific Coast Office.
MS. STERN: I thought it was very California, very Tiburon.
MR. SPRATLING: This is a map of the locations of international cartel meetings affecting United States commerce. Each numbered location is a city in which a meeting occurred among cartel members to fix prices, allocate volume, carve up territories in the world that affected United States commerce. We have colored in yellow those countries where meetings occurred and provided to you a list. I won't go over the list, obviously, of the 60 cities, you can read those at your leisure.
But one thing to appreciate when you look at this chart of 60 cities where cartel members have gotten together and divided up the world in order to fix prices, is that we have only listed the cities in cases we've already brought or in cases where prosecution is imminent. We haven't listed the cities of all the other investigations that we have under way; if we did this would be a much larger list.
Some of the cities have a lot more meetings than others. Paris is a great place for a meeting. And Geneva, I don't know what it is, but there is something about Geneva, there are a lot of meetings there as well. You can see most of the countries of Europe have hosted these meetings. The United States has certainly hosted them as well. Does that give you a feel of the amount of this activity that is going on in the world and the dimensions of the investigative effort that we're undertaking in order to prosecute these?
MR. JORDAN: It does make you appreciate Paris more, doesn't it?
MR. SPRATLING: The volume of commerce affected by these conspiracies is also very large. In a number of
our investigations, the volume of commerce affected is over $1 billion a year in the United States and certainly a lot more than that worldwide.
That's true, for example, in the case that we filed just this last Monday, a case in graphite electrodes. That's the first of the cases to be filed in that investigation and we expect there will be a number more. And in a large number of our investigations, more than $500 million in commerce per year is involved. In over half of our investigations, over $100 million in commerce is involved.
And you multiply that times the number of matters that we have under investigation. And when Joel said in his introductory remarks that it is his belief that international cartels are costing American consumers billions of dollars a year, it is very easy to extrapolate and make the calculations to come to those numbers.
I personally think that the statistics that give the greatest appreciation for the expansion of our international enforcement effort are the statistics about the number of foreign defendants, both corporate and
individual, in our cases now compared to previously.
If we go back to 1991, the number -- the percentage of our corporate defendants that were foreign-based was 1 percent. The number of individual defendants that were foreigners was zero percent.
If you go to the fiscal year 1997, those figures are 32 percent of corporate defendants were foreign-based, 32 percent of individuals. And if you look at the first five months of this fiscal year, which is as far into the fiscal year as we are -- our fiscal year starts October 1st -- counting the case we filed yesterday, 48 percent of corporate defendants are foreign-based and 29 percent of individual defendants are foreigners.
MR. JORDAN: To what do you attribute that.
MR. SPRATLING: If you'll allow me, Vernon, I'm going to get into the reasons we think that's the case, and the reasons why we're successful in just a couple of minutes.
MR. JORDAN: Okay.
MR. SPRATLING: During the break I'm going to hand each of you an 8 and a half by 11 copy of the map,
but I won't take the time to pass that around right now. I do want to pass around another exhibit which I'll pass in both directions.
This exhibit we think demonstrates the magnitude of the threat to American businesses and consumers that are represented by international cartels. The largest cartels, because of the way our Federal Sentencing Guidelines work, that is, those that affect the greatest numbers of consumers, are the ones that result in the largest fines against the individual companies.
This chart shows the Sherman Act violations yielding a fine of $10 million or more. In one sense it might be misleading because the Archer Daniels Midland fine really represents two fines -- that $100 million fine is comprised of separate fines of $70 million and $30 million. They're penalties for violations in the lysine and citrus acid conspiracies. This represents --
MR. RATTNER: The earliest case in this is late 1995?
MR. SPRATLING: That is the first time we have a $10 million fine, ICI Explosives. You see the second
fine under the dotted line, that was late August 1995. That was a domestic case. In Dyno Nobel, on the next line, the total fine there was $15 million. There were separate counts, one for 10 million, one for 5 million, and that case was filed in September of '95.
MS. BAIRD: Is this complete since then or are all the fines over 10 million?
MR. SPRATLING: These are all the fines and that includes the $20 million fine obtained yesterday against Fujisawa, about five down on the list, a Japanese company. So this shows all the fines.
MS. BAIRD: Here is my question: These fines are actually small compared to security fraud cases. Does the statute need to be changed? Are the fines in the Sherman Act cases just much too small? Is that a question we ought to look at here?
MR. SPRATLING: Joel and I are formally requesting the Sherman Act fines be increased from 10 to 100 million -- that is reported today in U.S.A. Today and Reuters and other publications. Yes, we do think the fine is too small, and you have pitched such a softball to me, if I tried to hit it, that I would spend much of
my time on it. Yes, it is too small and all of these fines would be larger, all of these fines at $10 million or above would be larger if we weren't forced to adopt a separate methodology to get this fine level other than the methodology provided under the Sentencing Guidelines. I have to take one minute to explain because I see some puzzled looks.
Under the Sentencing Guidelines, the fine against corporations is based upon volume of commerce. However, the Sentencing Guidelines' calculation is capped by the statutory maximum which is either the $10 million Sherman Act fine or double the gain to the conspirators or double the loss to the victims, whichever is higher. Anytime, under the existing statute we ask for fines above $10 million, we are either forced to prove or required to negotiate with the defendants what double the gain or double the loss is likely to represent, and explain that to the court in order to get above it.
The effect of that is that the larger corporations, and those that affect the largest amount of commerce, and those that have the most victims in the United States, are the ones that are treated, relatively
speaking, the most leniently under the Sentencing Guidelines because they are taking the benefit of the cap of $10 million in the statute, which has not kept pace with our prosecutorial activity.
And something of which I'm sure, when we amended the statute in 1990 to $10 million and came out with the original Guidelines in 1991, no one at that time -- and I certainly worked on it and Jim Rill worked on it who was such a tour de force in getting the Sentencing Guidelines for antitrust so they would be based on volume of commerce -- none of us anticipated we would be at this stage today where every one of our international cartels would be far above this max.
I did get side tracked more than I wanted to.
MS. BAIRD: I appreciate it. Thank you.
MR. SPRATLING: A point I wanted to make with this chart, my main point was if you count the very first entry as two instead of one, that is two fines instead of one, look at the countries where the defendants reside or their parents reside that have engaged in the international cartels. Out of 15 entries, counting the top entry as two, 12 are foreign. Again, it indicates
the dimension of the problem and seriousness of the threat to the United States.
MS. FOX: I wonder if you try to estimate the cost of international cartels to world consumers as well as the cost to U.S. consumers? If the fine is based only on the impact on U.S. consumers, we may not deter the cartel.
When the U.S. Justice Department prosecutes a world cartel, it is a kind of surrogate attorney general for the world.
MR. SPRATLING: It is a very complex issue because the Sentencing Guidelines are silent as to whether or not you look just to U.S. commerce or look to foreign commerce as well. The Antitrust Division has taken the position that we can consider world commerce in addition to U.S. commerce in devising an appropriate fine under the Guidelines. Rather than including foreign commerce as part of the calculation, we look at it as a factor in aggravation.
And, in fact, in two recent cases, we have increased the level of the fine, with the consent of the defendants, to account for the large amount of commerce
that occurred outside the United States because, in our view, we found that commerce in the United States understated the role of the conspirator in the conspiracy.
This is especially true in a market allocation conspiracy, where a defendant that you're charging is the one that agreed pursuant to the cartel arrangement not to sell much in the United States. Absent that agreement, of course, the cartel would not have been as effective in the United States.
So our argument is, if you would have been competing rather than participating in the cartel, you would have been selling here. The fact that you had very small sales thereby eliminates the volume of commerce as the relevant criteria. We have to add to that the worldwide sales as another criteria to consider.
You're absolutely right. We do look at a worldwide effect as well as -- and we -- and if you're interested, I can give you citations of those two cases and tell you what they are.
The next factor I wanted to point out to you is record fines, and here again I'm passing a chart around the table.
MR. SIMMONS: Just to complete the record, my firm is a very large customer for graphite electrodes, so we are following the announcement this week with interest. We can tell you that it has been very interesting for a very long period of time that certain foreign producers of graphite electrodes just didn't want to market it in the United States. But I would like to say to Zoe's comment, this, of course, makes no attempt to include the civil suits that will be filed for treble damages by any number of customers who may have been injured by this practice.
MR. SPRATLING: That's correct. This chart is just a bar graph showing the Division fines. In 1997 we collected $205 million in criminal fines. That was a five-fold increase over the previous high year and, counting the 29 million that was agreed to in the case we filed Monday in graphite electrodes, and the 20 million we obtained from Fujisawa yesterday, we collected another 50 million this week. As of yesterday, we're at $130 million as of the first five months of this fiscal year. We're on a pace to obtain greater dollars in fines.
MR. SIMMONS: Are you defined as a profit center?
MR. SPRATLING: That's a point Joel would like to make.
MR. KLEIN: Our budget is just under $100 million, and we bring in total revenues of $300 million.
MR. RILL: This does not go to the Department?
MR. KLEIN: The fees do, the criminal fines don't. They go to victims' compensation.
MR. SPRATLING: And, in fact, it was the fines collected by the Division last year that paid for the Oklahoma City bombing people to travel to Denver for the trial. Our fines go into the Office for Victims of Crime and the funds for victims across the country.
I have some bullet points in Part B in the initial handout that are intended to address the question that Vernon asked as to why is this happening now. And Joel has reminded me of the time and told me to speed this up. And so what I'll do is I'll try to hit each of these six points in a minute or less. Is that okay?
The globalization of the economy, I don't have to tell you about that. You are all aware of the
statistics that indicate the tremendous increase in the globalized nature of the U.S. economy. And while that has all the benefits that we all know, it also provides the opportunity for cartel activity to occur to victimize American businesses and consumers. That is an environmental factor that has to be considered.
The Division has reallocated its resources and changed its emphasis to place great weight on the prosecution of cartels.
The amnesty program -- I should spend more than 15 seconds on because that has been an extremely important aspect of our international enforcement program.
The Antitrust Division's amnesty program is one that provides that a company which comes forward and gives us information on its involvement in an international cartel may avoid criminal exposure in either of two situations: where we have an investigation already and where we do not. Corporations that qualify for amnesty may avoid criminal liability; and all officers, employees, and directors who come forward with full cooperation can also avoid any type of criminal liability in the matter.
And several of our international cartel cases have been broken up by amnesty applications. In the past I have been completely unable to talk about any but two of them and have been unable to make comparisons as to the tens of millions of dollars that companies save by coming forward rather than waiting until subsequent prosecutions occur.
But an unusual thing has happened and that is: Two different companies in the last six months have each issued press releases as to the fact that they came forward in the amnesty program. There are a lot of reasons for that, which is the subject of another discussion.
But in any event, in the graphite electrodes case that we have now mentioned a couple of times around the table, the Carbide/Graphite Group came forward and participated in an amnesty program, the first company to come forward, and obviously paid zero dollars in fines. The first company to be prosecuted, a cooperating company, on Monday agreed to pay $29 million in fines, and so you're comparing $0 to $29 million.
The company that agreed to pay $29 million has
only 18 percent of the market, and so you can imagine what exposure the other firms have. That $29 million is a reduction from $75 million, which would have been the fine had they not been cooperating.
In another example J. Ray McDermott came forward in the marine construction cases. They obviously paid zero dollars in fines. Heere Mac, the Dutch corporation, paid $49 million in fines.
Cooperation with foreign antitrust authorities, Chuck has said a lot about that. I think there will be more said about that.
Let me -- Joel mentioned one thing, however, that I might amplify on. And he mentioned the importance of the simultaneous execution of the compulsory process, namely search warrants.
We have been successful in getting that in some cases. For example, and the example that is most public, is the prosecution of the international conspiracy in the area of plastic dinnerware, where on the same day and, in fact, simultaneously on the same day, 50 Royal Canadian Mounted Police and FBI agents executed search warrants in Montreal, Minneapolis, and Boston. This resulted in such
powerful evidence that five corporations immediately came in, entered guilty pleas, and paid a total of $9 million. And seven individuals came in and pled guilty, including two Canadian nationals, each of which agreed to serve jail time in the United States jails.
An extraordinary result of the power of evidence, if you can get it that way, as distinguished from the lysine investigation where executives of Ajinomoto -- I'm able to say this because these are both public examples -- where executives of Ajinomoto ordered destruction of documents in Japan at the time the search warrant was executed in the United States. And the sodium gluconate investigation where they ordered destruction of documents at the time of the search warrant.
Another important aspect of cooperation, besides the fact of cooperation, is the psychological impact on targets of investigations. To know that separate countries are cooperating in the investigation sends a message: There is no place to run and nowhere to hide. And that has a tremendous impact on their incentive to cooperate.
We have a memorandum of understanding with the INS. It is the only such memorandum in existence. There is no United States Attorney's office that has it and no other division of the Department of Justice that has it. It provides for preadjudication of immigration relief for foreigners who decide to cooperate with us and plead guilty.
What that means is that the INS has agreed, for antitrust crimes only, to tell a foreigner who is anticipating cooperating in the investigation if he or she will receive the immigration relief that will allow them to travel unfettered to the United States in the continued conduct of their international business if they assist us in the investigation. This has been one of the single most important developments in terms of an incentive for individuals and their corporations to come forward.
There has been a great increase in the effectiveness of border watches. It used to be the equivalent of buying a lottery ticket but now, through new procedures, the INS is catching a lot of people at the border, detaining them for questioning. We have
procedures so we can have attorneys and investigators on the spot immediately, and quite a number of these have happened. And the grapevine has told counsel around the world: If you're a target of investigation, you're likely to be caught in a border watch.
The last point is a revitalization of a partnership with the Bureau, something that was started under Jim Rill and continued with Anne Bingaman and Joel Klein. The Bureau, the Federal Bureau of Investigation, last year, for the first time ever, made antitrust a priority in white collar prosecutions.
There is at least one FBI investigator assigned to each of our international investigations. In a program that is unique to the Antitrust Division, they are now assigning in-house FBI agents in field offices of the Antitrust Division around the country to assist in these investigations.
I took longer than I should have.
MR. RILL: I think we're into a discussion period now and, Gary, that was a terrific review. Just a couple of questions occurred to me and one observation. The level of fines only begins to identify the effects of
a particular international cartel, and I wonder if there is any work that has been done that can be made public that would identify an assessment of the effects on business and on consumers, at least of the cartels that we've prosecuted? I know in some of the informations and indictments, allegations are made. I wonder if those could be pulled together so we can get some parameters as to the scope of what we're dealing with?
