1 1 | INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
| 2 | MEETING
| 3 |
| 4 |
| 5 |
| 6 | Washington, D.C.
| 7 | Friday, September 11, 1998
| 8 |
| 9 |
| 10 |
| 11 |
| 12 |
| 13 | This document constitutes accurate minutes of the
| 14 | meeting held September 11, 1998, by the International
| 15 | Competition Policy Advisory Committee. It has been
| 16 | edited for transcription errors.
| 17 |
| 18 |
| 19 |
| 20 | ICPAC Co-Chairs
| 21 | |
2 1 | INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
| 2 | MEETING
| 3 |
| 4 |
| 5 | Washington, D.C.
| 6 | Friday, September 11, 1998
| 7 |
| 8 |
| 9 | Taken at The Carnegie Endowment for International Peace, Root
| 10 | Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C.
| 11 | beginning at 10:00 A.M. EST, before Bryan Wayne, a court reporter and notary
| 12 | public in and for the District of Columbia.
| 13 |
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3 1 | APPEARANCES:
| 2 | Advisory Committee Members:
| 3 | Merit E. Janow, Executive Director
| 4 | James F. Rill, Co-Chair
| 5 | Paula Stern, Co-Chair
| 6 | Thomas E. Donilon
| 7 | John T. Dunlop
| 8 | Eleanor M. Fox
| 9 | Raymond V. Gilmartin
| 10 | David B. Yoffie
| 11 | Department of Justice Employees:
| 12 | Joel I. Klein, Assistant Attorney General
| 13 | Antitrust Division
| 14 | A. Douglas Melamed, Principal Deputy Assistant Attorney General
| 15 | Antitrust Division
| 16 | Donna Patterson, Deputy Assistant Attorney General
| 17 | Antitrust Division
| 18 | Gary Spratling, Deputy Assistant Attorney General
| 19 | Antitrust Division
| 20 | Charles S. Stark, Chief, Foreign Commerce Section
| 21 | Antitrust Division
| 22 |
| 23 | APPEARANCES (Continued): |
4 1 | Other
| 2 | Debra Valentine, General Counsel, U.S. Federal Trade Commission
| 3 | No Members of the Public made an Appearance or Presented Written or Oral
| 4 | Statements
| 5 | IN ATTENDANCE:
| 6 | Advisory Committee Staff:
| 7 | Cynthia R. Lewis, Counsel
| 8 | Andrew J. Shapiro, Counsel
| 9 | Stephanie G. Victor, Counsel
| 10 | Eric J. Weiner, Paralegal
| 11 | Estimated Number of Members of the Public in Attendance: 35
| 12 | Reports or Other Documents Received, Issued, or Approved by the Advisory
| 13 | Committee: None
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5 1 | P R O C E E D I N G S
| 2 | (10:00 A.M.)
| 3 | DR. STERN: I would like to welcome each and every one of you
| 4 | here, particularly the Committee members. There are some who are going to be
| 5 | joining us at different times during the day.
| 6 | This is our second full Committee meeting. I'm Paula Stern; I'm
| 7 | Co-Chair, along with Jim Rill, of the International Competition Policy Advisory
| 8 | Committee. We're very honored to have here this morning the Assistant Attorney
| 9 | General for Antitrust Joel Klein, who will be speaking to us in a minute. And I'd
| 10 | like to also introduce to you Merit Janow, who is the Executive Director of the
| 11 | Committee.
| 12 | I'm mindful that we are meeting both in this smaller group here as
| 13 | well as in a public group. And I would like to welcome the members of the
| 14 | public who are in attendance, and want you to feel included.
| 15 | Since our inaugural meeting back in February, the Advisory
| 16 | Committee has been very busy. Members have engaged in outreach to a number
| 17 | of prominent business organizations, to law firms, and to other experts. Tom
| 18 | Donilon, who should be joining us soon, Eleanor Fox, Jim Rill, Merit Janow and I
| 19 | have had several productive meetings both in New York, with law firms that
| 20 | handle an impressive array of international mergers with antitrust implications,
| 21 | and just this week Jim and I have met with a number of D.C. law firms to get their
| 22 | input.
| 23 | We thank very much in particular John Dunlop, Ray Gilmartin, |
6 1 | Steve Rattner, who is not here, and Dick Simmons, who we were planning to see
| 2 | but who apparently had a personal event that is going to prevent him from coming
| 3 | this morning. But they have all made important and useful suggestions to guide
| 4 | this outreach effort to the public.
| 5 | I would like to introduce the staff. Our Committee staff has grown
| 6 | since our last meeting in February. At the first meeting you met Stephanie Victor,
| 7 | (and you might just wave), who is now counsel for the Advisory Committee. And
| 8 | since then we have two additional attorneys, Cynthia Lewis, from Skadden Arps'
| 9 | Brussels office and Andrew Shapiro, from Covington & Burling. In addition, a
| 10 | paralegal, Eric Weiner, is assisting the Advisory Committee and has been very
| 11 | hard at work.
| 12 | They're now fully constituted as the staff and they have been
| 13 | developing outlines to help structure our discussions and provide a skeleton for
| 14 | the eventual Advisory Committee report. You all have received this big black
| 15 | briefing binder for this meeting which contains annotated outlines reflecting a lot
| 16 | of the staff's sifting and sorting.
| 17 | I'd like to note, at this time that in order to gain input for our
| 18 | members, we have issued in the Federal Register the announcement for this
| 19 | meeting. There will, however, be no active participation, per se, of the audience.
| 20 | We're please that you're here as interested members of the public, but the format
| 21 | does not allow for participation from the audience.
| 22 | Welcome Tom. Just getting the preliminaries out of the way.
| 23 | We would welcome, however, any reactions you have to today's |
7 1 | meeting in writing. So please contact one of our staff if you wish to submit
| 2 | written comments.
| 3 | Just to lay out a road map very briefly on how we're going to
| 4 | proceed and where we have come heretofore. At our first session, back in
| 5 | February, you recall we had the Advisory Committee receiving formal
| 6 | presentations from a number of Department of Justice officials about the issues
| 7 | under consideration by the Advisory Committee. Today we have a different
| 8 | format. And I hope by the end of today's meeting we will have the opportunity to
| 9 | hear from each and every member, his or her views regarding the issues that were
| 10 | raised in the outlines that you received before Labor Day.
| 11 | Our first session this morning will address the interface of trade
| 12 | and competition policy. As I mentioned a moment ago, Dick Simmons has
| 13 | unfortunately been called away, and we are asking Merit Janow to read Dick
| 14 | Simmons' remarks that were prepared in advance by him. As you can see from
| 15 | the outlines -- the interface of trade and competition policy gives us a wealth of
| 16 | policy options. And we can go through that -- after we have heard from Joel, who
| 17 | is patiently waiting here.
| 18 | But quickly, we will then move on from trade and competition to
| 19 | deal with enforcement cooperation. And that second session will begin at noon
| 20 | with a working lunch and will discuss enforcement cooperation issues. Jim Rill
| 21 | will begin that discussion. And Gary Spratling at the Justice Department, who
| 22 | you may remember spoke to us at the last meeting has, yet again, taken a red-eye
| 23 | from California to join us for the enforcement cooperation discussions. |
8 1 | We will then move on to our third and final session at about two
| 2 | o'clock, where we will discuss the multijurisdictional merger issues. Tom
| 3 | Donilon has been graciously willing to kick off that discussion. And we are
| 4 | expecting that Debra Valentine, General Counsel of the Federal Trade
| 5 | Commission, along with Chuck Stark, who I see is sitting out in the audience,
| 6 | Chief of the Antitrust Division's Foreign Commerce Section, will join us and will
| 7 | be available to answer questions regarding the level of information sharing that is
| 8 | currently ongoing between antitrust authorities and to discuss tasks of dealing
| 9 | with different jurisdictions in multijurisdictional merger review.
| 10 | Let me close by saying that you'll find, in tab C of the binders, that
| 11 | the Advisory Committee is organizing hearings in November where we have an
| 12 | impressive array of talent who have agreed to participate, including
| 13 | representatives from a number of competition authorities from around the world.
| 14 | It should prove to be quite an event and of course we're looking forward to that.
| 15 | At this time, I would like to turn the podium over to Jim to see if
| 16 | Jim would like to make some welcoming remarks and then we'll turn to hear from
| 17 | our esteemed colleague and leader, Joel Klein.
| 18 | Jim?
| 19 | MR. RILL: I think there is nothing left to say as we alternate
| 20 | chairing these meetings. For a change -- that normally wouldn't stop me -- but
| 21 | today it's going to stop me and I'm going to turn it over to Joel Klein.
| 22 | MR. KLEIN: People said there were no more miracles left in the
| 23 | world. I thought that when Paula said, "And now we'll turn it over to Jim to see if |
9 1 | he wanted to make some comments," I thought my schedule just got messed up.
| 2 | Paula, I'm delighted by your opening comments and Jim's lack thereof.
| 3 | MR. RILL: Not necessarily in that order.
| 4 | MR. KLEIN: It's an honor for me to be here today and, first of all,
| 5 | to extend my welcome to all of you in the public and as well as the members of
| 6 | the Advisory Committee and the staff.
| 7 | I have stayed closely involved over the summer months with the
| 8 | really extensive work that has been done under the leadership of Paula and Jim
| 9 | and really with Merit and the staff, not just in terms of the outreach. But a great
| 10 | deal of research, analysis and discussion has gone into preparing the background
| 11 | papers. And I had an opportunity to read them in detail this weekend. I must say
| 12 | they're enormously impressive and I think should focus not just our discussions
| 13 | today but the work that lies ahead in the year to come.
| 14 | I'm grateful; and I want to say to the staff in particular, this is
| 15 | really first class high quality work and you should be proud of it. It's in the best
| 16 | traditions of what I think the Antitrust Division represents and I'm glad to see that
| 17 | you've lived up to those standards. So, I am very pleased.
| 18 | In terms of what's going on in the Division in the international
| 19 | area, nothing has abated. If anything, I think some very interesting lessons were
| 20 | learned in the WorldCom/MCI merger. I think in the end it was a great success
| 21 | story in the way that we and the European Community were able, effectively, to
| 22 | collaborate. But, like many successful joint ventures, there were some bumps
| 23 | along the road in terms of both the efforts to play one jurisdiction off against |
10 1 | another and some of the other involvement in terms of the press and even the Hill,
| 2 | as we worked through this.
| 3 | Having said all that, I think the work with DG-IV and the telecom
| 4 | section of the Division was really very professional, very successful, and a real
| 5 | meeting of the minds on competition policies -- and what I think people like my
| 6 | friend and colleague, Eleanor Fox, would call part of the ongoing evolution of de
| 7 | facto substantive convergence. That is, the mode of analysis, the thinking, the
| 8 | identification of the competitive problem really came together, I think, quite
| 9 | forcefully there and led to a strong and important conclusion.
| 10 | We are, as well, working hard on our first positive comity referral.
| 11 | As most of you know, we made an assessment that airline computer reservation
| 12 | system issues in Europe raised concerns in terms of market access involving
| 13 | certain practices. We made a referral to DG-IV. They accepted the referral and
| 14 | that process is ongoing. We have spent time working with our colleagues in
| 15 | Europe to move that process ahead. And I look forward to a resolution of that
| 16 | matter in the not distant future.
| 17 | Beyond that, we have a series of important bilateral meetings
| 18 | coming up with the Japanese and Koreans which will be our first bilaterals, really,
| 19 | since some of the major economic shifts in Asia. And my anticipation is that
| 20 | some of those economic shifts and some of the new leadership we've seen in these
| 21 | countries will create a climate in which there will be greater opportunity for
| 22 | further discussions about effective international cooperation on competition
| 23 | policy and indeed to continue, as Ray Gilmartin and I were talking about, to |
11 1 | continue the other half of the dialogue -- which sometimes gets left out on our
| 2 | part but it's certainly key to trade and competition issues. And that is not just
| 3 | antitrust enforcement but to sink a real marker for competition policy,
| 4 | deregulation, open markets and increased innovation. And we're beginning to see
| 5 | at least the vocabulary in terms of our bilateral discussions moving with
| 6 | increasing enthusiasm in that direction.
| 7 | Two other quick points I should note before closing. This week
| 8 | we ended, I think as we talk the jury has gone out or the judge is instructing the
| 9 | jury, in the case against three individuals in the international lysine conspiracy,
| 10 | where we did prosecute three individuals from Archer-Daniels Midland after the
| 11 | company pled guilty and was assessed a $100 million fine. But that trial,
| 12 | actually, and the evidence that was introduced, is going to raise, I think, some
| 13 | important issues in terms of understanding both the complexity of enforcement at
| 14 | this level and the nature of the problem for the American economy. And we will
| 15 | certainly be using materials from the trial, that are now in the public domain, as
| 16 | part of our educational opportunity and our educational efforts on a worldwide
| 17 | basis.
| 18 | Finally I do want to commend the Committee for the hearings that
| 19 | will be coming up later this fall. They have really put together an all-star cast of
| 20 | international leaders who have agreed to come before the Committee and to talk
| 21 | about their perspectives on these very, very important issues. I just actually,
| 22 | before coming here, I just took a call from Dieter Wolf, who is the head of the
| 23 | German antitrust authority, and he was pointing out that he was eager to be here |
12 1 | and have an opportunity to share his thoughts with us. But, in addition, in
| 2 | probably one of the two or three most well attended international meetings, the
| 3 | meeting he holds every other year in Berlin, next year he's really going to take off
| 4 | on our agenda and use that as a two-day seminar to basically broaden the
| 5 | international interest in the concerns of this Committee.
| 6 | So I think the efforts are working. I am enormously grateful for
| 7 | the time that the many, many talented busy people on this Committee have put
| 8 | into the effort. I sit here with exceptional confidence that these labors will bear
| 9 | great fruit for the administration of the United States and, indeed, those concerned
| 10 | with international competition policy and antitrust enforcement. So, I thank you
| 11 | all very much.
| 12 | DR. STERN: Joel, thank you very much for those gracious
| 13 | remarks, particularly about the staff and the hard work that's gone on. This is, I
| 14 | guess, the first chance to showcase what has been happening behind the scenes
| 15 | since our February meeting. And I know we all very much appreciate those kind
| 16 | words, particularly coming from someone who is so highly respected.
| 17 | We're going to now turn -- and I think we're actually on schedule --
| 18 | to the Trade and Competition Interface discussion. We did flip things around and
| 19 | are opening with Trade and Competition, although the book may not show that.
| 20 | Which tab, actually is Trade and Competition?
| 21 | MS. JANOW: 1 -- A 2.
| 22 | DR. STERN: A 2. As you can see from those outlines, the
| 23 | interface of trade and competition policy requires examining a wealth of policy |
13 1 | options. Among those we have to consider are how to achieve our core
| 2 | objectives, how to craft policies that deter anticompetitive restraints; that reduce
| 3 | barriers to effective prosecution of anticompetitive restraints with adverse effects
| 4 | on the United States; to address the problems of lax discriminatory enforcement
| 5 | and to increase transparency. And finally, as a core objective, to promote
| 6 | effective competition in jurisdictions that do not yet have competition laws.
| 7 | Among the policy options the Advisory Committee may wish to
| 8 | consider are one, unilateral enforcement of antitrust laws against foreign market
| 9 | access restraints. Secondly, enhancing the bilateral cooperation, some of which
| 10 | Joel made reference to in context of Europe as well as in discussions with other
| 11 | countries, enhancing that bilateral cooperation through expanded positive comity
| 12 | agreements and through traditional comity approaches. Naturally, a combination
| 13 | of unilateral and bilateral trade solutions can be envisioned and are being
| 14 | considered.
| 15 | In the policy options that come under the rubric of international
| 16 | initiatives, we have Eleanor Fox's proposal for the development of core principles
| 17 | advanced through international fora or agreement. In addition, international
| 18 | initiatives will cover new or expanded dispute resolution mechanisms. We've had
| 19 | a number of speakers in the past throw some ideas out in that area. Additionally,
| 20 | there are possibilities of pursuing expanded plurilateral agreements, not just
| 21 | bilateral agreements, as well as developing initiatives at the World Trade
| 22 | Organization beyond the idea of a dispute settlement mechanism that some have
| 23 | proposed be conducted by trade organizations. |
14 1 | Another very important issue to this Advisory Committee concerns
| 2 | how governmental restraints themselves should be handled and whether this is a
| 3 | competition policy issue for the Committee to consider.
| 4 | These are some of the highlights that we should bear in mind as we
| 5 | go through this morning's discussion. Merit Janow, our Executive Director, has
| 6 | worked long and hard in this field for many, many years. We all know her well,
| 7 | and today she gets to do some additional work that was not what was on the
| 8 | schedule, and that is to try to represent Dick Simmons. Dick Simmons is not here
| 9 | today. Dick had prepared some remarks and Merit is going to see us through
| 10 | those and give an opening to the discussion on the interface of trade and
| 11 | competition.
| 12 | MS. JANOW: I have just a moment ago received these remarks
| 13 | that were prepared by Dick Simmons so I will apologize to you in advance for
| 14 | what can only be a stilted delivery given the limited time that I've had with it. As
| 15 | you will see, I'm in the peculiar position of noting approvingly of my own
| 16 | writing.
| 17 | And so I will start reading at this point.
| 18 | "Quoting from the June 19 draft memo from Merit Janow, which
| 19 | should be circulated to a wider audience, it's worth repeating what was stated
| 20 | under the heading The Interface of International Trade and Competition:
| 21 | 'As many formal barriers to trade have been reduced or eliminated
| 22 | around the world, international policy attention is increasingly focusing on the
| 23 | role of private anticompetitive restraints of firms that can foreclose access to |
15 1 | markets as well as government practices that may have such effects. Indeed,
| 2 | economic globalization has come to mean that competition problems increasingly
| 3 | transcend national boundaries. And the international organizations such as
| 4 | OECD and the WTO, as well as bilateral intergovernmental groups are engaging
| 5 | in debate about the extent to which private anticompetitive practices are in fact
| 6 | blocking access to markets around the world and what should be the appropriate
| 7 | policy responses.
| 8 | 'And the Trade and Competition Subgroup of this Advisory
| 9 | Committee is considering the nature of the market access problem and what
| 10 | policy actions might usefully be undertaken to address those problems. In other
| 11 | words, how can the U.S. more effectively address barriers to foreign markets that
| 12 | stem from private restraints to trade and investment.'"
| 13 | Dick Simmons goes on to say, "In attempting to define the
| 14 | problem and identify the issues, at the May 18 subcommittee meeting, there was
| 15 | extensive discussion after a presentation of an overview and discussion paper on
| 16 | trade and competition. And to summarize, that discussion on May 18, focused on
| 17 | three points; the first was to consider the nature and magnitude of market access
| 18 | problems and whether expanded international policy initiatives are warranted.
| 19 | "There appeared," in his view, "to be general consensus that
| 20 | anticompetitive practices do impede American firms from selling or investing
| 21 | abroad. It should be pointed out that while there was general agreement in this
| 22 | matter that the level of anticompetitive practices can and do adversely affect
| 23 | American firms. The level can vary significantly, depending on the nation and |
16 1 | the region of the world.
| 2 | "It was also clear that it was extremely difficult, if not impossible,
| 3 | to quantify the impact of such practices with any meaningful precision. I would
| 4 | add that, depending on the company and its focus, producer of proprietary high
| 5 | technology, whether it is produced in the country in question or (as compared to a
| 6 | commodity) was produced by many countries, one could arrive at completely
| 7 | different answers. And input on this matter from all of the members of this
| 8 | Committee, I believe, would be very helpful.
| 9 | "The subcommittee was in agreement that the best policy
| 10 | initiatives would be those that focused at opening all nations to free competition -
| 11 | - assuming that other distortions do not exist.
| 12 | "In my letter of December 23 to Merit, I suggested that the level of
| 13 | anticompetitive practices can and do vary depending on the nature of the
| 14 | economy of the nation involved: in nonmarket economies where there is no body
| 15 | of laws which prevent anticompetitive practices; in developing nations which
| 16 | protect home market companies from foreign competitors; in developed nations
| 17 | which, although similar in form to the United States, may act in groups with other
| 18 | nations to protect home markets. The so-called East of Burma agreement is an
| 19 | example of such practices.
| 20 | "The second point of discussion in the subgroup meetings focused
| 21 | on areas of divergence and complementarity that exist in the objectives, reach,
| 22 | instrumentality of trade and competition policies. And third, it identified four
| 23 | possible approaches to international competition policy problems. Possible |
17 1 | approaches, which were discussed and which are summarized, are also in the
| 2 | binders sent out for this meeting. Those options are included; and I won't review
| 3 | them in detail, but some comment may be useful.
| 4 | "The policy options range from what I will call 'soft options' to
| 5 | 'hard options.' In the soft category -- and I mean only in using the word soft that
| 6 | international cooperation bilaterally or multilaterally is essential if progress is to
| 7 | be made in eliminating anticompetitive practices through this policy option.
| 8 | Whether it be through positive comity, the pursuit of international
| 9 | agreements, the convergence of competition laws throughout the world or other
| 10 | forms of voluntary normalization of different country laws in this area -- my
| 11 | personal opinion is that progress will be very slow indeed.
| 12 | "I should also add that positive comity should be pursued as an
| 13 | affirmative step towards removing restraints. This should not be construed to
| 14 | suggest that such policy options are not, in my opinion, valuable options. It does
| 15 | suggest that to achieve meaningful progress in this area, other options may also
| 16 | have to be suggested or, in the final analysis, utilized.
| 17 | "At the other 'hard' end of the policy option spectrum is the
| 18 | unilateral enforcement of antitrust laws as a 'chip' to be played at the appropriate
| 19 | time. If violations of U.S. antitrust laws were prosecuted or the threat of
| 20 | prosecution existed for potential violations -- even those which occurred outside
| 21 | the United States -- if the participating parties conducted business in the United
| 22 | States -- this might prove a means for moving the entire process forward.
| 23 | "The Advisory Committee is soliciting and receiving the views of |
18 1 | experts in the legal and economic fields in an effort to examine the impediments
| 2 | to such effective enforcement. The recent price fixing cartels identified and
| 3 | prosecuted by the Department of Justice, in the case of -- in graphite electrodes,
| 4 | (which my firm is directly involved as a customer) -- is an example of a
| 5 | worldwide cartel. The fact that U.S. antitrust laws involve criminal penalties, I
| 6 | believe, promotes the unraveling of such anticompetitive practices. A policy
| 7 | initiative which would promote criminal penalties in other nations' antitrust laws
| 8 | could be a strong tool in developing a more uniform culture in avoiding such
| 9 | practices.
| 10 | "Other related anticompetitive practices include: private restraints
| 11 | among foreign producers limiting exports to home markets; domestic cartels
| 12 | limiting exports; government restraints with or without private involvement
| 13 | authorizing or encouraging private cartels; government use of regulations to
| 14 | restrict competition, whether it be through price or through large store
| 15 | regulations, such as in Japan; and home market use of intellectual property
| 16 | controls. These are a few examples.
| 17 | "The Committee has determined that governmentally imposed
| 18 | restraints are within its purview and will study the incidents and implications and
| 19 | remedies, including such issues as foreign sovereign immunity and act-of-state
| 20 | defenses.
| 21 | "It was concluded that input from other interested bodies would be
| 22 | constructive, and a draft document was provided to us in June as a possible
| 23 | questionnaire to be sent out to interested organizations and individuals. Then, a |
19 1 | question which needs to be discussed is: What is the appropriate recourse if
| 2 | progress is not achieved, or that which is achieved is not effective?
| 3 | "Once again, the United States might, under those circumstances,
| 4 | consider the use of government or private antitrust action. This option has
| 5 | obvious problems associated with it, including the difficulty of access to witness
| 6 | and documents. It also has the potential for increasing international frictions.
| 7 | The application of U.S. law to foreign companies which do business in the United
| 8 | States, regardless of whether the anticompetitive practices occur in the United
| 9 | States, would not diminish tensions. It might, however, facilitate such cases.
| 10 | "The U.S. government or private antitrust cases might be pursued
| 11 | under the foreign country laws, of course, but the effectiveness of this option
| 12 | depends on the availability of private actions and the practical accessibility to the
| 13 | foreign court system.
| 14 | "An approach could be the use of an international organization's
| 15 | dispute resolution mechanism under those facts. As I understand it, the WTO's
| 16 | jurisdiction over private restraints remains unclear. However, the WTO could
| 17 | serve as a venue at arriving at an agreement on core principles. Another policy
| 18 | option which the Committee should examine is: How or if trade laws and trade
| 19 | law mechanisms should apply in situations other than government restraints?
| 20 | Such remedies may themselves be anticompetitive.
| 21 | "Finally, let me close by saying the world has changed
| 22 | significantly since we last met. Many of the large economies of the world,
| 23 | particularly the Asian nations, and Japan as a special case, Russia, and now |
20 1 | several South American nations, are facing severe economic and currency crises
| 2 | which become liquidity crises and result in severe economic contractions. I
| 3 | would suggest that the world trading system may well be under a great deal of
| 4 | strain. Meaningful progress in the areas that we have discussed this year in this
| 5 | Committee may be far more difficult to achieve in the present situation than we
| 6 | could have anticipated just a few months ago.
| 7 | "Depending on which scenario one selects, the outcome of current
| 8 | difficulties -- whether it be in Japan, China, southeast Asia, Brazil, Argentina,
| 9 | Russia -- and the resulting effects on Western Europe and the U.S. economies
| 10 | over the next 12 to 18 months, point out that the need for this Committee and for
| 11 | constructive remedies to the world's trading system will be even more important."
| 12 | That concludes his remarks.
| 13 | DR. STERN. Merit, do you want to add any parenthetical
| 14 | remarks? Or footnotes?
| 15 | MS. JANOW: I think not at this moment. I would rather hear
| 16 | from our Committee members.
| 17 | DR. STERN: Me too. I would like very much now to open the
| 18 | floor to comments. We're going to try to focus on trade and competition policy.
| 19 | The Chair recognizes Ray.
| 20 | MR. GILMARTIN: Thinking about some of Dick's comments that
| 21 | you read, but also really looking behind the tab in the binder on Trade and
| 22 | Competition Policy, just a couple of, I guess, observations or reactions.
| 23 | One is that in the material it suggests that there's no magic bullet. |
21 1 | And based on our own experience as a company working in this area and also as a
| 2 | -- working within a trade association in this whole area of competition policy --
| 3 | that we should certainly agree based on our experience that there is no magic
| 4 | bullet. So therefore, it may not be a question of choosing one policy option over
| 5 | another, as it is that each policy option has a role that will be of varying degrees
| 6 | of effectiveness, but, nonetheless, probably should be pursued or used at one time
| 7 | or another.
