2 1 | INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
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| 3 |
| 4 |
| 5 | Washington, D.C.
| 6 | Wednesday, July 14, 1999
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| 10 |
| 11 |
| 12 | This document constitutes accurate minutes of the meeting held July 14,
| 13 | 1999, by the International Competition Policy Advisory Committee. It
| 14 | has been edited for transcription errors.
| 15 |
| 16 | ___________________ | ________________________ |
| 17 | James F. Rill | Paula Stern |
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3 1 | INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
| 2 | MEETING
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| 4 |
| 5 |
| 6 | Washington, D.C.
| 7 | Wednesday, July 14, 1999
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| 9 |
| 10 |
| 11 | Taken at The Carnegie Endowment for International Peace, Root
| 12 | Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C.
| 13 | beginning at 10:00 a.m., before Ann Marie Federico, a court reporter and notary
| 14 | public in and for the District of Columbia.
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4 1 | C O N T E N T S
| 2 | WELCOME AND OPENING REMARKS:
| 3 | James F. Rill, Co-Chair
| 4 | Paula Stern, Co-Chair
| 5 |
| 6 | PRESENTATION:
| 7 | Thea Lee, Assistant Director of Public Policy, AFL-CIO
| 8 |
| 9 | MULTIJURISDICTIONAL MERGER REVIEW DISCUSSION:
| 10 | Initial Remarks by Thomas E. Donilon
| 11 |
| 12 | WORKING LUNCH:
| 13 | Discussion of Overlapping Federal/Sectoral Merger Review by
| 14 | William E. Kovacic, Professor of Law, George Washington
| 15 | University Law School
| 16 |
| 17 | TRADE AND COMPETITION INTERFACE AND ENFORCEMENT
| 18 | COOPERATION DISCUSSION:
| 19 | Initial remarks by James F. Rill
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| 22 |
| 23 | |
5 1 | APPEARANCES:
| 2 | Advisory Committee Members:
| 3 | James F. Rill, Co-Chair and Senior Partner, Collier, Shannon, Rill & Scott, PLLC
| 4 | Paula Stern, Co-Chair and President, The Stern Group, Inc.
| 5 | Merit E. Janow, Executive Director and Professor in the Practice of International
| 6 | Trade, School of International and Public Affairs, Columbia University
| 7 | Thomas E. Donilon, Partner, O'Melveny & Myers
| 8 | John T. Dunlop, Lamont University Professor, Emeritus, Harvard University
| 9 | Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York
| 10 | University School of Law
| 11 | Raymond V. Gilmartin, Chairman, President and Chief Executive Officer,
| 12 | Merck & Company
| 13 | Steven Rattner, Deputy Chief Executive, Lazard Frères & Co., LLC
| 14 | Richard P. Simmons (telephonically), President and Chief Executive Officer,
| 15 | Allegheny Teledyne Incorporated
| 16 | G. Richard Thoman, President and Chief Executive Officer, Xerox Corporation
| 17 | David B. Yoffie, Max and Doris Starr Professor of International Business
| 18 | Administration, Harvard Business School
| 19 | Department of Justice Employees:
| 20 | A. Douglas Melamed, Principal Deputy Assistant Attorney General, Antitrust
| 21 | Division
| 22 | Donna Patterson, Deputy Assistant Attorney General, Antitrust Division
| 23 | |
6 1 | Department of Justice Employees (continued):
| 2 | Constance K. Robinson, Director of Operations and Merger Enforcement,
| 3 | Antitrust Division
| 4 | Charles S. Stark, Chief, Foreign Commerce Section, Antitrust Division
| 5 | Other:
| 6 | Randy Tritell, Assistant Director, International Antitrust, Federal Trade
| 7 | Commission
| 8 | William E. Kovacic, Professor of Law, George Washington University Law
| 9 | School
| 10 | Thea Lee, Assistant Director of Public Policy, AFL-CIO
| 11 | No members of the public made an appearance or presented written or oral
| 12 | statements.
| 13 | IN ATTENDANCE:
| 14 | Advisory Committee Staff:
| 15 | Cynthia R. Lewis, Counsel
| 16 | Andrew J. Shapiro, Counsel
| 17 | Stephanie G. Victor, Counsel
| 18 | Eric J. Weiner, Paralegal
| 19 | Estimated number of members of the public in attendance: 20
| 20 | Reports or other documents received, issued, or approved by the Advisory
| 21 | Committee: None.
| 22 |
| 23 | |
7 1 | P R O C E E D I N G S
| 2 | DR. STERN: Good morning. I would like to welcome everyone
| 3 | here. This is the fifth full Committee meeting of the International Competition
| 4 | Policy Advisory Committee. We've come a long way since our first meeting back
| 5 | in February '98, and we're working diligently to release our report by late 1999.
| 6 | You could do it any way you want -- but we're going to wrap it up.
| 7 | Today we have an ambitious program ahead of us. Before
| 8 | describing what's on our plate, I would like to take a few minutes just to review
| 9 | our activities since our last full Committee meeting, which was in March. Since
| 10 | then the Committee has held two days of Spring Hearings, one on April 22nd and
| 11 | another one on May 17th. These round out the set of hearings that we held last
| 12 | November.
| 13 | At our last set of hearings, we were especially honored by the
| 14 | presence of the Attorney General of the United States, Janet Reno, and by
| 15 | Assistant Attorney General of the U.S. for Antitrust, Joel Klein. They were able
| 16 | to join us and to make some opening remarks at our hearing back in May.
| 17 | At our Spring Hearings, members of the Advisory Committee had an
| 18 | opportunity to hear from a number of distinguished representatives of business
| 19 | community organizations, bar associations and other groups that have been
| 20 | developing input for many months.
| 21 | We also heard from individual U.S. businesses, economists, and
| 22 | several speakers who have been involved in providing technical assistance to
| 23 | developing antitrust authorities around the world. |
8 1 | Transcripts of those Spring Hearings are being prepared to be posted
| 2 | on the Advisory Committee's website, where you can also find transcripts of all of
| 3 | our past meetings and hearings plus a host of other useful materials related to this
| 4 | Committee's work.
| 5 | If you have questions about how to access our website, the staff is
| 6 | obviously here to help you. Our Committee members have been very industrious
| 7 | in dedicating their energies to the meetings of our various subcommittees; we've
| 8 | divided ourselves into the trade and competition policy, multijurisdictional
| 9 | mergers, enforcement cooperation and, thanks to Rick Thoman, e-commerce.
| 10 | Turning to our meeting today, let me give just a quick overview of
| 11 | the agenda that we've got this morning. Our opening remarks will be from my Co-
| 12 | Chair, Jim Rill, and then we will commence with the presentation from organized
| 13 | labor. Miss Thea Lee, Assistant Director of Public Policy at the AFL-CIO, will
| 14 | offer us the perspective of organized labor on areas under consideration by the
| 15 | Advisory Committee.
| 16 | Then the Committee will have an opportunity to discuss
| 17 | multijurisdictional mergers, and our fellow member Tom Donilon will be here to
| 18 | lead that discussion.
| 19 | We will then have a working lunch beginning at 12:30, at which time
| 20 | we will discuss the question of overlapping Federal agency review of mergers.
| 21 | Professor William Kovacic will join us, once again, to respond to the questions on
| 22 | this issue that were raised back in March at our full Advisory Committee meeting,
| 23 | when he made his initial presentation to us. |
9 1 | We hope you will be able to stay for lunch. Administratively our
| 2 | banker and gracious Executive Director, Merit Janow, should be given $15, for
| 3 | she has prepaid for the lunch out of her own pocket.
| 4 | After lunch, we have scheduled a single afternoon session during
| 5 | which the discussion will focus on the interface between trade and competition
| 6 | policy as well as on international agency enforcement cooperation. And Jim Rill
| 7 | will kick that discussion off.
| 8 | I would like to take a few minutes to welcome everyone in
| 9 | attendance in the audience. We deeply appreciate your interest in our work.
| 10 | Finally, I would like to note for the audience's purposes that this meeting is
| 11 | designed to receive input from the participants who have agreed to appear today.
| 12 | Accordingly, we have stated in the Federal Register notice, which
| 13 | announced this meeting, that there will be no participation by the audience, or it
| 14 | will all be passive participation by the audience. Even though today's format does
| 15 | not allow for participation from the audience, we do welcome and indeed invite
| 16 | any reactions that you may have to our meeting in writing and, again, please
| 17 | contact our staff if you wish to submit any written comments to the Advisory
| 18 | Committee.
| 19 | Before I cede the microphone to Co-Chairman Jim Rill, I would like
| 20 | to note that we have a very full turnout today of members, both present in the
| 21 | room as well as several on the telephone. All but one of our Committee members
| 22 | plan to be participating today, so I very much appreciate the input and the time
| 23 | spent. |
10 1 | Thank you very much. Jim?
| 2 | MR. RILL: Thanks, Paula. I, too, want to thank the members of
| 3 | the Committee present, either in person or by electronic media. We are coming, as
| 4 | Paula indicated, we are coming down to the development of the principles, at least,
| 5 | and broad areas for inclusion in the report that we anticipate will be filed with the
| 6 | Attorney General and the Assistant Attorney General by year's end.
| 7 | Now, by my calendar the fall ends somewhere around December 21.
| 8 | DR. STERN: That's good.
| 9 | MR. RILL: So whether one wants to say the end of the fall or year's
| 10 | end seems not the most relevant issue. The most relevant issue, of course, is going
| 11 | to be to develop within our own ranks a consensus on positions and transmit that
| 12 | into a scholarly but also directive report that contains positive, well developed
| 13 | recommendations to the Attorney General and the Assistant Attorney General, and
| 14 | also to other audiences to whom we will be directing our recommendations -- or at
| 15 | least directing our recommendations to the United States Government for its
| 16 | discussion, advocacy, potential negotiation with their colleagues in other
| 17 | jurisdictions of the world. And in that connection, we're pleased to see Sybille
| 18 | Frucht here as one of our more loyal attendees at this conference, representing the
| 19 | mission of the European Commission; and also to recognize Koki Arai who is
| 20 | newly appointed as the Japanese Fair Trade Commission member of the Japanese
| 21 | Embassy delegation.
| 22 | As always, we're also glad to see Chuck Stark who is a senior, in
| 23 | terms of service, U.S. attorney involved in international antitrust relations and one |
11 1 | of the real architects of the 1991 U.S.-EU agreement, and many other things as
| 2 | well.
| 3 | With that, we are delighted to have here our representative Thea
| 4 | Lee. And Paula, perhaps you want to make the introduction?
| 5 | DR. STERN: Yes, Thea, I very much appreciate your coming, and
| 6 | we are particularly -- with the guidance of Professor Dunlop -- have been very
| 7 | anxious to bring into our consideration the positions of organized labor on this
| 8 | issue. Knowing of your very thoughtful policy work in the past, I think we are all
| 9 | very lucky that you've come today and have put your mind to this particular topic:
| 10 | the intersection of trade and competition policy. And with that, I turn the mike to
| 11 | you.
| 12 | DR. LEE: Thank you so much, Paula, Mr. Rill, and members of the
| 13 | Advisory Committee and a particular thanks to Professor Dunlop, whose kind and
| 14 | persistent invitation resulted in my coming today.
| 15 | We very much appreciate the opportunity to present the views of the
| 16 | AFL-CIO on these issues to this Committee and the very important work that
| 17 | you're doing.
| 18 | What I hope to do today is focus on the key areas of concern to the
| 19 | labor movement, and I'll skim over some of the areas where there's less
| 20 | controversy, where we are in agreement with the positions put forth by the
| 21 | business community, the academics, and the government officials that you've heard
| 22 | from have already stated. I'm happy to clarify any of those positions in the
| 23 | question and answer, if that is necessary. |
12 1 | The labor movement recognizes the challenges that we face around
| 2 | these issues at the theoretical level, at the political level and at the practical level,
| 3 | and we wish you well in your task of summarizing the diverse views and positions
| 4 | that you've heard and providing the analysis that will guide the future policy.
| 5 | These issues are of a lot of importance to both business and labor.
| 6 | As we see our economy increasingly integrated into the global economy on every
| 7 | level -- through the movement of goods, services, capital and people -- we find
| 8 | ourselves confronted more often and more compellingly with the need to address
| 9 | issues at the supranational level, and I think we've all seen in many of the different
| 10 | debates around trade policy that the concept of national sovereignty is no longer a
| 11 | simple one.
| 12 | Having international rules and standards limits our sovereignty, as
| 13 | we can see, but then, so, too, does the absence of international rules and standards.
| 14 | In the area of competition policy, the issues that have been raised are those where
| 15 | having domestic antitrust law or merger law doesn't do us any good if we don't
| 16 | have some international counterparts. As our companies are transnational, and as
| 17 | their business is transnational, we need to also address anticompetitive practices at
| 18 | the international level. And the same is true of the trade agreements that we
| 19 | negotiate, that the USTR will negotiate. Those trade agreements don't work if
| 20 | there are anticompetitive practices in other countries that negate the benefits that
| 21 | we have spent a lot of time negotiating.
| 22 | One of the things that makes this issue difficult is that it is an
| 23 | inherently political issue. It goes right to the heart of government interaction with |
13 1 | national businesses. There are major economic interests at stake, and we see the
| 2 | issues of economic nationalism, of governments rightly looking to protect their
| 3 | national firms or what they perceive as their national firms in conflict with the
| 4 | international obligations or international principles that might promote more
| 5 | efficiency and a better overall outcome.
| 6 | You could summarize some of these issues as consisting of problems
| 7 | where the prices are too high or the prices are too low, but I'll try to go into a little
| 8 | more detail than that.
| 9 | The labor movement has historically had an interest in seeing that
| 10 | corporate power at the national and transnational level is checked by appropriate
| 11 | government action. The question is how best to do that. One of the areas where
| 12 | we are in agreement with the work of the Committee and most of the people
| 13 | you've heard from is that it's a good idea to encourage countries to develop and
| 14 | enforce sound competition policy. That seems like the kind of thing that happens
| 15 | at a discussion level, rather than needing strict international rules. But some of the
| 16 | other issues that are not covered by trade policy -- transnational cartel behavior,
| 17 | monopoly and price fixing, transnational merger policy, and the anticompetitive
| 18 | behavior that blocks market access -- are not yet dealt with at the international
| 19 | area, but need to be.
| 20 | Other areas of competition policy are covered by trade policy, like
| 21 | national antidumping laws or government subsidy policies. These are both dealt
| 22 | with at the national level and explicitly permitted by international rules.
| 23 | The antidumping laws attempt to prevent predatory behavior, |
14 1 | deliberate underpricing designed to garner market power which is then abused and
| 2 | puts you back into the first category of transnational monopoly behavior.
| 3 | One thing I want to talk about today that I don't think you have
| 4 | talked that much about is when we talk about national or international competition
| 5 | policy, one of the things we're talking about is the terms of competition.
| 6 | What is fair competition, what is unfair competition, what is allowed
| 7 | by national rules or international rules, and what is not? In our view, this is very
| 8 | much a labor issue.
| 9 | As I said, the trade laws today address a subset of terms of
| 10 | competition: subsidies and dumping. And the business community, with the
| 11 | support of the labor movement, has succeeded in identifying and classifying these
| 12 | forms of international competition as illegitimate. A government that subsidizes its
| 13 | export industries will come under international scrutiny, and may be faced with
| 14 | tariffs, compensating tariffs, countervailing duties, and so on. Similarly, the pricing
| 15 | policies in exports are very much under the discipline of international trade rules.
| 16 | The question I would like to raise today for your consideration is
| 17 | whether the systematic violation of internationally agreed upon labor standards,
| 18 | core labor standards as identified by the International Labor Organization, by the
| 19 | United Nations, and by the WTO, in fact, is an anticompetitive practice, and in
| 20 | many senses is equivalent to a forced subsidy where workers are forced to
| 21 | subsidize the profits of the companies that they work for with the complicity of
| 22 | their governments. In these cases, the governments are complicit with the
| 23 | companies in repressing labor rights, in artificially repressing the price of labor and |
15 1 | doing so in an antidemocratic fashion, sometimes a violent fashion, often an illegal
| 2 | fashion. Governments often fail to enforce their own labor laws or fail to afford
| 3 | the rights that they have agreed to by international treaties or by the ILO
| 4 | conventions. There is little oversight to this question.
| 5 | I know this hasn't really come under your jurisdiction. It certainly
| 6 | hasn't been a topic that the Working Group on Competition Policy at the World
| 7 | Trade Organization has addressed, but I think it does go to important international
| 8 | business issues and it's relevant.
| 9 | This issue has been raised unsuccessfully in the Canada-U.S. context
| 10 | where there was early on an attempt by the Canadian labor movement to file a case
| 11 | against the United States alleging our Right-to-Work laws in the southern states
| 12 | were, in fact, an illegal and forced subsidy from workers to companies. If you
| 13 | look at the WTO language on subsidies, and if you consider that the government
| 14 | has a role in many cases in repressing internationally recognized labor rights, then
| 15 | you could see that you could at least make a decent argument that this is
| 16 | something which should be addressed by trade laws, should be addressed by
| 17 | international competition policy, and it's certainly relevant to the issues that you
| 18 | have addressed.
| 19 | Now, all the problems that we've discussed have this in common:
| 20 | They can't be fixed purely at the national level. But the question is, how to fix
| 21 | them, at what level, and how do we best go about this? This is where you have
| 22 | given the bulk of your attention.
| 23 | Many of the people who have spoken and testified before this |
16 1 | Committee have talked about the World Trade Organization, and the beginnings of
| 2 | an attempt to address this issue at the WTO, through the competition policy
| 3 | working group. Most have been fairly skeptical about the value of competition
| 4 | policy negotiations at the level of the World Trade Organization.
| 5 | We would add our skepticism to that you have already heard. This
| 6 | is not to say that this issue should never be addressed at the WTO. I think maybe
| 7 | one day it should. Like most issues that involve conforming national rules to
| 8 | international standards, it is best addressed at the multilateral level. At the
| 9 | moment, however, it's premature to do so at the WTO. The consensus is so far
| 10 | from existing and the national policies are so divergent that even to outline general
| 11 | principles is something that would be hard to do. To expect that there would be
| 12 | compliance with such rules, I think, is beyond where we are today.
| 13 | We also share a concern that the current Working Group on Trade
| 14 | and Competition Policy at the WTO has gone in directions that are detrimental.
| 15 | We certainly do not want to see this competition policy working group used as an
| 16 | excuse to undermine U.S. antidumping laws. That is a serious concern for us, and
| 17 | to the extent that the countries that have participated in that working group seem
| 18 | determined to raise that issue, then that seems like another very important reason
| 19 | why this is not a good time to pursue this conversation in that forum.
| 20 | But the broad conversation on international competition policy
| 21 | should continue at the international level. We would like to see labor rights be
| 22 | part of that agenda to the extent that it does continue.
| 23 | In terms of the merger review and the premerger notification |
17 1 | questions, it seems that the issues of transaction costs and the kinds of
| 2 | bureaucratic hurdles that companies need to go through in order to notify about a
| 3 | merger, including filling out forms for many different countries, are an
| 4 | inconvenience, but maybe not a major inconvenience (according to some of the
| 5 | business testimony).
| 6 | It's important, I think, to streamline that process, but not at the
| 7 | expense of weakening the guidelines that are in place. We would not want to see
| 8 | a harmonization process for the premerger notification and merger review that had
| 9 | the result of weakening the standards that are in place now.
| 10 | The final issue that I think is the most interesting and the most
| 11 | difficult is the one of anticompetitive behavior abroad, and the extent to which this
| 12 | acts as an export restraint.
| 13 | We sign trade agreements and we implement them in good faith here
| 14 | at home only to find that our access to foreign markets is sometimes blocked by
| 15 | blatantly exclusionary or anticompetitive actions by governments in coordination
| 16 | with firms. I hope we'll have some discussion about this question because we
| 17 | haven't worked out all the answers, but it's very important.
| 18 | In principle, some of these issues are covered by trade law. When
| 19 | one government nullifies the benefits that a country expects to get when it signs a
| 20 | trade agreement, that is actionable in principle.
| 21 | We have also seen the disappointing result of the WTO case on
| 22 | Kodak-Fuji. This result would cause us to doubt whether this issue will be
| 23 | addressed to our satisfaction effectively by the trade rules at this time. |
18 1 | The question I have is can we use U.S. antitrust measures more
| 2 | effectively than we currently do -- more consistently and more aggressively -- to
| 3 | deal with these kinds of actions abroad? I know you've had some discussion about
| 4 | that in this Committee, what U.S. law allows, what are the kinds of obstacles that
| 5 | we face right now. The two obstacles that have been identified include the
| 6 | difficulty of gathering reliable evidence without the cooperation of foreign
| 7 | governments, and then the second difficulty of imposing remedies extraterritorially.
| 8 | It seems that the business community is a little bit wary of the
| 9 | evidence gathering side of things. That was one of the things that came up a few
| 10 | times in the testimony you've heard already, that the business community is
| 11 | worried about the confidential information that might have to be provided in this
| 12 | context. But it seems like that obstacle should be addressed squarely and that
| 13 | those concerns can be met. Certainly we would expect that any U.S. antitrust
| 14 | enforcement efforts would be able to keep that information confidential and the
| 15 | question is whether we can have that same confidence in foreign antitrust efforts
| 16 | here in the United States.
| 17 | But that is a direction that we should explore. Since it seems like
| 18 | this conversation at the WTO level has been problematic, it is not likely to
| 19 | necessarily move in the direction we want. It seems to me that it puts us back for
| 20 | the moment, at least, at our national law. The question we face is how to make
| 21 | that national law more effective, certainly within the guidelines of the multilateral
| 22 | trading system.
| 23 | But let me just stop there. I hope we can have some discussion |
19 1 | about some of these areas, and I welcome your questions and comments.
| 2 | DR. STERN: Thea, thank you so much. That was a very, very
| 3 | thoughtful presentation and it reflects that a great deal of preparation was put into
| 4 | this. By looking at the work that we have done so far, and the diligence which has
| 5 | been demonstrated, finding the overlaps between emerging themes and organized
| 6 | labor's satisfaction with aspects of our work and how we're parsing our work is
| 7 | extremely reassuring; I just want to express my personal gratitude.
| 8 | It's true that, to use your word, persistence, Professor Dunlop really
| 9 | carried through on our desire from the very, very beginning. He has also carried
| 10 | through on both Joel Klein and the Attorney General's desire to make sure that we
| 11 | heard your voice, and you have given us a very thoughtful presentation -- it's not
| 12 | like we've just touched base. I think we've really joined the conversation, to use
| 13 | your words, so thank you very, very much. It doesn't surprise me, knowing of
| 14 | your diligence.
| 15 | I wanted to open up the floor to questions or comments from any of
| 16 | the members at this point.
| 17 | MR. RILL: Well, let me also echo my Co-Chair's admiration for the
| 18 | obvious preparation time that you put in and your familiarity with the record that
| 19 | has been developed to date. I myself would be embarrassed to have a test between
| 20 | you and me as to who is more familiar with the record. I think that's very useful.
| 21 | A couple of questions. You're concerned that the Trade and
| 22 | Competition Working Group at the WTO, the one that's headed by Professor
| 23 | Jenny, is off, I think you said, in a wrong direction with concern being expressed |
20 1 | from some quarters on antidumping. You also suggest that it is, I think you used
| 2 | the word premature, for the WTO to get into any kind of prescriptive discussions
| 3 | of competition policy issues or principles.
| 4 | That view has been expressed in other quarters. Conversely, we do
| 5 | have heard views expressed that the WTO should play an even greater role. So
| 6 | this is an issue that we need to deliberate among ourselves.
| 7 | You also indicated, though, that there's a need for some further
| 8 | discussion, at least, deliberation on the international scale of competition policy,
| 9 | basic standards and so forth. Some of that, of course, goes on within the OECD's
| 10 | Competition Law and Policy Committee and the Trade Committee, the Joint
| 11 | Working Group in the OECD.
| 12 | We have heard the concern that the OECD is too narrow of a forum,
| 13 | 29 countries. Some have described it as an elite group. I wonder if you have any
| 14 | thought as to where this discussion that you're calling for might take place. Not
| 15 | WTO, OECD is too narrow.
| 16 | Is there some possibility that, for example, a special forum, let's not
| 17 | call it an organization, but a forum for the discussion of the competition policy that
| 18 | would be more broadly based, perhaps, than the OECD but work on OECD
| 19 | principles might be something that could bear fruit, a fairly useful purpose, if you
| 20 | want to comment on that.
| 21 | DR. LEE: Yes. I think that's a good idea. It's interesting that today
| 22 | we think of this issue as being one that affects primarily the industrialized
| 23 | countries, and that's one of the reasons that the OECD, the U.S., Europe and |
21 1 | Japan have been the key players in the competition policy discussion. But I think
| 2 | that will change as the developing countries become more closely integrated into
| 3 | the global economy. The issue that also has arisen about the transition of
| 4 | state-owned enterprises to the private sector and some of the issues around
| 5 | monopoly will affect the developing countries, so if possible it would be desirable
| 6 | to have a forum which included both developed and developing countries for this
| 7 | discussion.
| 8 | The developing countries rightly resent when they come into a
| 9 | conversation after all the decisions have been made and then they're asked to sign
| 10 | on, and their particular concerns, which are different from those of the
| 11 | industrialized countries, have not been addressed or are addressed in a backhanded
| 12 | manner.
| 13 | I think that's not a bad idea, to have a special forum. It could even
| 14 | be a voluntary forum so the countries that have concerns and that have strong
| 15 | opinions about this could come together in a lower pressure environment than the
| 16 | WTO.
| 17 | The WTO is never going to be a low pressure environment. It's one
| 18 | where there's a lot of politics and a lot of posturing, and a lot of trading off, as you
| 19 | all know, where countries raise difficult issues on purpose in order to make
| 20 | progress in some other totally unrelated area, so I think that a separate forum
| 21 | would offer some advantages, and would be a good direction to explore.
| 22 | I also just want to say one word of thanks to Andrew Shapiro who
| 23 | helped me get prepared for this and was very helpful in guiding me to the various |
22 1 | transcripts. It would be remiss of me not to say that.
| 2 | MR. RILL: Thank you for that answer.
| 3 | Let me just ask you to elaborate, on another comment you made,
| 4 | regarding an attempt to get rid of some of the frictions in merger notification:
| 5 | multiplicity of jurisdiction, multiplicity of information, different timetables. We've
| 6 | heard a lot of testimony that these issues are a real problem, and we're going to be
| 7 | discussing that later on this morning among other merger-related issues.
| 8 | You suggest, I think, quite rightly in my own view, that that kind of
| 9 | procedural friction removal doesn't undercut the substantive work being done in
| 10 | the merger review process, and I think that's right.
| 11 | It seems to me that one of the topics that could be discussed at the
| 12 | forum that we're hypothetically developing as we speak would be the standards
| 13 | issue because there is a concern that not everybody in the world has the same
| 14 | consumer welfare standard that has been adopted in the United States, and that
| 15 | seems to me to be an issue worthy of discussion. There may be areas where we
| 16 | want our government to be in a position to advocate a consumer welfare standard
| 17 | so that perhaps more parochial national standards that may -- we heard may be
| 18 | developed in other jurisdictions -- could at least be made more transparent, and if
| 19 | possible, addressed. I wonder if you have a thought on that.
| 20 | DR. LEE: I think that would be very appropriate to raise issues that
| 21 | may not have come up and convince other countries of the rightness of that in this
| 22 | kind of harmonization discussion.
| 23 | There is always a danger in the harmonization discussion that |
23 1 | countries have whatever they have and they're not willing to talk about changing it,
| 2 | but if you had a forum that was relatively open and you could share information
| 3 | about the benefits of the consumer welfare standard, that would be appropriate.
| 4 | MR. RILL: A number of our members, particularly from the
| 5 | business community, Ray Gilmartin, Rick Thoman and others have said that
| 6 | transparency is key at least at the first level to understand what the standards of
| 7 | other jurisdictions may be, and I gather you agree with that.
| 8 | DR. LEE: The transparency is something that we have pushed very
| 9 | hard in a lot of different forums, that certainly it's a bare minimum in terms of what
| 10 | countries need to interact intelligently and what businesses need to interact in other
| 11 | countries, that transparency should always be pushed as far as possible.
| 12 | MR. RILL: I think your discussion of labor standards as a form of
| 13 | subsidy, inferior labor standards as a form of subsidy is an issue that will be a
| 14 | matter of public policy debate for sometime. Am I understanding you correctly
| 15 | that where those substandard -- standards exist, they are government imposed.
| 16 | DR. LEE: Government tolerated in some cases.
| 17 | MR. RILL: Whether tolerated or even imposed, this type of issue
| 18 | may be one more for government negotiations in the trade area perhaps rather than
| 19 | in the competition, private restraint focused area that we're to some degree, I
| 20 | think, focused on in this Committee.
| 21 | Do you agree with that?
| 22 | DR. LEE: I raised the issue to see where it will end up. I don't
| 23 | know. Certainly this is an issue we've raised in the market access discussions that |
24 1 | we would very much like to discuss at the WTO, in some ways the opposite of
| 2 | competition policy.
| 3 | There is also no consensus, as you know, on labor standards, on
| 4 | even having the conversation. We haven't gotten as far as competition policy in
| 5 | the sense that we can't establish a working group on worker rights at the WTO.
| 6 | We would very much like to do that and we have failed, and the U.S.
| 7 | Government has put this forth and has not been able to garner support from other
| 8 | countries to move forward. But many of the issues you address do have to do
| 9 | with government behavior and government rules that are inadequate in some cases,
| 10 | so --
| 11 | MR. RILL: I think we would probably be remiss if we took an
| 12 | unduly narrow view of our own jurisdiction and the variety of areas such that we
| 13 | did not address, at least as an advocacy recommendation to the United States
| 14 | government, positions that we feel are governmental restraints overseas that limit
| 15 | the free flow of markets and a strong competition policy.
| 16 | There are a number of members that feel the same way. So I think
| 17 | these are areas that we will at least review and recommend to our government that
| 18 | they engage in some fruitful advocacy with their counterparts and also, by the way,
| 19 | to look at ourselves and see that our own house is in order.
| 20 | DR. LEE: Yes, always important.
| 21 | MR. RILL: Thank you.
| 22 | DR. STERN: Eleanor?
| 23 | MS. FOX: Yes, thank you very much. I certainly enjoyed your |
25 1 | presentation. I wanted to ask you about some possible tensions that you may see
| 2 | between labor rights and competition policy. So far you've been talking, I think,
| 3 | favorably about an efficiency and consumer welfare standard and yet you have also
| 4 | talked about the problem of putting pressure on labor rights and, in effect,
| 5 | exploiting labor.
| 6 | I wanted to ask you about an issue that usually comes up in big
| 7 | international mergers, which is loss of jobs, and whether you and your organization
| 8 | have a concern about loss of jobs that you think ought to be included in analysis
| 9 | and also how you see your AFL-CIO interaction with the ILO and whether
| 10 | countries that have lower labor costs might consider that they have a comparative
| 11 | advantage that ought to be recognized in the world, and whether if that's so,
| 12 | cheaper labor goes together with efficiency and world competition.
| 13 | So is there a tension there? Is there a problem of competitiveness
| 14 | that might have to be addressed by recognizing a common effort of efficiency,
| 15 | business and labor?
| 16 | DR. LEE: Okay, that's an excellent question. And let me start with
| 17 | the big mergers, loss of jobs. It's always a concern in any particular case, what the
| 18 | job impact is going to be, but I'm not sure whether there is any broad policy
| 19 | statement. Certainly it's something that should be taken into account. It's one of
| 20 | the public policy considerations that any government will consider, but I'm not sure
| 21 | what the general principle is. We understand there will be loss of jobs as
| 22 | companies merge and change their productive structure and their plans and so on.
| 23 | But I don't have a well thought-out sentence that would guide how merger policy |
26 1 | should address job impacts.
| 2 | MS. FOX: Yes, our competition policy today in the United States
| 3 | actually doesn't, and this is because of our efficiency/consumer welfare policy, so
| 4 | I just wondered what your reaction was to that.
| 5 | DR. LEE: The other question about whether lower labor costs are
| 6 | legitimate comparative advantage and whether there is an efficiency aspect to that
| 7 | is an interesting point. What I would say is low labor costs in and of themselves
| 8 | are not objectionable.
| 9 | Our goal is not to equalize wages across the world, but there are
| 10 | different kinds of low labor costs. There are different reasons why labor is cheap.
