1
1 | INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
|
2 | HEARINGS
|
3 |
|
4 |
|
5 |
|
6 | Washington, D.C.
|
7 | May 17, 1999
|
8 |
|
9 |
|
10 |
|
11 |
|
12 |
|
13 | This document constitutes accurate minutes of the
|
14 | meeting held May 17, 1999
by the International
|
15 | Competition Policy Advisory Committee.
It has been
|
16 | edited for transcription errors.
|
17 |
|
18 |
_____________________ |
|
_____________________ |
|
19 |
|
20 |
|
21 |
|
2
3
1 | INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
|
2 | HEARING
|
3 |
|
4 |
|
5 |
|
6 | Washington, D.C.
|
7 | May 17, 1999
|
8 |
|
9 |
|
10 |
|
11 |
|
12 |
|
13 |
|
14 | Taken at the American Geophysical Union, 2000 Florida Avenue,
|
15 | N.W., First Floor Conference Center, Washington, D.C., beginning at 9:15 A.M.,
|
16 | before Bryan Wayne, a court reporter and notary public in and for the District of
|
17 | Columbia.
|
18 |
|
19 |
|
20 |
|
21 |
|
22 |
|
23 | |
4
1 | APPEARANCES:
|
2 | Advisory Committee Members:
|
3 | James F. Rill, Co-Chair and Senior Partner, Collier, Shannon, Rill &
Scott,
|
4 | PLLC
|
5 | Paula Stern, Co-Chair and President, The Stern Group, Inc.
|
6 | Merit E. Janow, Executive Director and Professor in the Practice of
|
7 | International Trade, School of International and Public Affairs,
Columbia
|
8 | University
|
9 | Thomas E. Donilon, Partner, O'Melveny & Myers
|
10 | John T. Dunlop, Lamont University Professor, Emeritus,
Harvard
|
11 | University
|
12 | Department of Justice Employees:
|
13 | The Honorable Janet Reno, Attorney General of the United States
|
14 | Joel I. Klein, Assistant Attorney General, Antitrust Division
|
15 | Members of the Public Who Made an Appearance and Presented Written or Oral
|
16 | Statements:
|
17 | Panelists: Members of the ABA Section of Antitrust Law ICPAC Task Force
|
18 | Phillip A. Proger, Jones, Day, Reavis & Pogue; Chair, ABA Section of
|
19 | Antitrust Law
|
20 | Harvey M. Applebaum, Covington & Burling; Co-Chair, ABA Section of
|
21 | Antitrust Law ICPAC Task Force
|
22 | A. Paul Victor, Weil, Gotshal & Manges LLP; Co-Chair, ABA Section of
|
23 | Antitrust Law ICPAC Task Force |
5
1 | Panelists: Members of the ABA Section of Antitrust Law ICPAC Task Force
|
2 | (Continued)
|
3 | Margaret E. Guerin-Calvert, Economists Incorporated
|
4 | Joseph F. Winterscheid, Jones, Day, Reavis & Pogue
|
5 | Janet L. McDavid, Hogan & Hartson LLP
|
6 | Panelists: Economists
|
7 | Simon J. Evenett, The Brookings Institution; Department of Economics,
|
8 | Rutgers University
|
9 | David J. Salant, Law and Economics Consulting Group
|
10 | Leonard Waverman, Law and Economics Consulting Group
|
11 | Andrew R. Wechsler, Analytic Studies International, Inc.
|
12 | Panelists: Representatives of U.S. Businesses
|
13 | Eastman Kodak Company - Christopher A. Padilla, Director,
International
|
14 | Trade Relations
|
15 | Guardian Industries Corp. - Stephen P. Farrar, Director,
International
Business
|
16 | United Parcel Service - Larry Stevenson, Vice President, International
|
17 | Industrial Engineering;
Andrew R. Wechsler, Director of International
|
18 | Economic Strategy
and Analysis,
Analytic Studies International, Inc.; and
|
19 | Raymond Calamaro, Hogan & Hartson LLP
|
20 | Panelists: Institution Building and Competition Law Advocacy
|
21 | Richard Gordon, International Monetary Fund
|
22 | R. Shyam Khemani, The World Bank
|
23 | Emmy Simmons, U.S. Agency for International Development |
6
1 | IN ATTENDANCE:
|
2 | Advisory Committee Staff:
|
3 | Cynthia R. Lewis, Counsel
|
4 | Andrew J. Shapiro, Counsel
|
5 | Stephanie G. Victor, Counsel
|
6 | Eric J. Weiner, Paralegal
|
7 | Estimated Number of Members of the Public in Attendance:
19
|
8 | Reports or Other Documents Received, Issued, or Approved by the Advisory
|
9 | Committee:
|
10 | American Bar Association Section of Antitrust Law:
"Report on the Use of
|
11 | Private Litigation to Challenge Private Anticompetitive Conduct Affecting
|
12 | U.S. Foreign Commerce"
|
13 | American Bar Association Section of Antitrust Law:
"Report on
|
14 | Multijurisdictional Merger Review Issues"
|
15 | The Brookings Institution:
"Strengthening Trans-Atlantic Antitrust
|
16 | Cooperation," A project jointly sponsored by The Brookings Institution and
|
17 | the Royal Institute of International Affairs - Case Studies - Compiled by
|
18 | Simon J. Evenett, The Brookings Institution, Rutgers University and CEPR
|
19 | Law and Economics Consulting Group (LECG): "Standards Wars - News
|
20 | From the Front Lines and International Solutions," presentation by David
|
21 | Salant, Leonard Waverman, and Andrew R. Wechsler Law and Economics
|
22 | Consulting Group (LECG): "Standards WARS: The Use of Standard
|
23 | Setting as a Means of Facilitating Cartels; Third Generation Wireless |
7
1 | Telecommunications Standard Setting" by Peter Grindley, David J. Salant,
|
2 | and Leonard Waverman
|
3 | Guardian Industries Corp.:
"Barriers to Entry Into the Japanese Flat Glass
|
4 | Market: Opportunities for Bilateral Cooperation"
|
5 | United Parcel Service:
Statement of Larry Stevenson, Vice President of
|
6 | International Industrial Engineering, United Parcel Service attaching "The
|
7 | Entry into Unregulated Markets by State Owned Enterprises and Regulated
|
8 | Monopolies; A Serious Threat to International Competition?" by Andrew
|
9 | R. Wechsler, Analytic Studies International, Inc. and statement by James
|
10 | P. Kelly, Chairman and CEO, UPS (1/29/99), among other attachments
|
11 | U.S. Agency for International Development:
"USAID and Competition Law
|
12 | Advocacy and Institution Building," presented by Emmy B. Simmons,
|
13 | Deputy Assistant Administrator, Center for Economic Growth and
|
14 | Agricultural Development, Global Bureau, U.S. Agency for International
|
15 | Development
|
16 |
|
17 |
|
18 |
|
19 |
|
20 |
|
21 |
|
22 |
|
23 | PROCEEDINGS |
8
1 | (9:15 a.m.)
|
2 | DR. STERN: Good morning. I'd like to call to order our hearings
|
3 | for May 17th. It is a pleasure to welcome you all to, actually, the second day
|
4 | of our International Competition Policy Advisory Committee Spring hearings. We
|
5 | are particularly honored this morning that the Attorney General of the United
|
6 | States, Janet Reno, joins us with the Assistant Attorney General of the United
|
7 | States for Antitrust, Joel Klein, to make some opening remarks.
|
8 | First, let me say very briefly, the International Competition Policy
|
9 | Advisory Committee was established by the Attorney General and the Assistant
|
10 | Attorney General for Antitrust back in the Fall of '97 to provide guidance to the
|
11 | Department of Justice on the topics of multijurisdictional mergers, the interface of
|
12 | trade and antitrust policies, and cooperation between the U.S. and foreign
|
13 | authorities in antitrust enforcement, particularly enforcement prosecutions against
|
14 | international cartels.
|
15 | Jim will certainly speak for himself, but I certainly wish to say that
|
16 | my appointment to co-chair this initiative with Jim is a great personal privilege
|
17 | and a great honor.
|
18 | I wish now to introduce the Attorney General. Bearing in mind that
|
19 | every day you have a schedule packed to accommodate the immediate and the
|
20 | important, your attendance this morning underlines the importance of this
|
21 | Committee's work, and we very much appreciate it. I'd like to invite you now to
|
22 | share any remarks you wish to make, followed by Joel Klein.
|
23 | ATTORNEY GENERAL RENO: I thank you so much, Dr. Stern, |
9
1 | and to you and Jim, I say a very special thank you, and to Merit Janow, for all
|
2 | that you have done.
|
3 | When one comes to Washington for the first time and you don't
|
4 | know too many people and you're suddenly Attorney General of the United States,
|
5 | you remember those people that you rely on in those early days. And Jim Rill was
|
6 | one of those people who made a point of being there in a bipartisan way, and I
|
7 | think it was in a great tradition of public service.
|
8 | Your, Paula, willingness to do this is a further example, and I'm
|
9 | just deeply deeply grateful.
|
10 | MR. RILL: Thank you, General.
|
11 | ATTORNEY GENERAL RENO: To the members of the Committee,
|
12 | thank you so much. I know the time that something like this takes and I am deeply
|
13 | grateful for your willingness to do it because I think it is profoundly important. I
|
14 | think sometimes we get blinders on and for ICPAC to spend the time to hear from
|
15 | people is so very important.
|
16 | To all of those who are willing to come and give of their time, their
|
17 | wisdom, their advice, their thoughts, I say thank you. I think it is again
|
18 | very important that government be informed.
|
19 | I think one of the first points that Anne Bingaman and Jim made to
|
20 | me, and then Joel has made it again and again and again, is that international
|
21 | competition policy is playing an increasingly important role in the global
|
22 | economy. I'm called to the White House to talk about things that relate to
|
23 | this issue more often in the last six years as each year goes by. And so I think it's |
10
1 | vital.
|
2 | I look at the perspective of the Justice Department and, Tom, you
|
3 | will appreciate this. I think all crime is becoming global. Antitrust issues are
|
4 | becoming global. And as Strobe Talbott told me, he said: We're going to have to
|
5 | start developing a working relationship such as the State Department and the
|
6 | Defense Department have long had, out of necessity. We're going to have to do
|
7 | the same thing with the Justice Department.
|
8 | You realize, whether it be criminal prosecution, cyber crime,
|
9 | antitrust issues, it is going to be so important that we inform ourselves in a global
|
10 | way about the antitrust implications of all that we do. So I'm particularly glad
|
11 | that we have a former State Department perspective.
|
12 | We're committed to meeting the challenges posed by the new global
|
13 | economy, and Joel, I think, has done just a wonderful job. He has advised me on
|
14 | so many different issues and you haven't been wrong once yet. And I just want to
|
15 | personally thank you for your willingness to lead this Division, and I think you've
|
16 | done a wonderful job.
|
17 | Through its sustained enforcement efforts, the Antitrust Division
|
18 | has succeeded in exposing international cartels. The result has been numerous
|
19 | guilty pleas and in the last two fiscal years record fines. Just two weeks ago, SGL
|
20 | AG, the world's largest producer of graphite and carbon products, agreed to pay a
|
21 | record fine of $135 million and pled guilty to participating in an international
|
22 | conspiracy to fix prices and to allocate the volume of graphite electrodes in the
|
23 | U.S. and elsewhere. |
11
1 | With numerous grand juries currently investigating suspected
|
2 | international cartel activity, the unmasking and prosecution of international
|
3 | cartels is likely to increase dramatically.
|
4 | Another area where the Justice Department has met challenges
|
5 | posed by globalization is in its review of multinational mergers. The global
|
6 | economy is currently undergoing an unprecedented merger wave. Many of these
|
7 | transactions require review by several different national antitrust enforcement
|
8 | agencies. The Antitrust Division I think has managed this flood of multinational
|
9 | merger notifications with great skill and it has assured that the interests of U.S.
|
10 | consumers are protected.
|
11 |
While the Department has enjoyed important successes in its
|
12 | international antitrust enforcement efforts, the increasing globalization of markets
|
13 | presents unique challenges to the development of sound competition policy. That's
|
14 | the reason that Joel and I agreed that the Department could benefit greatly from
|
15 | bringing together a diverse group of experts for two years to make
|
16 | recommendations concerning the really critical issues that we face in international
|
17 | competition policy. Again, I am just so deeply grateful that we were able to
|
18 | attract such great people and those that can provide such a variety of perspectives.
|
19 | Paula has described the issues that we're confronting: first,
|
20 | building on U.S. antitrust cooperation agreements, how do we build a consensus
|
21 | among governments for cooperation in effective enforcement efforts aimed at
|
22 | eliminating international cartels? This is vital to me because I have seen so much
|
23 | progress made on a number of fronts in terms of international law enforcement |
12
1 | policy generally.
|
2 | We're trying to develop a system of working relationships with other
|
3 | nations so that there will be no safe place to hide, so that we can ensure the
|
4 | extradition of nationals, so we can focus on domestic prosecutions if extradition
|
5 | does not succeed. But again I see in that situation an occasion where we take
|
6 | three steps forward and four steps back sometimes as governments change and as
|
7 | policies change. So your thoughts on this effort will be very important.
|
8 | Second, given the proliferation of national antitrust laws and
|
9 | premerger notification requirements, how can the various antitrust agencies
|
10 | achieve sound results for both merging firms and consumers?
|
11 | And third, how should the U.S. address anticompetitive schemes by
|
12 | private firms in other countries that impede access to markets?
|
13 | From what I've heard, the Advisory Committee has made impressive
|
14 | progress toward its goal of delivering a report to the Justice Department by the
|
15 | end of this year. Just a few weeks ago, the Advisory Committee, as I understand
|
16 | it, held the first day of its Spring hearings with testimony from members of
|
17 | prominent trade associations, bar associations and other experts. This testimony I
|
18 | think is going to be very vital in developing recommendations and reports for the
|
19 | Department.
|
20 | I have long felt that public service is one of the great callings that
|
21 | anyone can undertake. When you've done public service and then you go out into
|
22 | the private sector and are still willing to come back and lend the wisdom of your
|
23 | vantage point of both public and private experience, I think it is so important and |
13
1 | am deeply grateful.
|
2 | So people have been thanking me for being here this morning. I just
|
3 | thank you so many times over for your willingness to do this.
|
4 | DR. STERN: Thank you so much.
|
5 | MR. RILL: Thank you, General.
|
6 | DR. STERN: Joel.
|
7 | MR. KLEIN: First let me say to you, Madam Attorney General,
|
8 | without your leadership and support this Advisory Committee would not have been
|
9 | possible, and without your continuing strong support for effective antitrust
|
10 | enforcement the Division could not be doing the important work that it is doing
|
11 | today in the global economy. So we all owe you a great debt of gratitude and most
|
12 | particularly, frankly, America's consumers, who I think benefit from the work that
|
13 | the Division does.
|
14 | I join with you in saluting Paula and Jim, two stalwarts in the field
|
15 | who have been enormous support and help to me, and Merit, who has led the work
|
16 | of this Committee with great sensitivity and effectiveness.
|
17 | I would just be very brief in saying a couple of points. This world-
|
18 | wide web, this State Department-like view of the Justice Department's role in the
|
19 | global economy, is actually continuing to develop with remarkable,
|
20 | remarkable success, even as the Committee does its work.
|
21 | We have no choice in doing that because our outreach in
|
22 | international cartel cooperation, our necessity to review on a daily basis
|
23 | multinational mergers that are being reviewed by other countries, and our issues at |
14
1 | the interface of trade and competition policy, whether it's the kind of positive
|
2 | comity referral we had with DG-IV, is forcing us to work on an increasing basis in
|
3 | a global way with our counterparts.
|
4 | I am pleased to say that we have some of the best possible working
|
5 | relationships with our colleagues in Europe at DG-IV, with our colleagues in
|
6 | Canada, with our colleagues in Australia. And we are looking to expand and
|
7 | recently the President and the Japanese Prime Minister announced what will soon
|
8 | become a formal agreement with the Japanese, hoping to bring them into the
|
9 | family of effective cooperation in international antitrust enforcement.
|
10 | So in an ironic kind of way, we are developing a bilateral lattice of
|
11 | interrelationships which I think will effectively develop into really a multilateral
|
12 | system of multinational antitrust enforcement.
|
13 | The issues before this Committee could not be more timely or more
|
14 | important. We are heading into a round at the end of this year with respect to the
|
15 | World Trade Organization where the issues of trade and competition policy will be
|
16 | before us.
|
17 | Every day that I wake up, I read in the newspaper about a new
|
18 | merger that I know we and somebody else somewhere in the world or many other
|
19 | places in the world is going to review. And just last week the Senate Antitrust
|
20 | Subcommittee held hearings on trade and competition policy issues, and you'll
|
21 | hear from some of the same people with some of the same concerns later today.
|
22 | Last week at the OECD, the Antitrust Division put on a key
|
23 | presentation with respect to international cartel enforcement which I think was |
15
1 | really an eye opener for many of the members of the OECD organization and I
|
2 | suspect will have significant implications for long-term antitrust cooperation.
|
3 | I along with Karel Van Miert and many industry leaders were in
|
4 | Berlin last week to discuss the set of issues involved in international antitrust
|
5 | enforcement and multijurisdictional merger review. We heard from Jürgen
|
6 | Schrempp of DaimlerChrysler, who went through the process in ten different
|
7 | antitrust authorities when the Daimler-Chrysler merger was put forward.
|
8 | Again, what you could see there was a growing consensus, including
|
9 | I think even the Germans, a consensus with respect to a sensible WTO policy, one
|
10 | that would aim toward developing a culture of competition not only within the
|
11 | WTO but worldwide, and one that would move away from dangerous efforts such
|
12 | as premature dispute resolution.
|
13 | Both Alex Schaub of DG-IV and Konrad von Finckenstein of
|
14 | Canada supported notions along those lines which I found personally very
|
15 | encouraging.
|
16 | Just this past Friday I was at the Mentor Group for a four-hour
|
17 | session, which is a group that sponsors key EU-U.S. conferences, a four-hour
|
18 | session on these very issues.
|
19 | So what I want to say is, enough preliminary remarks. There's a lot
|
20 | of work ahead for this Committee. I can see from the talent assembled here at this
|
21 | table, some of the leading thinkers in our field, that you are going to have a
|
22 | robust, exciting, and I suspect, highly informative meeting today.
|
23 | I want to thank all of you for the effort and we are very eager to see |
16
1 | your report later this year.
|
2 | ATTORNEY GENERAL RENO: And if anybody has any questions
|
3 | or suggestions for us at this point, we're certainly receptive to them.
|
4 | DR. STERN: Hearing none, with respect to you and your busy
|
5 | schedule --
|
6 | ATTORNEY GENERAL RENO: Thank you.
|
7 | (Pause.)
|
8 | DR. STERN: Okay, well, let's resume the hearing. I'll have to give
|
9 | Joel my quip separately, because when he talked about this lattice that he was
|
10 | making I kept thinking that good fences make good neighbors. In this case I guess
|
11 | a good lattice may make good trading partners.
|
12 | Our hearings, as I said, are a continuation of the April 22nd
|
13 | hearing, and together these Spring hearings complement those that were conducted
|
14 | by the Advisory Committee last November.
|
15 | Today's format is as follows: It's designed to allow members of the
|
16 | Advisory Committee to hear from associations and individuals who have been
|
17 | developing input for the Advisory Committee for many months. We've heard from
|
18 | individual U.S. businesses, economists, attorneys and others engaged in technical
|
19 | assistance to develop antitrust regulations around the world. These hearings
|
20 | provide us an opportunity to hear from participants who will share with the
|
21 | Committee their views and experience on matters relating, as I said very briefly,
|
22 | to multijurisdictional merger reviews, the interface of trade and competition
|
23 | policy, and thirdly the cooperation between antitrust enforcement authorities. |
17
1 | Last November the Advisory Committee held hearings featuring
|
2 | roundtable discussions with the heads of 10 foreign competition authorities as well
|
3 | as distinguished lawyers, economists, academics and other experts. And the
|
4 | transcripts of those hearings as well as the full meetings of the Advisory
|
5 | Committee are posted now on the Advisory Committee's website, along with a host
|
6 | of other useful materials relating to this Committee's work. I will save you all of
|
7 | the letters of the website address -- it's a mouthful -- but the staff can certainly
|
8 | provide you with that.
|
9 | Let me take a few minutes to discuss the substance of today's
|
10 | hearing. The Advisory Committee will hear presentations by the ABA Section of
|
11 | Antitrust Law's task force that was established to provide input to our Advisory
|
12 | Committee. We shall hear from its members about the ABA Antitrust Section's
|
13 | views on two basic topics: first, multijurisdictional mergers and joint ventures;
|
14 | and secondly, the use of private litigation to challenge private anticompetitive
|
15 | conduct affecting U.S. foreign commerce. Again, I want to thank all of you for
|
16 | your continued dedication, for coming, and for providing us -- as the year
|
17 | stretches to two years -- with your expertise.
|
18 | After a break for lunch, we then have scheduled three more
|
19 | sessions. The first afternoon session is a presentation by economists, again on
|
20 | two distinct topics. First we'll hear a presentation about a Brookings Institution
|
21 | study that's underway on trans-Atlantic antitrust cooperation. And then we'll have
|
22 | an opportunity to hear about the use of standard-setting as a means of facilitating
|
23 | cartels and market blockage, and its potential trade effects, particularly in |
18
1 | high-tech industries.
|
2 | At the next afternoon session, the Advisory Committee will hear
|
3 | presentation from the representatives of three U.S. businesses: Eastman Kodak,
|
4 | Guardian Industries and the United Parcel Service -- UPS -- about the experience
|
5 | of these businesses in their overseas markets.