| 8 | Just, drawing on our own experience, it's not clear that market
| 9 | access is the significant issue, and whether or not, say, U.S. companies are
| 10 | disadvantaged over any other local companies because of a lack of competition
| 11 | policy or lack of a competitive market. As an industry -- the U.S. is the only truly
| 12 | market model in the world for pharmaceuticals. Every other market in the world,
| 13 | really, is based on price controls. And so we're at a stage in which we're trying to
| 14 | convince governments and regulatory agencies, ministries of health and
| 15 | politicians, that market competition is a source of economic growth and a means
| 16 | of stimulating innovation.
| 17 | Nonetheless, to get those ideas across -- so, I guess, the first
| 18 | option that we're already pursuing to try to do this is -- would fall under the
| 19 | heading of "international initiatives" and really trying to arrive at core principles;
| 20 | and transferring knowledge across markets around the world to reach agreement
| 21 | on core principles with regard to health care delivery, and stimulating innovative
| 22 | pharmaceutical industries. So, in arguing for the importance of market
| 23 | competition -- and describing to various parts of government, as well as those |
22 1 | who are involved in a legislative process -- and in the case of Japan, the members
| 2 | of the Diet -- the importance of market competition.
| 3 | So, core principles -- and although we see it as a very long-term
| 4 | and difficult process, nonetheless, when you look back over the last couple of
| 5 | years, we've made progress. Therefore it certainly is a worthwhile option.
| 6 | The other thing, too, is, in supporting us in these efforts has been
| 7 | the advocacy of the U.S. government in terms of -- in its role of advocating the
| 8 | importance of open markets, of free trade. And that has shown up really in the, I
| 9 | think, more specifically for us, in sort of enhanced bilateral cooperation. Things
| 10 | like the Trans-Atlantic Business Dialogue, in which decisions are discussed and
| 11 | barriers therefore removed. But also as a means of educating everyone about the
| 12 | significance of these kinds of issues. And, at times, the potential for unilateral
| 13 | enforcement, as a means of gaining attention, has also played a role as well, I
| 14 | believe.
| 15 | So it's not a question, as I said, of one option over the other. I
| 16 | think all of them have application.
| 17 | The final thing I would say is that, in the whole issue of trade and
| 18 | competition policy, I think it's important to be very clear about what are really
| 19 | trade issues as opposed to competition issues and getting the right issues and the
| 20 | right forum. Because, I think that taking a competition issue into a trade forum
| 21 | when it really doesn't apply, doesn't take us very far or actually, I think, can be
| 22 | detrimental to what we're trying to accomplish. So I think it's important to sort
| 23 | out what are really legitimate trade issues as opposed to competition issues. |
23 1 | Dick is concerned about time in his remarks. I think we've got to
| 2 | take a long view here. And it's a process of continuing to build relationships
| 3 | based on these core principles. And, I think, if we can agree as to where this all
| 4 | should end up -- which is the approach we're taking, say, with market competition
| 5 | in the health care system, and try to reach an agreement on that -- then every
| 6 | action that's taken can be evaluated in that context.
| 7 | Then also, an option, that isn't included here, that we are pursuing
| 8 | as an industry, which may not apply specifically to our task, is that, in effect, the
| 9 | legislation that's passed in these countries that have a big impact on regulation,
| 10 | competition and so on, is a very important element to consider. And so, therefore,
| 11 | in our efforts in Japan to stimulate market competition, we are literally working
| 12 | with members of the Diet in their home districts, if you will, to educate and alert
| 13 | them to what the opportunities are and the potential. So that's another avenue of
| 14 | establishing core principles, if you will.
| 15 | DR. STERN: Extremely helpful. Lots of different avenues, to use
| 16 | your word, to "pursue." I have some questions I'd like to ask, but I'd like to hear
| 17 | comments from the rest of the Committee, preliminary reactions to the outline?
| 18 | Are we on the right track in spelling out these approaches? And do you want to
| 19 | talk about core principles in further depth here?
| 20 | MR. DUNLOP: Well, I, perhaps, know the least about this of
| 21 | anyone. Let me give you a view about it which goes this way. I think it may well
| 22 | be that a lot of market access questions are in the eye of the beholder as much as
| 23 | they are in reality. That poses some very hard issues. And therefore, my |
24 1 | experience in other fields has taught me that maybe the way we develop these
| 2 | principles is to take a problem that somebody thinks is important -- health care for
| 3 | example -- or access of construction firms -- and assemble a panel -- I guess I
| 4 | would want some lawyers but not too many, but also some economists -- to kind
| 5 | of do a fact-finding exercise to lay out what we know about the problem.
| 6 | This is a very large universe, trade and competition, so you try to
| 7 | get people informed about particular areas where you might have some ideas of
| 8 | wanting to do something.
| 9 | And after, I would like to see some numbers. This question of the
| 10 | magnitudes is a problem that Richard Simmons rightly comments on how difficult
| 11 | it is. So get a group of people to study an area in various places that you see and
| 12 | just put it out for public review. I happen to think that transparency in this area,
| 13 | as you've said before -- David and I were talking about this morning -- is in itself
| 14 | an important matter and, by the way, exposing some problems to more public
| 15 | scrutiny and to the scrutiny of various kinds of governmental bodies -- so
| 16 | transparency may itself be helpful, in some circumstances, as a practical matter.
| 17 | But, I would rather see our principles come out of a series of such
| 18 | long-term fact reports. So this is the situation in health care; or in
| 19 | pharmaceuticals and health care; or this is what it is in construction; or this is
| 20 | what it is in some petrochem problems -- and so to build from the ground up with
| 21 | the exposure of a careful set of facts about what's going on and then try to develop
| 22 | your principles from that. That is the kind of thought I had since this topic is so
| 23 | large, encompasses so much, and I regard the principles as many miles above the |
25 1 | real world, that it would be useful to try to put a little more content into it as we
| 2 | go down the road. Anyway, that's one reaction.
| 3 | MR. YOFFIE: I think you're going to see a lot of overlap in
| 4 | people's comments because there are common themes that are emerging. The first
| 5 | relates to the question of data.
| 6 | We still don't have a clear sense of what the data is, what the scope
| 7 | is, what's included, what's excluded. And that really gets specifically to Ray's
| 8 | comment about trying to find ways to separate trade from the competition
| 9 | problem. Until we understand the core data, it's hard to make that separation and
| 10 | know how the significance of the competition piece. It requires trying to get a
| 11 | sense of the boundaries between these areas? And where there are not
| 12 | boundaries, part of our recommendations should also focus on U.S. government
| 13 | recommendations regarding collaborative efforts between trade authorities and
| 14 | antitrust authorities.
| 15 | But we shouldn't ignore the internal U.S. governmental dynamics
| 16 | here, where the boundaries tend to be very murky. And one of the things that
| 17 | might be extraordinarily positive in the long run is to create more effective
| 18 | internal mechanisms of dealing with these problems as they emerge. Because if
| 19 | we treat these purely as a competition problem, then there's inevitably going to be
| 20 | conflict in jurisdictions and that's going to ultimately reduce the effectiveness.
| 21 | Second, the notion of core principles is an idea that is worth
| 22 | pursuing. But we should think of core principles as a long-term policy solution.
| 23 | We should not expect it to have really short term implications, particularly in the |
26 1 | world that Dick Simmons was outlining. Nonetheless, if we're thinking of this as a
| 2 | 10 or 20 year process, it is certainly appropriate to start building that foundation,
| 3 | and obviously Eleanor has written about this. It is certainly an appropriate thing
| 4 | to start this Committee with, once we have the data.
| 5 | Third, I also agree that transparency is really fundamental to
| 6 | everything we do here. Jagdish Baghwati described this as the Dracula Effect,
| 7 | which is, you expose these things to light and many of them disappear. And I
| 8 | think that's a good analogy for us to focus on. And many of these anticompetitive
| 9 | areas are, in fact, invisible. The simple fact of making them transparent might
| 10 | make it possible to reduce their impact.
| 11 | We also talked about how you might make them transparent and
| 12 | that gets to my next point which is we must create the right set of incentives to
| 13 | make all these policies work. I think incentives have to have two forms: a
| 14 | positive set of incentives and a negative set of incentives.
| 15 | Dick talked about the negative incentive, meaning using the
| 16 | unilateral policy to coerce people. I'm not sure I see anything in these proposals
| 17 | that really focus on positive incentives, which are what are the things that we are
| 18 | going to do to make it a positive inducement for some of our trading partners to
| 19 | work with us in these areas. I don't have any solutions but I think that has to be a
| 20 | critical piece of the solution.
| 21 | As part of that process, for example, I was mentioning to John
| 22 | about the transparency concept: that if we were to create panels, for example, to
| 23 | investigate, then we should be considering having foreign members of the |
27 1 | antitrust commissions of these countries being part of these committees; so that
| 2 | we make them part of the process, and it is not purely a U.S. imposed negative
| 3 | incentive. Ultimately, I don't believe we're going to get the kind of cooperation --
| 4 | from Japan and Europe in particular -- with only negative incentives.
| 5 | MS. JANOW: May I ask a point on the data question, because it's
| 6 | reiterated by several Committee members? This is a vexing matter. I think, for
| 7 | our part, we have reached out to a number of trade associations and are
| 8 | developing questions and hopefully this will provide an opportunity for firms to
| 9 | respond with their own experiences, and provide as much detail as they wish to
| 10 | provide.
| 11 | But as you mentioned the data issue, could you elaborate a little bit
| 12 | on what you think of as being the kind of -- that would be "hard" and quantifiable
| 13 | to help access the magnitude of the harms associated with private restraints
| 14 | because most of what tends to be raised, of course, is anecdotal industry and
| 15 | sectoral evidence?
| 16 | MR. YOFFIE: This is a hard problem, and we are not going to get
| 17 | adequate econometric data to provide us with welfare implications of these
| 18 | restrictions. I do not have any illusions about that. A lot of it is going to depend
| 19 | on industry-level data.
| 20 | I'm not thinking about quantifying welfare implications, but you
| 21 | can get some sense of the size of the sectors that are potentially affected by
| 22 | restrictions; the industry trade groups do assessments of potential trade effects.
| 23 | You can get a sense of the orders of magnitude. But it's going to be by sector, I |
28 1 | suspect. I don't think there's any other way to do it. Then we can identify some
| 2 | very large sectors -- health care, construction or other industries that have
| 3 | historically been identified with trade problems of this type.
| 4 | We need to have some sense of the industries that are effected; the
| 5 | revenues; the trade; employment. And then we can get into some of the details of
| 6 | the kinds of problems that exist within those sectors: whether they are
| 7 | anticompetitive or whether they are purely trade related.
| 8 | DR. STERN: Right. Let me just put in a plug for -- on behalf of the
| 9 | whole Committee -- to the public. As Merit says, it's been vexing to try to get
| 10 | even anecdotes, much less any kind of data. And we are constantly calling trade
| 11 | associations, representatives of various sectors, academics, trying to come up with
| 12 | more information, particularly in this area, but just generally. So if there are trade
| 13 | associations who have information that would bear on any of our examinations,
| 14 | and if we have not contacted you, please know that this is recognized as a big
| 15 | problem for us.
| 16 | MR. GILMARTIN: I was going to say that -- picking up on John's
| 17 | comments and also yours -- is that it occurs to me that as an industry, as we
| 18 | pursue the objectives we have for creating a more receptive environment for
| 19 | business, when we separate competition policy and trade, this may be
| 20 | oversimplified -- but when we're talking about trade -- that's when we're talking
| 21 | about access and the opportunity to participate in the market. And our big issue
| 22 | there is intellectual property. And that's handled through TRIPS and the
| 23 | enforcement reports. That's an area of access. |
29 1 | When we go to Japan and talk about competition policy, we're not
| 2 | talking about access. We're not making the point that we're trying to open up
| 3 | markets or anything like that. We're talking about what the benefits are, in terms
| 4 | of economic growth and innovation to Japan, of creating market competition, a
| 5 | more competitive market in pharmaceuticals. So we're not arguing the point that
| 6 | we're being denied opportunity or markets because Japanese companies are as
| 7 | effected by these policies as we are. In fact, we ally with Japanese companies;
| 8 | particularly the ones that are the most innovative and would benefit from full
| 9 | market competition, as a means to work within Japan to create a more competitive
| 10 | marketplace.
| 11 | So it's the harm basically to the patient; it's the harm to the
| 12 | economic system; it's the harm to innovation that we're arguing. We're trying to
| 13 | deal with anticompetitive behavior so we have better access. We get a good
| 14 | reception for that. I'm not sure on the access stuff that you get that good a
| 15 | reception because it's often in the eyes of the beholder. It's sort of like an "I've
| 16 | fallen and I can't get up" type of attitude. That is why it needs some help.
| 17 | DR. STERN: This is very important in terms of what the U.S.
| 18 | government can do in terms of positive and negative incentives. Later we'll have
| 19 | a discussion on what the U.S. government does in assisting other countries to
| 20 | draft competition laws, often in the merger area. We're seeing a proliferation for
| 21 | a variety of reasons. Maybe, we're promoting the proliferation of different
| 22 | merger laws. But there are things that the U.S. government can be doing in these
| 23 | bilateral discussions to promote the principles of competition and expand the |
30 1 | focus on merger regs, to these basic economic principles.
| 2 | The other incentive I was thinking of is the IMF. Perhaps there is a
| 3 | silver lining in this cloud of the Asia crisis. It is dawning on authorities --
| 4 | Korea is a good example. Joel says that the Department will have more
| 5 | conversations with people that may be even more open to these ideas and
| 6 | recognize that a more open economy is a more healthy economy. It may be that
| 7 | Merit can give us a little insight on this.
| 8 | MR. GILMARTIN: May I make another point? Then the data that
| 9 | we're using to argue our case, that we've collected, is that the U.S. pharmaceutical
| 10 | industry is the most successful industry in the world. It discovers about half the
| 11 | world's drugs, growing rapidly and creates jobs. We do that because these
| 12 | enabling conditions are present in the U.S.
| 13 | So, we say to the Japanese government, "We have them, you don't;
| 14 | your industry is underperforming." Similarly, if I go to Europe, it's the same
| 15 | message, "You have some of these, but there are a lot you don't; you're at a
| 16 | disadvantage." Since we're confident we can compete in the world, we're looking
| 17 | to create the same kind of conditions abroad that exist here that make us as
| 18 | successful as we are here. We're trying to do that in all parts of the world. And if
| 19 | Japanese competitors and European competitors benefit from that? Fine, because
| 20 | we'll just beat them in the marketplace.
| 21 | By defining the problem that way -- about competition -- that may
| 22 | be the data that you collect. It's different in terms of how industries prosper in
| 23 | some environments. |
31 1 | DR. STERN: That is very important: this whole push towards
| 2 | deregulation, particularly in bilateral trade discussions. Charlene Barshefsky says
| 3 | she's going off to Japan next week. I certainly hope the emphasis will be on the
| 4 | deregulatory message. There are other messages that I think may come through
| 5 | louder and clearer, but this message that economies, even in the developed
| 6 | countries, are made stronger and sharper through deregulation, through this
| 7 | insertion of competition, is, in effect, a trade mission. At the same time, it is also
| 8 | an antitrust mission or a competition policy mission that the U.S. government
| 9 | should pursue more.
| 10 | MR. GILMARTIN: One last point, and I don't mean to dominate
| 11 | on the pharmaceutical industry, but basically we're saying there are five reasons
| 12 | that we are the best in the world. I don't make it that blunt, but one of them is
| 13 | because of the support of basic research in this country. But also intellectual
| 14 | property protection; free markets; appropriate and transparent and regulatory
| 15 | environment; and access to global markets. These are the enabling conditions
| 16 | that allow us to innovate and create jobs, contribute to economic growth, and to
| 17 | discover breakthrough drugs for the patient. So that's the basic message that we
| 18 | hammer on and it's very -- the reason I mention it is some of what you're talking
| 19 | about is that government, U.S. government, in other situations can make those
| 20 | same --
| 21 | DR. STERN: I wonder if other sectors, say the construction
| 22 | industry, and others have done --
| 23 | MR. DUNLOP: I doubt it. Some I do know, but that's one of my |
32 1 | notions about fact finding. Find out what people have done, thought, rather than
| 2 | put a finger up in the air.
| 3 | May I raise a different sort of a question that may help us? As I
| 4 | was looking over our binders, in section D-3, on page 7 at the top, there is the
| 5 | following comment about the matter of a study being done by -- under section
| 6 | 1504 of NAFTA. And what is says is this; "Establishes working group on trade
| 7 | and competition." That's a -- a term we were talking about -- "establishes a
| 8 | working group on trade and competition to make recommendations on further
| 9 | work as appropriate within five years of entry into the force of the agreement.
| 10 | These recommendations are due at the end of '98."
| 11 | That's not so long from now. I'm wondering if we can get some
| 12 | idea about what NAFTA has in mind and whether that, under the same title,
| 13 | anyway, would be of some help to us in thinking about the parameters of this
| 14 | problem?
| 15 | DR. STERN: We'll make sure the staff follows up on that.
| 16 | MR. RILL: Eleanor, actually, has been participating in the 1504
| 17 | Working Group. So, maybe she could add something to John's question.
| 18 | MS. FOX: Chuck Stark, who is here, has actually been
| 19 | participating more than I have because the working group is a government --
| 20 | intergovernmental -- working group. They will have a report, I'm told, by the end
| 21 | of this year and we should look at it with great interest and we'll see if it moves us
| 22 | along. I've done some background work for the ABA, and continue to do some,
| 23 | to try to be of help to the working group. |
33 1 | DR. STERN: Is it broken down by sectors?
| 2 | MS. FOX: No. It probably will relate to the trade and competition
| 3 | interface of the three countries -- Canada, the United States and Mexico -- and
| 4 | whether more and different kinds of cooperation may be envisioned on this
| 5 | regional basis.
| 6 | MR. DUNLOP: Let me raise the question. Take the whole
| 7 | trucking industry. We're all well aware of the enormous rows that have been
| 8 | created in that situation, whether the truck's from Mexico, the weight regs of
| 9 | people who drive, how far you're going to let them drive, all this kind of stuff. I
| 10 | don't know whether that's trade or competition, but I assure you it's contentious.
| 11 | I'm wondering what that piece of paper has to say to us as we, it
| 12 | seems to me, seem to tackle the same problem but essentially on a global basis.
| 13 | MR. RILL: I'd like to come back if I may to David's point on data.
| 14 | There, actually, is a wealth of information available. There is a lot of data out
| 15 | there on a sectoral basis across a large number of industries. I could rattle off --
| 16 | autos, glass, paper, semiconductors -- industries which have been at the forefront
| 17 | of concern over trade limitations. Those data are generally statistical data
| 18 | showing import flows, and export flows, production information and comparing
| 19 | the situation with country X with the situations in countries Y and Z.
| 20 | A lot of it emerges in papers filed with the International Trade
| 21 | Commission, papers filed with the Commerce Department and Commerce
| 22 | Department studies. We did some work on this, Merit knows well, during the
| 23 | Structural Impediment Initiative talks with the Japanese. At the end of those talks |
34 1 | we got into sectoral discussions.
| 2 | It's interesting information and there are data. They don't get
| 3 | beyond actual numbers of what goes in and what comes out of various countries.
| 4 | With the limited, albeit highly qualified staff that we have, I wonder how much
| 5 | we want to get into those data, because underlying that I don't see -- at least I
| 6 | haven't been able to find data that relates the import information to restraints of
| 7 | trade. Perhaps its easier with governmental than private restraints, but none of the
| 8 | data can really tie the two together so readily. Maybe we can look at those data,
| 9 | see what are there, and then talk further among ourselves to see if we want to
| 10 | pursue it further? There's plenty out there. I don't know, necessarily, what we do
| 11 | with it after we take a look at it.
| 12 | MR. YOFFIE: Some of the sectors you mention probably would
| 13 | not fit our definition here. I would imagine autos would be an example of a very
| 14 | large sector where antitrust concerns would not be the primary ones. They would
| 15 | be more traditional trade access issues. I'm just guessing.
| 16 | MR. RILL: There were inquiries made with respect to limits on
| 17 | distribution of automobiles in other venues.
| 18 | MR. YOFFIE: I suspect the Structural Impediments Initiative
| 19 | would probably have more of the data than we would want. Precisely because it
| 20 | was going after the kinds of restrictions that this Committee has the power to look
| 21 | at. I think it's a very good source. And the question is: Is there, in fact, some
| 22 | evidence of anticompetitive behavior, separate from purely market access
| 23 | questions? |
35 1 | MR. RILL: What we're doing -- I guess what we're doing, as Paula
| 2 | indicated -- we are trying to see what we can get from various trade associations
| 3 | and various sectors. Also sources of data, we hope, will come out of
| 4 | organizations that are not sector specific. But questionnaires are being prepared,
| 5 | reviewed and being sent out to get a sense of this type of problem. The U.S.
| 6 | Council on International Business and the Business and Industry Advisory
| 7 | Committee to the Competition Committee at the OECD are participating in these
| 8 | efforts as well.
| 9 | Sometime in the Spring, when we have to sit down and start
| 10 | thinking about what we're going to write in our report here, we ought to be seeing
| 11 | what we're getting out of that as well. I don't know of a source where we can get
| 12 | a statistical fix on group boycotts in country Y. I wish --
| 13 | DR. STERN. And we're also getting the cooperation of the
| 14 | Committee for Economic Development in circulating the questionnaire. And,
| 15 | again, a plug: If anybody would like a questionnaire or has some suggestions
| 16 | of other organizations, we are really trying hard to reach out.
| 17 | MR. RILL: It's a really important question you raise.
| 18 | MS. JANOW: I think, as Jim is saying, we have seen recurring
| 19 | incidents of complaints about barriers to market access stemming from private
| 20 | restraints or some combination of private and public restraints. And this is being
| 21 | actively debated in international fora and the traditional characterization of such
| 22 | problems, as was commented on here by Dick Simmons, is either
| 23 | non-enforcement or lax enforcement or discriminatory enforcement with respect |
36 1 | to those jurisdictions that have competition laws and market access or private
| 2 | restraints arrangements, as in markets that don't have competition laws.
| 3 | I suspect this Committee will have to think through those policy
| 4 | responses even without a full comfort level on the data. I'm concurring with Jim
| 5 | on that point. It's still important to consider what does one do in environments
| 6 | that don't have these laws? Do you think it is best to push for their creation as a
| 7 | matter of U.S. government advocacy? You have described so well the leadership
| 8 | of an American company, in your case, showing the benefits to the domestic
| 9 | economy of the measures. That's not always the nature of the complaint.
| 10 | Sometimes the complaint is that there is government support or encouragement of
| 11 | private arrangements that are designed to block foreign or that are designed to
| 12 | expropriate foreign technology. So there is a range here, and I suspect that range
| 13 | needs to be a medium-term perspective as well as a short-term perspective about
| 14 | what needs to be done.
| 15 | MS. FOX: I want to say a few words to carry that theme further. I
| 16 | do have a lot of respect for data, so what I'm about to say does not indicate I
| 17 | don't always want more data. But life is short, the life of the Committee is
| 18 | shorter, and global markets are becoming more global every day. And more and
| 19 | more we see that nations are treating the problem as national. But markets are
| 20 | larger than national boundaries. In view of globalization, it's very important to
| 21 | develop some core principles that recognize the true dimension of problems. We
| 22 | need, first, a vision from the top of each problem. Whether it's a market access
| 23 | problem or a merger problem, the real boundaries are not national boundaries. |
37 1 | And we need, secondly, principles to deal with nation-to-nation conflicts, not the
| 2 | least to head off the shifting of competition problems into a trade war. So, first,
| 3 | we need to see the whole picture and grapple with it and, second, to have some
| 4 | rules in place to solve conflicts among nations.
| 5 | If we are going to think about broader-than-national interest, about
| 6 | international problems as international, first of all, I want to say it's not altruistic.
| 7 | We ourselves are benefited by looking at the problem as a world problem, trying
| 8 | to remove barriers, open markets to competition, and prevent cartels to the extent
| 9 | it's consistent and feasible with nations' proper interests to protect their own
| 10 | public.
| 11 | So we shouldn't really be thinking only in terms of labeling
| 12 | American firms' opportunities abroad, though of course we think about that, but
| 13 | we should be thinking more about the openness of markets. We also, I think,
| 14 | have to think of the integration of trade and competition problems even while we
| 15 | think of the separation of trade and competition problems and the separation of
| 16 | some governmental problems from private problems. I think we have to move to
| 17 | really seeing and dealing with them together.
| 18 | I think one of the problems of the Kodak/Fuji dispute was that our
| 19 | existing system forces us to disaggregate what is government and what is private.
| 20 | And we don't see the whole picture and there's no place we can go to deal with the
| 21 | whole picture at once. It might look much different if it were a whole problem of
| 22 | governmental involvement and encouragement plus the private action. Rather,
| 23 | today: half a problem goes here, to the WTO; and half the problem goes there, to |
38 1 | the competition agencies.
| 2 | MR. RILL: Can I react to that and make a couple of other
| 3 | comments that have been prompted by the excellent comments by the other
| 4 | speakers?
| 5 | I don't want to lose sight of the transparency point. I think that's
| 6 | critical. And I think, just based on my own experience in SII and in other matters
| 7 | that I've handled, transparency is an enormous barrier: transparency of what other
| 8 | governments are doing and sometimes transparency of what our own government
| 9 | is doing.
| 10 | In that connection, I think, a step in the right direction is the
| 11 | positive comity approach. I think it is slow moving, but I think that if we take a
| 12 | look at the 1998 U.S.-EU agreement, with its reporting-back mechanisms, I think
| 13 | those will move us in the right direction towards transparency of activity between
| 14 | various jurisdictions here and abroad.
| 15 | What I hear on positive comity, on the negative side of the positive
| 16 | comity issue, in our travels, has been one, "Well, okay that's a stick where
| 17 | foreigners can beat on our guys." Well, "So what?" is my reaction to that. There
| 18 | is a reciprocity in positive comity. And, two, it's an excuse for inaction. I think
| 19 | we have to examine that one. And it seems to me that if it's an excuse for inaction
| 20 | then it's a failure. And I, being one of those at the creation of positive comity in
| 21 | 1991, would view that as a great loss. But rather than that, I think it's an engine
| 22 | for action. I think once a serious positive comity effort is made, once there's a
| 23 | formal referral and action on the other side that would be positive, or action here |
39 1 | on a referral to us that would be positive, positive comity will be viewed as a
| 2 | success.
