Charles S. Stark
Chief, Foreign Commerce Section
U.S. Department of Justice
Section of International Law and Practice
of the American Bar Association
Hyatt Regency Hotel
August 8, 1995
I am pleased to have this opportunity to comment on the role that the antitrust laws can play in ensuring that markets are open to international competition. The growth in world trade over the last forty years speaks for itself in demonstrating the marvelous job that our trade negotiators have done in forging an open global trading system. World trade has increased 12 1/2 fold on a real basis since the GATT came into force in 1948. The United States, along with the other members of the GATT, have benefited greatly from the free trade environment that has resulted from the many rounds of multilateral trade negotiations. The importance of international trade to the United States is beyond doubt. Two years ago, 22% of our GNP was attributable to international trade; today that figure is 26%, more than two and a half times greater than just 30 years ago.
Antitrust law and policy have an important role to play in ensuring that market forces are allowed to dictate the flows of international trade and the allocation of resources within the global market. As world markets become increasingly integrated, and companies become more and more global in scope and operation, antitrust laws will play an ever-increasing part in ensuring that competition flourishes and is not restrained by private business practices. I stress the word "part," however, because, as the ABA itself recognized in its February Resolution on this topic, competition laws have an "important but non-exclusive" role to play in enhancing market access. U.S. antitrust law, like the competition law of most countries (the EU is to some extent an exception in this respect), does not generally apply to acts of government, domestic or foreign, that restrict competition. Instead, the removal of governmental restraints on international trade is the domain of our trade negotiators, through the negotiation of bilateral or multilateral rules and procedures. After these governmental barriers are removed, we must then be concerned that the fruits of our bilateral and multilateral trade negotiations are not undermined by private anticompetitive practices that simply substitute new barriers for the old ones. This is the domain of antitrust law.
We now find ourselves in the happy situation that the great majority of formal governmental trade barriers have been removed or are in the process of being removed. It is precisely because of these positive developments that the ABA and many other groups have begun to consider and debate the proper relationship between competition policy and trade policy in obtaining or maintaining access to the markets of our trading partners.
We have been considering the merits of these and other approaches to the private restraint problem in a deliberate manner. Our approach -- that of the Justice Department -- in dealing with anticompetitive practices that impede market access in international trade has four principal aspects:
- First, the encouragement of sound competition laws and enforcement policies in other countries:
- Second, the application of our own antitrust laws to foreign practices that restrict market access by U.S. exports;
- Third, enhanced cooperation and coordination with our sister antitrust agencies abroad; and
- Fourth, multilateral efforts to identify specific problems and solutions. Let me discuss each of these approaches in turn.
(1) Encouraging Sound Competition Laws and Vigorous Enforcement Abroad
The ideal way of addressing anticompetitive practices that deny access by American firms to foreign markets is for governments to stamp out those practices in their respective markets. This should not be a revolutionary notion, since collusive or monopolistic business practices that restrict foreign competition have a direct and adverse impact on the consumers in that country. The foreign authorities will often be in the best position to remedy trade-restricting private activities by their nationals, since they will generally have the best access to information about the conduct, and will be able to assert their authority most easily over the firms engaged in the market-closing behavior.
Therefore, our first strategy for eliminating trade-restricting private behavior has been to encourage foreign governments to prevent and eliminate this conduct within their own borders. In order for this approach to be successful, however, the foreign country concerned must have in place a strong antitrust law that prohibits a range of collusive or monopolistic practices similar to those prohibited by the Sherman Act and that provides sufficient authority to its enforcement authorities to eliminate the unlawful practices. To deter these activities, the foreign laws should also provide for penalties on violators that are sufficiently high to offset the potential profits that companies believe they can derive from the unlawful conduct.
Obviously, however, the effectiveness of even the best crafted antitrust law will depend on the willingness and ability of the relevant authorities to enforce the law vigorously against unlawful practices that restrain competition from foreign competitors. We too often see, even today, countries with reasonably sound antitrust laws failing to provide the resources or political support to their competition authorities to enable them to enforce their law effectively.