|
6 | We will conclude with presentations on institution-building and
|
7 | competition law advocacy. And our panelists in that concluding session have
|
8 | broad experience, representing the U.S. Agency for International Development, the
|
9 | World Bank, and the International Monetary Fund. They will share with us their
|
10 | experience with technical assistance programs of their respective organizations in
|
11 | competition law and policy.
|
12 | We welcome everyone's attendance in the audience. We appreciate
|
13 | your interest in our Committee and its work. I'd like just to note that the audience
|
14 | should please refrain from giving us their views at this particular moment during
|
15 | the day -- our format does not accommodate that kind of input -- but we do
|
16 | welcome and indeed invite any reactions that you may have to today's meeting in
|
17 | writing. You may contact one of the staff people who are arrayed here if you wish
|
18 | to submit written comments to the Advisory Committee.
|
19 | I think that we should further bless this Committee by saying that
|
20 | this meeting is being held in accordance with the Federal Register notice.
|
21 | I would now like to say that we are eager to hear from the other
|
22 | participants who have prepared their remarks. But before doing so, I'd like to turn
|
23 | to my esteemed colleague, Co-Chair Jim Rill, for any remarks he might wish to |
19
1 | make.
|
2 | MR. RILL: Thank you, Paula. I think you have with great
|
3 | articulateness described the format of the day and the purpose for which we are
|
4 | here.
|
5 | I simply want to add my thanks to all of the panelists who are going
|
6 | to appear today for the very hard work that they've done. And the value it's going
|
7 | to have to our deliberations is, I'm sure, extraordinarily substantial. Having said
|
8 | that, I don't want to take up any more of your time.
|
9 | DR. STERN: Okay. Well, I think the group has decided to adjust
|
10 | their format so that we'll hear presentations on both issues and then we'll open it
|
11 | up to questions.
|
12 | Phil, are you going to lead off?
|
13 | MR. PROGER: Yes, I am.
|
14 | DR. STERN: I could somehow tell by that eager smile.
|
15 | MR. PROGER: Good morning and thank you for having us. While
|
16 | many of us have appeared before you in our individual capacity, I am pleased that
|
17 | we can appear today representing the Section of Antitrust Law of the American
|
18 | Bar Association. The views expressed today in the two papers that we are
|
19 | transmitting, while not formal views of the American Bar Association, are formal
|
20 | views of the Section of Antitrust Law of the American Bar Association.
|
21 | I'd like to introduce my co-panelists. To my far right is Jan
|
22 | McDavid, the Chair Elect of the Section and who already has testified in an
|
23 | individual capacity. Next to Jan is one of our two Co-Chairs of our Task Force on |
20
1 | ICPAC, Paul Victor. Paul is a past Vice Chair of the Section and extremely
|
2 | active in the area of international antitrust. To my immediate right, Harvey
|
3 | Applebaum, past Chair of the Section and Co-Chair of our ICPAC Task Force.
|
4 | Harvey brings a wealth of experience and expertise to the Section's deliberations
|
5 | in this area.
|
6 | And on behalf of the Section, I want to express our thanks to them
|
7 | in co-chairing our task force and producing these two excellent papers, which have
|
8 | been approved by our council and gone through the blanket authority process of
|
9 | the American Bar Association. As such, these two papers formally represent the
|
10 | views of the Section of Antitrust Law.
|
11 | Across my way also are Meg Guerin-Calvert and Joe Winterscheid,
|
12 | members of the ICPAC Task Force who appear today to help respond to any
|
13 | questions that you might have.
|
14 | The format that we thought we would do was to start with the paper
|
15 | on Multijurisdictional Mergers and Joint Ventures and then go to the Private
|
16 | Litigation paper. The way we were going to do it is that Joe is going to introduce
|
17 | the multijurisdictional mergers and Harvey is going to give a brief overview on
|
18 | private litigation. And then we'll be open for any questions from the members of
|
19 | ICPAC.
|
20 | DR. STERN: Great.
|
21 | MR. PROGER: Joe.
|
22 | MR. WINTERSCHEID: Thank you, Phil.
|
23 | I too am pleased to be here today to be able to present the views of |
21
1 | our Working Group on Multijurisdictional Merger Review issues. Our working
|
2 | group consisted, in addition to myself, of Michael Byowitz, Barry Hawk, and
|
3 | Spencer Weber Waller, and in their absence I'd like to commend them for the fine
|
4 | work that they did in helping us to prepare and present the paper.
|
5 | At present there are over 50 jurisdictions, I've heard estimates of up
|
6 | to 80 jurisdictions, with antitrust merger control laws on the books, up from only
|
7 | a handful a decade ago. This fact, coupled with the increasing number of
|
8 | transactions which have some significant international dimension, has resulted in a
|
9 | dramatic increase in the incidence of multijurisdictional merger reviews by
|
10 | multiple jurisdictions.
|
11 | The parties to international transactions of any consequence these
|
12 | days are subjected to a multitude of filing requirements and mandatory waiting
|
13 | periods around the world. This process imposes significant costs on transactions,
|
14 | and the Advisory Committee's focus on the issues that this process raises is of
|
15 | great importance to the business community, the antitrust bar, and the
|
16 | international enforcement missions of both agencies.
|
17 | I think it's significant that in prior comments submitted by various
|
18 | trade and industry groups, including the National Association of Manufacturers,
|
19 | the transaction costs and burdens associated with the multijurisdictional merger
|
20 | review process were identified as one of the most significant problems facing
|
21 | American business in the area of international antitrust enforcement and antitrust
|
22 | enforcement generally.
|
23 | The Advisory Committee's earlier working drafts on these issues set |
22
1 | forth a number of possible solutions ranging from substantive convergence of
|
2 | international antitrust laws to procedural harmonization, including a common
|
3 | notification form, common time periods, or alternatively, focusing on problems
|
4 | presented in specific individual jurisdictions.
|
5 | We believe that broad-base initiatives directed at substantive
|
6 | convergence, formalized allocation of enforcement responsibility, and/or
|
7 | supranational mediation efforts offer little prospect of success. We therefore
|
8 | believe that the Advisory Committee's merger review initiative should focus on
|
9 | a more limited agenda directed at reducing unnecessary transaction costs associated
|
10 | with the international merger review process, in particular as to those transactions
|
11 | which do not raise serious competitive issues.
|
12 | In that respect, we believe that there is little prospect for resolving
|
13 | the significant issues arising in the context of Boeing-McDonnell Douglas or
|
14 | Daimler Benz-Chrysler, for that matter, where transactions on their face raise
|
15 | significant substantive issues in various jurisdictions and give various
|
16 | jurisdictions a legitimate basis for examining the effects of those transactions
|
17 | within their local territory.
|
18 | On the other hand, we believe that the focus of the Advisory
|
19 | Committee's efforts and the agency's efforts should be on those transactions which
|
20 | do not raise serious competitive concerns, in an effort to try to streamline the
|
21 | multijurisdictional review process so as to avoid unnecessary transaction costs as
|
22 | to those transactions which do not raise any serious enforcement issues in a
|
23 | growing number of jurisdictions having onerous premerger notification |
23
1 | requirements.
|
2 | The most effective means to reduce unnecessary transaction costs
|
3 | associated with the multijurisdictional process is to promote the adoption of clear
|
4 | objective tests for determining when notification is required, to eliminate
|
5 | notification requirements in those jurisdictions lacking any reasonable basis for
|
6 | asserting jurisdiction over a transaction, and to limit the information required in
|
7 | connection with those transactions which lack antitrust significance.
|
8 | The ultimate goal should be to minimize transaction costs and
|
9 | burdens without reducing the public benefit and without compromising the ability
|
10 | of any jurisdiction to enforce its own competition laws. The main goal in
|
11 | addressing multijurisdictional merger review issues therefore should be directed
|
12 | towards promoting reforms in individual merger control regimes so that they focus
|
13 | on those transactions that raise competitive concerns within their territory and do
|
14 | not unduly burden transactions that lack anticompetitive potential.
|
15 | Secondarily, ICPAC should promote limited procedural reforms in
|
16 | an effort to reduce unnecessary transaction costs associated with the notification
|
17 | process itself.
|
18 | Towards these ends, we would propose the following specific
|
19 | agenda items, which are detailed in our paper. First, the agencies should promote
|
20 | objective jurisdictional tests for premerger notification which incorporate
|
21 | appropriate de minimis local contacts thresholds. Transaction costs associated
|
22 | with the multijurisdictional merger review process could be substantially reduced
|
23 | if filing requirements were based on readily-accessible and objectively based |
24
1 | jurisdictional thresholds.
|
2 | In particular, notification thresholds based on market share-based
|
3 | tests should be eliminated or at a minimum coupled with an appropriate
|
4 | objectively based de minimis local sales or other local contacts threshold.
|
5 | Examples of jurisdictions which are problematic in this respect include Belgium --
|
6 | the present test is combined worldwide turnover of approximately $84 million
|
7 | and a market share in Belgium of more than 25 percent; Brazil, 20 percent market
|
8 | share; Greece, 25 percent, and so forth. There are a growing number of
|
9 | jurisdictions in which premerger notification requirements are predicated on
|
10 | market share-based tests. Parties should not be required to undertake a full-blown
|
11 | substantive review of a proposed transaction in a multitude of jurisdictions simply
|
12 | to determine whether premerger notification is required.
|
13 | The agencies should promote elimination of these market share-
|
14 | based tests in favor of objectively quantifiable and readily accessible information
|
15 | such as sales or turnover in the affected jurisdiction. Appropriate models are
|
16 | provided not just in the United States, but significantly by a number of other
|
17 | jurisdictions in the international community, including Canada, the Netherlands,
|
18 | Switzerland, and the European Union.
|
19 | Notification thresholds should also incorporate an appropriate and
|
20 | objectively-based de minimis standard as to the level of local contacts required to
|
21 | trigger premerger notification, especially as to foreign-to-foreign transactions.
|
22 | That is, transactions involving firms which do not have actual business operations
|
23 | within the territorial confines of the particular jurisdiction involved. |
25
1 | Requiring premerger notification on the basis of worldwide assets
|
2 | or sales, especially at the exceedingly low levels which characterize many of these
|
3 | regimes, as to transactions that lack any significant local nexus increase
|
4 | transaction costs without any corresponding enforcement benefit. Notification
|
5 | should not be required in any jurisdiction based merely on potential local
|
6 | "effects," broadly defined, or local business activity
|
7 | unless such effects or activity exceed some de minimis standard as measured either by reference to the target's
|
8 | local sales activity and/or an appropriate minimal level of contacts by both parties
|
9 | to the transaction.
|
10 | Once again, suitable models in this regard include Canada, which
|
11 | incorporates a target company business operations in Canada coupled with
|
12 | combined Canadian assets and sales; the Netherlands, combined worldwide
|
13 | turnover plus the parties' individual Dutch turnover; and the Hart-Scott-Rodino
|
14 | Act, in particular the foreign transaction exemptions provided for in the rules.
|
15 | Second, the agencies should promote harmonization of initial
|
16 | premerger review periods and harmonization of rules pertaining to when
|
17 | premerger filings can or must be made. Achieving harmonization of review
|
18 | periods in cases which raise serious competitive issues once again we believe is an
|
19 | unrealistic objective, at least in the short run. With respect to timing issues
|
20 | associated with the merger review process, we therefore believe that the agencies
|
21 | should focus on the disparate initial review periods, and again in particular as to
|
22 | those transactions lacking any significant anticompetitive potential.
|
23 | In most jurisdictions the initial review period is in the one-month |
26
1 | time frame, as, for example, the Hart-Scott-Rodino-Act, EU merger control
|
2 | regulation, Germany, and Canada, which is being extended to 14 days on the short
|
3 | form and 42 days on the long form filing. Marginal differences in the review
|
4 | period are inconsequential since they can be managed from a transaction planning
|
5 | standpoint. There are, however, a number of "outlier" jurisdictions as to which
|
6 | the timing requirements do impose significant transaction costs and these should
|
7 | be the focus of continued discussions and efforts. These would include the Czech
|
8 | Republic, with an indefinite review period; Greece, a three-month initial period;
|
9 | Hungary, 90 days; Brazil, up to 72 days. Jurisdictions such as these, which have
|
10 | either open-ended or very extended initial review periods, are where the greatest
|
11 | efforts should be directed.
|
12 | The agencies should also promote harmonization of rules pertaining
|
13 | to when parties are permitted to file. Under the Hart-Scott-Rodino process, of
|
14 | course, parties are permitted to file as soon as a letter of intent, agreement in
|
15 | principle or contract has been executed. Many other jurisdictions also follow this
|
16 | example, most notably Germany and Canada.
|
17 | In many jurisdictions, however, including the European Union and
|
18 | most jurisdictions following the basic EU-format on premerger notification,
|
19 | including Belgium, many other European Union jurisdictions, as well as Eastern
|
20 | European jurisdictions, premerger notification is not permitted until the parties
|
21 | have actually executed a definitive agreement.
|
22 | This definitive agreement requirement is unnecessary and impedes
|
23 | the parties from orchestrating the multijurisdictional filing process in the most |
27
1 | efficient manner. The difficulties associated with the definitive agreement
|
2 | requirement are exacerbated by the fact that, although the parties cannot file prior
|
3 | to the execution of the definitive agreement, they must file in many of these
|
4 | jurisdictions within a short time frame following the execution. This is the case,
|
5 | for example, under the EU Merger Regulation, one week; Belgium, likewise one
|
6 | week; Finland, one week; Greece, 10 days; and Brazil, 15 days.
|
7 | It is virtually impossible to prepare the required detailed
|
8 | submissions within these specified timeframes and, to the extent that the parties
|
9 | are required to observe mandatory waiting periods after filing, these filing
|
10 | deadlines are entirely superfluous. As a consequence, we believe that the agencies
|
11 | should advocate the elimination of the definitive agreement requirement and these
|
12 | compressed post- execution filing deadlines. This would permit the parties to
|
13 | proceed more efficiently in orchestrating their multijurisdictional filing
|
14 | requirements and it would also, we believe, promote de facto harmonization of the
|
15 | initial review periods themselves, as well as perhaps promoting voluntary
|
16 | confidentiality waivers, since the review of transactions in various jurisdictions
|
17 | would be undertaken within the same basic time parameters.
|
18 | Third, the agencies should promote the elimination of unnecessary
|
19 | burdens imposed by premerger notification systems, in particular as to the initial
|
20 | filing requirements. Filing requirements and the information required should be
|
21 | tailored so as to avoid imposing unnecessary transaction costs that do not have a
|
22 | direct correlation to effective competition law enforcement in the affected
|
23 | jurisdiction. The minimum amount of information needed to make that |
28
1 | determination should be all that is required and to the extent possible that
|
2 | information should be limited to information maintained by the parties in the
|
3 | ordinary course of business.
|
4 | In this connection, it is often observed that in jurisdictions imposing
|
5 | a burdensome initial filing requirement, the European Union being one example,
|
6 | the system seems to work well because the agencies are willing to cut back on
|
7 | those requirements in the context of premerger notification meetings. While this is
|
8 | workable in connection with a single or limited number of jurisdictions, in our
|
9 | experience it is very difficult and sometimes unworkable when you're dealing with
|
10 | 12, 15 or 20 individual jurisdictions. Also, success in achieving these more
|
11 | reasonable requirements is somewhat limited in connection with those jurisdictions
|
12 | lacking significant substantive expertise in the merger review process in
|
13 | determining what information they actually need.
|
14 | Finally, I would like to offer a few comments in connection with
|
15 | observations relating to transparency. It has been observed, for example, that the
|
16 | overall merger review process could be improved by greater transparency within
|
17 | particular jurisdictions, including the U.S. For example, it has been proposed that
|
18 | the reviewing agencies should be required to provide greater detail in their
|
19 | explanations as to why action has not been taken in addition to articulating the
|
20 | reasons why a particular transaction has been challenged.
|
21 | While this suggestion has merit in the abstract, it should be
|
22 | recognized that it may also have a negative correlation with the burdens imposed
|
23 | on the parties in the notification process itself. In our experience, those agencies |
29
1 | which have been less inclined to acquiesce in more limited disclosure and
|
2 | information requirements are those jurisdictions which have a "reasoned decision"
|
3 | requirement at the back end. In other words, they need the information very often
|
4 | not necessarily to assess the merits of the transaction, but rather simply to assist
|
5 | them in drafting and publishing their reasoned decision. So while "transparency"
|
6 | is an objective in the abstract to be promoted, it should be recognized that there
|
7 | are countervailing considerations which need to be taken into account.
|
8 | Nevertheless, we believe that the agencies should promote greater
|
9 | clarity and transparency in the multijurisdictional merger review process itself,
|
10 | particularly as it relates to international cooperative enforcement initiatives.
|
11 | Antitrust enforcers here and abroad have frequently touted the benefits of
|
12 | information sharing and cooperation with their foreign counterparts, and in that
|
13 | context they have promoted the notion that it is almost invariably in the parties'
|
14 | best interest to waive the confidentiality restrictions which characterize many of
|
15 | the national regimes to facilitate that process.
|
16 | We believe that the agencies need to do more to help the business
|
17 | community and their legal advisors to better understand the cooperative process,
|
18 | with particular emphasis on how voluntary confidentiality waivers can be
|
19 | beneficial to the merging parties. The lack of transparency which exists at present
|
20 | makes it difficult to assess the benefits of voluntary waivers to the merging parties
|
21 | notwithstanding the agencies' assurances that it is in the client's best interest to do
|
22 | so.
|
23 | In closing, we would offer the following recommendations |
30
1 | respecting interagency coordination. In working towards these changes, we
|
2 | believe that the United States government and the agencies playing a lead role
|
3 | must present a consistent message to the rest of the world if serious progress is to
|
4 | be made. This requires both substantial coordination between the various United
|
5 | States government agencies and private groups involved in the formulation of
|
6 | competition and trade policy.
|
7 | We believe that the Division and the Federal Trade Commission
|
8 | have done a good job in presenting a uniform and coordinated message to the
|
9 | international community. We believe that it's very important that they redouble
|
10 | those efforts, in particular in connection with their technical missions and the
|
11 | interagency consultation process. As the agencies consult with countries which
|
12 | are considering enacting an antitrust statute or modifying their existing statutes,
|
13 | these themes should invariably be part of that mission. Finally in this connection
|
14 | -- and this afternoon's session I think is a case in point -- we need to make sure
|
15 | that the other government groups -- for example, the U.S. Trade Representative,
|
16 | Departments of State, Defense, Transportation, Commerce, and Treasury, all of
|
17 | which have some role in developing trade and competition policy in their
|
18 | intergovernmental advisory capacities -- likewise need to be delivering a
|
19 | consistent message as to the need for avoiding unnecessary transaction costs in the
|
20 | multijurisdictional merger review process as they pursue their individual missions
|
21 | as well.
|
22 | That concludes my overview of our paper. Details are set forth in
|
23 | the paper itself, and once again I appreciate having the opportunity to make this |
31
1 | presentation this morning. Thank you.
|
2 | DR. STERN: Thank you very much.
|
3 | We're not going to open it to questions until we've heard from the
|
4 | whole panel.
|
5 | MR. PROGER: Harvey is now going to present our paper on
|
6 | Private Litigation and then Paul has some follow-up comments on both papers,
|
7 | and then we would be happy to take your questions.
|
8 | DR. STERN: Excellent. Thank you.
|
9 | MR. APPLEBAUM: It's a pleasure to be here again. As you know,
|
10 | I testified in my personal capacity in November, so I may have to exercise more
|
11 | restraint today since I am testifying on behalf of the ABA Antitrust Section and,
|
12 | as Phil indicated, as one of the ICPAC co-chairs along with Paul Victor.
|
13 | Let me mention at the outset that, while we have prepared these
|
14 | papers, we'll continue to provide input. Paul and I both look forward to
|
15 | evaluating this Committee's report and undertaking our own analysis once there is
|
16 | an ICPAC report. That is another objective of the ABA Antitrust Section task
|
17 | force.
|
18 | I am, as Phil indicated, going to provide a very brief overview of the
|
19 | Section's paper on the use of private litigation to challenge anticompetitive
|
20 | conduct affecting U.S. foreign commerce. As you can see from the original
|
21 | calendar, Tad Lipsky of The Coca-Cola Company was scheduled to present this
|
22 | overview and Tad was the principal author of the paper, or at least responsible for
|
23 | pulling it together at the end. I only learned of Tad's absence on Saturday |
32
1 | morning.
|
2 | Just for your information, Tad is in London today, which probably
|
3 | reconfirms the globalization of the antitrust process in that one can cross the
|
4 | Atlantic on very short notice.
|
5 | Members of the private litigation task force subgroup besides Tad
|
6 | were Margaret Guerin-Calvert, who is here with us today, Thomas Green, and
|
7 | Doug Rosenthal. Others contributed to the paper, particularly the development of
|
8 | the studies of the six cases.
|
9 | There have been hundreds of private antitrust cases over the years
|
10 | that have involved foreign commerce and obviously there was neither time nor
|
11 | practicality to try and analyze even a significant number of them. What the
|
12 | subgroup did initially was to discuss which cases might be landmarks which would
|
13 | best identify and present the major issues that occur in cases that involve, one,
|
14 | foreign commerce and, two, almost invariably, the roles, the positions, and the
|
15 | policies of foreign governments.
|
16 | The themes of these cases, as the paper indicates, present the issues
|
17 | which we believe that the ICPAC should consider. They were purposely also
|
18 | selected to reflect a mix of import and export trade, sometimes referred to as
|
19 | inbound and outbound.
|
20 | These cases reflect the kind of well-known complexity of any kind
|
21 | of international suit, and I might note, not unique to private suits. When the
|
22 | Department of Justice undertakes in a suit involving foreign commerce, it also
|
23 | encounters problems of jurisdiction, discovery of relevant evidence, difficulty of |
33
1 | enforcing judgments and the like. The procedural complexity of these suits is thus
|
2 | not unique to private litigation, and affects government suits as well.