| 3 | But what we have to deal with, as a Committee, is this: What
| 4 | happens when positive comity breaks down, when there is a dissatisfaction by one
| 5 | side or the other as to result? I think that's where it becomes an engine for action
| 6 | because, I think, it leads to greater political acceptability to consider what Dick
| 7 | Simmons says in his statement: unilateral enforcement. That having tried positive
| 8 | comity, and it not being successful, then there's some political stigma removed
| 9 | from unilateral enforcement. At least that's a thought we might want to examine.
| 10 | While we examine also, possibly, the removal of some of the barriers, practical
| 11 | barriers, to cross border enforcement and what steps we might recommend.
| 12 | Further, on transparency, and this is kind of a wild thought, purely
| 13 | personal, which I guess by definition is wild, and that is: Whether or not we
| 14 | should think in terms of getting some kind of dispute resolution mechanism in
| 15 | place, à la WTO -- binding arbitration.
| 16 | But is there something to be said for nonbinding consultation by a
| 17 | third party? John, you and I talked about that, I think, at the break of the last
| 18 | meeting. There are a lot of bumps in the road, as I guess Joel said in another
| 19 | context on the way. But that certainly would enhance transparency if people went
| 20 | at it.
| 21 | The OECD's 1986 recommendation, reviewed in 1995, provides a
| 22 | possible forum for non-binding mediation through the OECD Committee: the
| 23 | OECD now with 29 nations and counting. I think it's something we ought to look |
40 1 | at.
| 2 | The only other thing I would say is that, I think, there is a very
| 3 | valuable discussion here on the interface between the trade issue and the
| 4 | competition issue. It's very difficult. It's difficult, as David says, within our own
| 5 | government. Some of us thought that perhaps USTR, from time to time, is doing
| 6 | antitrust work. And I suspect USTR thinks that antitrust is sometimes doing trade
| 7 | work.
| 8 | I don't have a ready answer to this, but we need to look at it and we
| 9 | need to look, I think, beyond that. It's too easy to say government restraints, that's
| 10 | trade, and private restraints, that's antitrust. There's so much of a blend, we
| 11 | probably need to look at some of the ancillary issues, as Joel has said. We need to
| 12 | look at where government compulsion and foreign sovereign immunity end, and
| 13 | how broadly we should recommend to the Department and others to examine
| 14 | those doctrines and their continued vitality in a globalized economy in hybrid
| 15 | governmental private relationships that exist throughout the world.
| 16 | Those are my reactions to the very helpful thoughts that have been
| 17 | thrown out this morning.
| 18 | MR. DUNLOP: Now I raise the question on this matter of
| 19 | principle -- I wonder if you have an answer to it. I need to know whether, when
| 20 | you say the principle of openness in trade and all that, does that mean -- and a lot
| 21 | of the world is a Third World -- does that mean you are inherently by principle
| 22 | opposed to the infant industry argument?
| 23 | MS. FOX: No, it doesn't. |
41 1 | MR. DUNLOP: Then how do you combine the industry argument
| 2 | with free trade?
| 3 | MS. FOX: That's a good question, and here I also want to bring in
| 4 | transparency, that Jim recognized, because transparency of derogations can be
| 5 | one of the most important things one can do in dealing with specific fact
| 6 | examples -- it could also help us combine the conceptual with the reality.
| 7 | Specific fact examples that have happened in the past include, of
| 8 | course, U.S. trade with Japan and claims that we can't get into Japan. Future
| 9 | examples might involve developing countries.
| 10 | I think that we could do well by having a general principle that is
| 11 | most tightly linked with the trade principle. Here I'm going to focus on the WTO,
| 12 | just to say a word about how certain market access questions are on the other side
| 13 | of the coin of trade restraint that are now prohibited. If one wants to be part of
| 14 | the world trading system -- if a country wants to be part of the world trading
| 15 | system and have the benefits of open markets around the world, as already now
| 16 | given by the WTO, then it seems to me that that country also ought to be saying,
| 17 | "I guarantee that I won't make restraints that are inconsistent with the WTO; and I
| 18 | also guarantee that I'm not going to sanction business firms making those
| 19 | restraints so other people can't get into the market."
| 20 | If there's a particular problem about developing countries where
| 21 | they might need governmental protection, say for an infant industry, I would say
| 22 | they should be free to make transparent derogations; and if derogation is
| 23 | important to the national interest and is not really a beggar-thy-neighbor spillover |
42 1 | type of thing, then they should expose this as what they're doing. There should be
| 2 | a register for these derogations. I think there should be a register for countries'
| 3 | cartels so at least it becomes transparent, and then maybe the derogation will
| 4 | disappear. In any case, we can see what we are debating about and even can think
| 5 | about what future rules to make to constrain derogations.
| 6 | You could have the possibility of a consensus of nations that either
| 7 | they will have an antitrust law that will prevent anticompetitive blockages of
| 8 | markets or they will assure, otherwise, that there are no anticompetitive blockages
| 9 | of markets. Hong Kong, for example, might assure no anticompetitive blockage
| 10 | of markets even without a competition law, if it has a totally free economy where
| 11 | the market won't let the firms engage in such restraints. That's one example.
| 12 | The particular market access problem is so linked with what
| 13 | countries are bargaining for when they enter the world trading system that there
| 14 | really ought to be some undertaking of open markets in the first instance, plus
| 15 | transparency for derogations.
| 16 | MR. RILL: Madam Co-Chair, if I may, just for a second. The
| 17 | OECD, of course, has issued a Hard-Core Cartel Recommendation, as I think Joel
| 18 | mentioned as he was very instrumental in putting that through. We should be
| 19 | aware, at this Committee level, that the WTO ship is either going to be sunk or
| 20 | somewhat further out on the ocean well before we submit a report. Because the
| 21 | Working Group on Trade and Competition, headed by Frédéric Jenny in the
| 22 | WTO, is due to be renewed or not at the end of this year; and is due to submit
| 23 | reports as to whether or not it will be renewed. I don't know that there's a |
43 1 | mechanism for us to have an input into that, but I throw it on the table because
| 2 | maybe we would want to advise the Department of Justice on that issue, that
| 3 | fairly sensitive issue.
| 4 | MR. DONILON: This is not an area where I have a deep
| 5 | expertise, so I wanted to ask a couple of questions and make a couple of points.
| 6 | The first point is, although it may be difficult to get data, I think it's important for
| 7 | the Committee to at least define the problem with precision that it's addressing.
| 8 | And I think we should do some work on that. I would like to better understand
| 9 | exactly what problem we're trying to address here, what conduct by private firms
| 10 | would constitute something that we would like to see addressed.
| 11 | Second, with respect to the role of the Division and law
| 12 | enforcement agencies: I think it's an important question to try to better unpack.
| 13 | What are the real world capabilities of the antitrust authorities for addressing this?
| 14 | The Antitrust Division does not negotiate access to the WTO on behalf of
| 15 | countries. It doesn't negotiate trade agreements. It brings cases.
| 16 | And what would a complaint look like? What would a
| 17 | hypothetical complaint look like here? What are the challenges? We have Chuck
| 18 | Stark here who might be able to talk to us a little bit about this. Chuck, I assume
| 19 | there are real challenges here as to bringing a case against -- against what
| 20 | conduct? What does it look like? And we need to really try to understand what
| 21 | this section of the background paper means, what this option means in terms of
| 22 | unilateral enforcement. Is it real? What would have to be present for a complaint
| 23 | to be brought? Is it something as a matter of policy if a complaint is possible to |
44 1 | be drawn? Is it something we would recommend? Does it risk politicalization of
| 2 | the Department and subject it to that kind of pressure?
| 3 | My instinct tells me that actual complaints brought in this area by
| 4 | the Justice Department would face real practical limitations -- as is outlined in the
| 5 | background paper -- and would be quite limited. Which brings me to agree with
| 6 | Ray's initial comments, which is: the way to go with this is to look at long-term
| 7 | multiple approaches -- bilateral, multilateral and government advocacy, both in
| 8 | the private sector and government sector.
| 9 | To do that, as he said, we need to decide, I think -- and this would
| 10 | be my next recommendation -- on a place for the Committee to focus; decide
| 11 | where we want to end up. What are the core principles that we can endorse to
| 12 | the United States government? And then lastly, think about concrete ways in which
| 13 | to advance those principles over the long-term. Where and how should they be
| 14 | advanced?
| 15 | Again, those are comments from someone who doesn't have a lot
| 16 | of deep experience in this. But I do think we need to define the problem, realize
| 17 | the limits or understand at least the possibilities and limits of antitrust
| 18 | enforcement here, and then think about concrete ways in which we can advance a
| 19 | set of core principles that we might work through.
| 20 | DR. STERN: That's very helpful. The questionnaire, which will
| 21 | be on our website soon, is offered in our tab 2. So it's D 2. I think that will get to
| 22 | you. And if you get to the page, where it says background material in the
| 23 | discussion -- 3. D3. It's Background Material and Discussion Questions. Is that |
45 1 | where I had it? No. I moved my finger. Here it is. It is Background Material
| 2 | Provided, Questions Presented and it's right after the list of business outreach
| 3 | organizations contacted. So that is at D2.
| 4 | And on page 2 of that background material, one and 2, there are a
| 5 | series of -- 3. Page 3 of the questions. E3. Trade and Competition Policy
| 6 | Interface Issues and the questions are on pages 3 and 4.
| 7 | Tom, you've called our attention to it. What is it that we're asking?
| 8 | And if you've got further suggestions, this can always be improved.
| 9 | Now your point about what the Justice Department is doing about
| 10 | law enforcement, what else can it do --
| 11 | MR. DONILON: What can it do?
| 12 | DR. STERN: What can it do? And you talked about bringing
| 13 | cases. But they also might negotiate positive comity agreement with others, and
| 14 | extend outreach to other countries.
| 15 | MR. DONILON: The reason I brought that up -- that, I think, is
| 16 | correct and would be part of the multiple approaches point, which is advocacy by
| 17 | the government and by United States private sector. But where I wanted to try to
| 18 | get a better feel, because, quite frankly, I don't have a feel for it, is: What do we
| 19 | mean by saying that we should at least consider -- explore -- the option of
| 20 | unilateral enforcement, which would be bringing actual cases against specific
| 21 | conduct and specific parties? As a practicing attorney, the first thing I would do
| 22 | is look at the complaint against my client and try to figure out whether it stands.
| 23 | And I'd like to get a feel for whether or not -- what the Justice Department will do |
46 1 | with that.
| 2 | MR. RILL: Tom, there are cases. There are cases that have been
| 3 | brought. And we've asked the Department to advise us of the number of
| 4 | enforcement actions that, in whole or in part, related to conduct overseas,
| 5 | affecting both incoming, but particularly, outgoing commerce. I think we asked
| 6 | this at the first meeting. I haven't seen anything yet but I'm sure they'll give us
| 7 | that. That will be at least a partial answer.
| 8 | In addition, part of our road show discussions with other law firms
| 9 | is eliciting that kind of information. All of which is by way of saying, I think,
| 10 | your question is really pertinent and one we need to get in up to our elbows.
| 11 | MS. JANOW: Can I add just a footnote on this point? Jim also
| 12 | took the lead, he didn't in mention it in this instance but, in the Antitrust Section
| 13 | of the ABA. That was specifically a question we asked of them, was to try and
| 14 | provide us a chronicle as well as an assessment of these so-called export restraint
| 15 | cases, not only those involving the government, which is not a terribly long list, I
| 16 | should note, and is also not terribly recent. With perhaps a case list partly of the
| 17 | barriers or the difficulties of litigation.
| 18 | We have in these outlines spoken to the difficulties of litigating --
| 19 | prosecuting these cases when transnational cartels are involved. We haven't done
| 20 | that explicitly in the export restraint case. Gary Spratling will be with us later, as
| 21 | will Chuck Stark. I think those difficulties become even more complicated when
| 22 | you're talking about an export restraint situation and maybe what you're also
| 23 | suggesting is that we might usefully develop a background paper to think about |
47 1 | those difficulties in the export restraint context.
| 2 | So, I think there are things underway that will help us on that, or at
| 3 | least provide some background.
| 4 | MR. RILL: I think that's going to be covered, at least in part, in
| 5 | the paper that we're going to be getting from the ABA Antitrust Section. One of
| 6 | the thoughts that was given to us, as you recall, at one of the law firm visits was --
| 7 | we're not limited to advising just Executive Branch action. If there's legislation
| 8 | we think is appropriate, we can certainly -- maybe nobody would listen to us --
| 9 | but we can certainly recommend it. If there are impediments to enforcement,
| 10 | either cartel enforcement or if we find there are impediments to other types of
| 11 | civil enforcement, and we think that's a problem, we should examine it, identify it
| 12 | -- I think this is your point, Tom -- and then recommend ways that it might be
| 13 | remedied.
| 14 | MR. GILMARTIN: Picking up on Tom's point, as well, about
| 15 | defining the problem, particularly in this area here. And as you noted, Merit,
| 16 | there are a lot more, sort of, trade and competition interface issues being brought
| 17 | forward in the trade arena. And one of the things that we should probably
| 18 | examine would be sensitivity to the point that you made Eleanor, because the
| 19 | trade arena has been a very effective and high profile activity. To what extent are
| 20 | problems being defined to take advantage of that vehicle? Now these are really
| 21 | competition problems, which is what you were talking about.
| 22 | What happens when they get in the trade arena and they start
| 23 | developing the case and it's not there because you can't make it a trade case? |
48 1 | Now -- and if there was a parallel effort on competition, if you will, that that was
| 2 | a venue by which you could really deal with these kinds of issues, then we get the
| 3 | problem defined properly and then would be more effective in resolving it.
| 4 | DR. STERN: When you stop and think about it, the U.S. Trade
| 5 | Representative has traditionally sat as a cabinet officer. It sits in the White House
| 6 | and gets ambassadorial rank. All of this because Congress made it so important.
| 7 | This was a creature of the Finance Committee and Ways and the Means
| 8 | Committee. So it's an interesting point. Are we now at a stage in our economic
| 9 | history that we are wanting to enhance the competition policy role as a public
| 10 | policy priority of the United States in the international arena?
| 11 | MR. RILL: That's a really good question I think, and one that we
| 12 | should address. I would certainly support giving the Assistant Attorney General
| 13 | for Antitrust a cabinet rank.
| 14 | DR. STERN: Ambassadorial too!
| 15 | MR. GILMARTIN: If you define the problem the other way,
| 16 | everything starts moving, just to an extreme; all competition becomes some big
| 17 | part of the WTO, which doesn't seem, necessarily, the right way to go.
| 18 | DR. STERN: It may be the tail wagging the dog.
| 19 | MR. GILMARTIN: The result of people trying to attack their
| 20 | market access issues and what they think might be a very effective arena, as
| 21 | opposed to what's the right WTO --
| 22 | DR. STERN: That is a very good point.
| 23 | MS. FOX: I want to say something further to Tom's very good |
49 1 | question about what are we talking about, because this trade and competition
| 2 | question can be very broad. I want to start tackling that fight, talking more about
| 3 | why are we here, and to say something about what the European Commission is
| 4 | doing --
| 5 | DR. STERN: I hope you will also -- I do feel like we need to
| 6 | address -- I don't want to cut you off, but you're the core principle person. And if
| 7 | we can get a few core principles at least articulated, that's your assignment.
| 8 | MS. FOX: Okay. I could do that. But one thing I wanted to say --
| 9 | this relates to trade and competition and it relates to U.S. and the world, it relates
| 10 | to the EC and the world -- there are others, that is, not Americans, who are much
| 11 | farther than we are, having done more thinking and resulted in papers and
| 12 | proposals. They are farther along in thinking about internationalizing competition
| 13 | law. They recognize that because problems are international and supposition that,
| 14 | because problems are international, we need to internationalize competition law.
| 15 | A piece of that is trade and competition, sort of narrowly defined,
| 16 | that is: barriers to market access, both public and private. That's just one piece.
| 17 | Then there's this big problem about: Do we need to and do we want to
| 18 | internationalize competition law?
| 19 | If we proceeded to internationalize competition law, rather than
| 20 | internationalizing at the point that trade meets competition, we might end up in a
| 21 | totally different place. We might end up with -- even if you ended up with
| 22 | something and you might shoot down everything -- you might end up with a new
| 23 | kind of collaboration, not in the WTO, that talks about international problems. Or |
50 1 | there's some core principles of open markets and derogations, and what do you do
| 2 | about competition law on an international basis.
| 3 | The reason I am mentioning this now is because there's a huge
| 4 | debate in the world going on -- and the European Commission and many
| 5 | Europeans and a number of others envision internationalizing competition policy
| 6 | in the image of EC law. Those are two different things. One: international
| 7 | competition policy. And when you do it, of course you do it to be more like
| 8 | whoever you are. And the Europeans are very far out in front in putting forward
| 9 | this idea that there are problems that need an international solution. And they are
| 10 | also kind of expanding the scope of the European Community solutions through
| 11 | association agreements and trade agreements.
| 12 | And my point is that if we're not part of this debate, we default.
| 13 | Maybe in some cases the European laws are better than ours. I think they are
| 14 | with respect to state action within the European internal market. On other points
| 15 | our laws might be better than theirs are. But we're not engaging in the debate.
| 16 | My fear is, if the United States stands back and says, "We can do
| 17 | whatever we want to; we have our unilateral remedies if we don't like what's
| 18 | happening on in the world," and we're afraid to go into the international arena
| 19 | because we will get co-opted by trade policy or foreign competition policy, I'm
| 20 | afraid that is going to lead us to the default position. We will find an
| 21 | internationalization of antitrust and, whatever it is, and we will not have been
| 22 | architects.
| 23 | DR. STERN: That's a superb statement, and may even suggest that |
51 1 | we have been using the wrong term in, "the interface of trade and competition."
| 2 | Maybe we should be reshaping the definition of our examination to the
| 3 | "internationalization of competition law." And the EU not only may be shaping it
| 4 | in its own image, but also exporting it to central Europe, eastern Europe, and in
| 5 | negotiations with Latin America and other countries. Thank you, Eleanor.
| 6 | I'm sorry, Tom?
| 7 | MR. DONILON: I was going to add half a sentence to what
| 8 | Eleanor said. Not only that we are not part of the dialogue, but that the dialogue
| 9 | doesn't have the benefit of our hundred years' of experience. In this area we've
| 10 | seen a lot of pendulum shifts and swings in our antitrust enforcement/competition
| 11 | law. And I think that we have a lot to bring to the -- a lot to bring to the table, I
| 12 | think -- that's number one.
| 13 | Number two, that's something I should have mentioned in talking
| 14 | about long term approaches. It's not clear to me that the lesson that every country
| 15 | will learn from the events of the last year, that the international economic system
| 16 | will be to open their markets, it may be -- they may learn other lessons. But to the
| 17 | extent that other countries, over the long haul, do develop open markets, we have
| 18 | a very highly stylized and deep relationship with most of our current trading
| 19 | partners -- between market economies. But as other countries develop market
| 20 | economies, I think it's important to get the core principles established and try to
| 21 | get out in front of development of these market economies with ideas that make
| 22 | some sense.
| 23 | MR. YOFFIE: I just wanted to make a couple of quick points. |
52 1 | One, to come back to the painful subject of data. If we don't get a good sense of
| 2 | the orders of magnitude that are involved here, our ability to recommend remedies
| 3 | will be limited. In other words, we can recommend stronger remedies if we can
| 4 | argue that this is a bigger problem.
| 5 | DR. STERN: We thought this was all going to be in the Harvard
| 6 | Business School data bank.
| 7 | MR. YOFFIE: I want to make sure we think about this connection
| 8 | between data and remedy. If, in fact, we can see a few anecdotal examples here
| 9 | and there, then we are likely to conclude that positive comity, for example, might
| 10 | be the most we can reasonably recommend under current circumstances. If, on
| 11 | the other hand, we can argue for a trend or argue that there is widespread
| 12 | evidence of the existence of these problems, we can make the argument that more
| 13 | important or severe actions can be taken.
| 14 | I want to make sure we don't miss that link. I want to make sure
| 15 | we remember when we are having people at our hearings in Washington in
| 16 | November, that we ask the foreign competition authorities, in particular, what
| 17 | they want from the United States. Because that is something that gets us into this
| 18 | realm of positive incentives. What are the things we may be able to offer as part
| 19 | of any new set of guidelines, whether it be international, multinational or even in
| 20 | terms of bilateral agreements that we're going to be able to offer?
| 21 | MS. JANOW: Well, if I may -- since my job as Executive
| 22 | Director is to try to operationalize some of your thinking in some drafts that come
| 23 | back to you -- just challenge a couple of notions that come forward to help me |
53 1 | think about how we do that. First, David you caused me to challenge yet
| 2 | additional comments. Let me just point to one.
| 3 | Eleanor: the internationalization of competition policy. I think that
| 4 | naturally leads to the question, and I'm hearing concurrence on the importance of
| 5 | that framework, of: What are our objectives? What might be U.S. objectives with
| 6 | respect to the internationalization of competition policy? The European proposal,
| 7 | which may not be a consensus proposal, but their proposal has suggested some
| 8 | sort of international rules or principles, whether at the WTO or elsewhere. And
| 9 | so that's on the table to be addressed.
| 10 | But I think there is a debate as to whether the internationalization
| 11 | of competition policy needs to take that form or -- that form meaning some effort
| 12 | to reach a harmonized set of agreed-upon rules, which, as Eleanor said, would be
| 13 | in the European model. Is the U.S. objective here to develop it's own advocacy
| 14 | for its set of rules at the international level, or might the United States' objective
| 15 | in the internationalization of competition policy take other forms?
| 16 | I think that's an important issue. What are our objectives with
| 17 | respect to the internationalization of competition, and how would we -- this goes
| 18 | to your point, Tom -- make it concrete? I think this Committee perhaps needs to
| 19 | debate that issue a little bit more.
| 20 | And then David, I just wonder on this point -- I'm remembering,
| 21 | for so many years in the trade context, arguing about issues, for example, like
| 22 | supercomputers, if I may say, where you couldn't say that the trade effects
| 23 | associated with supercomputer sales were that significant, but the perceived |
54 1 | consequences of the loss of that market were. So I'm wondering, even -- if there's
| 2 | an analogy here -- even if we're not able to give a sense of the order of magnitude
| 3 | of commerce affected by anticompetitive restraints, does that really limit this
| 4 | Committee in thinking about remedies?
| 5 | MR. YOFFIE: In the case of supercomputers it was externalities,
| 6 | and everyone had a clear sense of what those externalities are. There, again, you
| 7 | were identifying relatively large scale effects: just not in the particular area that
| 8 | was being traded. So any way you look at it, you have to identify some effects
| 9 | that are going to be important to the economy.
| 10 | So, I don't think that these things are mutually exclusive. You can
| 11 | have, potentially, small industries -- particularly in high-technology, where the
| 12 | potential effects would be very widespread -- and that would be sufficient at least
| 13 | to argue that maybe more severe or impactful remedies are required.
| 14 | MS. FOX: As usual, Merit, your questions are very probing and
| 15 | really important. I want to say a word about our objectives vis-à-vis what seem to
| 16 | be European objectives.
| 17 | As you've mentioned, the European proposal seems to envision,
| 18 | ultimately, common rules for the world. I'm against that. It begins, however,
| 19 | with a very fruitful framework for building blocks of positive comity and
| 20 | cooperation, transparency -- which is one of the keys in the European internal
| 21 | market, but particularly with government restraints -- and nondiscrimination.
| 22 | I take Tom Donilon's point about our experience over a hundred
| 23 | years and about the swings of the pendulum on substantive law. This is so |
55 1 | important. Nothing should be written in stone at a world level; you can't dissolve
| 2 | the stone. Things change, society changes, needs change. Different societies may
| 3 | need different rules or nuances; the same society may need different rules at
| 4 | different times.
| 5 |
| 6 | My thought is we should, first of all, engage -- that is the U.S.
| 7 | should, and it is not now -- engage in conversations about how to internationalize.
| 8 | There is a need for internationalization that fits the scope of world problems, and
| 9 | a need for articulating, in general, an open market, free market rule, certain rights
| 10 | of derogation, transparency of derogations, restrictions on excessive government
| 11 | protective or beggar-thy-neighbor restraints, and dispute resolution.
| 12 | And I'll give you one example of a law that I think is in need of
| 13 | internationalization: the Canadian merger law. The law says that mergers that
| 14 | are anticompetitive are potentially illegal. But they could be defended if Canada
| 15 | gains more than it loses. This includes producer gains from exports. If the
| 16 | producers and consumers in Canada have a net gain, the merger is okay in Canada
| 17 | even though the world suffers a net consumer loss.
| 18 | That's a nationalistic way to look at a merger that has international
| 19 | effects. If U.S. consumers are hurt by a Canadian merger, their harm, as well as
| 20 | Canadian consumer harm, either should not be offset by Canadian producer
| 21 | benefits, or all consumer and producer benefits should be taken into account. But
| 22 | if you literally apply Canadian law, it's discriminatory and shouldn't be allowed.
| 23 | This is probably the tip of the iceberg. There are probably many |
56 1 | other national laws and their applications that look in this direction, because law
| 2 | is national. And nations are looking out only for their own immediate interests.
| 3 | Yet we're all better off if the standard is world welfare subject to what nations
| 4 | agree are rights to derogate. That's the kind of principle that I'd be looking
| 5 | towards.
| 6 | I think it's very important to advocate that no detailed principles be
| 7 | written in stone. On the other hand, it's okay, it seems to me, to advocate
| 8 | adoption of an antitrust law against cartels. You can import the OECD
| 9 | recommendation itself, without all the exceptions. And you could advocate
| 10 | adoption of law forbidding anticompetitive mergers with serious spillover effects.
| 11 | The form could be a framework directive in the tradition of the EC,
| 12 | as advocated by the EC Experts' Report. A framework directive would lay out
| 13 | the objectives and say: All countries must pursue these objectives. All countries
| 14 | undertake to adjust their national law to implement these objectives, and no
| 15 | country may have discriminatory law.
| 16 | MR. RILL: Is the WTO the right forum in which the discussions
| 17 | to this end should take place?
| 18 | MS. FOX: Not necessarily. I think the problem -- or opportunity
| 19 | -- is that the WTO is there.
| 20 | MR. RILL: The elephant's on the table.
| 21 | MS. FOX: Yes, and there's an additional problem that -- and you
| 22 | can tell me whether this is the dog or this is the tail -- but there is one distinct
| 23 | issue which is a trade/competition issue: and that's the market access issue. We |
57 1 | could agree, in the context of the WTO, that countries should not allow
| 2 | unreasonable restraints on market access by government or private parties. One
| 3 | could say that's the only trade issue. But we do have this problem of
| 4 | internationalizing to fit the modern world.
| 5 | DR. STERN: Only the WTO issue.
| 6 | MS. FOX: Thank you. The only WTO issue. We could say that's
| 7 | a legitimate concern of the WTO. Everything else is new and different. It's not
| 8 | trade. It stems from the fact that globalization of markets has internationalized
| 9 | competition problems.