| 11 | Labor is cheap sometimes because it's plentiful, or because it lacks technology or
| 12 | capital to work with. It's cheap sometimes because of a low cost of living. But
| 13 | sometimes labor is cheap because the government has systematically set out to
| 14 | repress independent labor unions, or to keep the minimum wage below the poverty
| 15 | level, or to keep the growth in the minimum wage below the growth in
| 16 | productivity. There are very different kinds of cheap labor, and they operate in the
| 17 | international trading system in very different ways. The differences in factor prices
| 18 | that come about through differences in climate or factor endowment are a natural
| 19 | piece of the trading system. You can argue that these differences form the basis
| 20 | for the basic argument in favor of free trade, but differences in factor prices that
| 21 | come from systematic repression are not efficiency promoting.
| 22 | They are actually distortions in the international trading system.
| 23 | They distort choices about the location of production. Unfortunately, the |
27 1 | international trading system doesn't recognize that this is a problem, so we have no
| 2 | rules, we have no minimum international standards on labor rights.
| 3 | So, for example, one country is beheading labor leaders every week,
| 4 | or tossing them in jail and mutilating them, and hiring 5, 6, and 7-year-old children
| 5 | who are enslaved essentially, sold by their parents to produce carpets for export to
| 6 | the United States.
| 7 | Another country is allowing unions to organize and observing other
| 8 | internationally recognized workers' rights. These countries are side by side. They
| 9 | are competing in the same international trading system, they have the same access
| 10 | to international markets. One of them has lower labor costs, but not through any
| 11 | legitimate comparative advantage. This is the difference that we have tried to put
| 12 | forth, that repression creates inefficiency, not efficiency.
| 13 | The current set of trade rules creates perverse incentives where the
| 14 | worst actors can reap large economic benefits. These bad actors have no scruples,
| 15 | no morals, no judgment even, no concern about, let's say, the future of these kids,
| 16 | whether they're going to grow up to be productive members of society, or whether
| 17 | they will be crippled by the time they're 15, or blinded. In fact, a world without
| 18 | rules rewards the worst actors, and that that is an inefficiency.
| 19 | The same thing could be said about the environmental standards,
| 20 | too. To the extent that there are externalities that are not taken into account by the
| 21 | pricing system, allowing the worst violators of environmental standards to have
| 22 | the same access to markets that the good players have encourages the violation of
| 23 | environmental standards, e.g. the poisoning of streams. |
28 1 | One of the issues that we have raised that maybe people aren't
| 2 | always aware of, is that this is not an issue that the U.S. is trying to impose on
| 3 | poor countries.
| 4 | This is an issue that the workers of the world, the unions of the
| 5 | world have agreed on. We have a basic consensus internationally among labor
| 6 | unions that labor standards belong in trade agreements.
| 7 | The International Confederation of Free Trade Unions (ICFTU) that
| 8 | represents about 124 million workers in 143 different countries, mostly developing
| 9 | countries, has worked very hard to develop joint statements on this issue. The
| 10 | ICFTU has held a lot of regional symposia where African, Asian, and Latin
| 11 | American trade unionists have debated and discussed these issues. In many cases
| 12 | their governments are not receptive and are not representing the workers or the
| 13 | unions of their countries when they come to an international forum and say they
| 14 | don't want to talk about labor standards in the context of trade agreements.
| 15 | So we view some of the work we do in our advocacy on this issue as
| 16 | trying to give voice to concerns that workers in developing countries have. These
| 17 | workers want the basic right to organize independent labor unions. We try to use
| 18 | whatever political or economic leverage we might have from being here in the
| 19 | United States to empower and provide space for them to do what they need to do
| 20 | in their country. And the ILO, the International Labor Organization, does
| 21 | incredibly important work and we are very supportive of the work of the ILO.
| 22 | We have been supportive of the Clinton administration's initiative to
| 23 | give another $25 million to the ILO to help build technical capacity in developing |
29 1 | countries, to help them get the resources they need to improve enforcement and to
| 2 | improve standards.
| 3 | We don't see the ILO as a substitute for addressing these issues in
| 4 | the trading system, but rather as a necessary complement, something that must
| 5 | happen at the same time. At the end of the day, if there's no economic incentive
| 6 | for governments and companies to address the issue of labor standards violations,
| 7 | then it's unlikely to happen. The failure to identify unacceptable terms of
| 8 | competition in and of itself undermines the sovereignty of nations.
| 9 | For example, in the United States, our ability to put in place and
| 10 | enforce good high labor standards, and our ability to encourage unorganized
| 11 | workers to organize unions successfully is undermined, if every time we do that,
| 12 | the company picks up and moves or threatens to move to a country that doesn't
| 13 | have those same rights. It was a long answer to a short question.
| 14 | MS. FOX: Thank you very much.
| 15 | You were talking about terms of competition, but that is not
| 16 | necessarily competition policy as such. So do you see the relationship of your
| 17 | argument as related to the world trade system just as competition law might be
| 18 | related to the world trade system but not necessarily issues that we should take
| 19 | into account?
| 20 | DR. LEE: In terms of competition policy, it depends on whether
| 21 | you would see that as essentially a subsidy or not a subsidy. It could come under
| 22 | the rubric of competition policy, but probably it's in a separate realm in terms of
| 23 | the international trading system. |
30 1 | The labor unions have been accused of being monopolies themselves,
| 2 | but of course the government, by intervening in labor markets, by repressing
| 3 | independent labor unions, is in fact creating monopsony. Where you have a single
| 4 | or a very small number of employers, and the government chooses to intervene in
| 5 | that interaction to support the employer over the workers and to ensure that the
| 6 | workers do not develop a countervailing power to bargain effectively with their
| 7 | employer, this would seem to fall in the competition policy area. Probably the
| 8 | primary place where it belongs is in the market access and trade discussions.
| 9 | DR. STERN: Are there other questions?
| 10 | MR. THOMAN: Have you done any quantitative analysis to
| 11 | estimate how many -- as you look at the world, how many workers fall into the
| 12 | category you mentioned that are unfair competition as opposed to general foreign
| 13 | workers of lower wage levels? Because one of the things that's striking is just a
| 14 | piece in the Financial Times this morning that talked about how the poor countries
| 15 | are continuing to lose wealth to the wealthier countries.
| 16 | I guess in the last 80 years, we have gone from the poorest countries
| 17 | to the 1 to 3 wealth to the most wealthy to now it's 90 to one wealth. So the wage
| 18 | factors alone aren't driving the actual wealth. Those discrepancies seem to be
| 19 | increasing in terms of the wealthy countries. So how big a problem is this? Is this
| 20 | 10 percent of the work force that have these kind of unfair social examples? Is it
| 21 | 50 percent?
| 22 | DR. LEE: I don't know the answer to that question, but it's a good
| 23 | question. Part of the issue is that you have two very different sectors, the export |
31 1 | competitive sector and the informal and domestic sector. We know that a lot of
| 2 | labor rights violations occur in the domestic sector in which case they're not really
| 3 | relevant to the trade policy debate. They're relevant to the ILO or to other kinds
| 4 | of issues that need to be raised.
| 5 | So it is probably a smaller subset of workers who are in that set of
| 6 | super competitive exporting, the export processing zones and the export assembly
| 7 | areas where there is systematic denial of rights.
| 8 | We know there are certain countries that are particularly egregious
| 9 | in this area. China, for example, is an export powerhouse and has not a single
| 10 | independent labor union operating. The Chinese government has acted very
| 11 | aggressively to jail and suppress independent labor advocates, even people who
| 12 | have worn T-shirts advocating independent labor unions or put out newsletters
| 13 | talking about problems of unpaid back wages. Those kinds of people are seen as a
| 14 | threat to the system in China and have been jailed.
| 15 | I don't know the exact figures you mentioned, but the report that you
| 16 | mention, is that the UNDP's new report, the United Nations Development
| 17 | Program?
| 18 | MR. THOMAN: I read it in the FT this morning.
| 19 | DR. LEE: I was looking at the UNDP report yesterday, and I think
| 20 | it's very interesting and very disturbing. It goes back to this issue about efficiency
| 21 | and world competition.
| 22 | The question is whether as we tear down trade barriers and enhance
| 23 | the mobility of capital, we're leading to a generally happy situation where poor |
32 1 | countries get richer, poor people in all countries are given opportunities and are
| 2 | able to engage in the global economy, and so on, or whether we have something
| 3 | else that we're creating. What the UNDP report very troublingly says is that the
| 4 | increased liberalization and the absence of the kinds of rules and standards that
| 5 | we're talking about has increased polarization between countries and within
| 6 | countries. This is not the outcome that we seek from trade liberalization and
| 7 | capital liberalization. A country like Mexico, for example, which is definitely
| 8 | engaged in the global economy, it's engaged in the North American Free Trade
| 9 | Agreement and the WTO has experienced falling wages over the last 15 years or
| 10 | so.
| 11 | The Mexican minimum wage has lost something like three-quarters
| 12 | of its purchasing power, and workers are definitely not gaining their share of the
| 13 | prosperity that comes from integration in the global economy. To the extent that
| 14 | that's the case, I think we do have an obligation to say, the world trading system is
| 15 | not working for workers. We need to enforce core labor standards, thus allowing
| 16 | workers to organize unions when they choose to do so and to use that method to
| 17 | try to garner their share of the prosperity that comes from global integration.
| 18 | We also have to change attitudes pretty dramatically so that the
| 19 | domestic employers and the domestic governments accept it as a challenge.
| 20 | MR. GILMARTIN: Just a quick question. Do you have a sense on
| 21 | the international, in the international arena what the attitude of labor is towards
| 22 | competition policy in general, say as opposed to industrial policy? What's the best
| 23 | way to create jobs? |
33 1 | The argument which you make about exports and being able to enter
| 2 | competitive markets, the U.S. certainly is going to export very successfully.
| 3 | DR. LEE: So --
| 4 | MR. GILMARTIN: I'm really asking about the attitudes, say,
| 5 | outside the U.S. about competition policy, what your sense is about that.
| 6 | DR. LEE: Labor movements outside the U.S.?
| 7 | MR. GILMARTIN: Yeah.
| 8 | DR. LEE: In many cases, particularly in Europe, you'll find that the
| 9 | labor unions are going to have positions that are similar to their governments. So
| 10 | to the extent that the governments are interested in a particular angle on this, for
| 11 | the most part, that's where the labor unions will be, but beyond that I don't have a
| 12 | good sense of the specific position of any particular national labor center.
| 13 | It's not something that's been thoroughly discussed, but it probably
| 14 | should be. Maybe at the Seattle ministerial, this is one of the issues that will be
| 15 | addressed more thoroughly by the ICFTU.
| 16 | DR. STERN: Further questions? I again want to thank you very,
| 17 | very much. You have been not only an important advocate but more an explicator
| 18 | of a lot of these positions that labor has taken. You've related it very much to our
| 19 | work and the scope of our work, where it works within our scope and where it
| 20 | may belong elsewhere, and the questions also have helped elicit even further
| 21 | understanding. I think this has been an incredibly worthwhile hour well spent, and
| 22 | I thank you very, very much.
| 23 | DR. LEE: Thank you. Thank you, Paula, Jim, and the Committee |
34 1 | for your attention and for the invitation.
| 2 | MR. RILL: Thanks for coming.
| 3 | DR. STERN: Next on our agenda -- you're welcome to stay, Thea,
| 4 | if you want, but I have a feeling you've got a few other things to read back at the
| 5 | office.
| 6 | Next on our agenda is the multijurisdictional merger review
| 7 | discussion and our fellow member, Tom Donilon, has agreed to give us initial
| 8 | remarks, and I think we're all prepared. The floor is yours.
| 9 | MR. DONILON: Thanks. Merit, which document do members of
| 10 | the Committee have in front of them, the draft, chapter?
| 11 | MS. JANOW: I think all members have a copy of the notional
| 12 | structure of the report and the members of the merger subgroup have a copy of the
| 13 | merger paper, but the merger specific paper has not been distributed to all
| 14 | members.
| 15 | MR. DONILON: The staff has prepared a number of
| 16 | recommendations. Let me see if I can describe them generally, and Merit,
| 17 | obviously pitch in where you think we need to go deeper than I go here.
| 18 | The general approach of the staff, and I would recommend general
| 19 | approach of the Committee should be to achieve a number of policy objectives.
| 20 | Just to try to set some context.
| 21 | Number one is to try to reduce as best we can transaction costs
| 22 | associated with the procedural requirements of merger review. We've heard now a
| 23 | lot of testimony before the Committee about the increase in what we're referring to |
35 1 | as the sheer -- I guess Barry Hawk used the phrase initially -- the sheer volume of
| 2 | merger control law that now must be considered by a company or companies
| 3 | doing international transactions.
| 4 | We're going to be joined by Bill Kovacic later. Maybe he could even
| 5 | join us now if he'd like to pitch in on this, because he has also spoken about and
| 6 | written a lot on the increase in sheer volume of law that companies face around the
| 7 | world in trying to do a transaction.
| 8 | DR. STERN: Excuse me. Bill, would you like to join us at the
| 9 | table? Your name has now been invoked three times on the record, twice when
| 10 | you weren't here, and -- there we go. Okay, sorry, Tom.
| 11 | MR. DONILON: I think that we've correctly been focused on trying
| 12 | to reduce transactions costs for American companies trying to do deals, trying to
| 13 | do transactions.
| 14 | Second, we've tried to I think, and the proposal will address this,
| 15 | tried to the best we can to avoid inconsistent results that might be presented to
| 16 | entities doing transactions, international transactions, which of course can add to
| 17 | costs and uncertainty, and in some cases, failure of transactions that one
| 18 | jurisdiction, including the United States, might find not to be anticompetitive but
| 19 | nonetheless because of inconsistent results, you may be in a situation where a
| 20 | transaction fails because another jurisdiction has found difficulties. We want to try
| 21 | to have consistent results and also not wildly incompatible remedies where
| 22 | transactions are allowed to go through conditioned on certain remedies.
| 23 | And last, our goal has been to try and develop a set of proposals that |
36 1 | can promote so-called harmonization, both procedural harmonization and
| 2 | substantive harmonization over time which I think is obviously a laudable goal in
| 3 | this age of international transactions.
| 4 | With respect to procedures, which I'll talk about first, the staff has
| 5 | put forth -- and I think we can divide this up into, again, three areas -- procedural
| 6 | reform, substantive issues, and overlapping jurisdiction in the United States in
| 7 | reviewing mergers.
| 8 | The last is the most substantive and for me after looking at the
| 9 | materials and thinking about it, maybe the most important at the end of the day,
| 10 | and Bill I know is going to speak to that today. That is the situation where a
| 11 | transaction being reviewed in the United States has to run through multiple
| 12 | agencies before it can be approved. This has resulted, in my experience, in quite a
| 13 | bit of transaction costs here in the United States and delay, particularly in Telecom
| 14 | and other industries. I know Bill will talk about that today.
| 15 | On the procedural side, these are fairly technical issues, I think, and
| 16 | so I'll try to push through them fairly quickly because they really do fall in the
| 17 | realm of the Hart-Scott-Rodino aficionado class, which is well represented in the
| 18 | room, but I don't know how much time we need to spend on all these things, but
| 19 | they can be important.
| 20 | The staff is looking at four or five areas of procedural reform efforts.
| 21 | It's an interesting question as to what you do when you come upon what you think
| 22 | might be the best way to go that may result in some change in the U.S. law, it will
| 23 | result in a lot of changes in foreign practices. One of the things that this |
37 1 | Committee needs to think about is how the United States goes about
| 2 | operationalizing that? How do you go about advocating these changes in a way
| 3 | that's most effective around the world in order to promote our overall goals of
| 4 | reduced transaction costs, not having incompatible remedies and results and
| 5 | ultimately some degree of procedural and substantive harmonization.
| 6 | The first area is the first issue that a lawyer, a practitioner, a banker
| 7 | faces when he or she is working on a deal, and that is notification thresholds.
| 8 | When does the transaction have to be reviewed by the relevant competition agency
| 9 | in a particular country.
| 10 | These thresholds are in some cases not very transparent, and there's
| 11 | a lot of uncertainty about that in my experience and practice, and I think we heard
| 12 | a lot about that from practitioners, and secondly, the thresholds vary quite a bit.
| 13 | The staff in its papers is recommending, I think correctly, that
| 14 | thresholds be transparent and that there be a pretty cogent nexus between the
| 15 | reviewing jurisdiction, reviewing country and possible impact on that country as
| 16 | opposed to just worldwide assets and very little local contact with the reviewing
| 17 | country.
| 18 | There's also been discussion of raising the threshold amount in the
| 19 | United States. It currently is $15 million. There has been discussion before this
| 20 | Committee of raising it to $50 or $100 million with automatic adjustments for
| 21 | inflation. This is obviously a serious issue.
| 22 | Now, Merit, I think our preliminary review of the data shows,
| 23 | though, that it wouldn't affect very many international transactions -- that less than |
38 1 | five percent of the transactions reviewed, I don't know if it's by both agencies or
| 2 | just by the FTC.
| 3 | MS. JANOW: It's by both.
| 4 | MR. DONILON: By both agencies, less than five percent of the
| 5 | transactions where second requests were issued are transactions under $100
| 6 | million.
| 7 | MS. LEWIS: We're working on getting data for international
| 8 | transactions. But the smaller transactions tend not to be international transactions,
| 9 | they are more domestic. Certainly with respect to enforcement actions, few
| 10 | international transactions valued at less than $100 million were challenged in 1998.
| 11 | MR. DONILON: Although there has been a lot of discussion about
| 12 | this, there doesn't appear to be a lot of impact in the international area of the
| 13 | transactional amount.
| 14 | Secondly, and maybe presenting even more of a difficulty, I think, is
| 15 | that the agencies' budgets are directly related to filing fees. Therefore any increase
| 16 | in the threshold amount would, I take it, result in a reduction in the agencies'
| 17 | budget.
| 18 | There's been discussion before the Committee of recommending that
| 19 | the FTC and Antitrust Division budgets not be so dependent on filing fees. I think
| 20 | that is probably a more rational way to budget antitrust enforcement, but at least
| 21 | this Committee member doesn't think, given the current budget situation, such a
| 22 | proposal would likely be taken on, frankly.
| 23 | I would be interested in what other people think about that. I think |
39 1 | that the funding source issue is a very difficult issue to change, I think. I think,
| 2 | again, I would be interested in hearing other people's comments on that.
| 3 | MR. THOMAN: Do you know how much we're talking about,
| 4 | what's roughly the scale of the filing fees?
| 5 | MR. DONILON: I don't know what the absolute dollar contribution
| 6 | of the budgets is, but we certainly have people here who might.
| 7 | Chuck, do you know?
| 8 | MR. STARK: I don't.
| 9 | MR. RILL: Maybe Connie Robinson, Director of Operations,
| 10 | Antitrust Division would have a thought on that.
| 11 | MS. PATTERSON: This is Donna Patterson. I think by next year it
| 12 | will be the bulk of both agencies' budgets.
| 13 | MR. DONILON: Connie, do you know what the absolute dollar
| 14 | amount is?
| 15 | MS. ROBINSON: It's getting close to 100 percent.
| 16 | MS. PATTERSON: It's getting close to 100 percent of each
| 17 | agency's budget.
| 18 | MR. DONILON: What kind of dollars is that?
| 19 | MS. PATTERSON: I don't know the exact budget numbers, but it's
| 20 | probably around $200 million.
| 21 | DR. STERN: What did you say?
| 22 | MS. PATTERSON: Around $200 million for both agencies.
| 23 | MR. RILL: Aggregate? |
40 1 | MS. PATTERSON: Aggregate, yes.
| 2 | MR. THOMAN: A much smaller number is a more manageable
| 3 | issue.
| 4 | MR. DONILON: Right. No, I think that's a fair point that we're not
| 5 | talking about a huge amount of money.
| 6 | MR. RILL: It doesn't compare to the defense budget.
| 7 | MR. DONILON: So with respect to thresholds, I think those are
| 8 | really the key issues. Transparency, objective thresholds with a nexus to the
| 9 | jurisdiction that's reviewing the transaction, the issue of raising the dollar threshold
| 10 | in the United States and the implications of doing that with respect to the agencies'
| 11 | budgets which we've now heard, although it's not an absolute large dollar amount,
| 12 | it does approach 100 percent of the budget for antitrust enforcement.
| 13 | MR. YOFFIE: Tom, one quick question. Even if it's only less than
| 14 | five percent, would it still make sense to raise the number? In other words, why
| 15 | do you want to have that five percent being reviewed if we don't really think it's
| 16 | necessary for international transactions under $100 million?
| 17 | MR. DONILON: I think that's fair --
| 18 | MR. THOMAN: We're talking about less than five percent of --
| 19 | DR. STERN: It's likely to grow.
| 20 | MR. YOFFIE: You're only talking about small transactions. I'm just
| 21 | again posing the question, even if it doesn't have a big impact or maybe especially
| 22 | because it doesn't have a big impact, it won't have a big impact on the budget and
| 23 | therefore it takes the burden off some number of companies that probably just |
41 1 | shouldn't be reviewed.
| 2 | MR. DONILON: Let me correct myself on that as I read the
| 3 | documents that we've been provided -- less than five percent of the transactions
| 4 | valued at less than $100 million receive second requests.
| 5 | MR. RATTNER: Less than five percent of all the transactions or less
| 6 | than five percent of transnationals?
| 7 | MR. DONILON: Less than five percent of all transactions valued at
| 8 | less than $100 million, according to the data that's been given out by the
| 9 | enforcement agencies, resulted in the issuance of the second request.
| 10 | MR. RILL: I don't think those data divide between national and
| 11 | international.
| 12 | MR. DONILON: No.
| 13 | MR. RATTNER: And what percent of transactions over 100 million
| 14 | receive second requests? What does the five percent relate to?
| 15 | MR. DONILON: It's about the same, I think.
| 16 | MS. FOX: Yes, yes.
| 17 | MR. RATTNER: What does that tell us, then?
| 18 | MR. RILL: They're about the best I can recollect, and I'm sure there
| 19 | are people in the audience who have better data than I. Of the 4,000 to 5,000
| 20 | filings most recently, I think the FTC has issued about 50 second requests and the
| 21 | Department has issued about 120. Enforcement actions -- abandonments,
| 22 | consents, adjustments in the transaction or cases are about -- I'm sure they'll
| 23 | correct me if I'm wrong, about 30 a year per agency. |
42 1 | MR. DUNLOP: Mr. Chairman, why don't we --
| 2 | MR. RILL: Hearing no correction, that's a ballpark.
| 3 | MS. ROBINSON: Jim, if I could just correct the second request
| 4 | number. Fiscal year '98 should be 79 at the Justice Department. Fiscal year '99 to
| 5 | date, we've issued 50, which is almost 10 percent less than we had about this time
| 6 | last year.
| 7 | MR. RILL: So we're talking about 80 then, not 120?
| 8 | MS. ROBINSON: Right.
| 9 | MR. DUNLOP: Mr. Chairman, why can't we get a written report on
| 10 | this data that we can all look at and study?
| 11 | What's the total number of requests and how many are second
| 12 | requests, how many involve international, how many are purely domestic?
| 13 | MR. RILL: I think for the large part, that's a good idea, and I think
| 14 | for the most part that's readily available. When you get down to carving out
| 15 | between international and domestic, you have a definitional problem you have to
| 16 | deal with, what is international. I don't know that we need to get into that when it
| 17 | does create a problem.
| 18 | DR. STERN: I think your question now stands as a request to the
| 19 | staff, and I'm sure we will be getting it very quickly.
| 20 | MR. RILL: Basically the ballpark that we just discussed is how the
| 21 | breakdown is between filings, second requests, and enforcement actions.
| 22 | MR. DUNLOP: And has that changed over time?
| 23 | MR. RILL: Yes. A lot more filings. |
43 1 | DR. STERN: So we would need to see the trend numbers.
| 2 | MR. RILL: Second requests are not too much greater, frankly.
| 3 | Enforcement actions, somewhat greater, although when one compares something
| 4 | that I'm familiar with, fiscal '91, to current filings, current enforcement actions,
| 5 | there is marginal change, not tremendous change.
| 6 | MS. JANOW: Could I just put in one footnote. We'll provide you
| 7 | all the data that we have, Justice and FTC has been very helpful in giving us some
| 8 | data, but as Jim points out the differentiation between domestic and international is
| 9 | not a differentiation, I gather, that the data picks up, and as you know, there have
| 10 | been many international deals that don't involve foreign parties and so on.
| 11 | MR. RATTNER: It may not get picked up by the filing data, but the
| 12 | data we use picks it up in terms of just activity out there. I mean, we can tell you
| 13 | how many of the deals and different size categories. The way we typically define it
| 14 | is one non-U.S. party constitutes a non-U.S. deal.
| 15 | MR. RILL: Then could you break it down even further than that,
| 16 | Steve, if there are two U.S. parties, is there a foreign asset that's involved or
| 17 | foreign sales.
| 18 | MR. RATTNER: That we can't do, but maybe somebody else can.
| 19 | MR. RILL: That's where it gets more complicated. I think you're
| 20 | right. You can surely define it by parties.
| 21 | DR. STERN: Steve, if you could help us out, it would be interesting
| 22 | to compare your data with the data that the government has provided.
| 23 | MR. RATTNER: That's easy. |
44 1 | MS. JANOW: There is an exemption, though, for foreign parties,
| 2 | and that is something that we've also been emphasizing, Tom. This is a
| 3 | recognition in the U.S. system about the effects of the transaction in the United
| 4 | States, which recognition is not reflected in all jurisdictions of the world that
| 5 | require notification. In fact I think in the staff recommendations are just that, that
| 6 | that kind of recognition of the effects within the jurisdiction be picked up by others
| 7 | to help reduce the volume problem.
| 8 | MR. DONILON: That makes good sense. I think Professor Dunlop
| 9 | makes a good point that we should all look at the data in front of us.
| 10 | The data provided to the merger subcommittee indicates that
| 11 | although the absolute numbers of second requests is not large compared to the
| 12 | number of filings, as was just pointed out to us by the agency representatives, the
| 13 | data that we have, as I look at it, does indicate that 38 percent of all second
| 14 | requests, again, is based on a low number, but almost 40 percent of the second
| 15 | requests that were issued were issued in transactions valued at less than $100
| 16 | million.
| 17 | Now, again, we're working on a small base, but nonetheless, a fairly
| 18 | significant percentage of the transactions that do receive second requests are
| 19 | transactions that are valued at less than $100 million. I think that's the kind of data
| 20 | we can study.
| 21 | Again, maybe Steve and his firm can help on trying to identify what
| 22 | percentage of those have characteristics that we could fairly say would be an
| 23 | international transaction. |
45 1 | MR. RATTNER: It's also true, Tom, that well more than 40 percent
| 2 | of the transactions are less than $100 million. I don't know that number, but I'm
| 3 | sure it's 60, 70, 80 percent.
| 4 | MS. FOX: We may want to get data at a $75 million benchmark, a
| 5 | $50 million benchmark -- to see whether there is a big drop-off.
| 6 | MR. DONILON: I will tell you, though, based on my practice that
| 7 | in a transaction valued at less than $100 million, the issuance of a second request is
| 8 | a fairly significant event.
| 9 | MR. RILL: I would like to say that in any transaction, the request is
| 10 | a fairly significant event.
| 11 | MR. DONILON: I think that's a fair point. In a massive
| 12 | international merger that has vast impact on the United States and around the
| 13 | world, you know when you can enter the deal as counsel that there's going to be a
| 14 | second request in all likelihood because the agencies have responsibility to examine
| 15 | it just on sheer size and significant overlap, but, again, I think on a transaction of
| 16 | less than $100 million, the issuance of a second request, it's a significant event.
| 17 | DR. STERN: Which leads to the next question: we now know that
| 18 | that's a significant event and obviously the agencies know it's a significant event.
| 19 | By dropping or by raising the level, are we really removing some what would be
| 20 | very significant transactions from the necessary scrutiny?
| 21 | MR. DONILON: Let me say two or three things about that, and I
| 22 | would yield to the enforcers or former enforcers who are present here.
| 23 | Point one, you can have a small transaction that could have a |
46 1 | significant impact in a fairly narrow geographic area that might not be small being
| 2 | less than $100 million, the relevant geographical area being fairly small, and those
| 3 | consumers would feel it, I take it that we would probably hear from the
| 4 | enforcement agencies that these are in limited geographic areas.
| 5 | DR. STERN: Uh-huh.
| 6 | MR. DONILON: Secondly, we have the issue of, if you do raise the
| 7 | threshold, you have the funding issue.
| 8 | Third, counter to that is, of course, that the agency does not rely in
| 9 | any way on the actual filing of an HSR in order to be able to investigate or take up
| 10 | a competitive problem.
| 11 | The other side of that is, of course, would the agency be notified in a
| 12 | reasonable fashion, in a timely fashion about a transaction before it was carried out
| 13 | if it were that small. I think those are the competing issues.
| 14 | MR. RILL: Tom, let me interrupt, while we're on a couple of issues
| 15 | that you've raised before they slip my mind. One, comments that were made in one
| 16 | of our prior meetings, I think it was the past meeting that the whole issue of the
| 17 | Hart Scott, and I'm sure you're going to get to the second request issue, is really
| 18 | not an international issue, and perhaps it should be one that the Committee should
| 19 | not address.
| 20 | I don't agree with that. I think it may be more than an international
| 21 | issue, but it's certainly an international issue, and I think there are international
| 22 | implications that make it even more of an intense issue for international purposes.
| 23 | We've heard the chairman of the FTC and others make speeches as |
47 1 | to how extensive the international nexus is with the merger review, cases of the
| 2 | mergers that are reviewed by the FTC and presumably by the Department,
| 3 | particular translation issues, particular locational issues, such as multiple location
| 4 | issues as well as multiple filing issues that I think make it, among other things, at
| 5 | least an international issue of significant proportions. That's my view, we should
| 6 | address the issue.
| 7 | On the question of filing fees, I don't think we ought to, without
| 8 | considering what we're doing, make a recommendation that would be picked up on
| 9 | and jeopardize the continued existence, viability, and enforcement strength of the
| 10 | agencies.
| 11 | I think that very well might be the view of a lot of the people around
| 12 | the table. This is a very intense political issue right now, policy issue, not a
| 13 | partisan issue by any means, but one that the chairman of the Senate Judiciary
| 14 | Committee is focused, and others are focused as well.
| 15 | I think that everyone would agree in the abstract that the filing
| 16 | thresholds are way too low. I think that if we advocate raising those thresholds, at
| 17 | least my own view is that we have to take a strong position that some mechanism
| 18 | has to be found to maintain the agency's enforcement budget at a responsible level,
| 19 | possibly current levels.
| 20 | There are several ways to do it. I'm not sure that any -- I'm just not
| 21 | sure that any is politically realistic. One that's been suggested is to simply take the
| 22 | agencies off the filing fee trough and have them have a general budget. I think
| 23 | that the OMB and Congress are going to find that hard to do. Regardless of the size, |
48 1 | $200 million is a statistical accident, but still having been there and dealt with
| 2 | OMB, small numbers are not missed by them.
| 3 | Secondly, another possibility is to raise filing fees for those
| 4 | companies that do have to file once the threshold is raised. I don't know what the
| 5 | business reaction to that would be.
| 6 | On the other hand, I know that that would, in effect, require
| 7 | legislation, and to the extent that there are those in the Congress that view the
| 8 | filing fee as the tax, that may also raise a political policy argument.
| 9 | That doesn't stop us from suggesting that the thresholds are
| 10 | ridiculously low, and I think the agencies would agree with that, but I think in
| 11 | doing that, we have to take cognizance of the fact that any simple increase in the
| 12 | threshold is going to jeopardize the agencies' performance, unless Congress and
| 13 | the administration are willing to take the countervailing action of maintaining the
| 14 | agencies' budget in some other way.
| 15 | MR. YOFFIE: Jim, I must be missing something. If we raise the
| 16 | threshold, doesn't that in fact mean that there will be less work done by the
| 17 | agency?
| 18 | MR. RILL: No. Because you look at the number of transactions
| 19 | that are actually reviewed. Again, I don't know the number, but I think there are a
| 20 | lot of transactions, and most of the transactions that are reviewed are above a
| 21 | threshold that we might raise it to.
| 22 | Secondly, as Tom points out, if the agency is aware of a transaction,
| 23 | even though it's not notified, that has anticompetitive consequences possibly |
49 1 | through newspaper reports or competitor or customer complaints, you are still
| 2 | going to have to do the work to review the transaction without the benefit of
| 3 | filings and fees.
| 4 | I don't know how mathematically that model would give you the
| 5 | exact numbers as to how it would work, but I think it would not significantly
| 6 | reduce the work of the agency.
| 7 | MR. YOFFIE: You are identifying an even greater inefficiency than
| 8 | at first appears: Essentially taxing small transactions in order to support the overall
| 9 | budget of the agency. If that's correct, it makes a stronger case for moving in this
| 10 | direction and finding another mechanism to do it. The idea that you take small
| 11 | companies, you tax them in order to support all these other activities, can't be the
| 12 | most efficient way to run an antitrust policy.