|
3 | More importantly, these cases typically involve issues which are by
|
4 | and large unresolved and complex, such as when to apply principles of
|
5 | international comity, when to sustain the foreign sovereign immunity defense,
|
6 | when to apply the foreign sovereign compulsion defense, when does the act of
|
7 | state apply, etc.
|
8 | The Section in particular refers the ICPAC to its 1995 Section
|
9 | monograph entitled "Special Defenses in International Antitrust Litigation," which
|
10 | deals with the particular defenses that occur in these cases. All of them in one
|
11 | way or another, as already indicated, reflect the potential interest or the potential
|
12 | role of a foreign government in a case involving U.S. foreign commerce, and that
|
13 | can be true whether it's export or import trade.
|
14 | There was some consideration of whether to consider private
|
15 | litigation elsewhere. We decided to concentrate on U.S. litigation for several
|
16 | reasons: First, the Section believes that any consideration of the United States'
|
17 | role in international antitrust enforcement has to take into account our relatively
|
18 | unique private treble damage remedy. It is very popular, it is widely used, and
|
19 | while other governments are receptive to private complaints, they are usually
|
20 | prosecuted in the form of government suits, not private suits.
|
21 | Putting it another way, it is virtually impossible to consider
|
22 | international antitrust enforcement from the United States perspective without
|
23 | taking into account strongly encouraged use of private actions. |
34
1 | I have identified six issues and themes from the cases. They appear
|
2 | in both our executive summary and our conclusions. The executive summary
|
3 | which was inserted at the end is not totally overlapping with the conclusions, so
|
4 | one should read both of them to recognize the six themes.
|
5 | The first theme is what mechanisms should courts employ, the U.S.
|
6 | federal courts, to obtain the views of foreign governments? Foreign governments
|
7 | often have a legitimate interest in these cases, but what procedures should be
|
8 | developed for their participation, and as the paper notes, if they so desire,
|
9 | governments sometimes as a matter of choice may decide they would prefer to be
|
10 | silent in these cases.
|
11 | The second theme is whether there is a need for consistent principles
|
12 | in determining when United States antitrust rules and standards should be
|
13 | modified or adjusted to accommodate foreign laws and policies? The most recent
|
14 | interpretation in this area is the Supreme Court decision in Hartford Fire
|
15 | Insurance, which many have read to say that only a literal
|
16 | conflict, a clear literal inconsistency or conflict between the foreign law and the U.S. law, will cause or
|
17 | provoke a consideration of an adjustment.
|
18 | The paper suggests that that standard may be too narrow for
|
19 | purposes of determining when U.S. law should accommodate foreign government
|
20 | interests and policies.
|
21 | The third theme is really a corollary of that. We are all familiar
|
22 | with the principle of international comity in these cases, the Timberlane doctrine
|
23 | and the like, but there is a question of consistency as to when and how the courts |
35
1 | undertake their balancing, and it is a very complex and unsettled area. The
|
2 | Supreme Court decision in Hartford Fire does not necessarily contribute a great
|
3 | deal of enlightenment on the subject.
|
4 | The fourth theme is an interesting one. Could one approach this
|
5 | subject somewhat similar to the well-developed United States state action
|
6 | doctrine? Mid-Cal Aluminum is cited in the paper. When a foreign government
|
7 | asserts it has an interest that it authorizes the challenged conduct or its law should
|
8 | be taken into account, should the U.S. courts inquire into whether the alleged
|
9 | anticompetitive conduct or restraint of trade was in fact authorized by and
|
10 | actively supervised by the foreign government? That is a doctrine that is fairly
|
11 | well developed in the United States.
|
12 | The fifth theme is very familiar to Jim Rill. Some would call it the
|
13 | DOJ International Guidelines Footnote 159 controversy. That is, should the
|
14 | United States continue to take the position that export trade or export
|
15 | opportunities alone can potentially constitute a Sherman Act violation? This is
|
16 | the old issue of whether United States consumer welfare is being protected when
|
17 | only export trade is involved.
|
18 | Perhaps more importantly, the paper suggests that it should be made
|
19 | clear in any event that the fact that export trade can be potentially covered or
|
20 | challenged under the Sherman Act is not substantive; it is simply jurisdiction. If
|
21 | there is a challenge involving export trade, it still has to be shown there was
|
22 | substantive antitrust law violation.
|
23 | This issue begins to dovetail with the broader issue that you were |
36
1 | considering in November and continue to consider of whether if it is export trade
|
2 | or U.S. market access that is involved, whether the Sherman Act or the trade laws
|
3 | and trade policy are the better vehicle or approach.
|
4 | The sixth theme is the more broader one, should there be any special
|
5 | procedural rules or limitations in a foreign commerce case. This is not necessarily
|
6 | a question of comity, but for example, should there be at least discretion on the
|
7 | part of the court to limit any damages to single damages? Should the court have
|
8 | the authority in foreign commerce cases when the defendant prevails to do
|
9 | anything with attorneys fees and in any event should attorneys fees or treble
|
10 | damages be awarded automatically in these foreign commerce suits?
|
11 | Those six themes, which are found in the executive summary and the
|
12 | conclusions, are what the Antitrust Section suggests that the ICPAC Committee
|
13 | should consider. Thank you.
|
14 | DR. STERN: Thank you.
|
15 | MR. VICTOR: Thank you. Good morning. I have a little frog in
|
16 | my throat. I'll try not to -- what do frogs do? Croak?
|
17 | MR. RILL: I don't know. You sound like you always sound.
|
18 | MR. VICTOR: I was just listening to Harvey and one thought that
|
19 | comes to me is actually a broader thought, which I don't know that I thought of
|
20 | before in the same way. But that is this committee might want to give some
|
21 | thought to what should the role of private litigation be today in the context of an
|
22 | effort to develop greater coordination, enforcement coordination and cooperation
|
23 | with other nations and other regimes. |
37
1 | Is there some benefits to gain by moderating or modifying our own
|
2 | private litigation rights in an international context when we are trying to bring
|
3 | along the rest of the world to see antitrust enforcement in a roughly similar
|
4 | context that we see it, although not trying to convert everybody to the exact same
|
5 | substantive or procedural standards? I don't know the answer, but it's just
|
6 | occurred to me that that's a more global question.
|
7 | The only other thing I have to add as a preliminary matter is that we
|
8 | do have one additional working group on the task force, and that's a group that's
|
9 | working on the issue of enforcement policy and cooperation. I am told we are
|
10 | pretty close to having a paper for the task force and then the Section council and
|
11 | officers to consider and, assuming that that does follow a normal course,
|
12 | hopefully we'll have one additional paper to submit to this Committee for
|
13 | consideration.
|
14 | Thank you.
|
15 | MR. PROGER: I should mention that Jan had a scheduling conflict
|
16 | which she moved back to be here this morning, but unfortunately we are shortly
|
17 | going to lose her. Therefore, before she has to leave, we wanted to give her the
|
18 | opportunity to comment.
|
19 | MS. McDAVID: Very briefly, I think the two papers that have been
|
20 | presented to you and the views of the members of the task force that will be
|
21 | presented today bring a unique perspective in that they really focus on the
|
22 | practical realities of how you approach these issues from an unbiased perspective,
|
23 | without the views of any particular client in mind, such as for example, Joe's |
38
1 | paper on international merger review or the comments that Harvey and Paul have
|
2 | made with respect to private antitrust litigation involving multinationals.
|
3 | I think that is almost a unique perspective because many other
|
4 | groups that will be presenting to you today have a particular interest or client's
|
5 | interest in mind. I think that is one of the unique benefits of an organization like
|
6 | the Antitrust Section, one of the reasons that all of us have been so proud for
|
7 | many years to have worked on it.
|
8 | This is the finest tradition of the Section to make views known with
|
9 | respect to both policy questions and the practical realities, for example, of trying
|
10 | to figure out whether you've got 25 percent of the Belgium market when the law
|
11 | doesn't define how you figure out what the market is. You can usually identify the
|
12 | numerator, but figuring out the denominator is virtually impossible, and it's
|
13 | extraordinarily difficult, as Joe's paper really does explain.
|
14 | This is an area in which the ICPAC can take a leadership role and
|
15 | accomplish some genuine benefits for multinational corporations.
|
16 | DR. STERN: That completes your formal presentation. And we
|
17 | were planning to take a break before we started the Q's and A's. I'm aware now
|
18 | that you're going to be leaving, which is too bad.
|
19 | MS. McDAVID: Don't work around me.
|
20 | DR. STERN: Well, I think I should at least give the opportunity to
|
21 | anyone, if they want to ask you questions before we break, to Janet, and then go
|
22 | ahead and break and then come back for Q's and A's for the rest of the panel.
|
23 | MR. RILL: I'd just like to thank you, Jan, for adjusting your |
39
1 | schedule to be with us today, and personally, and I think at least I can speak for
|
2 | my law firm, I'd like to wish you the best of good fortune for a superb year that I
|
3 | know you're going to have, following the superb year that Phil is still having.
|
4 | MS. McDAVID: Thank you.
|
5 | MR. RILL: Notice I said "is still having."
|
6 | MS. McDAVID: One of the things we will do -- we will be very
|
7 | anxious to follow the work Phil has done in communication with the committee as
|
8 | you move forward with your actual recommendations.
|
9 | MR. RILL: We very much appreciate that and we'll certainly make
|
10 | use of it.
|
11 | DR. STERN: Indeed, this paper and your presentation today are
|
12 | extremely helpful. They're very much aligned with our requirements to come up
|
13 | with a set of recommendations which are practical and hopefully constructive.
|
14 | And your perspective that you've just added that you have tried to distill the
|
15 | thoughts and experience of the various practitioners in practical suggestions, is
|
16 | extremely helpful.
|
17 | My only statement that I'd like to make for you to think about as
|
18 | you leave and maybe as everyone has coffee right now is the statement that comes
|
19 | at the very conclusion of your first paper, which dwells on the importance of the
|
20 | European Union, that finding common ground with the EU perhaps holds the
|
21 | greatest promise. I had the cursory impression because I need to really study
|
22 | these papers which reflect a great deal of work, that some of the concerns, at least
|
23 | in the first paper, are looking at potential recommendations out of this committee |
40
1 | applied to the whole world and how we relate with the whole world, whereas in
|
2 | fact you recognize that there is a daily convergence, if you will, on a very
|
3 | practical level, particularly with the EU, bearing in mind of course the importance
|
4 | of Canada in that statement as well.
|
5 | And so I would be interested in hearing what your optimal level of
|
6 | convergence and harmonization would be with the EU. And then what your level
|
7 | of comfort would be with countries other than the EU, perhaps in Canada and
|
8 | Australia. In other words, your take on all of this might be different if we were
|
9 | only asking you about a bilateral as opposed to a whole international set of
|
10 | recommendations.
|
11 | MS. JANOW: I'd like to just also extend my appreciation for all the
|
12 | work that's been done over many months, and of course I have some specific
|
13 | questions we can come back to, but I did want to share that, and also wanted to
|
14 | extend my appreciation for the clarity of these papers and their definitiveness. As
|
15 | a professor, I am very mindful that this be a business and policy relevant
|
16 | document that we produce ultimately and not one that is read mandatorily by my
|
17 | students alone.
|
18 | MR. RILL: Notice she said alone.
|
19 | MS. JANOW: So the definitiveness of the views, that is to say this
|
20 | is not a wishy washy set of papers. This is very clear as to what your participants
|
21 | thought would be useful. I think there are some dimensions that I'm hoping our
|
22 | discussion can amplify. If a perfect world does not close all of these gaps that
|
23 | you point to, what the consequences are of incompletion, whether that's regional |
41
1 | or more specific, and I think we need to talk about that a little bit more and hear
|
2 | your views.
|
3 | But I just want to thank you for all the hard work and also for the
|
4 | business and policy-relevant focus.
|
5 | DR. STERN: Okay. Let's take a break for 15 minutes for coffee
|
6 | and side conversations.
|
7 | (Recess.)
|
8 | DR. STERN: Well, let's resume the hearings where we left off,
|
9 | which was to have questions and answers of this panel of the American Bar
|
10 | Association Section of Antitrust Law Task Force for the International Competition
|
11 | Policy Advisory Committee.
|
12 | Phil, would you like to perhaps -- you had some comments that you
|
13 | wanted to make. I think it wouldn't hurt to put that right on the record and then
|
14 | we'll just turn to questions.
|
15 | MR. PROGER: Thank you. The only thing I was commenting to
|
16 | Paula when we recessed was that there is a noticeable dichotomy between these
|
17 | two issues. There is a general consensus worldwide that the concept of merger
|
18 | review is a good concept, and we are trying to avoid undue burden on the parties.
|
19 | But the concept of private litigation is very different. Private
|
20 | antitrust litigation is not accepted worldwide and there is a fairly extraordinary
|
21 | cultural clash between the United States and the rest of the world on the value of
|
22 | private litigation. I think that because of that dichotomy these issues pose a whole
|
23 | different set of issues for ICPAC to consider. |
42
1 | DR. STERN: Absolutely. Let's open it up to questions. Jim?
|
2 | MR. RILL: Thank you. Again, let me express appreciation for the
|
3 | hard work that's been done.
|
4 | I would like to pose a couple of questions, if I may, to Joe, and
|
5 | obviously anyone else on the panel. You suggest that initial filings should contain
|
6 | the minimum amount of information needed to determine whether or not there's a
|
7 | competitive issue. I'd like to ask you whether you think the U.S. current HSR
|
8 | form provides that information, based as it is on industrial codes that are
|
9 | developed for different purposes, and if you think it doesn't contain adequate
|
10 | information, what further information do you, speaking either in your personal or
|
11 | institutional capacity, think might be added?
|
12 | MR. WINTERSCHEID: Well, first as to the Hart-Scott-Rodino
|
13 | form itself. Again, certainly it meets the minimal information requirement. In
|
14 | terms of whether it's the right information, obviously there are various schools of
|
15 | thought on whether the SIC code format is the right format. It does at least
|
16 | provide an objective way to present business information by product line,
|
17 | recognizing that it does not necessarily represent a properly defined product
|
18 | market.
|
19 | So I think that the SIC codes, while imperfect, certainly at least
|
20 | provide a baseline for providing the information. An alternative might be, in lieu
|
21 | of the SIC codes, reporting as to lines of business or product lines in the manner
|
22 | that the businesses themselves normally describe their businesses.
|
23 | But I think what should be avoided, again coming back to the |
43
1 | market share and market definition point, and one of the key objections that we
|
2 | have voiced with respect to the OECD common notification form, is to try and
|
3 | capture market definition and market share information in that initial
|
4 | filing. Market definition is usually contestable, and it is therefore not always necessarily
|
5 | clear in any given situation, and it really goes to the heart of the competitive
|
6 | analysis that the agencies need to undertake in their assessment.
|
7 | MR. RILL: Thank you.
|
8 | MR. PROGER: If you look at the form one has to make certain
|
9 | assumptions as to what particular questions were designed to do and, while I think
|
10 | that SIC code information does not necessarily properly define a relevant market,
|
11 | the parties are free to supplement that initial submission if they want to draw
|
12 | attention to what they think is the correct relevant market.
|
13 | But sales by SIC codes is information usually maintained by the
|
14 | parties which allows the agencies to easily identify overlaps. And I really do not
|
15 | think it's intended to go much further than that. I would be concerned about any
|
16 | other type of requirement that required a more subjective information basis.
|
17 | MR. WINTERSCHEID: Coming back to one of the points made in
|
18 | our paper, you'll recall the legislative history of the Hart-Scott-Act itself, one of
|
19 | the key points was that the information called for should be limited to information
|
20 | maintained by businesses in the ordinary course of their business, that they should
|
21 | not be required to undertake significant information gathering simply for purposes
|
22 | of making their initial submissions.
|
23 | MS. JANOW: I'd like to ask two merger questions if we're talking |
44
1 | about mergers initially. One is given the differences in timetables, say between
|
2 | the United States and the EU, if some of these improvements were made you could
|
3 | still have a situation where, given the fixed timetable in Europe, that they would
|
4 | be, in effect, completing their process ahead of the U.S. process.
|
5 | The more global question is, this Committee's been thinking about
|
6 | some of the issues that you've highlighted here in terms of problematic practices in
|
7 | foreign jurisdictions and how to encourage jurisdictions to address those
|
8 | deficiencies, move them away from market share and so on. And in the course of
|
9 | this Committee's deliberation a recurring theme has been leading by example as a
|
10 | stimulant for corrective action in those jurisdictions.
|
11 | So my question to you is how does one stimulate change in your
|
12 | view in foreign jurisdictions with respect to these practices? What are the
|
13 | incentives? Certainly addressing our own imperfections is one way. But since we
|
14 | know that for some jurisdictions introduction of merger control and filing fees is
|
15 | the basis for legitimacy and worldwide turnover is a way to give jurisdictions a
|
16 | bigger role in the world than maybe they should, based on the nexus to the
|
17 | jurisdiction, how does one get over that mind set? Have you deliberated on that
|
18 | point?
|
19 | MR. WINTERSCHEID: I'll deal with the second question first, if I
|
20 | may, because that also I think in part responds to Dr. Stern's earlier question on
|
21 | the importance of the EU. In terms of leading by example, the EU is particularly
|
22 | important, I think, in this process, because there are two basic world views as to
|
23 | merger notification process and procedure: the U.S. example and, generally |
45
1 | stated, the EU example.
|
2 | In the scheme of things, the U.S. example is really the minority
|
3 | view, in fact, the distinct minority view. Those jurisdictions which are in the
|
4 | process of enacting merger control laws by and large are tending towards the EU
|
5 | format. Certainly, this is the case as to the EU member states and an increasing
|
6 | number of jurisdiction which are positioning themselves for ultimate accession to
|
7 | the EU.
|
8 | So recognizing the European Commission as an important
|
9 | constituency at least in part merely recognizes the very important fact that, in
|
10 | terms of counseling these jurisdictions, frankly, what the European Commission
|
11 | has to say in many instances will be as important, if not more important, than
|
12 | what the U.S. agencies are saying.
|
13 | The European Commission, in our discussions with them, seems
|
14 | generally sympathetic with many of these points. They recognize, for example,
|
15 | that their procedures, while perhaps suitable for a transaction with Community
|
16 | dimension, which by definition is a significant transaction with potential
|
17 | significant effects within their jurisdiction, may not be suitable as a model for
|
18 | national legislation absent an adequate local effects impact. Absent such an
|
19 | impact, I believe that the European Commission is sympathetic to the view that the
|
20 | Form CO format may impose unreasonable burdens or has the potential to impose
|
21 | unreasonable burdens on parties.
|
22 | You also see aspects of the EU procedures that have been
|
23 | incorporated in national jurisdictions in ways that they were not really intended to |
46
1 | be used. For example, the market share-based jurisdictional test seems to have
|
2 | been derived from the EU's "affected market" test, which defines your reporting
|
3 | obligations -- that is, how much information you have to give -- not whether
|
4 | notification should be required.
|
5 | So the EU is an extremely important constituency in terms of
|
6 | leading by example. Certainly the U.S. agencies need to lead by example and to
|
7 | help to educate jurisdictions as to the burdens that are involved and the sometimes
|
8 | unintended burdens imposed on their own agencies that might not be necessary to
|
9 | accomplish their enforcement mission. But the agencies must also enlist the
|
10 | assistance of the European Commission in leading by example as well. In
|
11 | educating jurisdictions as to issues and problems presented by the EU format, a
|
12 | format which may or may not be the appropriate model to be adopted in particular
|
13 | situations, the European Commission will undoubtedly be even more influential
|
14 | than the U.S. agencies.
|
15 | In terms of incentives, I think that there are clear incentives to
|
16 | streamline the process, both in terms of interagency coordination and in terms of
|
17 | promoting compliance with local law. I think, unfortunately, that one consequence
|
18 | of the overexpansive jurisdictional tests is that companies are really becoming
|
19 | somewhat selective in complying with international premerger notification
|
20 | requirements, because the tests are subjective, because compliance is
|
21 | unreasonably burdensome, and because risk of actual enforcement is oftentimes
|
22 | non-existent.
|
23 | So in terms of promoting compliance and corporate good citizenship |
47
1 | in a global environment, I think that streamlining the process would promote those
|
2 | objectives and, correspondingly, should incentivize the local jurisdictions to think
|
3 | seriously about these issues.
|
4 | As to the timing in the EU, the dyssymmetry in the EU timeline as to
|
5 | transactions that are investigated is generally not a serious issue because once
|
6 | again you can manage the timing process. In the U.S., again, you can initiate the
|
7 | HSR process at the letter of intent stage. The EU process can't be initiated,
|
8 | formally at least, until you have a definitive agreement. So there's a built-in
|
9 | cushion, if you will, that in most instances tends to equalize the review periods as
|
10 | a practical matter.
|
11 | On a going forward basis, assuming that the EU would permit filing
|
12 | contemporaneously based on a letter of intent, then, yes, there could be a greater
|
13 | potential for serious issues arising just from the timing of the review. I'm not
|
14 | sure, again given the very strict deadlines that the European Commission operates
|
15 | under, that there's any easy solution to those problems.
|
16 | But still the fact remains, again focusing on those transactions that
|
17 | don't raise serious issues on the merits, I think the business community is better
|
18 | off in having a common time frame, recognizing that in those transactions where
|
19 | there are serious substantive issues that there are going to be some necessary
|
20 | dyssymmetries in the actual review processes.
|
21 | MS. JANOW: Thank you.
|
22 | DR. STERN: Paul.
|
23 | MR. VICTOR: I was going to make a couple of different comments |
48
1 | on timing. Of course, if you get clearance from one of the jurisdictions in
|
2 | advance, that's wonderful from the standpoint of the client. If you don't get
|
3 | clearance, if there's a problem that surfaces, you're going to know about that
|
4 | anyway, and you're going to be well aware of whether or not that problem is going
|
5 | to have an overlap in the other jurisdiction and be able to deal with the
|
6 | implications of that.