| 10 | DR. STERN: Eleanor, you've been a wonderful, wonderful,
| 11 | clairifier and resolver, perhaps, of a lot of these conundra that we have been
| 12 | discussing, including defining "this elephant" called the WTO.
| 13 | MR. RILL: I thought you were talking about me.
| 14 | DR. STERN: No, Jim. I'm not getting "partisan" here. The WTO
| 15 | organization has also been the magnet for groups wishing to achieve other goals.
| 16 | Take the trade and environment debate at the WTO. Take labor and trade issues;
| 17 | some say why not the ILO, the International Labor Organization? The reality is
| 18 | that trade has become such a successful route, politically, as well as in other
| 19 | ways. And the WTO has grown beyond, perhaps, what its original missions were.
| 20 | But there aren't any competing institutions.
| 21 | It is, as Eric reminds us, the witching hour. And I would like to
| 22 | thank everyone for his or her contribution. Now we are going to switch gears and
| 23 | go into both the lunch hour, but it is a working lunch. Ordinarily I'd like to give |
58 1 | everyone a chance to give closing remarks, but I think that would be redundant.
| 2 | And we'll have opportunities to continue the discussion as we go into
| 3 | International Law Enforcement Cooperation as well as Multijurisdictional Merger
| 4 | issues. So we will take a quick break. But Merit is not going to let us do that.
| 5 | MS. JANOW: I am. I really am. Just a footnote. We are
| 6 | preparing a set of questions, solicitations for papers on each of the three subjects,
| 7 | including this one. So if I could ask, before anybody leaves today, to be sure to
| 8 | take that with you so you react to it. We'll pass it out. That was one point.
| 9 | Second, we've mentioned before also the hearings. I know you
| 10 | can't necessarily speak to your calendars today, but if you have subjects on the
| 11 | hearing schedules that are particularly interesting to you, if you could just alert
| 12 | me and then I can work with your offices about the dates and so on. We have
| 13 | such a spectacular group coming and all of them are very much interested in
| 14 | being able to interact with you that, to the extent your calendar permits, it would
| 15 | be marvelous if you could reserve some time over those three days. Thanks.
| 16 | DR. STERN: Thank you. Okay. We'll take a five-minute break,
| 17 | 10-minute break.
| 18 | (Recess.)
| 19 | DR. STERN: We get an opportunity to talk and eat at the same
| 20 | time. And we're now going to move on to item two on our calendar: Enforcement
| 21 | Cooperation. And we have the good fortune of having our Co-Chair, Jim Rill,
| 22 | lead off this discussion. And Gary Spratling is here now, having earned the red
| 23 | badge of courage for taking the red-eye again. And, also taking note that, Chuck |
59 1 | Stark is also here and available. Jim, would you do us the honor?
| 2 | MR. RILL: Sure. Let's get right into it. Obviously, extraterritorial
| 3 | enforcement or, really, enforcement cooperation in the cartel context is one of the
| 4 | three legs of the Committee's responsibility. I want to start by not going over the
| 5 | turf that we plowed through at the last meeting, but to express my profound
| 6 | thanks to the Department of Justice, and, in particular, Deputy Assistant Attorney
| 7 | General Spratling and his senior counsel, Scott Hammond, who both have been
| 8 | very, very forthcoming and helpful, in giving us a cornucopia of statistical data
| 9 | relating to the Department's global cartel enforcement program. Just makes me
| 10 | wonder where were they when I was there, but never mind that. The fact is just to
| 11 | review some of the statistics.
| 12 | DR. STERN: I was just asking, are the statistics going to be made
| 13 | public? I guess so.
| 14 | MR. RILL: He said it's an update of what was presented February
| 15 | 26. So, if that was public, this is.
| 16 | DR. STERN: The public is waiting to hear it.
| 17 | MR. RILL: The fact is that --
| 18 | MR. SPRATLING: The first section, Jim, is an update, but the
| 19 | other stuff is new.
| 20 | MR. RILL: I appreciate that. The discussion earlier this morning,
| 21 | Gary, focused, in part, on a desire to obtain some kind of data to give us an
| 22 | empirical assessment of what the scope of the trade and competition area problem
| 23 | might be. Based on the information that you've given us already, I don't think |
60 1 | we're going to have that same unsatisfied thirst in this area. And if we do, I'm
| 2 | sure you'll come forth with more.
| 3 | Just to rattle off a few of the numbers: 30 current sitting grand
| 4 | juries are looking into suspected international cartel activity. The subjects and
| 5 | targets of these investigations are located on five continents and in over 20
| 6 | different countries. The activity is even broader than these numbers reflect,
| 7 | according to the information given to us -- implementing cartel meetings are
| 8 | suspected to have occurred in 60 different cities in 25 different countries,
| 9 | including most of the Far East and nearly every country in Western Europe. I
| 10 | suspect some in the United States.
| 11 | The volume of commerce in some matters reaches over a billion
| 12 | dollars a year in some matters; and others, over $500 million a year. And in over
| 13 | half of the investigations, well over $100 million a year of commerce is affected
| 14 | by the suspected cartel activity.
| 15 | I feel so much chagrin that the comparison numbers that the
| 16 | Department provides compares fiscal year 1991 with fiscal '97 and fiscal '98.
| 17 | And the --
| 18 | MR. SPRATLING: Well, Jim, the seeds of a successful
| 19 | prosecution, after all, are sewn much earlier.
| 20 | MR. RILL: Ever the diplomat. But I'll go ahead and say what
| 21 | they said about us. In fiscal '91, only one percent of the corporate defendants in
| 22 | cases brought by the Division were foreign -- that doesn't count Californians,
| 23 | right Gary? And in fiscal '97, 32 percent of the individual defendants were |
61 1 | foreign based; '98 to date -- not much time left -- 64 percent of corporate
| 2 | defendants were foreign-based and 30 percent of individual defendants were
| 3 | foreign based. That's an awesome number.
| 4 | To David's request for statistical data, I think we have a wealth of
| 5 | it in the international cartel area. In fiscal '97, the Department had a record
| 6 | breaking $205 million recovery in criminal fines, almost 500 percent higher than
| 7 | the level imposed during any previous year -- at least I've got company. And in
| 8 | fiscal '98, over $245 million in criminal fines already have been recovered. I
| 9 | don't know as of what date this information is.
| 10 | MR. SPRATLING: That's as of yesterday, Jim; but we hope the
| 11 | figure will go up before the end of the year.
| 12 | MR. RILL: With about two weeks running.
| 13 | $450 million in fines have been imposed since the beginning of
| 14 | fiscal year '97. Nearly $420 million, or over 90 percent, of the fines have been in
| 15 | connection with international cartel activity. I think in fairness we'd like to know
| 16 | the percentage against U.S. firms and the percentage against foreign firms and
| 17 | how that might divide out.
| 18 | MR. SPRATLING: We will provide that.
| 19 | MR. RILL: The fact, I think, we should recognize, also, and I
| 20 | think it's a very important fact in our outreach as a Committee and in our
| 21 | deliberations as a Committee, is that the parties injured by the cartel activity are,
| 22 | at least in the first instance and quite often in the last instance, business firms --
| 23 | principally customers of the cartel's co-conspirators. |
62 1 | And since the beginning of fiscal '97, the Division has prosecuted
| 2 | international cartels affecting over $10 billion in U.S. commerce. And, of course,
| 3 | as I indicated at the outset, there are 30 grand juries looking at international
| 4 | cartels that have not entirely finished their work. So this is really a number in
| 5 | progress.
| 6 | Specifically, in the lysine area, worldwide sales affected
| 7 | approximately $1.5 billion; $650 million in the U.S. This is a very important feed
| 8 | additive for the agricultural economy in the U.S. Citric acid: worldwide sales
| 9 | approximately $1.2 billion; U.S. impact over $1 billion.
| 10 | Now let's talk about cartel activities currently under investigation.
| 11 | Looking at the shipping industry, where U.S. sales are over $200 million in
| 12 | services; metals over $750 million; construction contracts over $220 million.
| 13 | These are matters that are still being looked at.
| 14 | MR. SPRATLING: Which is the reason they're not more
| 15 | specifically defined.
| 16 | MR. RILL: I appreciate that. A good amount of the work that still
| 17 | remains to be done is very difficult -- in the trade and competition area -- I think,
| 18 | it's already done, in large measure, by the Department for us in the cartel
| 19 | enforcement area.
| 20 | It's not hard to answer the question, "Are transnational cartels a
| 21 | problem?" The numbers speak for themselves.
| 22 | The question then becomes: What is there for this Committee to
| 23 | do? And I think one would want to look at the obstacles to effective enforcement |
63 1 | cooperation. Some of our partners I think are concerned. By partners I mean, not
| 2 | my partners, I mean foreign national colleagues are concerned about information
| 3 | being transmitted to the United States, in a variety of contexts, and being used for
| 4 | purposes other than the designated purpose for which the information was asked.
| 5 | How do we address that?
| 6 | There are issues that have been raised as to foreign sovereignty.
| 7 | The Japanese government opposed the prosecution efforts of the United States
| 8 | against the conduct occurring overseas that was prosecuted in a criminal context
| 9 | in the Nippon Paper case. The United States prevailed in that litigation. Access
| 10 | to documents as well as to witnesses continues, I think, to be raised as an
| 11 | impairment to fully effective enforcement.
| 12 | I know that Assistant Attorney General Bingaman, in several
| 13 | speeches following the General Electric/DeBeers case, which the United States
| 14 | lost at trial, suggested that part of the reason for the unsatisfactory result was the
| 15 | inability to obtain testimony of witnesses located overseas. And that, again, is a
| 16 | question as to whether this should be viewed as a problem by the Committee and
| 17 | what remedies should this Committee suggest to address that problem?
| 18 | There's also the question of obtaining extradition for those
| 19 | overseas who have been indicted. We have extradition treaties with a variety of
| 20 | nations. Few of them mention antitrust as an extraditable offense. Is that
| 21 | something we should look at? Are there adequate border watches? Is
| 22 | cooperation with the INS fully effective in reaching individuals that are subject to
| 23 | investigations, or, for that matter, under indictment entering the United States, to |
64 1 | find them?
| 2 | I think part of the problem, to the extent there is a problem, is that
| 3 | other countries are not fully in tune with criminal enforcement of antitrust
| 4 | offenses. Only, I think, eight countries in the world, other than the United States,
| 5 | have criminal sanctions for antitrust competition violations. I think Canada, of
| 6 | course, is one that does; Japan does. There have been some prosecutions in both
| 7 | of those countries. So the investigative cooperation may be limited by the extent
| 8 | to which foreign countries are willing fully to cooperate with us, a nation which
| 9 | has a very active criminal enforcement program.
| 10 | I think conversely, there has, at least in our conversations, been
| 11 | some concern expressed with the cooperation that can arise by an outflow of
| 12 | information from the United States to countries that may have serious penalties. I
| 13 | think the government, as you said, Gary, won a very important victory in the
| 14 | recent Balsys case regarding the application of the Fifth Amendment, which was
| 15 | held in a different context not to apply to self-incrimination concerns arising
| 16 | under the laws of a country other than the United States. I think it's a concern
| 17 | raised more as a policy matter, in case there are serious sanctions overseas, maybe
| 18 | even arising under non-competition laws, perhaps fraud laws or other laws that
| 19 | would be uniquely severe. That would be a matter of concern to the United States
| 20 | companies' willingness to provide information if it would wind up in the hands of
| 21 | foreign enforcement officials, a subject we should probably look at.
| 22 | How can we improve enforcement? I think this is another subject
| 23 | that the Committee needs to look at. First of all, assuming we do want to improve |
65 1 | enforcement and, at least, that's my own view. The US-Canada MLAT -- Mutual
| 2 | Assistance Legal Treaty -- works well. We can use more input as to how it has
| 3 | worked. But I think agencies on both sides of the border have extolled its
| 4 | effectiveness. I don't know that the MLATs with other countries have been so
| 5 | effectively implemented or that their coverage is so antitrust-express as with the
| 6 | agreement with Canada. We need to know that before we can recommend the
| 7 | expansion of the MLAT approach.
| 8 | Confidentiality concerns arise in a variety of contexts. They arise
| 9 | in the merger context, they arise in the trade and competition context, and they
| 10 | certainly arise in the cartel enforcement context. On the other hand, I don't know
| 11 | if I personally have a lot of sympathy for the confidentiality concerns of people
| 12 | who get together in hotel rooms and rig prices. I can see why they would want to
| 13 | keep that confidential. But the public policy rectitude seems somewhat lacking in
| 14 | those circumstances.
| 15 | The Department has endorsed and supported the OECD Hard-Core
| 16 | Cartel Recommendation. I think that's probably a positive step. Are there further
| 17 | steps in the core principle convergence area that would apply to cartel
| 18 | enforcement that would be useful for this Committee to recommend? There is, on
| 19 | the table, a proposal to raise criminal fines from $10 million to $100 million for
| 20 | corporate offenses. I'm not sure I even right now know the status of that. It may
| 21 | be a while before that issue is addressed. You want to say something on that,
| 22 | Gary?
| 23 | MR. SPRATLING: No. The legislation is being held up until we |
66 1 | get the comments of interested parties and then we expect it to go forward.
| 2 | MR. RILL: And the Judiciary Committee would be the one to
| 3 | consider that legislation. I'll leave that there. The Advisory Committee, the staff,
| 4 | Paula and I, and Merit have met with a number of business, legal, and academic
| 5 | types to try and get our arms around this problem and get the advantage of
| 6 | personal experience and economic and legal scholarship, and I think we're going
| 7 | to do that significantly more. We have worked closely with Gary and Scott and
| 8 | the DOJ staff, and we really are getting, I think, superb help in information from
| 9 | you all, but we need to continue that.
| 10 | Some thoughts. It seems to me that the case for the scope and
| 11 | magnitude is well on the way to being made. This is an issue; and we should
| 12 | recognize what the Department's done in this area. I think we need to look at
| 13 | bilateral and multilateral agreements both on substance and process to determine
| 14 | whether we should encourage the Department and the United States government
| 15 | to enter into these. At the same time, we should address legitimate confidentiality
| 16 | concerns and penalty concerns, if they are legitimate, that are raised by people
| 17 | that we talked to in the U.S. as well as overseas.
| 18 | And then I think we need to look at ways, if we believe it should
| 19 | be made more effective, as to how enforcement can be made more effective. In
| 20 | addition to legal assistance treaties, perhaps extradition treaties and other ways
| 21 | that we can break down -- recommend breaking down some of the barriers to
| 22 | witness and document production, discovery, and enforcement that may still exist.
| 23 | Having said all that, I think the record indicates that whatever impediments there |
67 1 | are have not stood in the way of the very strong, powerful, global antitrust
| 2 | enforcement activity against hard core cartels, for which Gary and his colleagues
| 3 | and Joel should be, in my opinion -- speaking as only one member of the
| 4 | Committee -- strongly applauded. That's it, as an opener.
| 5 | DR. STERN: Thank you so much, Jim. We have all had an
| 6 | opportunity to look again at the outline in the book that the staff has so carefully
| 7 | pulled together covering all of this. And Jim has been good enough to bring us
| 8 | up-to-date. I open the floor now to any comments, reactions, guidance, direction,
| 9 | advice from the members. Eleanor?
| 10 | MS. FOX: I have a small question on data. Gary, is there data --
| 11 | this is in my -- Jim's saying that great deal of the harm of international cartels are
| 12 | to businesses. And my question relates to competitiveness. Is there any data
| 13 | showing the costs to our businesses that are doing business in international
| 14 | commerce, and the extent to which international cartels are handicapping U.S.
| 15 | firms in international commerce? How much are overcharges impairing the
| 16 | competitiveness of U.S. firms? Do you think that will be a useful statistic to look
| 17 | at, if we could get it?
| 18 | MR. SPRATLING: We haven't tried to get that because our focus
| 19 | is on the -- we know there is that downstream effect, either in terms of the impact
| 20 | on consumers or in terms of the impact on the victimized companies' abilities to
| 21 | compete in whatever markets they're competing in. We recognize both of those
| 22 | downstream effects.
| 23 | But to the extent that we collect information, most of it is |
68 1 | anecdotal, some of which Jim referenced in his opening remarks. We are looking
| 2 | at the extent to which prices are increased to the victims of these conspiracies.
| 3 | And we know that, of those that we've prosecuted thus far, most are businesses.
| 4 | Consumers don't buy lysine; very large poultry and pork producers
| 5 | buy lysine. Consumers don't buy citric acid. Coca-Cola, Pepsi Cola are all
| 6 | companies that process foods using citric acid. Consumers don't buy the marine
| 7 | construction services; the oil companies buy the marine construction services.
| 8 | Consumers don't buy graphite electrodes, but the steel companies buy graphite
| 9 | electrodes to make steel. We have much anecdotal evidence, some of which Jim
| 10 | mentioned.
| 11 | In one of the industries that we have not specifically described --
| 12 | we just called it the construction industry -- in one of those industries there was a
| 13 | markup on a 200 million-dollar bid of 70 percent. There was a -- we have
| 14 | markups in a series of bids in an industry where we have one prosecution thus far,
| 15 | and we expect other prosecutions -- there were consistent markups on bids, up to
| 16 | 40 percent, after the conspiracy started. And so we have that type.
| 17 | You know in other conspiracies, we can identify from the point the
| 18 | conspiracy started as to the amount of increase that occurred right away. Not all
| 19 | conspiracies are perfect. Sometimes there's fluctuations and there's cheating and
| 20 | some outliers that conspirators can't control. So, there is some fluctuation.
| 21 | So, to the extent that we collect the evidence, it's at the point I have
| 22 | just described: that is, the immediate victims of the conspiracy. We know that, in
| 23 | the vast majority of the cases we prosecuted, they are businesses -- they are U.S. |
69 1 | businesses. And of course one of our difficulties here has been -- we all said this
| 2 | at our very first meeting -- one of the difficulties is convincing people of the
| 3 | seriousness of this problem.
| 4 | I suggest that the businesses that have been injured as a result of
| 5 | these cartels which we've uncovered -- because otherwise they wouldn't have
| 6 | known about it -- they now appreciate the seriousness of this. They have
| 7 | examined the extent of what their injury is. They have now undertaken lawsuits
| 8 | to try to recover damages for those injuries. So, they appreciate the process.
| 9 | And in some of our sentencing there's indications that the judiciary
| 10 | is increasingly appreciating the problem. At a sentencing hearing that Joel Klein
| 11 | and I attended last Tuesday, involving some unusual circumstances that I don't
| 12 | think we need to burden the record here with, the government was actually
| 13 | seeking a lower fine against a corporation than the court had indicated it might
| 14 | impose. It's pretty unusual for the government to be seeking a lower fine. I can
| 15 | go into that privately with some people as to why that was the case.
| 16 | But at the sentencing hearing, the judge said, after imposing a
| 17 | higher fine, the judge said something like, "I recognize the extraordinary
| 18 | cooperation that this firm gave to the government investigation. Indeed the
| 19 | government has called it a 'vital' investigation. But in spite of that, this is a
| 20 | serious crime. This company stuck its hands into the pockets of American
| 21 | businesses and consumers as surely as if it had robbed them. We've got to deter
| 22 | this type of conduct."
| 23 | That's music to my ears of course but the fact is that there is not |
70 1 | necessarily a general appreciation in this country, and certainly not in foreign
| 2 | countries, as to the seriousness of the problem.
| 3 | So one of the reasons that we provided the type of information that
| 4 | we have to the Committee, besides, of course, just simply complying with the
| 5 | request for information, is that we are trying to establish that case as well.
| 6 | DR. STERN: If we could extrapolate from the data that you did
| 7 | provide us, in response to Eleanor's question, which was how much is this
| 8 | perhaps impacting overseas competitiveness of United States companies. You
| 9 | had for example the citric acid. You said worldwide sales of citric acid was 1.2
| 10 | billion. The conspiracy was to have affected over 1 billion dollars in commerce in
| 11 | the U.S. We know that the other 200 million was in sales overseas. I mean, there
| 12 | may be some -- if you just kind of look at the material, if you could just go back
| 13 | and just take a look. You may already have some of this information. But I don't
| 14 | want to belabor this point now because we've got a lot of other people who want
| 15 | to talk. So we can follow up on how to get the data.
| 16 | MR. RILL: Eleanor, just to tag onto your question. We do have
| 17 | some of the staff and the Department putting together private actions that are
| 18 | pending in the wake of government prosecutions, that probably we ought to talk
| 19 | to some of the people that are representing some of the companies. Many of them
| 20 | are class actions.
| 21 | MS. FOX: Of course it's possible that everyone in the world is
| 22 | overcharged, which is also a problem. Or it's possible that there are unique U.S.
| 23 | barriers to make it possible to overcharge the Americans. Either way it's bad. |
71 1 | MR. SPRATLING: Just so we don't have a misperception here,
| 2 | the international cartels, of course, are worldwide. They involve all of the major
| 3 | producers, and so the U.S. producers that are significant are conspiring with the
| 4 | major producers in other countries. They're conspiring to sell all the volume they
| 5 | want at a particular price. And so, in that sense, it's not the situation where you
| 6 | would think: How are the U.S. producers being harmed by international
| 7 | competition?
| 8 | They've carved up the world. They have sat in a room and carved
| 9 | up the world, and decided what prices they're going to sell at. They are selling all
| 10 | they want at whatever price they want. So it's not the situation where you have a
| 11 | discreet agreement not engaged in by other major producers that may be
| 12 | impacting world producers. But instead it is the U.S. producer involved with
| 13 | other producers involved in a single worldwide cartel.
| 14 | MS. VALENTINE: Alan Wolff's group has been urging Congress
| 15 | to get that very data. So you might find something there.
| 16 | DR. STERN: I'm delighted to welcome Debra Valentine, who has
| 17 | joined us, representing the other major agency sharing competition policy
| 18 | jurisdiction, the Federal Trade Commission. And I appreciate all the cooperation
| 19 | we've received heretofore.
| 20 | MS. FOX: Just to add to the very good list of problems that we're
| 21 | working on, I want to add one other item that may be a subject for international or
| 22 | multicooperational agreement. That is, state action that permits, encourages or
| 23 | authorizes cartels. And here, I would first point out, it's interesting that the |
72 1 | OECD Recommendation, which says member countries should prohibit cartels,
| 2 | makes an exclusion for cartels that are okay under the country's laws. Perhaps
| 3 | the Justice Department had to make that exclusion to get the agreement.
| 4 | I think there's a next step. I think it's possible that nations could
| 5 | agree what is appropriate state action endorsing a cartel, and what isn't. The
| 6 | transparency provision in the OECD Hard-Core Cartel Recommendation should
| 7 | be useful. It will provide us with hard data. It may give us a basis for discussing:
| 8 | Are there some kinds of state action that should be permissible because they're
| 9 | protecting proper state interests and others that aren't?
| 10 | An example that I would cite for us to think about, and perhaps to
| 11 | focus our thought and discussion, is the uranium cartel case that was litigated
| 12 | about 20 years ago. The United States had an embargo against enriched uranium.
| 13 | The embargo order -- in the wake of prior U.S. encouragement of world
| 14 | production -- resulted in huge surplusses in the world. Many nations took steps
| 15 | for orderly marketing. Some of them assigned quotas, for example, Canada
| 16 | assigned quotas to companies producing on Canadian territory. Whether Canada
| 17 | and other nations sponsored further cartel agreements was shrouded in secrecy.
| 18 | The United States charged ahead and sued private cartel members, much to the
| 19 | anger of the countries that were part of the background of orderly marketing. And
| 20 | the United States created a lot of enemies in the course of it.
| 21 | So my thought is we could examine which of those actions are
| 22 | appropriate in a world system and which ought not to be, and perhaps come up
| 23 | with a recommendation prohibiting firms from hiding behind Act of State |
73 1 | defenses unless their country's order is clear and transparent, and you can see
| 2 | exactly what the country ordered and you can see exactly how, if at all, the
| 3 | private parties went beyond the country's order.
| 4 | MR. RILL: Ray, something you were saying this morning about
| 5 | the encouragement of deregulation in open markets -- I know that in the SII talks
| 6 | and even the continuing ones, there's a continued effort reaching some
| 7 | acceptance, the elimination of the so-called recession cartels and some of the
| 8 | government sanctioned cartels in the government of Japan. Maybe we can pick
| 9 | up on what you were saying this morning about the positive incentives to take a
| 10 | look at, possibly, where those sanctioned cartels not only are illegal, but also
| 11 | counterproductive. And that, I guess, consumer welfare in their own countries is
| 12 | part of our ambassadorial mission. Perhaps you can comment on that.
| 13 | MR. GILMARTIN: I don't have enough specific information
| 14 | about that to say much about it. But I think the general principle is what is the
| 15 | economic harm that's been done.
| 16 | DR. STERN: I guess I don't quite understand, Jim. Recession
| 17 | cartels, at least in Japan, which are permitted under the WTO as a safeguard for
| 18 | temporary purposes, are ipso facto retarding competition by putting quotas on
| 19 | restrictions of imports into the Japanese market for a period of time. So, I don't
| 20 | understand.
| 21 | MS. JANOW: I think one of the ways in which cartels have been
| 22 | challenged is that cartels of this sort were often designed to deal with structural
| 23 | decline but they weren't being used for that purpose. They were being used to |
74 1 | protect industries going through a cyclical downturn. The effort was to eliminate
| 2 | those temporary recession cartels and I think most of those are gone in Japan.
| 3 | And I don't know of their application elsewhere, particularly, but I guess that gets
| 4 | to the question I had which Eleanor was talking about: perhaps you have in your
| 5 | mind what are appropriate and inappropriate state action type defenses? I mean,
| 6 | this cyclical structural would be one example, perhaps.
| 7 | MS. FOX: Actually, if Canada ordered the companies that were
| 8 | producing on Canadian soil to abide by mining quotas, that should be fine.
| 9 | However, if it orders them to boycott Westinghouse, that shouldn't be fine. The
| 10 | companies that boycotted Westinghouse claimed state action. There are ways you
| 11 | can draw the line one way or another. There might be choices to be made, but I
| 12 | think there will be some things that will clearly fall on the side of what is
| 13 | permissible and what is not. Transparency of state action would be extremely
| 14 | helpful. The lack of transparency was a big problem in the uranium litigation
| 15 | cases because nobody knew exactly what Canada ordered. It wanted to help its
| 16 | companies at one point, and tried to shield them behind its state action by holding
| 17 | its own orders in secrecy.
| 18 | DR. STERN: Using these state ordered cartels is a mask for
| 19 | special treatment.