Secondly, by way of a couple of observations, I think that what's not widely recognized is not only the dimension of the issue, but also the impact that cartel behavior has, not only on consumers, but on business. Usually in the first instance it is the business customer that's gouged by price fixing and market allocation practices. I think that's a message that needs to be carried forward not only here but in your effort to increase the criminal fines to levels that are commensurate really with penalties that exist in other parts of the world.
Finally, and I think this is something we all need to consider, and that is: The cosmetics or pyrotechnics of global cooperation sometimes arise from a
misunderstanding of the different enforcement systems in the United States and other parts of the world.
The fact of the matter is that the United States, Canada, and curiously enough, I think, Japan are the only countries that have criminal sanctions directed at antitrust violations, and the notion of cooperation in cartel enforcement sometimes raises concerns. The fact of the matter is, of course, that the European Community has a penalty system related to the global turnover of those caught in violation of Article 85, which governs price fixing -- the Sherman Act's Section One counterpart in the Treaty of Rome.
And I think there's some analysis to be done by this Committee and perhaps explanatory work to be done by this Committee and by yourself to demonstrate that the asymmetry is not as great as it might appear. Those are just observations to kick off discussion, perhaps. Any reaction?
MR. SPRATLING: I would like to respond to them in reverse order. Any work that the Committee would do on your third point would be very, very difficult. I think it is something like a policy statement that needs to be made.
Your second point about the impact of cartel behavior on business customers, we do know that with respect to any work on the effects of cartels -- you will remember from your work on the Guidelines when you were Assistant Attorney General, when the Sentencing Committee asked for that kind of material -- it was and is difficult to develop, except anecdotally. But with that we were able to develop some information.
The same is true, only less so, in terms of availability of any type of widespread evidence in the international area. Our information is largely anecdotal. Many times we don't even have that with respect to international cartels, because so often we can't get access to the documents that are located abroad that would assist us in the analysis of overcharge -- so, often we have to base it on the testimony of people as to what the overcharge is, and then in negotiations with defendants try to arrive at a mutual view of what might be overcharge.
So, Jim, any type of widespread analysis or statistical work on effects, I think, would be next to impossible.
MR. RILL: On the other hand, the absence of that kind of report tends to diminish the ability to publicize the gravity of this kind of problem on the flow of commerce and free enterprise.
MR. SPRATLING: What we have done is part of Joel's testimony this afternoon. We have, without identifying cases because of grand jury secrecy, we have made public the amount of increases of prices during the term of the conspiracy with respect to some investigations. In one investigation, during a six month period during the first year of the conspiracy, the price went up nearly 70 percent.
MR. RILL: We would like to have that kind of information.
MR. SPRATLING: We can certainly make that available without identifying the product, just general statements as to the evidence of amount of price increase during the term of the conspiracy, and there is some evidence about the proposed overcharge, proposed increase -- testimonial evidence from individuals.
Of course caveats have to be issued with that,
because many times these increases are occurring at the same time the cost of production is increasing for people as well. So we have to account for that as well. Jim, we will put together some information.
MR. RILL: We have time before the break.
MR. YOFFIE: I had two questions and one observation. The first question is: Do we have any evidence or do we know whether this is a new problem or just new awareness? When you look at this chart on criminal fines, you see, obviously, this jump up. Of course we know international cartels have been around for hundreds of years. And the question is: Is this really a function of some evidence that we know this is happening more, or is it really a function of greater awareness and greater prosecution? If you have any evidence of that, that's actually quite helpful.
It could also be -- that they're declining. I want to take the opposite point-of-view that they may not, in fact, be more significant in the world, but we're paying more attention to this and therefore we're seeing these kinds of fines.
The second question gets back to Eleanor's
point about thinking about this as a global problem and thinking about fines being levied on a global basis. The fundamental issue that we face in enforcement has to be an incentive problem, which is: How do we give our international partners an incentive to cooperate with us?
One way to think about that and, again, this is both the question and the observation: Is there a way in which we can think about defining the fines in terms of global volumes and then sharing the fines with our partners as a way of, on the one hand, taking the burden off of our partners and having to actually do the prosecution? We incur the costs and the risks. But on the other hand, because they potentially know they're going to be beneficiaries of the fines, they would ultimately have more incentive to participate.
MS. STERN: Good business school thought.
MR. THOMAN: Then another jurisdiction fines, then another jurisdiction, then you have not only more fines but more protracted issues to deal with it, which is another way of looking at the same issue.
MR. SPRATLING: Your first question is one that is put to us often and about which those of us
on the criminal enforcement side have thought. I think it is a combination of the two factors. I think there is an increase in cartel activity. The fact that our economy is becoming more globalized is what has provided the opportunity for cartels. We're talking about cartels that affect United States commerce, not cartels in the world in general, but cartels that affect United States commerce. Yes, we think it's on the increase.
But it is also the case, because we believe it is on the increase, we have turned our resources towards it and view it among our most important priorities on the criminal enforcement side.
As to incentives for international partners to cooperate and maybe defining the fines in terms of worldwide volumes, let me tell you what is a potential downside in that approach. If a corporation with an incentive to cooperate by putting the matter behind it in the United States -- because it wants no further liability in the United States and because it wants its executives to be able to travel to the United States in continued execution of their international trade responsibilities -- and the way to do that is to pay the
fine that the United States is going to extract. There is an incentive to come in and do that. But our fine system is very tough on antitrust violators, and if a company is considering coming forward and thought that they had to pay that type of fine on their total world volume, there would be no incentive for it to come forward because of the likelihood, I think, as they do their risk analysis, that there will be serial prosecutions as well. We're aware of some of our matters where the EC is also looking at them and the EC will undoubtedly take a crack at it. I think you remove the incentive for companies to come forward because in essence they would be paying a 20-percent-plus charge on their entire worldwide commerce -- which for a lot of companies may well put them out of business.
MR. KLEIN: One quick thing. I think these are some of the questions you and Eleanor raised and have been the main thrust of the Division's work. I think one of the most powerful deterrents is individual liability and jail time. What we have which creates another disequilibrium for us, we have the ability to lay that on U.S. people but not on foreigners. In a weird kind of
way, a $10 million fine on a corporation is one thing; a senior executive going to jail three months will do it, but the rest of it is just economics. That is one of the problems we have right now. People cut us a $10 million check as if it was a simple tariff on the transaction and then go home.
I think that's where the disparate impact on the international arena is a critical problem, and we suspect, although we can't prove it, we suspect a lot of these cartels are coming up in response to the fact that as domestic protection is great now, some of the comforts they had at home they would now like to have on an international basis. So we don't see any reason to think this problem is going to abate.
MR. RILL: There needs to be a point of perspective on this too, picking up on Dick Simmons' comment, we're not looking at the mandate, just at criminal enforcement. We're looking at cartel issues and one element of that is private enforcement.
One of the focal points of the Structural Impediments Initiative -- SII -- is that paradigm; it was an attempt to deal with the Government of Japan on this
issue, as well as enforcement. I won't go into any detail on that. It's not something that's uniformly viewed with great enthusiasm, but private enforcement is an important vehicle that we at least ought to consider as an option among all the potentially effective attacks on international cartel activity and what can be done to enhance convergence. This may not happen tomorrow, maybe not the next day, but down the road it is something I think we ought to be considering.
MS. JANOW: May I clarify? Related to this and to make sure I understand the inference you're making, could you generally explain as to how cartel activity is coming to the Division's attention? Is it primarily a result of corporations coming forward to utilize amnesty programs or is it arising because of private litigation, or some combination? Is there a generalization you can make to help us understand how cartels are surfacing?
MR. SPRATLING: I cannot think of a single -- Chuck, you think about this, too -- I cannot think of a single cartel prosecution that we have brought that has been brought to our attention by private litigation. We are detecting international cartel behavior the same way
we detect domestic conspiracies. A combination of complaints of customers, businessmen, and consumers. Lots of times it is disaffected members of the conspiracy -- somebody may think that one conspirator is cheating on the agreement and wants to get back at that conspirator.
The amnesty program has been very effective. A company's senior management may not have been aware until they conduct an internal audit, find out and say, "My God, we're involved, we have to go forward and see if we can get in the amnesty program."
MR. KLEIN: The biggest problem we have is cartels that don't have U.S. members, and I suspect there is a lot of this out there in the world. We just cracked one recently in facsimile papers where it was a Japanese- based conspiracy to raise the price. Foreign-based conspiracies are going on a lot -- the people are beginning to bang around how we're going to get those in here. They take real money from U.S. businesses and consumers.
MR. SIMMONS: One of the things I think you're really leaning to is not just to identify the cartels but to try to change the mind set for international companies
so they don't want to participate in cartels. In my experience over the past 25 years, it is very clear that foreign business people were far less sensitive to the antitrust laws of their own country, which were not administered the way U.S. laws were.
I do think the ability to urge foreign countries to sensitize their business people to a much greater degree than they have been in the past could go a long way toward making everyone understand the consequences and the reasons why such practices should not be carried out.
For any businessman around the table, if you had side bar conversations in Japan or in Europe over a 20- or 30-year period, it is very clear that 10 or 15 years ago they didn't know what you're talking about. They really didn't understand, and keep in mind Japan had exactly the same antitrust laws that the United States had, but they were observed in the breach rather than in practice.
I think that our Government's Antitrust Division can play a role in helping to educate foreign governments in the need to sensitize business people.
MR. STARK: I think that is a good observation because it impacts not only on cartel activities abroad but in the U.S. This goes to David Yoffie's question of how much of this activity really represents an increase.
We have had a couple of cases where cartels in the U.S. have originated, where U.S. firms have been bought by foreign companies, European managers have come to take over the now U.S. subsidiary and sat down with their domestic managers and said, "First thing we need to do is eliminate this competition, and I want you to go out and contact our competitors and start getting prices up." That occurred in more than one conspiracy that we have successfully prosecuted.
MR. RILL: I think we could go on for quite a while in this discussion. The time has elapsed, and we have other important things to talk about today. We're about 15 minutes late on a break. I don't know how long you all are going to be around, but we have another discussion time and might want to pick up this discussion again. I have approximately 11:00. We can take the break and cut it down to ten minutes and get back at 11:10.
(Brief recess taken.)
MR. RILL: Joel, I know we have limited time. I would like to get started again, and we're back to you on international merger review. By the way, excuse me one second. The reporter has asked we speak into the mike, obviously, but she's having some trouble picking up what we're saying.
MR. KLEIN: We're known as the soft spoken Division.
Now, it's my pleasure to introduce actually a joint venture presentation. This is a lawful joint venture to present views on merger review. First, I believe we'll hear from Charles Biggio. Charles has been actively involved in all of our merger work and was personally involved in the McDonnell Douglas matter on behalf of the Administration.
With Charles is George Cary, who is the Senior Deputy Director of the Bureau of Competition at the Federal Trade Commission. George has had a long, distinguished career. Why don't we start with you, Charles?
MR. BIGGIO: Thanks, Joel. It is a pleasure
for me to be here. Years ago as a law student at Fordham, my antitrust professor had made a reputation as one of the few people in the old days who was interested in international antitrust. It is a different world now where it seems like everybody is interested in international antitrust.
Consistent with our long and amicable history of resolving disputes between the FTC and DOJ, we have struck on dividing our time up this morning, and I'm going to speak a little bit about the general issues that confront business and antitrust enforcement agencies reviewing international and transnational mergers, and try to set a general stage or framework for thinking about the problems that arise when a transnational merger is being reviewed by multiple jurisdictions. George is then going to spend a few minutes talking about several cases that the FTC has recently reviewed that have raised significant international issues, so to give you an understanding of some of the problems we face and some of the problems the business community faces in getting a deal through the various regulatory regimes in our world.
Gary's talk pointed up the issue of cartel
enforcement, which is trying to get a large and somewhat unwieldy group of independent enforcement agencies all on the same page and ferreting out and prosecuting cartels that span multiple jurisdictions. That chart tells you the amount of coordination that is necessary in prosecuting international cartels.
It is a slightly different issue with respect to merger control. You've got one merger and you've got a growing number of merger control regulations around the world. It is not a question of rallying the troops to review a transaction. It is more of a question of coordinating or, at least from a business standpoint, understanding various jurisdictions that will be actively involved in reviewing the transaction.
The number of jurisdictions with regulations is quite large and growing. As Joel pointed out earlier, Japan is considering expanding its merger review authority. Many countries around the world have some sort of mandatory filing requirements that raise, at the very minimum, transaction cost issues of doing any transaction with an international component to it.
At the same time, the EU is lowering its
jurisdictional threshold in terms of turnover. So there is certainly great opportunity and growing opportunity for a single transaction to be looked at by a variety of independent antitrust enforcement authorities around the world. As Joel mentioned, the KPMG-Ernst and Young transaction was being actively reviewed by four jurisdictions: Canada, Australia, the EU, and the United States.
To understand what the basic problems or issues are that confront us at the Antitrust Division, or any other antitrust enforcement authority, as well as the problems that confront parties to a merger, we should step back and look at what are the economic objectives of business and the enforcement objectives of the antitrust authorities.
From the business standpoint, obviously the business community wants to obey the antitrust laws wherever they may be. They don't have an interest in violating the rules of any jurisdiction in which they're doing business, and there is no exception with respect to transnational mergers. They want to conform with the regulations in the jurisdictions that might be affected.
At the same time it is important to recognize that the process tends to be adversarial. The business community does not want to merely acquiesce in the process without presenting its position on what the antitrust merits are. There are some opportunities for conflict, at least over the antitrust merits, when the transaction is reviewed by antitrust authorities around the world.
Second, a company wants to do the minimum it needs to do to comply with merger control regulations around the world. My experience has been that simple transaction costs around the world can be quite staggering. Even in circumstances where there is little prospect of a substantive review, there are numerous filings that have to be made. That creates a need for duplicate and redundant filings. It also certainly takes a lot of time to coordinate making the filings around the world.
More importantly, the business community and parties to the transaction want some predictability as to whether they can go ahead at all. Is there a jurisdiction that can stop the deal full stop? More practically, what is going to be the restructuring, if
any, required around the world? Is the United States going to ask for divestiture? Is the European Union going to ask for divestiture. In the cases where the EU doesn't apply, Britain or Germany, are they going to require some sort of restructuring?