|
7 | As to how to stimulate change in foreign jurisdictions, I don't think
|
8 | we should lose sight of the fact that what's happening today informally is probably
|
9 | stimulating more change than might happen formally in the sense that, Merit, you
|
10 | were in Berlin, Jim, you were in Berlin, and we all heard Joel talk about how the
|
11 | European Community and the United States antitrust authorities are working these
|
12 | days almost as a seamless web. I think those were his words.
|
13 | And, of course, they're learning from shared experiences. They
|
14 | apparently speak to each other with great regularity and, even though the written
|
15 | rules and regulations may be different, and they have to of course be mindful of
|
16 | that and apply them as they are required under each jurisdiction, nevertheless the
|
17 | pragmatic aspects of coordination tend to be taking place in many situations today
|
18 | even on an informal basis and you can have influence that way.
|
19 | MR. WINTERSCHEID: Merit, could I come back to one additional
|
20 | point that Paul's comments raised. Again, on timing generally and also on our
|
21 | overall initiative in consulting on a bilateral basis and what can realistically be
|
22 | achieved and what the incentives are, all of these issues are interrelated.
|
23 | I think, as Paul notes, when you are working on a transaction you |
49
1 | know pretty well up front if you're going to have serious issues on the merits in
|
2 | the United States, in Europe and other foreign jurisdictions. And so you can
|
3 | manage the process with that in mind.
|
4 | The focus, again, needs to be on those transactions which do not
|
5 | raise serious issues on the merits, and that really is a thread that runs throughout
|
6 | this discussion. In terms of how to incentivize other jurisdictions to make certain
|
7 | changes, these incentives are less of an issue as to transactions where all parties
|
8 | can agree that there is no competitive issue than in those situations where we're
|
9 | trying to solve the imponderables, as in Boeing-McDonnell Douglas, for example.
|
10 | So I think that by keeping our focus generally on those
|
11 | noncontroversial transactions, a great deal of good can be done for the business
|
12 | community in streamlining the process and eliminating unnecessary transaction
|
13 | costs.
|
14 | MR. RILL: Joe, let me if I may just pick up on this. I agree that a
|
15 | lot could be accomplished in the area where there's no issue in one or another
|
16 | jurisdiction. I don't think we should turn our back and I don't read you as
|
17 | suggesting that we should turn our back on those areas where there are
|
18 | overlapping or converging issues that do raise questions concerning a transaction.
|
19 | In fact, I read you as saying in the mature jurisdictions leading by
|
20 | example is a good thing; I think you would suggest that it's a good thing in
|
21 | substance as well as procedure; that convergence, sensible convergence, in
|
22 | substance is probably a good thing; and to pick up on Joel's lattice of bilaterals,
|
23 | that cooperation is a good thing. |
50
1 | Now to jump to another point you made, at least one of the elements
|
2 | where the business community could profit by enhanced cooperation which could
|
3 | result from enhanced information sharing and voluntary waivers of confidentiality
|
4 | restrictions. I would like to ask you and the rest of the panel to comment on that,
|
5 | but in addition to that to put the question back to you that you put to the agencies:
|
6 | What do you see as the benefits to private parties to grant a waiver of confidential
|
7 | information under, let's assume, appropriate downstream confidentiality
|
8 | protections?
|
9 | MR. WINTERSCHEID: We're certainly not suggesting that
|
10 | contested transactions be ignored altogether. But the bottom line there, as the
|
11 | agencies have indicated, is that in those situations the right course is probably
|
12 | through the bilateral discussion process and achieving consensus through those
|
13 | means, as opposed to broad-based initiatives directed at substantive convergence,
|
14 | at least at this time.
|
15 | As to the information-sharing point, certainly in a number of
|
16 | transactions there are clear benefits to be achieved from waiving confidentiality so
|
17 | that the agencies can coordinate their investigations more effectively and thereby
|
18 | hopefully decrease the burdens on the parties. Certainly, there are situations
|
19 | where in dealing with potential remedies it is essential that the agencies have the
|
20 | ability to communicate freely so that they can work together and affect a
|
21 | "one-stop shop," if you will, as to possible remedies that would be satisfactory to
|
22 | both or all of the jurisdictions involved.
|
23 | So there certainly are circumstances where there are benefits to |
51
1 | waiving confidentiality. I think the principal point, though, is that it's not clear
|
2 | that in all cases that's necessarily the case. And the agencies have not really
|
3 | provided much guidance, at least in my experience, as to the specifics of the
|
4 | coordination process, other than in broad brush, to help us to educate our clients
|
5 | as to why it is inevitably in their best interest to do so.
|
6 | Indeed, there has developed something of a presumption -- first I
|
7 | think unspoken and now a spoken presumption -- that if you have any hesitation
|
8 | about granting a waiver that necessarily means you must have something to hide.
|
9 | This I think is an unfortunate development in the overall process, which doesn't
|
10 | promote the overall objective in achieving greater transparency so as to permit the
|
11 | parties and their legal advisors to make more informed decisions as to those
|
12 | circumstances when a waiver is in their best interest, again assuming that
|
13 | downstream confidentiality and the confidentiality issues are adequately
|
14 | addressed.
|
15 | MR. RILL: Phil?
|
16 | MR. PROGER: I want to go back to what has been raised as to
|
17 | what the United States can do in terms of worldwide leadership on competition
|
18 | issues. I think we have to be realistic about our role and our ability to lead in this
|
19 | area. We are such a large country, we are so powerful, we are the first mover in
|
20 | this area, that we intuitively feel that we should be the leader here.
|
21 | But, I think it is difficult for us to be a leader for a number of
|
22 | reasons. Joe mentioned several. First, there are a number of countries that want
|
23 | to be part of the EU and therefore are more inclined to follow the EU rather than |
52
1 | the U.S.
|
2 | But the underlying cultural and political substance is the one that
|
3 | really is the most difficult for us to overcome. Our system, which has as its
|
4 | anchor enforcement through the courts, is intuitively different than the rest of the
|
5 | world and they are less comfortable with it. If you are a nation trying to develop a
|
6 | set of competition principles, it is far easier to set up a competition enforcement
|
7 | agency modeled after the EU. So I think we have to be realistic that our system is
|
8 | not necessarily intuitively the one that people will gravitate towards.
|
9 | The second thing is that there already is a lot of bilateral
|
10 | cooperation among enforcement agencies, particularly the U.S. with DG-IV,
|
11 | Canada, Germany and other more developed enforcement regimes. That
|
12 | cooperation likely will increase.
|
13 | I think bilateral cooperation is important, but we should not confuse
|
14 | that with the substantive analysis. While there is a process advantage to one-stop
|
15 | shopping, that does not necessarily mean you are going to have one-stop answers.
|
16 | I think it is particularly important to note that antitrust competition
|
17 | analysis by its very nature is fact- intensive and often locally fact-intensive. So
|
18 | even though you get the one-shop advantage, you may get different answers. For
|
19 | example, the effect in the United States may be different than the effect in Europe.
|
20 | Last and I do not think least, I think that there are things that can be
|
21 | done that will reduce the procedural differences, but in so doing I would urge
|
22 | ICPAC to be very careful to make sure what we don't end up with is the lowest
|
23 | common denominator so that everyone gets, as someone said before, a Christmas |
53
1 | ornament and what we end up with is a more burdensome.
|
2 | DR. STERN: Those are three very wise comments. On the first
|
3 | one, this common law court enforcement that is the anchor for our system reminds
|
4 | me of the point that has been made actually several times now both by you, Joe,
|
5 | and particularly in this footnote in the first paper on page 22, which talked about
|
6 | "The U.S. agencies may need more information than their EU counterparts in order
|
7 | to be ready to litigate a preliminary injunction case," and then the footnote is
|
8 | dropped that says: "There are grounds to question the legitimacy of this concern.
|
9 | The HSR process was designed to give the agency sufficient information to
|
10 | determine whether or not to challenge a merger. Preliminary injunction merger
|
11 | cases frequently involve extensive expedited discovery in which the agency can
|
12 | seek to enhance its litigation position."
|
13 | It's this kind of morphing, if you will, of what may have been
|
14 | original intention into something that, because of the litigation potentials, has
|
15 | created a different outcome than that which even the policymakers, in the form of
|
16 | members of Congress and the President who signed the HSR, had in mind in the
|
17 | first place.
|
18 | I wonder how we get back, if you will, to that starting point,
|
19 | because in a sense that's where we are now.
|
20 | MR. WINTERSCHEID: These comments obviously go not to the
|
21 | initial filing but to the second request process.
|
22 | DR. STERN: Right, but it relates to something you had already said
|
23 | in the context of what had been the initial intentions. |
54
1 | MR. WINTERSCHEID: That's true. And the second request
|
2 | process has been the subject of concern and debate for as long as the HSR Act has
|
3 | been in place, with successive commitments by the agencies to review the process
|
4 | and successive drafts of the model second request and so forth.
|
5 | Without question, turning to the investigative phase and as pointed
|
6 | out in our paper, the HSR Act second request process in itself is unduly
|
7 | burdensome as it presently stands. What can be done as a fix comes back I think
|
8 | to Phil's point and it's been made elsewhere, that at that point it is a prelitigation
|
9 | process, for better or worse.
|
10 | But that's not to say that the agency should have unfettered
|
11 | discretion in the process. And some suggestions have been made respecting
|
12 | avenues of review for substantial compliance outside the agency or expedited
|
13 | review within the agency as to substantial compliance. Those are all avenues
|
14 | which should be explored, but I'm not sure, again given the litigation focus, that
|
15 | there's going to be an easy solution that will satisfy the agencies that they have
|
16 | access to all the information that they need.
|
17 | At the same time, I don't think that there's any serious debate that
|
18 | the process does generate more information than could reasonably be expected to
|
19 | be used or that is even relevant. I mean, the second request process is really used
|
20 | as a means to cover all the bases, which is understandable in a prelitigation
|
21 | context, but still gives rise to situations where undue burden is clearly imposed.
|
22 | DR. STERN: Well, it relates to this overall cultural difference that
|
23 | we in the U.S. are challenged by if we're going to talk about convergence with |
55
1 | other nations and other cultures and make recommendations, at least in this field,
|
2 | that will have some possibility of being persuasive.
|
3 | And to the extent -- I guess this is just to underline Merit's request -
|
4 | - that you have further thoughts on how we can be persuasive in leading by
|
5 | example or other ways, it would be most helpful.
|
6 | MR. PROGER: I'm not going to speak now for the Section because
|
7 | I do not think we've vetted this. But I think the agencies have articulated two
|
8 | separate and distinct concerns for the reason why they have to be as thorough on
|
9 | the second request. They sound similar, but they are really different.
|
10 | DR. STERN: Okay.
|
11 | MR. PROGER: One is prelitigation preparation; the second is
|
12 | assessing their chances of success in litigation. If the concern is litigation
|
13 | preparation, then there could be a process where there are two second requests, an
|
14 | extensive one and a second one that is more narrow -- and this is not an original
|
15 | idea with me; someone else suggested this to me -- but the second one being with
|
16 | the stipulation that if it goes to litigation the parties will not oppose reasonable
|
17 | expedited discovery.
|
18 | If the concern is the second articulated reason, that I as the
|
19 | Assistant Attorney General in charge of the Antitrust Division or we collectively
|
20 | as five Commissioners who are required to make a judgment and that judgment
|
21 | incorporates what our likelihood of success will be in litigation, I do not know
|
22 | how you ever curtail the Second Request because you are in a virtually endless
|
23 | desire for information. |
56
1 | Some of the more recent second requests -- and I'm sure ICPAC can
|
2 | get access to them -- are running 90 to 100 pages and require the production of
|
3 | thousands of documents. So I think there is a real practical problem here.
|
4 | DR. STERN: Thank you.
|
5 | Merit.
|
6 | MS. JANOW: Could I shift us to the private litigation paper for a
|
7 | minute?
|
8 | DR. STERN: Sure.
|
9 | MS. JANOW: I thought this was a very interesting paper and it was
|
10 | a delicious appetizer to the questions that you've raised. I just wanted to invite
|
11 | you to share with us where you'd go with some of your suggestions.
|
12 | First a statistical point. It's very interesting that there's been this
|
13 | dramatic drop-off in private litigation. What dimension of that is of an
|
14 | international nature was something that we have been trying to better understand.
|
15 | If you have developed a methodology to see whether or not the international aspect
|
16 | is constant or increasing in an environment of declining private litigation, that's
|
17 | not only statistical, but it's also a question about what is the environment.
|
18 | I guess the related question: It's often assumed that the private
|
19 | litigation, particularly with respect to outbound, can be linked to government
|
20 | action; so whether or not you are finding any correlation there with respect to
|
21 | either outbound or inbound?
|
22 | The broader question I have for you is where you might recommend
|
23 | your themes taking us. For example, there have been lots of proposals advanced |
57
1 | by different groups, including the ABA Special Committees, about additional
|
2 | mechanisms that courts could employ to get the views of foreign governments, be
|
3 | that through a more formalized amicus proceedings or otherwise, or what could be
|
4 | done to establish more consistent principles for accommodation, given the
|
5 | questions raised by Hartford Fire.
|
6 | The Justice Department has elaborated its own comity elements and
|
7 | those are in the International Guidelines and elsewhere. Does one need to do
|
8 | something different or more to establish more opportunity or possibility of
|
9 | consistent application by the courts and, if so, what would that be?
|
10 | Some have talked about guidelines for comity like the sentencing
|
11 | guidelines more specifically. So I would invite you to comment on where your
|
12 | themes take you.
|
13 | The last one I think you mentioned, Harvey, one of the last ones,
|
14 | was discretion to limit damages perhaps in foreign commerce cases as well as
|
15 | attorneys fees. That raises this intriguing question of is this a de-trebling
|
16 | suggestion? If so, does one de-treble only in foreign commerce or where are the
|
17 | parameters here and how does one ensure that the approach is not discriminatory
|
18 | in its impact?
|
19 | So I'd just invite you to share with us wherever you'd like to go
|
20 | further with respect to the very important themes you've suggested that we focus
|
21 | on.
|
22 | MR. APPLEBAUM: You have asked a number of questions and
|
23 | there are many others here who can respond to them besides me. I will respond |
58
1 | and ask Meg if she wants to comment since she was on this task force.
|
2 | I am not sure it can identify or compare the decline in foreign
|
3 | commerce cases to the general decline. I would assume they are similar. We
|
4 | could discuss some other time the reasons for the declines.
|
5 | The Section certainly is not here advocating the elimination of the
|
6 | treble damage remedy, but it obviously has occurred in some contexts. I mean, the
|
7 | notion is not radical because we have elimination with certain joint ventures and
|
8 | export trading companies.
|
9 | But the thought here was that in a case that involves imports or
|
10 | exports, or a multinational or a foreign plaintiff or defendant, we should develop
|
11 | criteria for single damages.
|
12 | One potential theme is cases where there is some element of a
|
13 | defense or some element of the case involves foreign government activity -- in any
|
14 | of those defenses enumerated or any time that a defendant argues, I had to do this
|
15 | because the foreign government compelled me to, asked me to, suggested I do it, or
|
16 | what I did was consistent with foreign government policy and the like.
|
17 | The main theme is where there are legitimate foreign government or
|
18 | maybe even foreign multinational private interests, to what extent should the
|
19 | courts, as they do from time to time and as they have over the years in applying
|
20 | comity or with other principles, accommodate or adjust U.S. antitrust law?
|
21 | It is this dimension of private litigation which makes the U.S. both
|
22 | unique and makes it more difficult to deal with in the international context.
|
23 | Meg, would you like to comment? And maybe Paul would also like |
59
1 | to comment?
|
2 | MS. GUERIN-CALVERT: To start off with, we chose the six cases
|
3 | on the basis of trying to have three that were representative of inbound and three
|
4 | representative of outbound. We found was that the distinction between inbound
|
5 | and outbound was not as important a distinction as the idea of trying to look at
|
6 | where had there been private litigation that, without government intervention, was
|
7 | designed to try to enhance competition.
|
8 | So in looking at that, one of the things that struck the working
|
9 | group as we were examining each case and writing up summaries of the various
|
10 | cases is how in each there was the following issue: was there a clear system in
|
11 | place by which, ahead of time, the plaintiffs and the defendants would know the
|
12 | extent to which foreign government approval, oversight, or policy -- that is,
|
13 | something akin to state action -- could be brought into play as a defense? In
|
14 | particular, the working group found that in the various cases and decisions such
|
15 | issues were being brought up as a defense and in amicus briefs being filed on
|
16 | behalf of the defense. There was, however, no clear standard articulated for how
|
17 | or whether or not the U.S. court would be allowed to ask for articulation of the
|
18 | foreign government's policy, whether or not they could require it and, once it was
|
19 | obtained, how it should be balanced against other issues.
|
20 | In our written submission to you we raised a number of issues; this
|
21 | one seemed to be the one to focus on the most significantly. It goes to comity but
|
22 | also somewhat broader in terms of the issue: "is it possible to have an articulated
|
23 | set of principles or guidelines that would apply to a court that would be generally |
60
1 | recognized, that would at least set up the process by which a foreign government's
|
2 | input could be requested, required, or utilized."
|
3 | On your narrow comment, I know that in some of the data they do
|
4 | involve foreign claims, and we could check to see whether there's a separate
|
5 | tracking that would specifically identify federal cases.
|
6 | DR. STERN: Thank you very much.
|
7 | MR. VICTOR: May I? I have a few comments to make.
|
8 | First of all, with respect to private litigation involving international
|
9 | aspects, I don't know that there's anything unique about that vis-a-vis domestic. I
|
10 | think if Joel and Gary continue on their quest for international cartel activity and
|
11 | are successful in bringing indictments, you're going to see cases involving foreign
|
12 | defendants and international activity as the aftermath in the treble damage
|
13 | context.
|
14 | With respect to noncriminal-related type of conduct, I think that
|
15 | there's relatively little unique with respect to the international context via-a-vis
|
16 | with respect to the domestic context. It's the evaluation by the plaintiffs as to
|
17 | whether they think they can achieve relief, whether monetary or injunctive relief,
|
18 | and in that sense it's affected by the wave of private actions and the trend of
|
19 | decisions and the infusion of economic thinking that has happened in the last 15
|
20 | years, which probably is a large contributor to the decline of private litigation in
|
21 | general.
|
22 | With respect to this whole business about comity and foreign
|
23 | governments making known their views and the like, once again, in the private |
61
1 | litigation context it's not the government, so you're not thinking government to
|
2 | government. You've got litigators, you've got people fighting. You've got private
|
3 | interests fighting for a particular objective regardless of how they obtain it,
|
4 | utilizing the courts, presumably properly, and the law, properly -- otherwise
|
5 | you're not going to achieve the objective.
|
6 | And a private plaintiff doesn't care about comity as such. I mean,
|
7 | they don't have to evaluate what the sensitivities are. They go ahead and plow
|
8 | ahead and bring suit, and let the courts worry about it if it's a proper thing to do
|
9 | in a particular case.
|
10 | I don't recall what the latest status of the law is, but my view has
|
11 | always been that comity is not jurisdictional in nature, but rather an issue of
|
12 | whether or not a court should proceed with a proceeding. That is, the statute
|
13 | gives the jurisdiction, and the issue as to whether to proceed depending on the
|
14 | sensitivities involved (comity) is a different though related issue.
|
15 | But private parties on the plaintiff's side are certainly not going to
|
16 | be too concerned about comity situations or looking for some perfect-world
|
17 | solution in that context. They're likely to try to pick courts that they know are
|
18 | going to favor their position if they can otherwise get into that particular court,
|
19 | that venue, rather than a court which looks at it differently.
|
20 | As to the views of foreign governments in these cases, from my own
|
21 | personal experience so far, I've been involved in one or more cases where this has
|
22 | played a role. Remember, the issue is one of foreign sovereign participation or
|
23 | encouragement versus compulsion. As a matter of law, there's no defense for |
62
1 | encouragement or participation. There's only a defense for compulsion.
|
2 | So again, courts may have to grapple with that sort of thing, but it's
|
3 | not the proper venue necessarily to deal with that issue. The issue is more
|
4 | properly dealt with in the actual law itself and perhaps some negotiation of
|
5 | common views by governments.
|
6 | I think that's about it.
|
7 | MS. JANOW: Thank you.
|
8 | MR. RILL: I'd like to follow up on that and on another issue. I
|
9 | made a note to ask you all to determine whether or not act of state would be
|
10 | applicable in an international context. I think you're right. I think it's only where
|
11 | there's foreign sovereign compulsion. So that the Mid-Cal principle wouldn't
|
12 | apply, I think, in an international context.
|
13 | We have to make policy determinations and one question is, and it
|
14 | relates to the efficacy of cooperation; should the United States government -- and
|
15 | the issue is before the OECD right now -- advocate private litigation options in
|
16 | foreign jurisdictions? And what would be the efficacy of that advocacy in your
|
17 | opinion? What incentives would foreign governments or foreign legislatures have
|
18 | to be sensitive to for such advocacy?
|
19 | MR. VICTOR: If I may, my personal view is that that's probably
|
20 | not the issue the U.S. Government should be pushing for. That gets into a
|
21 | tremendous culture issue as to how foreign countries view litigation and the way
|
22 | in which persons or entities resolve conflicts between themselves.
|
23 | I think that the U.S. Government probably has enough on its agenda |
63
1 | to try to deal with the pragmatic problems of coordination and cooperation that
|
2 | would involve government enforcement authorities rather than to take on the effort
|
3 | of persuading other countries that treble damage or even single damage type
|
4 | actions are something that they should seriously consider.
|
5 | I think those countries are not blind to what exists here and most of
|
6 | them seem to criticize our approach. We're probably not likely to succeed even if
|
7 | we undertook such an effort, but I'm doing this off the top of my head.