| 20 | MS. FOX: Countries tend to come to the aid of their companies
| 21 | when they find themselves in trouble. That was a part of the problem in Uranium.
| 22 | The UK, Australia, Canada and France were all mad at the United States; they
| 23 | thought that we had overstepped our bounds by just going ahead and suing. So |
75 1 | they were circling their wagons. If countries agreed to a set of rules -- what's
| 2 | permissible and what's not, and what information must be posted -- we'd have
| 3 | fewer problems. During the uranium litigation, there was a huge problem of
| 4 | extraterritoriality and the legitimacy of attaching government-sponsored cartels
| 5 | that led to the Foreign Trade Antitrust Improvements Act of 1982.
| 6 | DR. STERN: David?
| 7 | MR. YOFFIE: I just had a question of clarification. Is this piece
| 8 | of the Committee focusing on transnational cartels or all cartels? I thought that
| 9 | domestic cartels would have fit under the heading of trade and competition, and
| 10 | that here we were specifically looking at transnational --
| 11 | MR. RILL: I think that's right, David.
| 12 | MR. YOFFIE: -- where firms across different countries were
| 13 | working to conspire to raise prices.
| 14 | MR. RILL: I think it's the global or the transnational conspiracy
| 15 | issue that's focused on in this segment of our work.
| 16 | DR. STERN: Yeah, but we didn't have a chance to talk about
| 17 | everything we needed to this morning.
| 18 | MS. FOX: But to clarify that, if French, South African, British
| 19 | and Canadians are conspiring to raise the price of uranium into the United States
| 20 | -- I mean this, to me, fits transnational --
| 21 | MR. YOFFIE: That would fit the transnational.
| 22 | MS. FOX: -- oh, okay, yeah.
| 23 | MR. YOFFIE: I was just trying to separate something where -- |
76 1 | DR. STERN: The recession cartels --
| 2 | MR. YOFFIE: -- recession cartels in Japan --
| 3 | DR. STERN: Right.
| 4 | MR. YOFFIE: -- which may affect the United States but in most
| 5 | cases probably don't impact U.S. companies trying to do business in Japan, but
| 6 | wouldn't necessarily fit into what we're talking about here. That's why I was
| 7 | confused by where we were --
| 8 | MR. RILL: I see where you're at. Right.
| 9 | DR. STERN: Right. That's why --
| 10 | MS. FOX: I think it could fit both places, and we shouldn't limit
| 11 | ourselves.
| 12 | MR. YOFFIE: No, no, I agree.
| 13 | DR. STERN: -- but we need to discuss that.
| 14 | MR. YOFFIE: I would put the recession cartels under trade and
| 15 | competition because they really affect market access. Unless the Japanese firms
| 16 | happen to have a monopolistic position in some product like ceramics where a
| 17 | few Japanese firms dominate production and then raise prices for all consumers
| 18 | around the world.
| 19 | MR. RILL: Well, that's, I mean, that's the nexus, to the extent that
| 20 | this cartel activity inhibits, if you will, the inbound freight into the U.S., I think
| 21 | that would be of a concern to the hard-core cartel area. So it's probably a bit of
| 22 | both.
| 23 | MR. YOFFIE: A real borderline case. The DRAM case in 1987 |
77 1 | would have been a borderline case as well. Though again, there you have
| 2 | problems where the U.S. government in fact encouraged certain kinds of action.
| 3 | DR. STERN: Right.
| 4 | MR. RILL: I mean, yeah, that's a bit of a tricky one because it's
| 5 | government involvement on both sides.
| 6 | MR. YOFFIE: That's right.
| 7 | MS. FOX: But that's state action.
| 8 | DR. STERN: Well, it might be useful for the staff to take a look at
| 9 | the safeguard provisions/recession cartel provisions in different countries, and get
| 10 | us up-to-date. There have been changes for example in Japan on recession cartel.
| 11 | And what are the transnational effects of recession cartels, so we can know the
| 12 | extent to which this is a problem or not.
| 13 | MR. YOFFIE: I think we need to sort those out, but I think the big
| 14 | problem here is in fact a problem of transnational cartels by largely private
| 15 | entities.
| 16 | DR. STERN: Yeah.
| 17 | MR. YOFFIE: So government-sanctioned activity is a piece of it
| 18 | but that's not really the big problem. The big problem is firms getting together in
| 19 | relatively narrow segments and figuring out ways to raise prices to consumers
| 20 | around the world.
| 21 | I wanted to come back to something I suggested last February
| 22 | again. It may be more mercantile in its approach, but this is a collective goods.
| 23 | All consumers are benefiting from our action and one of our problems is that we |
78 1 | get a lot of free-riders at the edges and we don't have a way to get the foreign
| 2 | governments to work with us. It's not clear that they necessarily are going to get
| 3 | any of the benefits.
| 4 | So I come back to the question of positive incentives, which is:
| 5 | Should we be looking at formal recommendations that would create bounties --
| 6 | DR. STERN: Yeah, right.
| 7 | MR. YOFFIE: -- potentially for foreign governments to identify
| 8 | firms and cases that might be useful for us and, second, some sort of formulas for
| 9 | sharing the penalties associated with the prosecution of these cases? This could
| 10 | be a powerful incentive if we raise the bounties to $100 million. If you start to
| 11 | say to certain governments around the world there are material benefits to you if
| 12 | we prosecute and win this case, and we have a formula for making that happen,
| 13 | we may create the incentives that will make this a little easier to execute.
| 14 | MR. RILL: I was looking for something radical to say in this area,
| 15 | and you've done it. That's terrific. I don't mean that as anything other than a
| 16 | compliment. It's a fascinating area.
| 17 | DR. STERN: Particularly in the developing countries if they're in
| 18 | a squeeze on, budgetary squeezes -- like Indonesia.
| 19 | MR. YOFFIE: You might identify in developing companies a lot
| 20 | of people willing to -- cooperate with the bounty system or with a sharing of the
| 21 | penalty system.
| 22 | DR. STERN: Interesting.
| 23 | MS. FOX: I wonder if you could give South Africa enough |
79 1 | incentives to prosecute diamond cartels? South Africa has no interest because its
| 2 | big business and its producers gain so much. Would your incentives work in that
| 3 | area?
| 4 | MR. YOFFIE: It may not work in South Africa but it might work
| 5 | in Zimbabwe or half a dozen other African countries which are major diamond
| 6 | producers and part of the central selling organization of DeBeers. In other words,
| 7 | it doesn't have to be in South Africa.
| 8 | DR. STERN: Exactly, to break the cartel.
| 9 | MR. YOFFIE: The whole point is that a cartel by definition is
| 10 | several players. We're not talking about monopoly positions. The way you break
| 11 | up cartels or any kind of oligopoly is by providing incentives to the peripheral
| 12 | players. And that's exactly what you'd be trying to do here.
| 13 | DR. STERN. The weak underbelly. Do you want a percentage of
| 14 | that, for that idea?
| 15 | MR. YOFFIE: Absolutely. I'll take my commission.
| 16 | DR. STERN: Okay. Well, I think that's -- thank you. I see Gary
| 17 | taking notes.
| 18 | MR. SPRATLING: It's an interesting idea. The idea of incentives
| 19 | is of course the -- it is the positive side of the forbearance. What we offer as an
| 20 | incentive for people who do come forward in terms of offering no-jail deals, very
| 21 | favorable dispositions and, perhaps most importantly to a lot of the individuals
| 22 | involved, immigration relief in connection with them coming forward which
| 23 | otherwise they wouldn't have -- so they can maintain their status as a freely |
80 1 | traveling international business person. And so it's those types of incentives that
| 2 | get people to come forward, because before we did those things, nobody came
| 3 | forward.
| 4 | DR. STERN: Yeah. Well, this is an incentive for enforcement
| 5 | cooperation by authorities in other countries. Yeah, it's great.
| 6 | MR. SPRATLING: I understand, and that's what I'm saying. It's
| 7 | analogous to that. And just because of the -- we have even looked at the aspect of
| 8 | providing a bounty reward system for domestic conspiracies. Because of the
| 9 | difficulties just within our own country in effectuating something like that, I can't
| 10 | imagine our Congress authorizing part of the collection of our fines going to some
| 11 | other country. I can't imagine that, but that doesn't mean you folks can't
| 12 | recommend it.
| 13 | But I wonder if something more practical might be to talk about
| 14 | the benefits to them as a result -- if we had a way to share confidential
| 15 | information, which is one of the proposals that I know staff has recommended.
| 16 | That is, if there was a reciprocal basis for sharing confidential information so that
| 17 | the benefits of our investigation -- they make a referral to us, we do all the work.
| 18 | Just imagine if right now we had the ability to dump information in various
| 19 | countries who have antitrust sanctions in place. They quickly would get their
| 20 | own reward by riding on -- your coattail theory -- riding on our coattails of
| 21 | development and prosecution.
| 22 | So there may be a way to achieve the incentive without the direct,
| 23 | and perhaps more difficult, approach of hanging a bounty on them. |
81 1 | MR. RILL: Go ahead. I want you to discourage us from taking a
| 2 | look at the direct approach.
| 3 | (Laughter).
| 4 | I think it's creative and I think it's done in other areas and I think
| 5 | we ought to look at it.
| 6 | DR. STERN: Well, they're not mutually exclusive, what you're
| 7 | suggesting.
| 8 | MR. RILL: The approach that Gary raises is one that is there now
| 9 | in the cooperation area and they should realize this is good for them because
| 10 | they'll get information too. I mean, we can go beyond that.
| 11 | MR. SPRATLING: Well, the thought is there, but the
| 12 | implementation mechanism isn't there.
| 13 | MR. RILL: Yeah, and that's what we're looking at for the
| 14 | international agreement benefit.
| 15 | MS. JANOW: Could I ask a clarifying question? If you look at
| 16 | the countries that have criminal antitrust, it's an unusual mix. I mean, you have
| 17 | the U.S., Argentina, Canada, Mexico, South Korea, Austria, Brazil, France and
| 18 | Japan. So it's a kind of surprising mix. How important do you think that
| 19 | comparable criminal sanctions are in effecting enforcement efforts with respect to
| 20 | hard core conduct?
| 21 | MR. SPRATLING: If I were a witness right now I would ask you
| 22 | to read the question back, because I think there are two different dimensions of it.
| 23 | Let me just split it up. My answer is different depending upon whether or not |
82 1 | you're talking about really achieving effective deterrence of cartel activity, versus
| 2 | assisting us in cooperation.
| 3 | I do not believe thatcriminal penalties need to be available in
| 4 | foreign countries in order for countries to cooperate to a greater extent. Now
| 5 | obviously the availability of criminal penalties will effect the due process -- will
| 6 | effect the discovery that the country can conduct -- and if there were criminal
| 7 | penalties available, they would have stronger discovery provisions which would
| 8 | assist us to a greater extent in the investigation. But I don't think that's essential.
| 9 | I think there are steps besides that. I'm being careful here too because I don't
| 10 | want to violate the ground rule that Co-Chair Rill set up in terms of stifling
| 11 | creative thinking here. So --
| 12 | (Laughter).
| 13 | MR. RILL: Those are unilateral ground rules.
| 14 | (Laughter).
| 15 | MR. SPRATLING: So sure, if all countries in the world thought
| 16 | that antitrust violation were serious enough that they should be treated with
| 17 | criminal penalties, would that be tremendously helpful both in terms of deterring
| 18 | cartel conduct and in terms of making available the type of discovery in those
| 19 | countries that if shared with us would help? Sure, that's a perfect world; that's
| 20 | Utopia.
| 21 | But short of that, I think that there are -- again discussing a range
| 22 | of possibilities here -- I think that even without countries going to the criminal
| 23 | sanctions, that there are bilateral agreements providing for the reciprocal |
83 1 | exchange of confidential information that would be tremendously helpful.
| 2 | For example, the EU has had, in the past, information which
| 3 | probably would have been very significant in our investigations but there's an
| 4 | inability to share it. The EU has no criminal authority. They were still able to
| 5 | acquire the information, obtaining information as a result of what we call "dawn
| 6 | raids" and they call inspections.
| 7 | MR. RILL: I think they call them dawn raids, too.
| 8 | MR. SPRATLING: I used that expression at a DG-IV meeting
| 9 | recently, and they said, "Well that's okay between us, but please don't say that
| 10 | publicly."
| 11 | (Laughter).
| 12 | DR. STERN: And so you didn't.
| 13 | MR. SPRATLING: I'm aware that there are press here. But it's a
| 14 | term that is used colloquially. But in any event, I hope you understand my point
| 15 | there. Even a civil enforcement authority can develop information that if we had
| 16 | the ability to receive it and provide it on a reciprocal basis, would be very helpful.
| 17 | MR. RILL: Gary, there's a related issue on the paucity of criminal
| 18 | statutes overseas, not exactly the same, but where a country doesn't have criminal
| 19 | penalties for competition violations for even hard core violations, the constituents
| 20 | of that country are concerned that any information going to a country like the
| 21 | United States that has a very aggressive criminal enforcement program, any
| 22 | information say, related to a merger is somehow going to filter from another
| 23 | Deputy to you and then will be used aggressively by you to bring what the |
84 1 | constituent of the other country would consider to be a draconian criminal
| 2 | prosecution. I think that stifles some sharing of information.
| 3 | Now, there are two ways to address that, I suppose. One is to
| 4 | recommend to the country with the concerned constituents -- let's call it, the
| 5 | country, the UK -- that they institute a criminal antitrust law, and I think that
| 6 | probably would be about as useful as the Children's Crusade.
| 7 | The other is for the Department to generate some level of
| 8 | confidence that the kind of information requested for one purpose isn't used to
| 9 | produce criminal investigations and prosecutions, subject to whatever exceptions
| 10 | there may be. Again, this is something that you and I talked about, but I think it's
| 11 | a worthwhile subject.
| 12 | MR. SPRATLING: And I think that's something that's entirely
| 13 | workable. It's in the discussion draft for today. The statement I'm about to make
| 14 | is in the discussion draft and I can't immediately put my finger on it. But, to date,
| 15 | none of our international cartel prosecutions have been initiated as a result of
| 16 | information produced in connection with a merger review. None. And I know
| 17 | that there's a perception that there's a great danger in that, that the type of
| 18 | information produced for purpose of merger review will result in cartel
| 19 | prosecutions but, to date, not one of ours is the result of that.
| 20 | DR. STERN: It's my impression, actually, from talking with some
| 21 | practitioners, particularly in Europe -- we had these conversations, I think, only
| 22 | yesterday -- that that is a diminishing concern based on, just as you said, on the
| 23 | experience that it has not happened. And there's been so much more merger |
85 1 | cooperation between the authorities. So that may be more of a red herring.
| 2 | MR. RILL: I wish we could kill the red herring.
| 3 | DR. STERN: Exactly. And so that's why --
| 4 | MR. SPRATLING: One of the reasons why it probably remains an
| 5 | issue is that there are examples domestically where the reverse is the case. We
| 6 | have engaged in very large prosecutions in this country that were developed as a
| 7 | result of, where we got the leads as a result of information in merger reviews. But
| 8 | we have not done this in international --
| 9 | DR. STERN: And would you suggest any kind of tying of our
| 10 | hands in order to -- although I think it is increasingly a red herring.
| 11 | MS. VALENTINE: Gary, if you could actually make the
| 12 | commitment that in no way would you ever use any, let's say, 4(c) information
| 13 | that was provided in a transnational merger, that sort of foreign concern and fear
| 14 | and vague apprehension is much easier to cabin-in in many ways in the criminal
| 15 | area, where it's just you as the prosecutor. In the other area, which is the spillover
| 16 | to the private actions, we can say all we want -- that we never, never, never give
| 17 | information, you know, to third parties; that it never leaks -- and people will still
| 18 | think that it does. But, you know, the Wall Street Journal is there and the private
| 19 | attorneys, you know, plaintiffs' lawyers are going to pick it up.
| 20 | Actually yours -- non-use of certain information in the criminal
| 21 | area -- I think that would be real simple to cabin-in.
| 22 | DR. STERN: Well, Congress would feel that that's a good idea.
| 23 | It's a matter of tying your hands. So it's a policy issue. |
86 1 | MR. SPRATLING: I assume, Debra, that what you're talking
| 2 | about is tying our hands with respect to information that came from a foreign
| 3 | jurisdiction.
| 4 | MS. VALENTINE: Right. Right.
| 5 | MR. SPRATLING: Because a transnational merger -- if we had
| 6 | access to the information anyway and a U.S. company was involved in that --
| 7 | MS. VALENTINE: No, I'm not trying to over-tie your hands.
| 8 | DR. STERN: I think it's something that --
| 9 | MS. JANOW: Let me just underscore something. Why would this
| 10 | be in the U.S. interest?
| 11 | MS. VALENTINE: Well, because others would then agree to
| 12 | share information with us because they wouldn't have to fear that if their
| 13 | information were given to us, we would immediately hand it over to Gary so he
| 14 | could prosecute them criminally.
| 15 | MS. JANOW: Yeah, that's what I'm just trying to underscore.
| 16 | Because if it is the case, even though these cases haven't emerged in the
| 17 | transnational context, the question I'm raising is: Would we be tying our hands
| 18 | inappropriately?
| 19 | MS. VALENTINE: Well, we could get it independently.
| 20 | DR. STERN: Okay. I think we've seen both sides of that
| 21 | argument, which I think is clearly important. Are there other areas we want to
| 22 | pursue?
| 23 | MS. FOX: Merit, you had mentioned this to me some time ago. |
87 1 | There are a number of blocking statutes. Blocking statutes are meant to frustrate
| 2 | discovery. When they are set into motion it's a race to the bottom. Of course it
| 3 | would be nice not to have blocking statutes so I was thinking: Should we be
| 4 | thinking about incentives to get our trading partners to lift their blocking statutes
| 5 | or not to apply their blocking statutes? In fact, the more we build trust among our
| 6 | agencies, and the more we agree on what's appropriately extraterritorial and
| 7 | impermissibly extraterritorial, the more we might hope to lift the pressures that
| 8 | cause blocking statutes to be invoked.
| 9 | DR. STERN: That's a very good point. You just don't have the
| 10 | concern and, therefore, you don't have the need and you've built up this whole
| 11 | level of trust based on experience. Is that something that's for negotiation? Is
| 12 | that something that should be on a list of negotiating matters in the cartel
| 13 | enforcement area?
| 14 | MS. FOX: I would have to think further about it but, at the least,
| 15 | blocking statutes should be on a list of negative measures, because they're
| 16 | nationalistic, race-to-the-bottom type law. And I think there should be an
| 17 | objective: In the middle or long run, we should try to get consensus within the
| 18 | world system that would dissipate the need for nationalistic action. So right now
| 19 | it's just a list. I don't know.
| 20 | DR. STERN: Well, I ask this again for the staff to think about
| 21 | more after this meeting: Can we design a model treaty in international
| 22 | competition law, in the internationalization of competition law? What are the
| 23 | various things which we would want to see negotiated? |
88 1 | MS. FOX: Well, as a matter of fact, perhaps once nations have a
| 2 | positive comity agreement which says they are going to assist one another in
| 3 | discovery, it becomes much more inappropriate for them to have laws that say:
| 4 | But when we want to, we're going to block you from discovery.
| 5 | DR. STERN: If you're going to do one thing, you need to adjust
| 6 | the other.
| 7 | MS. FOX: Yes.
| 8 | DR. STERN: And we've only seen the action on the positive
| 9 | comity direction.
| 10 | MS. VALENTINE: So in a sense, Eleanor, wouldn't almost any
| 11 | cooperation agreement or positive agreement be an implicit override of a blocking
| 12 | statute, to some extent?
| 13 | MS. FOX: It might be. It should be. But for government actions
| 14 | only, not for private actions.
| 15 | MS. VALENTINE: That's fair.
| 16 | MS. FOX: And it should be, but it may not be.
| 17 | MS. JANOW: And it would only therefore apply in circumstances
| 18 | where one invokes positive comity, would it not?
| 19 | MR. RILL: It seems to me that this is an area that transcends the
| 20 | cartel enforcement area and gets into the trade and competition area as we were
| 21 | talking about this morning. One of the objects -- and it applies to both areas-- one
| 22 | of the objects of the effort we're looking at now is: What are the practical/
| 23 | procedural -- and they're not always the same -- impediments to cooperation in |
89 1 | enforcement efforts against foreign anticompetitive conduct?
| 2 | MS. FOX: Right. And, we have to ask: What are the causes of
| 3 | resistance to cooperation? The blocking statutes stem from perceived
| 4 | inappropriate extraterritoriality.
| 5 | MR. RILL: One of the concerns that is continually raised is that
| 6 | what, eight countries plus the United States have criminal penalties. I know of
| 7 | only one that has treble damage sanctions. I leave that implication on the table.
| 8 | DR. STERN: Well, some things we may be able to propose -- I
| 9 | mean, there are going to be sets of recommendations as well as identifying
| 10 | impediments. So that's why I was suggesting that we ought to take a look at all
| 11 | three areas in the scope of this study and see where there might be proposed
| 12 | negotiation initiatives.
| 13 | MS. FOX: Right. And picking up what Jim just left on the table,
| 14 | we must have in mind that there are some things that we could offer to get rid of
| 15 | blocking statutes but the cost would be too high. For example, if we were to
| 16 | dilute our treble damage penalties against hard core cartels, that would be
| 17 | counter-productive. We may choose not to sacrifice important tools of
| 18 | deterrence, even though the sacrifice could dissipate a blocking effort.
| 19 | MR. RILL: We've had some papers that have been prepared by
| 20 | Dan Rubinfeld, previous to his current incarnation, looking at the extent to which
| 21 | treble damage -- or multiple damage penalties in this instance -- in the antitrust
| 22 | area are symbolic of over-enforcement or a result of over-enforcement.
| 23 | I think the conclusion is they are not, but I think we should |
90 1 | circulate those papers to the Committee and you all take a look at it and give us
| 2 | your own thoughts. We can recommend anything, including de-trebling. I'm not
| 3 | sure we're prepared to do that, but at least we can propose anything that we find to
| 4 | be desirable.
| 5 | DR. STERN: Merit, are there areas that you and the staff feel
| 6 | needed delving-in deeper for greater clarification, that are on your wish list?
| 7 | MS. JANOW: No. I think we've covered a broad waterfront. I
| 8 | myself very much appreciate this point about thinking of incentives and those
| 9 | things that we could do that would be attractive to foreign jurisdictions. I think
| 10 | the statistics are marvelous. Thank you Gary, very much for that. I think a little
| 11 | more difficult, though, is for us to assess the extent to which blocking and
| 12 | clawback statutes, things that are clearly objective impediments to effective
| 13 | enforcement, are surmountable. That's not a quantitative objection, it's a
| 14 | qualitative one. And my perception is that although those are real obstacles, they
| 15 | can often be surmounted. Maybe, Gary, if you just offered us, you know, a
| 16 | generalized comment as to how serious an impediment those are. Clearly in a
| 17 | more perfect world their elimination would be useful, but as we try and think
| 18 | about what would be the price, we need to also assess the consequence of their
| 19 | existence.
| 20 | MR. SPRATLING: Well, they remain very serious impediments.
| 21 | I was very appreciative of Jim's remarks when he said it's not hard to conclude
| 22 | that international cartels are a problem and I'm glad that our statistics at least
| 23 | show that. But if any of you sat in my chair for just a short time, I don't mean |
91 1 | here, I mean at the Department of Justice -- sat in my chair for just a short time,
| 2 | you would have a perception of a problem that is so much greater than anything
| 3 | that we can provide you statistically.
| 4 | The reason for that is one of the things that we just focused on
| 5 | recently as a measure of the seriousness of the problem, that we shared with Jim
| 6 | and Paula recently, is that in approximately one half of the matters that we
| 7 | investigate a conspirator, in an attempt to obtain leniency from us on the sentence
| 8 | that it will receive, provides us evidence of a cartel in a completely different
| 9 | industry.
| 10 | Now, when you couple that along with the results of our amnesty
| 11 | program, which is where most of our international cartel cases are coming from,
| 12 | those are also situations where someone is coming in and telling us about a cartel
| 13 | that we don't otherwise know about. So, you take in combination those two facts,
| 14 | and you know that we are just catching the tip of the iceberg here. But we're
| 15 | catching it in situations where someone is cooperating. I mean, they are trying,
| 16 | they are provided amnesty, and therefore they're making witnesses available that
| 17 | we otherwise wouldn't have access to. They are making documents available that
| 18 | otherwise wouldn't be in our jurisdiction.
| 19 | In that situation or in the plea agreement situation where the
| 20 | person is seeking leniency and a better deal, they're doing the same thing. And so
| 21 | it is the attempt to get the deal and the incentives that we've set up -- which are
| 22 | new incentives. One of the reasons it wasn't happening in 1991 was because we
| 23 | didn't have these incentives, the incentives we've set up for people to come |
92 1 | forward and to make these deals as they're coming forward and they -- and
| 2 | because of their cooperation we circumvent the traditional obstacles.
| 3 | But if we're going at a matter -- We've got some we're going at, we
| 4 | have got a grand jury investigation that's been going for more than three years;
| 5 | we're nearing the end of the statute of limitations on an international conspiracy
| 6 | that is some of the most egregious conduct you can imagine -- affects billions of
| 7 | dollars -- and we can't break it. We can't break through it because we can't get the
| 8 | discovery. We can't get hold of witnesses and it's a lack of cooperation of one
| 9 | country, it's a blocking statute of another country and so on. We can't get to it.
| 10 | And so they represent very real obstacles. And if we didn't face
| 11 | some of these obstacles in cases, Jim said -- I tried to write down what Jim said
| 12 | towards the end. He said whatever impediments exist, they have not stood in the
| 13 | way of strong enforcement by the Antitrust Division. Well, this -- without the
| 14 | impediments what we have been doing would look like child's play -- we would
| 15 | really be out there. I mean, I said it in another context once when a member of
| 16 | the defense bar said something to the effect that you guys are just knocking the
| 17 | cover off the ball. Well, it may appear that way. But in another sense, we're not
| 18 | even getting the ball out of the infield.
| 19 | MR. RILL: You're not up to 62 homers yet?
| 20 | MR. SPRATLING: No, we're not. We're not. And we're in the
| 21 | early innings of a game. And so anything that the Committee can do, in terms of
| 22 | the recommendations that have been suggested for consideration by staff, in terms
| 23 | of reciprocal agreements and encouraging bilateral agreements and encouraging |
93 1 | reporting by countries -- whatever incentives we can offer -- and encouraging
| 2 | reporting by foreign governments of international cartels that affect U.S.
| 3 | commerce, or assistance in our investigation, any of those things will dramatically
| 4 | improve our international enforcement effort and will really help American
| 5 | businesses and consumers.