Given the importance of foreign government action to prevent and eliminate practices that hinder market access, we have devoted significant efforts in the last several years in encouraging our trading partners to adopt appropriate competition laws and to provide the resources necessary for their competition authorities to enforce the law effectively.
Many of you are aware of our discussions with the Japanese Government aimed at reinvigorating their antimonopoly enforcement. Over the past six years, in the Structural Impediments Initiative talks, and continuing in the U.S.-Japan Framework talks, we have been encouraging and cajoling Japan to strengthen the Japan Fair Trade Commission's ability and willingness enforce its Antimonopoly Act in a way calculated to eliminate the cartels and entry-restricting anticompetitive practices and market structures which many believe have been pervasive in the Japanese market.
There has been some progress in this effort. Over these six years, the number of personnel in the JFTC's Investigation Department has increased from 129 to 220, an increase of 70%. This has resulted in a marked increase in the number of formal enforcement actions taken by the JFTC, from an averaging of 6 in the period proceeding the SII talks, to an average of 27 over the last three years. The Japanese authorities have also begun criminal antimonopoly enforcement again, after a nearly 20 year hiatus, and have increased their criminal and civil fines substantially.
Most significant, however, may be the JFTC's establishment of an Import Restraint Task Force in April of this year that will investigate and prosecute restrictions on import competition. We are hopeful that creation of the Task Force spells the beginning of a long-overdue Japanese Government commitment to eliminate the collusive and trade restrictive practices that have resulted in a number of Japan's markets being effectively closed to American and other foreign competition.
Our efforts to encourage the adoption of sound and effective competition laws and enforcement policies have not been limited to Japan. In fact, we have provided advice and assistance to around two dozen countries in the last 5 years on the drafting of their competition laws or on the enforcement of those laws. Our efforts, reinforced by similar efforts of a number of our trading partners, appear to be paying off here as well. We are seeing a newfound interest in antitrust policy around the globe. And, at our last count, approximately 55 countries, representing about one-third of the countries of the world but more than 80% of the world's GNP, had enacted antitrust or competition laws. Of course, since as many as one half of all competition laws in the world are less than five years old, many of the countries are still developing the expertise and political support necessary for sound and effective enforcement.
Despite the proliferation of competition laws around the globe, there may still arise situations where foreign antitrust authorities will not be effective in preventing anticompetitive practices in their markets that stifle U.S. exports. In those circumstances, we need to have other options for removing the impediment to free trade that the world community has a right to expect.
One option in these circumstances is for our trade negotiations to use the tools at their disposal to open the market, whether through quiet diplomacy, section 301 action or multilateral dispute settlement. I defer to Ambassador Lang to address these options more fully.
(2) Applying U.S. Antitrust Laws to Foreign Practices that Restrict Market Access by U.S. Exporters
A second option that may be available is to eliminate the anticompetitive practices through application of U.S. antitrust law. This option constitutes the second prong of the Justice Department's approach to enhancing market access overseas.
The Antitrust Division is committed to using the full scope of its authority to challenge unlawful practices that restrain the domestic or foreign commerce of the United States. Restraints imposed by foreign firms can harm the American economy just as surely as those imposed by domestic firms. Thus the Sherman Act, as reaffirmed by the Congress in the Foreign Trade Antitrust Improvements Act of 1982, properly protects American exporters from anticompetitive restraints imposed by foreign firms in foreign markets that have a direct, substantial and reasonably foreseeable effect on U.S. domestic or export commerce.
Of course, U.S. antitrust enforcement action of this kind is not a practicable or appropriate way to deal with every instance of foreign anticompetitive conduct. We have to be able to obtain personal jurisdiction over the defendants, get access to sufficient evidence to prove our case in court, and, in civil enforcement actions, have remedies available that a court will be capable of enforcing. And, as we said in the new Antitrust Enforcement Guidelines for International Operations that we and the FTC issued this spring, we take account of considerations of international comity in making our enforcement decisions -- factors that include, I would note, the effectiveness of foreign antitrust enforcement as an alternative to remedying the problem through U.S. enforcement action. In the past year and a half we have successfully taken a number of actions directed at practices that, if unchecked, would have had a significant adverse impact on U.S. trade.