|
8 | MR. RILL: Suppose there were a modification of our approach
|
9 | along the lines that Harvey's suggesting, a de-trebling or court discretion in the
|
10 | grant of attorneys fees, as an incentive? I don't want to pursue this too much
|
11 | longer, but it is a policy question that's on the table at OECD and one that we
|
12 | want to address.
|
13 | I'll just ask one more question --
|
14 | MR. APPLEBAUM: Let me just mention, the paper does
|
15 | specifically address that. It states: "In light of the spectacular worldwide
|
16 | proliferation of antitrust laws in the past decade -- still underway -- it is doubtful
|
17 | whether there is any generalized need for enhanced private antitrust litigation
|
18 | under foreign regimes as a means of addressing private anticompetitive conduct,
|
19 | including conduct that may restrain U.S. foreign trade."
|
20 | MR. RILL: I take it that's a no as to advocacy.
|
21 | MR. APPLEBAUM: That's a generalized no, the Section Task
|
22 | Force believing very much along the lines of what Paul has said, that we have our
|
23 | own unique phenomenon. As Phil has mentioned, our treble damage system is |
64
1 | pretty universally criticized. It would not make a lot of sense to, if we're thinking
|
2 | about restraints on U.S. export trade, urge private litigation rights under foreign
|
3 | antitrust laws.
|
4 | DR. STERN: What page were you quoting from?
|
5 | MR. APPLEBAUM: I was reading from page 2.
|
6 | DR. STERN: Thank you.
|
7 | MR. RILL: I'm going to have to excuse myself in a minute, but I do
|
8 | want to come back to a question that Joe raised, and I think it has some very
|
9 | interesting implications, and that is the united front comment. I think that the
|
10 | united front between FTC and DOJ is working quite well in general terms.
|
11 | But you also raised the issue of other agencies having antitrust or
|
12 | quasi-antitrust or at least some competition responsibilities. I wonder if you or
|
13 | the other members of the panel would suggest as a response to that that the
|
14 | competition authority, the Department of Justice or the FTC, have a seat at the
|
15 | table in White House deliberations on competition policy. This should, perhaps,
|
16 | be the case in instances where specialized agencies have a seat at the table, or as I
|
17 | think Commissioner Powell of the FCC has proposed, that competition decisions
|
18 | by the antitrust agencies be binding on other deliberations -- universal service, for
|
19 | example -- by the specialized agencies.
|
20 | MR. WINTERSCHEID: I think certainly the antitrust agencies
|
21 | should play a leading role, if not the leading role, in developing our competition
|
22 | policy portfolio in the international community. How that is formalized, I'm not
|
23 | sure I have a direct view in terms of having a "seat at the table" in a formal sense. |
65
1 | Certainly they should be at the table when those decisions are being made, and in
|
2 | addressing issues as fundamental as, in developing countries, do we really want to
|
3 | promote the enactment of competition laws at any given stage of their economic
|
4 | development, and, assuming that the answer is yes, how that policy is developed
|
5 | consistent with, not just U.S. business interests, but, more fundamentally, with the
|
6 | effective enforcement of competition law principles on a global basis.
|
7 | That's one of the main thrusts of our paper. Because of their
|
8 | experience and their sensitivities to the real world issues presented by global
|
9 | enforcement, it's critical that the antitrust agencies play a leading role in the
|
10 | development of the policies that are being articulated by other U.S. government
|
11 | agencies in other contexts.
|
12 | MR. VICTOR: I would echo that thought. I think our competition
|
13 | agencies are not only sophisticated, but they are clearly the only agencies that
|
14 | really have an understanding of competition issues. My impression is that the
|
15 | other agencies that deal with those issues really do not have a deep understanding
|
16 | and/or appreciation of the issues themselves, much less how those issues would fit
|
17 | in and be considered in the context of the particular problem that's being
|
18 | addressed by the various agencies considering an issue. So I would strongly echo
|
19 | that.
|
20 | Without taking sides -- and working on the basis of anecdotal
|
21 | information -- I think what happened in the Fuji-Kodak situation reflects the
|
22 | absence of in-depth understanding of competition issues by at least one of the
|
23 | agencies that was involved. |
66
1 | MR. APPLEBAUM: I also agree with what Paul and Joe said. But
|
2 | more broadly, there was a colloquy here in November on the whole issue. The fact
|
3 | that generally speaking the WTO doesn't cover, arguably doesn't cover,
|
4 | competition policy or, if it does, it's under nullification and impairment, and the
|
5 | problem of having the United States Trade Representative in Section 301 cases
|
6 | deal with complex issues of competition in the Japanese market is a formidable
|
7 | challenge.
|
8 | The USTR has just announced an interim decision involving an
|
9 | alleged anticompetitive restraint engaged in by the government of Mexico on
|
10 | exports of high fructose corn syrup from the United States. If you consider the
|
11 | allegation, it's a traditional boycott type issue, antitrust issue. But the question of
|
12 | whether the Mexican government was involved is a fact question, and what impact
|
13 | it may have had in the Mexican market is before the United States Trade
|
14 | Representative.
|
15 | What Paul and I are saying is the Kodak-Fuji case involved a
|
16 | non-antitrust, non-competition agency -- and that is not a criticism of the USTR.
|
17 | I question whether the USTR has the resources or the experience or the depth of
|
18 | expertise, that is antitrust or competition law expertise, to deal with issues like
|
19 | Kodak-Fuji.
|
20 | MR. PROGER: I agree with the comments that have been made. I
|
21 | think that actually your question touches on almost every issue we have dealt with
|
22 | today. And it starts with one fundamental point that we have not really talked
|
23 | about. Competition policy is a public interest, but it is not the only public |
67
1 | interest.
|
2 | One of the things that we in the United States at times have been
|
3 | severe in our criticism of other competition regimes is that they bring in other
|
4 | public interests. Yet we have the FCC, the FERC, the Federal Energy Regulatory
|
5 | Commission, Surface Transportation Board. We have agencies where we bring in
|
6 | other public interests in their deliberations.
|
7 | So, in answer to your two questions: One, we would be better off,
|
8 | if we are going to have within our government some entity in which competition
|
9 | expertise and policy resides, it should be the competition agencies and not
|
10 | agencies that regulate specialized industries. To the extent that there are other
|
11 | public interests, there has to be coordination of those interests within our
|
12 | government.
|
13 | That gives rise to the second point. I think competition policy
|
14 | should be given an equal seat at the table within our government as that given
|
15 | trade policy. I think both are important to national public interest. So right now
|
16 | trade is there, competition is not. That does not strike me as an appropriate
|
17 | perfect balance.
|
18 | But the last point raises an interesting point, the one Harvey raised
|
19 | on the Mexican corn. Here I am truly speaking for myself because, as the Section
|
20 | papers point out, we are not for proliferation of private litigation.
|
21 | But the Mexican point raises an interesting point. The U.S. created
|
22 | the private attorney generals to say that there are other ways of enforcing antitrust
|
23 | laws other than through government action. There are limitations to the resources |
68
1 | of the government, so we created the private attorney general as an additional
|
2 | plaintiff.
|
3 | That has led in some cases to abuses. Not withstanding that, in
|
4 | situations where we as a country want to promote worldwide free markets and
|
5 | open market access, I do wonder whether having some system where, despite the
|
6 | fact that the foreign government does not want to enforce the law, a private party
|
7 | victimized by an anticompetitive effect might seek redress in two ways.
|
8 | One, it might stop the process of U.S. courts now reaching way out
|
9 | to get at conduct that is probably beyond us, but for which the party does not have
|
10 | any other immediate venue to seek redress; and two, it might lead to greater open
|
11 | access and freer markets in other countries.
|
12 | DR. STERN: Where would it be, where would this thing be located,
|
13 | this ability? Would it be within the U.S. Government?
|
14 | MS. JANOW: Can I give a footnote on that?
|
15 | DR. STERN: Yes.
|
16 | MS. JANOW: One approach that has been taken, obviously, in the
|
17 | SII negotiations and others, is that for those jurisdictions that have chosen to have
|
18 | private litigation, that they make that effective within their own systems, that the
|
19 | impediments to effective litigation be removed, whether those be filing fees or
|
20 | presumptions or so on.
|
21 | So rather than being an advocate necessarily in whole cloth, being
|
22 | an advocate in those jurisdictions that have chosen, that would be one approach.
|
23 | MR. PROGER: There is an obvious difficulty going forward. You |
69
1 | are really raising a much broader question for the foreign nation and its society.
|
2 | Does it want to have an effective judicial system and a system of private redress?
|
3 | I do not think you are going to create this solely to deal with
|
4 | competition issues. You have to first have in the foreign jurisdiction an innate
|
5 | belief that there needs to be a judicial system which provides private redress.
|
6 | MR. WINTERSCHEID: It's important not to lose sight of the fact
|
7 | that in many jurisdictions, and particularly in Europe, there is a private right of
|
8 | action. The point is that it's not exercised. So technically it's there, but again it's
|
9 | a cultural issue as much as anything else.
|
10 | The other footnote to proposing expanding those rights of private
|
11 | action in foreign courts under foreign systems, is the potential effect that that may
|
12 | have on the rights of U.S. litigants. In particular I'm thinking of the Second
|
13 | Circuit's 1998 decision in Westminster Bank, where a private U.S. antitrust action
|
14 | was dismissed on forum non conveniens grounds because the United Kingdom has
|
15 | a private right of action. Never mind that there was no inquiry as to whether it's
|
16 | an effective right of action, having determined that there is technically a private
|
17 | right of action in the UK, the U.S. case was dismissed.
|
18 | So in terms of the need for clear rules, to the extent that the
|
19 | existence of foreign private rights of action are going to be grounds for dismissing
|
20 | U.S. antitrust actions, it seems to me that this is another area where clear rules
|
21 | should be established so that the U.S. district courts aren't dismissing meritorious
|
22 | rights of action in the United States merely because of the theoretical availability
|
23 | of a private right of action in some foreign jurisdiction. |
70
1 | DR. STERN: I keep coming back to this page 3 of point C, in
|
2 | which you have stated that "ICPAC could help to increase awareness that neither a
|
3 | direct, substantial and reasonably foreseeable effect on U.S. import commerce nor
|
4 | the denial of a U.S. export opportunity constitutes a substantive antitrust violation
|
5 | in itself." You're saying that this would be useful if the Committee made that very
|
6 | clear and repeated that mantra.
|
7 | I keep looking at this thing thinking about Section 301, because
|
8 | you're saying if we did that, "clarification" -- I'm quoting -- "will simplify debate
|
9 | and permit the recognition and distinct treatment of market access remedies based
|
10 | on substantive standards different from those of antitrust law."
|
11 | Are you stating that Section 301 should never be used in the pursuit
|
12 | of a case in which even there's been a display of an adverse effect on competition?
|
13 | What are you saying here?
|
14 | MR. APPLEBAUM: Item C in the executive summary on page 3
|
15 | has to do only with the Sherman Act. It is not commenting on Section 301. In
|
16 | fact, the paper doesn't comment on Section 301 at all.
|
17 | DR. STERN: I know. But I can't help but --
|
18 | MR. APPLEBAUM: Paul and I, and Phil maybe, have commented
|
19 | outside of the paper on Section 301. But this is an issue of long standing and I
|
20 | have referred to the fact there was at one time in the Antitrust Guidelines of the
|
21 | Department of Justice a footnote that provided that where U.S. consumer welfare
|
22 | was not affected, i.e., exports, that at least the Department of Justice would not
|
23 | exercise any jurisdiction. |
71
1 | That was later reversed by the Department of Justice --
|
2 | DR. STERN: Right.
|
3 | MR. APPLEBAUM: -- when Jim Rill was Assistant Attorney
|
4 | General, and there remains a longstanding debate.
|
5 | I think that the concern that the Section had with this approach is
|
6 | that it leads to the impression that there is a Sherman Act violation every time a
|
7 | U.S. exporter is barred from a foreign market. The point is that, like any other
|
8 | antitrust case, whether it's private or governmental, there has to be a showing of
|
9 | either a per se violation or a rule of reason, unreasonable restraint of trade. That
|
10 | is, the denial of an export opportunity alone is not an antitrust violation.
|
11 | The Section in a sense has raised the broader issue of whether that
|
12 | should be considered an antitrust violation at all. There are different views on
|
13 | that issue among antitrust practitioners. But obviously, if it is not an antitrust
|
14 | violation, that does not mean it is not a market access issue under the WTO and/or
|
15 | under Section 301. There is a much broader question of whether -- which we
|
16 | discussed in November -- the WTO should somehow embrace competition policy
|
17 | and market access cases wouldn't need to have an outlet through Section 301.
|
18 | But to be very precise, this Section comment has only to do with the
|
19 | antitrust laws and is not a comment on Section 301.
|
20 | MR. PROGER: Correct me if I'm wrong, but the Section has long
|
21 | held the policy or the belief that market access issues should be dealt with
|
22 | appropriately, where appropriate, under the trade laws and the antitrust laws
|
23 | should not be used as a club to gain what is essentially a trade issue, not a |
72
1 | competition issue.
|
2 | MR. VICTOR: Yeah, the antitrust laws are not a panacea for the
|
3 | market access issues.
|
4 | DR. STERN: Okay.
|
5 | MR. APPLEBAUM: And I might add that there is obviously a
|
6 | distinction between a private suit where a U.S. exporter alleges that it was
|
7 | improperly barred from access to a foreign market and a criminal case, such as the
|
8 | one Paul alluded to. If the Department of Justice has evidence that a group of
|
9 | foreign companies are engaging in such collusive activity, whether it's outbound
|
10 | or inbound, that is a per se violation of the Sherman Act.
|
11 | Most private litigation would fall into the category that footnote
|
12 | 159 was concerned about, as the paper suggests, a lost export opportunity.
|
13 | DR. STERN: Yes, that's helpful. I didn't want to pull this thing
|
14 | out of context. The paper is entitled "Report on the Use of Private Litigation."
|
15 | But you have suggested there may be a role for private litigation in 301.
|
16 | MR. APPLEBAUM: No, I was not suggesting Section 301 as an
|
17 | alternative. Presently it's clear that the Sherman Act does apply to a claim of
|
18 | denied market access. There are, however, jurisdictional issues and there is the
|
19 | need to prove the violation.
|
20 | DR. STERN: Yes.
|
21 | MR. APPLEBAUM: But Section 301 is also available, and it may
|
22 | or may not be a competition-based claim. It may be simply a claim against the
|
23 | foreign government for taking certain steps which has nothing to do with private |
73
1 | anticompetitive conduct. The Japanese film market case was a combination of
|
2 | both alleged governmental restraints, which is traditional Section 301, and also
|
3 | private conduct restraints, which is not traditional 301, and which could have
|
4 | possibly been the subject of a private antitrust suit.
|
5 | I believe I testified in November, and others have said that, if
|
6 | Kodak had filed a private antitrust suit, it would likely have been met with a
|
7 | foreign sovereign compulsion defense, given Kodak's own view of the role of the
|
8 | Japanese government.
|
9 | But there is always going to be, if someone wishes to pursue a
|
10 | market access issue, considerations of a private antitrust suit or a complaint to the
|
11 | Department of Justice or a Section 301 action, or a combination thereof. They're
|
12 | not necessarily mutually exclusive.
|
13 | MR. VICTOR: Or positive comity, under some of the agreements
|
14 | today.
|
15 | MR. APPLEBAUM: Paul's right. Or one can go to the foreign
|
16 | government and ask that it bring a suit against the group alleged to be blocking
|
17 | market access by U.S. companies.
|
18 | DR. STERN: Except when the government may be part of the
|
19 | allegation. Well, sometimes the right hand doesn't know what the left hand is
|
20 | doing. That's conceivable.
|
21 | Are there any other questions for this panel?
|
22 | MS. JANOW: Thank you so much.
|
23 | DR. STERN: Okay.
|
74
1 | MS. JANOW: You will have an opportunity to hear what the
|
2 | participants in that dispute feel about it later today if you wish to stay for it.
|
3 | DR. STERN: That's right. That's a little bit of the reason why I
|
4 | wanted to get you back on record on this, Harvey, because we will be hearing
|
5 | more about this this afternoon.
|
6 | Okay. Well, thank you again for all your hard work, and I'm sure
|
7 | we will be in further discussions. My request for fine-tuning your
|
8 | recommendations, particularly in the first paper, as it would relate just to the U.S.
|
9 | and the EU and the degree to which you think it would be constructive to advance
|
10 | recommendations to enhance convergence, which as you said is already helping,
|
11 | would be extremely valuable.
|
12 | Merit, did you want to say one other thing?
|
13 | MS. JANOW: I wanted also to acknowledge that our interest is
|
14 | very high in the work that you mentioned was being developed and we will
|
15 | welcome that whenever it is ready. So thank you for that as well. I know they're
|
16 | not here today, but I know that there is real work going on. So thank you.
|
17 | MR. APPLEBAUM: Thank you for having us.
|
18 | DR. STERN: Okay. We will stand adjourned, or in recess I should
|
19 | say, until 1:00 o'clock, when we will begin session two, presentations by
|
20 | economists.
|
21 | (Whereupon, at 11:53 a.m., the meeting was recessed, to reconvene
|
22 | the same day.)
|
23 | |
75
1 |
|
2 |
|
3 |
|
4 |
|
5 |
|
6 |
|
7 |
|
8 |
|
9 |
|
10 |
|
11 |
|
12 | AFTERNOON SESSION
|
13 | (1:13 p.m.)
|
14 | DR. STERN: We're coming back into order. And we are prepared
|
15 | now for session two, the presentations by the economists. We have before us
|
16 | several papers. I want to say personally how much I appreciate not only the work
|
17 | that went into it, but the fact that you've reproduced them so we can read them
|
18 | along as you make your presentations.
|
19 | This is the way it's shaping up: We're going to have four
|
20 | economists, and I think the way we've got it working is that Simon Evenett will
|
21 | kick off from the Brookings Institution, followed by David Salant, Len Waverman
|
22 | and Andrew Wechsler of Law and Economics Consulting Group. So fire away.
|
23 | MR. EVENETT: Thank you very much and thank you for the |
76
1 | opportunity to come today. I know you were expecting Bob Litan and I'm going to
|
2 | be a very inferior substitute. Just please bear with me while I explain what
|
3 | Brookings has been up to.
|
4 | In cooperation with our colleagues with the Royal Institute of
|
5 | International Affairs in London, we've been engaged in a year long effort studying
|
6 | how transatlantic antitrust cooperation could be strengthened or should be
|
7 | strengthened. And we're looking in the areas of mergers, vertical restraints and
|
8 | cartels, and we also have a piece written on the extent of cooperation over time.
|
9 | This project will have a series of components. First there's a series
|
10 | of academic studies and there are a series of case studies, which I have distributed
|
11 | and submitted to the Advisory Committee. These case studies were commissioned
|
12 | by us and outline the key factual and substantive issues underlying fourteen
|
13 | transatlantic antitrust cases over the last three or four years. We're very grateful
|
14 | to some of the case study authors for putting these notes together for us. Since
|
15 | some of them are here, I definitely should say that. Thanks, Jim.
|
16 | MR. RILL: You're welcome.
|
17 | MR. EVENETT: Very grateful.
|
18 | So the project was based on those materials, plus two conferences,
|
19 | one in London and one in Washington, and Bob Litan has also been advising us
|
20 | throughout the whole process.
|
21 | But let's turn to what I think we're beginning to learn from this
|
22 | particular project, especially in the area of mergers and cooperation in merger
|
23 | enforcement between the United States and the European Union. Looking across |
77
1 | the case studies and reviewing the academic literature, I think it's fair to say that
|
2 | it's been fairly well demonstrated that close cooperation is very feasible,
|
3 | extremely feasible, but it's by no means inevitable; and also it's not clear that
|
4 | cooperation is good in and of its own self. We should have some clear objectives
|
5 | in mind. And if it were the case that further cooperation meant adopting a
|
6 | standard which was inferior to the one that we have already, then that's by no
|
7 | means a good outcome.
|
8 | Now, I think in the case studies certainly in the merger area, of
|
9 | course the WorldCom/MCI case comes to mind as one where everything went
|
10 | swimmingly along, though there are a number of reasons for that which are well
|
11 | documented and well known. But I think, more importantly, we have to recognize
|
12 | that cooperation or successful cooperation is not inevitable and that there are
|
13 | going to be substantial difficulties which are likely to recur. Or another way of
|
14 | looking at this is nothing has happened which would stop these difficulties from
|
15 | recurring, and that's the key.
|
16 | What I'm going to try and develop here is that we should have far
|
17 | more pragmatic and seasoned expectations about what cooperation can deliver
|
18 | without major substantive changes and when we hit bumps in the road, like Boeing
|
19 | and McDonnell Douglas, we don't all go out screaming saying cooperation is over
|
20 | forever. And since we know that trouble is likely to come down the pike, we can
|
21 | inoculate ourselves against extreme reactions.
|
22 | I think the reason we should adopt this pragmatic approach is
|
23 | because we've seen in some cases that cooperation does have very beneficial |
78
1 | effects in helping to reduce transaction costs, adding a little clarity to the purpose
|
2 | of, and reducing the uncertainty of, these investigations.
|
3 | But what are these impediments to cooperation? The first -- and
|
4 | this comes through in several of the cases -- is that often antitrust authorities are
|
5 | not the only authorities that are going to be reviewing cases. In the telecoms and
|
6 | transportation cases, this has come to the fore. And I think without obviously
|
7 | changes in laws in those areas, then we can expect these types of jurisdictional
|
8 | fights to come up and we should be aware of that. And given that there are now so
|
9 | many mergers, or at least joint ventures, in telecoms and transportation, this is
|
10 | very, very important.