| 13 | MR. RILL: I couldn't agree with you more, but we are where we
| 14 | are.
| 15 | DR. STERN: Tom, you thought we were going to get through this
| 16 | procedural stuff real fast. Do you want to go on?
| 17 | MR. DUNLOP: May I ask a question? Who sets the filing fees?
| 18 | MR. DONILON: Congress.
| 19 | MR. RILL: Legislative action sets the filing fees.
| 20 | MR. DUNLOP: When was the last time they set them?
| 21 | MR. DONILON: I don't know.
| 22 | MR. RILL: It's been amended. The filing fee's been amended.
| 23 | MR. DUNLOP: No, I meant the filing fee. When? |
50 1 | MR. DONILON: I don't know the answer to that question.
| 2 | MR. DUNLOP: I would like to know.
| 3 | MR. RILL: Does anyone from the Department or the FTC know the
| 4 | answer? Connie?
| 5 | MS. ROBINSON: My best answer is the last filing fee amendment
| 6 | would have been in '96.
| 7 | MR. RILL: '96 and it went up to 45?
| 8 | MS. ROBINSON: $45,000.
| 9 | DR. STERN: Tom, these were initial remarks. I don't know what
| 10 | happened.
| 11 | MR. RILL: This is a session in which we are supposed to talk to
| 12 | each other so I don't see any problem.
| 13 | MR. DONILON: I think that is exactly the right approach. I guess,
| 14 | though, we got two baskets here to talk about with respect to thresholds.
| 15 | One is what we think is an optimal system that the United States
| 16 | should advocate, and I think there would be general agreement on that --
| 17 | transparency and objectively based thresholds that's known and has some nexus to
| 18 | the jurisdiction reviewing would seem to me to make good sense. And as I said,
| 19 | the Hart-Scott-Rodino foreign persons exemptions as an example of that that our
| 20 | government should advocate. The other basket of course is changes that might be
| 21 | made to our thresholds and I take it these are on the table, increasing the
| 22 | thresholds.
| 23 | I agree with Jim that if we're going to increase the threshold that we |
51 1 | need to have a funding proposal. I would be interested in reactions to increased
| 2 | absolute filing fees on large transactions in order to make up for this, but you do
| 3 | have a circumstance here where you have transactions in the $50 million range that
| 4 | have the same filing fee or are subject to second requests in an economy which
| 5 | David can talk to and Steve can talk to more expertly than I can where lots of
| 6 | companies at this size are trying to get footholds.
| 7 | MR. THOMAN: Mr. Dunlop pointed out what a marvelous
| 8 | precedent this is. If the IRS could -- if we had to pay filing fees to the IRS, for
| 9 | example, think -- this is a wonderful precedent for all sorts of things.
| 10 | MS. FOX: I think that it's incumbent upon us to point out the
| 11 | perverse incentives and the over taxation and come up with another budget
| 12 | proposal, not just for ourselves, but because of recommendations from the world
| 13 | at large, everybody has copied us, they are copying us. The agencies see how
| 14 | fruitful it is to get lots of people to file, and this has increased the proliferation in
| 15 | the world. And I think also that the thresholds should be raised and that I would
| 16 | like to hear a proposal for calibrating the fee to something related to the amount of
| 17 | work that the agency is expected to be doing, in some gross way at least, of which
| 18 | might mean that for easy transactions that are not looked at further because they're
| 19 | just not anticompetitive, there is almost nothing that would be charged against
| 20 | them, but for complicated transactions, that's a cost of the deal, but not to
| 21 | subsidize the rest of the operations of the agencies.
| 22 | MR. THOMAN: Tom, I know you're trying to get off this, but there
| 23 | also is the image that presumably the EU and other equivalent bodies, however we |
52 1 | agree the limits should be in the U.S., there is a reciprocity across with other
| 2 | non-U.S. regulatory. I mean you hate to have the situation where we raise our
| 3 | limits and theirs get other -- so there is an issue of what theirs are today and
| 4 | reciprocity.
| 5 | MR. RILL: There is a gross difference between our thresholds and
| 6 | the EC thresholds. EC thresholds are much higher. However you don't have to
| 7 | worry about filing in the member states.
| 8 | MS. FOX: There is a difference in philosophy as to why the EC
| 9 | adopted their thresholds and they purposely first set them at a point to not to catch
| 10 | too many. They're also engaged in trying to not catch too many and to leave those
| 11 | below their jurisdiction to the member states as a sovereignty matter.
| 12 | MR. THOMAN: But if you go back to the notion -- we're trying to
| 13 | save money and time. The more you have one standard, one test, et cetera, the
| 14 | easier it is to get back to those objectives.
| 15 | MR. DONILON: I think that's a good list of issues on thresholds
| 16 | and one that may be fruitful.
| 17 | DR. STERN: Does everyone know where we are on the outline? It
| 18 | might make everyone more on the same --
| 19 | MS. JANOW: Well, we're not exactly following the outline.
| 20 | MR. DONILON: We're not exactly following the outline, I'm doing
| 21 | a summary.
| 22 | MR. RILL: The answer to your question is no.
| 23 | DR. STERN: I think I know where I am. |
53 1 | MR. DONILON: I couldn't tell you where we are on the outline.
| 2 | MR. YOFFIE: Merit, do you have the more detailed version that
| 3 | Tom is working off of for those of us not on the merger subcommittee?
| 4 | MS. JANOW: The answer is yes. I'm not sure we have a full set of
| 5 | copies, but I can certainly give you mine, but I think the core issues are indeed
| 6 | identified in the skeletal outline. I wasn't sure Tom was working through it
| 7 | necessarily.
| 8 | MR. DONILON: Why don't we move on to the next basket of
| 9 | procedural issues which is the amount of time that a jurisdiction gets to review a
| 10 | transaction and how that time period is triggered, which is pretty key.
| 11 | Again, there are two areas to discuss here. One is what are best
| 12 | practices, if you will, that the United States should enunciate and try to see
| 13 | adopted around the world, and secondly, what does that mean about our own
| 14 | practices. Once we identify the best practices, what changes do we think we
| 15 | should be recommending for our own government.
| 16 | The staff view, and I think I agree with it, is that we should try to do
| 17 | our best to develop common time frames. There are lots of different triggering
| 18 | events around the world, including definitive agreement requirements, which is that
| 19 | you have to have a definitive agreement before you can file, that's the case in the
| 20 | EU, and in some cases actually post execution filing deadlines. And there are
| 21 | some jurisdictions with very long review periods or in fact no firm deadlines for
| 22 | ultimate review.
| 23 | The staff, and I agree, believes that the United States with respect to |
54 1 | best practices should focus on what's been called outlier jurisdictions, that is,
| 2 | countries with very disparate triggering events and initial review periods. So in the
| 3 | United States, for example, this wouldn't require anything.
| 4 | In the United States, you can file with the enforcement agencies
| 5 | prior to having a definitive agreement. You can go in anytime after the execution
| 6 | of a letter of intent between the firms.
| 7 | In other places around the world, including the EU, there is the
| 8 | definitive agreement requirement, and we have rather lengthy review periods. I
| 9 | don't think that that is a very controversial, and most of the people agree, a very
| 10 | controversial procedural change to advocate, that is eliminating the definitive
| 11 | agreement requirements and seeking to eliminate post transaction filing
| 12 | requirement.
| 13 | Bill, do you agree with that approach?
| 14 | MR. KOVACIC: I do.
| 15 | MR. DONILON: The other issue with respect to timing is the length
| 16 | of the review period. In the United States it's the 30 day initial review period, and
| 17 | a second review of 20 days after compliance with the second request is reached.
| 18 | We have talked at the Committee about whether we should
| 19 | encourage firm deadlines for the second review or not, and that's an issue I think
| 20 | still open, a four or five month deadline for completing a second phase review. I
| 21 | don't know if Committee members have views on that. Eleanor?
| 22 | MS. FOX: I think it is probably a good idea. I heard a lot of
| 23 | conversation on it when we visited law firms, but there was some dissension. |
55 1 | MR. RILL: I think when you look at what's going to be helpful and
| 2 | what isn't obviously in this type of procedural reform, this idea of having a fixed
| 3 | time frame was something that came up early in our discussions, as you recall, and
| 4 | we went around, some of us, talking to a lot of people, including relying on our
| 5 | own experience with mergers and second requests, and there certainly was not a
| 6 | uniform view that even if this were adopted, it would be particularly helpful.
| 7 | I think we need to look at our notes and review our position on
| 8 | whether or not that would be a useful modification. I think the question we face
| 9 | is: is this something that we think would be practical so far as the agencies are
| 10 | concerned, that's not a deal breaker, but certainly a factor to be taken into account,
| 11 | and is this a change that merging parties would believe might eliminate the frictions
| 12 | in the system. I'm kind of having second thoughts about that.
| 13 | DR. STERN: The minute you get to the question of harmonizing
| 14 | with other jurisdictions, if this is what we're trying to achieve --
| 15 | MR. RILL: This would generally take us in the direction of the EU.
| 16 | DR. STERN: Exactly. That's a consideration, too.
| 17 | MR. RILL: The points raised by the staff and by the structure of the
| 18 | U.S. is that the EU isn't quite so document crazy as we are.
| 19 | MS. JANOW: I just had one footnote. I think in our own staff
| 20 | prepared papers that the focus has been on whether or not there is a possibility of
| 21 | imposing some disciplines on the time periods rather than focusing on any
| 22 | particular time period, that is to say, the EU model or another. For example, the
| 23 | Canadians have used 14 days for noncomplex matters, 70 for complex, 150 for |
56 1 | very complex, so that the firms know the kind of guideposts of what to expect. I
| 2 | think we have been thinking more, at least in some of the informal drafts and
| 3 | discussions, not about a legislative deadline necessarily but more understanding of
| 4 | what would be the associated time frame so that if very complex issues were
| 5 | raised, agencies would not be constrained in going beyond some artificial deadline.
| 6 | So that's the balance that's been tried, that we've been working with.
| 7 | MR. YOFFIE: What's the downside to the EU procedure?
| 8 | MR. RILL: For one thing, it's been picked up in our discussions, is
| 9 | in EU procedure, once you get into phase two, the four-month phase, that is the
| 10 | rule. You cannot close within that time, under the merger regulation, that's the
| 11 | time period.
| 12 | A number of parties, and certainly to some extent my own
| 13 | experience, people that we talk to that do a lot of merger work believe that having
| 14 | a fixed limit within which closure cannot be accomplished would probably extend
| 15 | in many instances, second requests, the time frame within which the merger may
| 16 | close. We've heard testimony --
| 17 | MR. YOFFIE: Jim, isn't that one easy: you set a five-month
| 18 | maximum as opposed to a five-month minimum?
| 19 | MR. RILL: You could do that. The question then becomes how do
| 20 | you decide what is the maximum. That's something that could be worked out. We
| 21 | have heard testimony from the FTC and also from the Department that even in the
| 22 | case of second requests, the vast majority of second requests do not reach their
| 23 | full-blown substantial 200 boxes or a thousand box compliance. |
57 1 | Normally it's worked out more often than not worked out within the
| 2 | time frame, and I think a lot of lawyers handling mergers would, I think, agree
| 3 | with that and want that flexibility to close sooner than the outer time frame and
| 4 | review model.
| 5 | MR. THOMAN: As a practitioner, and John I know has done this a
| 6 | lot more than I have, but I've been involved in two or three of those, which were
| 7 | borderline in terms of whether they would have been permitted or not.
| 8 | What you get into then is discussions of well, if it doesn't close,
| 9 | who's going to bear the cost. The further out that can be, so then you get a
| 10 | discussions of what is the worst case? Well, the worst case is if it's seven or eight
| 11 | months, certainly in technology, is a lot worse -- a business that floats for eight
| 12 | months is a lot worse than a business that floats for four months. So you very
| 13 | quickly get to numbers which say, gee, I can't -- the worst case is so awful that I
| 14 | can't countenance it. That's the kind of issue that in my experience I have had two
| 15 | or three that could have turned out like that.
| 16 | MR. RILL: That's certainly true in high tech.
| 17 | MR. THOMAN: If you have four, or five, at least you could
| 18 | calibrate.
| 19 | MR. RILL: No, that's a good comment.
| 20 | MR. YOFFIE: Jim one other comment, too. It used to be trade
| 21 | policy didn't have any deadlines, either. If you remember back in the 1970s,
| 22 | countervailing duty and dumping suits could be stretched out sometimes for years,
| 23 | and with the changes in the trade laws, which did set very strict deadlines on the |
58 1 | procedures, I think that has produced much more efficiency in the handling of
| 2 | these activities. I agree with Rick that if you set a maximum deadline we could
| 3 | potentially get much more efficiency in the process. Everybody understands the
| 4 | deadlines they are working under and if it is closing earlier, we create the option to
| 5 | make that possible. In terms of a recommendation, even though it requires a
| 6 | legislative change, it seems to me that's directionally correct.
| 7 | MR. RILL: Nothing to stop us from making legislative
| 8 | recommendations.
| 9 | DR. STERN: Plus marrying that with some of these regulatory
| 10 | guideposts a la the Canadian experience which also will insert a little more
| 11 | certainty, but it's not a certainty, it's a little more predictability.
| 12 | MR. DUNLOP: Right.
| 13 | MR. DONILON: By the way, we heard testimony from the Federal
| 14 | Trade Commission that the average second request investigation was resolved in
| 15 | about four months. So we could point towards the average now.
| 16 | MR. RILL: Somewhat less than 50 percent required substantial
| 17 | compliance, substantially less?
| 18 | MR. DONILON: Right. And on the other hand, testimony that was
| 19 | a surprise to me was, and indicates I think a seriousness of purpose at the FTC in
| 20 | terms of picking transactions for second requests is that approximately 60 percent
| 21 | of the second requests over the last five years did result in enforcement action. So
| 22 | they were focusing on transactions where there really were issues.
| 23 | MR. RILL: I think we're going to get a paper from DOJ on this, |
59 1 | too. My understanding is something like 30 percent is the number for DOJ, that
| 2 | I've heard that. There's a reason for a hearsay rule.
| 3 | DR. STERN: Maybe you should get some competition between the
| 4 | agencies for a higher number.
| 5 | MR. RILL: Or lower.
| 6 | MS. FOX: But we have to know how many were aborted as a result.
| 7 | MR. RILL: I think that's included within the enforcement number
| 8 | that the FTC gives, ones that have been abandoned, modified, fixed, consents,
| 9 | challenged in litigation. That's all within that 60 percent number. At least that's
| 10 | my understanding from Bill Baer.
| 11 | MR. DONILON: I guess then the consensus seems to be that we
| 12 | have a pretty good consensus on best practices to be advocated but it also seems
| 13 | to be a consensus to take a hard look at hard deadlines on the second phase; is that
| 14 | fair?
| 15 | The next in a basket of procedural issues is what do the agencies ask
| 16 | for in the review and how useful is it. In the United States, obviously, the DOJ
| 17 | and the FTC conduct merger reviews in two steps with an initial filing and
| 18 | information provided under the Hart-Scott-Rodino form, and then the second
| 19 | request which can include information that the agency needs to look at the
| 20 | transaction further.
| 21 | It's my understanding that the Federal Trade Commission is looking
| 22 | at revisions on the Hart-Scott-Rodino form to make it more useful in review.
| 23 | Merit, is that true? |
60 1 | MS. JANOW: Yes. They have been in an ongoing process -- I think
| 2 | it's our understanding that that continues at this time.
| 3 | MR. DONILON: Because there is -- in my experience, you know,
| 4 | some unnecessary information that's asked and a lot of useful information. It's
| 5 | very SIC code based, which in every case is not a very accurate description of
| 6 | what's going on.
| 7 | A proposal that has been talked about in front of the Committee -- I
| 8 | think we probably, by the way, on that should try to get in concert with the FTC
| 9 | revision effort. They obviously have a lot of experience on this, and if they're
| 10 | moving in a particular direction, perhaps we can help push that along in our report.
| 11 | A proposal that's been put in front of the Committee with respect to
| 12 | filing, though, is a proposal which would have kind of a short form-long form
| 13 | approach to this. That is, if parties can come in and demonstrate that any overlap
| 14 | between the parties is less than 20 percent, I think we've been talking about Merit,
| 15 | then there would be much less of an information request, I guess would be the
| 16 | idea.
| 17 | If, in fact, the combined share is above 20 percent, the HSR form
| 18 | would require up front a set of information that could illuminate the competitive
| 19 | issues.
| 20 | Do you want to talk about that any further, Merit?
| 21 | MS. JANOW: I would like to invite Cynthia to elaborate, but I think
| 22 | the basic notion here was simply that there may not be adequate information to
| 23 | make these determinations from the initial filing requirement, so can one in essence |
61 1 | ensure that there is adequate information to get those deals off the table that
| 2 | deserve to be off as quickly as possible. That's the objective. And one -- and this
| 3 | is particularly true with respect to foreign jurisdictions, and again that is part of the
| 4 | focus here, that can require information with respect to areas where there is no
| 5 | overlap, so I think both aspects of that are what we have been speaking to, but let
| 6 | me ask Cynthia if she wishes to elaborate with respect to the 20 percent or other?
| 7 | MS. LEWIS: What we've tried to do with this proposal is reduce
| 8 | initial filing burdens, particularly for transactions that raise no competition issues.
| 9 | For example, the proposal would eliminate from the initial notification forms
| 10 | extensive information requests concerning non-overlapping products, such as
| 11 | market information relating to the acquiring party's individual market shares above
| 12 | 25 percent. We've also tried to devise a mechanism to get information up front in
| 13 | the initial review period so that -- at least in the U.S. -- the agencies can quickly
| 14 | resolve the competition issues or better focus requests for additional information.
| 15 | The agencies would not have to go on a fishing expedition at that point because
| 16 | they would have a lot of the key competitive information up front to enable them
| 17 | to craft a more narrowly focused request.
| 18 | MR. DONILON: I think that's something worth exploring with the
| 19 | agencies to get their reaction. You know, in a transaction where you know that
| 20 | there are competitive issues, typically the merger team representing the parties will
| 21 | go almost immediately upon filing to the agency and say, we know you're going to
| 22 | have some questions, we would like to get this done in the 30 day period, the
| 23 | Hart-Scott-Rodino form doesn't give you what you need here, we know that. |
62 1 | We want to voluntarily start to work with you right now in order to
| 2 | demonstrate that there is not an issue, and the agencies typically work in concert
| 3 | with the parties to try to accomplish that in the first 30 day period, that being to
| 4 | make a determination that there is not a serious competitive issue. What the staff
| 5 | proposal, I take it, would do would be to try to formalize that, that the agencies
| 6 | and the parties wouldn't be relying on kind of this dance that happens between
| 7 | merger counsel and the agencies where merger counsel spends a lot of money
| 8 | sitting in a conference room discussing the issue of should we call the lawyer
| 9 | working on this or not? If we call him or her, are we going to tip them off that we
| 10 | think there is a problem with the transaction?
| 11 | I think in most cases, experienced merger counsel will call and
| 12 | identify themselves as representing the parties. But, in some cases, I don't think
| 13 | that happens, and you get a delay, and you may get a second request because you
| 14 | have just let it go too long.
| 15 | You haven't engaged the agency, the agency hasn't engaged with you
| 16 | in order to try to identify things. I would be interested in the agency reaction
| 17 | though to that kind of formalization of what happens really in practice.
| 18 | Now, one reaction might be that maybe 20 percent is too low, that in
| 19 | fact the agencies might not be seeking lots of information, but I think we should
| 20 | really explore that.
| 21 | DR. STERN: Do you want to do that now? Do you want to get
| 22 | comments?
| 23 | MS. JANOW: I think maybe we were generating a few questions |
63 1 | here. Perhaps move on if you don't mind.
| 2 | DR. STERN: Good.
| 3 | MR. DONILON: The last issue with respect to, what kind of
| 4 | information we have asked for is translation expense which can be quite expensive.
| 5 | There are proposals that we've discussed about asking the agencies to take on
| 6 | foreign language experts to review foreign language documents and then those
| 7 | experts could ask the parties for whatever -- to translate specific documents as
| 8 | opposed to translate a mass of documents.
| 9 | There's also been a discussion about the parties being able to provide
| 10 | summaries to the agencies if requested by the staff within a certain time frame.
| 11 | It is expensive, in my experience, but I guess I am ambivalent about
| 12 | this proposal. I think that asking the agencies to hire additional skill sets is a
| 13 | significant request that may not be the top of their priorities.
| 14 | Secondly, as I think the statement against interest as a practitioner, if
| 15 | I were an enforcer, I would not rely on the lawyers for the parties to provide
| 16 | summaries of documents in a potential enforcement review. Every person has his
| 17 | or her own summary of a document, and lots of times these document reviews
| 18 | depend on a line instead of notes or something like that. I don't know that that's
| 19 | really wise, but the translations issue is obviously an issue, because it is a big
| 20 | expense potentially in an international transaction.
| 21 | DR. STERN: I have a technical question. How soon will computers
| 22 | be able to make translation a less costly consideration for documents?
| 23 | MR. THOMAN: We do it now. We do a lot of work in Europe on |
64 1 | documentation. We do the EU Patent Office documentation in most languages.
| 2 | But it's not perfect. What the state of the art now is, we have software which will
| 3 | give you three ways of translating something then you need a human to go through
| 4 | it and cross out two of them so what you get is about an 85 percent improvement
| 5 | of speed over full blown translation around that 80 or 85 percent, but you still
| 6 | need a human interface to choose because often there are the same words that
| 7 | mean things in multiple languages.
| 8 | DR. STERN: Sure.
| 9 | MR. THOMAN: What you then do is, is if you are with a pretty
| 10 | high confidence, there are pieces that can be done word for word but very often
| 11 | you have to go to three options, but we do that as a business. We do that for a lot
| 12 | of car companies, for example, electronics companies, we have to do foreign
| 13 | documents in multiple languages and we literally -- we digitize them and print them
| 14 | out just in time to be dropped in the boxes, whatever product, wherever they're
| 15 | going, whatever country.
| 16 | DR. STERN: Is this a Xerox service?
| 17 | MR. THOMAN: This is a Xerox service.
| 18 | DR. STERN: Do you have a lot of competitors? I shouldn't have
| 19 | asked that here.
| 20 | MR. RILL: Strike the question.
| 21 | DR. STERN: You don't have to answer that.
| 22 | MR. RILL: The answer is yes.
| 23 | DR. STERN: I'm sorry. I guess I wanted to know how prevalent |
65 1 | this technology was, if technically we're going to get quicker or sooner fix than we
| 2 | realize.
| 3 | MR. THOMAN: It will be a little while because it's complicated
| 4 | literally a word for word with pretty much certainty. So you'll always need a
| 5 | human interface. The key is to limit the human interface. IBM spent a lot of time
| 6 | on this also and had trouble, the same trouble. Both of those two have spent huge
| 7 | amounts of time and effort.
| 8 | DR. STERN: Uh-huh.
| 9 | MR. YOFFIE: I think realistically we're talking three to five years
| 10 | before you can expect something of the level which a lawyer would be comfortable
| 11 | with.
| 12 | MR. THOMAN: Right. It may be longer because they have been
| 13 | saying that about voice now for -- three to five years ago -- they have made a lot
| 14 | of progress, but it was still -- it was going to be now, but it's not now yet.
| 15 | MR. YOFFIE: Translation is easier than voice.
| 16 | MS. JANOW: I don't know, but two years ago, I reviewed a
| 17 | Japanese computer translation of Hamlet. Japanese to English, To Be or Not To
| 18 | Be was to have or perhaps I have not, so I feel three years might be ambitious.
| 19 | DR. STERN: I don't expect poetry. There is a difference between
| 20 | translating with all due respect, to legal briefs, I don't -- I have never seen one that
| 21 | I would call poetry. So, I mean, there may be a level of acceptability. The point is
| 22 | there may be some -- technology may help us and we should anticipate that in our
| 23 | recommendations. |
66 1 | MR. DONILON: The next set of issues falls in the basket of
| 2 | transparency, and again transparency is a principle which I think could be
| 3 | something very fruitfully advocated by the Committee, that is trying to get as much
| 4 | publication of requirements, as much clarity for practitioners and businesses
| 5 | around the world to use.
| 6 | We can talk about what the best venue is for doing that, but I think
| 7 | it's obviously, from a practitioner's point of view, from a business person's point of
| 8 | view, that would be quite a useful thing to promote.
| 9 | We have also talked about basic principles that can be advocated by
| 10 | various fora in the United States in merger review. Again we have talked about
| 11 | those.
| 12 | With respect to the United States itself, we have had discussions
| 13 | about how the U.S. agencies might be more transparent, in their deliberations. I,
| 14 | as a practitioner, find a lot of transparency. I find there is agreement with other
| 15 | folks on the Committee, I think, that there is a lot of information about how the
| 16 | United States enforces merger law. We have guidelines, we have speeches by
| 17 | practitioners, we have a very useful interaction between the ABA Antitrust Section
| 18 | and the agencies where these things are fully, pretty fully ventilated, but in order to
| 19 | be a semi-fair presenter, some of the ideas that have been talked about really fall
| 20 | into two areas.
| 21 | One, the question presented is, should an agency before it presents a
| 22 | second request make a short statement of its issues. A short statement, theory of
| 23 | its case, what's bothering it in specific, what markets are bothering the agency and |
67 1 | why the 30-day termination period hasn't just been allowed to lapse and why the
| 2 | transaction can't just close. That's one question.
| 3 | Second, Paula, you've asked about this on a number of occasions,
| 4 | should the DOJ and FTC be required to publish the reasoning for their decisions
| 5 | where they don't go forward. They obviously do when they do go forward, they
| 6 | go to court and publish it extensively.
| 7 | Again, I think that the agencies in the United States do a lot. The
| 8 | FTC, for example, I think has very useful material to aid public comment on
| 9 | settlements that it might propose. There are annual reports and other things, but
| 10 | these are the two issues that have been raised most directly, should before a
| 11 | second request is issued an agency be required to make a short statement of the
| 12 | case and to tell you formally what's on their mind and secondly, should in some
| 13 | cases, and if so what cases, should the agencies be required to issue an opinion of
| 14 | some sort.
| 15 | MR. RILL: It seems to me that it would be wrong probably to
| 16 | require the agencies to do this in every case investigated, but I think the agencies
| 17 | could probably do, maybe at just the margins, a somewhat better job of articulating
| 18 | in cases that are doctrinal or paradigm cases in their own judgment, reasons why a
| 19 | particular merger was permitted.
| 20 | Connie is here so I'll flatter her. The articulation regarding the
| 21 | L'Oreal case in some of your speeches was quite good, and I tried to do some of
| 22 | that, I would only advocate more of it. I think even where there are consents
| 23 | reached, the Commission now could further improve its statement in aid of public |
68 1 | comment in the consents than it does now. Justice is under a little bit more of a
| 2 | burden because they have to get court approval under the Tunney Act for its
| 3 | consents, but the Commission doesn't have that burden. It's very modest in
| 4 | attempts to put it to the agency to make this request, focus on the agency, but it's
| 5 | less burdensome and perhaps more useful than requiring that every case
| 6 | investigated, all 80 some odd Justice Department second requests, 60 some odd
| 7 | FTC second requests where there's no enforcement action, to have a meaningful
| 8 | statement, that would make a good contribution.
| 9 | On the second request statement, I think internally staff should have
| 10 | that obligation to the operations office and the bureau directors, and the agencies
| 11 | indicate that they do have that now.
| 12 | I think we ought to think hard about -- I don't know how to come
| 13 | out on this, but I think we ought to think hard about what benefit really would be
| 14 | achieved by requiring some public statement at that time of the second request
| 15 | being issued, both from the standpoint of the parties and the possible impact on
| 16 | financial markets or elsewhere on the deal by having the agencies come out and
| 17 | say, we're concerned that in this particular market there very likely could be a
| 18 | substantial lessening of competition. All the arbitrageurs are running around doing
| 19 | what arbitrageurs do. I wonder if that's a real benefit; compare that with just the
| 20 | fact that the issuance of a second request is sometimes disclosed by the parties
| 21 | anyway. I haven't really thought that through. I see a concern that could be raised
| 22 | there.
| 23 | Secondly, I wonder how articulate real agency definitions of the |
69 1 | particular problem would be. It isn't going to help very much to say we're issuing
| 2 | a second request because we think there may be a problem under section 7 of the
| 3 | Clayton Act. I'm not suggesting the agencies would do that, but in past history I
| 4 | have seen that sort of problem of supporting FTC, DOJ subpoenas.
| 5 | So I don't know. I'm questioning how much good that would really
| 6 | do and whether there is a downside aspect to it.
| 7 | MR. DONILON: I guess my view is somewhat in line with yours,
| 8 | Jim, is that I fear that these kinds of statements would become highly stylized and
| 9 | there would be a form that would develop within the agency as to what you give
| 10 | the parties when you're about to issue a second request.
| 11 | Secondly, I would be interested in agency reaction to this, if the
| 12 | agency is preparing to go to court, are they going to want to give you a statement
| 13 | of their case before they're ready?
| 14 | MR. RILL: Well, I certainly think that's something that we have all
| 15 | wondered about.
| 16 | DR. STERN: I think my take on this is very similar to Jim's. That
| 17 | where there are speeches that have been made, if there is a way to encourage that
| 18 | in these important shifts in doctrine, it should be done. On the second request, I
| 19 | think we should probe the questions that you've mentioned. I think they're very
| 20 | good ones, with reference to court considerations that impact agency decisions.
| 21 | The burden, administratively, may not be so great because within the
| 22 | bureaucracy, there is this communication going on. Sharing that with the parties is
| 23 | different from sharing it with the public. There might be a proviso that only the |
70 1 | interested parties, not the stock market, and the arbitrageurs would be signaled as
| 2 | to the thinking.
| 3 | MR. RILL: It's a real problem. And you're right, it's a real problem,
| 4 | the second request in the U.S. is an abomination. The agencies would agree that in
| 5 | many instances the second requests as issued are enormously costly, time
| 6 | consuming, and often in my own experience and I think the experience of a lot of
| 7 | people who do a lot of merger work, by and large you can find out pretty much
| 8 | what the agency staff are concerned about and what they're looking at.
| 9 | In the meantime, that good working relationship is done against this
| 10 | backdrop of a huge thunder cloud of a second request which goes well beyond
| 11 | those discussions, and that maybe the reason why Ann Malister, who is here, tells
| 12 | us that in, I don't know, pick a number, 80 percent of her second requests there is
| 13 | not substantial compliance and that negotiation bears fruit. But there is still the
| 14 | thunder cloud, and the parties have to worry about complying with that in case the
| 15 | negotiation breaks down, and that's something that really cries out for a solution
| 16 | which I don't have right off the top of my head.
| 17 | MS. JANOW: I was just going to put an international context to
| 18 | this. I think the recurring theme in all of these specifics has been if the U.S. is
| 19 | going to be an advocate for reform in foreign jurisdictions, then you should get our
| 20 | own house in order, and that has therefore stimulated focus on these particulars,
| 21 | including the question of transparency. But frankly, the issue of transparency has
| 22 | been emphasized in our hearings as a problem around the world of great
| 23 | significance, including the underlying rationale behind merger review as being |
71 1 | opaque in many jurisdictions, far in excess of any problems that may exist here.
| 2 | So I just wanted to get back to the context in which this issue and
| 3 | others have been, I think, raised and also the particular point of focus, Tom, that
| 4 | you just emphasized which is issuing statements or -- I think also in the context of
| 5 | the fact that the U.S. officials tend to issue guidelines and have speeches and a
| 6 | variety of expressions so the public can understand, although maybe not fully in
| 7 | the second request context, and that doesn't exist everywhere in the world. And so
| 8 | perhaps more of these underlying rationales for merger review around the world
| 9 | need to be made transparent and greater efforts at being clear as to what policies
| 10 | are and criteria are for review.
| 11 | DR. STERN: I'm glad you brought that back because this is not a
| 12 | criticism. Making these recommendations is not necessarily a criticism of the U.S.
| 13 | agencies, but it is a set of recommendations which are stimulated by the desire for
| 14 | transparency so that there won't be abuse. Sunshine is the ultimate disinfectant.
| 15 | We may not have abuse here, but if we are being copied in our rules and
| 16 | regulations by other nations, then if we had the provisions for greater transparency,
| 17 | others who were copying our rules and regulations will pick up those provisions
| 18 | for transparency as well. It may eliminate abuse in other systems.
| 19 | MS. FOX: Those are very good points. I want to mention one
| 20 | piece of it and then come back to the larger point that Merit made.
| 21 | The pieces regarding whether the agency considers short statement
| 22 | of issues before a second request is issued, I wondered is there any serious
| 23 | problem of the agencies issuing a second request because they're really not ready at |
72 1 | the end of the first time period, and so if there is a serious problem, then
| 2 | requirement of their focussing very specifically on what they're very seriously
| 3 | concerned about might be a very useful requirement.