In May 1994, the Division charged Pilkington, a British firm, and its U.S. subsidiary with monopolizing the flat glass market. The Complaint alleged that Pilkington entered into unreasonably restrictive licensing arrangements with its likely competitors, and then over the course of three decades used these arrangements and threats of litigation to prevent American firms from competing to design, build and operate flat glass plants in other countries, even though it no longer had any enforceable intellectual property rights to warrant such restrictions. The Consent Decree entered by the court bars Pilkington from restraining American and foreign firms who desire to sell their technology outside the United States. We have estimated that this action could increase U.S. export revenues by as much as $1.25 billion by the turn of the century.
Just last month, the Department filed, and simultaneously settled, a suit to enjoin the plan by France Tï¼ï¼¤om and Deutsche Telekom A.G. to purchase $4 billion of stock in Sprint Corporation and to form a joint venture with Sprint to provide global telecommunications services. The Department concluded that the combination of foreign monopoly firms with a U.S. long distance firm could place other U.S. telecommunications firms at a competitive disadvantage since it created the incentive to discriminate against other competitors in access to France Tï¼ï¼¤om's and Deutsche Telekom's monopoly networks and services. The parties have agreed to a consent decree which, if entered by the court, would ensure that this discrimination does not occur. The decree is particularly interesting because its restrictions will operate in two phases and change over time as competition develops in France and Germany under the EU's telecom liberalization program. During the first phase, which ends when the certain liberalization measures have been put in place by the French and German authorities, the parties are subject to a number of behavior and structural restrictions. During the second phase, those restrictions are to a large extent limited, in areas that have been newly opened to competition, to a variety of reporting, confidentiality and open licensing requirements.
The Sprint case is similar in a number of respects to the Department's landmark consent decree entered last year which allowed British Telecom to purchase 20% of MCI, but only on the condition that British Telecom open its network to all commerce. Just as in the Sprint joint venture, we were concerned that the partial acquisition of MCI, combined with British Telecom's control over the local monopoly in Great Britain, would give British Telecom the ability and incentive to discriminate against AT&T and Sprint. The consent decree permitted the basic venture to go forward, while putting in place measures to assure against such discrimination. As we noted in the Competitive Impact Statement, it might well have been necessary to seek more extensive remedial actions if the policies of the British Government and of its telecommunications regulatory authority, OFTEL, had not been consistent with and, in fact, had not reinforced our non-discrimination objectives.
Last year we also began an investigation of a proposed requirement by the European Telecommunications Standards Institute, or ETSI, that U.S. firms that wanted to participate in European standards setting had to license their intellectual property on a world wide basis. We were concerned that this requirement amounted to an anticompetitive "technology grab" of valuable U.S. intellectual property rights in third generation telecommunications equipment. This was a situation in which EU antitrust authorities also had concerns, and ETSI abandoned its plans while our investigation was still pending.
These cases and investigations illustrate the kinds of anticompetitive activities in the global marketplace that can harm U.S. trade, and against which we are committed to enforcing our antitrust laws to ensure that the successes we and our trading partners have achieved in lowering governmental barriers to trade are not undermined by private anticompetitive practices.
(3) Enhanced Antitrust Cooperation and Coordination
A third part of our approach to anticompetitive restraints on international trade involves a quantum leap in the level of cooperation and coordination among antitrust enforcers around the globe. This is really a complement to the first two approaches. Antitrust enforcement, whether here or abroad, is a fact intensive exercise that requires evidence contained in documents and testimony to reach conclusions about whether unlawful conduct has taken place, or whether the effects of certain conduct are, on balance, anticompetitive. We have all come to realize that in today's global economy where anticompetitive conduct commonly crosses national borders, the relevant evidence may frequently be spread around the world. In those circumstances, effective antitrust enforcement may require obtaining information located in other countries, sharing information with our sister agencies overseas, and in appropriate circumstances coordinating our enforcement activities with those of our foreign counterparts.