It is very important that the parties understand the economic reality of what the likely restructuring cost might be before they strike the purchase price, to see whether the deal makes sense. That becomes an exceedingly complicated question, however.
Now, what are the objectives of the antitrust enforcement authorities? The key objective is to get premerger review, which is so important. The Hart-Scott- Rodino Act [HSR] was promulgated about 28 years ago principally because it was recognized that trying to undo done deals was extremely expensive, unproductive, and wasn't an effective enforcement tool. So it is very important that the antitrust authorities around the world be able to look at a transaction reasonably before it's closed, in order to effectively stop anticompetitive mergers.
It is also important for antitrust authorities to be able to do triage. It is very important that the authorities be able to ferret out very quickly those transactions that pose no substantive concerns and go forward without any further impediment. At the same time, it's very important that the authorities be able to detect and evaluate those deals that are in the gray area. Many transactions that are suspect on their face turn out not be a problem. It is very important that we have the ability, before the deal closes, to make sure that the transactions are carefully evaluated. At the end of the day, it's very important to be able to collect evidence and understand transactions that are actually going to be anticompetitive and take measures that will allow us to either stop those transactions or get them restructured in a way that preserves competition.
In order to do all of this, the enforcement agencies have to collect a lot of information. The process is complicated by the fact that merger review tends to involve extraordinarily complicated analytical elements. And the very detailed facts required to make sure the analysis is applied properly are quite
voluminous. And all of this has to be done in a fairly restricted time frame, which is usually imposed. For example, the Hart-Scott-Rodino waiting period is 30-days after the initial filing in the United States.
If there is a second request for information made in connection with the transaction, the waiting period is extended for another 20 days following compliance of that request. Basically we're talking about a minimum of 50 days and perhaps a bit more before our agency can develop some view of whether the transaction is anticompetitive. In the EU, they have one month followed by a four-month review.
Four, five, six months may seem long, but in fact, it's not so long, considering that these are complicated transactions that require those agencies to devote significant resources and their best efforts to make sure we make the right decision in the time allowed.
So each jurisdiction that now has merger control regulation has to protect its own interests, and, moreover, the competitive circumstances in each of these jurisdictions may well be different.
So there is opportunity for any single
transaction to be subject to a merger control regime that may have a different perspective on the transaction because the effect may be different from one market to the next. Or the facts necessary for them to understand the impact of the merger may be localized in that market, or maybe the information is to be found in some other jurisdiction. So it's a very complicated fact process that each jurisdiction has to go through in order to make sure it's doing the right thing.
One thing also that distinguishes the merger control regimes around the world from the cartel enforcement efforts is that, unlike cartels, mergers can be good or bad. And so the process is complicated by the efforts of the antitrust agencies to make sure they're not making a mistake in challenging transactions that actually are beneficial to society.
So enforcement authorities have a clear stake in making sure the right transactions get challenged and the benign transactions go forward. All of this, I think, creates an obvious dilemma for both business and government: How much of a review process should a large company doing a transnational deal be subject to in
keeping with the local law enforcement objectives of each jurisdiction?
Now, the problems that merger review gives rise to, I think, basically fall into two categories. One is process. The large number of filings created for any transaction, as I mentioned before, creates numerous opportunities for duplicative filings. The other basic issue that arises is the problem of the substantive review of the transactions.
The United States, for example, has a different review standard for evaluating acquisitions than does the European Union. In Europe, the standard is whether or not the transaction creates or enhances the dominant position within the common market. Whereas in the United States, our focus is more on whether or not the transaction creates an opportunity to raise prices through coordinated behavior or some other effect. Consequently, there may well be a circumstance that results in conflicting conclusions as to the competitive nature of the transactions or the remedy.
The significance of the different review standards, I think, depends on the type of case involved.
Transnational deals with discrete antitrust concerns in global markets that have a localized impact or that can be solved with localized remedies make up one type of transaction. While that type of case raises international concerns, it may well be that the transaction doesn't pose a considerable opportunity for conflict or disparate results.
Another category of transactions, which is somewhat more problematical, is where the transaction might be localized but the remedies required may well involve multiple jurisdictions. We had a case recently of Kimberly-Clark/Scott where the impact of the transaction was fairly localized. The Europeans had -- the European market was a different market from the United States, so there was not any possibility that our review of that transaction would conflict with the EU's. But, we were trying to obtain the divestiture of a plant and it meant involving Canada, because there was a North American market, and it affected the disposition of that plant. So it is very important for us to be in contact with the Canadians.
Finally, the most troubling transaction is the
one where there is no localized impact. The transaction affects commerce, and there is no easy way to fix the transaction, because the production assets are sufficiently localized that there is no way to fix the transaction in one jurisdiction without affecting the other markets.
The key example of that is the McDonnell Douglas merger, where there was no opportunity to fix the transaction in a way that would have allowed the Europeans to go forward with divestiture-type relief in Europe without altering the global structure of the transaction.
There are several efforts under way to deal with the possibility of redundancy or conflict in efforts -- to make the process more predictable. These are the types of things that the Committee could be considering.
First, there is streamlining premerger procedures. At the OECD, there is currently a working party that is considering whether or not changes to premerger notification forms will reduce the burden on business in complying with premerger notification around the world. So there is a simple effort to streamline the
The other way that the possibilities for conflict can be resolved is through the various cooperation agreements, as Chuck mentioned, with the EC, Canada, and so forth.
Another idea is to provide interested jurisdictions with notification of mergers that may affect each other's interests to the extent possible, consistent with confidentiality provisions. These information exchanges, as I'm sure George will talk about, allow the enforcement agencies to better understand the issues and facts and to make better decisions and coordinate other activities.
There is also the opportunity for consultation, so if a possible conflict emerges, the two jurisdictions can talk to each other in order to understand each other's concerns where, for example, a conflict over remedy arises.
In Boeing/McDonnell Douglas, I was personally at the hearings the EU conducted in this case. Also, Joel and I and Chuck Stark and John Goodman from the Department of Defense were able to speak with the members
of the DG-IV staff looking at the transactions, so we could discuss our views of the impact of the EU's investigation on legitimate important U.S. issues, interests which they took into account.
It is an example both of the possibility of having consultation minimize the amount of conflict that might arise as a result of multijurisdiction antitrust enforcement, and of the fact that the process is full of pitfalls and can well be a very tense circumstance between the two reviewing nations.
The most sensitive and difficult area for possible review is the convergence of substantive antitrust standards. It is our biggest challenge.
As I said, that is a very sensitive area and requires cooperation of the various nations around the world to modify their perceptions and their antitrust enforcement regimes in a way to make the process more predictable and transparent. On that note, looking at my watch, I'll turn to George for some case-by-case discussion.
MR. CARY: Thanks, Charles. As you know, the FTC and Department of Justice do not usually investigate
the same transactions. In keeping with that practice, I'll try not to cover the ground that Charles covered, but I want to go through some specific examples that raise some of the issues that Charles has raised.
First, the information that the various national antitrust agencies get is not always the same kind of information. Each antitrust regime has its own rules about what has to be produced and when, the detailed type of information requested, the extent of the information, and the processes that are applied. But there is some information that we do routinely share with our partners overseas and in Canada when more than one country is looking at the same transaction. For example, we may discuss the relevant product markets that we're looking at, the names of third parties and the types of third parties that we would be interviewing in the foreign jurisdictions so that we can better obtain cooperation. These are the types of information that we might share.
Second, during the course of a merger investigation, it would not be unusual for us to share our perspectives about what the transaction is about,
what the concerns are, what issues we're looking at, and what our competitive assessments are of the transaction.
Finally, it is not unusual for us to coordinate with foreign agencies with regard to remedies that we might impose or that they might impose. We might have conversations about what kind of a fix would resolve problems here and overseas at the same time.
As has been pointed out, in the global economy in which we now operate, many of our most significant transactions are viewed by several antitrust authorities and there is the potential for different results in different jurisdictions. This potential arises: first, because the different jurisdictions might be applying different substantive standards; second, because factual conditions in local markets might be different; and third, because we might have different information than other jurisdictions which leads us to different conclusions.
One can debate the extent to which we ought to harmonize the substantive standards. Toward that end, I'll discuss why we apply the standards we apply and why we think that harmonization towards different standards
might not be in the best interest of consumers. But certainly a process that allows us to work off the same base ought to yield consistent results. It's preferable that, if we arrive at different conclusions, we vindicate our own policies. We would not want to impose a remedy that is not necessary here just because there is a problem overseas.
Let me start with the Boeing/McDonnell Douglas case because it has become somewhat of a focal point for people analyzing treatment of mergers domestically and overseas. This was obviously a very important transaction to the U.S. economy and very important transaction to the world economy. The FTC was the agency domestically responsible for investigating the transaction. We did what we always do, with one major difference possibly being the extent and detail of our annual review.
This was probably the largest investigation in terms of numbers of boxes of documents that we received from both parties, and it was also very extensive in terms of interviews with customers and interviews with competitors.
We interviewed over 40 domestic and international airlines and we developed a very detailed understanding of the way the airplane manufacturing industry works and the underlying economics of the industry, which is the key to our analyses.
We considered in great detail the cost to McDonnell Douglas of upgrading its technological capabilities and bringing to the market a new generation of aircraft, and we did both a subjective and objective economic analysis of the kind of investment that would be necessary to bring that technology up to being competitive with Boeing's, and whether such an investment would make economic sense.
In the course of doing this analysis, we came to several conclusions. First, we concluded that Douglas Aircraft division was lacking in major customer support, even among its traditionally most loyal customers. The airlines were telling us that in the next generation of bids they did not view the Douglas Aircraft Company as a viable competitor and would not consider buying Douglas Aircraft planes.
We concluded, as a result, that Douglas
Aircraft was not a viable competitor going forward based on existing technology. Finally, we concluded that the economics of the industry, the huge investments it would require, and the amount of time it would take meant that, going forward, it was very unlikely that Douglas could become an effective competitor to Airbus and Boeing.
In short, we came to the conclusion that Douglas Air merging into Boeing would not reduce competition significantly, because Douglas going forward was not likely to be a very significant competitor.
Now, it has been well-publicized that the European Union required certain conditions for the transaction to go forward, and it has also been well-publicized that there were some in the European Union that did advocate a stronger antimerger position than ultimately came out of the European Union.
This should not be read to lead to the conclusion that they viewed the facts in a fundamentally different view than we do. Ultimately their review revealed the same bottom line conclusion about Douglas Aircraft's future viability as a competitive force as that reached in the United States.
The fundamental facts that they discovered in their investigation were very similar to our own in terms of whether airlines were willing to commit to a Douglas fleet going forward; whether Douglas would be in a position to compete in that business on a going forward basis; and exactly what the competitive posture of Douglas was. Ultimately, they did not determine to challenge the transaction, but they did require concessions relating to exclusive contracts that Boeing had entered into with domestic and foreign airlines.
Some have concluded the fact that they required such concessions means that the EU viewed the underlying facts differently than we did, but I would suggest that the difference in outcome really reflects a different legal standard. The European Union was applying its standard that a merger is problematic if it has a tendency to enhance a firm's dominant market position, and it came to the conclusion that the addition of Douglas' spare parts business and customer relations to the existing business of Boeing would, in fact, strengthen Boeing's position going forward and therefore enhance its dominant share. That is not a concern that
is implicated in U.S. antitrust law. In U.S. antitrust law, the concern is was Douglas an effective competitor and will its elimination negatively affect consumers in the U.S. marketplace, either in terms of innovation or price competition. So ultimately it was the different legal standards applied that led to a different result in Europe than in the United States.
Let me describe the degree of cooperation that the Federal Trade Commission and the European Union undertook in investigating the transaction. First, the staffs of the two agencies were in regular communication about what we were looking at and what we were finding, and what issues we were exploring in our investigation.
As the investigation proceeded, those discussions became more frequent and ultimately went to the highest levels of the agencies. Chairman Pitofsky had several conversations with DG-IV to advise them of the progress of our investigation, the substantive issues we were looking at, and to explain in some detail the factual predicates on which the decision might turn. The EU was therefore aware from the outset where we were going, what we were looking at, and how the facts as
developed might influence the decision. Efforts were made to make sure that there was no misunderstanding as to how we arrived at our decision, so as to minimize any negative repercussions of the agencies coming to different conclusions.
Many across the Atlantic, mostly observers outside the agency, some of whom represented parties with an interest in the transaction, have expressed suspicions that the FTC's decision was influenced by concerns beyond antitrust.
As the manager responsible for the investigation, I can absolutely assure you that that was not the case. The investigation was conducted just as all of our other investigations: purely on the factual record and on antitrust principles. Nevertheless, after we reached our decision at the FTC, and as the European Union's process moved forward and the European Union began to consider what their own position would be, the Justice Department, on behalf of the Administration, as well as other branches of the Administration, shared with DG-IV our national concerns about the transaction that went beyond antitrust issues. I must emphasize, however,
that such concerns were raised only after the FTC had come to its antitrust conclusion.
MR. KLEIN: I'm concerned about the Committee's time, as important as all of this is, I'm sorry for being impolite. I think we really need to move on.
MR. CARY: Let me talk about two other cases very quickly to highlight a couple of other issues. Mr. Yoffie mentioned innovation which is a critical part of what we look at and, again, this is something that we do routinely, particularly in high technology industries.
Let me comment quickly about the Ciba- Geigy/Sandoz investigation. That was a case involving two Swiss pharmaceutical companies which were merging internationally. Again, the U.S. enforcement agencies came to different conclusions than the Europeans. Our own enforcement decision came from our great concern about innovation competition. Ciba-Geigy, through their partially owned U.S. subsidiary, Chiron, and Sandoz, through their wholly owned U.S. subsidiary, Gene Therapy Inc., are two of only a few firms conducting research on certain types of gene therapies. The combination of the two parent companies would put under one roof the major
innovators in this area, and could substantially change the incentives of these two firms to continue their competition to innovate. We believed that it was critically important to preserve that competition in gene therapy innovation, and therefore required as a condition of the transaction going forward that the parties grant a license to others for certain new patents necessary for such innovation, so that competition in innovation by wholly independent actors would continue.
The Europeans, historically, have been less assertive in asserting concerns about innovation markets than we have here. The question in pursuing relief in the U.S., therefore, came down to whether we are prepared to assert our priorities and see that innovation competition continues in the context of a merger between two foreign competitors.