| 4 | Now, just coming back to the important points that Merit just made,
| 5 | this is a general transparency point, and general transparency as to countries'
| 6 | standards and what they analyze. This ties in with an issue we'll come back to
| 7 | maybe at the end of the day on whether there should be a freestanding or a
| 8 | competition forum, and this subject matter might apply across all issues of
| 9 | competition law, certainly not just to mergers, but mergers is an important part of
| 10 | it.
| 11 | We need to know what are, in effect, the guidelines and modes of
| 12 | analysis of every jurisdiction and how they deviate. So I would just be in
| 13 | agreement that guidelines are excellent, speeches are excellent. I also think
| 14 | sometimes it's very important to have particular facts building around us rather
| 15 | than just come down to have agencies around the world talking very specifically
| 16 | about how they apply their law to particular facts, and that could be done around a
| 17 | table at a general freestanding competition forum.
| 18 | MR. DONILON: That's an ultimate issue. I don't know whether it
| 19 | should be forum discussing it, but I think given -- I heard a very powerful
| 20 | presentation that Bill gave I think it was a year ago at the ABA on this sheer
| 21 | increase in volume of regulation around the world, and given that, I think we
| 22 | would be wise to try to get ahead of this and really find a way to push very hard
| 23 | for transparency and agreed-upon principles and kind of no surprises because the |
73 1 | best thing, American companies will be investing in places, buying company places
| 2 | that we can't really -- that are not very prevalent right now I think as we go
| 3 | forward.
| 4 | MS. FOX: Could I say something about the difference between
| 5 | transparency and agreed-upon principles? They are obviously two different things,
| 6 | and I know, the idea of agreed-upon principles does run through this and I think
| 7 | people in most jurisdictions will say, yes, I would like agreed-upon principles, if it
| 8 | can be my way.
| 9 | I'm generally in favor not of even, well, harsh or aggressive advocacy
| 10 | to sell our own principles. I'm much more in favor of transparency of countries'
| 11 | different choices, and so I think it's really fine for us to say this is the way we do it,
| 12 | and this is the standard we have, and we'll tell you why it works very well for us
| 13 | and why we think other systems impose cost, but I myself am not very happy to go
| 14 | further and say that other models are wrong or improper, but they ought to be
| 15 | transparent. I would say that they're wrong and improper only if they're parochial
| 16 | and with spillover effects.
| 17 | MR. THOMAN: The question is if we could take our procedures
| 18 | and modify them 10 percent and make them totally congruent, there's an issue I
| 19 | think beyond transparency, if you could agree on those areas of which by little
| 20 | effort you could move to a common standard.
| 21 | MS. FOX: Yes.
| 22 | MR. THOMAN: I think that's what we're talking about. There were
| 23 | probably a fair number of those. |
74 1 | MS. FOX: I was talking substance at the moment. Yes, on
| 2 | procedure particularly I see there's room to move. As we did in TRIPS. I mean,
| 3 | the United States really moved in TRIPS first to file as opposed to first to invent in
| 4 | order to get the greater good. And we should identify areas where we think there
| 5 | is room for improvement, but we're not about to adopt the EC substantive
| 6 | standard on mergers nor are they prepared to adopt ours, and I think in cases
| 7 | where we suspect that's true, we should have a separate --
| 8 | MR. RILL: Closer for them than many other jurisdictions are to
| 9 | each other and to us.
| 10 | MS. FOX: That's right, that's right.
| 11 | DR. STERN: I was just going to say on these transparency and
| 12 | publishing features or publishing doctrinal changes, that in the globalized economy
| 13 | that making what might be an ad hoc speech at an ad hoc conference on a given
| 14 | date may be picked up by some in the inner circles, but if we're trying to
| 15 | internationally make these doctrines clear, I think we should be encouraging it.
| 16 | MR. DONILON: There are terrific websites that the DOJ and the
| 17 | FTC have right now.
| 18 | DR. STERN: Right, we talked about that.
| 19 | MR. DONILON: But maybe a formalized publication of key
| 20 | speeches which I don't think is done, is it? I think you typically have to collect the
| 21 | speeches on your own. You have to collect it on the websites but maybe a
| 22 | formalized annual compilation of key documents would be a useful example to set.
| 23 | DR. STERN: And it doesn't have to be like an annual report. It can |
75 1 | be a continuing report in which you post it as it is delivered.
| 2 | MR. KOVACIC: I wanted to add a couple of suggestions about
| 3 | steps to improve the quality of decision making and indeed to establish processes
| 4 | to collect information over time that permits this kind of inquiry to continue in the
| 5 | future.
| 6 | One technique that's being used in the transition environment as a
| 7 | condition of receiving assistance from groups such as the OECD is for the
| 8 | enforcement agency to submit to audits after the fact -- that is to have external
| 9 | advisors do two things. One is to audit workloads and to audit the flow of work
| 10 | through the agency. That's the macroscopic perspective. But the second, much
| 11 | more specific step -- and I think more illuminating -- is the host country's
| 12 | agreement to submit to the detailed review of specific enforcement initiatives.
| 13 | The host country's competition authority agrees to have a group of
| 14 | outside observers come over a period of days and examine in great detail the
| 15 | decision to prosecute or not to prosecute for a specific matter and to examine what
| 16 | information was collected. These types of audits, I think, have been enormously
| 17 | informative to the enforcement officials, but also over time I think an ambition of
| 18 | these is to make available in the public domain at least some form of redacted
| 19 | assessment of what's taking place.
| 20 | MR. RILL: Bill, is there anything written on this? Any reaction
| 21 | from the emerging economies, any report on this?
| 22 | MR. KOVACIC: Nothing they have committed to paper, but I
| 23 | know that this has been an enormously informative instructional tool for them, and |
76 1 | I would suggest that if we're looking at best practices, that's not a bad idea to use
| 2 | generally.
| 3 | DR. STERN: How about the U.S. being subjected to such art?
| 4 | MR. KOVACIC: I would do it in an instant. I would just finish by
| 5 | saying the counterpart to that, a weak variant of it is that in the late 1960s and
| 6 | early 1980s, with encouragement from Congress, the FTC funded after-the-fact
| 7 | assessments of selected enforcement initiatives in the area of vertical restraints and
| 8 | the FTC's Xerox monopolization case.
| 9 | The Commission retained outside consultants to have access to the
| 10 | Commission's own internal deliberative records and to prepare assessments, the
| 11 | results of which in each case were published.
| 12 | Jack Kirkwood, who was the planning director of the FTC's Bureau
| 13 | of Competition, oversaw this effort. I was in Jack's office at the time. You can
| 14 | imagine this caused a great deal of discomfort, especially among the litigation staff
| 15 | who thought this was a good way to saw your own legs off. If you were going to
| 16 | do an assessment, you could do three things: you could learn you did a good job,
| 17 | you could learn that nothing happened, you could learn something bad happened.
| 18 | Two out of three weighed against doing these on a regular basis. But the results
| 19 | were enormously informative. I think they taught us a lot about the appropriate
| 20 | course of doctrine.
| 21 | This was a form of audit -- an after-the-fact evaluation. While I
| 22 | could go on at length about the methodological problem of doing these, I think it
| 23 | offers a technique for feeding back into the policy-making process an assessment |
77 1 | of things such as, are you asking for the right information, what information do
| 2 | you ask for that you actually use, what's your intuition about substantive policy?
| 3 | These are possibilities, and one of them indeed is perhaps a best
| 4 | practice that emerges from approaches that donors are imposing on transition
| 5 | economies in developing their own systems.
| 6 | MS. JANOW: Who funded that, Bill?
| 7 | MR. KOVACIC: The FTC paid for its own evaluations. We got
| 8 | desperately poor assistant professors of economics and imposed pre-13th
| 9 | amendment wages on them and extracted a pre-13th amendment level of effort,
| 10 | but these have been extraordinarily valuable policy-making tools as a result. As a
| 11 | way of imposing discipline on the decision making progress, collecting the kinds of
| 12 | information we're talking about, and ultimately revealing more about what actually
| 13 | happens inside the decision making process, these were enormously informative
| 14 | tools.
| 15 | DR. STERN: And how did the interested parties feel, other than the
| 16 | FTC?
| 17 | MR. KOVACIC: We had long chats.
| 18 | MR. THOMAN: I didn't know about it. If I had known about it, I
| 19 | would have wanted to read it.
| 20 | DR. STERN: Now he really does.
| 21 | MR. THOMAN: There's an internal legend inside Xerox on what it
| 22 | did, now I want to read what the FTC said it did.
| 23 | MR. KOVACIC: What's interesting is Tim Bresnahan was a junior |
78 1 | academic at Stanford, and Tim did the assessment of Xerox. Basically the main
| 2 | requirement was that you could not disclose nonpublic information in the publicly
| 3 | available version, but for the internal version it was a no-holds-barred assessment
| 4 | of what was taking place.
| 5 | MS. FOX: Bill, could you tell us which countries in transition have
| 6 | submitted to the reviews.
| 7 | MR. KOVACIC: I know that it's taken place in Poland, Hungary,
| 8 | and I am just mentioning the officials who have described for me the process
| 9 | they've gone through, Ukraine, Russia, Czech Republic. I suspect there are others
| 10 | as well. OECD has been the principal forum for doing this, and it usually consists
| 11 | of a panel of three or four outsiders who come in for three to five days and meet in
| 12 | a setting such as this. The enforcement agency says we're going to take you
| 13 | through start to finish what we did and why we did it, and the aim is to have a
| 14 | no-holds-barred assessment and evaluation internally of the decision to prosecute
| 15 | and what could be done better.
| 16 | MR. DONILON: There are some remaining process issues. My
| 17 | recommendation would be that the Committee members look at them in the paper
| 18 | that's going to be circulated on this, I think this probably would be the most
| 19 | efficient way to do it because I think that the issue that Bill is going to talk about
| 20 | today, agency overlap, is potentially one of the most important, agency overlap
| 21 | and review of mergers is one of the most important that we can discuss. So I
| 22 | guess I will stop my initial remarks at this point.
| 23 | DR. STERN: Tom, that was really very helpful. |
79 1 | MR. RILL: Great job.
| 2 | DR. STERN: Great job, you're right, Jim. Why don't we take a
| 3 | break at this moment, get some lunch, and continue on with our working lunch.
| 4 | MS. JANOW: I think we might lose some people. I think our next
| 5 | task is a drafting task, so we will have everything that we'll try to put this in a
| 6 | prose that's understandable, not just in truncated outline form, and circulate it to
| 7 | everyone.
| 8 | DR. STERN: Okay, thank you very much. So far so good.
| 9 | (Recess.)
| 10 | DR. STERN: We would like to open up the individual
| 11 | conversations to a unified conversation and start our working part of the working
| 12 | lunch, and I'm choosing my words very selectively and slowly, recognizing that we
| 13 | are going to have this conversation directed by Professor Kovacic, so we are now
| 14 | ready, if you are, Bill.
| 15 | MR. KOVACIC: I hadn't had a chance to ask Tom before whether
| 16 | he had any specific suggestions about how best to go over some of the
| 17 | possibilities.
| 18 | DR. STERN: Well, Tom, a question has been put to you in your
| 19 | absence.
| 20 | MR. KOVACIC: I was just going to ask Tom if he had wanted to
| 21 | make some general observations about the multi-agency review issues.
| 22 | MR. DONILON: Not really, Bill. Just to say that it obviously is a
| 23 | very big issue and I think one that is quite important to international transactions, |
80 1 | and it will become increasingly important to those transactions in industries that
| 2 | are consolidating around the world. This is a very large and important issue I think
| 3 | for this Committee to try to get its arms around.
| 4 | MS. JANOW: Could I add a quick note? I think we have also
| 5 | invited Professor Kovacic to give us an unvarnished a view as possible of where
| 6 | this is a problem and where it's not a problem, and to the extent that one can point
| 7 | to sectors or reviewing agencies that have an international feature of where these
| 8 | problems are surfacing, that would be particularly welcome as one of the
| 9 | suggestions we made.
| 10 | MR. KOVACIC: Right. I thought what I would do is perhaps with
| 11 | both of your suggestions in mind to start by speaking generally about where the
| 12 | problem does arise, thinking about Federal, state, and local participation in the
| 13 | process, then to talk about some of the specific difficulties that arise in particular
| 14 | categories of transactions and then to finish by thinking a bit about models for
| 15 | simplification.
| 16 | It's become apparent I think when you look at the U.S. landscape
| 17 | that there are a number of different instrumentalities involved not only at the
| 18 | Federal level but at the state and local level. The principal concerns substantively
| 19 | arise in the what might be called the transitional industries, industries that formerly
| 20 | had been subject to comprehensive oversight with respect to rates, entry, terms of
| 21 | service and are now emerging into a less regulated environment, with telecom and
| 22 | energy being the most important candidates. These are the areas where I think the
| 23 | greatest difficulties have emerged. |
81 1 | In both of those areas, and telecom is probably the best example, it's
| 2 | now clear that there's active participation for any single transaction by a host of
| 3 | authorities, not simply at the Federal level, but at various political subdivisions as
| 4 | well.
| 5 | For the typical telecom transaction, there is oversight traditionally by
| 6 | the antitrust overseer, in this case the Department of Justice, the Federal
| 7 | Communications Commission, the state attorneys general, the state public service
| 8 | commissions of every jurisdiction in which the firms do business, and I think last of
| 9 | all, and perhaps most startling in the case of the recent cable transaction involving
| 10 | AT&T and TCI, the city of Portland exercising its authority and its oversight over
| 11 | cable franchises has decided to impose a requirement that AT&T provide certain
| 12 | kinds of broadband, high speed Internet access as a condition of getting local
| 13 | approval for their transaction.
| 14 | In a way, I think, the most obvious general national competition and
| 15 | international competition policy concerns arise at the Federal level, but I think it is
| 16 | probably simplifying the problem too much to think that the state oversight,
| 17 | especially by the major state public service commissions, and here I'm thinking
| 18 | about New York, Illinois, California, just to pick a few, doesn't affect the ability,
| 19 | the incentive and interest of international players in the telecom market to
| 20 | undertake specific transactions.
| 21 | And while I hadn't thought until two weeks ago about the local
| 22 | dimension, where you do have cable system operators, and to the extent that the
| 23 | cable system operators are seen as an alternative to the traditional regional Bell |
82 1 | operating companies because they provide another wire to many of the ultimate
| 2 | users, the local oversight could have an effect as well. Chairman Kennard of the
| 3 | FCC has expressed his dismay at the District Court decision in the city of Portland
| 4 | case as well, but I suspect the city of Portland and other jurisdictions will fight
| 5 | every bit as aggressively as they did to get this result to preserve it over time.
| 6 | I think the reason that this does become a problem, even with the
| 7 | state and local overlay, is that for the same reason that these networks are
| 8 | important because of their network effects, decisions by political subdivisions
| 9 | such as state or local governments, to the extent that they limit the ability of the
| 10 | network to be developed, to develop consistent standards, consistent product
| 11 | offerings, to the extent that you impose conditions on different pieces of the
| 12 | network, it limits the ability of the parties to achieve the network-like benefits that
| 13 | would come from these transactions.
| 14 | I suppose one way to think about the Portland intervention is to say
| 15 | if the citizens of Portland want to impose controls on themselves that are ill-
| 16 | conceived, there's a self-correcting political mechanism in place there that keeps
| 17 | that in check. Yet to the extent that part of the logic of the AT&T and TCI deal is
| 18 | to create a broad based national or regional alternative to the traditional local
| 19 | phone service providers, letting the City of Portland make this kind of policy
| 20 | judgment has broader regional and national, perhaps, even international
| 21 | implications as well.
| 22 | So I think while I'm inclined to think that thinking about the
| 23 | problems at the Federal level is perhaps the place to start, I'm hesitant to say that |
83 1 | the state and local effects are not significant, particularly in light of the fact that
| 2 | these political subdivisions do have the ability to impose restrictions that affect the
| 3 | desirability of proceeding as a whole.
| 4 | I want to identify a basic policy decision that's implicit, I think, in
| 5 | looking at the process for merger review. Why have differences in approach
| 6 | emerged? It's because the substantive standards that are being applied and the
| 7 | substantive mandates differ from jurisdiction to jurisdiction.
| 8 | If we were to draw a Venn diagram, the antitrust role would be a
| 9 | distinct circle inside a much larger set of concerns that the sectoral regulators such
| 10 | as the Federal Communications Commission or, indeed, the state public service
| 11 | commissions bring to bear on these issues. A question that arises as a matter of
| 12 | substance is what should be the appropriate tools for making policy involving
| 13 | mergers in the telecom, energy or other regulated sectors.
| 14 | It's clear that there's a strong preference embedded in the organic
| 15 | legislation of these sectoral bodies that competition policy concerns as we would
| 16 | define them are not all that counts, that there is an array of other considerations
| 17 | that ought to be part of the analysis. One question is whether, as part of their
| 18 | review of a variety of other factors, they should revisit issues decided by the
| 19 | competition policy agencies or should they be able to conduct in the first instance a
| 20 | new and fully independent assessment.
| 21 | Let's say it's the latter circumstance that truly takes place today. And
| 22 | it is also apparent in carrying out this role that the sectoral regulators have more
| 23 | powerful tools to obtain adjustments to the transactions. What's the source of that |
84 1 | greater power? Well, a broader charter, to be sure. That is a charter that's beyond
| 2 | the standards encompassed in the Clayton Act and its jurisprudence.
| 3 | Second is related to process, and this I think lends itself to a very
| 4 | specific possible adjustment. There are no time limits on the decision making by
| 5 | sectoral bodies such as the FCC or FERC or the state public service commissions.
| 6 | This is a focal point of legislative debate at this moment.
| 7 | There are proposals by Congress to cap the process, really drawing
| 8 | on the same intuition that the Committee discussed earlier in talking about Tom's
| 9 | presentation about time limits and caps on the merger review process.
| 10 | Why is the absence of time limits very important? For transactions
| 11 | of this kind, and I think Rick referred to this before, the question that the merging
| 12 | parties have to ask is how long do they want their money and their transaction to
| 13 | be on hold before it's completed?
| 14 | In the case of FCC or state public service commission review, the
| 15 | answer, if you ask how long can this go, the answer is there's no outer bound on
| 16 | the process. That gives the decision-makers tremendous leverage. It means in
| 17 | particular that competition policy or other concepts that might not survive review
| 18 | in the courts, if you had to get them there, gain more efficacy because the agency
| 19 | has the opportunity to say we will simply wait you out. That is, we will wait until
| 20 | you accede to some of our requests for concessions.
| 21 | There's a political safety valve. You can go to the Hill, you can
| 22 | apply pressure which certainly these bodies do as well, but when a proceeding is
| 23 | pending, there's no particularly effective way to move things along. The ability |
85 1 | simply to wait makes theories that might be difficult for the Department of Justice
| 2 | to succeed with in a PI action in the U.S. District Court in the District of Columbia
| 3 | much more important and requires the parties to take them more seriously.
| 4 | So one specific adjustment that in a sense might harmonize this
| 5 | process and tend to unify the competition policy standards that are being used is to
| 6 | cap the amount of time that the sectoral regulators have to do their job.
| 7 | Let me give you a specific example. It's apparent that the sectoral
| 8 | regulators are more fond of potential competition theories and more sanguine
| 9 | about the capacity of potential competition theories to provide a foundation for
| 10 | evaluating transactions than the antitrust agencies are. Potential competition has
| 11 | an uncertain future in the courts, and it's had an uncertain past. But it's apparent
| 12 | that a foundation for FCC analysis is to rely heavily on it.
| 13 | Well, you ask yourself, how well would you do if you had to take on
| 14 | a transaction and impose a broad array of restrictions based on a potential
| 15 | competition theory.
| 16 | My judgment is that might have a very difficult ride through the D.C.
| 17 | Circuit, and ultimately through the Supreme Court, depending upon how broad a
| 18 | set of demands were imposed. But that judgment day is never going to happen in
| 19 | this process because I think it is highly unlikely that a telecom service provider
| 20 | would take the year-long, at least, trip through the FCC, then an additional year
| 21 | perhaps through the D.C. Circuit to finally get judgment day.
| 22 | In effect where mergers are concerned, the merging parties know
| 23 | that the sectoral regulators hold the high cards, and the high cards in many ways |
86 1 | consist of simply having the ability to wait out the other party.
| 2 | So one implication of this might be to cap the amount of time that
| 3 | the sectoral overseers have.
| 4 | Another issue, another problem that I think arises in the process is
| 5 | one of transparency, and it involves, in part, the relationship between the
| 6 | competition policy agenda, the traditional antitrust agenda, and the other features
| 7 | of the jurisdiction of the overseeing agencies.
| 8 | I suspect many of you have watched the hearings and deliberations in
| 9 | front of the FCC and FERC. The tone of those proceedings is very striking. I sat
| 10 | in a generic session, I was one of six people on a panel. And each one, as they
| 11 | went around the table talking about the competition policy issues of three major
| 12 | telecom deals that were before the Commission, said "this is what I want the
| 13 | parties to do for my constituency and my group."
| 14 | I felt that by the end of it it was incumbent upon me to start my
| 15 | comments by saying, "I want high speed broadband Internet access as a condition
| 16 | of the deal going ahead." If I didn't ask for something I would have let down the
| 17 | team and didn't belong on the panel.
| 18 | I think what is apparent in the process is that the FCC, as part of its
| 19 | public interest mandate, believes that it is appropriate in reviewing mergers to use
| 20 | the merger review process to impose these kinds of conditions.
| 21 | Now, there has yet to be, by way of transparency, I think, a clear
| 22 | definition from the sectoral regulators about the standard that they impose. Is the
| 23 | standard one of, if the transaction is likely to be anticompetitive, it's forbidden or |
87 1 | do the parties have an affirmative obligation to show what will help?
| 2 | You can discern in the statements of some of the sectoral regulators
| 3 | both points of view. But it's apparent that there is much greater ability to use the
| 4 | merger review process to accomplish the noncompetition policy agenda in place
| 5 | and fulfill those aims, then there would be if the agency, for example, were told to
| 6 | conduct a rulemaking.
| 7 | If you want to impose requirements on service providers under your
| 8 | jurisdiction, do a rulemaking and make them do the following things. That would
| 9 | be much harder to accomplish.
| 10 | I think the reason that they like the merger jurisdiction so much is
| 11 | that it is an excellent vehicle to accomplish this because rather than being in the
| 12 | position of imposing something on an unwilling party who doesn't have to
| 13 | acquiesce, you're in the position of confronting a very impatient party who
| 14 | desperately wants to get through your gate and is much more likely to
| 15 | accommodate your request.
| 16 | I suppose a minimalist possibility that might come forth, and we
| 17 | mentioned earlier the possibility of guidelines, would be that where sectoral
| 18 | regulators want to exercise their authority and have a competition policy
| 19 | component as one of several different variables, it might not be asking too much to
| 20 | say, you have to make clear in guidelines precisely how you're going to conduct
| 21 | that analysis, and perhaps to suggest what weight is to be given to different factors
| 22 | and how you plan to trade them off.
| 23 | Those things I would suggest basically do not appear in the formal |
88 1 | proceedings or even the speeches of the decision-makers in question.
| 2 | DR. STERN: May I interrupt you and ask. You started by saying
| 3 | you were focusing on energy and the telecom. In other words, on the Federal
| 4 | Communications Commission and on the Federal Energy Regulatory Commission.
| 5 | You're now making some general recommendations for standards.
| 6 | Are there other agencies that we ought to be thinking of as you go
| 7 | through this besides the FERC and the FCC?
| 8 | MR. KOVACIC: I think my generic suggestion would be that
| 9 | wherever an institution is operating under a public interest standard, that lends
| 10 | itself to consideration under a host of different variables, that the decision making
| 11 | process, that the general standards ought to be spelled out perhaps in guidelines,
| 12 | perhaps by other means, but that that decision making calculus has to be made
| 13 | transparent.
| 14 | DR. STERN: Well what are the other agencies then?
| 15 | MR. KOVACIC: The other bodies that have a similar mix of
| 16 | concerns, I would include the Surface Transportation Board, if we have another
| 17 | suggestion about them, but if the status quo prevails, that would certainly be such
| 18 | a body.
| 19 | I would like to see the same thing from the Department of
| 20 | Transportation to the extent that in deciding whether international route authority
| 21 | and carrying out those negotiations in deciding when routes can be transferred, to
| 22 | have more precise and transparent their decision making calculus --
| 23 | MR. RILL: The FMC? |
89 1 | DR. STERN: Maritime?
| 2 | MR. KOVACIC: Absolutely. I think the banking regulators, by way
| 3 | of a best practice model, the banking regulators, I think, have done a
| 4 | comparatively good job of making more transparent their decision making criteria,
| 5 | and the approach they use to resolve possible tensions that arise.
| 6 | MR. RILL: There you have a reverse trump card, you understand.
| 7 | That is if Justice challenges a bank merger, it gets an automatic stay, so the trump
| 8 | card tends to run in favor of Justice, capital J.
| 9 | MR. KOVACIC: Yes. That leads to one suggestion I have in
| 10 | looking at one approach for achieving a unified set of competition principles across
| 11 | different sectors. I would in each instance allow the Department of Justice or the
| 12 | Federal Trade Commission to establish the minimum floor for competition policy
| 13 | standards. That is, in the case of the Surface Transportation Board, I would allow
| 14 | the Department of Justice to veto specific merger decisions that it felt didn't satisfy
| 15 | those requirements.
| 16 | Likewise, I would give them a comparable role in dealing with the
| 17 | Department of Transportation. To the extent that, as a general starting point,
| 18 | wherever a sectoral regulator shares authority or in this -- at present, in fact, has
| 19 | complete authority as the Surface Transportation Board does, I think it would be
| 20 | highly valuable to have the antitrust overseers at least exercising the ability to insist
| 21 | on concessions that satisfy the competition policy interests of the Clayton Act.
| 22 | Perhaps I could turn to the more difficult issue that we raised in an
| 23 | earlier session, which is what is the appropriate allocation of authority under the |
90 1 | existing mechanism. That is, you can imagine several possible models which
| 2 | would distribute decision making authority in different ways. You could have a
| 3 | sectoral regulator that in parallel with the antitrust agency decides competition
| 4 | policy issues de novo and is in no way bound by what the competition authority
| 5 | ultimately decides to do, especially if the antitrust agency decides not to prosecute.
| 6 | Bell Atlantic/NYNEX is maybe a model of how that could play out.
| 7 | Although the Department of Justice chose not to prosecute, the FCC did impose
| 8 | significant conditions, as did some state governments. That's the status quo model
| 9 | with parallel proceedings. It becomes most important where the competition
| 10 | agency decides not to prosecute.
| 11 | Another model is to divest the sectoral regulator completely of a
| 12 | competition policy-making function. That is to say, you can't revisit these issues.
| 13 | These are reserved entirely to the Department of Justice. If you want to carry out
| 14 | a review of the transaction, you have to do so on other grounds.
| 15 | Doug Melamed, at our last session, raised the question, does packing
| 16 | the competition policy mission together with the other variables temper reliance on
| 17 | the other variables? If you have a competition policy culture or criterion
| 18 | embedded in the decisions of the sectoral regulator, does it tend to cause the
| 19 | sectoral regulator not to use the other variables in too expansive or unprincipled a
| 20 | way.
| 21 | And I think you could look at historical experience that suggests
| 22 | that's happened, and I think perhaps the relationship between consumer protection
| 23 | and competition authority at the FTC provides an example. The competition |
91 1 | policy mandate and experience have probably influenced the consumer protection
| 2 | mission in ways that are probably desirable.
| 3 | I want to suggest another possibility. That is, if you make the
| 4 | noncompetition policy variables much more explicit and put the spotlight on them,
| 5 | it's harder to use them in the way they're used now. My hypothesis now is that
| 6 | under the rubric of talking about competition policy, everything else comes in, and
| 7 | it's not explicitly highlighted and treated separately.
| 8 | A suggestion I might make is that if you want to treat those
| 9 | variables, you certainly can, but perhaps you do that in a rulemaking. I know the
| 10 | political science answer would be a rulemaking would be much harder to
| 11 | accomplish than doing it in the context of the merger, but that doesn't necessarily
| 12 | dictate that you would not use the rulemaking instead as a matter of good policy.
| 13 | Let me mention two other models quickly. One model that has some
| 14 | antecedents in other countries is that the competition policy authority always gets a
| 15 | place at the table, at the sectoral regulator, and gets to veto decisions that don't
| 16 | satisfy competition policy standards. The competition policy authority doesn't
| 17 | make an independent decision, but it's able to cast aside decisions that from an
| 18 | antitrust perspective are not robust enough.
| 19 | And the other alternative, sort of the last box that one could draw is
| 20 | you fold all of the traditional regulatory functions into the competition agency.
| 21 | There's one country that's doing this in an expansive way now, and that's Australia.
| 22 | The Australian Competition and Consumer Protection Commission
| 23 | has a single institution, and if you look at the organization chart, the traditional |
92 1 | regulatory functions appear as a subdivision of the competition authority. If you
| 2 | ask the Australians, and my main source of knowledge about experience comes
| 3 | from listening to Allan Asher and his colleagues on the Commission, they will say
| 4 | the experience has been wonderful, but then of course, what else could they say,
| 5 | especially since Allan helped to design this mechanism?
| 6 | But I think the one issue that they identify as being a real issue for
| 7 | concern is that if you put these functions together, whose culture is ultimately
| 8 | going to guide the decision making and behavior of the institution? Does the
| 9 | regulatory capacity of the unified body become subordinate in its attitudes and its
| 10 | preferences to the competition policy ethic or, to use a pejorative antitrust
| 11 | characterization, does the regulatory approach of the regulators "infect" the entire
| 12 | agency so that instead of having the pro competition approach, you have an
| 13 | incumbent-oriented, help-out-the-existing- service-provider attitude that spills over
| 14 | into other areas of decision making?
| 15 | DR. STERN: What's happened in Australia?
| 16 | MR. KOVACIC: I think because of the existing attitudes of the
| 17 | Commission, of the existing commissioners, when you look at their decisions day
| 18 | in and day out, they've been robustly pro-entry, pro-competition, maybe even to
| 19 | the extent of slighting some of the traditional reasoned objections that natural
| 20 | monopoly regulators might have to doing things too fast.
| 21 | DR. STERN: And the sectors that are on there are transportation,
| 22 | energy, and communications?
| 23 | MR. KOVACIC: Transportation, energy, communications. I don't |
93 1 | know if they pick up other sectors such as water, but the most important of the
| 2 | sectors that we would usually put in the traditional regulated camp are under their
| 3 | jurisdiction.
| 4 | MS. JANOW: Agriculture?
| 5 | MR. KOVACIC: Agriculture is the universal third rail, and nobody
| 6 | touches it except at their peril.
| 7 | But I think -- maybe to rank solutions again, to finish by
| 8 | summarizing solutions, and then to address questions and comments, I think you
| 9 | can array them from one pole that involves relatively, extremely modest forms of
| 10 | adjustment, that I think would be valuable, to those that involve more robust
| 11 | institutional change.
| 12 | The more modest solutions I think involve coaxing more
| 13 | transparency out of the process and relying on what we referred to in the earlier
| 14 | paper as basically the domestic equivalent of soft convergence processes in the
| 15 | international world. What do those consist of? More transparency by way of
| 16 | issuing guidelines: that the FCC, for example, the Surface Transportation Board,
| 17 | the Department of Transportation should do what the Federal Energy Regulatory
| 18 | Commission has been doing, which is to articulate their decision-making process in
| 19 | guidelines and to spend much more time in individual decisions explaining precisely
| 20 | what it's doing and why, and most important, how it's making trade-offs between
| 21 | noncompetition and competition-oriented variables.
| 22 | As part of that soft convergence process, you could rely on the
| 23 | continuing kinds of connection discussion that have taken place internationally. |
94 1 | Why does the European Union's competition system look so much more like ours
| 2 | than it did 25 years ago? Not because we're adopting their practices, but because
| 3 | they've been moving in many respects toward ours. The best example is that their
| 4 | market definition guidelines looks strikingly similar to the U.S. merger guidelines
| 5 | model. That didn't happen because of a binding treaty or requirement. That
| 6 | happened simply through a process of continuing interaction and discussion.
| 7 | I would predict that over time that that would provide a unifying
| 8 | influence here as well. That is, even if one didn't touch the system at all, that will
| 9 | continue to happen over time. Maybe to push it by requiring at least the guidelines
| 10 | be issued and decision-making processes be made more explicit would be a way to
| 11 | give a further push in that direction.