| 6 | DR. STERN: Okay, Gary. I feel like we should get out the flag
| 7 | and salute it. That was very, very forceful and puts the whole discussion in
| 8 | perspective.
| 9 | MS. VALENTINE: You want evidence and cooperation from a
| 10 | country and that country might either have an interest in entry into an IAEAA
| 11 | agreement, even if they're just going to be getting civil evidence; let's say they
| 12 | don't have criminal powers. Or they might be interested in an MLAT for other
| 13 | reasons: tax or securities reasons. I mean, is there any way of really pushing
| 14 | countries that might want agreements like that with us -- maybe not even for the
| 15 | reasons that you want them -- that we could work with in terms of trying to crack
| 16 | open some of the countries?
| 17 | MR. SPRATLING: I don't know, and I would turn to Chuck Stark,
| 18 | who is the expert in this area and who has worked on developing so many of these
| 19 | agreements, as to what incentives -- if he's still here.
| 20 | DR. STERN: Let's take a break now. We're going to resume at
| 21 | 2:00 for the discussion on Multijurisdictional Merger Issues to be led by Tom
| 22 | Donilon. If he gets back before 2:00, I suggest we start as soon as we can. So
| 23 | don't go too far away. Thank you very, very much. Thank you, Gary. |
94 1 | MR. SPRATLING: Oh, you're welcome. Thank you.
| 2 | (Recess.)
| 3 | DR. STERN. That is the sound of applause, Tom has arrived.
| 4 | Okay. We're ready to resume. We still have our quorum. I'm afraid we may start
| 5 | to lose people.
| 6 | Thank you so much, Tom, for being willing to begin discussion of
| 7 | the third and last leg of this three legged stool. And we've also got Doug
| 8 | Melamed here and Donna Patterson. And Chuck has decided to actually show his
| 9 | face at the table. So we're ready to roll. We've got the Justice Department and the
| 10 | FTC ready to intervene and comment. But Tom Donilon, as our stalwart member,
| 11 | has volunteered to come forward and open up the discussion on
| 12 | multijurisdictional merger issues.
| 13 | MR. DONILON: Thank you. I apologize for being late. I am
| 14 | glad to see our colleagues from the Justice Department and Federal Trade
| 15 | Commission here. I think there's a lot of information we need to explore as we
| 16 | start on this to make sure we're not reinventing the wheel or are not totally aware
| 17 | of everything that's actually being done in the area of cooperation and merger
| 18 | review.
| 19 | A couple of opening points. First of all, there's a lot of very good
| 20 | existing information on this. Eleanor has done a very good paper, which has been
| 21 | circulated to the Committee. The ABA several years ago had a Special
| 22 | Committee which did a lot of good work on these issues and Merit I know is
| 23 | following up with the ABA with additional projects here. There have been a |
95 1 | couple of good EU explorations of these issues and I think they provide a good
| 2 | resource for us in terms of issue spotting.
| 3 | As I see it, and I'll just try to kick off the discussion, Paula, as I see
| 4 | it, the question presented would be this: At a time of unprecedented international
| 5 | merger activity, and merger activity in general -- mergers, acquisitions and joint
| 6 | ventures in general -- and the resulting multijurisdictional review that takes place,
| 7 | how can the United States government best pursue three goals? One, how to
| 8 | reduce the transaction costs involved in merger review for United States, United
| 9 | States companies. Two, how can the United States best reduce the friction that
| 10 | might come about between jurisdictions engaging in multijurisdictional review.
| 11 | And three, how best can the United States government promote substantive
| 12 | antitrust law convergence, via unilateral, multilateral and bilateral efforts or
| 13 | actions.
| 14 | The setting, I think, is important to understand as well before we
| 15 | get into some of the details as to why we find ourselves in this situation. And it
| 16 | really has two or three elements. One is globalization. The force of technology
| 17 | and trade barriers coming down and market economies on the rise, at least until
| 18 | the last few months, around the world, has produced unprecedented levels of
| 19 | economic activity generally. And this economic activity obviously manifests
| 20 | itself in a lot of different ways including in companies' ability to organize
| 21 | themselves on a global basis in the most efficient way that they can.
| 22 | The level of economic activity, the level of merger activity is seen
| 23 | in the statistics in 1997. There were 10,700 mergers. The value of which was 50 |
96 1 | percent over the value in 1996. According to a recent speech by Bill Baer,
| 2 | currently half of the mergers analyzed by the FTC have some international
| 3 | component to them. Many involve interaction between the competition
| 4 | authorities of this country and the competition authority of other countries.
| 5 | When you combine the forces behind this globalization and
| 6 | increased economic activity with another fact, you have the problem that we're
| 7 | trying to address. And that factor is something that Barry Hawk went over with
| 8 | us, he calls the problem the sheer volume of competition regulation, and Eleanor
| 9 | has identified that in her recent paper as well. By the way, much of this is
| 10 | encouraged by the United States. And of course when you have increased
| 11 | economic activity, and an increase in the sheer volume of merger regulation, you
| 12 | have a lot more multijurisdictional merger review.
| 13 | Today the staff reports indicate that some 60 jurisdictions maintain
| 14 | some level of merger review process, whether it's in the form of mandatory
| 15 | prenotification or voluntary notification or post merger review. And with that
| 16 | comes the need for companies and antitrust counsel to engage in, literally in some
| 17 | cases, global review of merger notification requirements. It could involve in a not
| 18 | atypical merger of a large international company looking at a couple of dozen
| 19 | jurisdictions as to requirements and actually having to file some sort of form in
| 20 | 7-10-12 jurisdictions. That's not an atypical case today faced by United States
| 21 | companies and their antitrust counsel.
| 22 | Of course, with this comes the pitfalls that we're trying to address,
| 23 | the cost, increased cost, potential pitfalls to closing, and obviously in some cases, |
97 1 | outright conflict. Of course the best example of that is Boeing. Although, as I'll
| 2 | discuss in a minute, my own personal view and this view has been formed largely
| 3 | by an article by Debra. The conflict chances are actually overrated I think. I
| 4 | think in most cases these things work quite well. But we can do better.
| 5 | Just to open it up, I would see the issues in four baskets. The first
| 6 | basket is, I think, we can generally call harmonization. The paper that is
| 7 | presented by the staff indicates this is the first basket of issues. And this includes
| 8 | the obvious things, but most importantly, harmonization of forms and procedures
| 9 | and information requests.
| 10 | You have lurking in there, as I said, forms with the two principal
| 11 | types that companies face, the United States form and the EC form. One quite
| 12 | front loaded but with a less of a burden as you go along in investigation. The EU,
| 13 | the EC form. One not front loaded at all but a process that could become quite
| 14 | burdensome at the second phase of the United States approach. But the bottom
| 15 | line of course is that the forms are quite different and the requirements are quite
| 16 | different and is there a way to form harmonization?
| 17 | That's one of the things that we want to talk to our government
| 18 | representatives about, as to what the prospects are for that, what the difficulties
| 19 | would be, hurdles and barriers to doing that. I'm not sure exactly -- from a
| 20 | personal perspective -- what the cost of that is to the United States companies.
| 21 | But it would seem to make sense that if you can make progress in terms of
| 22 | reducing transaction cost, you should do so. Then there is the issue of thresholds.
| 23 | When do you have to file or what are the filing requirements. That's a |
98 1 | complicated issue here in the United States because of the relationship between
| 2 | thresholds and budgets at the Federal Trade Commission.
| 3 | Third of course is timing. There are various time frames that are
| 4 | set forth in statutes around the world. Some of them are quite precise. Some of
| 5 | them are so imprecise that you're not really sure if you can close or not close on a
| 6 | transaction. But again, I'm on the key countries with competition laws. There are
| 7 | different time frames and is it possible to bring them into harmony? And last I
| 8 | think here would be information requested in the forms; and again, that's a point
| 9 | to discuss in the general topic of harmonization. I think that's the first basket.
| 10 | The second basket of issues, I think, would come under the topic
| 11 | of cooperation among merger review entities. Notice, dialogue, relief
| 12 | coordination, deference, comity, and one of the most difficult issues, information
| 13 | sharing. It sounds like a fairly uncomplicated thing at the front end, that two
| 14 | jurisdictions will be reviewing the same transaction that you would be able to
| 15 | share information. Of course that's not the case with respect to confidential
| 16 | information absent a waiver and the two most highly developed -- in the
| 17 | jurisdiction with the most highly developed relationship, the United States and the
| 18 | EC, there are still quite strict limitations on the exchange of information, and with
| 19 | good reason in some cases.
| 20 | Why not have a free flow of information between entities? There
| 21 | are issues lurking there of privileges which are treated differently in different
| 22 | jurisdictions. And how do you justify those in an information exchange regime?
| 23 | It's obviously clearly one that we need to look at. |
99 1 | I, for one, think the cooperation on an informal basis spurred on by
| 2 | the formal arrangements that are in place, the EC/US arrangements that Jim Rill
| 3 | negotiated and put in place in 1991, under those regimes, my experience and
| 4 | practice has been there's quite a bit of informal cooperation between the EC and
| 5 | the United States. Joel Klein, this morning in his opening remarks, mentioned a
| 6 | transaction that Jim and I are quite familiar with, the WorldCom/MCI transaction.
| 7 | I think there was quite a bit of useful interaction between the United States and
| 8 | the EC, and they ended up endorsing the same remedy in generally the same time
| 9 | frame. That is the second basket.
| 10 | The third basket is dispute resolution when the jurisdictions come
| 11 | to different conclusions about the review of the same merger. And the fourth
| 12 | basket is convergence on substance. My own personal bias, if I can take the
| 13 | opportunity to throw all of my own personal biases out in this presentation, would
| 14 | be this: That actual cooperation and procedural convergence ultimately leads to
| 15 | substantive convergence and I think that's the case between the EC and the United
| 16 | States that there has been a convergence in substantive analysis.
| 17 | With that, Paula, that's how I see the general issues. I'm not sure
| 18 | that's totally comprehensive. I certainly haven't tried to unpack each of those. I
| 19 | think it's a reasonable list to start with.
| 20 | DR. STERN: I totally agree. It was very, very helpful.
| 21 | Comments? Reactions to --
| 22 | MR. DUNLOP: Can I make a suggestion? One thing I would like
| 23 | to hear, from our government representatives, is what is the current degree of |
100 1 | cooperation between the United States and other jurisdictions and their judgment?
| 2 | Is it formal enough? Does it happen when it needs to happen? And second, are
| 3 | there efforts under way within the government to think about reduced transaction
| 4 | costs on the first basket of issues, the harmonization basket?
| 5 | DR. STERN: I agree. And the other thing I would like to put on
| 6 | the table is a thought that came up in discussions yesterday, I believe it was, that
| 7 | Jim and I had the opportunity to participate in which I guess comes under your
| 8 | third basket of substantive convergence. That is the suggestion that one other
| 9 | form of bridging, in addition to just getting procedural cooperation, which then
| 10 | should lead to substantive convergence, is on the question and definition of
| 11 | relevant market. How much that can help move into levels of agreement, between
| 12 | the U.S. and the EU at least, toward some ultimate convergence?
| 13 | MR. DONILON: I left out one thing, which is, I indicated that I
| 14 | thought, in the last point here, that cooperation, procedural cooperation, working
| 15 | together would ultimately lead, I think, to substantive convergence. But that's
| 16 | between highly developed competition authorities. And one thing I haven't talked
| 17 | about, which Eleanor can talk about in some length, it is one of the themes in her
| 18 | paper, is the source for competition laws for developing countries. Where they're
| 19 | looking and how we can try to get ahead of the curve on that.
| 20 | DR. STERN: So we can ask the government folks, too, what
| 21 | they're doing in terms of proselytizing, and whether they are contributing to the
| 22 | problem by proliferating more of these reviews or contributing to the solution
| 23 | through, perhaps, some effort to come up with a middle ground that would work |
101 1 | for the entire world, including taking into account the EU model that you quickly
| 2 | spelled out for us, at least as far as the forms are concerned.
| 3 | So Doug, if you and Chuck or Donna want to -- and Debra. That's
| 4 | right. Debra's over here. That's right. You're on the right side of the table.
| 5 | Please jump in. It looks like you're ready to jump.
| 6 | MR. MELAMED: Let me if I can go, before answering some of
| 7 | these questions, comment a little bit on what Tom said at the outset with respect
| 8 | to the goals. Although I think that his analysis is very useful, I'm not sure that he
| 9 | got the goals in exactly the way I would have put them. The three goals, as I
| 10 | understand it, were reducing transaction costs, reducing international friction and
| 11 | promoting substantive convergence. I would have thought that an additional goal,
| 12 | and a very important one, is promoting the sound resolution of merger issues --
| 13 | sound antitrust policy.
| 14 | You could look at that as a fourth goal, or I suppose you could
| 15 | wrap it in to the other three. You could restate one, for example, not to mean just
| 16 | reducing transaction costs, but reducing enforcement costs, and you can define
| 17 | enforcement costs to be the sum of transaction costs and the costs of enforcement
| 18 | errors, and enforcement errors would include both false positives, that is to say
| 19 | challenging a merger that really wasn't anticompetitive, and false negatives,
| 20 | letting a merger go through when you should have challenged it.
| 21 | Another way, or perhaps an additional way, to take account of
| 22 | sound policy as a goal would be to revise the third of Tom's goals so that it didn't
| 23 | read promote substantive convergence, but rather read promote the widespread |
102 1 | adoption and enforcement of sound antitrust policies. I think, in a way, that's the
| 2 | root of the problem, in part because it means that differences between competition
| 3 | policies are not just political questions up for negotiation and compromise and in
| 4 | part because it may be that what is sound competition policy for developed
| 5 | economies or large economies, such as the United States, would not be sound
| 6 | competition policy for an emerging economy or an economy of a different
| 7 | culture.
| 8 | To the extent that, for either reasons of differences about what is
| 9 | sound competition policy or for other reasons, there are substantive differences
| 10 | among nations about what they think they ought to be doing in the area of
| 11 | competition policy, we have a potential for conflict. That, I think, is the
| 12 | fundamental reason that we are here today.
| 13 | A couple of thoughts in response to Paula's questions, and I'll let
| 14 | my colleagues elaborate. My sense is that cooperation among agencies,
| 15 | particularly with our sophisticated counterparts in Europe, and in particular in
| 16 | Canada, is really very effective, and there are good working relationships, both
| 17 | interpersonal relationships between the staffs and substantively among them.
| 18 | It is also my sense that, at the professional staff level, there are
| 19 | fewer differences about what is sound competition policy and about how to assess
| 20 | any particular merger, than would appear if you were to ask the agencies to
| 21 | negotiate a common code or even a common premerger notification form. When
| 22 | you put the questions in the abstract, you isolate differences in national style and
| 23 | perhaps differences in substantive policies. But when you get down to the |
103 1 | concrete, and ask what's really the problem with a particular merger and how do
| 2 | we solve it, my impression is that, in the day to day work of the agencies, there is
| 3 | a high degree of good will and procedural cooperation, just as Tom surmised, and
| 4 | that that good will and cooperation leads to a kind of substantive agreement at
| 5 | least with respect to the application of competition principles to the particular
| 6 | case at hand. There is therefore reason to believe that more and more cooperation
| 7 | on specific cases will lead to some kind of de facto convergence among the
| 8 | different competition authorities. My colleagues may want to elaborate.
| 9 | MS. VALENTINE: I fully, fully, support everything that Doug
| 10 | said, and I guess you had one other part of that, which was: Is the cooperation
| 11 | different, shall we say, with more sophisticated, experienced authorities than our
| 12 | work with less experienced authorities. For the most part, I guess all of it is very
| 13 | fact based, practical, cooperation. With the EC we can talk like brothers and
| 14 | sisters and basically can talk about things like market structure and barriers to
| 15 | entry and even about types of market definitions in industries; that dialogue seems
| 16 | to automatically click. With the fair number of South American countries, they're
| 17 | asking absolutely the right questions, but it will be much more, for example, can
| 18 | you get me a case that explains dominance or monopolization in a way that is
| 19 | useful given these facts, or what can you tell me about essential facilities in this
| 20 | area.
| 21 | They're not questions like: How do you deal with small retail
| 22 | stores from an employment perspective? I mean, they're really very serious
| 23 | competition based issues. When we get into your tougher questions about what |
104 1 | do you do, I guess one question is how much you all are willing to take on and
| 2 | push. We obviously thought hard at the OECD about whether we can agree on
| 3 | some sort of common form, and immediately you run into a problem with
| 4 | committed national interests. There is a huge constituency here that believes in
| 5 | the HSR process and believes in the HSR form as it is, and even believes in SIC
| 6 | codes to determine whether there are overlaps in proposed mergers.
| 7 | There's obviously a strong EC commitment to its form, and a lot of
| 8 | this is in legislation that we can't just change overnight. So, in a sense, it seems to
| 9 | me that you and/or businesses have to think about what really matters most.
| 10 | One of the things that I was struck by when you first started
| 11 | thinking about this was the thresholds. I think the one thing that Barry Hawk said
| 12 | that I thought was brilliant was: You know what my hugest transaction cost is --
| 13 | the thing that takes me the longest to figure out -- simply whether I should file or
| 14 | not. That seems to be something that we, in fact, ought to be able to do
| 15 | something about.
| 16 | Thresholds that are vague or unclear aren't particularly useful for
| 17 | us or any country, and they're certainly not useful for you. And I was actually
| 18 | surprised in reading through your materials, Merit, to see how broad and vague,
| 19 | particularly the eastern European standards were, Poland, Romania.
| 20 | What I wonder about there is whether in fact the EC can't exert
| 21 | some more persuasion or pressure on these countries. Because obviously they
| 22 | want to join the EC, and they thus far have set out to adopt EC-like laws. There's
| 23 | no particular reason to make thresholds so low that you capture every merger that |
105 1 | ever occurs on the face of the globe. But the trouble is you always love what
| 2 | you've got. We can't say that Congress hasn't asked us to work hard at our
| 3 | thresholds, and are they keeping up with inflation and things like that. Yet we
| 4 | still are finding problematic transactions at those lower thresholds. One thing that
| 5 | I'm finding sort of interesting is in tricky areas like software and IP where you
| 6 | have intellectual property assets that may not yet have much value, and yet the
| 7 | combination of two firms with IP with little value now, but the whole market
| 8 | tomorrow, can be a huge problem. So I'm not sure I'm going to say our thresholds
| 9 | should go away, but we should at least seek clarity in thresholds and thresholds
| 10 | that are related to the impact of a transaction on that country. I guess -- this is no
| 11 | offense to Eleanor's great one world jurisdiction, but another interesting thing
| 12 | about your comments throughout was, in fact, you did seem to be always asking
| 13 | why are these countries looking at the merger and is there an effect on them?
| 14 | And I did have a sense that there was almost a concession that, in fact, national
| 15 | competition agencies each do have a right to be looking at mergers in and
| 16 | affecting our country and nobody was saying we should hand over Boeing and
| 17 | McDonnell Douglas to a world merger review authority to pull a straw out and
| 18 | decide whether Boeing or Airbus was going to win.
| 19 | So I guess I would pick a couple things to focus on, like
| 20 | thresholds. Time frames I'm sure are also very, very important for the business
| 21 | side. That, though, would take a real push from the business people precisely
| 22 | because our time frames are set in legislation and the EC has a somewhat
| 23 | different system in hard law as well. So I'd pick my battles, I guess, in terms of |
106 1 | how to do this. Because it's not easy.
| 2 | MS. PATTERSON: I basically agree with Debra that those are
| 3 | basically the two items that would make the most sense. At least, from my
| 4 | experience in private practice. It is whether you have to file, and then lining up
| 5 | all the time frames that are the tricky problems. Just filling out a form may be a
| 6 | little onerous, but that's really the least of it.
| 7 | MR. STARK: The only thing I would add to that, and I think it's
| 8 | implicit in what's already been said, is just to note: We've had discussions in the
| 9 | OECD as you know and occasionally bilaterally about the issue of bringing more
| 10 | consistency into the forms and filing procedures in the U.S. and other
| 11 | jurisdictions. And one thing that always becomes clear in these discussions is that
| 12 | the choices that each country makes in terms of what it asks on its form and the
| 13 | threshold it chooses are all interwoven with the other aspect of the system. It's not
| 14 | an easy matter, for example, simply to choose between U.S. filing forms and EC
| 15 | filing forms without also affecting other choices. For example, the level of
| 16 | thresholds in the U.S. are very low relative to EC thresholds and go hand in hand
| 17 | with our choice of having a very low -- small amount of information in our initial
| 18 | filing and the possibility of more information later. The EC, by contrast, holds to
| 19 | a relatively small number of transactions, and so the relative burden of asking for
| 20 | more information up front is in the aggregate smaller, and so many of these
| 21 | considerations are interwoven, and also go even more deeply than that into one's
| 22 | philosophy of merger enforcement; the degree of interventionism that one
| 23 | chooses, the nature and manner of intervention and so forth. |
107 1 | This is not, I think, intended to be inconsistent with anything that's
| 2 | been said, but I think there is this other dimension that needs to be taken into
| 3 | account in looking for solutions.
| 4 | MS. VALENTINE: But I think there's still room for them to
| 5 | accomplish something. Even-- I mean, obviously we did not adopt a federal
| 6 | system. Thankfully Tom does not have to make a decision between filing with 10
| 7 | states or the feds. We have the feds. And we've got an efficient federal-state
| 8 | protocol. And the EC did adopt a very different system there which is partly why
| 9 | the EC's thresholds are high, and you've got member states running around in the
| 10 | ground floors cleaning up the smaller pieces. You still could, at least, ask or hope
| 11 | that countries would have clear thresholds and thresholds that are related to the
| 12 | impact of any transaction on them. You know, regardless of whether you set up
| 13 | at a higher or lower threshold, or a national or federalist sort of system.
| 14 | MR. RILL: I have a couple of observations if I may. One, the
| 15 | problem is going to get more difficult, not easier, with -- I forget Barry's words--
| 16 | but the proliferation of merger control, notification forms, and I don't think we
| 17 | should give up on the notion of trying to deal with Tom's first basket.
| 18 | In the cooperation area, I'm a little perplexed. I heard when I was
| 19 | at DOJ, I continue to hear some concern that the ability to share information is
| 20 | limited by confidentiality statutes, protections here and else where. The IAEAA
| 21 | does not apply to mergers, or at least it doesn't apply to Hart-Scott materials.
| 22 | What I'm hearing today is that that's not a real problem, and that cooperation can
| 23 | be perfectly effective without any modification of confidentiality protections here, |
108 1 | or for that matter, elsewhere.
| 2 | MS. PATTERSON: Assuming the merging parties want there to
| 3 | be cooperation. That's something that parties gain.
| 4 | MR. RILL: What I'm hearing is -- that's an important part. If
| 5 | there's a waiver of confidentiality protections, then there's not a problem because
| 6 | it's waived. But I'm hearing that it's not a problem even where it hasn't been
| 7 | waived. If that's the case, then we can get that off our agenda and go on to think
| 8 | about other things. Before we do that, it would be very interesting from both
| 9 | Debra's jurisdiction and Chuck's to know precisely what is being shared now. I
| 10 | mean, obviously not in specific cases, but what information do the agencies feel
| 11 | that they can share now with our foreign counterparts, so that this cooperation can
| 12 | go as smoothly as it is, without our needing to tamper with the system or
| 13 | recommend tampering with the system to break through confidentiality
| 14 | restrictions by suggesting a modification to the IAEAA or whatever.
| 15 | MR. STARK: There are different modalities of cooperation. What
| 16 | may be an adequate level of cooperation for one transaction, may just not do the
| 17 | job in another transaction. The recent WorldCom/MCI transaction that we've
| 18 | already talked about --
| 19 | MR. RILL: That was a waiver.
| 20 | MR. STARK: -- Precisely right. Because of that waiver, we were
| 21 | able to engage in close coordination with DG-IV. It would have been wholly
| 22 | impossible in the absence of that waiver. The cooperation in that case would have
| 23 | been considerably different and more limited, and I think that would be less |
109 1 | effective had we been unable to operate as closely together as we did because we
| 2 | weren't inhibited in sharing information that the companies had provided.
| 3 | MR. RILL: What I'm hearing you and Donna say is that absent a
| 4 | waiver it is a real problem.
| 5 | MR. STARK: Absent a waiver, we certainly could not cooperate
| 6 | as closely as some cases would seem to call for.
| 7 | MS. VALENTINE: I can try to give some examples at a slightly
| 8 | less abstract level. What we share is what I might call agency confidential
| 9 | information, and what we don't share is obviously company confidential
| 10 | information. There are times when you can talk somewhat abstractly about
| 11 | product markets or geographic markets, and if you both say, gee it looks like in
| 12 | this particular transaction the product markets would logically be X, and you both
| 13 | come up with the same thing without seeing or sharing any of the confidential
| 14 | data on which you're basing it, you're fine. If you end up with different
| 15 | approaches and interpretations, and there's no sharing of confidential information,
| 16 | you're totally stuck. You don't even know where to go with each other for the next
| 17 | step. That's one place where you sort of get bogged down. So as long as you
| 18 | have very like minded authorities thinking along similar lines, even without being
| 19 | able to share confidential information, it occasionally can work by sort of perfect
| 20 | chance, everyone's thinking alike. But there are many things that we may not
| 21 | know about their markets, and they don't know about our markets that we can't
| 22 | share, and we start coming up with different approaches, and we can't figure out
| 23 | why the other one is thinking about it that way. |
110 1 | The second problem is in the remedial area. There we often get to
| 2 | a point where it's pretty clear that one or the other of us wants a slightly different
| 3 | remedy, but without being able to truly share confidential information, we can't
| 4 | come up with perhaps the remedy that would work for both authorities and in fact
| 5 | be best for the parties and not impose conflicting obligations on them. So there
| 6 | are times when we've come up with beautiful remedies that satisfy everybody's
| 7 | concerns because we have had the information and there's been a waiver. And
| 8 | there have been times when the parties will go through the whole remedial
| 9 | process with the EC, maybe hoping that they'll have to give less there, even
| 10 | though they knew that we had a bigger problem. They'll come to us, and they'll
| 11 | find out that yes in fact they have to give up more and then they have to go back
| 12 | to the EC and renegotiate the whole thing.