Certainly the fact that the assets at issue were U.S. assets controlled by subsidiaries that were U.S. companies made our decision easier than it otherwise might have been. The issue was also made easier by the fact that we were able to reach an agreed-upon resolution with the parties. A far more problematic question would
have arisen if the assets at issue were instead owned directly by the foreign parent companies and were located overseas. Had U.S. enforcement officials sought to block the entire $30 billion transaction between two Swiss firms under those circumstances, harder questions about the reach of a single nation's antitrust laws in governing primarily foreign transactions would have arisen. Another case that is a useful illustration of how cooperative antitrust enforcement can lead to better results from the point of view of both domestic and foreign consumers is the Guinness/Grand Metropolitan merger. I'll discuss this transaction from the point of view of the process, where cooperation between the two agencies yielded the result that, in my view, best served the consumers of both the European Community and the U.S.
This was a case where international cooperation led to a divestiture agreement which was ideal from the point of view of the Europeans and also in resolving the issues that we were looking at. We were very active in monitoring the EU's investigation. And because there was a fair amount of communication between the two agencies,
the final divestiture package accomplished the remedial goals of both jurisdictions far better than what either side might have accepted separately.
The case is also interesting because the divestitures that were required were of products that were not produced in the United States. They were foreign products, albeit with very significant market positions in the United States. The fact that the EU saw our resolution as desirable from the point of view of their consumers certainly made it less difficult than to insist upon such relief.
Given the shortness of time, let me close by simply saying that the policy implications of the different results can be very important for American consumers.
Ultimately, as we've described, the Europeans have a slightly different standard in reviewing mergers than we do. Our focus is on prices to consumers, while the EU is concerned about enhancing a dominant position. Some have argued that our position with respect to dominant firm mergers is more receptive to efficiency considerations, for example, that may entrench a dominant
firm but may result in benefits to consumers. That issue goes to core values and any effort to harmonize the laws must take these differences into account.
Other jurisdictions such as Canada, perhaps, give more leeway to efficiency considerations where there are efficiencies which benefit shareholders but not consumers. As a small economy seeking to achieve economies of scale necessary to compete internationally, they have their own policies that they're trying to vindicate. Our concern is for consumers. Again, the question is: Which policy is to prevail or are both nations to pursue their own policies? Those are just a couple of suggestions of issues that ought to be considered going forward in terms of the question of harmonizing antitrust enforcement overseas.
MR. RILL: Thank you. I think these issues require a good bit of discussion. Rather than do that now, Joel, I'll give you an opportunity to cover your subject because you have some testimony to give to the Senate this afternoon. Then I think if it's okay with you, we'll let you go ahead and kick that off, then have a discussion of all subjects before the lunch break.
MR. KLEIN: I think it's appropriate, and I can be quite brief. That is an appropriate transition, Jim, because as I see in some other jurisdictions, merger cases can be complicated. The status quo is each agency likes to do what it's doing, likes its procedures, forms, and substantive review. This is going to be augmented by new and increasing numbers of agencies doing this. Nobody is going to be willing to defer to another agency.
The argument was made: Why shouldn't the Europeans defer to us? It's for the same reason my good friends at the FTC said. On the other hand, if you do have divergences and inconsistencies besides the transaction costs, you have a real risk. Efficiencies you thought you might get in the United States or anywhere else in the world would be lost -- that can become a significant problem with people using different standards in different countries.
So I see this as a chance to get ahead of the curve a little bit; but where exactly do you get out? You may be left standing in the middle of the street.
Let me transition because I think a lot of people believe there was home team sports involved in
Boeing. I don't think that that's what happened on both sides of the Atlantic, but that kept coming up.
That leads, I think, to the transition to trade and competition policy and let me make a couple of bullet points.
What are we talking about here in terms of market access? Merit asked me if I would spend some time defining what I would think of as market access. I would say there are at least three or four factors. First, traditional governmental barriers: tariff and non-tariff. Then you have structural barriers. These may be regulatory or they may be market structure issues, stemming from how different economies are organized at a point in time. Then the third set of what I view as market access issues are conventional antitrust and antimonopoly types of barriers. You can have vertical agreements and horizontal agreements that will basically impair the flow of and movement of the product into market, and in some respects the Kodak-Fuji case involved all of those things. In that case, we saw specific application of government-imposed large retail store measures. You had allegations of a structural dimension
to the market and pre-existing relationships with the distributors, then you had actual allegations about specific agreements.
So the first thing we need to think through is: Is there a way to have an effective, coordinated approach to dealing with all of these different potential barriers, some of which are classic trade issues, some of which are underlying structural problems, some of which are classic antitrust barriers?
Now, within the antitrust area, there are, as Chuck Stark mentioned, alternative models of how one addresses these problems.
To the extent we're dealing with private antitrust problems embodied in horizontal agreements, abuse of monopoly power or vertical agreements, the three models on the table are: one, unilateral enforcement action. We bring the case, as we did in the Pilkington case against a British company that used intellectual property rights in Asia to keep out U.S. competitors. Essentially there wasn't a U.S. market in the case, but the real markets we were talking about were opening up Asian markets for U.S. competitors because of what we
viewed as a private market restraint. The case was settled, and I think as a result of that, U.S. companies are now actually selling a significant amount in Asian markets.
Chuck pointed out that Jim Rill reasserted this unilateral authority in the Bush administration.
The real point is that this kind of approach is not going to be a satisfactory solution for a number of reasons. We cannot get the evidence to prosecute the cases because the evidence is overseas. Foreign jurisdictions are not going to cooperate with us and give us the evidence because they view it as their market and why should we, in their view, get in the middle of it. Often times we don't have the ability to impose a remedy in a foreign market. And finally, it does cause an enormous amount of hostility and undermines cooperative efforts. So we're not going to be able to do it all.
The second model that we've been working on is one of positive comity. Somebody comes to us, let's just say you have a market access case in Asia, and you think it's private market restraints. You bring us the evidence. We review it. Rather than sending you to the
Asian authority, we review it and make a preliminary determination that there is at least a reason for full and thorough investigation of these antitrust allegations and weigh in with full government authority, shift it to a foreign antitrust authority which, in turn, agrees to report back to us.
Now, we have a case like this right now involving Sabre, which is the computer reservation system for American Airlines, claiming that it has been denied certain information that strips it of being an effective competitor in Europe by the European airlines that bound together to form Amadeus, which is a European computer reservation system [CRS]. We did a rather elaborate investigation and wrote up a 10-, 15-page report and referred the case to the Europeans, who are in the process of doing their full-scale analysis. They agreed to report back to us. If they find a violation and we think that they have satisfactory remedy, we could step aside. If they don't find violation or if we don't think they have a satisfactory remedy, we reserve the right to take further action.
We have negotiated a very thorough protocol
with the Europeans that's going to be signed imminently that sets forth the circumstances in which we'll make these cross-referrals. The Europeans are telling us they're about to make some referrals to us about market issues in the United States -- and will report back.
I personally think this is a very constructive way to deal with the problem at this point, when dealing with the countries with which we have very good, effective bilateral relations like the Europeans, Canadians, and Australians. The real problem is with countries where the antitrust authorities are not sufficiently powerful, independent, well-developed -- where we cannot be sure the process will work efficaciously, particularly when home team sports are involved in the analysis. So that is the model we have been working on trying to help mature and develop.
The third model is the one the Europeans seem at least in the process of supporting: some form of WTO resolution that would involve a dispute fact-finding effort at the WTO.
I think the Europeans are way ahead of themselves on this issue. I think they think that
somehow either what they will do will be small and ineffectual, that is, it won't be harmful, or they really think you can deal this way with a case involving, say, the Sabre/Amadeus case. If you think you can take that case and give it to some world panel that doesn't have subpoena powers, that doesn't have deposition powers, that doesn't do the kind of hard work that we do, I think you will get a trade remedy for a competition problem. And as Chuck Stark said earlier in his comments, at times trade remedies are market share remedies which really are in many ways inconsistent with private market antitrust enforcement.
So I think again there are three models, each with a potential upside, each with some potential downside, none of which provides by itself a fully satisfactory solution. But as the world gets more linked and you get increasing global interdependence, there is going to be no question that U.S. corporations in particular, largely because our markets are very open, are going to increase pressures to deal with private market restraints in addition to their ongoing efforts to deal with structural, deregulatory, and governmentally
So you need to think through as a Committee how this antitrust piece integrates with the larger market access issues, both substantively and procedurally. And once you figure out how to organize the parts, what are the right procedural mechanisms to effectuate U.S. Government policy?
MR. RILL: Thanks very much.
MS. STERN: Let me just ask you a quick question on the three models. You seem to feel that positive comity is a constructive approach, and the agreement you're developing with Europe is something we do want to consider more closely.
The third model that you said the Europeans are supporting -- this idea of the WTO resolution is that, in fact, their official position -- that they're supporting that WTO approach? I think of positive comity, as you said, being so much more practical, and if you're coming to a closer understanding with the Europeans on that, maybe that's where we really should spend some more of our time than on this third one? I just want to see how
right the model is.
MR. KLEIN: Two reasons: First of all, in fairness to the Europeans, you should not have a critic characterize your position. So I may not have done it justice. But I would say they basically want to have a very simple negotiation at this point, one that would say two things: One, you have to have an antitrust code and you have to enforce it. When I say to them, well, that sounds well and good but could we enforce it? Could somebody challenge whether we enforced it in Boeing/ McDonnell Douglas? Could somebody challenge a decision, as a matter of prosecutorial discretion, not to bring cases we could bring because it's not worth the resources? I don't know how to answer it.
The second question now is whether the WTO would look at specific cases. The Europeans say no, but I don't know how you do the one -- that is determine whether people are enforcing the law -- without doing the other. I've asked a number of times. Could we challenge what you did in Boeing/McDonnell Douglas -- as a protectionistic interest? I think that's the problem.
On the other hand, I wouldn't want to take off
the table a long range plan for multilateral dispute resolution, and some people may want to have it as a shorter range plan, but I think the Committee has to look at the risks and benefits -- for example, although I have more experience with this bilateral mode, whether that's a satisfactory approach vis-Â
-vis certain Asian markets, whether a multilateral approach is better, and how do you bring new countries into this mix of soup?
There are lots of countries in the WTO that are kind of struggling with these issues, and how do we get them on board? I think that is what is in play here.
MS. STERN: Is that the third model, is that a formal position now of the Europeans?
MR. KLEIN: Yes. And my suspicion is we will not agree with them when the negotiation is proposed, but we will probably support continuing non-negotiation or continuing work in the field of trade and competition policy.
MS. STERN: Thank you for the clarification.
MR. RILL: We have, thanks to Joel's expeditious treatment of his subject, about 25 minutes left for discussion before, Joel, you have to go and we
have lunch, a non-working lunch.
MR. JORDAN: May I ask a question, please? I would like to ask Mr. Biggio if he could talk about the differences in the substantive merger review. In the U.S. we focus mostly on consumer injury and consumer welfare loss. In France, for example, they worry about employment loss, whether or not the domestic company can compete against the merged company: sort of a public interest injury standard as opposed to our consumer standard. So how do you reconcile these substantive differences?
MR. BIGGIO: Certainly the substantive differences exist, and they become important to the extent that a single transaction is exposed to both regimes. So the national antitrust authority can't make a decision on a case without having to mix the apples and oranges or actually make a decision about reconciling these conflicting policies. In some cases, given the nature of the transaction, what might be the rule in France can be remedied in France without jeopardizing the transaction in the United States or elsewhere.
In other circumstances -- and this happens very
infrequently historically but will happen more increasingly in the future, as Joel commented -- there will be a transaction where there is only an up or down decision, and each jurisdiction is going to have the ability to make that call. And that's the real challenge we're going to face.
As Joel said, everybody likes their form, their policy, and their substantive rules. And as transactions come up that cannot be fixed on a jurisdiction-by- jurisdiction basis, it's exactly that kind of conflict that's going to produce the tension that we saw in the Boeing/McDonnell Douglas case, where there really wasn't that much opportunity for each jurisdiction to do its own thing without causing significant tension with other jurisdictions.
There is not an answer to the question at this point, but that is the challenge for the future: to deal with the cases like the Boeing/McDonnell Douglas case which haven't happened as much so far, but will be happening many more times in the future.
MR. JORDAN: Assuming that egos hadn't gotten in the way of the Glaxo/SmithKline thing and they had
gotten themselves together and the European Community said this is fine over here, would you guys at Justice and FTC have said it's not so fine over here. What happened?
MR. BIGGIO: I'll let George speak to that because I don't think that's much different from precedent that they've already set.
MR. CARY: Without commenting specifically about that transaction --
MR. JORDAN: You can because it didn't go, it's all right.
MR. CARY: I don't want to prejudge a hypothetical transaction.
MR. RILL: Or any other, I hope.
MR. CARY: Historically we have been able to take care of our domestic problems with fixes that are perhaps worldwide fixes, but do not threaten to jeopardize the entire transaction. In the original Glaxo-Wellcome transaction, for example, we did require some divestitures of some medications that the two companies made in competition with each other that were produced overseas.
In the Sandoz deal, we required certain divestitures not threatening the entire transaction, but protecting consumers where they would have a dominant position.
The real difficulty comes when you're implicating the entire transaction. I don't know that we've faced that question head on so far, and I'm sure it will be an interesting experience when we do.
It's less likely we will face that situation than in other transactions that might be more local, where you're talking about single product line -- for example -- which are less susceptible to resolution through consent. Boeing/McDonnell Douglas is one example of a deal which would have been hard to resolve short of a challenge. But that's a very tough question, especially when there are efficiencies from the deal, and they are going to be blocked along with the market power if one jurisdiction challenges the transaction.
MR. SIMMONS: Both of those companies, as Vernon implies, are UK based and had over 50 percent of their business in the United States. So the possibility you allude to could have easily come up.
I wonder if I could go back to something, George, you referred to and, Joel, you mentioned in your quick survey -- the political dimension -- and ask if either or both of you would expand on it a little bit? You talked a lot about different procedural issues and standards. It was also Vernon's question.
And you mentioned home team sports. I wondered if it should be dismissed as quickly as you dismissed it as a potential issue as this thing unfolds in the future? And you said that home team sports is not an issue, and you implied it wasn't an issue. On the other side, I would like to hear you expand on that and the extent to which you feel home team sports could get into the game, short of a WTO solution or something like that.
MR. KLEIN: I know the players involved in the transactions, so I have a personal conviction about whether there were home team sports influencing the outcome of that.