| 12 | The more robust possibilities -- and I for my own part, I'm persuaded
| 13 | that these are attractive, but there's no inexorable principle that would dictate that
| 14 | this be so -- I would think where competition policy concerns are at issue, I would
| 15 | reserve that decision to the antitrust regulator, to the antitrust overseers, and have
| 16 | the sectoral regulators take a subordinate position.
| 17 | What would this mean day in and day out? It means divesting the
| 18 | FCC, FERC, the Surface Transportation Board, the Department of Transportation
| 19 | of their ability to review mergers on the basis of competition policy concerns. So
| 20 | that jurisdiction would be removed from their oversight if the Department of
| 21 | Justice makes that choice. I would be quite confident of the Federal Trade
| 22 | Commission in the deals it handles to do the same.
| 23 | Answering that really forces, though, and perhaps it's beyond the |
95 1 | mandate of the Committee, but implicit in that preference is a decision that relying
| 2 | on more expansive competition policy notions that would not survive the test of a
| 3 | preliminary injunction action in front of the district courts is not appropriate. That
| 4 | is, what I'm basically saying in making this suggestion is that I would prefer not to
| 5 | have the FCC to have the ability in general terms to say, "We know the
| 6 | Department of Justice would not litigate on this theory, but we would, and, oh by
| 7 | the way, we know we'll never have to, because we'll never find ourselves in a
| 8 | courtroom having to defend that position."
| 9 | Implicit in what I'm saying is that there should be a single
| 10 | competition policy standard administered by the antitrust agencies.
| 11 | There is an intermediate position, if we're not going to change the
| 12 | existing allocation of authority, is to remove the biases that are embedded in the
| 13 | system by reason of procedural features of the system. Most important, to put a
| 14 | limit on the deliberations of the sectoral regulators. That is to say, you simply can't
| 15 | use the possibility of continued deliberation as a way to extract further
| 16 | concessions, and that if you cap the amount of time that the sectoral regulator has,
| 17 | that brings closer the possibility that you would have effective judicial review. And
| 18 | by effective, I mean judicial review that gives the merging parties a chance to pose
| 19 | the same kind of challenge that they might be able to pose if it were a preliminary
| 20 | injunction action.
| 21 | To make one single procedural change, in short, would be to limit
| 22 | the period of their review, because the ability to simply go on without a
| 23 | well-defined terminus to the analysis converse a tremendous amount of leverage on |
96 1 | the sectoral overseer.
| 2 | DR. STERN: Have you completed your presentation?
| 3 | MR. KOVACIC: Yes.
| 4 | DR. STERN: Thank you. I was thinking about what would be left
| 5 | of the independent agencies stripped of the competition policy responsibilities or
| 6 | review opportunities. That's not, I guess -- should not be a concern of this
| 7 | Committee, but I still was trying to think if that would leave those agencies more
| 8 | or less captors of the sectors that they would be overseeing.
| 9 | MR. MELAMED: Can I say something? It would enable me to
| 10 | make another minor comment that I want to make about this point, which I
| 11 | thought was very wise.
| 12 | I think when we use the term -- when it's been used in the last 15
| 13 | minutes, competition policy or competition objectives -- it potentially encompasses
| 14 | two different notions, and we ought to surface the distinction. When the antitrust
| 15 | agencies enforce antitrust laws, they ask the question, is the merger
| 16 | anticompetitive? Does it injure competition and make something worse?
| 17 | I think when the regulators answer that question, at least as a
| 18 | practical matter, they're asking a different question, which is, does this provide an
| 19 | opportunity for us, the agency, to do something that we think will promote
| 20 | competition? For example, require a phone company to open up its market, even
| 21 | though the merger doesn't create a problem of that particular type.
| 22 | It seems to me that this distinction explains much of the differences
| 23 | between what the regulatory agencies have done and what the antitrust agencies |
97 1 | can be expected to do. It also could contain a germ of an answer to your question
| 2 | which is, yes, the sectoral regulators can continue to try to promote regulation by,
| 3 | as Bill said earlier, promulgating rules of general application and addressing
| 4 | institutional issues that are quite different from identifying transactions which make
| 5 | things worse.
| 6 | DR. STERN: Right. But would they be less empowered? Yes, it
| 7 | was stated by Bill.
| 8 | MR. MELAMED: They would be less empowered in the context of
| 9 | merger review. They might be liberated actually to refocus their energies.
| 10 | MR. KOVACIC: I think on the question of capture, in some sense
| 11 | are they -- how does this affect their vulnerability to being captured? And in the
| 12 | traditional political science concern and certainly the traditional antitrust critique of
| 13 | traditional sectoral regulation is the problem of capture.
| 14 | DR. STERN: Right.
| 15 | MR. KOVACIC: And capture in particular by incumbents who
| 16 | become absolutely deaf to requests by prospective entrants or others to change
| 17 | conditions of entry and service.
| 18 | DR. STERN: Yes.
| 19 | MR. KOVACIC: One response that I see a lot in the newer
| 20 | literature about the transformation of some of these agencies is that capture is
| 21 | harder to do because the number of industry participants in these sectors is so
| 22 | much more diverse with so many more conflicting interests than one has before.
| 23 | That is, the traditional strength of antitrust oversight has been is that it has been |
98 1 | hard to capture the antitrust agencies because there are so many people coming to
| 2 | your door step, and who's going to capture you? In the Telecom area, maybe
| 3 | that's become more difficult because of who's coming to your door step now.
| 4 | Well, you have got the regional Bell operating companies, you have the local
| 5 | exchange competitors, you have the Internet folks, you've got the -- a whole host
| 6 | of competitors. And in the energy sector you have the power exchange
| 7 | companies, you have the energy service providers, you have the generators, you
| 8 | have the distributors. It's simply a much more fractured and contentious universe
| 9 | of industry participants which I think has made it harder for any one group to
| 10 | capture the institution as a whole.
| 11 | DR. STERN: Reflecting deregulation by those agencies themselves.
| 12 | It is because you've had deregulation. For example, in the communications area,
| 13 | you get more actors, and so the original sector and the original participants in the
| 14 | sector who were part of the designers of the law that set up the agency have, by
| 15 | virtue of the deregulating activity of that agency, created this proliferation of
| 16 | competitors. It suggests that there should never be another sector-specific agency
| 17 | set up.
| 18 | MR. KOVACIC: I think at a minimum it would suggest that there
| 19 | be structural limits on the perpetuation of the status quo.
| 20 | DR. STERN: Yes.
| 21 | MR. KOVACIC: And that is-- one structural limit is that you sunset
| 22 | existing regulatory mechanisms or that you force the reevaluation of traditional
| 23 | assumptions about whether entry is feasible or not feasible. I mean, in many ways |
99 1 | for the sectors in question, they've deregulated out of necessity rather than
| 2 | necessarily out of choice, although the FCC made certain choices in the 1960s with
| 3 | long distance that had a formative influence, and were the result of managerial
| 4 | choices by the commissions themselves.
| 5 | DR. STERN: Likewise with the FERC.
| 6 | MR. KOVACIC: Yes. That is, the fact that you can build small,
| 7 | highly efficient generation units now that you -- that the model of a highly
| 8 | centralized generation tier technically no longer has the same foundation that it did
| 9 | before.
| 10 | I would be nervous about having a sectoral body that was not
| 11 | governed by structural limits that tend to extend the status quo and did not have a
| 12 | robust role for the competition policy authority to override basic judgments that
| 13 | the sectoral regulator makes about some of these issues.
| 14 | MR. RILL: I wonder, Bill, to turn the table over, how -- assuming a
| 15 | legislative mandate that gave responsibility to the competition agencies who were
| 16 | making the competition decisions in a merger context -- how much thought has
| 17 | been given to the extent to which regulatory agencies might evade that by making
| 18 | competition decisions, imposing regulatory requirements based on those
| 19 | competition decisions which they're not supposed to be making, and putting it
| 20 | under the rubric of universal service or some similar non-competition-related social
| 21 | policy under which the regulatory agency operates.
| 22 | Having wondered that, I don't know that we have to answer all the
| 23 | questions within this framework, but it is a matter of some concern, to me at least. |
100 1 | MR. KOVACIC: To sharpen the point even more, what prevents
| 2 | the sectoral regulator from saying I don't have competition policy authority, but I
| 3 | have consumer protection authority?
| 4 | DR. STERN: Right.
| 5 | MR. KOVACIC: And what is the best protection of consumers?
| 6 | Well, it's rivalry. That's what I'm seeking now. So I'm going to do something
| 7 | differently.
| 8 | I suppose one antidote to that is to attempt to unify the
| 9 | decision-making processes. That is, one approach is to put the Department of
| 10 | Justice or the Federal Trade Commission, which does cable transactions, has done
| 11 | energy-related transactions, to put them at the table in the process, and to allow
| 12 | them to impose this competition policy floor.
| 13 | MR. RILL: I don't know what at the table means, whether it's in a
| 14 | deliberative context, but I suspect some of that goes on informally to the extent
| 15 | that ex parte rules don't block it, and ex parte rules generally don't apply in these
| 16 | types of merger context.
| 17 | On the other hand, at the table could mean that they can appear
| 18 | before the regulatory agency. I wonder, just a rhetorical question, if Department
| 19 | of Justice representatives would comment on how effective they've been before the
| 20 | Surface Transportation Board in their formal appearances on mergers. I think the
| 21 | answer -- the record speaks for itself. So I don't know what --
| 22 | MR. KOVACIC: I think that at the table means the ability to veto
| 23 | decisions on competition policy issues that are not -- |
101 1 | MR. RILL: Well, that's the same as saying leave the competition
| 2 | issues to the Department of Justice or the FTC. The other possibility which I
| 3 | would, at least I personally think would be very dangerous, probably bad, would
| 4 | be to give either the Department of Justice or the FTC the regulatory powers so
| 5 | they become an Allan Fels/Australia type operation. I think that puts more of a
| 6 | burden on them, and it tends to undermine the, if you will, the integrity, the
| 7 | sanctity of competition principles. Now, I want you to know that at a recent
| 8 | seminar I have been accused by my colleague, Tim Muris, of having a Ptolemaic
| 9 | view of the universe, with antitrust in the center and everything else circulating
| 10 | around it. I'll defend that position, too.
| 11 | MR. KOVACIC: I share your opposition to giving the competition
| 12 | policy agencies the other sorts of functions. By other sorts, I mean what I would
| 13 | call the social policy agenda that goes beyond competition policy. I think the
| 14 | dilemma that we face in talking about institutional choice is that there are certain
| 15 | functions that the competition agencies historically have been institutionally
| 16 | ill-situated to perform, but have been forced to address by reason of the kinds of
| 17 | problems that come before them.
| 18 | Anytime you're going to make a decision about access to a
| 19 | bottleneck facility or an essential facility. Anytime you're going to become involved
| 20 | in resolving vertical issues that have tremendous horizontal dimensions -- which
| 21 | simply describe the most serious problems you have in these sectors -- if you're
| 22 | going to decide to resolve those problems, you inescapably get drawn into the
| 23 | question about defining access terms and overseeing them, and the Department of |
102 1 | Justice --
| 2 | MR. RILL: Having been there and done that, I can empathize with
| 3 | the difficulty.
| 4 | MR. KOVACIC: The Department of Justice, as a result of its
| 5 | experience mainly with telecom, has been drawn step by step into the process of
| 6 | doing that as a matter of course. To the extent that if we were to talk to colleagues
| 7 | at the Federal Communications Commission or FERC circa 1985, 1990, they
| 8 | would say these guys are stealing some of our functions. That is, more and more
| 9 | they are doing the sorts of things we used to do.
| 10 | So how do you solve that? Either you give the antitrust authorities a
| 11 | more robust role in developing the institutional ability to do these kinds of things,
| 12 | which makes them more expressly regulators, but regulators within a narrow
| 13 | bound of looking at access pricing and nondiscrimination conditions. Or, another
| 14 | possibility is that the antitrust regulators make the decisions about basic
| 15 | competition policy frameworks and then they hand off implementation to the
| 16 | traditional sectoral regulators who have more experience at doing these kinds of
| 17 | things.
| 18 | MR. RILL: Can I switch you just one second, and then I am
| 19 | finished. As I say, we don't have to answer all of the details and the devil may be
| 20 | in the detailed questions about an evasion of a principled competition responsibility
| 21 | in the Division or FTC. I am somewhat, not so much concerned as intensely
| 22 | curious, as to the nexus of this issue as to global competition. Let me, just for
| 23 | example, pick up on your initial comment regarding the City of Portland. Let me, |
103 1 | rather, take an example of say, the State of Missouri, to pick one in the middle,
| 2 | which imposes under its enforcement authority particular divestitures in a grocery
| 3 | store merger, speaking hypothetically, that may be beyond, say, what was imposed
| 4 | by the Federal Trade Commission.
| 5 | This is a multi-enforcement problem. It probably has zero global
| 6 | nexus. Have you done any work or can you cite us to any work that shows a
| 7 | relationship between the difficulties, time or result-related, arising from the
| 8 | multijurisdictional review problem that relates specifically to global competition?
| 9 | MR. KOVACIC: I haven't done and I'm not aware of an assessment
| 10 | that's tried to take -- first, to do something that the Committee alluded to earlier
| 11 | today, that is to take, for example, a medium timeline from announcement of the
| 12 | transaction until completion, for transactions generally. Versus, say, telecom or
| 13 | energy, which is where the issues have come up most frequently. Or to do a
| 14 | separate assessment where you have to sort out separately transactions with a
| 15 | major international dimension and those that don't. I don't know of an effort to --
| 16 | MR. RILL: I don't, either. It would be interesting to find one.
| 17 | There are anecdotes from when the European Commission and Justice Department
| 18 | cleared the MCI/WorldCom merger, and they're both U.S. companies, but the
| 19 | issue was global Internet backbone, U.S. and European global Internet backbone.
| 20 | If anybody knows of any studies that can tie this to international, I would definitely
| 21 | like to see it. But all I know is anecdotes. Big ones, but anecdotes.
| 22 | MR. THOMAN: Along the same lines, just to follow up. Again, I'm
| 23 | a nonlawyer. This may be a very naive observation. But certainly in Europe you |
104 1 | hear the complaint about the lack of clarity about when Justice and when the FTC
| 2 | get involved. And so whether there's an issue about overlay, overlap between
| 3 | those two agencies that needs transparency, at least clarity --
| 4 | MR. RILL: There is an issue there, Rick, and one that's been
| 5 | discussed for years.
| 6 | MR. THOMAN: I've certainly heard that from the European side. I
| 7 | don't know how informed it is.
| 8 | MR. RILL: And it's a factor, I think, in my own experience it is a
| 9 | factor, that sometimes arises from the U.S. side. I think conditions are a lot better
| 10 | now than perhaps they have been at times in the past, but I think there is generally
| 11 | a pretty good, quick clearance relationship. But the problem is historic. There
| 12 | was a report done by the ABA which I think we ought to make available to
| 13 | anybody who wants to look at it, back in 1988, '89, of the FTC. It culminated in
| 14 | the Kirkpatrick II report. It concluded, that, well, if we had to do it over again, we
| 15 | wouldn't have two federal agencies charged principally with enforcing the same
| 16 | antitrust laws.
| 17 | When Bill Baxter came on board at the Department of Justice in '81,
| 18 | he and David Stockman decided, wouldn't it be a good idea to abolish the FTC?
| 19 | And all hell broke loose in Congress. And I know, that's going on almost 20 years
| 20 | ago, but still, it was political dynamite, and I think any proposal of that sort here
| 21 | would be political dynamite. I'm not averse to political dynamite, but I think it's
| 22 | been studied so much --
| 23 | MR. THOMAN: I wasn't necessarily saying -- I am just arguing the |
105 1 | issue from a non-U.S. viewpoint. The more we can be clear and transparent, in
| 2 | which case, which goes to which or how soon it takes, the easier it is for to us ask
| 3 | other countries to do the same.
| 4 | MR. RILL: I think that's a valid point, Rick, and I think just
| 5 | suggesting that transparency or, as to which agency handles which type of
| 6 | transactions --
| 7 | MR. THOMAN: Right, right.
| 8 | MR. RILL: -- would be an improvement. Again, my own experience
| 9 | is it hasn't been a great difficulty in recent years. But there are all kinds of horror
| 10 | stories and, you know, one-time anecdotes of, we got a second request only
| 11 | because the agencies couldn't decide which agency had it until the 29th day. I
| 12 | think that does not occur often; the fact that it may occur at all is bad. But I think
| 13 | your transparency point is well taken.
| 14 | DR. STERN: Eleanor, I would like to keep on this subject. Is this
| 15 | on this? FTC, DOJ?
| 16 | MS. FOX: No, not FTC, DOJ. No, go ahead.
| 17 | DR. STERN: Okay. We didn't hear what you thought.
| 18 | MR. KOVACIC: Well, I'll do the typical initial academic's dodge,
| 19 | and I'll describe the models. There are two models. I can imagine three
| 20 | possibilities at the Federal level -- status quo, which involves possibilities for
| 21 | competition with some coordination, and I think there is a competition. A
| 22 | competition that exists, not perhaps in a terribly obvious way, but one exists with
| 23 | possibilities for innovation and improvement between the two institutions. |
106 1 | A second possibility is to have enforcement exclusively through an
| 2 | executive branch department with responsibility for international criminal/civil
| 3 | matters, which would be the Department of Justice.
| 4 | The third option is to take all functions save criminal and
| 5 | international liaison and put them all in an independent regulatory commission.
| 6 | Most of the world does the third. We are truly unique in doing both. Which makes
| 7 | the most sense?
| 8 | I guess, if I think about the Federal Trade Commission in theory, I
| 9 | would have picked the Federal Trade Commission option, but my own sense in the
| 10 | 85 years of empirical experience is that --
| 11 | MR. RILL: That you've had?
| 12 | (Laughter.)
| 13 | MR. KOVACIC: Is that that's not been a success. Although I keep
| 14 | wandering back to that image when I think about -- I don't encourage this as
| 15 | everybody's bedtime reading, but the legislative history of the FTC does a good job
| 16 | in the abstract of explaining why you would want the FTC to be your competition
| 17 | policy authority, because it talks about administrative processes and changes that
| 18 | perhaps give you a faster path for resolving urgent matters in areas such as high
| 19 | tech where you might want faster results.
| 20 | An expert body that would do certain things differently, wouldn't be
| 21 | bound by, limited by the constraints of traditional Federal District Court litigation,
| 22 | with this wonderful synthesis of economic knowledge, legal knowledge,
| 23 | accountant specialists, experts. Everyone has their own judgment about how that |
107 1 | experiment has worked, but I'm afraid I have a very gloomy view of it.
| 2 | MR. RILL: I'm not going to rise to the bait. It would take the rest
| 3 | of the afternoon.
| 4 | MR. KOVACIC: No, I would say a country legitimately and
| 5 | sensibly could decide it wanted to diversify the portfolio to do what we have had,
| 6 | which is an experiment. I think the experiment does have some fairly powerful
| 7 | implications, and they would dictate unifying in a single institution, and that would
| 8 | be the Department of Justice. But I admit to schizophrenia on that issue, but if I
| 9 | had to vote, that would be it.
| 10 | MR. RILL: Good academic response.
| 11 | DR. STERN: That's a very helpful response. But help me with the
| 12 | international and the criminal. That was the second model. Describe that to me
| 13 | again.
| 14 | MR. KOVACIC: I'm assuming that no independent regulatory
| 15 | commission in our political science could act on behalf of the head of state, nor
| 16 | could it act as the prosecutor in criminal matter, so there's inevitably going to be a
| 17 | residual policy-making authority in the executive branch.
| 18 | DR. STERN: Right. In the executive branch.
| 19 | MR. YOFFIE: And here you mean by international -- what?
| 20 | Because that's obviously critical to this Committee.
| 21 | MR. KOVACIC: It would be the ability to negotiate treaties, to
| 22 | speak formally on behalf of the Government of the United States when it goes into
| 23 | an international forum, and to engage in cooperative relationships that require the |
108 1 | formal approval of the United States.
| 2 | MR. RILL: May I just follow up one second on this same point.
| 3 | From a standpoint of weighing important frictions, important opportunities for
| 4 | accomplishment, would you say that the greatest problem relates to the dual
| 5 | enforcement between FTC and Justice or the dual competition responsibilities
| 6 | between either FTC and Justice and the regulatory agencies treading on that same
| 7 | ground?
| 8 | MR. KOVACIC: I think to a great degree, differences in policy
| 9 | between the two Federal competition agencies have largely been eliminated. I do
| 10 | think there are instances in which the outcome can be determined, depending upon
| 11 | where you go. These occur in some instances at the margin, but those are rare.
| 12 | But I think because of the conscious efforts, really going back 50 years, to make
| 13 | sure that there were not great discontinuities from 6th and Pennsylvania to 10th
| 14 | and Constitution, that those discontinuities were been limited, has been
| 15 | enormously successful. I think the possibilities for inconsistency are much greater
| 16 | when you go to the sectoral areas. But I would say it is the very success between
| 17 | the Federal agencies in eliminating differences in policy that raises the question:
| 18 | Why have two?
| 19 | MR. RILL: But I think your answer is that the greater problem by
| 20 | far is between the antitrust agencies and the regulatory agencies?
| 21 | MR. KOVACIC: Unmistakably. I think there is unmistakably a
| 22 | complication -- a real cost of having two Federal antitrust agencies is that you have
| 23 | to identify the preferences and respond to the tastes of two sets of public officials. |
109 1 | MR. RILL: Well, that can be intramural within any given agency as
| 2 | to which section you land in. I think I have your answer.
| 3 | MR. KOVACIC: Unmistakably. Yes. It is the relationship of the
| 4 | sectoral overseers that is much more of a concern. And think of it this way: If you
| 5 | had to explain to someone outside the country about the difficulties associated
| 6 | with identifying differences in outcome, depending on whether the deal goes to the
| 7 | Commission or to the Department of Justice, that's a much easier conversation to
| 8 | have than the telecom official who says, "I'm thinking of buying some assets in the
| 9 | U.S. Tell me what I'm in for." That is a much longer conversation.
| 10 | MR. MELAMED: Can I just interject a thought? I think the
| 11 | substantive differences are the critical ones. There is a transaction costs problem
| 12 | of multiple review where you don't know which agency is going to have it, but I
| 13 | agree with this colloquy that the critical question is a substantive one. The
| 14 | problem of substantive differences of the sectoral regulator is inherent, whenever
| 15 | you have a sectoral regulator charged with merger review unless, of course, you
| 16 | simply say, "Apply the antitrust laws."
| 17 | The very task of doing merger review is an invitation for the
| 18 | regulator to impose a tax on the transaction to achieve some regulatory objective.
| 19 | I think that is the problem. The problem is, are competition or economic efficiency
| 20 | objectives disserved by having government agencies in a position to impose taxes
| 21 | on otherwise benign transactions?
| 22 | DR. STERN: Well, fair enough. All right. I was trying to challenge
| 23 | that assertion by thinking that there may be additional remedies available within the |
110 1 | sectoral agency to advance competition that are not available in the on-or-off
| 2 | merger -- permit or not.
| 3 | MR. MELAMED: It may be that it's important, then, that you give
| 4 | real flesh to the word remedies.
| 5 | DR. STERN: Yes!
| 6 | MR. MELAMED: That is to say, you require the sectoral regulator
| 7 | to identify the problem that is created by the merger --
| 8 | DR. STERN: Right.
| 9 | MR. MELAMED: -- and to show a rational relationship between the
| 10 | remedy and that problem, rather than a relationship between the regulatory remedy
| 11 | and some other regulatory objective.
| 12 | DR. STERN: Right. Well, that should be something we should
| 13 | amplify in our recommendations -- that when clarifying the roles and separating the
| 14 | roles, competitive competition-enhancing roles, of DOJ/FTC, on the one hand, and
| 15 | the sectoral agency on the other. It's the remedies and how they are applied and
| 16 | towards what aim they are applied that needs to be transparently described.
| 17 | MR. DONILON: As Doug is saying it's not just the remedies, it's
| 18 | the law that's being applied as well. That's the problem -- going to Jim's question,
| 19 | your question, which Rick raised first about FTC versus DOJ, at least the FTC and
| 20 | DOJ enforce the same law --
| 21 | DR. STERN: Yes.
| 22 | MR. DONILON:-- you know, in large part.
| 23 | MR. RILL: Well, the FTC has gotten more sensible about Section 5. |
111 1 | We hope.
| 2 | MR. DONILON: But I think the panel is right. The discussion you
| 3 | have with an international client about transactions being reviewed in the United
| 4 | States is quite simple. You may have detailed instructions about how it might
| 5 | proceed, at the FTC or DOJ, given the different procedural routes and paths that it
| 6 | can go down, but the law is going to be the be the same. The substantive law is
| 7 | going to be the same. And the problem that Bill has identified, I think, a pretty
| 8 | clear one, is that the competition law itself -- not just the remedies, what they
| 9 | might ask from parties, but the law itself -- is different. In pursuit of the same goal
| 10 | that doesn't affect the competition policies.
| 11 | DR. STERN: Well, to put a point on this: assume that the FTC was
| 12 | applying the same law but it had within its powers as the Congress gave it, as the
| 13 | sectoral regulatory agency, additional powers that would allow it to add remedies
| 14 | or attach remedies to advance the same law that may not be within the realm of
| 15 | DOJ and/or the FTC.
| 16 | MR. DONILON: Well, then it starts to look more like the sectoral
| 17 | regulator. I mean if the --
| 18 | DR. STERN: Well, I'm just asking: Do they have remedies?
| 19 | MR. DONILON: They have remedies -- I think that there are
| 20 | adequate remedies to address competition law problems, but other social
| 21 | engineering issues, policy issues, are not the province of the competition law
| 22 | enforcers.
| 23 | DR. STERN: Right. |
112 1 | MR. DONILON: And I wouldn't recommend giving them those
| 2 | powers. They ask the question, as Bill puts it, is this transaction going to be
| 3 | injurious to competition and therefore injurious to American consumers.
| 4 | DR. STERN: Yes. Right.
| 5 | MR. DONILON: They don't ask the question, here, we have an
| 6 | opportunity here with a transaction before us to do some policy things we want to
| 7 | do and advance some social issues that we want to advance. You know, let's
| 8 | decide what those are, despite the fact that there is absolutely no competition
| 9 | injury that results from the deal.
| 10 | DR. STERN: Well, I think I understand what you're saying, but
| 11 | what I was trying to just hypothetically ask: What would be the impact if they
| 12 | were looking at exactly the same law, considering just the competition, would they
| 13 | have additional remedies, additional to that which the DOJ and the FTC have?
| 14 | MR. KOVACIC: I think the way I would put it is, I think the set of
| 15 | possible remedial solutions would be the same for both. That is, the Department
| 16 | of Justice could go to a Federal District Court and say, I want an injunction that
| 17 | would require the parties to do X, Y, and Z, and it would be the same set of
| 18 | solutions that the sectoral regulator would generate.
| 19 | What's different, I think, is that in principle, the FCC and FERC are
| 20 | institutionally probably better capable to effectuate some of these solutions than
| 21 | the Department of Justice or the Federal Trade Commission acting alone, or in the
| 22 | case of DOJ going to the Federal district judge and saying, "This is how you ought
| 23 | to put it in place." |
113 1 | Many commentators have pointed this out: It's the reason why when
| 2 | you look at early formative cases that generated the essential facilities doctrine,
| 3 | cases like Terminal Railroad or even later cases like Otter Tail -- in Terminal
| 4 | Railroad, this is the bridge across the Mississippi River with the terminal facilities
| 5 | on either side. It's a collective effort to charge higher prices to those who were not
| 6 | members. The Supreme Court says you have to provide non-discriminatory
| 7 | access. You can't collude to impose a price disadvantage.
| 8 | And the issue comes up, well, who is going to decide what the right
| 9 | price is? Who's going to monitor the nondiscrimination requirement? The
| 10 | Supreme Court says, "Uhh-- there is the ICC over there. They can handle it."
| 11 | Very quickly they walk off stage. They say there is another institution that can do
| 12 | this.
| 13 | In Otter Tail, when the Supreme Court faces another issue about
| 14 | access, to an integrated network by an unintegrated party, and says you have to
| 15 | provide access, and the question comes up, "Well, are you saying that the Federal
| 16 | courts now are going to monitor under the terms of an antitrust decree access and
| 17 | terms of access to the network?"? The court says, "Well, it's the Federal Power
| 18 | Commission, they're going to handle it."
| 19 | In each instance the Court had comfort in imposing a decree with
| 20 | highly regulatory implications by saying there is a collateral Federal institution who
| 21 | does that kind of thing, and without explaining how they're going to do it, they can
| 22 | take care of it.
| 23 | DR. STERN: Well, you see, that's my point, and that's where I was |
114 1 | going. I was guessing, and that's why the Australians have come up with one
| 2 | agency. That's a good reason why.
| 3 | MR. DONILON: Exactly.
| 4 | MR. RILL: But I wish we could bring Connie Robinson up to the
| 5 | table and have her explain her experiences in, in effect, of being in charge at the
| 6 | senior staff level enforcement of the AT&T decree, where FCC's responsibility in
| 7 | many respects was transferred to the Department of Justice, which is, I think,
| 8 | inevitable in an essential facility access type of case which is brought by the
| 9 | antitrust agencies. It was not there, by and large, for the FCC to make those
| 10 | compliance decisions based on nondiscriminatory, equal access obligations that
| 11 | were imposed on the telephone industry as a result of the 1984 decree.
| 12 | DR. STERN: So you invented it.
| 13 | MR. RILL: So the antitrust agencies -- well, I don't claim credit.
| 14 | But the agencies --
| 15 | DR. STERN: No, I meant "one invented". I didn't mean "you".
| 16 | MR. RILL: The antitrust agencies had the responsibility to make
| 17 | those decisions, and I suspect in appropriate cases those are the decisions that have
| 18 | to flow from the responsibility of the antitrust agency.
| 19 | MR. MELAMED: I think -- this is just conjecture -- that this
| 20 | particular problem is not likely to be of huge importance in the merger context.
| 21 | You can imagine a merger that is justified by enormous efficiencies and results in
| 22 | the creation of a new essential facility, and then you have an access issue. But it
| 23 | takes some imagining to get there. Most of the access cases, like Otter Tail and |
115 1 | AT&T, were not merger cases. So I suspect that, as a practical matter, concerns
| 2 | about the ability of the antitrust agencies to fashion effective remedies for
| 3 | problems created by mergers are likely to arise when the problem created by the
| 4 | merger is not a competition problem.
| 5 | Let's say for some reason a merger creates a realistic basis to think
| 6 | that the goal of universal service will be disserved. Well, then, maybe you do want
| 7 | to have a sectoral regulator who can say, that, although that's not a competition
| 8 | goal, it is an important public policy, and we want to have a merger-specific policy
| 9 | to deal with an merger-specific problem. But that's not quite the same as saying
| 10 | that we need a sectoral regulator to deal with a competition problem.
| 11 | MR. KOVACIC: The best example I can think of of a decree that
| 12 | has the first of the two categories of potential problems that Doug mentioned is the
| 13 | British Telecom-MCI consent decree which has a fairly elaborate set of
| 14 | nondiscrimination and access-related controls, but --
| 15 | MR. RILL: AT&T/McCaw was the same way, although their
| 16 | decree was abrogated by the law.
| 17 | DR. STERN: Imposed -- the British Telecom imposed by --
| 18 | MR. KOVACIC: By settlement.
| 19 | MR. RILL: Same thing with AT&T and McCaw.
| 20 | DR. STERN: But this was not because the FCC was pushing that?
| 21 | MR. RILL: No.
| 22 | MR. KOVACIC: No.
| 23 | MR. MELAMED: These are both vertical cases, but you're right, |
116 1 | they did raise the access issues.
| 2 | MR. DONILON: One model, Bill that arises out of the comments
| 3 | that Doug just made that you didn't discuss would be -- but I want to get both
| 4 | your reactions to it -- would be what about not just having the DOJ and the FTC
| 5 | get the trump card on competition policy. What about wholesale removal of
| 6 | merger from the sectoral regulators? What falls out of that proposition?
| 7 | MR. KOVACIC: I think Doug's earlier remark touched on this.
| 8 | What it means is that sectoral regulators will have to find other occasions and
| 9 | mechanisms for effectuating some of the social policy decisions that now are
| 10 | carried out through merger review, and that to the extent that mergers implicate
| 11 | these other issues, the sectoral regulator will have to undertake other proceedings
| 12 | to cure the ill effects.
| 13 | MR. DONILON: And they would have to do so expressly and not
| 14 | in the context of approving the merger? Or protecting competition?