|
11 | The second impediment are in views about what the role of the state
|
12 | is in market relations. This is particularly important in the EU. We now have the
|
13 | nomination of a new European Commission President, Sënor Prodi, and he has
|
14 | very clear designs about how he wants to reshape European industry. We've
|
15 | already had proposals floated in London and in Paris for consolidation of the
|
16 | European defense industry and this will not be the only industry where this is
|
17 | going to happen. I would expect you'll see a substantial amount of consolidation
|
18 | in the European side, driven not only by economic motives, often by political
|
19 | motives, too. And somehow we have to have a system which is robust to those
|
20 | types of changes. Looking forward, we will come across cases where it's going to
|
21 | be very striking that the U.S. and the EU have very different views about the role
|
22 | of the state in consolidating industries.
|
23 | The third area are differences in analysis, and I guess here the |
79
1 | primary example of this is on the so-called efficiency defense. I should point here
|
2 | that I'm drawing from the work of James Venit and William Kolasky, who wrote a
|
3 | paper for us in this project pointing to the differences to the U.S. approach to the
|
4 | efficiency defense, which is far more accommodating, to the European view, which
|
5 | is a lot more skeptical.
|
6 | I should add that, having reviewed the academic literature myself
|
7 | and the industrial organization literature, there is very little evidence of
|
8 | improvements in efficiency which result from mergers. Can two firms when they
|
9 | merge turn inputs into outputs more efficiently than the two separate entities?
|
10 | And the answer is there's not much evidence for that.
|
11 | However, interestingly, there is finance literature now within
|
12 | economics, which points to the benefits of reductions in costs which result from
|
13 | mergers, particularly international mergers, and this involves reductions in shared
|
14 | fixed costs in advertising, distribution networks. So some of the claims which
|
15 | people have made about why you're seeing so many of these international mergers
|
16 | are beginning to filter through in the empirical literature, and the benefits seem to
|
17 | be not on the variable costs in the production technologies, but more in the
|
18 | advertising and overheads. How this literature evolves over time may well
|
19 | reinforce, undermine, or alter the way in which the efficiency defense is viewed by
|
20 | authorities, and if that particular literature is interpreted in different ways across
|
21 | the Atlantic we could run into some problems.
|
22 | And finally, the area I think we can do something about is that in
|
23 | some cases we've seen the authorities receiving very, very different data sets and |
80
1 | information to analyze and, unsurprisingly, coming up with very different
|
2 | conclusions. We have a case study by Gary Doernhoefer on the British Airways-
|
3 | American Airways case and he rams that point home.
|
4 | So what do I take from these? Of the four impediments to
|
5 | cooperation, the jurisdictional questions and the difference in views of the role of
|
6 | the state are huge questions, which are unlikely to be changed by legislation in the
|
7 | next foreseeable future. And so we should expect them to occasionally produce
|
8 | problems in antitrust cooperation. Again, the other impediment is contingent, in
|
9 | part, on the evolving academic debate over the efficiency defense.
|
10 | But it does seem to us -- and this is very much a tentative
|
11 | proposition -- that one area where we could make some progress is in eliminating
|
12 | disagreements between merger and other authorities caused solely by the fact that
|
13 | they have different information. That seems to be perhaps an outcome you really
|
14 | want to avoid.
|
15 | So we've been toying with a proposal which I will throw out for
|
16 | discussion. As I say, it's very tentative and we'd like to get your feedback. That
|
17 | is, perhaps it makes sense to have a separate track for merger investigations -- it
|
18 | would be recognized as a separate track -- and it would be optional. The parties
|
19 | could submit the Hart-Scott filing in the U.S. and an analogue to the Form CO,
|
20 | but maybe not as demanding as the CO form in the U.S., and they'd file the same
|
21 | information in the EU, assuring that the parties have the same information on day
|
22 | one. In return for that additional burden of supplying that information up front,
|
23 | there would be a presumption in the U.S., a presumption but not an obligation, |
81
1 | that the second request filing would be a lot more selective and tailored to the
|
2 | specific questions at hand and not this broad encompassing affair that it is at the
|
3 | moment.
|
4 | So the idea here would simply be to try and get the same
|
5 | information to the regulators on day one and, because it's an optional mechanism,
|
6 | both the authorities and the parties themselves could choose when to exercise it.
|
7 | And if it turns out that the U.S. authorities don't start narrowing down or focusing
|
8 | their second requests, then the private sector will respond by not using this
|
9 | particular optional mechanism.
|
10 | I think what it would mean for the EU and the U.S. is if they want
|
11 | to have a separate track for investigations where they want to have the information
|
12 | up front from day one, then they could encourage parties to go down this route and
|
13 | that quid pro quo would be established.
|
14 | So why don't I stop there, since I've spoken for about 15 minutes,
|
15 | and I'd be delighted to answer any questions about the project. And if any of you
|
16 | need to contact me, I'm sure if I don't get to see you you can reach me through the
|
17 | staff here. Thank you.
|
18 | DR. STERN: Thank you.
|
19 | I think we're going to hear from the entire panel, because maybe
|
20 | they'll answer some of the questions which we have.
|
21 | Okay. Len, are you going to start it off?
|
22 | MR. WAVERMAN: Yes, I'm going to start off.
|
23 | DR. STERN: Okay. |
82
1 | MR. WAVERMAN: I appreciate having the chance to come back
|
2 | for a second time after I was here in November and spoke generally about how
|
3 | standards setting can be a new cartel facilitating device. Today we would like to
|
4 | talk about a specific example -- the setting of standards for third generation
|
5 | mobile technology. So that's going to be a case study.
|
6 | We're going to examine in detail, the European Telecommunications
|
7 | Standards Institute, or ETSI, which we feel is an institution which favors the
|
8 | home team. That is, the way in which it comes to decisions and the way in which
|
9 | membership in that committee is allowed to, in a follow-up technology such as
|
10 | third generation mobile, which is a follow-up from second generation mobile, it
|
11 | allows incumbent equipment manufacturers in Europe basically to leapfrog into
|
12 | the third generation. And this can be to the detriment of consumers in Europe and
|
13 | worldwide and to the detriment of corporate manufacturers outside Europe.
|
14 | Therefore, we think that standard setting can be a cartel facilitating
|
15 | device and it can also stymie innovation. As a result, there's restricted market
|
16 | access. Because telecommunications equipment has network effects, that is there
|
17 | are both economies of scale and the desire to have the same type of equipment as
|
18 | others, if you can get a larger base initially you can tip the market such that
|
19 | everyone then jumps on your bandwagon, your standard bandwagon. This we
|
20 | think is a major potential problem for standard setting.
|
21 | I turn the my colleague, David.
|
22 | MR. SALANT: Thank you, Len. And thank you for the
|
23 | opportunity to speak here. |
83
1 | I'm going to talk about the decisionmaking process for setting
|
2 | standards, briefly. Spectrum management decisions in Europe are fairly
|
3 | complicated and I'll just briefly go through the major players involved. The EC
|
4 | decides -- makes European-wide decisions now about spectrum allocation. So the
|
5 | EC has allocated some part of the radio frequency for UMTS or 3G spectrum.
|
6 | They've also delegated to ETSI decisions for setting the standards for how that
|
7 | spectrum will be used.
|
8 | There had been, and there still is to some extent, a battle between
|
9 | two main competing standards. One is called WCDMA; Ericsson has been the
|
10 | main proponent of that. The other one is called CDMA2000, and Qualcomm has
|
11 | been the main proponent of that standard. Qualcomm is the initial developer of
|
12 | CDMA and they own most of the intellectual property to CDMA, including the 3G
|
13 | versions of it.
|
14 | Just a couple of months ago there was an agreement for licensing
|
15 | CDMA intellectual property between Qualcomm and Ericsson, and Ericsson
|
16 | acquired a division of Qualcomm, but that has yet to settle the issue in a lot of
|
17 | ways.
|
18 | Other entities involved include other SDO's, standards developing
|
19 | organizations, such as the TIA and ITU for setting standards. In the United
|
20 | States, the FCC allocates spectrum and assigns it, i.e., decides who gets to use the
|
21 | spectrum. They also traditionally decided the standards for spectrum in the
|
22 | United States, but it's less and less common for the FCC to make a standards
|
23 | decision. It's more and more common for the FCC to let the market decide. And |
84
1 | so, for instance, in standard PCS cellular frequencies, there are three or four
|
2 | different standards being used and all of them basically work throughout the
|
3 | country. The FCC let the operators choose what standards to deploy.
|
4 | Now, one other thing that's important in the EC is that the member
|
5 | countries retain a certain amount of discretion, and it's very unclear how much
|
6 | discretion they really have or are willing to exercise. So, for instance, the
|
7 | Telecom Act that the EC passed this past year gave all the member countries some
|
8 | discretion in making some decisions based on public policy concerns in their
|
9 | countries.
|
10 | To date, despite what I would view as fairly strong compelling
|
11 | arguments to allow the market to decide at least for some frequency bands, no EC
|
12 | country has deviated in the least from the single ETSI standard. And as things
|
13 | stand right now, the EC -- the individual countries that handle the actual process
|
14 | of allocating and assigning frequency rights are adhering to a single mode, a single
|
15 | path, and all applying one standard, mandating one standard.
|
16 | So who are the players in the sense what firms will be affected, are
|
17 | affected and have an interest in this issue? Well, Qualcomm is clearly one of the
|
18 | leaders in the sense that they developed CDMA technology and that's the basis of
|
19 | both major standards. There are a number of equipment providers in Europe who
|
20 | so far have dominated European supply of infrastructure equipment and most other
|
21 | equipment, and Ericsson and Nokia are two of the leaders, and they also
|
22 | have a significant presence at ETSI.
|
23 | There are large number of U.S. equipment suppliers whose |
85
1 | prospects for doing business in Europe are clearly affected by the standards. I
|
2 | believe that Lucent is probably the leading U.S. equipment supplier. And then the
|
3 | operators, those firms that provide wireless telecommunication services
|
4 | In Europe the only digital service used for voice is GSM. There's
|
5 | one standard and that standard is available here in Washington and in most of the
|
6 | United States, but it's probably the least available standard in the United States.
|
7 | It also tends to have the highest rates. But if you want a hand set that you can
|
8 | take to Europe, you have to buy GSM. You can't buy Sprint, you can't buy
|
9 | AT&T, you can't buy Bell Atlantic, you can't buy U.S. West or Airtouch. They
|
10 | don't have GSM technology.
|
11 | So the American operators will be affected, and I just listed briefly
|
12 | who the major American operators are and what their technology choices are.
|
13 | Sprint, Bell Atlantic, Airtouch, U.S. West, operate CDMA. AT&T operates only
|
14 | TDMA. Bell South and SBC operate both TDMA and GSM, and Pac Bell and
|
15 | Omnipoint operate GSM. So there's going to be a differential, a discriminatory
|
16 | impact based on what happens in the development of these standards.
|
17 | My colleague Drew Wechsler -- Len. Sorry.
|
18 | MR. WAVERMAN: The slides are slightly out of order from the
|
19 | ones we gave earlier.
|
20 | As David has shown, there is clearly competition between
|
21 | technologies. What we want to look at now is the European Telecommunications
|
22 | Standards Institute, ETSI, which was founded in 1988. It has a similar makeup, a
|
23 | similar way of forming consensus, to other European institutions, which is |
86
1 | weighted voting. Voting is based on European Union turnover and the weighted
|
2 | voting was institutionalized in 1988 in order to prevent hold-ups by small member
|
3 | states or small companies.
|
4 | However, if you don't have EU turnover you can still become a
|
5 | member of ETSI, but you only get one vote. There is a 71 percent rule for
|
6 | consensus. You need 71 percent for consensus.
|
7 | Now, to become a member of ETSI you have to agree to uphold the
|
8 | ETSI standard. You have to support a common position at the ITU and you have
|
9 | to "make use of the standards proposed by ETSI." Now if you're a competitor to
|
10 | technology in Europe, for example GSM, which as we'll see in a moment is
|
11 | manufactured mainly by Ericsson, Nokia and Motorola, if you're a company like
|
12 | Qualcomm, which does not produce GSM technology and whose present
|
13 | technology for second generation mobile is not accepted in Europe, so the second
|
14 | generation, I-95 standard, is not an accepted standard in Europe and so Qualcomm
|
15 | has no European turnover.
|
16 | Therefore you then have a division between insiders and outsiders.
|
17 | This is what we're leading to in terms of the way this institutional design can
|
18 | facilitate cartels.
|
19 | Now, in addition to ETSI coming up and making a decision on a
|
20 | voluntary standard, there's also a process which is unusual from a North American
|
21 | perspective, which is the European Union can then vote and make a standard from
|
22 | ETSI or from other organizations in things outside telecommunications something
|
23 | called a European norm. A European norm becomes a mandatory standard across |
87
1 | Europe.
|
2 | So you have here I think a double problem. The first problem is
|
3 | within ETSI, and we'll show that in a second. But even without this government
|
4 | mandating, the process within ETSI needs redesign. But added on top of that is
|
5 | the ability of an ETSI standard to then become mandatory across Europe and
|
6 | where all work on standards not the European norm must be stopped. That is in
|
7 | the European legislation. You cannot work on a standard which is outside the
|
8 | European norm.
|
9 | Within ETSI there's something called the special mobile group,
|
10 | SMG, which is the group, the subcommittee, which is responsible for designing
|
11 | the standard for third generation. That is also the subcommittee that is
|
12 | responsible for the GSM specification or the second generation specifications. So
|
13 | this committee, then, moves from second generation to third generation.
|
14 | We argue that it is in fact run by manufacturers and not by telcos.
|
15 | There's basically something like 1700 votes at ETSI based on turnover.
|
16 | Manufacturers have 414 of those votes. But the telecom revolution is not done by
|
17 | telecom operators. It's done by equipment manufacturers. It's equipment which
|
18 | makes telecommunications -- the telecommunications revolution. It's the switches
|
19 | and the hand sets for mobile, which no telecom operator manufactures, and they
|
20 | have very little information or knowledge about advances in technology.
|
21 | And they rely on equipment manufacturers. They rely on them for
|
22 | their existing equipment and for the next generation.
|
23 | Of the 414 manufacturers' votes at ETSI, four firms -- Alcatel, |
88
1 | Ericsson, Siemens and Nokia -- have 60 percent of those votes.
|
2 | Ericsson has something like 68 votes, Nokia has 47. Again, U.S.
|
3 | manufacturers who are not in Europe if they join ETSI get one vote. Qualcomm
|
4 | has one vote, so it has two tenths of one percent of the voting power.
|
5 | European manufacturers also dominate mobile equipment sales at
|
6 | the moment. In 1998, the European manufacturers had 63 percent of all mobile
|
7 | equipment sales in the world. And Ericsson and Nokia depend on mobile
|
8 | equipment for their livelihood. They're much more concentrated in mobile sales
|
9 | than other firms. 72 percent of Ericsson's revenues come from mobile equipment
|
10 | and 89 percent of Nokia revenue comes from mobile equipment.
|
11 | The way that the special mobile group works is that the
|
12 | subcommittees under this committee which look at the specific technologies, the
|
13 | key positions in those subcommittees tend to go to equipment manufacturers. And
|
14 | these subcommittees -- these individuals on subcommittees get to design the
|
15 | agenda. So there is an ability, then, for a few firms to basically dominate the
|
16 | special mobile group. 10 percent of SC members have 71 percent of the votes and
|
17 | 15 members can block anything.
|
18 | David, back to you.
|
19 | MR. SALANT: Okay. Well, as I mentioned, a couple of months
|
20 | ago Qualcomm and Ericsson signed an agreement, and I'll give you a brief recap
|
21 | of what's in that agreement. There are two standards, WCMA and CDMA2000. I
|
22 | think several dissertations in EE will be written on these standards and it's fairly
|
23 | hard to understand all the engineering specifications. But my impression, from |
89
1 | what I understand in terms of the development of the standards, is that the
|
2 | CDMA2000 was on the table at ETSI discussions. Ericsson went back and made
|
3 | what seemed to be a number of inessential changes in the technology that made the
|
4 | existing basic software that Qualcomm had developed largely obsolete, adversely
|
5 | affecting Qualcomm and other U.S. manufacturers of CDMA technology. Then
|
6 | ETSI selected WCMDA.
|
7 | That has triggered some controversy, I'm sure you're all aware.
|
8 | And the agreement basically provided for a three-mode standard, so basically this
|
9 | is an agreement to disagree or to split the baby. So the operators -- anybody
|
10 | deploying the 3G standard would be able to use WCDMA, CDMA2000 or another
|
11 | standard called TDCMA. And TD/CDMA is for mainly different type of
|
12 | applications, for indoor use let's say, and not from mobile use.
|
13 | So the two mobile components of the standard are WCDMA and
|
14 | CDMA2000. They're still competing. What basically the Ericsson-Qualcomm
|
15 | agreement sanctioned, ratified, is that it's okay for anybody to deploy either one in
|
16 | Europe, nobody would object. But the way that they're supposed to be
|
17 | implemented is that everybody should produce multi-mode handsets, hand sets that
|
18 | work with both standards.
|
19 | That doesn't really happen in the United States, where we have four
|
20 | standards, an old analog standard and three digital standards. The only multimode
|
21 | hand sets that we have and the U.S. are between the old analog and each of the
|
22 | individual digital. So there's CDMA-analog, TDMA-analog,
|
23 | and GSM-analog hand sets. |
90
1 | So it's not clear how this standard, this agreement will work out.
|
2 | Also, in Europe it seems quite clear that, well, it's still the case that WCDMA is
|
3 | still the only ETSI-approved standard, so all the European-based technologies and
|
4 | operators using GSM European-based technology in the United States and
|
5 | elsewhere will be able to roam with their equipment much more easily than the
|
6 | ones using North American standards. So that can have a discriminatory impact
|
7 | on European operators or European- friendly operators outside of Europe.
|
8 | The agreement also has a licensing arrangement agreement whereby
|
9 | Qualcomm will license rights to intellectual property to Ericsson. There is some
|
10 | exchange that Ericsson will license, apparently, some intellectual property to
|
11 | Qualcomm. Ericsson has announced it will not sell CDMA2000 infrastructure in
|
12 | Europe, it has no plans to deploy it.
|
13 | The agreement does call for Ericsson to back CDMA2000 at ETSI,
|
14 | but nothing's happened yet.
|
15 | Next slide, please.
|
16 | This slide is meant to put a little bit of perspective on the market
|
17 | dynamics. This is a very rapidly changing industry, and there's these terms, 2G
|
18 | and 3G. 2G is used to refer to the first digital standard for wireless cellular and
|
19 | PCS communications. It replaced the analog, which is the 1G.
|
20 | 3G is supposed to be a more advanced version of 2G services, and
|
21 | the EC has mandated certain performance criteria that any 3G systems must meet.
|
22 | However, nobody really knows what 3G will be in practice. These are new
|
23 | standards, these are new technologies. Even though the EC has mandated certain |
91
1 | performance criteria, the fact that they mandated high-speed wireless Internet
|
2 | access doesn't mean everybody will get very much of it. All it means is you'll
|
3 | have voice and some data capability.
|
4 | So really nobody knows much about the product mix that will be
|
5 | provided and offered with this new technologies and the new bands.
|
6 | Most of the EC countries have now started the process of allocating
|
7 | spectrum for UMTS. They're starting -- UK has I think the third draft of
|
8 | spectrum auction rules that they just issued a week or two ago. Their timetable
|
9 | has slipped a bit, but they really want to run an auction of 3G spectrum at the end
|
10 | of this year or probably now early next year. They had been mandating ETSI
|
11 | standards, which means now WCDMA.
|
12 | One of the reasons there's so much pressure in Europe is that there's
|
13 | congestion. Spectrum's gotten very crowded and the operators want more
|
14 | spectrum. One approach is to use more spectrum, which is what's happened in the
|
15 | United States. But the Europeans haven't really considered very much what we
|
16 | call refarming. So in the United States, every cellular operator who had analog
|
17 | technologies converted to digital. That's not really being considered very much in
|
18 | Europe. In some places it's not allowed.
|
19 | For instance, Qualcomm has a GSM/CDMA technology which takes
|
20 | the existing infrastructure and adds a more efficient technology on the existing
|
21 | infrastructure. That as far as I can see has no ghost of being approved by ETSI or
|
22 | being deployed or even considered.
|
23 | What's gone on in the U.S. is a bit different. The FCC has issued a |
92
1 | notice of inquiry. The FCC is not nearly as far advanced. The Europeans might
|
2 | offer that the U.S. is not as well organized and will be lagging behind again. Of
|
3 | course our rates are maybe a little bit lower than theirs, so there's an issue about
|
4 | whether we should have mandated standards at all.
|
5 | The U.S. -- there's some conflict between the U.S. bands and the
|
6 | European bands. However, the FCC typically facilitates refarming and the
|
7 | business case really encourages it. The operators who have the license to the
|
8 | spectrum decide when it's appropriate to introduce the technology. It's not decided
|
9 | by regulators. Regulators aren't required to make lots of detailed analyses of
|
10 | when it's the right time to introduce the new technology for the public.
|
11 | That's not the European approach. The European approach
|
12 | mandates and, I would argue, overspecifies standards.
|
13 | The fourth and fifth checks on the right-hand side deal with the new
|
14 | data rates, new wireless data technologies. There are various versions of these
|
15 | new wireless data technologies that are being developed. If you go to the web
|
16 | sites, you see the usual publicity items saying there are plans to deploy them even
|
17 | as early as this year.
|
18 | Now, this CDMA IS-95- HDR -- "HDR" is for "high data rate" --
|
19 | offers, the promise is as high as 2.5 megabits per second, which is higher than you
|
20 | get with a cable modem. It's higher than a digital subscriber line, DSL. That's
|
21 | what they think they can eventually get with wireless technology using existing
|
22 | PCS bands or using these new 3G or UMTS bands.
|
23 | That cannot be approved in Europe. I know of companies that have |
93
1 | interest in looking into that, but there's a major regulatory hurdle. Right now
|
2 | ETSI has no provision to even to consider that.