Having said all of that, it's also predictable that the two antitrust agencies would say no, no, no, this is all wrong -- it's always better to say that you disagree on the merits than to say that politics
influenced your decision.
Having said all of that, I tell you that there was a lot of legitimate concern, that the Europeans were trying to protect Airbus, and I think those issues were raised. And one can't discount the perception, regardless of what the reality is. And I think you will see more of that and that is why I think there is a transition as you go from merger to trade to competition.
How you do it? Do you scrap the antitrust agencies in a way that I think people do not think is right for the United States? And I think they're right.
I do not think that the FTC took a dive on the case because it was a home team merger. That's because we have a lot of history and a lot of unpopular decisions. But how that is going to play out in other parts of the world is unclear to me. The problem is that it might point to a multilateral process. Who are the three judges in the multilateral process? Why are they any less political than the European Commission? That is the whole conundrum.
MR. RILL: The challenge to this Committee and the United States and other enforcement agencies as well,
is how to minimize the uncertainty which is created when the general theme seems to be absolute harmonization of standards and merger enforcement. It is not something we're going to see in the immediate future.
As I think Chairman Pitofsky said in his speech on Boeing/McDonnell Douglas, the European decision was driven -- and he puts it, I think, very diplomatically by saying it was driven by a difference in the law which has a focus on competitor protection, whereas we focus on consumer protection. Translate that any way you want. That isn't going to change tomorrow, I don't think. Even in a jurisdiction as close as Canada, they still have investment considerations in their antitrust merger law.
Given that, what can we propose as the question for us to deliberate on? What we can produce that will reduce the uncertainties that arise from the disparate root differences in enforcement? The thought occurs to me that greater communication and greater transparency at least is a strong step in that direction.
Perhaps we should look at the possibility of developing some form of guidelines for dealing with communications, but I think we also need to consider
where confidentiality issues really shake out in all of this. I think that there's more discussion about confidentiality issues than reality may actually justify. That is my own personal view, however.
The other thing it seems to me that we have to consider, in candor, is that there may not be a uniform view among all merging parties that convergence is a good thing. There may be those that think, although I think it's less true, that there is an advantage in moving first for approval say in a "soft country", than presenting it first in let's call it the more "rigorous country," with a de facto result implicating a political solution and saying, "Okay guys, what are you going to do now?"
In honesty, we have to consider this is a possibility that is a strategic course of conduct that makes a lot of sense. But it's declining because I think there is greater international cooperation and greater coordination.
I throw these out as questions and areas for deliberation in the merger field that I think are important.
MS. BAIRD: Jim, if I can comment on that last point, it might be worth while to have the staff do some look at analogous legal regimes, foreign, domestic. For example, on a number of heavily regulated industries, there are multiple agencies that take the same basic charter and interpret them as requiring them to look at different things -- and some State, some Federal, sometimes multiple Federal agencies -- and this is not all new and unique to antitrust.
If we identify some of the questions that we really want to focus on, such as the benefits or burdens of multiple jurisdictional review and multiple standards, we may well want to take a look at some analogous legal structures to inform this and to also enhance the persuasive value of any conclusions we might reach.
MR. BIGGIO: I think that is an excellent way to proceed. As I think about the merger area and what problems arise, I always come to think about it in practical terms. As I opened up saying, there are basic business objectives that every merging firm wants to achieve. And if you sort of push through what it is they're trying to avoid -- transaction costs -- and
trying to achieve -- some deal that is basically economically acceptable to them -- and try to figure out at each step along the way what it is that can be done to minimize the transaction costs without jeopardizing the review, even on the basic practical procedural level, I think that's valuable.
On the other hand, trying to figure out what accommodations can be made in the substantive review that allows the transaction to go forward, at the same time protecting the legitimate interests of the individual jurisdiction is a much harder problem. It seems to me by trying to break the problem down to smaller steps, it at least makes the constructive recommendations easier, even though they may be small.
MR. RILL: I think we have only done part of our job, as George pointed out, to look at mergers in the traditional context. Mergers and joint ventures in the intellectual property field are expanding in importance by a great magnitude. I think this is one area that is going to be a real challenge to this Committee -- to consider how in the global context we would recommend the agencies of the United States proceed in those types of
MS. STERN: If I could stay on this point about the forum shopping problem, which certainly we encountered at the International Trade Commission under section 337, where some of the intellectual property patent, copyright, or trademark matters were concerned about import infringing and could choose, if you will, to come to the ITC or to the courts.
So I think that's a terrific practical idea for us to just see how this has been dealt with in experiences that we have already had in other jurisdictions.
My question is: I would like to understand better how, when there are reviews, either by Justice or the FTC, that have implications in overseas jurisdictions, whether authorities take account of either public interest arguments, such as Vernon spoke of, or just the views of foreign authorities?
Is there -- are there provisions for such hearings? And if there are, and we are already listening, what weight are they given? What does the law instruct the authorities to consider when it comes to
testimony from foreign authorities and other interests of other publics other than the U.S.?
MR. BIGGIO: Just briefly, that is -- principally in the U.S., the process of receiving information from other authorities is informal and embodied in the cooperation agreements Chuck spoke of earlier. We're a law enforcement agency, and our decision is to whether we exercise our prosecutorial discretion to seek court action.
Discussions are done informally, and the opportunities that arise for us to listen to the DG-IV, for example, have been done under agreements with other jurisdictions that are subject to the various confidentiality requirements -- it is basically an informal process. If they have facts, that's great, they have an analytical approach that we haven't thought of, that's great too.
Certainly the ultimate decision is going to be, consistent with the fundamental question here, whether or not consumers will be harmed as a result of this transaction. We wouldn't deviate from that policy objective in making the decision.
As I said, on our side is an informal process. On the EC side it is somewhat more of an administrative process: It gives people a chance to come in and hold hearings like in the McDonnell Douglas case. I could go to the hearing to listen, not speak, at least at that proceeding. At least there is some opportunity for some formal relationship in addition to the various informal conversations that we have with them every day, and the Department's investigating staff has informal conversations with them every day on the various matters that we are both reviewing.
MS. STERN: I think we have to think of long term solutions as well as baby steps, particularly when you're talking about home team sports and the politics and the diplomacy. It may be something that we want to think about that might be suggested provisions, recommendations for at least having a formal hearing of the other side or allowing you, for example, when you went over to observe the hearing, to also make a statement.
Again, drawing on my experience at the International Trade Commission: We would hear from the
public and we would have public statements. There were questions about how much we took that into account under the law. So there may be some baby steps here. I'm wondering what the FTC's experience is?
MR. CARY: Basically the same as what Charles described at DOJ. We are a law enforcement agency. We have legal restrictions on what we can and can't consider on making decisions on the merits, but we have prosecutorial discretion. Part of that discretion can involve comity or other issues. But the fundamental merits decision has to be based on whether our consumers are going to be injured. I think a more practical approach historically is to listen to the concerns expressed and to see whether there is a way, consistent with our statutory mandate, to avoid the harm raised by the foreign nation. For example, if a foreign government raises concerns about employment issues arising from a required divestiture of foreign facilities, can we think of relief other than structural relief to solve the problem, that gets us what we need and, at the same time, takes care of the problems on our side? For example, can we seek a license as opposed to divestiture of a plant
that's located overseas -- something of that nature? If we can do that, we would certainly strive to do that.
MS. STERN: You're already doing that. It's a question of how you can build on that accommodation.
MR. CARY: Again, within the confines of a prosecutorial discretion point of view, as opposed to shirking our responsibilities to enforce U.S. law.
MR. RILL: Let me invite --
MR. SIMMONS: Before Joel gets away, I wonder if you would expand a bit on positive comity with regard to market access with a couple of variations, just to see whether you had given any considerations to that? You used Sabre computer reservation system as an example of how positive comity could be used. Would, in your opinion, positive comity be an applicable solution? And I'm going to give you two examples.
One would be a developing nation which restricts market access, then becomes developed but continues to limit market access. And the second one would be two or more nations who agree not to export to each other, then export 20 or 30 or 40 times as much to a third market such as the United States? Would, in your
opinion, positive comity be a potential solution?
MR. KLEIN: The second one wouldn't, in terms of our world view, because that is a government decision. It may be an anticompetitive one, so that's the problem.
On the first one, I think it is an appropriate one. What we need to do, though, and this goes to some of the WTO functions, we need to get developing countries as they develop and get to where they're major players in this economic world, to have well-developed antitrust systems. Then you can get the positive comity referrals, and I think there will be real pressure brought to bear when these referrals take place. They involve trade-type issues and those are often seen in political terms. Still, given our experience, I continue to think that other countries will respond reasonably well to these referrals. It's clearly a developing process.
MR. RILL: Picking up on something that Dick said earlier, it seems to me that we need to consider the role of unilateral enforcement on an effects-test basis. The Committee needs to consider this. While positive comity may work with a country that has a strong tradition of enforcement activity which is relatively
close to that of the U.S., I wonder how effective it is elsewhere?
As you suggested yourself, not to put too fine a point on it, but if that doesn't work, and the WTO seems to be premature as an answer to the market access problem, then I think we need to examine the role of unilateralism, to coin a phrase, in dealing with the market access problem.
I think another thing we need to examine is the scope of the problem, and Dick's hypothetical to raise another issue. And that is I think you're right, Joel, to characterize your statement and paraphrase it a bit, by saying that governments are perhaps the greatest trade restrainers in the world.
Maybe we don't have an answer yet to that question, particularly in areas of intellectual property. Intellectual property can be an important element in this discussion. May I follow up on --
MR. MELAMED: Up.
MR. RILL: As a backup, perhaps.
MR. MELAMED: The market access issue is somewhat different, at least in degree from the other two
issues we talked about in this respect. If the barriers to market access are the result of some restrictions on competition in the target market, then at least in respect to the competition enforcement agency, the target market ought to have a great deal more at stake than the export market.
We might have one or two firms trying to export to a foreign country -- they have a problem with real market power information, consumer injury in their domestic markets. So, from that one could draw the inference that positive comity is unlikely to work because if it were likely, the domestic authority would be concerned about the problem without at least depending on that to integrate that concern.
And by the same token, if the domestic markets are not concerned about the state of competition at home, then unilateral enforcement, while perhaps effective, would create tensions.
MR. RILL: No question about that, but I think your analysis presupposed a commitment in the country where the restraints occur to consumer welfare rather than a commitment, perhaps, a greater commitment to
MR. MELAMED: If there were such a commitment, you may not have such a problem. It's because you don't have that kind of commitment you both have an access --
MR. RILL: Isn't this the sort of situation where we need to take a hard look at unilateral enforcement?
MR. MELAMED: Absolutely, I think.
MR. KLEIN: I think one way to do this it goes to the politics in the country. Most countries care about welfare, but if we make a positive comity referral to antitrust agencies, even though that antitrust agency might be under domestic political restraints, this international liaison may actually empower them, and that is something we need to consider.
MR. RILL: There is an enormous role to be played in pushing for transparency in these kind of relationships.
MR. KLEIN: If we make a referral and third-party agencies impinge on the process, that really gets the local agency potentially furious because it looks like they're being co-opted and it also enables
them to say to their trade authorities: This is what we have to report back to the Department of Justice, the Federal Trade Commission or the referring agency.
I think we need to think through the dynamics of the process not just the theoretical.
MR. RILL: Not to talk about the merits at all, but I think the transparency that was undertaken in the computer reservations system matter, with Justice issuing a press release and DG-IV publicly accepting the computer reservations system case, was a strong step in the right direction. Positive comity is something the Committee needs to look at.
MR. THOMAN: Part of this is just a question of time: If it's a relatively new process then, in how optimistic a time, with the current set of pressures at work -- five or ten years from now -- positive comity will work fairly well, at least between the developed worlds? Or is it that the standards are pretty immutable and not likely to change much?
MR. KLEIN: I think there is going to be de facto convergence as the amount of cases you work on grows as the world becomes more globalized. Vernon
brought up the French, who take industrial policy into account. That will, again, erode as we move forward because of the way global markets work. What you will see, although it will take time, is de facto convergences. But you're never going to see perfect agreement.
I have to tell you, in the United States, it is entirely conceivable under the same antitrust law that two top antitrust enforcers could come to somewhat different views.
But having said all of that -- I think the de facto convergence is increasing in the industrialized world. I would guess that in nine out of ten cases there would be no difference between us and the Europeans; us and the Australians.
MR. DONILON: I agree that cooperation over time will breed convergence. And I think we would do a service if we could work towards common forms and procedures and things like that in the real world that help these transactions go forward. Firms experience substantial burdens right now both in terms of expense and in terms of predictability and timing. Where does
the Department and the FTC, the prenotification office, stand on working on this issue: potentially having common forms, filing periods, evidence sharing? I guess that's part of the 1991 agreement? With respect to that, where does it stand? What do you think the prospects for it are, and I guess the point is: Are we prepared? Is it important enough for us for this to happen, for these transaction costs to be lowered, to actually make some changes in procedures that have been in place a long time?
MR. YOFFIE: Before you answer that, I want to reinforce one aspect that builds on that. Anytime you want to get multilateral or bilateral cooperation, the critical issue is: Do we have our own house in order? This is a variation of the same question. To the extent we're perceived as not being coordinated and having multiple fora you reduce the prospects for cooperation with international parties. To what extent do we also need to think about our own internal house -- Justice, FTC, State, Commerce, and so forth -- as a piece of the problem we're looking at here?
MS. STERN: Can you answer that in two separate
MR. KLEIN: That is just about the time we want to go to lunch.
Let me start specifically. I think the candid view and one of the reasons you want input from a group like that here, the candid view is agencies tend toward inertia. You know that and I know that. In an idealized world, I would not want to change a thing in our forms and timing, if everybody else adopted our forms and timing. And I think that is right on the merits.
MR. RILL: Not including your second request.
MR. KLEIN: This is a man with a different view than when you sat where I sat. There is no doubt there will be domestic resistance to some things. We're working on it at the OECD, and my experience has been that there is a great deal of resistance toward change.
Now, in fact, three European countries have, as far as I can tell, a common form. Nobody uses it. I think that goes to the larger issue that David just raised -- I am not adverse if there are things we need to do to get our domestic house in order. That's always a risk when you take creative, talented, independent people
in a room, but I think you need to think that way, Tom. I think that's very important.