For these reasons, we have been giving the highest priority to improving and expanding these cooperation mechanisms. Last year, in response to a Justice Department initiative and with bipartisan support, Congress passed the International Antitrust Enforcement Assistance Act of 1994. The IAEAA -- if you will forgive that unpronounceable acronym -- gives us and the Federal Trade Commission authority to enter into agreements with foreign antitrust authorities to exchange, on a reciprocal basis, evidence possessed by each authority. In addition, the Act enables us to ask foreign antitrust authorities to use their powers to get foreign-located evidence for use in a U.S. antitrust investigation, and gives us the authority to get that kind of cooperation by providing reciprocal assistance in foreign antitrust proceedings.
We have had a very positive response abroad to this approach -- although most other countries will need new legislation to implement this approach, just as we did. Canada, in fact, has just proposed changing its antitrust law to parallel the IAEAA. Cooperation of this nature is an important step toward the internationalization of antitrust enforcement, a trend that will contribute substantially to efforts here and abroad to ensure that global markets remain free from private restraints that impede the operation of the international trading system.
The past two years have already brought some noteworthy and unprecedented successes in international enforcement cooperation, particularly with our Canadian counterparts. In 1990, a Mutual Legal Assistance Treaty between the United States and Canada went into effect. The MLAT, as these treaties are referred to, provides an effective means of cooperative assistance for most types of criminal investigations, including criminal antitrust investigations. Under the MLAT, each party agrees, upon request, to use its own criminal investigative powers, including where appropriate subpoenas and search warrants, to obtain information for an investigation being conducted by the other party.
Last year we announced two criminal antitrust prosecutions that were made possible through cooperation under the U.S.-Canada MLAT. One of our major efforts involved thermal fax paper. After a two year investigation coordinated with Canadian antitrust officials, the Division and its Canadian counterpart brought criminal charges against a Japanese corporation, two U.S. subsidiaries of Japanese firms and one of their executives for conspiring to charge higher prices for thermal fax paper sales in North America. The defendants plead guilty in both jurisdictions and agreed to pay $6.4 million in fines in the U.S. and almost Can$1 million in Canada. Our joint investigation into the fax paper industry is still on-going.
In a second case, which involved price fixing of plastic dinnerware products, the Canadian authorities (including the Royal Canadian Mounted Police) assisted our investigation by searching the Canadian offices of one of our targets pursuant to the MLAT -- searches that were coordinated with searches on this side of the border by the FBI. That investigation culminated with charges against three corporation and seven executives.
This emphasis on enforcement cooperation is reflected in a new U.S.-Canada antitrust cooperation agreement signed just last week. The new agreement replaces an obsolete 1984 agreement. The old agreement reflected an era when many governments seemed more concerned with protecting their businesses from other countries' antitrust enforcement than with protecting their consumers from anticompetitive conduct. That has largely changed, and it has certainly changed for Canada, which has its own very active and effective antitrust enforcement regime. Our new agreement emphasizes antitrust cooperation and coordination, reflecting the reality of our day-to-day relationship with our Canadian counterparts. The new agreement is not an "antitrust mutual assistance agreement" under the IAEAA -- that will have to await new Canadian legislation -- but along with our existing MLAT-based cooperation, it brings us as close as we have come to date to a seamless international enforcement cooperation regime.
Our cooperation efforts and successes have not been limited to Canada. In our investigation of Microsoft's operating software licensing practices last year, we worked closely with the competition directorate of the European Commission in investigating and ultimately settling this matter. That cooperation was made possible by Microsoft's request for a single settlement procedure and its waiver of its rights to confidentiality under both laws. The coordinated settlement resulted in a solution that eliminated the anticompetitive aspects of Microsoft's practices, while ensuring that Microsoft was not subjected to conflicting orders by the two antitrust agencies. We look forward to similar, and expanded, cooperation with our colleagues in Brussels in the future.