|
3 | There is a European standard called EDGE which may be better,
|
4 | may not be as good, may be more compatible than GSM, but who knows. That
|
5 | apparently is getting some consideration and I'm not fully up to speed on how far
|
6 | that has progressed. If you go to some, like Ericsson's web site, you will see some
|
7 | specifications on EDGE.
|
8 | Drew?
|
9 | MR. WECHSLER: Thank you very much.
|
10 | Well, where do we stand? Len mentioned earlier the ETSI transition
|
11 | over the last decade. What a difference a decade makes. In 1988 there were no
|
12 | incumbents in mobile, and there was possibly a reasonable case for weighted
|
13 | voting to create scale across the very small markets of Europe.
|
14 | Now in 1998, the situation is completely different. Incumbents are
|
15 | well-established and standards, instead of the market, are creating powerless
|
16 | outsiders. Who are these outsiders? Well, they're the non- incumbents, those like
|
17 | Qualcomm who have no EU turnover and have just one vote, one rather
|
18 | meaningless vote, for which they have to accede to conditions that are hardly
|
19 | acceptable. And the outsider is also new technologies which can be stopped by the
|
20 | European norm system without the test of competition on the merits.
|
21 | The outcome, if you look at who uses the technology and who has
|
22 | the votes in ETSI, is WCDMA technology without any market test of that as
|
23 | opposed to its alternatives. |
94
1 | We had a similar result -- I think the committee asked us last time
|
2 | about Geotek, which is spelled wrong on the slide there; it has a k" -- a similar
|
3 | result in SMR, where U.S. technology and Geotek were frozen out of Europe.
|
4 | So what we're seeing here that bad competition policy can make the
|
5 | full transition into bad trade policy. We have EU market access foreclosed by a
|
6 | standard setting process that isn't -- whose logic was dictated by 1988 conditions,
|
7 | not the present. And this becomes a competition for both the European Union and
|
8 | its member states if they choose to pursue it.
|
9 | The EU market, which roughly speaking is perhaps one-third of the
|
10 | world -- one-third would be North America and one-third loosely speaking
|
11 | everything else -- that market is large enough to tip other markets. People are
|
12 | afraid of adopting standards and buying equipment and winding up stranded as the
|
13 | rest of the world changes.
|
14 | Even more crucial in fast changing technology is that, given the
|
15 | voting standard and the way new standards are set, existing market power
|
16 | determines follow-on technologies without market tests. This thwarts competition
|
17 | on the merits and allows the international leveraging of market power from Europe
|
18 | to elsewhere in the world, further disadvantaging any U.S. providers who have
|
19 | chosen a different standard.
|
20 | This distortion undermines trade in goods and services,
|
21 | international investment, and the national treatment of various providers. Of
|
22 | course, it will also thwart or slow technological progress to everyone's detriment,
|
23 | including the EU's. |
95
1 | So what are the goals that we would propose that ICPAC support on
|
2 | standards issues? We need standards for the standard makers, the standard
|
3 | setters. We need a very general notion of what is appropriate for them to do and
|
4 | what is not appropriate for them to do. The most basic notion is that standard
|
5 | setters should not replace market tests to determine the best technology.
|
6 | We have to work towards limiting or stopping regulatory capture by
|
7 | incumbents, which is exactly how ETSI has evolved over the last 10 years. We
|
8 | need to remove a weighted voting standard that favors incumbents. The case for
|
9 | weighted voting, if there ever were one, certainly no longer exists now that mobile
|
10 | telephony is an established fact.
|
11 | We need to foster the free development of technology and defend
|
12 | international competition on the merits. And to do that, I would suggest that the
|
13 | United States has a very good model -- the promotion of voluntary standards and
|
14 | competition among alternative technologies. That is our model and we can discuss
|
15 | the costs and benefits of that model. But for a rapidly changing technology, it
|
16 | provides a superior approach.
|
17 | ICPAC should support remedies for what is turning out to be a
|
18 | costly situation, from both the standpoints of welfare economics and of
|
19 | competitors who want equitable treatment and have a right to expect it. A
|
20 | minimum requirement would be attention to the issues of international market
|
21 | tipping and market access that are implicit in certain kinds of standard setting
|
22 | schemes.
|
23 | We note that 2G is still very much around; it has not been |
96
1 | completely replaced yet. Therefore, not only are 3G standards important, but 2G
|
2 | licensing is also an ongoing issue.
|
3 | We endorse the idea of working towards antitrust examination of
|
4 | these kinds of issues in both the EU and the United States. All governmental
|
5 | authorities share the same interest here. The only reason ultimately why the EU
|
6 | would do differently is if Europe decides implicitly to go back to picking winners
|
7 | and installing an industrial policy. No one explicitly acknowledges such goals any
|
8 | more, but they appear implicit in the pattern we are watching unfold.
|
9 | More specifically, we believe that DG-IV should take a hard look at
|
10 | new rules. Perhaps it would be appropriate to develop a memorandum of
|
11 | understanding between the Department of Justice and DG-IV to foster more
|
12 | international comity on how to proceed.
|
13 | And finally, while we do not suggest that it is appropriate to do so
|
14 | tomorrow, the issue we have been discussing appears to be large enough to
|
15 | warrant consideration for a separate future WTO agreement on standards setting.
|
16 | It is easy to imagine that this may become necessary as the issue grows to include
|
17 | more than just telephony.
|
18 | Thank you.
|
19 | DR. STERN: Thank you very much for that very thorough update
|
20 | of what has become an interesting case. It raises more general concerns and
|
21 | considerations relating to competition policy from standards setting.
|
22 | I'd like to now to open up the time for questions, comments. Jim?
|
23 | MR. RILL: Let me ask Simon. You indicated that we should start |
97
1 | out with basic expectancies when we get into international cooperation. Most of
|
2 | your case studies focus on merger cooperation. What would you suggest on the
|
3 | basis of your case studies are the appropriate expectancies that should underpin
|
4 | our recommendations with respect to trade and competition or market access
|
5 | issues?
|
6 | MR. EVENETT: A narrow question.
|
7 | As you know, the trade and competition policy literature is
|
8 | voluminous. I would feel very reluctant at the minute to give you any specific
|
9 | recommendations. From what we've seen in these case studies, I guess one
|
10 | question I have is how big are these international spillovers that people talk about,
|
11 | and if you don't think -- I mean, one question when I read these case studies, I
|
12 | keep asking myself how big are these spillovers?
|
13 | And if you don't think that they're that big, then that really
|
14 | undermines a lot of the case for coordination and cooperation. But that's a
|
15 | conjecture based on these case studies, which I mean I'd have to explore them
|
16 | much more carefully. I'm sorry to give you an unsatisfactory answer, but that's
|
17 | my sense.
|
18 | MR. RILL: There is no unsatisfactory or satisfactory answer.
|
19 | MR. EVENETT: My sense reading these case studies is that these
|
20 | so-called spillovers and their implied rationale for cooperation is much smaller
|
21 | than we've thought. But that's a conjecture.
|
22 | DR. STERN: Merit?
|
23 | MS. JANOW: I thought this was a fascinating presentation and I |
98
1 | thank you so much. I have no personal sense of how this same presentation, which
|
2 | I'm sure you've presented in Europe, might be received in other audiences and I'd
|
3 | be very curious how you think -- when you give this presentation, if the European
|
4 | dominance is noted approvingly or is seen as problematic by would-be smaller
|
5 | entrants, because if subsidiaries are in effect aggregated for purposes of voting, it
|
6 | also means they can lose their voice on issues in that deliberative process.
|
7 | Also when you talk about an expanded U.S. DOJ- DG-IV
|
8 | arrangement, are you thinking specifically with respect to standards setting bodies
|
9 | or was it a broader representation?
|
10 | Finally, we do have the technical barriers to trade within the WTO
|
11 | that were set up in part because of the standards experience in other environments,
|
12 | and why wouldn't one challenge these practices, if they're discriminatory in effect
|
13 | if not intent, under current structures?
|
14 | Sorry, that's a mouthful.
|
15 | MR. WAVERMAN: Maybe I can begin and then my colleagues will
|
16 | probably have more about the trade barriers.
|
17 | In Europe generally, the perception is that they have done well by
|
18 | GSM and the U.S. in mobile is really a basket case -- this has been a great
|
19 | example of European cooperation and that setting a single standard, in fact,
|
20 | is something that is of great benefit to Europe.
|
21 | Bob Crandall and Jerry Hausman are trying to examine that
|
22 | argument. The problem, of course, is when you examine that argument. If you
|
23 | examined that argument four years ago I think they were probably correct, |
99
1 | because they were able with one phone to roam across Europe and there were
|
2 | economies of scale in production of phones, so costs were falling. And the U.S.
|
3 | had competing standards. I can remember when I first used a mobile phone going
|
4 | across California were four different standards. It was terrible. Four different
|
5 | standards. Thank you.
|
6 | But now, the GSM is so dominant in Europe, it's very hard to move
|
7 | to the next round of competition between technologies. And really, I think in these
|
8 | high-tech industries the competition between technologies is innovation, which in
|
9 | the longer run is really what drives prices way lower.
|
10 | If the U.S. had been in the same position as GSM, had a single GSM
|
11 | standard, CDMA would not exist anywhere in the world. CDMA was developed in
|
12 | the U.S. and able to be put in place because in a sense there was no standard.
|
13 | Standards were voluntary. If you could get an operator to use that technology,
|
14 | then you could sell the equipment. In Europe, even if there was a company
|
15 | wanting to use CDMA, they couldn't because it was frozen out.
|
16 | So you would not have had the innovation of CDMA. I think now if
|
17 | you look across the U.S. and look at these one-rate plans where you get 1200
|
18 | minutes for 100 dollars, which is falling, and there's no distinction between local
|
19 | and long distance prices, 10 cents or 8 cents a minute, these prices are well below
|
20 | any prices in Europe.
|
21 | So I think today if you did a comparison between the competition in
|
22 | the U.S. and the competition in Europe, which I don't think Europeans understand,
|
23 | you find that there are much lower prices in the U.S. and there's vibrant |
100
1 | competition between the technologies.
|
2 | Now, Europeans keep -- and I teach in London Business School now
|
3 | and I'm a French citizen, so I can say this with my European -- and a Canadian
|
4 | citizen -- I can say this -- half of me speaks as a European. The other half is an
|
5 | economist.
|
6 | (Laughter.)
|
7 | DR. STERN: True conflict. I don't get the fractions here.
|
8 | MR. WAVERMAN: The Europeans still, even when they look at
|
9 | third generation, they say we want to have roaming, we want to have the same
|
10 | phone anywhere in Europe. But what I think they're misunderstanding is the
|
11 | difference between roaming and interconnection. That is, we could take our
|
12 | present TDMA, U.S. TDMA phones to Europe, if there was one operator in a
|
13 | country that had that technology. You don't need every operator with that
|
14 | technology.
|
15 | For example, in the U.S. from a TDMA phone you speak to someone
|
16 | on a GSM phone because there's interconnection. For roaming you need a single
|
17 | operator with that technology. You don't need every operator with that
|
18 | technology. I think that's the fundamental thing that they don't understand in
|
19 | Europe, is that the competition -- you can have multiple technologies and it's
|
20 | competition between technologies.
|
21 | MR. WECHSLER: There is an often obscured tradeoff between a
|
22 | static and a dynamic analysis. When the pace of change is sufficiently rapid, the
|
23 | cost of making a choice based on a static view -- e.g., we want one market now -- |
101
1 | rise. If that choice is made and outmoded within several years, the consequence
|
2 | may wed a significant market semipermanently to a backward technology. The
|
3 | dynamic costs would then outweigh the short-run static benefits.
|
4 | We are not here touting a particular technology. What we are
|
5 | touting, and what we think ICPAC is all about, is competition on the merits. The
|
6 | standard response, one presumes, is based on this notion that there would be chaos
|
7 | and stranded units if for instance, Luxembourg went with one system and another
|
8 | country chose another.
|
9 | What we are suggesting is twofold. Professor Waverman suggested
|
10 | that confining competition to exist within one technology is not necessarily the
|
11 | consumer's best interest. The consumer's best interest lies in robust competition
|
12 | that can be provided across technologies so long as there is one provider of each
|
13 | everywhere. Then the market gets to play out the decision.
|
14 | There is another aspect of stranding: the United States now has a
|
15 | plethora of different technology phones, and consumers undertaking new cellular
|
16 | purchases are subjected to great confusion if they're not technogeeks. Most
|
17 | consumers consider options, but then ask themselves the question: What is the
|
18 | difference?
|
19 | A new cellular phone is but a freebie with two years of service.
|
20 | Thus, consumers are not actually stranded. If a consumer changes plans after two
|
21 | years, a new phone is obtained at a low price, and the older phone is thrown away.
|
22 | It is outmoded technology.
|
23 | Well, there are many interconnection issues, but the pace of change |
102
1 | has changed. Dynamic factors reduce dramatically the incentive to enforce a
|
2 | single standard on the market.
|
3 | MR. SALANT: Let me add a little bit about the European view.
|
4 | First of all, I've heard from European operators and I've got the impression,
|
5 | although somewhat tacit, from European regulators that if American companies
|
6 | aren't able to enter Europe, well, that's not necessarily bad, and so if there's a
|
7 | European standard they'd much rather have a European standard winning with
|
8 | European manufacturers than having an open competition.
|
9 | It seems fairly clear that there's a lot of that sentiment and
|
10 | European operators like a PTT for whatever, BT, FT, DT, ET, FT, whatever T,
|
11 | they shouldn't care about technologies. They should only care about what
|
12 | technology provides the best service to their customers. But it's quite clear from
|
13 | what I've seen talking with people at various PTT's is that they feel somewhat
|
14 | obliged to adhere to a European solution.
|
15 | Another issue on DG-IV versus DOJ. One of the complicating
|
16 | factors here, it is not that there's just DOJ and the DG-IV. It's not purely
|
17 | competition policy agencies being involved. And this reminds me of some of the
|
18 | tension that happened within the FCC when they went to a market approach for
|
19 | managing spectrum. There was a tension between the engineers and the
|
20 | economists and, for once, the economists seemed to have something that was
|
21 | viewed as being positive.
|
22 | And DG-13 is the telecom director general and they had carried the
|
23 | day on 3G, and DG-IV has stayed out of the 3G battle. And so in some sense, to |
103
1 | sort of close the loop, you need -- discussion needs to be more inclusive to include
|
2 | the FCC, DG-13 coordinating with DG-IV and the FCC and DOJ in a more open
|
3 | way where all the issues get discussed.
|
4 | DR. STERN: That's very helpful. I really did want to bring your
|
5 | presentation back into the framework of our Committee's work, and you've done a
|
6 | very good job just at the very end by making that point.
|
7 | I sit here and I'm thinking about what you're saying, and I wrote to
|
8 | myself "Industrial policy or technology policy trumps competition policy" in the
|
9 | way you've described the situation in Europe. Last week I was listening to the
|
10 | discussions in the context of some new policies that are being developed within the
|
11 | European Union called the precautionary principles, which have to do with science
|
12 | or when you don't have science. One could suggest that there you've got politics
|
13 | trumping science or technology.
|
14 | So these balances are very, very important, and the role of the
|
15 | government from the point of view of enhancing competition and not letting things
|
16 | be closed down either in the name of industrial policy or environmental concerns
|
17 | or non-scientific basis -- in this case this is science, but there's yet again another
|
18 | consideration, industrial policy, that has been inserted.
|
19 | So this question is extremely important, I think, ultimately, in how
|
20 | we define our mission going forward with new technologies and new products. In
|
21 | the United States we're tackling it one way, and the EU may be tackling some of
|
22 | these another way.
|
23 | Earlier this morning we talked about cultural difference between us |
104
1 | in terms of litigation and the role of litigation. But here's another cultural
|
2 | difference, and we have to be very conscious of it as we design recommendations
|
3 | for trying to harmonize or converge.
|
4 | MR. WECHSLER: What you see here is not so much a cultural as
|
5 | an historical difference with a sympathetic interpretation. Europe is slogging
|
6 | through the creation of institutions to support a single market. In essence, they
|
7 | are engaged at the analog of our Constitutional Convention. As the EC tries to
|
8 | replace in mutually advantageous places separate national bureaucracies, the
|
9 | constituent governments attempt to do what the preceding bureaucracies have done
|
10 | on an EC-wide basis.
|
11 | But all over the world, there is now a major trend towards
|
12 | deregulation with market rules that encourage the actors to engage in socially
|
13 | beneficial outcomes, with the market determining the outcome rather than the
|
14 | regulators. The EC can in essence leapfrog. Rather than simply imitating
|
15 | old-style regulation and government directive at the member state level, the EU
|
16 | can build Europe-wide a new model of regulation now being built everywhere else.
|
17 | DR. STERN: Right.
|
18 | May I ask if you would tell us what your timetable is for finishing
|
19 | your report?
|
20 | MR. EVENETT: Finishing the Brookings study?
|
21 | DR. STERN: Yes.
|
22 | MR. EVENETT: We hope to have a draft ready by the end of June.
|
23 | Our chapters authors are getting the materials to us by the end of this month. |
105
1 | DR. STERN: And the recommendations that you were talking
|
2 | about, including this two-track recommendation?
|
3 | MR. EVENETT: Yes, absolutely, and that can be written up
|
4 | sooner, actually, if you would prefer it.
|
5 | DR. STERN: I think Merit is shaking her head, and I agree. We
|
6 | would like very much. You ask us for our input. We want your input.
|
7 | MR. EVENETT: Okay, I'll get that to you.
|
8 | DR. STERN: I think we would like that very, very much,
|
9 | particularly when it comes to the recommendations, including the fact that I see
|
10 | you're a little more discouraged that you were in the very beginning as to the
|
11 | applicability of what these case studies will mean.
|
12 | MR. EVENETT: Well, I think it's more -- I think if you're trying to
|
13 | come up with a rationale for cooperation, one has to find ways in which my
|
14 | welfare affects you and your welfare affects me. And if the spillovers aren't too
|
15 | large, then we can go along on our own way. That's one thing.
|
16 | The other observation is, do you really want to try to perfect your
|
17 | own national law before you decide to set up an international standard, which is a
|
18 | big question? Or do you want to risk locking in the wrong international standard?
|
19 | And I think my other panelists here have talked about what happened, what can be
|
20 | the detrimental consequences of locking in the wrong standards.
|
21 | DR. STERN: I hope that your study, since you talked about it as a
|
22 | transatlantic antitrust cooperation --
|
23 | MR. EVENETT: Right. |
106
1 | DR. STERN: -- that you're going to be looking at it not only from
|
2 | an international standard, but a transatlantic standard.
|
3 | MR. EVENETT: Sure.
|
4 | DR. STERN: You are going to be narrowing your scope.
|
5 | MR. EVENETT: Yes -- sorry.
|
6 | DR. STERN: Go ahead, I'm sorry.
|
7 | MR. EVENETT: Yes, when we devised this particular project we
|
8 | spoke to many of the experts in town, and there was a desire for a focus on the
|
9 | transatlantic issues. When we started doing this, we faced the debris of the
|
10 | Boeing-McDonnell Douglas case, which was still on peoples minds. And I think
|
11 | the a substantial number of transatlantic transactions really reinforces the
|
12 | importance of this issue.
|
13 | DR. STERN: Absolutely. We have both the U.S. and the EU
|
14 | engaged in this Transatlantic Economic Partnership, where competition policy has
|
15 | been noted. We'll just see how deep and far they do go. But to the extent to which
|
16 | they are informed by your work, I think it will be extremely helpful.
|
17 | I just had one comment and then I think we have to close this panel.
|
18 | Your observations based on these different transactions that you examined about
|
19 | efficiency. That observation is one that I share based on my experience sitting on
|
20 | a number of corporate boards. There are efficiencies, but it is not so much in
|
21 | manufacturing. You don't see necessarily a manufacturing plant in one country
|
22 | being closed in the name of efficiency, but you do see the back offices being really
|
23 | reduced, everything from information systems to -- you mentioned advertising. |
107
1 | But there's a whole variety of services that make up where you do see these
|
2 | efficiencies, and in many cases they are much more costly than the manufacturing
|
3 | of the output of the goods. And of course many of them are just service industries
|
4 | to start with.
|
5 | I want to thank this group and now just move on to the second
|
6 | panel, which is a presentation from representatives of U.S. businesses. We have
|
7 | panelists representing Eastman Kodak, Guardian Industries, and the United Parcel
|
8 | Service. I note that there is some overlap between some of the panels, so we don't
|
9 | have to bid adieu to everyone. We can get questions, another shot at some of the
|
10 | panelists.
|
11 | (Pause.)
|
12 | DR. STERN: Chris, you've been very patient. This will be the last
|
13 | panel, and we appreciate everybody's attendance and we're prepared to hear you.
|
14 | MR. PADILLA: Thank you very much for inviting us. I want to
|
15 | also introduce my colleague from Kodak, Patrick Sheller, sitting in the front row.
|
16 | He's our chief antitrust counsel and particularly knowledgeable about the subjects
|
17 | I'm going to discuss.
|
18 | The Film case or, as some have called it, the Kodak-Fuji case has
|
19 | become the poster child for discussions about trade and competition policy,
|
20 | including a great deal of discussion before this Committee. And we thought we
|
21 | would appear today to give our view, having been through this experience, of what
|
22 | the lessons are to be learned from the experience of the Film case going forward.
|
23 | I would say that there have been two sort of camps that have drawn |
108
1 | broad lessons from what happened in the WTO case on film. One, primarily trade
|
2 | experts, and particularly academics, have concluded that the answer from the
|
3 | result of what happened in the Film case is that the mandate of the WTO needs to
|
4 | be broadened to cover competition policy, that if only the WTO had the mandate
|
5 | to cover competition policy matters, the case might have been decided differently
|
6 | and a blow might have been struck for U.S. market access in Japan.