MR. CARY: Can I take a crack at those questions? This is to elaborate on Joel's point. Let me give you some examples of the differences. In Europe, for example, instead of using an objective basis SIC codes listing their product as we do, it is a much more subjective basis. The ability to objectively say these two companies make the same thing or don't make the same thing contributes to our ability to say you have early termination, you're out of here. Whereas a more subjective form may require more investigation. So there are costs and trade-offs of going with that procedure. Another --
MR. RILL: Ray has been trying to get our attention. Go ahead.
MR. CARY: Another side of this is that their process is administrative. They have much more discretion as an administrative agency as to what to do. We have to go to court to block the transaction. In our review process we need documents in much greater numbers than they need, because we must prove our case in court.
Those are the kind of trade-offs that are implicated here; if you want to give parties the opportunity for judicial review, immediately, rather than go with an administrative process where the agencies' decisions are binding.
MR. RILL: Ray.
MR. GILMARTIN: Going in a different direction before you go, one of the things we face as an industry -- it affects European-based pharmaceutical companies as well as U.S.-based firms -- is an area that falls in the middle between trade and antitrust, and it's not clear if it fits into this Committee -- when the European Community's Member States use price controls as a means of controlling healthcare costs, it has the practical effects, it limits competition based on innovation, and it limits competition in general. It's an unintended affect perhaps in many instances, but it also -- so it limits market access, it limits competition, and it is to the detriment of the consumer ultimately.
Yet there is -- and we've discussed this at round tables with the European Commission and Member States -- there is no hook, no easy hook here in terms of
how you get after this. Is there an antitrust thrust possible on it? Or is it -- it's not clearly a trade issue as well, but it's where regulation comes into play to limit competition.
MR. RILL: You think it's part of -- I think it's fascinating and nothing is beyond the scope of consideration by this Committee along the lines of any kind of trade or business barrier that we confront locally.
MR. GILMARTIN: As it relates to intellectual property as well, it has the effect through parallel trade, through fixed prices and open --
MR. RILL: We're about ten minutes out of time. Joel, you have testimony up at the Senate. We thank the Department leadership for their stimulating participation and guidance this morning and also to George Cary, the ambassador from the FTC, for your participation. We will break for a non-working lunch of this Committee.
I would like as a personal favor if possible, to get back really as close to 2:00 as we can. I'm going to have to leave a little early. It's 12:40. If we can reassemble at 2:00?
(Whereupon, at 12:40 p.m., the meeting was recessed for lunch, to reconvene at 2:00 p.m., this same day.).
MS. STERN: One of the big issues is what do we do with all of these problems? How do we go forward? Merit, if you want to give us some beginning remarks on this in terms of the working groups and just based on the memo you sent out to the group last week, I think you were kind of tipping people off to think about what their particular interests are. Why don't you just talk about those three, and then let's open it up for people to have just any comments they want to offer.
MS. JANOW: Let me offer a couple of procedural observations and perhaps a personal perspective. All of you have had more experience than I have in working in this kind of committee context, so I ask you please to educate me in what you think is the most efficient and effective way that we might proceed.
Joel gave us some guidance, I think, in terms of thinking about the Fall of '99 as the time frame that we should target by way of completing our work. What form that work takes is for you to decide as to whether it's a single product or multiple products.
We have and are hiring a staff to make sure that the burden on you is limited to the substantive input you wish to provide, and that the staff can provide the groundwork to help you.
We also are hoping to be able to help give you background data on all issues that are useful to your deliberations.
We'll also be working with each of you and your staff to identify specific meeting times. Everyone is busy, and I think the sooner we can agree on a whole schedule of meetings, the more likely we'll be able to have the full Committee involved. And so we'll hope to get back to each of you within the next week or two to start nailing down those dates.
I think that we have both an obligation and an opportunity to get views from the outside into our process, and a web site is one vehicle, but I think we need to think proactively about pulling in those experts that we can identify as being useful to this process or interest groups, domestic and foreign.
One way that I thought might be useful for us to move ahead is by identifying some cluster of each of
you to participate in working groups, with no limitation as to how many in each cluster. It's really up to your interest, and the time that you have available to participate. We should have at least three working groups. That is to say, the Justice Department and Joel Klein have identified the areas of multi-jurisdictional merger review, enforcement cooperation, and trade and competition policy this morning as the three core issues that have animated the Division into initiating this process.
We haven't yet had an opportunity this morning to really get the benefit of your own thinking about the issues that have intrigued you to come forward into this process, so I think, obviously, we're going to spend the afternoon getting a far better sense of your own interests.
But one approach that we could take going forward is to have some self-selection here among those three working groups, or full participation in all, if your schedules permit. That's one suggested approach for moving ahead.
Those working groups would then work hard on
each of those issues, define issues and identify input, domestic and international and, as your work proceeds, inform the rest of the full Committee.
So that's a procedural suggestion that I welcome any reactions you have. One thing that I think we'll do right after this meeting, if you concur, is to try to generate what we understood to be the core concerns in each of these areas. But you should consider that very much a work in progress and not limited at this early stage, but a work in progress, so that we can over time create something that identifies core concerns for each of the subgroups, that's my suggestion for one way of proceeding.
MS. STERN: Thank you, Merit. That's very helpful. Let's start off the discussion. Thoughts on anything, including particular emphasis you wish to see or procedurally how you would like to -- what you think of Merit's proposal. We can talk about this morning or the procedure this afternoon.
MR. DUNLOP: I would raise a procedural element. If you're serious about inviting European people or Japanese people or the WTO, since we've had
discussions about that, it seems to me that's a matter you're going to have to schedule fairly longer range. That's nothing you can say, "Come to our meeting on X date." So the meeting date schedule and those sorts of meetings are going to have to be integrated.
And I think that's very much -- I also may, on a procedural level, a suggestion, that you distribute to us all each other's mail, address, telephone numbers. If I want to call one of you up and say I didn't like what you said, how about this, what about that, we have a direct way of communicating. You put the e-mail addresses in, if that's also possible, so you can do it by e-mail instead of other ways. Those two comments grow out of my experience.
MS. STERN: Thank you.
MR. RILL: I think John raises a good point to the extent that it both relates to the subgroups and the meetings scheduled. To the extent that there would be top level formal inputs into the Committee, by law, those would be public sessions. Such a hearing would probably more likely be a full session as opposed to a working group meeting or perhaps a combination of the two.
It seems to me that scheduling that kind of roundtable, perhaps, of those inputs would be something we'd have to schedule in advance, and I think it's something -- personally I think it's something we ought to do.
MS. STERN: I agree with that, if we can do it. So it's a very practical suggestion, and we'll see if we can.
As for the list we have and we'll do it again after this meeting, exchange everybody's addresses, but it may be now that we have our web site and our e-mail for this Committee, that in order to assure that there is communication instead of having to CC everybody, we can send it through --
MR. JORDAN: I think on this e-mail web site business, you have to keep in mind there are some of us who adamantly refuse to enter into this part of the world. I'm one of them. I hate e-mail, I hate all of this. I've got it, it's there.
Also there is a privacy issue and the confidentiality issue, as relates to that, and I think that ought to be kept in mind. There are some
traditional old-fashioned ways of communicating, and I hope that will not be dismissed in this process.
MR. SIMMONS: Where do faxes fall in that?
MR. JORDAN: I hate it.
MR. RILL: It depends who picks it up.
MS. BAIRD: Is voice mail okay?
MR. JORDAN: I hate that.
MR. RILL: I think another thing that would be helpful, if we're circulating the address information, is to the extent that we have, as I do, people in my own shop helping me in connection with this Advisory Committee and don't mind doing so, to identify those persons in addition to the Committee Member, as someone whom you might communicate with, send material to. If you want to do that, I think it would be helpful to expedite the thinking.
MR. JORDAN: Mr. Co-Chairman, you said something this morning as one of the lawyers was talking you said please send us the cases. What I would like to amend is that they send us briefs of the cases.
MR. RILL: I was actually saying send us a list of the cases, but I think it would be a good job for
Chuck to abstract those cases for you.
MR. STARK: Anything else, Jim?
MR. RILL: Brings back old times.
MR. JORDAN: We can bring back the canned briefs, but I haven't done that since law school.
MR. RILL: I was thinking citations, but depending on workload that obviously would be helpful.
MR. SIMMONS: Jim or Paula, there's a number of people in Washington whom I think could make a significant contribution to one or more of the three areas of focus. I'm thinking of people right now -- Alan Wolff, of Dewey Ballantine, and Bob Lighthizer -- both of whom you know are really knowledgeable people in these areas that impinge on trade, not just on products I make, but as you know a wide range of products who, I think, don't come with a particular point of view.
I remember Alan Wolff when he was an unabashed free trader. These are really good people, and I'm sure there are others as well you might want to ask to participate in some fashion, if the Committee structure allows it. They are also fast talking lawyers. They may be able to bring some legal light to the subject that
some of us who are engineers don't have.
MS. STERN: I think we hope to have procedures by which we can pull as many good thinkers into this as possible, and I think actually one of the papers we included was Alan's --
MS. JANOW: I think we didn't include that yet.
MR. SIMMONS: Both Alan and Lighthizer were at USTR and now they're both in private practice and very good.
MR. RILL: One of the ways of doing that is to utilize the working group format or a one-on-one format, -- in fact, I recently met privately with Alan Wolff to discuss these issues. Obviously any of us should feel free to talk to anybody at any time -- but I think the subgroup or the working group formulation is a decent way to do that for speed and convenience.
I think, for example, an Alan Wolff would have more to say about the trade and competition area than he would about cartel enforcement. Maybe you wouldn't need a full meeting of the Committee to have those kind of exchanges. We do need outreach.
One of the things that occurs to me is when you
look back, not through personal experience -- I wasn't that old -- if you look back to the '55 Committee, there were a number of academics and legal economic types that really had spent their entire life in antitrust, so therefore they produced a very valuable antitrust book.
We have a diversity of views and that may perhaps be even more valuable to this effort. We will, however, need some input, significant, substantial input from the antitrust and trade community. We're going to need to do outreach to outside sources to produce technical help that would be useful to us -- the kind of views that Alan Wolff can provide.
There are views perhaps on the other side we should solicit, as well, in that area. We should consider asking Diane Wood, to the extent she's available, to talk to us regarding issues on the competition side.
But I think the subgroup structure, if I may point out, is something that's amenable to that kind of input as well as the formal submission of papers.
MS. FOX: I wonder if you think it is important for us to get started with some of our hard work in the
form of subgroups?
MS. STERN: Yes.
MS. FOX: Before we start thinking about whom to invite, we should know what we want to ask them. Perhaps the subgroups can come back to a meeting of the whole with the questions or propositions we think need to be examined. Then we can give direction to those whom we want to appear before us.
MS. STERN: That's a good segue into it. I would like to talk about the next steps in the work program breaking down into the three working groups, and would like to survey you all to see if you have preferences for where you would like to serve. We've had some informal conversations before this meeting, but if we could kind of start to see a show of hands on expression of interest.
MR. JORDAN: Have you informally arranged us already?
MS. STERN: No.
MR. JORDAN: I don't believe that.
MS. STERN: I have had a conversation with a man over there. Let's see if he was right, Vernon, do
you have a --
MR. JORDAN: Can you put in a request? I would like to be on the merger post.
MS. STERN: And I was right.
MR. GILMARTIN: Trade and competition.
MS. JANOW: There is no limit. It's only your time. You don't only have to choose one.
MR. THOMAN: How much time would it take?
MS. JANOW: I realize very well when you joined this effort you were aware of four meetings a year, but subgroups probably need to meet once before each meeting.
MR. GILMARTIN: A subgroup --
MR. JORDAN: Are you full-time staffing this or are you teaching and other things?
MS. JANOW: I am a full-time professor at Columbia, but shall give this as much time as it needs. It is very important.
MR. JORDAN: How much staff?
MS. JANOW: Stephanie Victor is joining us, and we're hiring two additional people, full-time staff attorneys. I'm in the process of interviewing for those candidates. I have a pile I'm working through and a
couple of very appealing prospects, but we're very enthusiastically looking for candidates as well.
MR. JORDAN: There is a direct correlation between the effectiveness of the staff and the effectiveness of this Committee.
MS. STERN: That is why we're so lucky.
MR. JORDAN: The extent we get pushed by the staff is the extent to which we do our work better. That has been my experience.
MR. RILL: I think your point is well taken, Vernon. On the other side, I think at least in my case when I was asked to serve, I recognized that I was going to have to put significant personal time into it and perhaps more valuably dedicate some of my own firm's resources to doing some of the staff work, if you will, in this Committee.
MR. JORDAN: Part of the honor of being co-chairman.
MR. RILL: But for the honor of the thing, Vernon.
MR. THOMAN: To the extent we're able to leverage resources in that way, we can use staff
MS. STERN: Absolutely.
MR. THOMAN: I think trade and competition. I also may spend some time in mergers also.
MR. SIMMONS: Given a choice, I would also like to be in the trade and competition. I recognize we're going to have to balance this out. Since you're asking, I don't mind first choice.
MS. STERN: That's exactly what we're doing. Zoe?
MS. BAIRD: I'm open. We'll see what you need.
MS. STERN: We need cartel enforcement.
MR. RILL: Is that a generic comment or Committee comment?
MS. BAIRD: That's truly -- I don't know about studying it. No, I'm happy to do that, whatever you would like.
MR. RILL: The Division will be devoting a lot of resources as well.
MS. STERN: Your guidance would be extremely helpful in carrying that through, and naturally we're not going to take up time that's not needed. We'll use the
resources where needed, but just to know.
MS. BAIRD: I have no lawyers on my staff any more, you have to remember, so I can be part of this, but others have to staff it.
MS. STERN: You're looking at someone who is totally sympathetic with you, Zoe, because I'm staffing my staff. Steve.
MR. RATTNER: I don't know a thing about international cartel enforcement. I think you've penciled me in for mergers. That probably makes the most sense.
MR. DONILON: I would like to work on the merger enforcement side as well.
MS. FOX: I would like to work on trade and competition and also the part of merger enforcement that regards the clashes of jurisdiction as opposed to the part that regards the common reporting forms.
MS. STERN: Eleanor, are you focused on -- when you talk about that, the difference in standards?
MS. FOX: Yes, I would like to work on the part that includes standards. Different standards can cause a clash. Sweeping in a little industrial policy under the
rug causes clashes, too.
MS. STERN: Thank you.
MR. DUNLOP: Trade and competition, and I'm particularly interested in the borderline. I've been a little uncomfortable myself with the discussion because there is a large amount of trade to which I do not think antitrust statutory standards are appropriate, and where there may be anticompetitive behavior, all the roles of government. For example, country X says, "If you want to build a bridge, you've got to build it with one of our employees. If they don't do it -- we only give cement to people we're used to dealing with."