(4) Participating in Multilateral Efforts to Identify Specific Problems and Solutions
The fourth leg of our approach to addressing the problem of anticompetitive practices that impede market access is work in multilateral fora to identify specific problems in the trade and competition debate and to seek practical solutions. The most advanced work in this area is currently being done by the OECD. The United States has been an active participant in both the Competition Law and Policy and the Trade Committees of the OECD. These committees have been working together in recent years to find new and creative ways in which both competition law and trade law can be mutually supportive of our efforts to maintain an open multilateral trading system that is not undermined by private trade-restricting behavior. The two committees have organized joint roundtable discussions to consider such topics as cartels, market access barriers, and predatory strategies. These discussions have illuminated the importance of these kinds of practices to international trade.
Just two weeks ago, the OECD Council approved a new version of the OECD's recommendation on international antitrust cooperation. The new recommendation -- developed in a working party chaired by our recent colleague Diane Wood, whose elevation to the 7th Circuit Court of Appeals we've had the pleasure of celebrating this week -- urges member countries to undertake more extensive enforcement cooperation and coordination. Earlier versions of the recommendation have been instrumental in reducing jurisdictional conflict in antitrust enforcement, and we are confident the new version will be equally instrumental in spurring advances in effective international enforcement cooperation.
Where do we go from here? First, it needs to be understood that the efforts I have described are not simply an inventory of past actions. These are ongoing programs that are bearing fruit today and, we have every reason to expect, will be increasingly important in the future. The level of international enforcement activity in the Antitrust Division today is nearly triple what it was two years ago. Close cooperation with foreign antitrust authorities to reach transnational anticompetitive conduct has become a regular occurrence, not the novelty it was just a few years ago. In the coming years, we expect to develop a web of bilateral agreements under the IAEAA that will make that cooperation vastly more effective. The number of countries around the world with new or modernized antitrust laws continues to grow. These initiatives share a common aim with the trade policy initiatives that Ambassador Lang has described -- an open and competitive global marketplace -- and we think they represent real progress and the promise of more to come.
Is it time to take the leap toward multilaterally negotiated global antitrust rules overseen by a supranational body? The prospect has been a siren call over the years, at least as far back as the post-World War II Havana Charter negotiations. Ambassador Lang has noted that the issue of future WTO rules on competition policy bears discussion, and indeed that discussion has been underway in many fora. And he has raised a number of important questions that will need to be considered in deciding whether or not to move in that direction.
There remain substantial differences in the objectives and substantive provisions of the competition laws of the 55 or so countries that have adopted them. While the objectives of U.S. antitrust law are firmly rooted in protecting consumer welfare and the openness of markets, the competition laws of other countries often include such goals as preserving small businesses threatened by the greater efficiency of larger firms, promoting industrial policy, or protecting local companies by offsetting the bargaining power of multinational corporations. Even among the members of the OECD, which represent most of the world's developed countries, large gaps exist in the approaches to competition policy.
Within these differences there is a steady growth of case-by-case bilateral cooperation; but achieving a broad-based consensus on substantive rules would not be easy. Would any such rules be specific enough to guide conduct, or to yield predictable interpretations? If not, would they be used? And if used, would they be interpreted consistently with what we think are the appropriate objectives of competition policy? Could a dispute resolution mechanism be conceived that would deal effectively with fact-intensive antitrust disputes, without running up against the concerns about confidentiality and the misuse of sensitive business information that pervaded last year's deliberation over the IAEAA?
These are some of the questions that need to be considered in deciding on the appropriate multilateral approaches to antitrust in the international trade context. I do not mean, by posing them, to prejudge the answers, and I have not tried in these brief remarks to answer them. They will be examined and answered in the policy fora to which Ambassador Lang has referred.
The point I do want to make is that antitrust is a critical tool for achieving the objective we aim for in the United States and share with our trading partners -- that of worldwide markets that are open to anyone, foreign or domestic, who can compete on the basis of price, quality, service and innovation. The antitrust tools we have now -- using our own laws, increasing cooperation with our foreign counterparts, the spreading foreign acceptance and enforcement of antitrust -- are making an enormous contribution to this objective today and will make a bigger contribution in the years to come.