| 13 | MR. RILL: But just a quick follow-up on that, waivers are
| 14 | obviously very important. Without being company specific, do you find that
| 15 | there are more difficulties getting a waiver from a company located -- domiciled
| 16 | overseas than there is from a United States company? The reason I ask is that in
| 17 | some conversations I had with some in-house counsel and others in the context of
| 18 | ICC, U.S. Council and other meetings, there's a real reluctance to encourage
| 19 | information sharing with the United States; suspicion that it will get to the states;
| 20 | suspicion that it will get to other private treble damage litigants; suspicion that it
| 21 | will somehow be leaked; none of which, in my experience, is justified, but
| 22 | nonetheless is there. And I wonder how much of a practical problem it is to get
| 23 | waivers from companies located overseas. |
111 1 | MR. YOFFIE: Before we get to that, John and I are going to have
| 2 | to leave in a second. I wanted to throw out one other piece that Debra raised just
| 3 | to keep on the agenda. If we were thinking about the problems of mergers going
| 4 | forward for the next 10 years, the issue of compressing the time frame becomes
| 5 | more of an issue rather than less of an issue. In high-technology, particularly
| 6 | electronics, computers and software, the delays that are experienced in today's
| 7 | reviews can be deadly to the mergers themselves. If we start to extend those to
| 8 | multinational reviews, you potentially destroy their value. I think that's much less
| 9 | of an issue up to now because there haven't been that many significant electronic-
| 10 | based mergers, but that is likely to become more significant just because they are
| 11 | becoming larger in number and more important in the economy. Therefore
| 12 | compression of time frames becomes far more important going forward. I have
| 13 | seen through my position as a board member of Intel, that the Hart-Scott-Rodino
| 14 | process has led to significant destruction of value. Just that six or nine month
| 15 | process, which you would think would have been less, can lead to huge
| 16 | destruction of value because of the inability of companies to do what they wanted
| 17 | and the loss of business that happened in the interim.
| 18 | DR. STERN: To add to that, we were hearing yesterday from one
| 19 | of the counsel involved in a number of mergers the point that there's a chilling
| 20 | effect on R&D, on melding cultures together, particularly in high-tech areas
| 21 | where the R&D scientists are important and they don't really know where they're
| 22 | going to be doing their science because physically they may have to move. These
| 23 | costs are hard to quantify, but as you said, they can destroy a great deal of the |
112 1 | value of a merger. And I think it's easier for business people to understand that
| 2 | problem than it may be for those who are busy in the trenches trying to fill out the
| 3 | forms and cross all the Ts and perhaps even prepare for a possible appeal of a
| 4 | regulatory decision.
| 5 | MR. RILL: Former commissioner Terry Calvani, two of his
| 6 | former executive assistants are in the room, used to say that he would require
| 7 | every new lawyer and economist at the Federal Trade Commission and the
| 8 | Department of Justice to comply with a second request and to fill out a Hart-Scott
| 9 | form.
| 10 | MS. VALENTINE: Just maybe one defense there for the agencies:
| 11 | Often the deals would be two years in the formation. Often there would be
| 12 | information requested that's not given. Often there will be suggestions for
| 13 | modifying proposed divestitures that are struggled with for a year. It happens on
| 14 | both sides and both sides are able to increase the speed of the process I'm sure.
| 15 | MR. MELAMED: One thought from my perspective. I think this
| 16 | is a very important topic because we often hear from the parties that we're going
| 17 | to kill the deal. And I assume that is sometimes true. But it's very hard, from my
| 18 | perspective at least, to get our arms around it and to know when it's true and how
| 19 | much of it is true and so on. It might be, I think, very useful for this Committee
| 20 | to draw on academic literature or whatever and to be more precise about the
| 21 | magnitude of this effect, the circumstances in which it does or doesn't exist and so
| 22 | on.
| 23 | DR. STERN: You're right. And that's part of our questionnaire |
113 1 | that we've sent out, please give us some examples and perhaps David you ought to
| 2 | give us -- well you've already put it on the record what you've just said, but if
| 3 | there's more elaboration based upon your experience --
| 4 | MS. PATTERSON: I think those concerns are true in every
| 5 | industry not just high-tech industries.
| 6 | MR. YOFFIE: There's a special problem in industries with very
| 7 | short life cycles. If the process of review goes through the entire cycle of a
| 8 | product, then a variety of things happen during that merger process: very highly
| 9 | qualified people leave, deals don't get completed, slippages can take place, and in
| 10 | some cases, in a matter of weeks or months. And if that happens, then you
| 11 | destroy value, which is not as true in the automobile industry or service industries or industries
| 12 | in which the cycles themselves are inherently slower and are much
| 13 | less contingent upon small events.
| 14 | MR. RILL: I think Doug is right that we need to find a way to get
| 15 | our hands around it because I think it's a very thoughtful point. It's a good one.
| 16 | MR. YOFFIE: It's a new problem. High-tech mergers have not
| 17 | been around -- there haven't been a lot of high-tech mergers that have been
| 18 | subject to these kinds of reviews in the past.
| 19 | MR. MELAMED: Is this really different? Is it qualitatively
| 20 | different, from a public policy point of view, from the more old-fashioned
| 21 | problem that intervening changes in financial markets can crater a deal?
| 22 | MR. RILL: I think it's more like a problem that quite often affects
| 23 | the acquired company, in a variety of industries which are particularly susceptible |
114 1 | to employee mobility and public reaction to a merger. I think of retailing, for
| 2 | example, where a delay after public announcement can cause a deterioration of
| 3 | the acquired assets.
| 4 | MS. PATTERSON: And make it really not at all what the
| 5 | acquiring company wanted.
| 6 | MS. VALENTINE: His problem is somewhat inherent to any
| 7 | product with a six month life cycle.
| 8 | DR. STERN: It's additional. You can get the cratering of the
| 9 | stock market and the financial changes. And you can also get the customer's
| 10 | wondering if the company is still going to be around and be a reliable shipper and
| 11 | supplier. But then it's compounded when the product life is only six months old.
| 12 | MR. STARK: I wonder whether the value to society is different
| 13 | than the case David described, in which the value is lost because some kinds --
| 14 | MR. RILL: The whole issue is the question of the impact of delay
| 15 | of agency review to the extent that that has a negative effect.
| 16 | MR. YOFFIE: Again, it's hard to know. In some cases there may
| 17 | be a loss of innovation, for example, because you acquire a work force that is no
| 18 | longer able to work collectively on the problem. That is a very hard quantifier.
| 19 | DR. STERN: Has there ever been an attempt to measure?
| 20 | MR. YOFFIE: No. We might ask Mike Scherer when he's here in
| 21 | November. If anyone had tried to do it, Mike would have been the one, I suspect.
| 22 | MR. DUNLOP: Give him a ring on Monday.
| 23 | MR. YOFFIE: Well, John and I actually have to catch a plane |
115 1 | back to Boston.
| 2 | DR. STERN: Well thank you so much for your participation.
| 3 | MR. RILL: I thought I had a question pending. I forgot what it
| 4 | was. Does anybody remember?
| 5 | MR. STARK: You asked if there was a difference in foreign firms
| 6 | versus United States firms regarding waiver requests. I can't speak to the FTC's
| 7 | experience. I don't think ours is extensive enough to give you a reliable answer.
| 8 | Of the firms I can think of that have been willing to waive in those situations, the
| 9 | majority have been U.S. firms; the foreign firms I can think of are firms that are
| 10 | used to dealing on a global basis and have a history of dealing with the U.S. as
| 11 | well as foreign authorities. So their perspective may not have been a wholly
| 12 | foreign perspective in that sense. At the same time, though, I can't think off hand
| 13 | of any specific situations in which waiver requests have been denied either by
| 14 | U.S. or foreign firms.
| 15 | MS. VALENTINE: I think what we tend to see is that, for the
| 16 | most part, there's no difference probably because these firms tend to be
| 17 | represented by the same sophisticated U.S. lawyers. In fact, what my sense is is
| 18 | that the more experienced the lawyers are in working both with us and DG-IV, the
| 19 | more likely they are to in fact agree to a waiver.
| 20 | MR. RILL: Maybe this is a problem, like the discussion we just
| 21 | had, that is a deteriorating problem and one that's going away with more
| 22 | experience and greater comfort levels dealing with both agencies. I'm really
| 23 | reflecting -- things like comments of foreign organizations when the 1998 US-EU |
116 1 | agreement was put on the table. There was virtually a hysterical response, and I
| 2 | don't mean funny, from one of the foreign companies which I shall not name, that
| 3 | this was going to divulge trade secrets to the Attorney General of any one of the
| 4 | 50 states here. I think you're right. I think it probably is a problem that's going
| 5 | away and maybe it's not one that deserves a great amount of attention from this
| 6 | end but we need your input, and also input as to types of things that Debra is
| 7 | talking about, what is being shared now.
| 8 | DR. STERN: I'd like to follow up on Tom's question. Chuck and
| 9 | Doug and the others of you can tell us what the status of negotiations to advance
| 10 | and formalize and build on cooperative agreements, which started to take form in
| 11 | '91 and again in the '98 agreement that was recently signed. It's my
| 12 | understanding, based on the federal register notice of U.S. Trade Representative,
| 13 | that, at least in the context of his Transatlantic Economic Partnership talks that
| 14 | President Clinton and Prime Minister Blaire kicked off in May of this year, that
| 15 | competition policy is on the negotiating agenda. Therefore, I would like to know
| 16 | what role Justice and the FTC are playing in shaping the U.S. wish list, the U.S.
| 17 | negotiating agenda with the European Commission in that negotiation. I guess
| 18 | the question was clear.
| 19 | MR. RILL: The question was very clear. I'm just not sure of the
| 20 | answers.
| 21 | MR. STARK: The easiest part of that question to answer while we
| 22 | are here is to the extent that these talks do involve competition policy, antitrust
| 23 | specifically, the antitrust agencies will be the ones who shape that agenda. But I'm |
117 1 | reluctant to be any more explicit about what that might be.
| 2 | DR. STERN: I don't understand your response. What did you
| 3 | say?
| 4 | MR. STARK: That I'm inhibited about being any more explicit
| 5 | about the content of what might be discussed in that context.
| 6 | DR. STERN: Do we have a list of -- a wish list -- an interagency
| 7 | wish list for negotiation? Has it been drawn up?
| 8 | MR. STARK: I don't know what I can appropriately say in
| 9 | response to that, Paula. I'm not trying to be coy. It's just that by custom, we don't
| 10 | tend to talk about, at least in the antitrust area where we have had antitrust
| 11 | negotiations in the past, the subject matter of those negotiations in advance of
| 12 | their conclusion. So I'm only responding by habit. I don't mean to be
| 13 | uninformative in that context.
| 14 | MR. MELAMED: To the extent that what we think of as
| 15 | competition and antitrust-type issues are to be talked about, we are very much
| 16 | involved in developing the position of the United States. And, there is dialogue
| 17 | within the government as to what the broader wish list will look like.
| 18 | DR. STERN: Is there a time frame? Does this Committee, in
| 19 | order to be relevant, need to be aware of the status. And if you're reluctant to talk
| 20 | about it in public, is it possible that we can get some sort of a briefing memoranda
| 21 | that gives us --
| 22 | MR. RILL: As a lawyer, let me say this, Paula. We have a
| 23 | problem receiving confidential information because we can't protect it. |
118 1 | MR. MELAMED: I am not aware of any short-term event that
| 2 | will materially affect the relevance of this Committee's work.
| 3 | DR. STERN: Because I understand that the TEP had an 18 month
| 4 | time table starting last May. Okay. I guess we'll have to define short term.
| 5 | MR. RILL: Do you have anything to add to that answer?
| 6 | MS. VALENTINE: No, but I'm happy to return to waivers.
| 7 | DR. STERN: Go ahead.
| 8 | MS. VALENTINE: I was just following up on your question.
| 9 | MR. DONILON: It's my previous experience that the State
| 10 | Department with respect to negotiating positions, was that it should be made
| 11 | public way in advance of negotiations.
| 12 | DR. STERN: Sir Leon has told us what he wants.
| 13 | MR. DONILON: I have some more specific things I want to nail
| 14 | down to take advantage of the government representatives being here. One is on
| 15 | waivers and confidentiality. One of the principal recommendations of both the
| 16 | 1991 ABA Special Committee Report and of the Wood-Whish report was that
| 17 | steps be taken by countries to change legislation to allow greater exchange of
| 18 | confidential information. Is that something that we should look at hard because
| 19 | we've discussed there are a lot of issues lurking there if you really get into it. But
| 20 | is that something from the government's perspective, that is a useful thing for us
| 21 | to examine and spend some time on? I guess better put, would it be material in
| 22 | terms of effective merger review in a multijurisdictional setting, for you to have
| 23 | more ability to exchange confidential information without us seeking the waiver |
119 1 | of parties.
| 2 | MR. STARK: I have to defer to the people on either side of me,
| 3 | and Joel, for that from a policy level. But I believe a little bit of history may be
| 4 | relevant to it. When we first developed the idea of what became the IAEAA, our
| 5 | initial proposals were not limited to nonmerger investigations. But in our
| 6 | discussions with both the Congress and business community representatives, it
| 7 | became clear that the limitation that eventually was incorporated in the bill was
| 8 | the only way in which we were going to get legislation. So we agreed to that
| 9 | limitation in order to get the information sharing leeway that we have in other
| 10 | areas.
| 11 | MR. DONILON: But limitation -- it sounds -- I'm following up
| 12 | on Jim's point that the limitation hasn't been a huge barrier to effective
| 13 | multijurisdictional review to date.
| 14 | MR. MELAMED: I think that the bottom line is that, purely from
| 15 | the standpoint of expediting cooperation among the agencies and perhaps both
| 16 | reducing frictions and improving the quality of their decisions, you would not
| 17 | want to have that limitation. On the other hand, as Debra points out, increasingly
| 18 | sophisticated counsel and sophisticated clients are consenting to the exchange of
| 19 | information and, thus, in effect, are working around the fact that we don't have a
| 20 | legal right to do it without consent. So you have to weigh the incremental benefit
| 21 | of changing the law against the likelihood of getting that change made.
| 22 | MS. VALENTINE: I guess what I would add to Doug, as I pretty
| 23 | much agree with him, is that in the best of all possible worlds, you can propose |
120 1 | that all countries should enact statutes that allow them to share confidential
| 2 | information. We'd love to have IAEAAs with all sorts of countries, and so forth.
| 3 | As a practical matter, what you might be able to do that would be almost as
| 4 | effective, would be to come up with a sort of model waiver form. I think what
| 5 | we're finding -- sophisticated counsel is one thing, and they're happy to waive
| 6 | because they know what's going to happen and they trust us. I think if other less
| 7 | sophisticated parties and counsel understood better their rights; what in fact
| 8 | would be shared, what wouldn't be shared; that it would not be passed on, all the
| 9 | procedural protections that, in fact, it would facilitate the process. It doesn't have
| 10 | to be that this model would be used, but just that it would serve as a template that
| 11 | people could fall back on so they understood what it was all about.
| 12 | MR. DONILON: I wanted to ask a question about timing. And I
| 13 | understand the number of enforcement issues that you might get into if you adopt
| 14 | a proposal like the one I talk about. What would be, do you all think, the practical
| 15 | implication of having a deadline on merger review, beyond the obvious one of it
| 16 | would have to be dealt with of the companies involved not cooperating fully
| 17 | within a relevant time frame. I assume you could address that and get extensions
| 18 | in the face of noncompliance. Obviously there are deadlines in the EC system,
| 19 | and I'm asking this without any prejudice, what would be, you think, the practical
| 20 | effect, the ability of the agency to actually do its job of having certainty, which I
| 21 | think there's a certain value to.
| 22 | MS. PATTERSON: We have a deadline now which is keyed off
| 23 | the parties' compliance. Then we have 20 days. There are negotiated extensions |
121 1 | in many, many cases, although not in all that cause parties to understand the
| 2 | reality of our alternatives. We have to sue them. If they really think they can
| 3 | convince us not to sue them, they continue to talk to us rather than undergo that. I
| 4 | would be reluctant to have a deadline that didn't impose a deadline on the parties
| 5 | for their compliance because I think we have enough problems now with
| 6 | compliance that we try to work around. We need the information in order to do
| 7 | our job.
| 8 | MR. RILL: I want to react to that. You're absolutely right.
| 9 | Legally there is a fixed deadline, 20 days after substantial compliance.
| 10 | Substantial compliance can and has been a bear. It is, I think, for purposes of the
| 11 | purview of this Committee, a particular bear in transnational mergers where
| 12 | you're dealing with locations around the world and translations. If the Europeans
| 13 | can make a decision, the European Commission can make a decision within a
| 14 | fixed time frame -- maybe four months after the beginning of Phase Two, isn't
| 15 | that the right number -- and subject to Tom's very important assumption that
| 16 | there's a way to make sure that the parties cooperate, and we'd have to work with
| 17 | that, why shouldn't this Committee at least consider whether or not a similar time
| 18 | frame might not serve two useful purposes. One is uniformity and the other is
| 19 | quite frankly, responding to the, I think we have to say not always wrongly based
| 20 | concerns of the business community that compliance with a second request is
| 21 | sometimes unduly burdensome and on occasion even documents that are
| 22 | submitted aren't always read.
| 23 | MS. PATTERSON: Well, Debra graduated from law school and |
122 1 | she was a class ahead of me so I'll let her go first.
| 2 | MS. VALENTINE: I don't think I'll take on the scope of the
| 3 | second request except to say that I think we are narrowing it more and being more
| 4 | careful in crafting it. But seriously on the time line, an arbitrary deadline, I think
| 5 | if we go back to Doug's reworking of what are our goals, that you probably would
| 6 | have more type 1 and type 2 errors. I think that there have been instances where
| 7 | we have had a little more time to look at a transaction than the EU has, and where
| 8 | we have gotten more sound economic result and/or a remedy is more precisely
| 9 | crafted and targeted at the real problem. I would not want to give up superior
| 10 | results for just arbitrary deadlines.
| 11 | MR. RILL: Only comment I would make is -- I don't want to
| 12 | infringe on Donna's time. But the only comment I would make to that is that,
| 13 | presumably, there would be a way for the parties to voluntarily extend that time
| 14 | period.
| 15 | MS. PATTERSON: Chuck appropriately just said to me that a big
| 16 | difference between the U.S. enforcements and the EC is that they have to make a
| 17 | decision. We have to be prepared to go to court tomorrow. There is that
| 18 | difference in our functions. But I think the scope of a second request and the
| 19 | difficulty in complying often gets used when it's not the real problem. My
| 20 | experience in private practice was if you're willing to be very open with the
| 21 | agencies and go in when you make the first filing -- and you do this all the time --
| 22 | and start making your pitches and pull together what you know is the information
| 23 | that the agency really wants, you can expedite these things. They don't have to |
123 1 | take forever.
| 2 | I think people get into struggles sometimes that are completely
| 3 | unnecessary because either the client doesn't want to do it that way, the lawyer
| 4 | doesn't, the agency, but I think these are solvable problems that don't necessarily
| 5 | have to do with whether second requests are --
| 6 | MR. RILL: I think it's something we should look at.
| 7 | MS. PATTERSON: And I don't disagree with that.
| 8 | MR. RILL: The argument that you have to go into court, whereas
| 9 | all the EU has to do is in effect wave a magic wand and the merger dies, I'm not
| 10 | persuaded by that argument. You're ready to go up and recommend a challenge;
| 11 | you can fill out around the fringes. You're not blocked from getting further
| 12 | discovery. You're ready to recommend a challenge. I think you can do that in a
| 13 | reasonably -- and have -- in a reasonably expeditious time dimension.
| 14 | MR. MELAMED: One comment on that. It is not just that the
| 15 | agencies need more time to prepare for the trial. In that sense, what you're saying
| 16 | is largely correct. But there's another dimension to the fact that we're engaged in
| 17 | law enforcement, not regulation, which is my shorthand. The focus on law
| 18 | enforcement is a discipline to our process that I don't believe necessarily exists
| 19 | elsewhere in more regulatory contexts. We don't just look at a few facts, take a
| 20 | few depositions and intuit that the merger is a good thing or a bad thing. We have
| 21 | to ask ourselves, how do we prove it? How is this going to look to a judge? How
| 22 | are we going to reconcile our position with the law? I think it's a healthy
| 23 | discipline on the agencies because I think it prevents them from being too hasty to |
124 1 | reach and announce conclusions. But it also means that we need a more detailed
| 2 | and labored process.
| 3 | MR. RILL: I take your point. I just think it's one that we've heard
| 4 | enough from private practitioners and some of us from our own experiences that
| 5 | think this is an important issue and one that's particularly relevant to global
| 6 | mergers. And I appreciate your input as part of our looking at this.
| 7 | DR. STERN: Right. And listening to some of the practitioners, I
| 8 | guess some of the arguments include the fact that often regulators on both sides of
| 9 | the ocean come out agreeing on the merits of a proposed merger. And
| 10 | practitioners comment that they feel that there is an increasing thoroughness on
| 11 | the part of other authorities as well. We have also been hearing that there seems
| 12 | to be increasing cooperation. So all of that suggests that there is convergence of
| 13 | standards. So if you have convergence there, it suggests U.S. authorities desire to
| 14 | prepare for going to court may not be dictating a difference in completeness that
| 15 | is conducted by different authorities. So we need to get the stories straight here.
| 16 | And we're now, I think, honing in on it.
| 17 | MR. DONILON: I take it -- the point about the philosophical
| 18 | principle approach is an important point for us to understand. There's the
| 19 | Department and the Federal Trade Commission trying to do something; are trying
| 20 | to, through a disciplined process, make a law enforcement decision about whether
| 21 | they should act against private parties. I think his point is well said in addition to
| 22 | you have to go to court point. But nonetheless, I think it's something we should
| 23 | take a look at because you do hear from business, and among private practitioners |
125 1 | a lot about the cost of this process and the delay. And David made a good point
| 2 | before about that the increasing importance of that in the high-tech industry and I
| 3 | think it is, Doug, a qualitatively different issue than a financial issue when you
| 4 | have whole products that may or may not be created in a relevant time frame
| 5 | because the deal can't go through. Jim's point, in a period where we are having a
| 6 | dramatically increased number of multijurisdictional or multinational mergers, the
| 7 | burdens are increased because of document production, translation, et cetera. I
| 8 | want to correct one thing -- make a comment on one thing on the record here in
| 9 | response to, I think, what Debra said, about thresholds. I think it is a very
| 10 | important issue and one we should look at given that most mergers are not
| 11 | challenged. Although I take your point that you have seen mergers near the
| 12 | threshold nonetheless can have a significant impact, an adverse impact from a
| 13 | competitive point of view. You don't lose the ability, obviously, to take
| 14 | enforcement action against such a merger because there hasn't been a filing.
| 15 | MR. RILL: That's a very good point. If the merger is going to
| 16 | cause a problem, I think the likelihood is overwhelming that you're going to find
| 17 | out about it from customers or competitors, even if there's not a filing. I don't
| 18 | think anybody's going to be so reckless in the face of a CID to close -- well, some
| 19 | might -- if you asked them for an opportunity to take a look at the transaction.
| 20 | MR. DONILON: Admittedly --
| 21 | MS. VALENTINE: It's a question of whether HSR should exist
| 22 | and whether Congress was actually right.
| 23 | MR. DONILON: I want to respond to your point that we should |
126 1 | look at whether or not the thresholds here are too low. But you had a caveat to it,
| 2 | which is, in fact, there can be a transaction that can be in the low end of the
| 3 | threshold but nonetheless, in an emerging industry particularly a high-tech field,
| 4 | can be an important merger at the beginning of the creation of a product or a
| 5 | system. I just want to make the point we don't pass totally on it. You don't have
| 6 | the same leverage that you have but you don't have the inability in the law to
| 7 | challenge that merger.
| 8 | MS. VALENTINE: I don't debate your legal point. Obviously,
| 9 | yes, we can challenge it. Would assets be scrambled? Would work forces be
| 10 | combined? Would confidential information be shared, et cetera, et cetera? Yes.
| 11 | So, all things being equal -- and we haven't really even gotten into whether all of
| 12 | these other countries should be having premerger notification laws -- I think, my
| 13 | personal belief is that premerger review really does serve a very important
| 14 | structural purpose and that preventing a new concentration before it happens is a
| 15 | lot more effective than trying to bring monopolization cases later.
| 16 | I can understand why premerger review has become something of
| 17 | a gospel and why developing countries might well think it's worthwhile. Eleanor
| 18 | and I had a little sidebar before we started: Peru is an example where they haven't
| 19 | adopted premerger notification and they actually would like foreign investment
| 20 | and possibly some sort of breaking up of whatever, the 20 old families' intense
| 21 | concentration of assets. But at base I believe in premerger review.
| 22 | MS. FOX: Did you want to make a proposal?
| 23 | MR. DONILON: I was waiting for the response that they were |
127 1 | going to raise the threshold.
| 2 | MS. FOX: Your first question, Tom, was how can the U.S.
| 3 | government reduce transaction costs for U.S. companies. We might expand the
| 4 | question to add: How can the government eliminate unnecessary transaction
| 5 | costs? We might try to eliminate unnecessary transaction costs for multinationals
| 6 | -- not necessarily U.S. companies -- and hope that other countries will do the
| 7 | same.
| 8 | On the transaction cost problem, I participated in conferences with
| 9 | a number of our colleagues where we met with private bar, and one overriding
| 10 | problem seems to be multinational mergers require filings in so many
| 11 | jurisdictions, in so many inconsistent ways. Only a small percentage of those
| 12 | mergers result in competition problems, and a very small percentage is
| 13 | challenged. There has been a proliferation of premerger notification
| 14 | requirements, with agencies in many countries trying to do the same thing, trying
| 15 | to figure out whether the merger is anticompetitive (though of course sometimes
| 16 | markets differ and sometimes standards differ).
| 17 | It seems rather bizarre to me to have so many costs, so many
| 18 | delays, for such little yield. Should we rethink thresholds? Maybe nations that
| 19 | represent only a very small share of a transnational market could waive their
| 20 | requirements. Maybe if, say, five of 10 filing jurisdictions are only marginal to
| 21 | the market, the marginal jurisdictions could accept mutual recognition of forms
| 22 | filed elsewhere, or simply no filing. Experts who do multijurisdictional filings all
| 23 | of the time should propose solutions that make practical sense. |
128 1 | Your second question was: How can the U.S. government reduce
| 2 | frictions between jurisdictions? And on that, were you mostly talking about
| 3 | substantive frictions? Let me hold that until last. I wanted to say a little more on
| 4 | that.
| 5 | The third one, how best could we produce substantive
| 6 | convergence. I agree with everyone that a lot of substantive convergence has
| 7 | been produced. I think there are a couple of sides to this problem. One is that the
| 8 | jurisdictions that aren't so familiar with antitrust really want to learn. And the
| 9 | more we cross-fertilize the more they learn. And the more they are on our
| 10 | wavelength, or EC's, or whatever, they'll accept what the industrialized countries or the countries
| 11 | with a lot of experience are doing.