Or as I was discussing with the person sitting here, if all of the retailers in the United States say we're not going to import your clothing because it is made with child labor, or accidents are too high, now that clearly seems to me to violate various kinds of competitive standards, but they may be very socially respectable.
And I'm not comfortable with the distinction with what violates antitrust standards, and what we
choose to enforce are very different rules. I would rather get the standards built into the rules rather than treat it as somehow an enforcement proposition myself.
But anyway, that's the kind of problem as well as your issue about healthcare.
MS. STERN: And Ray's point about the parallel pricing.
MR. GILMARTIN: Fixed prices.
MS. STERN: Excuse me, fixed prices. It may be that part of our job is really going to be defining some areas which may not be, as you said, on point for an antitrust committee. We may want to consider a recommendation that says there should be another group set up that does deal, you know, with those areas.
So the point is: We need to define what's in and what's out and, even if it's out, it may still be something that we can make some recommendations of how to at least move the thinking forward. I'm sorry, David?
MR. RILL: I thought we missed David on the last go-round.
MR. YOFFIE: Merit got to me this morning, and I said I was interested in the trade and competition.
MS. BAIRD: David, I would also ask you to be involved in the cartel enforcement issue because information technology increasingly would be how these cartels would be forming and doing business, and you would be very valuable.
MR. YOFFIE: It's like any of the other comments made by Vernon and Rick, it is a question of time, and I have no staff. It is just me.
MS. STERN: Your points on incentive versus penalty even in the cartel enforcement --
MR. YOFFIE: That is something that cuts across all the areas. How do we create the appropriate set of incentives to get the kinds of cooperations required to make any of these things work on a bilateral or multilateral basis? It's going to be as time allows, is, I guess, the only thing I can say.
MS. STERN: That's the spirit.
MR. JORDAN: I think the most difficult thing that you're going to be confronting is the time of the members of the Committee. So I think that to the extent that you can set dates for the task forces and set dates
for the entire Committee meeting, I think for all of us - - the sooner the better because everybody has something else they need to be doing. And if it's planned sufficiently, we can work it out.
To the extent we can know dates and times and places as early as possible, that would be very helpful.
Ray doesn't like this because I've already discussed it with him, but Saturday morning might not be a bad time to think about it. It might cause him a little domestic tranquility difficulty.
MS. BAIRD: Those of us with children are glad we've moved into the information technology age and use e-mail and aren't going to meet on Saturday morning.
MR. GILMARTIN: You notice I went for trade and competition.
MR. JORDAN: I'm just telling you that time is everything and everybody around here has a lot to do. But we can work it out if we know sufficiently.
MR. YOFFIE: Something else on that wave length, which is, there is another use of information technology for those of us who are not located in Washington. If you want to have to try to have shorter
meetings that might be done via video conferencing that might make it also more possible. Otherwise if you're coming from someplace else, it is a much larger commitment and makes it almost impossible in many cases.
MR. JORDAN: Do you have a budget?
MS. JANOW: I have a budget that is being formed and informed as we speak.
I think some of these subgroup meetings can also occur by telephone so we don't all have to meet in the same location. I'm very mindful of what you're saying about locking in these schedules right away for the next 18 months as to the full group. And as to subgroups, to the extent that we can do so, better still. And I'm also very mindful of what you're saying about good staff work in synthesizing issues.
My intention is to synthesize issues but also give you the back up detail to fill in as your particular interests lead you.
MS. STERN: We have a few more moments, and I'm wondering if there -- if Eleanor or anyone wants to kind of delve into the scope, as you envision it, for the working group that you're particularly interested in? I
turn to you, Eleanor, just because you've done so much professional work in this already.
MR. RILL: Can I preempt Eleanor because I'm going to have to leave in about ten minutes? I'm a victim of merger enforcement and I'm going to have to go down and meet with a Commissioner of the FTC. Maybe we can decide on that issue?
MS. STERN: It has been noted.
MR. RILL: I want to apologize to all members of the Committee for this interruption.
Joel has been very clear and articulate about the three areas, broad areas that he would like us to cover. I just think that we, particularly you, colleagues, should not feel limited if you think there are other areas that don't fit nicely into those pigeon holes, you think we ought to take up.
Ray, if you're concerned that what you're talking about doesn't necessarily fit a neat, defined box, that doesn't mean we shouldn't consider it. If we want to assign it another title, that's up to us. If we want to fit it into a pre-defined place, that's up to us. I think the beauty of this Committee is the broad range
of expertise and broad experience it brings to the table.
I would hate to think that those of us who have different ideas or different permutations of the existing areas that Joel and his colleagues have described would feel inhibited from bringing them in, because frankly this may be the best chance we have to bring it to the attention of the United States Government.
Again, I guess I speak for Paula too, as Co-Chairs we'll help out with all three and whatever other areas we can and put the time and effort into helping, but don't hesitate to call. I'm sorry, Eleanor.
MS. FOX: No problem. I'll just say a few words about some thoughts I have, taking a different slice from Joel.
There are some very separate subjects that we're interested in. One is business. The interest in business cuts several ways: minimization of transaction costs when unnecessary transaction costs are imposed on business;
and freedom of business to engage in transactions and move across the markets of the world unrestricted by artificial restraints. I would construe business interests as well as the second and third to
coincide with world welfare.
Number two is enforcement, optimal enforcement for the Justice Department and how it can improve it. We can also think of this in terms of all agencies across the world. How do and should authorities cooperate to get optimal enforcement?
The third is, I think, the most challenging. We have global transactions but national systems. This means there is a balkanization, both of enforcement and the way people look at markets. There are global transactions that sometimes call out for global perspective.
I'm not saying that we should go to the WTO for a global solution, although that is one of the possibilities on our plate. I am saying that we need coherence and unity in thinking about world transactions.
This problem falls into two categories. One is on the nation to nation level. There are many clashes because of many national laws trying to achieve basically the same thing, but doing it differently. Systems clash and we need principles to resolve the clashes.
The other is: We have the opportunity to think
about transactions globally. We may have a better appreciation and may find better solutions.
For example, market access should be viewed as a global problem.
There are anticompetitive state rules, and some of them are not proscribed by the world trading system. There are also anticompetitive private restraints of trade. When we think about opening markets, and we have to think about how to do it: by competition rules, trade rules, or a new combination.
MS. STERN: Do you think that those areas are dealt with in a separate rubric not within the three slices that Joel and the working groups --
MS. FOX: I think that Joel suggested the correct three slices. I was just putting issues together in a different way.
The trade and competition issue is separate. The premerger notification form and merger coordination is a transactions cost problem, whereas the substantive law of mergers may be a conflicts problem.
For both mergers and market access, we have to figure out whether we want convergence of national law to
solve the clash problem before it arises next time, or whether there should be some higher principle of law.
I think we should think about what a single world substantive standard would look like if we had one merger law. If the law says "no anticompetitive mergers," we still have to know what "anticompetitive" means.
I wanted to add a thought to Joel's outline, but I can stop if I've talked too much.
MS. STERN: Go ahead.
MS. FOX: When Joel was talking about ways to solve the world problems such as access to foreign markets, he said we can have unilateralism, cooperation, or maybe -- I'm making this simpler than he said -- the EU proposal for a WTO code. I think that we might also consider some middle ground, and surely there must be some middle ground.
One middle ground to throw onto Jim's that you do have is that transparency becomes the most key point -- this is me, not Jim now, so, Jim, I don't want to put my wind into your mouth.
MR. RILL: I associate myself fully.
MS. FOX: There could be a world discipline
that says to all countries, "we're going to apply -- it also goes to Vernon Jordan's point-of-view, there could be a world system discipline that says everybody is going to analyze mergers, first of all, on competition grounds, but if you choose to analyze them on jobs grounds, or X- Y-Z grounds, or national defense grounds, this must be very explicit.
And if you cannot authorize an anticompetitive merger without telling us this additional ground, why at least if this is teased out and the process is transparent, you can then think about what you do for the next step. Perhaps the merger is anticompetitive and hurts the consumers of the world. But the country has authorized it on a non-competition basis.
Then we can start to think clearly about how a world system should treat its priorities of national sovereignty or world welfare.
MS. STERN: I think that's a very interesting suggestion. And not to detract from it, it still can't resolve the problem we have where you have different standards on what is competitive and what isn't.
MS. FOX: This is a problem, and we have to
talk about it.
MS. STERN: The other question is: How do you enforce that? Does, as a matter of practice, a demonstration effect encourage others to do that?
MR. RILL: Disclosure, at least, is a good step.
MS. STERN: That is exactly right, get our own house in order.
MR. JORDAN: May I raise an issue that I would think is not directly a part of our mandate, but I think it certainly impacts our mandate, and that is this historic blind justice view, one or the other between the public sector and the private sector. In that there are certain assumptions made by people in the private sector that are wrong and misinformed about people in the public sector who have enforcement regulatory supervision. But the same attitude exists on the public side. Wrong assumptions, misinformation, and somehow maybe we can find a way to address this problem of how the private sector would better understand what the mandate is down here, and the people down here can better understand what Ray is trying to do or Rick at Xerox. I think that
historically has been a fundamental problem.
Secondly, we're trading with countries most of whom never heard of or do not have a Foreign Corrupt Practices Act. When you try to get your fruit from one side to another, the guy says you have to pay me, you say we don't do that in our country, and your fruit rots if you don't get it to market. There is a lot of misinformation and misunderstanding about two processes that are very important and make this democracy and free market what it is.
So it seems to me -- I don't know how we do it. The Yale School of Management was supposed to have a way to solve it, but all the graduates went into business.
But something, it seems to me, has got to be thought about so we can make people in these two sectors understand one another better. And I don't know how we do that, but I do know that it's a problem and, of course, the other problem is how we make different countries in different cultures appreciate one for the other.
MR. THOMAN: I had a thought. One is: It would be useful somewhere to have access to a fact base. You
argued to the extent industries are concentrating around the world it makes issues more important. To the extent they're deconcentrating, maybe less important, maybe in certain industries they're more important than in other industries. Maybe we want to focus a little more selectively industry by industry. To do that we have to have a fact base to where we think the issues will be particularly relevant as we go forward.
MS. STERN: Of course you stipulated us off on the high tech as well.
MR. THOMAN: That aspect is all conjectural. More conjecturally, think how that impacts competition in the future is another -- it may be useful as opposed to doing every industry in the world everywhere. We get some sense of where these issues are going to play and be important and in a little more focus.
MS. STERN: As the composition of the Committee was considered, of course, we -- it was recognized you can't cover everything.
MR. THOMAN: That's implicit; you may find it's more explicit than that.
MS. STERN: I think we are talking about trying
to get analysis. Merit, you want to give us insight on that?
MR. JORDAN: Before we do, may I have that hall pass I asked for earlier?
MS. STERN: Yes, you may. Thank you for your contribution, Vernon. See you soon.
MS. JANOW: I would like very much for us to reach out to investment banks and business consulting shops and professors and all, to give us some sense particularly on the merger and analysis side, and if I may call upon Steve, I was going to say that I didn't have a chance to ask you this privately before --.
MR. RATTNER: This is not one of the things I was going to serve about.
MS. JANOW: I know the Division keeps data on the mergers it reviews, some data on multiple reviews of the transactions it reviews, so I'm hoping to extract from the Division the data it has, which is a particular slice. But I think what you're talking about is more prospective economic trends, which I think is very important for us to consider. Another dimension we haven't talked about, but you just alluded to, is the
conduct of deconcentrating and privatizing enterprises in their own environments and internationally. So to the extent we can bring in some data analysis, I think that --
MR. THOMAN: Maybe the cases we talked about were highly concentrated.
MR. DUNLOP: The discussion uses the word industry, but the real question is products. You may have industry that is highly decentralized or other products that are very highly concentrated, so there are all kinds of output that is controlled by the three largest firms, five largest firms. But the real problem is the SIC code, which is a very much more complicated subject, and I'm not aware quickly of a general availability of that sort of information.
So I'm just trying to suggest to you it's a tougher problem than you might have thought because it's not industry.
MS. STERN: It's a data problem.
MR. DUNLOP: It's a product.
MS. STERN: But getting the data broken down to more commercially relevant --
MR. DUNLOP: Let's just say it's more --
MS. STERN: You're saying you've done all of the research in this area, you're going to discourage us from -- David, you take it.
MR. DUNLOP: There are any number of people in business school.
MR. YOFFIE: I think what he's saying is that the average statistics aren't going to do us much good. If you're looking at the area we're talking about this morning, Richard, you said you were buying -- I've forgotten the product, graphite electrodes. That is not something that would show up in these statistics, but those are the areas you'll see the kinds of cartel arrangements that are potentially damaging.
MR. DUNLOP: Take the list of cases they didn't proceed with this morning. Archer Daniels -- it isn't coal or something like that, it is those two specific assets. So it's a product issue.
MR. THOMAN: You're exactly right. And industrial goods. Others you could argue. Boeing/ McDonnell, the large bank concentrations are just a few more -- I think you're correct, but we still may be able
to approach it and get some substance from it.
MR. YOFFIE: It would be more useful for the merger than the cartel information. It would apply differently in different areas.
MS. JANOW: I interpreted what you're saying as "it" being primarily a merger.
MR. THOMAN: And the competitive issue.
MS. JANOW: Yes.
MS. STERN: We have to get a sense of the universe against which we're making policy recommendations and where that universe is going to be in the next five, ten, 20 years. That was one of the reasons why I was asking just generally on the kinds of cases that had been before the Justice Department and the FTC. To the extent to which they have been increasingly internationalized and reflective of the sectors of the SIC codes, I think it will be very informative to the extent we can get it.
MR. DUNLOP: May I raise one other question and I'll try -- one of the memos I would like to see in keeping with the remark one of our colleagues made about getting our own house in order is to what extent in
Federal countries -- US, Canada, et cetera -- are state antitrust actions a problem? I'm well aware that in the United States we have some ambitious -- maybe that's unfair -- attorneys general who choose to enter this, and then the question is has that turned out to be a problem? How are those problems resolved when they arise? If we're going to get our house in order, which I think is very sage advice, we ought to have some idea to what extent state attorneys general in their prime have been a part of the solution, a part of the problem. Our Co-Chairman was telling me privately that there are many cases where the state attorneys general have put into effect under such cases pretty anticompetitive solutions to problems. So I would just like to know, and I think we all ought to know, what has been the activity in this country of the State antitrust authorities.