| 15 | MR. KOVACIC: That's right. This means that the role of the
| 16 | review is simply to avoid harmful transactions and that benign -- competitively
| 17 | benign or procompetitive transactions go ahead. If there are adverse distributional
| 18 | effects, or if there is a dissatisfaction with the existing distribution of benefits and
| 19 | costs, or other adverse effects given the -- measured by the larger set of aims that
| 20 | motivates the agency, those have to be carried out through different modes.
| 21 | MS. FOX: I wanted to go back to the discussion of a little while
| 22 | ago. You made several really important recommendations, a list of possible
| 23 | recommendations. And I'm going back to two of the possible recommendations. |
117 1 | One we discussed a little bit, which is giving the antitrust agencies the sole
| 2 | authority to determine the competition issue, and secondly, I wanted to put back
| 3 | on the table that where there are noncompetition values and goals to be
| 4 | implemented, and the sectoral authority is making a decision based on them, it
| 5 | ought to be very clear about what it is doing, transparency as to that.
| 6 | I was very interested in the distinction that came out in your
| 7 | colloquy with Doug in which Doug, you said, interestingly, that the sectoral
| 8 | authority will be asking the question or may, among other things, ask the question:
| 9 | Does this vetting of the merger provide us with the opportunity of doing
| 10 | something procompetitive? This is also something Paula was talking about.
| 11 | This is really very interesting. For example it could be the case of
| 12 | the antitrust law as decided in Marine Bank Corporation makes life too tough for
| 13 | the antitrust enforcers, and that therefore the antitrust enforcers might not win in
| 14 | court against a Bell Atlantic-NYNEX, but maybe the sectoral regulator could say
| 15 | the burdens of the plaintiff in the antitrust court are really too tough and therefore
| 16 | we decide that this not go through as a matter of public interest because we think
| 17 | there's an important potential competition question, and we can't prove as a matter
| 18 | of probability that Bell Atlantic will come into NYNEX's territory, but there's a
| 19 | good chance, and could say, we therefore stop the merger, I should think.
| 20 | So I mean, I thought that actually fit into where Paula was going,
| 21 | and that might be good or bad, depending on how sound antitrust law is.
| 22 | Now, I wanted to make a couple of other comments that deviate a
| 23 | little bit from that thought. One is right on that point. Sometimes when a sectoral |
118 1 | agency thinks it's doing something more competitive, it might be doing something
| 2 | anticompetitive, and so perhaps that merger should go through because it wasn't
| 3 | anticompetitive and the sectoral authority decides what I just said, and wants to
| 4 | abort it on competition grounds. I should think that the agencies ought to at least
| 5 | have input if the sectoral authority is still focusing on competition itself. This is
| 6 | one point.
| 7 | Now, a lot of the colloquy actually reminded me of linkages to
| 8 | certain international issues, and now I'm off on a different track here. One is that
| 9 | whatever is our discussion on the relationship in the United States between
| 10 | antitrust and the sectoral regulators might have reverberations in other parts of our
| 11 | report.
| 12 | Some merger laws, like Poland, would balance anticompetitive
| 13 | effects against any other kind of economic advantages. The authorities are always
| 14 | saying, "Well, I have the opportunity to stop this merger. Let me see what good
| 15 | things I can do for Poland. I might impose binational obligations or infrastructure
| 16 | obligations. "
| 17 | And here if we do make a recommendation in this section about
| 18 | being very clear about the additional factors and variables that are being added to
| 19 | the debate, we could also make that recommendation later on in our report.
| 20 | DR. STERN: Yes.
| 21 | MS. FOX: Then the other international connection I wanted to
| 22 | make came up in my mind when you were talking about the relationship between
| 23 | the antitrust authorities and the sectoral regulators on issues that are hybrid issues, |
119 1 | such as access and nondiscriminatory access. This is exactly, now in the
| 2 | transnational context, a kind of issue that come in telecoms annex to the GATT's
| 3 | agreement and competition law.
| 4 | And there is a question as to who is going to be making the decision
| 5 | as to what is the abuse of dominance when a telecom company doesn't giving
| 6 | access or is allegedly not giving nondiscriminatory access. And I think that
| 7 | however we deal with the issue here also might be carried over to a
| 8 | recommendation in the international market access part, when there are
| 9 | competition principles embedded in WTO agreements. So it might be helpful, and
| 10 | if you have further thoughts, now or later down the line, as to how that issue ought
| 11 | to get determined when it comes up in the WTO context, that would be helpful.
| 12 | DR. STERN: Okay.
| 13 | I would add one more thing that I would ask you to think about that
| 14 | in light of the time, we probably can't get into the discussion, but I wanted to put it
| 15 | at least on the record. Jim, talked about the international function, and you asked
| 16 | the question, what do you mean by that. My thoughts started to come, "well,
| 17 | representation in negotiations," but I was thinking about the interaction between
| 18 | the Department of Justice and the U.S. Trade Representative.
| 19 | So I think I would like to hear what you have to say on that after
| 20 | you've had some time to think about it because we do need to go on.
| 21 | Again, Bill, you've been just terrific in stimulating this discussion and
| 22 | really boring down into the deep significant issues, and we thank you very, very
| 23 | much. It's been a great day, so far so great, Merit. |
120 1 | We're conscious of the next agenda item, which is trade and
| 2 | competition interface and enforcement cooperation discussion, and while Jim Rill
| 3 | will be handling the initial remarks, I am aware also that Rick Thoman has been
| 4 | good enough to volunteer to give us a report on the e-commerce subcommittees
| 5 | work.
| 6 | MR. RILL: I think we should go with Rick.
| 7 | DR. STERN: Do we need to take a break first?
| 8 | MS. JANOW: I was going to welcome Dick Simmons. Are you
| 9 | here with us?
| 10 | MR. SIMMONS: I am.
| 11 | MS. JANOW: Terrific. We haven't had a moment to welcome you.
| 12 | I thought we should do that before we move into another subject area.
| 13 | MR. RILL: Let me just say that the 4:30 deadline is going to have
| 14 | to be a firm one for me, at least, so we're going to have to finish at 4:30 regardless,
| 15 | and maybe reconvene, but I think a lot of us had planned around the conclusion
| 16 | time of the agenda.
| 17 | DR. STERN: Absolutely. We've been pretty good about the ending
| 18 | time. Sometimes the beginning time --
| 19 | MR. RILL: The beginning time gets a little tricky. But I think I
| 20 | would like to cede my opening time to Rick.
| 21 | DR. STERN: If it's all right with you, Rick, we'll just continue, and
| 22 | if people wish to excuse themselves individually, they might. So, if you're ready,
| 23 | we're ready. |
121 1 | MR. THOMAN: Sure. Well, I'll make this short. I don't think it's a
| 2 | big subject that's worth more than the five or so minutes I'm going to talk, but I
| 3 | don't think we have much more than five minutes to say at this point.
| 4 | We had, I thought, a very good meeting in New York. A number of
| 5 | us were there, a number of people from the industry were there. I think around e-
| 6 | commerce I would like to make five points if I could. The first is that we all know,
| 7 | I think increasingly more today than when we started this off, that e-commerce is
| 8 | an area that's going to be very, large, very important, and is only beginning to
| 9 | assume the scale that it's going to be several years from now. There's no question
| 10 | that almost every company is now trying to think of what its e-commerce strategy
| 11 | is. That was not the case six months ago or nine months ago.
| 12 | The other thing that's characteristic about e-commerce, other than
| 13 | the fact it's growing very quickly, is that it's very, very complex in terms of what
| 14 | we're talking about, and that's because it's probably the first economic capability
| 15 | that isn't geographically focused. And that makes it very difficult to think about in
| 16 | the context of what we're here today to talk about. And I say that in the sense that
| 17 | you can imagine the problem of selling a Japanese product on an American server
| 18 | on a German network over a website which is located in some other country to a
| 19 | French consumer. So you've got so many areas that you can touch in terms of
| 20 | where does the transaction actually take place, that it's more difficult. So that's the
| 21 | first comment I would make, is that it's a very large and very important area and
| 22 | yet is extraordinarily complex in terms of the traditional, we make a product here
| 23 | and we sell it there mentality that I think the original trade theory grew up in. |
122 1 | Secondly, it's important because it's likely to change pretty
| 2 | dramatically competitive balances, not only between companies and industries but
| 3 | the way things are done, and in a whole series of ways. We all know, for example,
| 4 | that to sell things through a sales force costs roughly 20 to 25 percent of revenues,
| 5 | to sell things on the Internet costs one percent of revenues. So your ability to
| 6 | disintermediate competitors is pretty dramatic.
| 7 | The ability to do 24-hour service in a country that traditionally
| 8 | maybe had closed its stores for social reasons or other reasons is another area. So
| 9 | simple access. What it allows in a sense, you could argue what it allows is the
| 10 | ATM model applied to anything. The ATM model is a wonderful model, in which
| 11 | your customer becomes your employee, you don't pay him for the work, and he
| 12 | gets convenience and cost for it. In a sense that's what the Internet becomes.
| 13 | And so I think that the fact of the change of competitive balance is
| 14 | important because that leads in a way to certain of the antitrust implications. I
| 15 | think the paper that we wrote here, that somebody wrote, it's a very good paper,
| 16 | talks about really three of them. The first of them is, I think, the one that's
| 17 | potentially the most dangerous, which is sort of a hidden mercantilism. It's very
| 18 | easy to argue that I will not allow e-commerce to operate in my country because I
| 19 | do not want to give access to private financial data of my citizens to allow it to
| 20 | operate. And that's a hard one to argue because privacy is extraordinarily different
| 21 | from place to place, if you do any kind of service on financial research, if you lived
| 22 | in southern Europe and for centuries have been trying to escape the king's tax
| 23 | people, you have a great understanding of what privacy means. The Swiss banks |
123 1 | have lived off to it for years. So that's a very real difference from country to
| 2 | country, and yet it's also a very nice handle to not allow things to happen that
| 3 | would tend to upset encumbrance, we're doing things the way that the thing is, is
| 4 | now.
| 5 | So there's a real issue I think around how you can deal with that
| 6 | issue of hidden mercantilism in a straightforward manner because ultimately it's a
| 7 | very emotional, difficult issue around privacy. I might add we're seeing it with
| 8 | regard to genetic foods and other things. It's a bit of the same issue, I would
| 9 | argue.
| 10 | Obviously there are potential network externalities. I won't go into
| 11 | that, but to the extent you have people with very strong positions that are allowed
| 12 | to leverage those, you have the ability to create monopolies or quasi-monopolies.
| 13 | They're not there today, but that's a potential issue.
| 14 | And then you have all the traditional antitrust problems in the new
| 15 | area such as cartels, price signaling to clients, sales, all the other things which you
| 16 | could argue if they're secret, there is a risk of it. If they're very open, there's a risk
| 17 | of it. But none of the traditional issues go away.
| 18 | So all of those reasons, I think, the antitrust implications of e-
| 19 | commerce are all of the things that we currently have to worry about plus some
| 20 | new ones.
| 21 | The fourth comment I would make is that the enormous growth in
| 22 | this area -- but the thing I've learned around my life in technology is that the great
| 23 | law of technology is the law of unintended consequences. It's very hard to know |
124 1 | in a big, new technology precisely what's going to happen. But we know there is
| 2 | going to be enormous capabilities to do different things with this media which will
| 3 | evolve in ways we can't see and there will be consequences of we can't foresee
| 4 | today at all easily.
| 5 | And I think that as we talked about our options, and I think the
| 6 | paper mentions them here, it's a very difficult area. Because I think there's a
| 7 | school of thought, certainly in my industry, that says this is a wonderful industry,
| 8 | let's just not regulate it and everything will be fine. I think most people in industry
| 9 | would clearly accept the fact that there are clearly areas around consumer
| 10 | protection, et cetera, which isn't our area here today, that are issues, and we're
| 11 | beginning to see that in the United States, people buying all sorts of unlicensed
| 12 | drugs on the Internet, things like that.
| 13 | So I think the do-nothing issue is one that is dangerous, because the
| 14 | danger of a do nothing is that ultimately something will happen and there will be
| 15 | some kind of kneejerk reaction regulation which probably isn't appropriate.
| 16 | On the other hand, there's another set of thought which is to say let's
| 17 | go out and sort of create an environment, negotiate an international agreement.
| 18 | The problem is I don't know if we know what it is yet. It's growing so quickly, it's
| 19 | so early, that it's hard to know that you wouldn't inadvertently do something
| 20 | without knowing which is difficult. So I think we sort of, to a degree, coalesce
| 21 | what I call the third way, and I hate to say that given Tony Blair and Schroeder's
| 22 | recent issues, but which I think really relate to the notion, if you don't know where
| 23 | it's going, probably you can agree on some principles and possibly a process |
125 1 | around it. And we need to think through what that looks like, or might look like,
| 2 | or at least elements of that, which at least give us some sense of comfort that it's
| 3 | generally in the right direction.
| 4 | And I think as I talk to a number of people in the room, I think that's
| 5 | where they are. But that's I think a summary. I'll just stop here. That's about my
| 6 | five minutes.
| 7 | DR. STERN: Oh, that's terrifically helpful. Comments, questions?
| 8 | MR. RILL: Rick, do you -- I'm sorry, go ahead.
| 9 | DR. STERN: Eleanor?
| 10 | MS. FOX: I just wondered if you had anything in mind on principles
| 11 | and process?
| 12 | MR. THOMAN: No, not yet. There's been a lot of good work done
| 13 | in different places. You don't have to start from ground zero.
| 14 | MR. RILL: I think anything along those lines would be very helpful.
| 15 | I suppose one concern that this seamless commerce breaks across the lines would
| 16 | have would be the Balkanization of regulation, not merely mercantilistic motivated
| 17 | Balkanization, but simply a multiplicity here of regulation whether the antitrust and
| 18 | consumer protection would seem to be more egregious, more inhibiting, more
| 19 | seismic than it would be perhaps in a more traditional industry. That's something
| 20 | we may want to comment on with more information.
| 21 | MR. THOMAN: There is the other element, which is that you could
| 22 | argue that -- could you argue whose regulation applies, in an area of consumer
| 23 | protection, et cetera. |
126 1 | One of the concerns when you talk to people in the small business
| 2 | area is -- for a large company like ours, you know, we can figure out on an e-
| 3 | commerce site how to send things to France and Germany and comply with
| 4 | everybody's regulations.
| 5 | A small business company really can't. One of the issues you'll hear
| 6 | in the small business community is that unless there is some thought about how
| 7 | these services are delivered in multiple countries, it becomes difficult for the
| 8 | smaller business community to participate because they don't have the resources to
| 9 | tailor their product offering to the regulatory and legal aspects of all these different
| 10 | countries, so they would much rather have a set of regulations which says the
| 11 | manufacturers site law prevails, and of course when you talk to the French and the
| 12 | Germans and the Italians about that, because it's essentially a U.S. phenomenon
| 13 | today, they're not very excited about that, but there is an interesting issue between
| 14 | the smaller business and the larger business and their ability to tailor their offerings
| 15 | for all the different environments which are the same.
| 16 | DR. STERN: This is always the issue with standard setting and
| 17 | international standard settings: what's the best way to have harmony that doesn't
| 18 | disadvantage particularly the small or the new entrant?
| 19 | My only request is again to get on the record just that the staff make
| 20 | a point of looking at what is being worked up in the U.S. Trade Representative's
| 21 | office with regard to e-commerce and in particular the ACTPN, the President's
| 22 | Advisory Committee on Trade Policy Negotiations.
| 23 | MR. THOMAN: We can do that. |
127 1 | DR. STERN: Yeah, because some of these common principles of
| 2 | the work. That may have been what you were referring to in this instance with
| 3 | work already done on it.
| 4 | MR. RILL: I think that just from my own view there is a lot to be
| 5 | said for a separate -- whether it's a chapter or a very large section of a chapter on
| 6 | market frictions on this particular issue, and I think any help that you, an expert in
| 7 | the field can do to add --
| 8 | MR. THOMAN: I would be glad to do it.
| 9 | MR. RILL: -- to our deliberations on that, I would certainly
| 10 | appreciate it. Thank you.
| 11 | MR. THOMAN: Okay.
| 12 | MR. YOFFIE: I just wanted to raise a question, maybe get a
| 13 | reaction from Doug. There are two ways we can think about the problem. One is
| 14 | as an e-commerce problem. I want to pose the question --
| 15 | MR. THOMAN: That's correct. That's a fair -- I agree with that.
| 16 | MR. YOFFIE: -- which may or may not be e-commerce related, I
| 17 | think is a more important way to frame it.
| 18 | MR. THOMAN: I was using shorthand. That's a better way to
| 19 | frame it.
| 20 | MR. YOFFIE: But the reality is a lot of the problems you describe
| 21 | might be covered under traditional trade policy and not competition policy.
| 22 | What's really different about the Internet and information technology
| 23 | gets to the number two problem you outlined, which is network externalities. This |
128 1 | is a global problem when we talk about network externalities. We rarely talk
| 2 | about U.S.-specific networks but rather something that cuts across the globe and
| 3 | therefore is at the heart and soul of what this Committee is about, but it's also at
| 4 | the heart and soul of antitrust policy domestically as well.
| 5 | At lunch we were talking about Microsoft because if you think about
| 6 | the Microsoft case, that's as much a global case as it is a U.S. case. The question
| 7 | really becomes we're thinking about the question of network externalities and the
| 8 | implications for monopoly, and whether traditional antitrust law as we think of it
| 9 | and the way in which we process antitrust cases today are, in fact, appropriate in
| 10 | this new world.
| 11 | This is the question that has been raised a thousand times in the press
| 12 | over the Microsoft case. I never heard the Department of Justice's view was on
| 13 | this, whether we really think existing antitrust law is adequate to deal with the
| 14 | problems of the Internet economy.
| 15 | MR. MELAMED: It seems to me there are two forms of that
| 16 | question. I think I know which one you had in mind, but I want to make sure.
| 17 | One is, we're dealing in a world of rapid change. Usually there is
| 18 | something technological in there. There is no way that the law, the government
| 19 | and the courts with their cumbersome process can keep up with that. I don't think
| 20 | that's what you meant.
| 21 | I think what you meant is something else, which is -- in a world of
| 22 | network externalities, with a likelihood of serial monopoly rather than rivalry, does
| 23 | it make sense to talk about competition also. |
129 1 | MR. YOFFIE: I meant the second, but the first is one of the
| 2 | implications of the second.
| 3 | MR. THOMAN: The first of the reasons is why we can't regulate it
| 4 | now, one of the reasons.
| 5 | MR. YOFFIE: Part of the question is whether or not, pursuing a
| 6 | traditional antitrust policy because things are changing so fast. In other words,
| 7 | pursuing a traditional antitrust policy to solve the second issue, will that work in a
| 8 | world in which there is constant change and too many things are changing during
| 9 | the process of a trial or putting a case together or so forth.
| 10 | MR. MELAMED: Let me give you a 30-second preview of the six
| 11 | or seven-week discussion we could have on that question.
| 12 | My own personal views about the speed of change, is that, even if it
| 13 | were so significant that we would agree that you can't rely on antitrust litigation
| 14 | and remedies to solve practical problems in real institutional or market contexts,
| 15 | you can still look to antitrust enforcement to articulate rules that ought to be
| 16 | complied with and the violation of which, for example, could expose someone to
| 17 | private damage remedies.
| 18 | As to the second question -- which is what happens to the body of
| 19 | rules in the face of the increasing importance of the network economy -- well,
| 20 | that's a big question, but let me just anecdotally address it this way.
| 21 | It has been suggested at various ways in relation to the Microsoft
| 22 | case, why should there be rules about predation in a winner-take-all market
| 23 | because there's going to be a winner anyhow. My own view is that you may have |
130 1 | to think a little harder, but of course you can have rules, for example, that would
| 2 | help you identify which of the rivals ought to prevail in the winner-take-all market,
| 3 | and what are the means of competition that are likely to result in efficient
| 4 | resolution of that rivalry versus an inefficient resolution.
| 5 | I don't think antitrust is knocked off the boards in these markets.
| 6 | They just present a new set of facts we have to think about.
| 7 | MR. YOFFIE: I was actually posing a different question: do we
| 8 | have to think about new antitrust rules? We're agreeing that rules may be
| 9 | appropriate and useful. But the question is, are the existing rules appropriate and
| 10 | useful or do we need to be thinking about how to redefine those rules for the
| 11 | context in which you just described?
| 12 | MR. MELAMED: I think the existing, broad concepts and statutes
| 13 | are perfectly adequate and that they will and ought to continue to evolve as they
| 14 | have for a hundred years, recognizing that there will be lags before they catch up
| 15 | with new learning and new institutional settings. But this is a huge conversation.
| 16 | MS. JANOW: I would like to ask this Committee to give us some
| 17 | guidance on how we answer these questions, not at this moment, but I think even
| 18 | the perhaps less difficult analytical questions that you suggested of traditional
| 19 | practices using a new medium pose many challenges in terms of the effective
| 20 | enforcement that we haven't begun to really talk through or think through anyway.
| 21 | So how this report might both spot the issues and raise the questions that need to
| 22 | be addressed and perhaps lay out a suggested methodology or approach for
| 23 | government officials and interested publics to think about these issues over time, |
131 1 | we very much need your input on because I think there is no template here, and
| 2 | while we can be informed of what other agencies are doing like USTR, surely, and
| 3 | others, I don't think there is a depth of scholarship on this or industry statements or
| 4 | et cetera, so we really, I think, could extend the charter of this Advisory
| 5 | Committee very substantially.
| 6 | DR. STERN: Looking for work, Merit?
| 7 | MS. JANOW: No, I'm actually not. It's a plea, but also I think this
| 8 | is one where we need lots of ideas.
| 9 | MR. GILMARTIN: You know, based on what's already happened,
| 10 | since everything is moving so fast, there have been lots of events that have
| 11 | occurred as well, and when people talk about the Internet, it's generally in the
| 12 | broad terms that we just talked about it so far -- something is happening, it's going
| 13 | to be big, but in terms of what's actually happened, what specific cases or instances
| 14 | do we have that would suggest that the rules or the way the world works now
| 15 | doesn't apply? Can we just use some specifics as to what is so different than
| 16 | what's happening now that present rules don't apply?
| 17 | MR. THOMAN: There was a privacy directive passed in October by
| 18 | the EU.
| 19 | MR. GILMARTIN: Even without the Internet, that affects us just
| 20 | by mailing patient data across the Atlantic.
| 21 | MR. THOMAN: But there was some belief on the part of U.S.
| 22 | administrative people that at least partly that that was a defensive measure to allow
| 23 | Europe to keep its level playing field at a very low level while they got their |
132 1 | technology act together. That's precisely this.
| 2 | MR. GILMARTIN: In my industry that never occurred to us. What
| 3 | we saw was a difference of privacy issues about how to handle patient
| 4 | confidentiality, medical research and things like that. And it was a difference in
| 5 | attitudes about privacy and how one regulates that, not any sort of underlying
| 6 | conspiracy here to frustrate.
| 7 | MR. THOMAN: There is a real reality that you described, there is
| 8 | also a belief that there could be more dangerous motives, and who knows what's
| 9 | right.
| 10 | MR. GILMARTIN: But that's pretty traditional stuff, just a different
| 11 | --
| 12 | DR. STERN: Just a different example. Just like as you said,
| 13 | genetically modified.
| 14 | MR. GILMARTIN: The GMOs.
| 15 | MR. THOMAN: Exactly.
| 16 | MS. FOX: Could I make a couple comments, just trying to work my
| 17 | way to Merit's questions.
| 18 | There are a lot of very different issues here. There are regulatory
| 19 | issues that are not competition issues like privacy regulation, but Rick is posing the
| 20 | basic problem of state action that restrains trade so that nations might take
| 21 | mercantilistic action that restrains trade. This area, if we want to treat it
| 22 | separately, raises those problems. Those problems, however, do run throughout
| 23 | competition policy as opposed to competition law and we might want to take that |
133 1 | on.
| 2 | Other observations I just wanted to make. We could ask the
| 3 | question on the competition field itself, what are the additional opportunities for
| 4 | restraining trade and using leverage in ways that are likely to harm consumer
| 5 | welfare and efficiency. We must also ask what are the additional opportunities for
| 6 | increasing competition, by passing --
| 7 | MR. GILMARTIN: Knocking down barriers.
| 8 | MS. FOX: Knocking down barriers, that's very important. David
| 9 | raised kind of the dual questions or problems.
| 10 | One is that the very fast-paced change of technology could make
| 11 | traditional relief always too late, and therefore, some argue today that in such high
| 12 | tech, fast moving areas, and this is high tech, fast moving. The Internet is an
| 13 | example. Some argue that therefore antitrust can't deal with it. But I'm just
| 14 | getting some reasons why he thought antitrust could still do something. This is a
| 15 | very important issue on the table today.
| 16 | MR. RILL: I'm sorry, I just wanted to react to what you're saying.
| 17 | MS. FOX: Yes.
| 18 | MR. RILL: What it does is put on antitrust, traditional antitrust
| 19 | concepts, the burden of being alert to emerging technologies and perhaps the
| 20 | domination of emerging technologies that would require quicker action and
| 21 | application of antitrust principles --
| 22 | MS. FOX: Right. Yeah.
| 23 | MR. RILL: -- which creates an enormous burden on antitrust. I can |
134 1 | think of examples, but it would involve some special pleadings, which I don't
| 2 | think s appropriate to do right now.
| 3 | MS. FOX: But quicker antitrust relief is actually a very important
| 4 | idea that more expeditious antitrust relief is maybe an important idea that we
| 5 | should think about, saying something about, so on the one hand, getting substantial
| 6 | structural relief or injunctive relief might be rather late.
| 7 | I think you, Doug, were suggesting, I might be putting words into
| 8 | your mouth, but tell me if I am, that there are still remedies at the end of the case
| 9 | that a court can order even if it's possibly too late for important structural relief,
| 10 | setting forth clear rules of law that should not be violated that can be very
| 11 | important in controlling conduct next time.
| 12 | MR. RILL: Or even this time.
| 13 | MS. FOX: Or even this time, and in the future, maybe at least that.
| 14 | MR. YOFFIE: Let me try to answer Ray's question directly because
| 15 | I think it was a very fair question: why is this different from anything else, and as I
| 16 | said, a lot of the neomercantilism isn't different. It's the same.
| 17 | DR. STERN: It's just "neo."
| 18 | MR. THOMAN: It's driven, though, by the ability to force change
| 19 | quickly creates a much more potential -- reflects a reaction, I think.
| 20 | MR. YOFFIE: The ability to --
| 21 | MR. THOMAN: The speed and cost advantages.
| 22 | MR. YOFFIE: It's faster, it's lower cost, on a much larger scale
| 23 | because these technologies are scalable essentially on a global basis at zero cost. |
135 1 | MR. GILMARTIN: Right.
| 2 | MR. YOFFIE: But the last piece that I was focusing on is the
| 3 | winner-take-all network externality argument. This says that once a competitor
| 4 | gets to a certain threshold that there are going to be self-reinforcing dynamics
| 5 | which leads him to get essentially 100 percent of the market, and if the Department
| 6 | of Justice or the FTC then comes in, it's too late because there are no real effective
| 7 | remedies at that stage. Customers have already adopted the standard for the
| 8 | technology, even if it was achieved through predation. The problem is you can't
| 9 | reverse it. It's just too late or too difficult.
| 10 | And that's basically the argument that's been made around the
| 11 | current case with Microsoft and Netscape, which is Microsoft started to move very
| 12 | aggressively in the fall of 1996, the DOJ files the case in May of '98. By that point
| 13 | in time, they've already gained 50 percent share, and while the case has been tried
| 14 | in the last 12 months, Microsoft's gained another 10, 15 percent market share
| 15 | points, and is starting to look as though we are at that point where the market is
| 16 | tipped and remedies may or may not have any effect. Because it's global in nature,
| 17 | the question becomes: do existing processes and procedures allow us to adequately
| 18 | address --
| 19 | MR. GILMARTIN: Yes.
| 20 | MR. YOFFIE: -- adequately address these kind of dynamics? Not
| 21 | that there shouldn't be rules, but is it going to be effective or are we going to see
| 22 | more and more potential monopolies emerging? We then go through a long,
| 23 | drawn-out trial with no real remedy at the end. |
136 1 | MR. MELAMED: Two thoughts. One would actually be a
| 2 | conditional thought.
| 3 | If a premise of what you're saying, and I would love to have the six
| 4 | weeks to carry on this dialogue, is that we have these network industries in which
| 5 | winner-take-all outcomes are pretty much preordained by the structure of the
| 6 | industry, then the problem can't be what you just said a few seconds ago, which is
| 7 | we're going to see more monopolies emerging. That's the end of the premise.
| 8 | The question becomes, are we going to see the right winners, and is
| 9 | there a role for antitrust to have something to say about the rules of competition
| 10 | that will help us have a higher -- there is one more component that comes into this
| 11 | where you start with e-commerce, rapid change, global networks, winner take all,
| 12 | and that is, these are global phenomena which obviously pose to take us back to
| 13 | what, the courts, a huge additional burden on antitrust or competition agencies,
| 14 | not only for the obvious process reasons, if you could get evidence to prove about
| 15 | who did what to his home page, you know, in Slovakia, but who ought to. Even
| 16 | in Boeing-McDonnell Douglas, we all had some intuition about where was the
| 17 | center or the centers of gravity of interest. Who had a legitimate stake in that
| 18 | battle? Which agency or agencies are supposed to deal with the kind of problem
| 19 | you're talking about should take out government obstacles and just talk about
| 20 | private conduct screwing up a global market. Another dimension.
| 21 | MS. FOX: Related to what you said, Doug, I think there's
| 22 | underlying that idea, if there is a winner-take-all result, there are to be rules as to
| 23 | legitimate ways to be the one that takes all, if one must take all, and those rules are |
137 1 | appropriately litigated. I went further than what was said, there might not be
| 2 | winner take all or the life of the winner might be shorter or longer. Rules, for
| 3 | example, without definition, some kind of open architecture rules or some kind of
| 4 | rules that allow more contestability might assure that the life of the winner will be
| 5 | shorter. One other thought is, even if there is a winner take all and long-term
| 6 | winner scenario, there is still the possibility of using leverage and related markets
| 7 | or not, and like applications markets, and there could be more need for rules that
| 8 | would allow open architecture on those related markets. This gets you into areas
| 9 | of rules of leverage and our antitrust laws might be less robust than some might
| 10 | wish in leveraging that doesn't lead to monopoly in those related markets.
| 11 | MS. JANOW: I would like to take off this point if I may and ask
| 12 | David, who I know has done so much work in this area, David, you raised, I think,
| 13 | the question of whether or not if the courts move too slowly, and this structural
| 14 | situation is different in response to Ray that there needs to be a different approach
| 15 | that maybe is agreed to at the international level or maybe national legislation in
| 16 | focus.
| 17 | Why would we have any confidence that what would be arrived at
| 18 | those two possibilities, if they had a structural feature to it saying, no market
| 19 | dominance, for example or some, would be any better? Is there any reason to
| 20 | think it would be an advantageous approach?
| 21 | MR. YOFFIE: This is why I started our discussion at our
| 22 | subcommittee by saying do nothing as the first option, precisely because of that
| 23 | fear. But let me come back to something that John and I talked about yesterday or |
138 1 | whatever the day was, Monday on the phone, which is that this is an area in which
| 2 | these dynamics are just emerging, and the reason there is not much research is that
| 3 | there's not much history, so it's very difficult to be able to say with any precision
| 4 | how we should be able to get specific policy recommendations at this stage.
| 5 | However, I think those of us who are engaged in these areas now
| 6 | believe that if there is any issue that's going to be critical in the next millennium,
| 7 | this is going to be it, but it's not clear that this Committee can say definitively, here
| 8 | are the appropriate recommendations other than we may need to do a lot more
| 9 | study and two or three years from now we actually might be in a much better
| 10 | position because we'll have at least five years of history rather than three years of
| 11 | history behind us to be able to draw some very specific kind of recommendations.
| 12 | I would be very hesitant, given the history of our experience to date to make
| 13 | specific recommendations at this stage. I think that's probably what Doug is
| 14 | saying, too. It just isn't clear.
| 15 | MR. THOMAN: But there may be principles we can feel
| 16 | comfortable with, there may be a process we can specify that helps us get to that
| 17 | point. I think that's -- I'm reluctant to sort of say, it's too complex and too early to
| 18 | do nothing about it because then nothing will be done. I guess I would like to try
| 19 | to be a little more forward looking if we can without being categorical. I think
| 20 | you're right, we don't know a lot.
| 21 | MR. YOFFIE: I'm not worried about the complexity. I'm more
| 22 | worried about the history.
| 23 | MR. THOMAN: Right. Right. |
139 1 | MR. YOFFIE: But do we have enough confidence in the underlying
| 2 | dynamics, in our understanding the underlying dynamics?
| 3 | MR. THOMAN: I would agree with you, we don't.