| 12 | There is a core, though, where there are different goals and we
| 13 | might claim that ours is the best. We might claim that we may know how to
| 14 | decide which are good mergers and which are bad mergers, but other countries
| 15 | might disagree. I really think that, at least unless there are significant spill over
| 16 | costs like raising consumer prices in the rest of the world, we should definitely let
| 17 | countries choose how they want to skew their merger law. If, to them, there is a
| 18 | principle of market access in mergers, we ought to let them apply their principles
| 19 | up to the point where they're sanctioning a merger that has significant
| 20 | anticompetitive costs, consumer costs, outside of their country. So I'm all for a
| 21 | lot of freedom of nations to write their merger law the way they want to; to write
| 22 | their standards the way they want to. There is one anchor. I think almost every
| 23 | country will say it's interested in looking at consumer welfare in one way or |
129 1 | another. Some countries apply different considerations as well.
| 2 | I guess that also covers, in some way, Doug's proposition. We
| 3 | should promote sound resolution of merger cases. I think that it's really fine and
| 4 | good for us to be giving information to countries, like Indonesia or Bulgaria or
| 5 | whatever, to explain how we understand the merger law and what are the costs of
| 6 | disallowing mergers that have no anticompetitive effects. I think that's a very
| 7 | good thing that we should be doing.
| 8 | As to substantive clashes, I think that one of the problems is
| 9 | national industrial policy, and national champions. And I think there's a
| 10 | possibility of an agreement among nations to not let anticompetitive mergers with
| 11 | large spill over effects go through for national industrial policy reasons. Mergers
| 12 | in one country or several countries may have large anticompetitive spillover
| 13 | effects in the world. I don't think the home country should "beggar its
| 14 | neighbors," basically. I think also that when countries apply values that are not
| 15 | competition or even not consumer welfare values, they ought to make them
| 16 | transparent. I think it's very useful for every country to have guidelines so that
| 17 | people are clear what is the standard in that country. And if they are going to use
| 18 | national industrial policy trumps that may be permissible, like national defense, it
| 19 | ought to be out in the open.
| 20 | I think there's a possibility, on clashes, of having some rules of
| 21 | priority, although they are very difficult to design. One can think about
| 22 | McDonnell Douglas. Should the United States have had priority on the question
| 23 | whether to prohibit the merger? I'm a little nervous when I suggest this because |
130 1 | the only claim for priority is that the assets are here and there are no assets in
| 2 | Europe. But the market is worldwide. There are a huge amount of sales into
| 3 | the EU, and there could be a clash of law. I think the best thing to do to prevent the
| 4 | clash is to make sure that countries talk out the problem.
| 5 | If there's a rule against a national industrial policy trumps, it
| 6 | should be clear. Countries should stay in the antitrust framework and not slip
| 7 | over into the trade framework, and they should understand the nuances of one
| 8 | another's law. And if there is a clash, e.g. because of one nation's extraterritorial
| 9 | relief, I think we probably need some kind of dispute resolution to keep that issue
| 10 | an antitrust issue and not let the dispute spill over into a trade war. I think that's
| 11 | all for right now.
| 12 | MS. JANOW: Can I ask a clarifying question? When you spoke
| 13 | of foreign effects, were you suggesting that if there were no harm at home from
| 14 | the merger but the anticompetitive effects were felt abroad that the home
| 15 | jurisdiction should take that into consideration?
| 16 | MS. FOX: I do, but I was saying something narrower because it
| 17 | would be extremely unlikely to have no sales at home. Suppose the
| 18 | Boeing/McDonnell-Douglas merger was price raising, but U.S. authorities
| 19 | support it because it creates a strong national champion.
| 20 | We shouldn't be able to use national industrial policy if the merger
| 21 | is anticompetitive. Many people, especially in Europe, think that the Boeing
| 22 | merger was price raising, and that the U.S. was using industrial policy, though we
| 23 | weren't. |
131 1 | I think that where there are world anticompetitive effects that are
| 2 | significant, a nation should not allow the national champion trump. It's a much
| 3 | easier question if there were no sales in the jurisdiction at all. A country can
| 4 | decide, if there were no sales in the jurisdiction, that it is not going to act. It
| 5 | could decide that.
| 6 | MR. MELAMED: Can I ask a question? What if you have a
| 7 | global market and two merger authorities looking at a merger among megafirms.
| 8 | Both agencies have what we all agree are legitimate, sound competition policies.
| 9 | The former gives a pass to the merger, having determined by its analysis that
| 10 | consumer welfare would be benefited by the merger. The latter does not dispute
| 11 | that conclusion. It simply says the efficiencies are not cognizable and, therefore,
| 12 | the merger violates the law. Is the latter entitled to prevent the merger?
| 13 | MS. FOX: I would start out thinking -- either one has the right to
| 14 | have whichever rule it wants. What I would like to see, I've said this about
| 15 | Canada because Canada counts total welfare rather than a consumer welfare: If
| 16 | Canada wants to apply that formulation, it ought to apply total welfare to the
| 17 | whole area affected. So if a merger in Canada affects Canada and the United
| 18 | States, it should apply total welfare to Canada and the United States, not just take
| 19 | the sum of Canadian producers' interest and Canadian consumers' interest; that
| 20 | seems to be very unfair.
| 21 | MR. MELAMED: Are you going to run for office in Canada on
| 22 | that platform?
| 23 | MS. FOX: No. But nations might reciprocally come to an |
132 1 | understanding -- it's the same way nations have finally decided to keep lowering
| 2 | the trade barriers. There's always a political claim: I don't want to lower my trade
| 3 | barriers; I want to protect my industry against the foreigners. But when you have
| 4 | both sides saying: I realize there are joint gains to be made and there are more
| 5 | gains to be made by agreeing to end discrimination, yes it's possible the countries
| 6 | would agree.
| 7 | Of course, we could allow clashes to happen and not mandate
| 8 | nondiscrimination. We could have one nation saying: it's okay for this merger to
| 9 | go through -- and sometimes the nation might support the merger. (We don't
| 10 | usually say we have a policy to promote a "cleared" merger; we say it doesn't
| 11 | violate our law.) Another country may say as to the same merger: it violates our
| 12 | law. It may give credible reasons why it violates that country's law. And as long
| 13 | as that country is not marginal to the transaction, I think it ought to be able to
| 14 | apply its law.
| 15 | DR. STERN: I was trying to think of a hypothetical where you
| 16 | have two companies merging in the United States but they do not produce in the
| 17 | United States. I keep thinking uranium or nuclear reactors, where you have
| 18 | manufacturers who are doing that, but were just not -- I guess, the U.S. company
| 19 | might produce the turbines and the generators, but not produce the plants. I don't
| 20 | know if there's an example of where you have two home based companies not
| 21 | selling in the U.S. market. They're producing here but they're not selling.
| 22 | MS. VALENTINE: That you can have easily. In the chemical
| 23 | industry you can have that. There is a fascinating case right now, involving some |
133 1 | German and Swiss companies with a mass urinalysis test that all U.S. employers
| 2 | use to screen employees.
| 3 | MS. FOX: There is an example in Germany. The merging
| 4 | companies were producing in Germany and Italy. The merger would hurt China.
| 5 | This was steel tubing for oil wells and it was obsolete technology in the
| 6 | industrialized world. It was a difficult problem. Germany looked at it -- Dieter
| 7 | Wolf -- and said it's not our problem. Giuliano Amato looked at it and said it's
| 8 | unfair for our producers to go ahead and merge where the merger harms the less
| 9 | developed world. And the Italian Competition Authority actually ordered some
| 10 | relief. It was not to not merge, but licensing relief was ordered.
| 11 | I think that is an interesting example and a good example. And I
| 12 | really think in the end you're going to have to start thinking globally on those
| 13 | mergers. This is my problem, because I don't know who is going to be the super
| 14 | authority, and I'm not eager to move to a super authority, but this really is a super
| 15 | authority question.
| 16 | MR. RILL: Should we apply our law or the law of China in that
| 17 | case?
| 18 | MS. FOX: Sometimes that question doesn't really arise. This was
| 19 | the merger of the last two companies in a field. By anybody's standard, it created
| 20 | monopoly power. Very often, and it is the same with a lot of vertical restraints,
| 21 | it's not a question of whose law to apply, because the merger or restraint is illegal
| 22 | by anybody's standard because it's a core restraint. I think that there's going to be,
| 23 | in the future some time, some way to view the problem in a cosmopolitan way |
134 1 | rather than in a national interest way.
| 2 | MR. RILL: You think the United States would view with
| 3 | equanimity the notion that we should apply Italian merger law where there's no
| 4 | effect on the merger law in the United States but only in Italy?
| 5 | MS. FOX: I think that, first of all, Italy or EU would take care of
| 6 | the problem.
| 7 | MR. RILL: It's more of a law school exam question than a
| 8 | practical problem.
| 9 | MS. FOX: On the China aspect, this was a merger to monopoly by
| 10 | anybody's standard. And it was clearly so, apparently. So it didn't matter. But
| 11 | China didn't have the law to stop it. You could say, I don't care about China; or
| 12 | you could say, look these are really world standards. We don't merge to
| 13 | monopoly. There was no national industrial policy. It's just private parties
| 14 | wanting to merge to take advantage of consuming nations that don't have
| 15 | competition law. It's a question. It's there, it's somewhat altruistic; but why do
| 16 | we have a bribery law that says we can't bribe foreign officials? It's because that
| 17 | is the way we do things.
| 18 | MR. MELAMED: Instead of perhaps agreeing on substantive
| 19 | standards that allow each jurisdiction to take into account the interests of the
| 20 | whole world, which would be a massive undertaking, maybe Jim's notion of an
| 21 | effective law principle is the right one with one slight twist. You wouldn't have
| 22 | the United States enforcing Italian law. What you would do is use choice of law
| 23 | principles to say, if Italy is really upset about this merger, even though the United |
135 1 | States likes it, under these circumstances, Italy gets to win that one. In a different
| 2 | circumstance, the United States gets to win.
| 3 | MS. FOX: I do think that choice of law is the solution to a lot of
| 4 | these problems. Especially, I think, choice of law is a solution to the following
| 5 | problem. We have an export problem; say exporting going into Japan; we are
| 6 | blocked out of Japan by private restraints in Japan. I have said before, I think that
| 7 | if there are companies in Japan on Japanese soil conspiring to close their market,
| 8 | it seems to me that under usual principles of choice of law, it's Japanese law that
| 9 | applies.
| 10 | I think that's one way to think about the export restraint problem --
| 11 | or, really, the import restraint problem -- that would solve most of the problems
| 12 | when people say, what's the law? It really is the law where the acts took place,
| 13 | where the effects took place, where the principal effects took place. It's the usual
| 14 | choice of law principle. You could say, if it comes down to the United States
| 15 | trying to enforce, in the U.S. court, the court should apply Japanese law, unless
| 16 | the defendants want to wave and say, okay, I'll take U.S. law.
| 17 | MR. STARK: To some extent, aren't you basically saying that
| 18 | there are -- comity principles and making that operational by suggesting that those
| 19 | principles might be applied in any number of different courts.
| 20 | MS. FOX: Comity? I'm not sure what you mean by that. I wasn't
| 21 | thinking comity. I was thinking agreement.
| 22 | MR. STARK: But comity is -- principles that we described as
| 23 | comity principles are very closely related to choice of law -- |
136 1 | MS. FOX: Oh, they are. Like we ask the Japanese to enforce and
| 2 | they sign the comity agreement.
| 3 | MR. STARK: Or we decline to enforce or moderate our
| 4 | enforcement because, in fact, the interests involved are --
| 5 | MR. GILMARTIN: I was going to say that, stepping back from
| 6 | the discussion, just thinking about it from say the perspective of a company or
| 7 | CEO that -- yes it's good to lower the transaction cost, eliminate friction,
| 8 | therefore, make the process more streamlined and so on. But at the end of the
| 9 | day, before you undertake any activity, the major concern is, will it be
| 10 | challenged? Is it doable? Can you get it done? And having some predictability
| 11 | about that because of transparency is probably the most critical question.
| 12 | Beyond that, the mechanics of it, with sophisticated lawyers and
| 13 | experience and things like that, can be done. But the biggest damage that can
| 14 | occur is that you undertake something and because you didn't anticipate the
| 15 | challenge that came out of nowhere, because of a totally different mind-set or
| 16 | principles, that's the most damaging thing that can happen. So therefore, to the
| 17 | extent there's great uncertainty, that would have a chilling effect on mergers. So,
| 18 | therefore, predictability, I think, is something that is very important.
| 19 | MS. VALENTINE: There were some interesting suggestions in
| 20 | the staff work here about encouraging transparency of reviewing authorities'
| 21 | work in terms of both reports on, let's say, the number of mergers reviewed,
| 22 | number challenged, issuing guidelines, issuing decisions where you took
| 23 | affirmative action, doing speeches, which I think would be of infinite value for |
137 1 | businesses.
| 2 | DR. STERN: Would it be useful to have the WTO, if it's going to
| 3 | do anything in this area, and I am mindful that Joel has spoken out on some of his
| 4 | views on proposals for what the WTO ought to do. But, if the WTO is to do
| 5 | anything, it could be perhaps a repository of decisions -- while not necessarily a
| 6 | mechanism for settling disputes but --
| 7 | MR. GILMARTIN: I think you would rather deal directly with the
| 8 | enforcement agency.
| 9 | DR. STERN: If you don't have Romania set up to translate.
| 10 | MR. GILMARTIN: Yeah, but you can deal with that.
| 11 | DR. STERN: Everybody gets it on the Web these days.
| 12 | MR. GILMARTIN: We can gain access to the information. So
| 13 | what Debra is saying about principles, guidelines, speeches, so there's some way
| 14 | to gauge what the reaction is going to be, is very helpful. And we can gather that
| 15 | information. People are involved in global mergers have presence, enough global
| 16 | presence that you really have access to that information and you can assemble it
| 17 | quite readily.
| 18 | DR. STERN: So it is transparent?
| 19 | MR. GILMARTIN: If they do. And what you can see down the
| 20 | road is more and more people get interested in this. If they are not -- the odds are
| 21 | that it would be pretty murky.
| 22 | DR. STERN: If you're a member of the WTO, for example, there
| 23 | would be an obligation to achieve a certain level of transparency. |
138 1 | MR. GILMARTIN: Maybe there's another track among other
| 2 | agencies that are involved in this and which they work on competition policy. I'm
| 3 | just speaking very theoretically here.
| 4 | DR. STERN: And I was trying to build on if there was a practical
| 5 | recommendation that would advance that.
| 6 | MS. VALENTINE: A couple of comments on some of your
| 7 | issues, Eleanor. You're clearly searching for a way to reduce transaction costs in
| 8 | the filing area by handling multijurisdictional mergers differently, by sometimes
| 9 | creating exemptions for them from filing. I guess if you're going to be successful
| 10 | at doing that, I think one thing you've really got to think about is, how is it going
| 11 | to look politically when we are perceived as treating foreign companies and
| 12 | multinationals more favorably than domestics. And I think that's a hard sell, quite
| 13 | frankly. I cannot imagine the U.S. Congress buying into a system that made
| 14 | multinationals or foreigners file less often than they would be required to file here
| 15 | if they were domestics.
| 16 | MS. FOX: You do it as a neutral principle, though, and say -- I'm
| 17 | probably saying the wrong principles, but trying to find some neutral principle --
| 18 | suppose there's a merger and the merger is filed in jurisdictions of principal
| 19 | impact, if there's any impact. Then does it have to file again? Or should the
| 20 | United States and all other non-principal jurisdictions have to give mutual
| 21 | recognition to filings that have already been made, unless there's a separate
| 22 | market in their country?
| 23 | MS. VALENTINE: It takes some real political persuasion is all |
139 1 | I'm saying. I don't object in any way to this agreement not to allow mergers for
| 2 | national champion purposes. I actually like that. On the other hand, I'm not sure
| 3 | I see how you draw the line between that and what you would permit, which is,
| 4 | presumably, to take nonconsumer welfare considerations into the merger review
| 5 | process.
| 6 | So what if there were an employment/jobs creation rationale. At
| 7 | what level is that a legitimate employment consideration in your merger review
| 8 | process and at what point is that creating a national champion? I don't know how
| 9 | you're going to draw that line either. I'll be happy to agree to a national champion
| 10 | prohibition, but I'm not sure, unless you can enforce it, it's going to do a lot.
| 11 | MS. FOX: It's the same thing. If the jurisdiction really thought it
| 12 | could preserve jobs by letting through a clearly anticompetitive merger that had
| 13 | large spillover effects in raising consumer prices abroad, it's exactly the same
| 14 | thing. I guess I'm struggling to put the transparency principle in the forefront, and
| 15 | sort of develop a record through the facts revealed by transparency -- to see the
| 16 | competition analysis separately, and then understand the weight of the "jobs
| 17 | trump" -- which never really works anyway, I mean it never really preserves jobs.
| 18 | But if an antitrust authority applies a jobs trump, I'd like to see it on the table.
| 19 | DR. STERN: That's just what you were saying in the previous
| 20 | discussion with reference to the recession cartels, that, in effect, there may be
| 21 | derogations for infant industries, as long as it's transparent. You want to get that
| 22 | as a minimum.
| 23 | MS. FOX: Yes, and there's one other aspect, going back to Merit's |
140 1 | and Paula's previous question. Suppose that in Boeing/McDonnell Douglas, the
| 2 | merger was price raising but we let it through because we thought it was good for
| 3 | us. The European Union brings proceedings and it tries to block it. I would
| 4 | construe circumstances like that to fall into an area where that first country has to
| 5 | recognize the right of the second country to block the merger because it's
| 6 | anticompetitive and price raising in their country. We shouldn't then start a trade
| 7 | war because the second country is going to block "our" anticompetitive merger.
| 8 | DR. STERN: Do they have to say that they've done that for
| 9 | national defense purposes or national security, I should say, purposes?
| 10 | MS. FOX: As a matter of fact, this is the one thing where, if the
| 11 | government -- the Pentagon, I guess -- had said from day 1: (I never noticed that
| 12 | they did this, incidentally, until after FTC closed the investigation -- but if they
| 13 | said from day 1) this merger is very important for defense; and if that was on the
| 14 | record when the FTC vetted the merger, I would think the national security
| 15 | concern would have been a legitimate trump. A country has to be able to claim
| 16 | national defense. It has to have breathing room in claiming national defense.
| 17 | MR. RILL: It's not very likely, it seems to me, that a defense
| 18 | agency is going to put on the public record exactly why the merger is important
| 19 | for national defense, because they are dealing with top secret information.
| 20 | MS. FOX: I'm not sure I would require them to. But if they had,
| 21 | then you come to the difficult problem. Again I'm assuming contrary to fact here,
| 22 | because it's a great example if you assume, contrary to fact, that the merger
| 23 | actually is price raising in the United States, because otherwise we don't have an |
141 1 | anticompetitive merger -- and we've said from day 1, we want it for national
| 2 | defense. And then you vet it. And half the sales are in the EU, and it's
| 3 | anticompetitive, and we don't want to stop it. That's difficult.
| 4 | MS. VALENTINE: Eleanor, the EU did say that we are not going
| 5 | to touch any of the defense aspects of the deal. They literally said that. That was
| 6 | a comity gesture on their part. Now, what if, this goes back to Jim's problem,
| 7 | what if there was a spillover from the commercial into defense? Are you going to
| 8 | make them 'fess up and say it when the EU blocks the commercial side of the deal
| 9 | and not the defense side of the deal?
| 10 | MR. RILL: We have this wonderfully secret electronic operation
| 11 | here that can only be done by the two companies together. And oh, by the way
| 12 | it's also useful in commercial, but we're not going to tell you what it is because it's
| 13 | critical to our national defense.
| 14 | MS. FOX: The military assets -- our Pentagon, only, would have
| 15 | to pay for any price-rise. The military asset part of it was not a problem for the
| 16 | EU.
| 17 | MR. RILL: Now we're talking two different things. We're talking
| 18 | Boeing/McDonnell Douglas, in which this did not arise, in a hypothetical
| 19 | situation in which it would. It is an area in which I think certain considerations
| 20 | would trump competitive situations here and maybe call for some --
| 21 | MR. MELAMED: Why can't they be manifest in application of
| 22 | traditional notions of comity? Like we have today.
| 23 | MR. RILL: If the other side respects its efforts. |
142 1 | MS. FOX: You have to believe that the other side respects our
| 2 | national defense argument and respects our representation that we couldn't have
| 3 | tailored the transaction otherwise to eliminate the national defense problem, and
| 4 | will respect our interest. We haven't been so great in respecting what other
| 5 | countries are doing.
| 6 | MR. RILL: I think defense is almost easy. What if you get into
| 7 | employment considerations or foreign policy considerations.
| 8 | MS. VALENTINE: What do you mean by foreign policy?
| 9 | MR. RILL: Well, what if you have a hypothetical merger, an
| 10 | acquisition by a U.S. company, which is the first acquisition ever made since the
| 11 | Wall came down and the Soviet Union collapsed. It's very important to the
| 12 | foreign policy of the United States and of the home country that this acquisition
| 13 | take place. I'm doing a hypothetical now. And therefore --
| 14 | DR. STERN. Is that where we take over the Red Army?
| 15 | MR. RILL: Well, if you want it. That the president believes is
| 16 | that this investment is very important for U.S. foreign policy considerations.
| 17 | Doesn't he -- first of all, obviously, he constitutionally has the power to enforce
| 18 | the laws of the United States. Doesn't he, in that situation, have not only the
| 19 | authority but perhaps a valid public policy basis for telling the Attorney General,
| 20 | that even though there may be some imports from country X of product Y that
| 21 | would no longer compete with the domestic production of the acquiring company,
| 22 | not to bring that case?
| 23 | MS. FOX: That is not only a question of prosecutorial discretion, but |
143 1 | it's a question of presidential power. Consumers Union against Kissinger
| 2 | raises that question of when the president agrees to an import restraint --
| 3 | voluntary import restraint -- are the importing companies still exposed to antitrust
| 4 | laws?
| 5 | MR. RILL: I'm really dealing with government enforcement.
| 6 | You're right. The president can only decide if the Justice Department will bring
| 7 | the case. Otherwise any court can throw out a private action case. So, you are
| 8 | right about that. But you haven't answered my government question.
| 9 | MR. DONILON: The president would have the authority to -- the
| 10 | chief law enforcement officer of the United States to make a decision of whether
| 11 | to bring a case or not. Unless it involved a conflict.
| 12 | DR. STERN : Well, we're getting to the witching hour and I want
| 13 | to make sure that everyone has an opportunity to speak and exhaust their fellow
| 14 | members with questions. We didn't talk about intellectual property rights
| 15 | so-called ancillary issues at the very end of this, but we will have an opportunity
| 16 | to pursue this. This is not our last meeting. In fact, what I'd like to do now is
| 17 | announce that the next time we meet officially we invite the attendance of as
| 18 | many members as possible to our hearings that will be held from November 2 to 4
| 19 | -- here?
| 20 | MS. JANOW: No. We thought we might have a substantial
| 21 | crowd, so it will be at something called the Geophysical Union.
| 22 | MR. RILL: In Paris?
| 23 | MS. JANOW: Regrettably not. And that's up near Dupont circle, |
144 1 | so it's quite close.
| 2 | DR. STERN: Then our next meeting is December 16. And at the
| 3 | very last page in your book is a whole list of other meetings and plans. Staff
| 4 | members have carefully and diligently checked with our calendars and we very
| 5 | much appreciate the attendance of everyone and their contribution. So, Merit,
| 6 | you want to give the final benediction?
| 7 | MR. DONILON: Can I raise one question, while we have the
| 8 | folks from the Federal Trade Commission and the Department of Justice here? I
| 9 | think it's very important for the government to review the materials that the
| 10 | Committee has and make requests to come see us. You see things that-- you see
| 11 | an agenda that's missing something or we're going in a direction where the
| 12 | government has --
| 13 | MS. PATTERSON: They're very good about sending them to us.
| 14 | MR. DONILON: I really think that the government should make
| 15 | frequent requests to come visit with the Committee, and to provide expertise and
| 16 | reactions, add agenda items and advise if they think we're going in the right or
| 17 | wrong directions. So, I appreciate that.
| 18 | MR. MELAMED: I appreciate that, Tom. I think these materials,
| 19 | particularly the latest batch, are really terrific. And I appreciate the invitation.
| 20 | DR. STERN: Thank you. Joel was very gracious at the beginning
| 21 | of the meeting and you've been very gracious at the end to praise the staff who
| 22 | have done so much hard work under the direction of Merit Janow, who will now
| 23 | give us the final benediction. |
145 1 | MS. JANOW: I won't be as ambitious as that. But I have a plea
| 2 | instead, a prayer of sorts. I got very good advice at the outset of this process, that
| 3 | maybe one way of advancing this process would be to develop a paper or papers
| 4 | that could be a kind of skeleton, and over time build on that. And that's what we
| 5 | have tried to do here.
| 6 | So, I think that is what we will do, going forward, is build on this.
| 7 | So it's really important to get your input on parts of this, points of emphasis and
| 8 | de-emphasis, not only from our colleagues in the Division, but also from the
| 9 | members. Tell us if these are the right range of things that you would like to see
| 10 | covered in a report, eventually. That's one plea.
| 11 | Second is, as we've mentioned repeatedly here, we have started an
| 12 | ambitious outreach effort. And I think you will see in our scheduling the hope
| 13 | that those business groups and interested parties that do submit comments to us
| 14 | might have their day to speak to their submissions in the Spring. So I'm expecting
| 15 | there will be a day of hearings in the Spring for those interested parties. That
| 16 | gives us a little bit of time. So those who have not yet organized along those
| 17 | lines, there is plenty of time to do that. So if you see -- and I'm saying this really
| 18 | to the public at large -- an interest here or groups that have not been properly
| 19 | identified or need to be, I think we have that Spring agenda item.
| 20 | We also have on the agenda the notion of going abroad in the
| 21 | Spring. We need to know if this is a good idea, from your perspective, or not. If
| 22 | we did it in the Spring, at that point I'm expecting that the Committee's work will
| 23 | be far enough along to test out ideas to foreign audiences. That would be the |
146 1 | purpose. One could imagine a public process occurring abroad, of debate with
| 2 | experts and interested parties. Is that a good idea from your point of view, or a
| 3 | good idea that you could actually find time for? Those may be separate questions.
| 4 | I appreciate that.
| 5 | So those are the sorts of things -- and of course we will be putting
| 6 | on the web very shortly a list of paper solicitations, any reactions that you have,
| 7 | and together finally on the hearings again please let us know your availability.
| 8 | And I'll stop there.
| 9 | DR. STERN: Great. Thank you all very, very much. This
| 10 | meeting is adjourned.
| 11 | (Whereupon, the Advisory Committee meeting was adjourned.) |
|