MS. STERN: In fact, if we're asking for a memo from the Justice Department or for some research to be done for this, it would be telling not only in terms of the remedies they might suggest, but also in terms of transaction costs again.
If we as a body make recommendations about
other countries getting forms and time tables aligned with the U.S. and vice versa, I suspect we may hear from other countries saying, gee, we would like these states to get their forms and requests aligned.
So I think informing us factually to the extent to which this is a problem will help us make a better recommendation going forward and getting the house in order.
MR. GILMARTIN: Just following up on the transaction costs, that's important, but also other things such as predictability are important as well. When you're about to consider a transaction, the first thing you consider is: Can I get it done? And you're not going to trigger anything because it's just too devastating to start in and not complete it.
To the extent there is lack of transparency, the barriers are too high, because of the regulatory complexity, it would have a very chilling effect on the number of mergers that were done for acquisitions. So that's another cost, if you will, in a different way, an opportunity cost if we don't resolve some issues.
MS. BAIRD: If I might, predictability has two
aspects to it. One is what jurisdictions might have interest, and that isn't obvious and isn't always defined in advance. And in this area a real contribution could simply get the potential field of jurisdictions or regulatory entities defined in advance. Then secondly, what do they need to know?
Not necessarily outcome, but obviously standards would be the third thing ideally. But often the standards are known, if you can guess who is going to be jumping in, and if you can figure out what they're going to want, you often don't get the first two, even though you know the third.
MS. STERN: David, I'm sorry, are we still on transactions?
MS. FOX: I wanted to talk about state and private actions.
MS. STERN: Shall we stay on the state thing, then go --
MS. FOX: What John said is correct, though I wanted to add a word of warning: This could detract us from other issues that we have to focus on more carefully. There has been an enormous amount of work
done on the cost of private actions. There is a Georgetown study on it. They did a symposium and a study about five years ago, in response to complaints that state and private actions increase the costs of transactions.
Our state attorneys general are falling in line with federal formulations on premerger notification and timing in order not to rock the boat. So I think, while state and private enforcement is a really important issue, it's going to distract us.
MS. BAIRD: That is why I made my comment too, if I might add, I don't think anybody will usefully recommend that people who have jurisdiction should not play in the game. I think that could become a huge distraction for us, and there might be areas where you say there ought to be federal preemption, but it's really a huge distraction.
But if you at least know everyone who might be in the game or what they might require in terms of data and you might get to some uniformity of data requirements, people are used to going to multiple jurisdictions in all of these industries, as you can say
as well as I might.
MR. YOFFIE: When Joel presented this morning, I was fairly convinced that this was a reasonable way to organize the structure of this group. But now after thinking about it a little bit, I'm not quite as certain. I think it might even be a little premature to start working in the narrow on individual working groups because I think there actually are some themes that cut across all the groups that are really going to be the critical issues for this group to consider.
We've talked about in all of these areas there are questions of overlapping jurisdiction. This is something that each group has to consider. We've talked about the question of getting our own house in order. That cuts across all the groups in thinking about the appropriate organization for the U.S. Government to effectively pursue competition. It certainly applies across all the areas. How do we think about streamlining procedures? That's going to be relevant to all three.
We've talked about trying to create incentives for cross-national cooperation, whether that be bilateral or multilateral. That cuts across all of them.
We haven't talked about, again, specifically things about how the new information economy cuts across potentially all of them in a variety of different ways, which would be e-mail on cartels, which I don't think is all that relevant, but it could be to questions of whole new areas that are currently not being considered by the Justice Department because they're too new.
But that's where we have the opportunity to get ahead of the game again. We don't have anything here where we're specifically addressing that.
I at least want to pose the question where we might think initially about some of these themes more broadly, then come back to some specific organizations around these particular areas which I think will help the Justice Department, but I'm not as clear that starting with the individual areas is necessarily going to yield the best results.
MS. JANOW: Can I ask us, David, if this bridges the gap? Because these themes cut across all and I think even if we were to form groups, we would be in our full group meetings discussing all subjects.
So in a sense, my hope is that if we do proceed
down working groups, that is, in fact, generating themes also for consideration. In other words, we do both simultaneously, just as a way of proceeding. I think if we don't operate in some sort of task force, that our ability to go deeply into each of these areas might be somewhat more constrained. I'm wondering if we could do both simultaneously. In fact, charge ourselves with the identification of cross cutting themes even as some go deeper in some areas.
MR. YOFFIE: The only problem again is overlap and, potentially, redundancy. Someone has to be certain that that is not happening because people here don't have the time to do that.
MS. STERN: That's a job of the discipline that Merit and the staff is going to bring.
MS. JANOW: And the Co-Chairs.
MS. STERN: We're going to be here as well. In fact, Jim and I are going to try to participate as much as possible and in all of the meetings. It's obviously a function of time.
MR. THOMAN: I assume because you can't do everything, I assume there has been an argument that goes
back and forth for a number of years that certain capital markets benefit host companies in those capital markets more than others. The Japanese have 1 percent. That's a competitive advantage. You can argue national companies, the old multi-nationals and the new multi-nationals, those at least, are things we haven't mentioned, but I assume we're to keep this thing within manageable dimensions. I assume we really don't want to consider them.
MS. STERN: That's my take.
MR. THOMAN: Nobody has mentioned that the sources of competitive advantage come in all sorts of flavors, and we have to keep it manageable, I would assume. Is that the sense of this group?
MS. STERN: I think so. And we can, by the way, in our book is the charter, and I think having participated in a number of competition policy advisory groups as a member and a director -- I was on the one that was set up by Congress and the President and went on for several years -- I think that we ought to stick with our comparative advantage and focus that the Justice Department set us up with.
MS. JANOW: Since the largest group here of interest is in the market access area, Joel identified three ways of thinking about market access: traditional barriers, structural, and conventional antitrust. And my experience coming out of the trade business is that, oftentimes, what American business has identified as problematic in doing business internationally is some combination of business practices occurring abroad that may or may not be operating in an environment of antitrust laxness or discriminatory enforcement but may not, in fact, be an antitrust-defined problem.
So I think there might be some work to be done here in thinking about what are the trade and competition issues that need to be considered by this group and where are the gaps between what is a Justice Department focus versus a trade focus might produce in terms of how governments think about these problems. Is that constructive?
MR. THOMAN: It's not the traditional things, more new things that aren't -- many are related to technologies, as we stated before.
MS. STERN: In what sense that it may relate to
MR. THOMAN: For example, that a search engine looks for certain Japanese products and nobody else is biased, so that kind of issue. Just an example.
MS. FOX: It's a CRS bias.
MR. THOMAN: Right, a CRS notion applied to the Internet.
MS. FOX: There were three in the field and there was no combination. That is a gap area, especially if the antitrust enforcement would not be anticompetitive. We don't want to suggest any rules that themselves would be anticompetitive.
MR. SIMMONS: I don't want to be a pessimist, but I hope we don't set our expectations so high with regard to what it is we'll be able to accomplish within the range of the number of meetings that we have scheduled without a massive amount of staff work.
I would also like to remember what I think Joel has told us is our responsibility, and that is to try and create a photo color road map that might, in the future, lead to some type of voluntary coming together of the different policies of countries around the world. I
could fill books with the differences between one economy and another, whether it be with regard to value-added tax rebates which, of course, gives them an export advantage, but which our courts have found to be legal as long as they're not specifically applied to an industry. Or a difference in social costs or no layoff policies which means you produce an excess. I don't really think that's what our charge is.
I hope what that charge is, is to try and provide a series of directions that, at least, the Justice Department would consider, accept, or reject, as Joel indicated, as something that could be used as a base for hoping to move other countries and us to some common direction. Although even he admitted it might take a long time to reach it.
I think that there are a number of fundamental issues in the area of cartels, as one example, that are clearly in violation of what we consider to be antitrust anticompetitive behavior, by definition. And I think that ought to be examined and we ought to try and offer suggestions that might lead to accomplishing the things that Joel Klein outlined.
The area of competition and access is a more difficult one because all of us think of it so frequently anecdotally. We've had an experience in a given nation or nations in which we're convinced that we are precluded from those markets and we believe that's anticompetitive. And I think we talked about what a number of those would be -- a developing nation which is now developed which continues to exclude competitors. I think Korea is a classic example of that. How we can frame those thoughts? And whether or not we can even frame them in a fashion that the DOJ feels comfortable with is another question. I think the issue that I did not define clearly this morning to Joel is that a number of companies in different countries, not the countries themselves, reach agreements not to compete with each other and therefore divert trade to a third country. It might be the United States, it might be Europe, it might be some other country. I think those are the broad issues I hope we're going to spend a great deal of our time on. As we start to peel the onion too finely, I think we're going to get bogged down in details that will not be productive.
MR. THOMAN: I agree. I was just trying to make explicit what we are going to do.
MS. STERN: I agree with everything you said.
MR. SIMMONS: Everything?
MS. STERN: Absolutely. I wanted to question one thing, however, and that is the recommendation to the Justice Department because I see this also potentially overlapping with recommendations that will have impact beyond the Justice Department. Joel did talk about informing the Government and I think one of the reasons that has animated the creation of this Committee is that there has been issues of multiple interest, not the traditional, FTC/Department of Justice, but the goal of international activity with trade agencies and the Commerce Department as well as with the Justice Department.
So there may be things that we may be coming up against which will have implications for changes or recommendations or regulatory adjustments outside of the Justice Department.
MR. SIMMONS: I agree with that. But our boss in this particular case is DOJ.
MS. STERN: I thought it was Merit.
MR. SIMMONS: It's Merit then DOJ, who is paying the budget.
MS. JANOW: Hopefully we'll have lots of bosses.
MS. STERN: Too many, any other comments? Merit I know has already started to make some phone calls around to make sure in answer to Vernon's point that we try to get the next meeting dates for the entire year locked in. And I turn it over to you, Merit, to tell us when we will next hear from you.
MS. JANOW: You will hear from probably someone, Stephanie Victor, or others, coordinating with each of your offices about calendar. As I said, that's started, but we hope in the next two weeks to be able to circulate an agreed upon timetable for the next 18 months, at least for the full group.
We were thinking that May was the appropriate time frame for the next meeting maybe late August. Some are saying no, not late August. Let's do it early September then kind of late October/November time frame. That's one kind of benchmark I'm thinking of, at least,
this calendar year. But we'll be in touch with all of you to be much more concrete.
But if there's anything, if I may ask all of you, if there is anything that you think that others should read or consider, please send that to my attention. I think at this point while structure is critical, I hope we can also be a little experimental in getting the benefit, for those of you who own large companies, your individual views and those of your corporations, and really get a lot of input into our system here.
We had talked informally that at some point of trying to have some sort of hearing process or roundtable process. It's premature to talk about, maybe at this point, specifically what that might focus on, but any thoughts you have even at this early stage about those processes, and groups to reach out to, that's helpful.
As I say, there will be an opportunity for interested groups to provide input to us through the federal register notices and the web site and so forth. But there are others that we know of who are doing work, and we know the OECD and WTO and intergovernmental
organizations are discussing exactly these issues, as well as the ABA. There is some work going on in this broad field that we're aware of, but all of you are likely to know of others, even if you think it's obvious, feed it into us. It would be helpful.
MS. STERN: You prompted me to add to the different groups that are looking into this for my own personal work and advice with the Trans-Atlantic Business Dialogue, and I know that continually today the US-EU came up. And when we were talking about the three different models, Joel talked about a unilateral model, then positive comity, then he talked about the notion of using the World Trade Organization, but there may be baby steps as I was suggesting this morning, where the U.S. and EU may be closer together and we were briefed on a number of those that we might be able to accelerate some of the recommendations, if they're applicable in US-EU conduct. Whether they're actually ready for prime time on a global scale, or as Brittan suggested, on a WTO scale.
So I wanted to share that with you all because it is one of my personal interests, and I know Rick
you're going to be participating in the competition policy aspect of that Trans-Atlantic Business Dialogue with both U.S. CEOs and European CEOs. For you all's further information, it does seem that the molecules are moving faster in US-EU trade and just general dialogue right now. President Clinton and Prime Minister Blair will be meeting again in May. Blair of Great Britain has the lead these six months in presiding over the EU as well, so there may be some interesting developments that will accelerate some ideas and I hope that, as a group, we can think immediately as well as thinking long range for what the panacea shall be that will come from this group.
I also wanted to make some other point about small- and medium-sized companies. We talked about transaction costs and naturally transaction costs are going to be disproportionally born by companies that might come in under the smaller rather than larger category. And I was stimulated by a conversation I had at lunch, off line, about those U.S. companies which may not hit the barrier in the EU that triggers EU review but rather triggers a country-by-country review in Europe, so
that you have multiple transaction costs of having to fill out forms in each one of those countries, except, as we heard, France, Germany and England share a form.
So I think to the extent our collective group can think about the entrepreneurial types and the smaller emerging middle-sized companies as well, whether they're in high tech or not, I just wanted to put it on the table.
MS. JANOW: Could I give you a footnote on this thick volume that some of you have claimed was a little too thick. We're going to be sending you things that should be considered resource materials for you and others in your organizations. We will try to distill it so we direct you to that which you might find most useful to read.
In this first volume there is the EU Experts Report that was the European counterpart to this effort. The EU's Van Miert and others brought together a less diverse group of antitrust experts and considered what should be done and that's what they've produced. So you might want to take a look at that. I think it's not a consensus document but it does find points of consensus.
Jim and Joel both referenced the 1955 Attorney General's report. That is a multi-volume, very serious treatise. And the EU treatment is comparatively slim. I would hope that in this process we can go much further than the EU because, as someone said, this is still a new field.
MS. STERN: Further comments? Further instructions? Gratuitous remarks? Well, we're ending before the time allocated, which, I suggest, indicates how efficient we're going to be operating. I would thank again each and every one of you for giving us all of your time today. It was 100 percent. We've all sat on a lot of different committees. This one is particularly ambitious, particularly as Merit pointed out, Joel sees this like a comet, every 20 years hopefully shedding light for the future.
It's also pretty long. We'll be sitting for a period of time up to 18 months, or more if necessary. So I thank you for what I think was a terrific beginning and you'll be hearing from us very, very soon. And with that, the meeting is adjourned. (Whereupon, at 3:14 p.m., the meeting was adjourned.)