| 4 | MS. FOX: I think even raising these questions can be very valuable,
| 5 | and I want to throw one other in to the list we've discussed, which is what is
| 6 | antitrust harm in a context like this because, as we know, the paradigm of
| 7 | neoclassical price theory, consumer welfare harm just might not fit, and yet there
| 8 | might be a market harm.
| 9 | DR. STERN: This is terrific. I agree with both of you all. Just
| 10 | trying to pose the questions, just articulating questions is helpful, framing the
| 11 | issues, even if we aren't categorical, to use Rick's term, in recommendations. So,
| 12 | this conversation has been terrific. And Eleanor's point goes back to a question I
| 13 | wanted to ask you, David, and it also relates to your concern about history of that.
| 14 | We don't have research.
| 15 | But do we have, though, examples of a winner-take-all paradigm,
| 16 | which you have invoked, in other technologies? What have been the relevance of
| 17 | antitrust laws in dealing with that? There should be some history in other
| 18 | winner-take-all technologies.
| 19 | MR. YOFFIE: True. We obviously have a previous history with
| 20 | Microsoft, so in operating systems, independent of the Internet. And we had a
| 21 | consent decree that was signed in 1994?
| 22 | MR. MELAMED: Probably signed in '94, entered '95.
| 23 | MS. FOX: Yes, entered in '95. |
140 1 | MR. YOFFIE: So we have some history, which is not a very
| 2 | positive history I think from the Department of Justice perspective. Would that be
| 3 | fair?
| 4 | MR. MELAMED: That was before my time, but that's what they tell
| 5 | me.
| 6 | MR. YOFFIE: So we certainly have one example in which the
| 7 | identical underlying economics would have been applied, and where antitrust
| 8 | authorities were directly involved in that question, and then there certainly are
| 9 | other industries. One that I cannot talk about publicly would be Intel. This is
| 10 | another example of a company that has some features of network externalities,
| 11 | again very closely connected to Microsoft, and has been subject to antitrust
| 12 | investigation by the Federal Trade Commission. So there are examples.
| 13 | Even in other industries which would be more consistent with
| 14 | Eleanor's comment about they don't last very long, things like video games,
| 15 | Nintendo was an example of a case where many of the same dynamics applied but
| 16 | were obsoleted fairly quickly by future generation technologies.
| 17 | DR. STERN: And that's good, that's where I'm driving: that it's
| 18 | almost a misnomer to call it "winner takes all" because "winner takes all" is in the
| 19 | first round or the second or third round, but how long is this boxing match? If
| 20 | another technology takes over. So it's --
| 21 | MR. YOFFIE: If it's IBM and it lasts for 20 years, and if it's
| 22 | Microsoft, it lasts for 20 years.
| 23 | DR. STERN: But not Nintendo. |
141 1 | MR. THOMAN: There is a difference though. I would argue an
| 2 | Intel, a Microsoft, a Cisco, once they achieve that position, the switching costs are
| 3 | enormous. The switching costs of the game, you buy the new game, you throw
| 4 | the old game away, so there's a very different -- if you get to the choke point with
| 5 | high switch costs, then there is a characteristic in a way that David is talking about.
| 6 | DR. STERN: Then that tells us something right there.
| 7 | MR. MELAMED: There is another set of historical experiences,
| 8 | although quite different, it had some parallels, and that is the old-fashioned natural
| 9 | monopolies, with declining marginal costs. They were certainly winner-take-all
| 10 | markets; they had a somewhat different dynamic, but at least we have some
| 11 | experience with anticompetitive conduct and competition rules in those industries.
| 12 | MS. FOX: In newspaper cases, including one with New England
| 13 | newspapers and there was only going to be one survivor.
| 14 | MR. YOFFIE: But the economics of natural monopolies are very
| 15 | different than the economics of network externalities. We have to be careful.
| 16 | What Rick is talking about is what economists describe as complementary assets
| 17 | that are tied specifically to the underlying products.
| 18 | Those didn't exist in the natural monopolies, and therefore the
| 19 | switching costs had a fundamentally different character to them. There are some
| 20 | different dynamics, but the computer industry historically is the one industry where
| 21 | we've seen very long lived monopolies or quasi monopolies. IBM being the one
| 22 | that had the longest history, and again IBM continues to have about 60 to 70
| 23 | percent of the worldwide mainframe market to this day. It still generates multi- |
142 1 | billion dollars of net profits to the company, and still makes it one of the most
| 2 | profitable companies in the world, and that goes back to 1964.
| 3 | DR. STERN: Well, I was thinking about the natural atrophy of a
| 4 | monopoly that if you do have a monopoly, the flabbiness is attacked if you have a
| 5 | new entry such as imports, in a traditional sense. Because we're in this globalized
| 6 | economy, it may be that we're lacking the potential of a new competitor to come in
| 7 | out of the blue, if you will.
| 8 | MS. FOX: Space.
| 9 | DR. STERN: Out of space. So, to that extent this is perhaps a new
| 10 | paradigm and a new set of problems.
| 11 | MR. YOFFIE: What information technology does, though, is it
| 12 | creates the possibility of truly global monopolies, not --
| 13 | DR. STERN: That's what I mean. That's what I mean.
| 14 | MS. FOX: And who is the potential competitor.
| 15 | DR. STERN: Exactly, except for someone from Mars.
| 16 | MR. YOFFIE: Microsoft and Intel have between 85 and 90 percent
| 17 | of the relative market share in their segments on a global basis so when you think
| 18 | about new competitors coming out of the blue, it's generally got to be new
| 19 | technologies. It must be a substitution effect as opposed to an imitation effect,
| 20 | which makes it a fundamentally different dynamic.
| 21 | DR. STERN: You need clarity.
| 22 | MR. YOFFIE: I wanted to come back to Eleanor's point again and
| 23 | ask Doug because this question of consumer harm is the other major question that |
143 1 | emerges with these dynamics. Microsoft is giving the product away for free, and
| 2 | has 100 percent of the market, then there's an obvious question of how do we
| 3 | measure consumer harm in this world, no matter how they got there.
| 4 | MR. MELAMED: I just heard a story from a person who was trying
| 5 | to buy a car and the car dealer said, "Mr. So-and-so, I lose money on every car I
| 6 | sell," and he didn't believe it. I think you might have misstated a little bit when you
| 7 | said they don't get any benefit from selling the product.
| 8 | MR. YOFFIE: From Internet Explorer.
| 9 | MR. MELAMED: Well, not from Internet Explorer; but it seems to
| 10 | me that the network story, as an antitrust story, is essentially this: The incumbent
| 11 | tries to keep potential rivals from having the access to the standards that enable the
| 12 | rivals in effect to take advantage of the network economies.
| 13 | If the incumbent succeeds, he reduces the likelihood that the rival
| 14 | will displace him in whole or in part. That reduced likelihood might injure
| 15 | consumers, not because it will have a big price effect, but because it is likely to
| 16 | affect the amount and type of innovation and product quality available to
| 17 | consumers, especially if the rival was given a greater opportunity to flourish.
| 18 | I don't mean to be glib about this, but I don't know why any of these
| 19 | notions are beyond the comprehension of a competition paradigm.
| 20 | MR. YOFFIE: That's a legal question, which is --
| 21 | MR. MELAMED: I didn't mean it to be.
| 22 | MR. YOFFIE: That's precisely the question I was getting at which
| 23 | is, are those notions in fact adequately dealt with within the context of today's |
144 1 | antitrust law?
| 2 | MR. MELAMED: Antitrust law has evolved, it has changed a great
| 3 | deal in the last 30 years, certainly the last 100 years.
| 4 | If we went into court tomorrow and articulated some of the ideas
| 5 | that I was attempting very briefly to summarize here, there is a certain probability -
| 6 | - maybe 40 percent, 60 percent, who knows -- that the first judge is going to say, I
| 7 | don't understand what you're talking about, plaintiff loses; but maybe the third time
| 8 | around, the plaintiff is going to win if his theory is sensible, and the law is going to
| 9 | evolve and catch up with new economic learning.
| 10 | MR. RILL: I quite agree with that, I don't think the legal principles
| 11 | are the ones that are in question. I think maybe the enforcement tactics are in
| 12 | question. The fact assembly is in question, the ability that we have some certainty
| 13 | that you're identifying a market soon enough or perhaps too soon is in question,
| 14 | but it seems to me these have been the questions that have been with us to a lesser
| 15 | degree perhaps for a hundred years, and now it's a question that requires quicker
| 16 | action, but the underlying competition policy principles, it seems to me, are
| 17 | perfectly adequate to deal with it.
| 18 | Microsoft -- the legal theory underlying Microsoft, I'm not
| 19 | principally involved in that case, it would seem to me to be fairly straightforward
| 20 | legal principles of tying/exclusive dealing as a mechanism for monopolization, that
| 21 | it's not complex legal theory, it's legal theory that rests on cases like Lorraine
| 22 | Journal which go back 30 years, 40 years.
| 23 | MS. FOX: That's what Bob Bork says, it's Lorraine Journal. |
145 1 | MR. RILL: Just because he said it doesn't mean it's necessarily
| 2 | wrong.
| 3 | MS. FOX: I think there are more complex issues than Lorraine
| 4 | Journal.
| 5 | MR. RILL: I happen to agree with him.
| 6 | MS. FOX: I think there is a question as to what we have defined as
| 7 | consumer welfare harm is really the only market harm. I mean, I think it's possible
| 8 | that in an effort to confine our antitrust laws and to consolidate them that we have
| 9 | used a sort of proxy or symbol that may be or sound a little narrower than all
| 10 | market harms are.
| 11 | I think that it's just going to be very useful to write a chapter laying
| 12 | out the questions and I think that it's probably too soon to come up with any
| 13 | answers, but I also happen to think that most of the antitrust problems, even
| 14 | applied to the new technologies, can probably best be decided in a ground-up way
| 15 | like our usual antitrust cases are, just lay the facts out there and the law is in a way
| 16 | elastic enough to meet the market circumstances.
| 17 | DR. STERN: Well this five minute discussion has stretched -- I
| 18 | think, again, it's been a terrific discussion. We've been plowing new ground here.
| 19 | Thanks to your stimulus, Rick. Thank you very much. We'll just
| 20 | see what comes next in our next meeting.
| 21 | We're now going to move to the last item on the agenda, the
| 22 | discussion on trade and competition interface and enforcement cooperation. You
| 23 | guys are looking at each other. |
146 1 | MR. RILL: We're passing notes. Do we have to tell the class what
| 2 | the notes are about?
| 3 | DR. STERN: Yes.
| 4 | MS. JANOW: We're noticing the shortage of time.
| 5 | MR. RILL: Let me just first of all apologize to Dick Simmons who
| 6 | has been on the line waiting patiently, I hope on the line.
| 7 | MR. SIMMONS: Who, me?
| 8 | MR. RILL: Because I know this is a subject that particularly
| 9 | interests him, and we have exactly an hour and 15 minutes to deal with it at this
| 10 | meeting.
| 11 | DR. STERN: Right. Go ahead.
| 12 | MR. RILL: What were you going to say?
| 13 | DR. STERN: What Merit suggested I say, which is, Dick, is there
| 14 | anything that you wish to say?
| 15 | MR. RILL: That's a good idea.
| 16 | MR. SIMMONS: Thank you, there is on this particular subject, if I
| 17 | could step back for one moment. I think I heard most of Rick's comments on e-
| 18 | commerce, but if I could just make a short comment on that. If the 35 or 40 years
| 19 | since the Second World War is a period in which most of the changes throughout
| 20 | the world were focused in manufacturing and technology improvements, I think
| 21 | the next 40 years are going to be driven by e-commerce, are going to be the first
| 22 | real change in the transactional kinds of relationships around the world. And one
| 23 | aspect of that, I think, falls into the trade and competition area because e- |
147 1 | commerce may be the way to deal with some of the problems of access that
| 2 | currently are being discussed and do exist around the world because at least in a
| 3 | couple of countries, the distribution system is how access is denied or limited, and
| 4 | e-commerce bypasses it, and it may make moot many of the problems that all of
| 5 | us, several of us have had with regards to problems of access.
| 6 | If you don't have to go through the constraint imposed by a
| 7 | distribution system by being able to use e-commerce, and I think we will be able to
| 8 | at different rates of change in different industries, then some of the problems of
| 9 | access I think will go away.
| 10 | Now, if I could just offer a couple of comments on this section that
| 11 | you're now going to discuss, let me just preface it by saying that first of all, I
| 12 | apologize for not being there. Jim Rill, I think has some sense of why it's so busy
| 13 | the last six months. But with regard to paragraph I C and then 1 and 2, I become
| 14 | very uneasy without a very clear and specific understanding of what is being said
| 15 | here, and I can only display my uneasiness by asking questions which are
| 16 | rhetorical, don't have to be answered here, but which, Merit, I would really
| 17 | appreciate getting some clarification on.
| 18 | For example, on paragraph C, sub 1, DOJ/FTC should have parity at
| 19 | the table with other agencies, e.g., Department of Commerce, USTR where issues
| 20 | of trade and competition are involved, and then it goes on to expand on that a bit,
| 21 | and then in (C)(2) it talks about it and (C)(2)(a), and I would really like some
| 22 | clarification of what you -- whoever is drafting this part of it really means.
| 23 | I also point out that political problems that this creates when you |
148 1 | start to talk about taking turf away from, whether it be USTR or Department of
| 2 | Commerce or whomever, without a clear understanding of (1), for example, and
| 3 | (2)(a) where it says, U.S. and foreign companies must be judged under the same
| 4 | U.S. standard should not judge foreign companies under a different standard,
| 5 | parenthesis, by using trade remedies.
| 6 | I would ask what does that mean, and I do restate my uneasiness if I
| 7 | read the wrong implication into that. So let me stop at this point and simply say
| 8 | that I do think you got to make very clear in your draft exactly what we're talking
| 9 | about.
| 10 | MR. RILL: Dick, this is Jim. I think you've raised a good point,
| 11 | primarily I think on the lack of perhaps clarity with which these discussion points
| 12 | have been raised.
| 13 | MR. SIMMONS: And, by the way, if I can, I'll refer to Intel, the
| 14 | title of that book, Only the Paranoid Survive, applies to me, too.
| 15 | MR. RILL: Well, you're in good company. And I don't think there
| 16 | is a question of -- I don't think it's a question of attempting to grab jurisdiction
| 17 | from one agency to another, and let me give you the notion that underlies what
| 18 | you're looking at which has not been distributed beyond the working group, so it's
| 19 | not a document that's in the hands of the full Committee, nor is it an attempt to,
| 20 | other than put forward some ideas that have been raised in the hearings and in
| 21 | intramural discussions among the working group as possible recommendations that
| 22 | the Committee might at the end of the day put on the table in its report.
| 23 | Having said that, I think the thought here is really twofold. One, |
149 1 | where national policy is being developed, the Department of Justice, given its
| 2 | experience and focus on competition policy issues should be in a position to
| 3 | articulate that experience and its positions in the deliberations of the Executive
| 4 | Branch on a par with the Department of Commerce and the Trade Representative,
| 5 | where private restraints are at issue (that is opposed to government restraints or
| 6 | hybrid restraints, which at the end of the day I think I would be defined as
| 7 | essentially private restraints encouraged by the government).
| 8 | Therefore, the suggestion is that there be clear lines of delineation
| 9 | between -- and we're getting off of policy-making direction now and into
| 10 | enforcement technique, and remember this deals with enforcement issues, the
| 11 | hybrid restraint should be the responsibility of the antitrust enforcement agencies,
| 12 | and I would say conversely where there are government restraints involved, the
| 13 | enforcement responsibility vis-a-vis those government restraints should probably
| 14 | be preliminarily with the more traditional trade agencies, the USTR in particular,
| 15 | while the question of remedy then becomes, of course, one that would have to be
| 16 | developed.
| 17 | With respect to the same standard, it seems to me that foreign
| 18 | companies should be judged under the same antitrust standards as U.S. companies.
| 19 | There should not be, and I'm sounding like I'm advocating this but I'm trying to
| 20 | explain what the language means, and it may well be at the end of the session I
| 21 | would advocate something like this, but it means that there should not be a special
| 22 | antitrust rule applicable to a foreign company that's more rigorous or contains
| 23 | different remedial sanctions than the same antitrust rules that would be applied to a |
150 1 | domestic company.
| 2 | That's all in the world it means, and I think then we need to consider
| 3 | as you look at other proposals that have been put to us, the question of how one
| 4 | determines whether or not there's a violation of antitrust law and the question of
| 5 | whether or not the U.S. enforcement agencies should apply different antitrust
| 6 | principles either from the standpoint of substance or proof to a foreign situation as
| 7 | it does to a domestic situation, and I think that's really the sense of what (c)(1) and
| 8 | (2) of the outline mean. For those of you who don't have the outline, this
| 9 | discussion draft was circulated only among the working group, and simply
| 10 | suggests that the Department of Justice and the FTC should have parity at the
| 11 | table on trade and competition issues where competition policy questions are
| 12 | involved, and involving issues of private restraints, whether they're purely private
| 13 | or hybrid governmental private, the enforcement position of the Department of
| 14 | Justice/FTC should have priority over those of other agencies of the government.
| 15 | Are you more confused or less?
| 16 | MR. SIMMONS: No, I understand that, but going back an hour on
| 17 | so when the discussion was on the role of FTC, if I could play devil's advocate for
| 18 | just a moment, why shouldn't FTC ask for a seat at the table, too?
| 19 | MR. RILL: That's a good question actually, and they might just do
| 20 | that, but --
| 21 | MR. SIMMONS: They could set up an advisory committee, come
| 22 | up with a set of recommendations that FTC should play a more responsible role.
| 23 | MR. RILL: And when I say they might just do that, I'm being a little |
151 1 | facetious. I think the issue there is whether Justice is more appropriately
| 2 | structured to deal with the table in the Executive branch, being a member of the
| 3 | Executive branch and having a policy-making function within the Executive branch
| 4 | than an independent agency.
| 5 | MR. SIMMONS: I understand that, but I was just trying to make
| 6 | the point and also, of course, the DOJ is not just asking for a seat at the table,
| 7 | they're asking for an equal seat at the table for the Assistant Attorney General for
| 8 | Antitrust.
| 9 | MR. RILL: I think that's what's contemplated here.
| 10 | MR. SIMMONS: My questions are not that I necessarily oppose
| 11 | them, oppose the proposal, I just want to make sure I understand it in its full
| 12 | beauty.
| 13 | MR. THOMAN: It would be useful as we go forward to define
| 14 | what parity means. If parity means you're now adding a third party --
| 15 | MR. SIMMONS: I'm sorry, I can't hear.
| 16 | MR. THOMAN: It may be useful to define what we mean by parity
| 17 | as we think about this. If it simply means that everybody -- if we've added a third
| 18 | party to what is sometimes not even an easy discussion between two, we may not
| 19 | have helped our ability to formulate trade policy, so it may be useful, if we can be
| 20 | precise about where the role is greater or lesser, to the degree we can do that.
| 21 | MR. RILL: I think there are two facets.
| 22 | MR. THOMAN: You have done part of it here.
| 23 | MR. RILL: I think what we've done is blended two concepts. |
152 1 | One, let's take an example where there's a perceived overseas
| 2 | restraint in a particular industry. Let's say it's a vertical restraint that appears to be
| 3 | historically governmental, emerging possibly into a private restraint, not clear as to
| 4 | the legal effect at this point, the government, let's say the President of the United
| 5 | States goes over to country X and raises the issue, and then in a matter of a
| 6 | meeting of the policy advisors to the President, the Secretary of Commerce or the
| 7 | Undersecretary, the Special U.S. Trade Representative or the Deputy Trade
| 8 | Representative discuss the issue and decide what the matter of policy is and what
| 9 | is the U.S. response to this particular complaint.
| 10 | The thought there is that the Department of Justice would have its
| 11 | representative, whether the Attorney General who has multiple responsibilities well
| 12 | beyond this area, not merely so focused as the Trade Representative or the
| 13 | Undersecretary of Commerce, but has responsibilities well beyond that area should
| 14 | not be able to have at the table someone comparable to the Assistant Attorney
| 15 | General for Antitrust to take part in the give and take deliberation of the
| 16 | government's policy on that question.
| 17 | MR. THOMAN: That's fair enough.
| 18 | MR. RILL: And bring to bear a consumer, if you will, protection
| 19 | dimension and taking into account the Foreign Trade Antitrust Improvement Act,
| 20 | any export interest of the United States as it applies to competition policy. That's
| 21 | one aspect of it.
| 22 | The second aspect is then in the enforcement area. If it is
| 23 | determined that this is purely a governmental issue, whatever restraint exists, of |
153 1 | course if no restraint is found then that's the end of it, but if a governmental
| 2 | restraint exists, then that presumably would be the province of the trade
| 3 | authorities.
| 4 | However, if it's a private or hybrid restraint, the suggestion here is
| 5 | that the antitrust authority at the Department of Justice would have the principal
| 6 | responsibility to seek appropriate relief, enforcement action, either through
| 7 | unilateral enforcement activity in an antitrust case or negotiation through positive
| 8 | comity or some comparable action to attempt to relieve the harm that may exist.
| 9 | Does that, Rick, answer your question?
| 10 | MR. THOMAN: It helps. I was worried about a decision process.
| 11 | Parity sort of implies everybody agrees.
| 12 | MR. RILL: There is only one ultimate decision-maker, and of
| 13 | course that's the President.
| 14 | MR. THOMAN: Right, right.
| 15 | MR. RILL: And it's the question of the seat at the table to have the
| 16 | input into the advice to the President.
| 17 | MR. GILMARTIN: Is this -- is it fair to say that this concept, this
| 18 | approach or this idea comes out of some of the discussions that we've had about
| 19 | how trade policy sometimes gets confused with competition policy.
| 20 | MR. RILL: I think that's a fair statement.
| 21 | MR. GILMARTIN: And trade policy avenues that follow have
| 22 | failed, whereas the appropriate venue would have been competition policy, and
| 23 | that's some of the experience that we have. |
154 1 | MR. RILL: Well, it's difficult to get into this kind of discussion
| 2 | without dealing with specific cases, which is always risky, and particularly when
| 3 | one's been involved in specific cases, it gets even more risky. But I think one
| 4 | would have to question whether or not there had been -- whether there could not
| 5 | have been a greater competition policy, perhaps even enforcement or positive
| 6 | comity input into, say, the auto dispute that was ultimately resolved I think not
| 7 | very satisfactorily as a trade measure.
| 8 | MS. FOX: I am a little worried about taking the competition
| 9 | authorities out of the discussion of state trade restraints.
| 10 | MR. RILL: I don't think you take them out of the discussion. I
| 11 | think that's -- as I say, there's -- I sound like I'm making a recommendation. This
| 12 | is very premature for me to be making recommendations.
| 13 | I'm probably trying to explain what consensus, not consensus even,
| 14 | but what thought has been put together here, and the notion is that they would not
| 15 | be taken out of play in the discussion of possible remedies to a trade restraint.
| 16 | The only thought is ultimately if there is a trade issue to be resolved
| 17 | in negotiations, that would presumably be the priority responsibility of the trade
| 18 | authorities. And they could advise the trade authorities and probably would advise
| 19 | the trade authorities as to the consequences of any remedy, which I think has
| 20 | happened from time to time with more than a little mixed success over the years.
| 21 | I mean, historically the Department of Justice used to come into
| 22 | antidumping cases and say these are bad cases. Nobody paid any attention to
| 23 | them, and maybe that was the right way to go about it. But certainly they would |
155 1 | advise on trade remedies. That's at least contemplated I think by this draft outline.
| 2 | MR. SIMMONS: It was my clear impression, Jim, that in the early
| 3 | session, whether it be the first one or the second one, it was stated explicitly that
| 4 | DOJ in creating the Advisory Committee had no interest in involving themselves in
| 5 | unfair trade laws and the adjudication of them.
| 6 | MR. RILL: The jurisdiction of the Committee does not extend to
| 7 | antidumping and countervailing duty issues.
| 8 | MR. SIMMONS: That's right. So why would the Committee then
| 9 | make or even consider making a recommendation that would give justice and DOJ
| 10 | a seat at the table on an antidumping case.
| 11 | MR. RILL: I don't think that's contemplated in the recommendation.
| 12 | It was contemplated here, for example, really in the context of market access.
| 13 | MS. JANOW: Yeah. The use of the term trade remedies was
| 14 | speaking to 301, at least with respect to the draft.
| 15 | MR. SIMMONS: I could even make an argument about 301 that at
| 16 | least on some aspects of 301. I do think it's important, if I can, to reemphasize this
| 17 | point, that where the Committee is going to consider recommendations that would
| 18 | expand the existing influence and authority of DOJ in trade and competition areas,
| 19 | that we work very hard to be as explicit as we can.
| 20 | MR. THOMAN: That's sort of what I'm saying.
| 21 | MR. SIMMONS: In defining what it is that we're trying to
| 22 | recommend.
| 23 | MR. RILL: I think that's a good point, and there is a blur here in this |
156 1 | draft that needs to be corrected.
| 2 | MR. SIMMONS: As I say, it could be I just read it the wrong way
| 3 | or interpreted it the wrong way.
| 4 | MR. RILL: No.
| 5 | MR. SIMMONS: But I could read into it a fairly broad expansion of
| 6 | powers.
| 7 | MR. RILL: No. It's perhaps a moderate expansion of influence. It's
| 8 | not intended to be a broad expansion of power. But your point is quite well taken
| 9 | that this could be drafted a lot more explicitly.
| 10 | MR. SIMMONS: It seems to me that one of the most important
| 11 | parts of the Committee will be the deliberation on the specific recommendations.
| 12 | That goes without saying. Notwithstanding all the work that gets you to that point.
| 13 | But the people who draft those final recommendations will have tremendous
| 14 | influence over the final report.
| 15 | MR. RILL: I agree.
| 16 | MR. THOMAN: That's exactly my reaction on this I had questions
| 17 | about what parity meant and what issues that were. I think you can be clear on
| 18 | this. The way you described it I feel comfortable.
| 19 | MR. RILL: Okay.
| 20 | MR. THOMAN: Can I ask one other thing again. I've been closer
| 21 | to certain of these issues with a view lately, and I've been both concerned and
| 22 | impressed by how quickly inconsequential disputes can blow up to very large
| 23 | policy areas, I'm talking about bananas and hush kits and also how the fact that the |
157 1 | working relationships that have been built over a decade or longer over time have
| 2 | managed to sort of get them down, so if you looked at all of them together, I think
| 3 | I once figured out it was half of one percent of our trade are disputes. Is the
| 4 | intention here that when DOJ has this exclusive jurisdiction in these private and
| 5 | hybrid restraints and immediately starts suing people, have we created again our
| 6 | traditional American legalistic response to things without an ability to consult and
| 7 | resolve disputes, you see what I'm saying?
| 8 | MR. RILL: I see exactly what you're saying.
| 9 | MR. THOMAN: Right.
| 10 | MR. RILL: I think it's a real issue that is of concern and deserves
| 11 | some focus.
| 12 | MR. GILMARTIN: Let me argue on the other side of that.
| 13 | Actually in the EU it's been quite effective to use the courts to hammer away at
| 14 | government restraint by using competition policy principles of the transparency
| 15 | directive, and in some encouragement along those lines by the EU in terms of
| 16 | saying it's like knocking down the Berlin Wall, in terms of banging away at
| 17 | government restraints in a way that increases the competition, so this is where
| 18 | competition policy and the role of the Department of Justice can be important. So
| 19 | I'm not as concerned as Dick apparently is or you're expressing about the
| 20 | expansion of competition policy as a way of generating opportunities for market
| 21 | access.
| 22 | Market access issues for us are competition related, government
| 23 | restraint related, not trade related per se. Trade remedies are inadequate, just don't |
158 1 | apply.
| 2 | MR. RILL: I think that Rick's concern is that possibly the use of the
| 3 | U.S. antitrust laws to break open markets could create diplomatic reactions or
| 4 | policy reactions that would be very averse, and I think the thought here, and at
| 5 | least the U.S. tradition has been to use that actual enforcement tool very sparingly,
| 6 | perhaps some would argue too sparingly, but that the principle which was
| 7 | expressed in '92 that when that authority would be used to in effect deal with
| 8 | restrictions on the U.S. export markets, U.S. export opportunities, it would be
| 9 | only used where there is, you go back and see speeches given when this was
| 10 | adopted by the then assistant Attorney General, that it would be only used in areas
| 11 | where clear violation of U.S. law, of probable violation of foreign law as well and
| 12 | where there would be obviously a very substantial effect on U.S. foreign
| 13 | commerce. There would be an opportunity, even without an agreement, an
| 14 | opportunity given to the local enforcement authority, the national enforcement
| 15 | authority where the conduct was occurring to take action should there be legal
| 16 | authority to do so and the will to do so illustrated, and that's basically the concept
| 17 | of positive comity, as its come to be called, and we're beginning to see some
| 18 | success, for example the computer reservation system case being the early test,
| 19 | some success with the use of positive comity.
| 20 | MR. THOMAN: Again, you've been with this all along. I've just
| 21 | been impressed with my last year of the Transatlantic Business Dialogue, how
| 22 | much has been accomplished through effective coordination of standards. It's
| 23 | really been quite remarkable. But I also saw what happened for a couple month |
159 1 | period when people got focused on these small disputes, and the atmosphere got
| 2 | quite venomous in ways which would probably given the scale of disputes they
| 3 | were all out of proportion to what they were.
| 4 | MR. GILMARTIN: Yeah, and I guess I've been interpreting the
| 5 | work in this area or in this section as really envisioning an approach to arrive at
| 6 | agreements on competition policy.
| 7 | MR. THOMAN: That's what I'm arguing for. This may be a
| 8 | necessary last resort, as it were.
| 9 | MR. GILMARTIN: It's really a set of principles that we can agree
| 10 | upon on competition policy between the EU and the U.S. on some of these things
| 11 | and then using positive -- not necessarily unilateral actions by the U.S. to try to
| 12 | break things open.
| 13 | MR. THOMAN: That's why I'm concerned of whether this
| 14 | recommendation would give rise to that. I don't know that it would, I'm just
| 15 | asking the question.
| 16 | MR. RILL: No, there is a suggestion here that at least the capacity
| 17 | for unilateral action ought to be somewhat strengthened, at least as a last resort,
| 18 | but it would be I think fairly clearly a last resort if the agreement breaks down.
| 19 | MR. THOMAN: I'm comfortable with that if that is the way it is
| 20 | written. It seems to me that the notion of unilateral enforcement is not particularly
| 21 | taken seriously abroad at the present time, and that at least there should be some
| 22 | thought given in our discussions to whether or not we would want to recommend
| 23 | to the Department and the FTC a strengthening of that tool, granted a last resort |
160 1 | tool, beyond where it sits right now, so that we can have it there in the event that
| 2 | the other more accommodating avenues that were closed to us.
| 3 | MS. FOX: Ray has suggested that maybe the groundwork be laid by
| 4 | agreement that legitimizes such an action, and I would support that, that if there is
| 5 | an agreement that legitimizes the action to protect export opportunities, then it of
| 6 | course becomes legitimate.
| 7 | MR. RILL: Those kinds of agreements are going to be hard to come
| 8 | by because I think the U.S. jurisdictional view is somewhat broader than the view
| 9 | of foreign jurisdictions.
| 10 | MR. GILMARTIN: To the idea of some sort of forum where
| 11 | competitive, even the example that was used earlier by Bill, that even just people
| 12 | getting together and talking about these things starts to bring convergence of
| 13 | policy.
| 14 | MR. RILL: That's what we brought up in the first part of the day,
| 15 | the question to our first witness, that we ought to be thinking possibly about a
| 16 | world competition forum, not necessarily an organization, not necessarily with
| 17 | even negotiating authority, but at least in the first instance a discussion opportunity
| 18 | across a broad base of jurisdictions, but that's an overarching end of the day kind
| 19 | of possibility.
| 20 | Dick, I'm sorry, do you have other points?
| 21 | MR. SIMMONS: No, I just wanted to stress the point I had made in
| 22 | the broadest context, to urge that we try to be as specific and as detailed as we can
| 23 | so at least as we consider the final recommendations, we fully understand the |
161 1 | import of them.
| 2 | MR. RILL: Do you have a better understanding of where this draft
| 3 | was attempting to --
| 4 | MR. SIMMONS: Yes, I think I do, but I still would like to see it in
| 5 | more detail the next time around.
| 6 | MR. RILL: Oh, absolutely. Absolutely.
| 7 | In the time left I suppose it might be worthwhile at least to highlight
| 8 | some of the thoughts that the staff and others have developed as to possible
| 9 | decisions or discussion points for this chapter or the section on trade and
| 10 | competition, and one of the areas -- first I think we need to look at our own home
| 11 | base and decide what recommendations we could make that would be internal to
| 12 | the U.S. Government and then turn on where we might advocate joint
| 13 | arrangements and then perhaps advocate some foreign policy issues.
| 14 | One of the problems we've had is that we've not been able to really
| 15 | quantify the extent to which private and hybrid restraints really are a major
| 16 | impediment to trade. We have some anecdotes, we have a lot of anecdotes. Many
| 17 | of those anecdotes are not substantiated in these cases, and that's just a fact of life.
| 18 | They're described by some of our foreign colleagues as the bleating of our industry
| 19 | that's suffering because of its own incapacity to export. I don't think we can buy
| 20 | that.
| 21 | MS. JANOW: Burrrr.
| 22 | MR. RILL: I heard that at the OECD meetings a week or so ago
| 23 | from another government whose name I shall not mention. But the fact of the |
162 1 | matter is there are anecdotes, there are cases. I think one thing that the draft
| 2 | suggests is that there be a concentrated attempt to try and get some -- a
| 3 | governmental attempt to get some arms around the extent to which this really is a
| 4 | problem -- it may not be just the U.S. Government, it may be a challenge to
| 5 | foreign governments to do it.
| 6 | MS. FOX: I know there is value in getting more evidence. I frankly
| 7 | think, and I think Frederic Jenny expressed this view in Paris, that people have
| 8 | collected a lot of evidence, and I know it is not methodical, but one could proceed
| 9 | on the basis of the knowledge that with the public barriers receding, private
| 10 | barriers are more significant restraints to market access, that where private
| 11 | anticompetitive barriers exist there ought to be a methodology to challenge them,
| 12 | and I myself am very comfortable with that idea because it seems to me if markets
| 13 | are closed by private anticompetitive restraints that this undercuts the spirit of the
| 14 | world trading system, and although it may not be prohibited now by the world
| 15 | trading system, to make the world trading system more nearly complete, there
| 16 | ought to be a methodology consistent with the WTO to attack them.
| 17 | MR. RILL: I think you're right. I don't think it's incumbent on this
| 18 | Committee to try to do end game work to have a statistically acceptable sample to
| 19 | demonstrate the quantity of impact of private restraints on world trade.
| 20 | MS. FOX: If there were fruitful bodies of knowledge to tap, I
| 21 | would want to go ahead and do it, but I'm not so sure that there are.
| 22 | MR. RILL: I don't see it. Not for lack of looking. But maybe the
| 23 | governments can continue to pursue some type of analysis. This is also what the |
163 1 | draft suggests. It is also suggested that there be a strengthening of the U.S.
| 2 | capacity for unilateral enforcement in the appropriate circumstances we're talking
| 3 | about. We've talked a bit about that in our conversation a few minutes ago without
| 4 | getting into excruciating detail, the comments made by our first witness are really
| 5 | right on point.
| 6 | One is, apart from the political issue of unilateral enforcement, what
| 7 | are the discovery impediments and what are the remedial impediments. The
| 8 | discovery impediments tend to be technical legal issues that probably ought to be
| 9 | looked at by lawyers, and we ought to have some assessment of it, how severe are
| 10 | they.
| 11 | The remedial issues are ones that I think we need to discuss in the
| 12 | context of unilateral enforcement. Are there remedies that can be imposed that
| 13 | would cure the situation without doing adverse work on U.S. or other consumers
| 14 | and without raising undue political difficulty.
| 15 | MS. FOX: I am not certain that I support beefing up our own ability
| 16 | to enforce the law to protect export opportunities. Incidentally, I think all
| 17 | enforcement is unilateral and I don't call it unilateral enforcement, but maybe I'll be
| 18 | overruled on that. But I think that we ought to suggest further what is in the
| 19 | positive comity agreements on the excluding nations enforcement and go further
| 20 | to suggest agreements to having viable procedural mechanisms within the excluding
| 21 | nation so that there could be -- so that we could hopefully rely on enforcement by
| 22 | foreign nations and persons. And maybe making that unilateral, I mean multilateral
| 23 | if we, in the context of a possible world competition forum -- |
164 1 | MR. RILL: Are you suggesting in that context the possibility of
| 2 | private rights of action?
| 3 | MS. FOX: Yes.
| 4 | MR. RILL: That's really what you're talking about?
| 5 | MS. FOX: Oh, and government rights of action.
| 6 | MR. RILL: Yeah. I can't imagine we would have a bilateral
| 7 | agreement unless there was a government right of action at least.
| 8 | MS. FOX: Yes, a government right of action. I would prefer
| 9 | actually to see it ultimately multilateral in the context of freestanding competition
| 10 | for an agreement rather than -- probably rather than -- no, I withdraw that. I'm
| 11 | sorry. I wouldn't rather. I withdraw that. I do think that is the one point that
| 12 | really ought to be in the WTO.
| 13 | MR. RILL: What is that?
| 14 | MS. FOX: The market access right, that there is one point at the
| 15 | intersection of trade and competition which is the other side of the coin of public
| 16 | restraints and that is private restraints, and that really is the point that I think
| 17 | probably ought to be negotiated within the WTO.
| 18 | MR. RILL: I'm not at all clear though what you mean. What
| 19 | specifically should be within the WTO?
| 20 | MS. FOX: Oh, that nations should agree to have principles of law
| 21 | against unreasonable barriers to access to their market and should agree have
| 22 | procedural systems whereby that right can be enforced.
| 23 | MR. RILL: I guess the question I have is, all right, suppose there |
165 1 | was that kind of agreement. Suppose we or someone thinks that that law is either
| 2 | inadequate or that the enforcement is inadequate. What then?
| 3 | MS. FOX: That's where I think if there is a showing that the nation
| 4 | has not done what it has promised to do under this proposed agreement that there
| 5 | should be an agreement that the foreign nation should then be able to sue in its
| 6 | own courts applying the law of the excluding countries.
| 7 | MR. RILL: I don't want to get into a technical discussion on that
| 8 | issue but who would resolve whether or not the nation adequately had an antitrust
| 9 | law and adhered to that agreement?
| 10 | MS. FOX: At some point it could go to a resolution panel. Some
| 11 | points would be clear and some points would be gray area.
| 12 | MR. RILL: This is similar, isn't it to what Konrad von Finckenstein
| 13 | proposed?
| 14 | MS. FOX: Apparently, but I didn't read his proposal. But I was told
| 15 | --
| 16 | MR. RILL: You weren't there?
| 17 | MS. FOX: No, but I proposed this a long time ago, a few years ago
| 18 | in an article.
| 19 | MR. RILL: Okay. Well, that's certainly something that needs to be
| 20 | discussed. The problem I would have with it personally as a first impression, or
| 21 | second or third impression is that it falls upon a decision making body, an
| 22 | international decision making body, a supranational decision making body to make
| 23 | a determination whether or not a country has an adequate principal competition |
166 1 | policy and even more difficult whether or not it has enforced that policy in an
| 2 | acceptable manner.
| 3 | MS. FOX: There is a way to get around that, but it has its own
| 4 | problems, which is to allow a nation that claims that there is not an adequate
| 5 | system in the excluding nation to simply make the decision and then sue in Federal
| 6 | court, and let the other side challenge -- you know, you could have more self help.
| 7 | MS. JANOW: Could I back us away from this particular and sort of
| 8 | put it in the context that I think we have been discussing this, which is not that any
| 9 | existing remedies would be withdraw -- that is to say, that Jim is making the
| 10 | argument that unilateral remedies, we might want to examine if there is room for
| 11 | them be strengthened. I mean surely that is a debate that is occurring in public
| 12 | policy in a wider community, but in addition to unilateral and bilateral, including
| 13 | through positive comity enhancements with more jurisdictions, what role for the
| 14 | WTO and what role for other initiatives, so I think with respect to what role for
| 15 | the WTO, I think what I'm hearing Eleanor is clarifying a position that you have
| 16 | written in numerous essays about an enhanced market access competition policy
| 17 | role for the WTO.
| 18 | That is going further. It's been in your writings, it's not been in the
| 19 | staff-produced proposals or ideas. Ours have seen a much more incremental role
| 20 | for the WTO as building up its competition expertise, possibly experimenting in
| 21 | sectoral areas that are deregulating, like Telecoms, continuing the activities of the
| 22 | Working Group, those kinds of incremental steps have been ones that we've been
| 23 | debating, but I think what you're suggesting is that we include an affirmative set of |
167 1 | obligations with respect to competition and policy matters within the WTO, so I'm
| 2 | just putting that in.
| 3 | MS. FOX: That's right, I certainly agree with all of those
| 4 | incremental recommendations, like certainly the WTO has to gain more expertise
| 5 | to answer the questions that will arise in the context of the Telecom agreement,
| 6 | and other agreements that mention competition law or abuse of dominance must
| 7 | do that. And certainly I think that either the Working Group on Trade and
| 8 | Competition must be continued or there must be another forum that's a little more
| 9 | freestanding to continue it.
| 10 | MR. RILL: The thought may be that whether it's continued or not
| 11 | that there will be another forum to pursue the discussions at least of trade and
| 12 | competition issues and competition issues generally. Not all competition issues
| 13 | are trade issues.
| 14 | MS. FOX: That's the really biggest point, the other forum would be
| 15 | under the banner of general competition issues. Trade and competition are a small
| 16 | part of that that have to be interacted with what is happening at the WTO.
| 17 | MR. THOMAN: That's the world competition organization?
| 18 | DR. STERN: Forum. Forum.
| 19 | MR. RILL: Forum, whatever.
| 20 | MR. THOMAN: My question there is who joins, why?
| 21 | MS. JANOW: Everybody.
| 22 | MR. THOMAN: What we heard was in hindsight, I think I heard
| 23 | our witnesses saying in hindsight, if we had to do it all over again, we would have |
168 1 | one thing doing things rather than two, so I know we have an OECD and we have
| 2 | a WTO and we have a new thing. I'm not against it. I just didn't understand what
| 3 | it did. The OECD I know is a more technical area. The WTO has a issue, the
| 4 | knot there is trade, and so many people that have issues that it's hard to get things
| 5 | done, so is this a small select organization?
| 6 | MR. RILL: I think quite to the contrary. I think OECD serves the
| 7 | small select organization purpose. Personally I would, these thoughts formulate as
| 8 | I speak and consider, but I think I favor something of this sort. I think it would be
| 9 | open to everybody, and it might well include, tentatively thinking out loud, it might
| 10 | well include private as well as governmental representatives in the discussion. In
| 11 | fact, I see almost no downside to that.
| 12 | MR. THOMAN: It's useful to flesh out what it is and again whether
| 13 | cynically people review it as a place for the competition people to go because the
| 14 | trade have their WTO. I didn't understand the rationale.
| 15 | MR. RILL: The rationale is to develop more consensus on
| 16 | competition policy, to develop more transparency on competition policy, to
| 17 | develop greater coordination and perhaps more agreements outside the forum,
| 18 | perhaps bilateral agreements and multilateral agreements down the road.
| 19 | Ultimately looking way down the road, maybe even to develop some kind of
| 20 | general statements or maybe specific statements on substantive standards starting
| 21 | with the hard core cartel area that we would then recommend.
| 22 | MR. THOMAN: I guess I just didn't understand.
| 23 | MR. RILL: That's the thought. |
169 1 | MR. GILMARTIN: That's precisely the point, there is no question
| 2 | of competition to work on these things which I think are quite significant.
| 3 | MR. THOMAN: That's true.
| 4 | MS. JANOW: Sir Leon makes the point there are 80 jurisdictions
| 5 | with competition authorities, maybe some 60 with merger control, and there is no
| 6 | forum for those folks.
| 7 | The trade and comp issues in a narrow band are being discussed in
| 8 | the WTO, but they're not talking about how do you create independent agencies,
| 9 | or what are the resources you need or how does one do technical assistance or
| 10 | what is the evidentiary requirements -- there are so many competition issues that
| 11 | have no home for comprehensive representation and discussion, but there are
| 12 | analogues, there is an international organization for securities regulators and they
| 13 | meet. Obviously there is intellectual property community that meets so
| 14 | competition policy doesn't have I think a forum. I don't think the organizational
| 15 | feature is as important as the deliberative. Unless there was consensus to create an
| 16 | organizational feature in which case maybe some organizational features could be.
| 17 | I think we've seen that in the APEC context where a small secretariat collected
| 18 | information, organized meetings, et cetera, so that was the concept.
| 19 | MR. THOMAN: It's an interesting concept. I'm not being negative.
| 20 | I like the idea of the private/public together. I've been again very impressed by the
| 21 | Business Dialogue.
| 22 | MR. RILL: It partakes of elements of the TABD only in a broader
| 23 | geographic scale of OECD on a broader national scale, and perhaps beyond. |
170 1 | OECD is essentially an intergovernmental organization with very restricted private
| 2 | input, and then it takes on the membership perhaps of the WTO only not with the
| 3 | sort of trade focus with all of the trade substantive issues that permeate the WTO,
| 4 | and that's just the thought that's put on the table for discussion.
| 5 | DR. STERN: I would like to favorably react to the paper, the idea
| 6 | of the forum. I am not so sure about the private and public participants, and we
| 7 | can just think about it.
| 8 | I did want to make a comment about another aspect of the trade and
| 9 | competition discussion which is the notion of building on the U.S.-EU agreements.
| 10 | I didn't see it amplified in the outline, and there is a reference to bilaterals on
| 11 | positive comity. The U.S. and the EU have been a model for other countries, the
| 12 | lattice effect. I see it addressed. There is a reference to improving bilaterals, and
| 13 | of course the U.S.-EU is an existing one so maybe that's where we were talking
| 14 | about, that's where it should go. But I just wanted to put a spotlight on the fact
| 15 | that we've talked about it in different hearings and meetings.
| 16 | Ray mentioned it earlier today, but I didn't see amplification and I
| 17 | really had to search for a reference on U.S. international initiatives because there is
| 18 | more discussion in the plurilateral and multilateral organization arena, letter C,
| 19 | than there is on the amplification on this U.S.-EU model.
| 20 | MR. RILL: I think that's a fair plan. Actually we're sort of there
| 21 | anyway in the flow of the discussion.
| 22 | DR. STERN: Well, good.
| 23 | MR. RILL: It will get us there in about three minutes. |
171 1 | DR. STERN: I knew Rick was going to leave at 4:00.
| 2 | MR. RILL: Another thought is the unilateral issues we think --
| 3 | maybe we think this is an issue that Eleanor has talked about and also we heard
| 4 | about earlier from Bill Kovacic and that is continued U.S. support for emerging
| 5 | market economies and developing a competition policy, whether it was through
| 6 | AID funding, we heard from the AID representative or otherwise, and I think there
| 7 | are other discussions we ought to have, thoughts we ought to have on the table.
| 8 | We're obviously going to have not only another subcommittee
| 9 | meeting but another full Committee meeting I think on this subject alone so we
| 10 | have time to discuss trade and competition which we don't have.
| 11 | MS. JANOW: My calendar's available.
| 12 | MR. RILL: No, no, but your leadership needs to be there, too.
| 13 | MS. FOX: Could I make an overall -- go ahead, I'm sorry.
| 14 | MR. RILL: Just to get us to where Paula was. Some thought about
| 15 | the repeal of the Webb-Pomerene and Export Trading Act may be appropriate and
| 16 | I think we need to deal in the context of trade and competition or more generally
| 17 | with the issues of information sharing, which I think for current purposes in the
| 18 | time allowed gets us to the bilateral issue that you were talking about, but Eleanor
| 19 | --
| 20 | MS. FOX: My general comment is Merit had encouraged us at an
| 21 | earlier meeting, and David had encouraged us at an earlier meeting, to take the
| 22 | kind of broad view of where we should be going in the world in view of
| 23 | globalization and internationalization and the place of competition, competition |
172 1 | laws and disciplines within that broad view, and if one does that I think one looks
| 2 | at the world rather than what are the U.S. interests.
| 3 | I'm a little concerned about saying let's do this in U.S. interests, let's
| 4 | see what the U.S. interests are and let's sell it to the world. I think that we might
| 5 | develop a more cosmopolitan tone of the whole enterprise. You know, you open
| 6 | up markets, you see where the markets are naturally and you try to develop a
| 7 | nonparochial policy that fits the whole market, and this way it's much more --
| 8 | It's more cosmopolitan. We also will be and would be adopting a lot
| 9 | of ideas that the EU has already put on the table, and we really ought to be giving
| 10 | them credit for it and not just assuming we are reinventing the wheel because in
| 11 | view of the internal market of Europe, they've done an awful lot of thinking.
| 12 | MR. RILL: That's a good drafting point. The structure here was
| 13 | designed principally, as far as I can tell, the structure was designed I think logically
| 14 | and perhaps not diplomatically to say, okay, here's what the U.S. can do, and then
| 15 | here's what the U.S. will want to negotiate with their foreign counterparts, but I
| 16 | think your point is well taken.
| 17 | MS. FOX: It might be tone over substance, but this approach also
| 18 | pulls us out of our three boxes, you know, and we get a general concept, and we
| 19 | talk about the range of issues which don't always fall in the three boxes, and we're
| 20 | sometimes talking about them under trade and competition, but they're not trade
| 21 | issues, and then we lay out the general framework, and we do the work in the
| 22 | merger area, and we do the work in the cartel area, and we do work in just general
| 23 | competition, like jurisdictional areas, and then we come to the trade issues which |
173 1 | are a piece of the competition issues, and show the relationship in the direction
| 2 | with WTO.
| 3 | MR. RILL: I think that's a good point. I want to get, before we run
| 4 | totally out of time, I want to get to Paula's point, the lattice notion is a good one.
| 5 | We have not gone into general, I think, encouragement of bilaterals because there
| 6 | are bilaterals beyond those which involve the U.S., Canadian, European, New
| 7 | Zealand, Australia, even more comprehensive.
| 8 | I think that you go through this, you'll see that although the space is
| 9 | not great, there is -- the issues on bilaterals are touched upon, and I think there is
| 10 | now some experience being developed as to the effectiveness of the bilaterals, both
| 11 | in the formal exercise of positive comity and conceivably even in the less formal
| 12 | exercise of the positive comity but I think there are other issues that can be added
| 13 | to the bilaterals along the lines, Eleanor, you're suggesting. I think some input
| 14 | there would be very, very helpful.
| 15 | The thought is that the first step in attacking private restraints that
| 16 | inhibit market access is for the maximum exercise of bilateral relationships, if they
| 17 | can be achieved.
| 18 | Now that's a question that I think we would want to talk about
| 19 | because then we would be recommending to the Department a greater use in
| 20 | expansion of bilaterals and I'm not sure where the Department is on that at this
| 21 | point. I'm not sure it matters where the Department is at this point.
| 22 | MS. FOX: Would you think that's en route to multilateralizing?
| 23 | MR. RILL: In time, perhaps. |
174 1 | DR. STERN: Yes, in time. Because we've anticipated that idea of
| 2 | at least the U.S.-EU relationship as a model for others for expanding out. It's a
| 3 | stepping stone.
| 4 | MR. RILL: Rick, before you go, is there any comment?
| 5 | MR. THOMAN: No, I think that's a great suggestion. I think we
| 6 | have jumped awfully quickly into the role of Justice. I think it's a good drafting
| 7 | point.
| 8 | MR. RILL: It's certainly not intended to be parochial or jingoistic,
| 9 | but I think the point is well taken, it could be read that way. I think the reasoning
| 10 | was not to do that, I think the reasoning was to say logically, here's what we can
| 11 | do and here's what we have to do together.
| 12 | MS. JANOW: Impulse was exactly the opposite, which was not to
| 13 | opine to others before we opine to ourselves, but I think that it is instead an
| 14 | introductory chapter that talks about competition policy and a global economy and
| 15 | its applications be that merger or trade and competition, subsequently.
| 16 | MR. THOMAN: I thought it was a good paper. I just didn't quite
| 17 | understand some things.
| 18 | MR. RILL: And understandably you didn't understand it. When I
| 19 | was raising questions, I was having a little trouble trying to forge through it
| 20 | myself, and I can say that without criticizing anyone else other than perhaps in part
| 21 | myself, but I think we have tried to articulate that a little bit.
| 22 | I think that the remainder of the paper deals with the types of
| 23 | organizations that might be involved in the trade and competition issue. We've |
175 1 | talked about that pretty much all day, especially the OECD and the WTO, and now
| 2 | we're talking about a world competition forum. That essentially is the framework
| 3 | in which the current thinking progresses.
| 4 | Now we have had a number of proposals put to us for a more
| 5 | aggressive role for the WTO, and perhaps a more aggressive position in the, let's
| 6 | call it the market access area, call it what it is, presented to us by some of the
| 7 | witnesses that have testified. I think of Thomas Howell, Alan Wolff's colleague,
| 8 | and Dick Cunningham, who would have a competition role, for example, the ITC
| 9 | which would produce binding conclusions on the antitrust agencies.
| 10 | I think Dick Cunningham's view is that there would be some remedy
| 11 | for a systematic foreclosure that substantially lessens competition and I'm not sure
| 12 | how refined Dick has actually gotten with those proposals, but I think we owe
| 13 | consideration to those proposals. Personally I'm very skeptical of them, but that's
| 14 | just a personal view. I think we need to talk about those and deal with them as
| 15 | part of our deliberations in the Committee. I don't know, Dick Simmons, whether
| 16 | you have a view on that?
| 17 | MR. SIMMONS: No. I am a natural born skeptic, as you know,
| 18 | but I would just like to see them all laid out there.
| 19 | MR. RILL: That's what I'm suggesting.
| 20 | MR. SIMMONS: No, I would like to see them laid out. It is very
| 21 | difficult, you have to understand where I come from. It is very difficult for me to
| 22 | look at things totally in the theoretical when it comes to government involvement.
| 23 | I almost have to see pragmatic examples of the extreme boundaries |
176 1 | that we're talking about because that's the very nature of the way the government
| 2 | operates. The best example to me is the recent decision by the government in the
| 3 | products which my company doesn't make but which we're interested in watching,
| 4 | and this is the suspension agreement on the steel just announced yesterday, I guess,
| 5 | with Russia when in fact these outrageous duties in the same cases were filed
| 6 | against Japan, a suspension agreement was also made with Brazil.
| 7 | Now, if I were a Japanese producer, I would try to figure out some
| 8 | way of filing a suit against somebody for being discriminated against, even though
| 9 | our law, our antidumping laws permit our government to do that.
| 10 | Jim, am I making the kind of point that --
| 11 | MR. RILL: Well, you're certainly making a point. It's a strong
| 12 | policy point, and I think the policy point once again goes back to -- actually, you
| 13 | know what it does, Dick, it goes back to this whole overarching issue of
| 14 | transparency.
| 15 | MR. SIMMONS: Yeah.
| 16 | MR. RILL: And why is Peter not treated the same as Paul.
| 17 | MR. SIMMONS: Here is a case where I think we're doing
| 18 | something that is offensive to one of our major trading partners, in this case Japan.
| 19 | MR. RILL: And I think it's not altogether clearly articulated by the
| 20 | government as to why these particular distinctions are made, and I think that the
| 21 | transparency issue --
| 22 | MR. SIMMONS: So that's a little bit why I'm so skeptical. As you
| 23 | know, I've been involved in this process for so many years that I always try to |
177 1 | beware the bearer of gifts, I want to know what's in the box.
| 2 | MR. RILL: And that's a fair point.
| 3 | MR. SIMMONS: So it seems to me that as we look at all these
| 4 | things, we should look at them all, not preclude any.
| 5 | MR. RILL: I think some people have given some very serious
| 6 | thought to some of the alternative approaches to the market access issue. They've
| 7 | taken the time to prepare papers and come before us with proposals and come
| 8 | before other bodies such as the U.S. Congress with those proposals.
| 9 | MR. SIMMONS: And you did mention the issue of private right of
| 10 | action just a moment ago, which is perhaps, you know, Arlen Specter is trying to
| 11 | gain some support for it. He won't, but he is going to try again.
| 12 | MR. RILL: Well, I actually made an appearance before the OECD
| 13 | Competition Law and Policy Committee urging that private action would be
| 14 | something that should be encouraged at bilateral discussions as a mechanism for
| 15 | further relief, and I think that's another one we would want to lay out and consider.
| 16 | MR. GILMARTIN: But I think, I'm speaking very theoretically
| 17 | here, but it strikes me that our discussions have been all along the line of not
| 18 | having to seek relief by using the government but how to set up a framework that
| 19 | fosters competition and is enabling because along the lines of what Dick said, I
| 20 | remember Senator Moynihan said at a session I was at 15 years ago, he said be
| 21 | careful what you ask the government for because they can do to you in the same or
| 22 | great proportion as to what they do for you. So, I mean, when you seek relief
| 23 | from them -- |
178 1 | DR. STERN: The curse of the Greek gods.
| 2 | MR. GILMARTIN: That's what we're talking about.
| 3 | MR. RILL: The other thing we need to focus on more in the trade
| 4 | and competition area is the extent to which we would want the Justice Department
| 5 | to engage in advocacy involving government restrictions on open competition.
| 6 | It's certainly true in the intellectual property area where we do have
| 7 | at least a WTO agreement of questionable force, but in the intellectual property
| 8 | area, enormous restraints I think that are imposed largely by government, and here
| 9 | is an advocacy opportunity for the Department of Justice and a good reason for it
| 10 | to have a seat at the table --
| 11 | MR. GILMARTIN: Right.
| 12 | MR. RILL: -- in the trade and competition discussions. There are
| 13 | any number of other examples, we had a discussion of industry standards, you will
| 14 | recall, by Len Waverman and his colleagues that demonstrated in the cell phone
| 15 | area the standard which is to preclude anybody who wasn't an internal market
| 16 | player.
| 17 | Those are areas I think that probably are as or more serious, have as
| 18 | much if not more serious impact on open competition as private or hybrid
| 19 | restraints. That's something that we would be remiss if we didn't discuss and urge
| 20 | the government to focus on.
| 21 | Paula, we've been through the outline. It's been very sketchy because
| 22 | of the really good discussions we've had before now, but I think what we've done
| 23 | is highlight the areas of discussion. |
179 1 | DR. STERN: Yes.
| 2 | MR. RILL: I think we're probably going to need certainly another
| 3 | working group meeting and probably -- well, certainly another Committee meeting
| 4 | --
| 5 | DR. STERN: Yes.
| 6 | MR. RILL: -- after that on these subjects.
| 7 | DR. STERN: I agree.
| 8 | MR. RILL: Dick, we may even do it in Pittsburgh.
| 9 | MR. SIMMONS: Thanks.
| 10 | MR. RILL: I really would like to sit down with you on this thing. I
| 11 | think the working group would, too.
| 12 | MR. SIMMONS: I would be glad to host it.
| 13 | DR. STERN: Well, thank you.
| 14 | MR. RILL: That's really where we are.
| 15 | DR. STERN: Okay.
| 16 | MR. RILL: We've hit the high points.
| 17 | DR. STERN: It's been a wonderful day thanks to everybody's input
| 18 | and participation. I think we've been extremely lucky to have had such really good
| 19 | discussion leaders, my Co-Chair, Jim Rill, Tom Donilon, Professor Bill Kovacic,
| 20 | Rick Thoman and also Dr. Thea Lee, and so unless Merit has some other
| 21 | administrative matters to give us, it looks like she's got some papers to give us, I'll
| 22 | turn it over to you, Merit.
| 23 | MS. JANOW: Okay. We thought you might want to see a few |
180 1 | things because you have nothing to read. We have gotten a lot of submissions
| 2 | from various folks, and so we have given you a list of them. If any of them interest
| 3 | you, then just ask us.
| 4 | Also, the EU has, the Commission has advanced formally, I guess, its
| 5 | proposal on what it wants to do at the WTO.
| 6 | MR. RILL: Yes.
| 7 | MS. JANOW: And so we have --
| 8 | MR. RILL: You're talking about the European Commission, not the
| 9 | Federal Trade Commission?
| 10 | MS. JANOW: That's correct. The European Commission has
| 11 | submitted to the European Council its proposal on competition policy at the
| 12 | Millennium Round, so I duplicated a copy of that formal position for your
| 13 | consideration.
| 14 | Eleanor, your piece in the Journal of International Economic Law is
| 15 | an interesting piece. We've made a copy of it.
| 16 | DR. STERN: Do we have your copyright permission?
| 17 | MS. FOX: Yes.
| 18 | MS. JANOW: We did get a submission from Dewey Ballantine that
| 19 | I'm bringing to your attention as well as a list, so if you would help yourselves.
| 20 | Our next scheduled meeting is October 5th. Obviously that is in the
| 21 | distant future, and we will be turning to drafting something. I'm hoping as the next
| 22 | approach, we might be having a discussion around a draft as against sort of an
| 23 | outline. If you have a different suggestion as to approach, please let me know. |
181 1 | And thank you very much.
| 2 | MR. RILL: Do you think one day's going to be enough for that? Is
| 3 | that all we're going to be able to hold people?
| 4 | DR. STERN: I think so. I think we should shoot for one day, and
| 5 | then see what happens.
| 6 | MR. RILL: We've really got a lot to talk about today even without a
| 7 | draft in front of us.
| 8 | DR. STERN: We certainly should get the draft in advance, and then
| 9 | if people would like to mark it up, we might think about shortcuts, sending out the
| 10 | draft in advance, having individuals if they wish to mark it up, and fax it back, you
| 11 | know, a week's time ahead, have the staff analyze the marginal notes, and put in
| 12 | those areas that they've identified where there's disagreement so as to focus our
| 13 | discussion. That's just off the top of my head, but you all may have some other
| 14 | ideas about how to cut through and get the input and synthesize it so that we're
| 15 | just talk about --
| 16 | MR. YOFFIE: You might try to make it longer, I might suggest a
| 17 | somewhat an longer day. Once you have everybody here, you can keep them here
| 18 | for an extra hour or two.
| 19 | MS. JANOW: How about two days?
| 20 | DR. STERN: Two is not good.
| 21 | MR. YOFFIE: If we stay until 6:30, that would be far better than
| 22 | trying to do two days.
| 23 | MS. JANOW: Or the dinner before and then extending through? |
182 1 | No?
| 2 | MR. RILL: I don't think you would get much done at dinners.
| 3 | DR. STERN: I agree with you, David. I think we should tell people
| 4 | what very clearly when we're going to begin in the morning and say that we're
| 5 | going to shoot for a certain closing time, but that we, unlike other meetings, will
| 6 | not be as punctual in ending as we have been in the past.
| 7 | MR. RILL: I think that's announced in advance, that's fine. If it's
| 8 | not announced in advance, we make plans for after the meeting.
| 9 | DR. STERN: Precisely.
| 10 | MS. FOX: I won't be at the next meeting because I have classes the
| 11 | next day, so I'll just give extensive input.
| 12 | MR. RILL: I don't know what the budget area situation is, but
| 13 | would it be more convenient to have it in New York rather than here?
| 14 | MS. FOX: I could call in for part of it.
| 15 | DR. STERN: I'm sure the staff will be reconfirming dates and times,
| 16 | and you'll be getting venues and you'll be getting further --
| 17 | MR. DUNLOP: The only comment I would say out of experience is
| 18 | if we could have a draft a week ahead of time.
| 19 | MR. RILL: That would be no problem.
| 20 | MR. DUNLOP: And could we expect for those who volunteer to
| 21 | write you to tell comments on that, and then try to focus the discussion on issues
| 22 | that -- you're dealing with a big document.
| 23 | DR. STERN: Absolutely. |
183 1 | MR. DUNLOP: There are a lot of issues of language and so on.
| 2 | Anyway, I would be speaking only for myself. If you get us something ahead, I
| 3 | could bring it to the meeting a memo which says what my comments on your draft.
| 4 | DR. STERN: That would be wonderful. In fact, we might even ask
| 5 | you to send the memo in advance so that --
| 6 | MR. DUNLOP: I don't know about that.
| 7 | DR. STERN: Well, we'll send it to you two weeks ahead of time so
| 8 | that the staff will be able to synthesize --
| 9 | MR. DUNLOP: Now you're negotiating.
| 10 | DR. STERN: No, I'm not. My suggestion is so that your
| 11 | comments, along with Eleanor's and everybody else's will be synthesized by the
| 12 | staff, and they'll be able to see where there are differences.
| 13 | MR. DUNLOP: My whole idea is that since in the end if you're
| 14 | down to the drafting stage, then words make a difference.
| 15 | MR. RILL: Oh, yes.
| 16 | DR. STERN: Good.
| 17 | MR. RILL: Thanks, everybody, for coming.
| 18 | DR. STERN: Yeah, thank you all. Thanks again to the staff. Nice
| 19 | work.
| 20 | MR. SIMMONS: Thanks for letting me participate.
| 21 | DR. STERN: Thanks for your time, Dick. Bye.
| 22 | (Whereupon, at 4:30 p.m., the taking of the instant hearing ceased.)
| 23 | |
184 |