|
7 | Another camp, and I would say a great number of antitrust
|
8 | attorneys fall into this category, who say, well, the answer is this shows once and
|
9 | for all that you shouldn't mix competition policy with the WTO; we should not
|
10 | have a competition policy covered in the next round of WTO negotiations, and in
|
11 | fact we should rely on positive comity in order to accomplish results.
|
12 | We think both camps are wrong, and we would like to discuss why
|
13 | and perhaps suggest a third way for this very unique problem.
|
14 | Our experience with the U.S. authorities and before the WTO, we
|
15 | think, demonstrates convincingly the current system we have for dealing with
|
16 | problems where trade and competition issues are mixed is a fundamentally flawed
|
17 | system and must be fixed. In our case, Kodak presented what we considered to be
|
18 | and what many outside experts consider to be very strong proof of anticompetitive
|
19 | practices in Japan that had effectively blocked Kodak's ability to sell film and
|
20 | other consumer products in that market.
|
21 | These barriers consisted of unlawful restraints existing at the
|
22 | manufacturing, distribution, and retail levels, restraints which were both condoned
|
23 | and in fact encouraged by the Japanese government, including the Japanese |
109
1 | competition enforcement authority, the JFTC. These restraints created an
|
2 | impenetrable barrier to meaningful market access. Kodak's film market share is
|
3 | and has been slightly less than 10 percent for the last 25 years despite our
|
4 | substantial investments in and pricing in the market.
|
5 | Because the U.S. Government today lacks a cohesive and logical
|
6 | approach to dealing with trade and competition matters, when we brought our case
|
7 | to U.S. authorities initially in 1995, the response was that the case was broken up
|
8 | into a number of disparate pieces.
|
9 | There was one piece which was a GATT complaint brought by the
|
10 | USTR to the WTO, commonly known as the film case. This GATT case was
|
11 | stripped of all references to private restraints of trade and consisted solely of
|
12 | actions taken by the Japanese government.
|
13 | There was a second complaint against the Japanese large store law,
|
14 | in which a case was actually prepared to be filed under the General Agreement on
|
15 | Trade and Services, but was never filed due to doubts on our part as well USTR's
|
16 | about the WTO's ability to manage complex sets of facts, particularly regarding
|
17 | Japan.
|
18 | And finally, there was a submission of evidence by Kodak of private
|
19 | anticompetitive practices to the JFTC, evidence which was ignored for two years
|
20 | until after the case at the WTO had been settled, and I'll talk more about that in a
|
21 | moment.
|
22 | Not surprisingly, the dispersal of the case into many different
|
23 | components led to disappointing and fragmented results. As everyone knows, in |
110
1 | December of 1997 the WTO rejected all 21 of USTR's assertions concerning the
|
2 | participation of Japanese government authorities in anticompetitive film industry
|
3 | practices.
|
4 | Japan did eventually phase out its large store law, but it is now in
|
5 | the process of replacing that law with local measures similarly designed to
|
6 | constrain large retailers. And the JFTC has issued some warnings to private
|
7 | parties that were engaged in restrictive practices, but took no corrective or
|
8 | punitive action and has not investigated evidence of price fixing.
|
9 | From Kodak's perspective, this demonstrates the need for a better
|
10 | approach. As I've mentioned, there have been two camps who have drawn lessons
|
11 | from our experience and let me discuss why we think both of them are mistaken.
|
12 | First, and this is by far the majority camp, I would say, casual
|
13 | observers and trade experts have concluded that the answer to the problem is to
|
14 | expand the mandate of the WTO. This in particular has been the conclusion
|
15 | drawn by the European Union, which, not coincidentally, participated in the case
|
16 | on the side of the United States.
|
17 | We believe that the film market access result showed that the WTO
|
18 | is not competent to review allegations of collusion between foreign governments
|
19 | and private industry, let alone purely private anticompetitive practices. Those
|
20 | who have drawn this lesson I think perhaps haven't read what the WTO found in
|
21 | the Film case. The WTO panel did not say that there was evidence of private or
|
22 | government-to- private collusive behavior and that they simply couldn't reach it.
|
23 | Rather, they said they couldn't see it at all. |
111
1 | They acknowledged that there was the existence of 30 years, on one
|
2 | hand, 30 years of Japanese government industrial policies designed to promote
|
3 | Japanese film makers. And they acknowledged on the other side that there was a
|
4 | situation in which competitive outcomes in the market showed Kodak could not
|
5 | break the barrier of about 9 or 10 percent. They could not find any causal
|
6 | connection between those two things.
|
7 | Now, I would suggest to you that if the WTO cannot come to grips
|
8 | with the existence of collusion between government and industry in Japan,
|
9 | cooperation, industrial policy, and so forth, which is extensively well-documented,
|
10 | what is the likelihood that the WTO could any better deal with purely private
|
11 | collusive behavior, which is much more complex and much less well documented?
|
12 | Even if countries within the WTO could agree on a least common
|
13 | denominator set of problems of anticompetitive practices that block private access
|
14 | -- and Eleanor Fox of your Committee has acknowledged that would be extremely
|
15 | difficult to do -- even if you could arrive on a set of principles, my guess is it
|
16 | would be a least common denominator. And in that case, what value is it if it
|
17 | takes us many years to achieve and fails to get at the heart of the problem, which
|
18 | is that the WTO is not, in my view, institutionally capable of dealing with the
|
19 | complex kinds of problems that we face particularly in the Japanese market?
|
20 | When you add to the experience in the Film case the institutional
|
21 | challenges that we have the WTO, I think it becomes even more obvious that this
|
22 | is not the right solution. The WTO is being asked increasingly to serve as an
|
23 | international court that is a tryer of fact, rather than just an interpreter of WTO |
112
1 | rules, which is largely what it was set up to be and what it was for many years
|
2 | when GATT panels existed from the first creation of the GATT.
|
3 | The WTO lacks the professional expertise for this task. It has no
|
4 | full-time judges, no rules of evidence or procedure, very little transparency, no
|
5 | investigatory resources, and no expertise in competition law matters.
|
6 | Just as it is inappropriate to try to solve every political problem
|
7 | through the United Nations, it is equally inappropriate to try to solve every
|
8 | economic problem through the WTO just because it's the only multilateral
|
9 | institution we have to deal with trade.
|
10 | So if the WTO is not the answer, what is? Many people, including
|
11 | Assistant Attorney General Klein, have suggested in arguing against competition
|
12 | policy in the WTO that the answer is positive comity, cooperation with foreign
|
13 | antitrust authorities to get at the kinds of problems that were evident in the Kodak
|
14 | case.
|
15 | But with regard to positive comity agreements, they are effective
|
16 | clearly only if the other party has a viable competition authority that enforces
|
17 | laws that are at least similar to U.S. antitrust laws. A couple of weeks ago in
|
18 | hearing before the Senate Judiciary Antitrust Subcommittee, FTC Commissioner
|
19 | Bob Pitofsky said: "Even where an antitrust agreement exists, we can never be
|
20 | certain the antitrust authority that investigates and prosecutes the case will be
|
21 | successful." He added: "Although positive comity may be a valuable tool, it is
|
22 | important to recognize that it is a small piece in the developing mosaic."
|
23 | AAG Klein similarly has said that positive comity requires a high |
113
1 | degree of confidence that the problem conduct will be adequately and promptly
|
2 | investigated by home country authorities.
|
3 | I would agree with both those standards. I would argue that Japan
|
4 | and particularly the Japan Fair Trade Commission do not come anywhere close to
|
5 | meeting either standard. Cartels such as those uncovered in the Kodak case and as
|
6 | I imagine my colleague from Guardian will talk about in the flat glass industry
|
7 | continue to thrive in Japan.
|
8 | The JFTC not only fails to enforce the antimonopoly law against
|
9 | these practices, but in many cases actively encourages collusive behavior on the
|
10 | part of industry. Let me give you four examples.
|
11 | In the Film case, the JFTC delegated to a trade association of
|
12 | photographic retailers called the Zenren the power to devise and enforce a code of
|
13 | industry self-regulation. This was called the Retailers Fair Trade Code, in which
|
14 | the Zenren threatened photographic stores that offered discounts or promotions.
|
15 | I have and would like to pass around to the members of the
|
16 | Committee and for others afterwards, I suppose, a cartoon that until very recently
|
17 | appeared every month in the photographic trade industry journal in Japan. It's two
|
18 | figures, and what they're saying is translated below, two people holding up a sign.
|
19 | One figure is holding up a sign that says "Extremely cheap cameras" and the other
|
20 | one is holding up a sign that says "Bargain, sale cameras."
|
21 | And over the sign that says "Extremely cheap cameras" there is a
|
22 | little bubble that says: "It is a violation without a doubt of the Retailers Fair
|
23 | Trade Code" -- a code set up with the acquiescence and encouragement of the |
114
1 | JFTC. Then the other side says: "Well, if you see a camera on sale, it may be a
|
2 | violation." And it gives a phone number to call or a fax where you can send the
|
3 | advertisement, and the retailer fair trade organization will crack down on the
|
4 | renegade retailer who has dared to offer a discount. This is like providing the
|
5 | number for the FBI if there's a blue light special at Kmart.
|
6 | Again, I want to emphasize this is behavior not only condoned but
|
7 | encouraged by the antitrust enforcement authority in Japan.
|
8 | Second example, the manufacturing level. In response to a
|
9 | complaint filed by Kodak, late last year the JFTC found that the four major
|
10 | manufacturers of photographic paper in Japan were exchanging highly
|
11 | disaggregated, competitively sensitive data relating to their output and sales on
|
12 | a monthly basis. This is an obvious form of collusion and a clear violation of U.S.
|
13 | antitrust law.
|
14 | Yet the JFTC simply asked the firms to stop the practice without
|
15 | further inquiring. There was no effort made to inquire as to how this data was
|
16 | being used, in particular to determine whether it was being used in a price fixing
|
17 | scheme, and there has been no ongoing effort to ensure compliance with the
|
18 | JFTC's request.
|
19 | Third, the graphic electrodes case, a recent, somewhat famous case
|
20 | in which a clear cartel-like behavior was established among U.S., German and
|
21 | Japanese firms in the graphic electrodes industry. The Justice Department
|
22 | imposed the largest criminal fines in its history against firms in that case. The
|
23 | JFTC issued a warning. |
115
1 | Fourth, look at the statistics. Between 1962 and 1994, the JFTC
|
2 | took by its own records a total of 124,045 enforcement actions, of which 683 were
|
3 | formal cease and desist orders. That's .5 percent. The rest of them were informal
|
4 | requests, administrative guidance, and warnings.
|
5 | But even of those actions that were taken, it's fair to ask, were they
|
6 | taken to deal with antimonopoly law enforcement or other types of laws? And in
|
7 | fact, again the JFTC's records show that of the cases, and this time taken between
|
8 | 1977 and 1992, only 2.3 percent of all enforcement actions in Japan by JFTC or
|
9 | prefectural authorities were taken on the antimonopoly law. All the rest, 98
|
10 | percent, were enforcements of the premiums law. The premiums law is not a law
|
11 | designed to get at anticompetitive practices. It is a law which emphasizes
|
12 | restrictions on business marketing.
|
13 | In other words, 98 percent of antitrust enforcement activity in Japan
|
14 | over that period of time was focused on cracking down on retailers who had the
|
15 | temerity to offer discounts.
|
16 | Given these four examples, it is simply not realistic to assume that a
|
17 | positive comity agreement with Japan would produce meaningful results. The
|
18 | Department of Justice, as it should, has a bias toward protecting the interest of
|
19 | consumers and standing up for free market principles. But in Japan we're dealing
|
20 | with an economy that is fundamentally based on subordinating the interest of
|
21 | consumers to the interest of manufacturers and in which free market principles as
|
22 | we understand them from an antitrust context do not exist and have never existed.
|
23 | In this environment, the traditional Justice Department approach of |
116
1 | relying on positive comity is in our view not likely to be very effective.
|
2 | So what's the answer? If not WTO and not positive comity, what
|
3 | other options are there? We think that, just as these issues are a mix between
|
4 | trade policy and competition law policy, so the solution must be a mix. Various
|
5 | people, including some at these hearings, have suggested an approach to the
|
6 | market access problem that would give the U.S. Government the authority to issue
|
7 | cease and desist orders against foreign anticompetitive practices that restrict U.S.
|
8 | commerce. In fact, you can argue that that authority exists under current law, but
|
9 | it's not being used.
|
10 | The proposal that Congressmen Sander Levin and Amo Houghton
|
11 | have suggested is to expand the authority of the U.S. Trade Representative under
|
12 | Section 301 of the 1988 Trade Act to take action against the kind of collaboration
|
13 | between foreign governments and private industry which the Film case saw.
|
14 | I think what's important in the area that we're talking about is to
|
15 | find some way to inject the interests of the trade agencies into an area in which
|
16 | traditionally they have traditionally not been involved. How do you do that in a
|
17 | way that preserves the interests of all concerned, but that also gets at the objective
|
18 | of opening up foreign markets?
|
19 | Another example, another proposal that's been suggested, is to have
|
20 | an independent authority like the International Trade Commission make a finding
|
21 | that foreign anticompetitive practices exist and are creating a barrier to U.S.
|
22 | commerce and have that finding create a presumption of action on the part of one
|
23 | of the existing enforcement authorities, either the Justice Department or the FTC, |
117
1 | with the notion, just as you have in antidumping law, that there's a strong
|
2 | presumption in favor of the initial finding and that that would incent the
|
3 | enforcement agencies to use the authority which they already have under existing
|
4 | law to take action against these foreign practices.
|
5 | We think both these ideas have merit and bear further study and
|
6 | hopefully perhaps the endorsement of this Committee. But it's clear that neither
|
7 | the WTO nor positive comity is going to work.
|
8 | I would just conclude by making one other comment. This is not
|
9 | related to trade and competition policy, but one other aspect of the Committee's
|
10 | work and that is with regard to merger review. We've recently been through some
|
11 | of these experiences, as I'm sure other witnesses before you have been, in our case
|
12 | particularly regarding a recent acquisition of some medical imaging business from
|
13 | Imation.
|
14 | Before we could completed that acquisition we had to research filing
|
15 | requirements and submit pretransaction filings with more than ten different
|
16 | competition authorities, each with different information and timing requirements.
|
17 | Procedural disparity made it necessary for us to stagger the closing of the deal,
|
18 | cost us millions of dollars, and delays in the integration of our acquired
|
19 | businesses.
|
20 | We think the proliferation of preclosing filing requirements is a
|
21 | significant barrier to getting business done quickly and efficiently. We urge you
|
22 | to closely consider this problem. One method we know that's been proposed to
|
23 | resolve this situation would be the adoption of a filing common filing form for all |
118
1 | international transactions that meet certain specified size and transaction
|
2 | thresholds, and we don't understand why there would be any resistance to that kind
|
3 | of common filing requirement.
|
4 | Thank you for the opportunity to be here.
|
5 | DR. STERN: Thank you.
|
6 | We'll just go right on and hear our next guest. Steve, are you
|
7 | prepared to give us your experience at Guardian, I suspect in the Japanese market
|
8 | as well.
|
9 | MR. FARRAR: Yes. Thank you very much. My name is Steve
|
10 | Farrar. I'm the Director of International Business at Guardian Industries, which,
|
11 | since Guardian is not quite the household name that Kodak is, I might explain is a
|
12 | manufacturer of flat glass products worldwide, primarily for use in automotive,
|
13 | construction, and furniture and related industries.
|
14 | We circulated an analytical white paper some weeks ago that
|
15 | described in some detail our experiences in the Japanese market. So I will only
|
16 | make some summary observations today.
|
17 | Before beginning, though, I would like to commend the Advisory
|
18 | Committee for its willingness to take on this difficult question of how you handle
|
19 | issues that have elements both of trade policy and competition policy. And as
|
20 | your hearings have revealed and as we've heard today, foreign anticompetitive
|
21 | conduct is a persistent and enormously costly problem for many U.S. companies
|
22 | involved in foreign markets.
|
23 | Clearly, those markets are not really open if competition laws are |
119
1 | inadequate or if the laws themselves are not being adequately enforced. In
|
2 | Guardian's view, the United States antitrust enforcement agencies must
|
3 | aggressively investigate and prosecute persistent anticompetitive conduct abroad
|
4 | that harms U.S. exporters when foreign antitrust authorities cannot or will not rise
|
5 | on the occasion. While legal action is not always required, foreign authorities are
|
6 | much more likely to be cooperative if they understand that if they fail to act the
|
7 | United States can and will act on its own.
|
8 | Now, a few words about our experience in Japan. Despite vigorous
|
9 | efforts over more than a decade and despite the existence of bilateral trade
|
10 | agreements on flat glass signed in 1992 and 1995, Guardian has not been able to
|
11 | achieve meaningful access to the Japanese flat glass market.
|
12 | Today, as in 1992, '95, and '97, we account for barely one percent
|
13 | of Japan's flat glass market. By contrast, in most other major foreign markets
|
14 | without significant entry barriers we typically have a market share in the 10 to 20
|
15 | percent range.
|
16 | Japan's distribution system is at the heart of the problem. With
|
17 | minor exceptions, neither glass distributors nor glass fabricators will handle our
|
18 | products in significant volume, even though our products are of the same or higher
|
19 | quality as those sold domestically and our initial price quotes are typically 30 to
|
20 | 50 percent below domestic prices.
|
21 | Japan's three manufacturers of flat glass -- Asahi Glass Company Company,
|
22 | , Nippon Sheet Glass and Central Glass Company -- control the domestic
|
23 | distribution system. This oligopoly uses its longstanding market power to block |
120
1 | new entry and thereby preserve the status quo.
|
2 | This situation was described by Committee member Eleanor Fox in
|
3 | her 1997 article entitled "Toward World Antitrust and Market Access." Professor
|
4 | Fox suggested that the Japanese flat glass market could provide an example of two
|
5 | areas of antitrust that are most relevant to blockage of markets: first, a cartel
|
6 | with an accompanying boycott; and second, a vertical agreement or collaboration
|
7 | that tends to exclude market actors.
|
8 | The conduct identified by Professor Fox in 1997 persists today.
|
9 | Japanese manufacturers continue to use similar exclusionary and coercive conduct
|
10 | to prevent distributors from making rational economic decisions about the
|
11 | products they purchase. Among the most widespread and pernicious practices are
|
12 | the setting of sales quotas, providing disguised after-market sales rebates and
|
13 | misusing equity holdings. Let me comment briefly on each.
|
14 | First on sales quotas, salesmen for Japanese manufacturers
|
15 | frequently impose unwritten sales quotas. Their customers, the distributors, are
|
16 | not free to buy from foreign sources until this arbitrary quota has been filled. The
|
17 | distributors who fail to meet their quotas are vulnerable to many forms of
|
18 | retaliation. For example, a maverick distributor could find himself with greatly
|
19 | increased costs of doing business because his manufacturer has denied him a
|
20 | favorable credit reference at his affiliated keiretsu bank.
|
21 | With regard to after-sale rebates, distributors who fill their quotas
|
22 | are still in effect given a form of preferential payment for returned steel racks,
|
23 | which are the racks used to ship the glass. |
121
1 | Regarding equity positions, domestic glass producers are
|
2 | increasingly consolidating their market by taking equity positions in the key
|
3 | distributors, particularly the larger, more efficient ones. The predictable and
|
4 | intended effect of such vertical integration is to prevent key distributors from
|
5 | accepting competitive offers from new entrants.
|
6 | The intrusion of the Japanese manufacturers into the inner workings
|
7 | of key distributors is so great that they insist on and obtain regular access to the
|
8 | financial records of their affiliated distributors. This allows them to keep a
|
9 | careful eye on procurement patterns to ensure the distributors are meeting their
|
10 | quotas and limiting purchases of non-Japanese flat glass.
|
11 | Because of these exclusionary business practices, foreign suppliers
|
12 | as a group have failed to gain a meaningful or sustainable foothold in the market.
|
13 | Nonaffiliated foreign producers account for only an estimated 5 percent of
|
14 | Japanese consumption, and of that U.S. companies account for barely 2 percent.
|
15 | In the wake of recent Congressional hearings and expressions of
|
16 | concern from U.S. antitrust authorities, Japanese officials have begun to claim
|
17 | that their domestic industry is suddenly competitive. They point to recent price
|
18 | competition among domestic and foreign firms and some long overdue downsizing
|
19 | of excess capacity. These claims are misleading at best.
|
20 | The fact it is that domestic manufacturers continue to engage in a
|
21 | sophisticated form of price and nonprice predation to prevent new entrants from
|
22 | gaining a foothold in the market. For example, in order to retain market share
|
23 | Japanese manufacturers are using their distribution systems as information |
122
1 | networks to monitor the sales calls and quotes of Guardian and other foreign
|
2 | suppliers. Having obtained competitive information about new entrants, the
|
3 | Japanese producers then selectively meet or undercut low price quotes in order to
|
4 | prevent the distributor from doing business with a new entrant.
|
5 | This so-called new competition is simply another way for the
|
6 | Japanese manufacturers to use their market power and financial leverage over
|
7 | distributors to repel meaningful competition from non-Japanese firms.
|
8 | Guardian believes that the best long-term solution to Japanese
|
9 | market foreclosure is for the Japanese antitrust authorities to investigate and
|
10 | prosecute the matter. To date, Japan Fair Trade Commission has been unwilling
|
11 | to act forcefully.
|
12 | As an interim step, the U.S. Government has tried to find ways to
|
13 | encourage Japan to strengthen its compliance with its own antimonopoly laws.
|
14 | Last spring, the Justice Department's Antitrust Division and the Office of the U.S.
|
15 | Trade Representative studied the antitrust compliance plans of the Japanese flat
|
16 | glass companies. They did so because it appeared that commitments to end
|
17 | anticompetitive practices that were made by senior management in the Japanese
|
18 | flat glass companies were not being effectively communicated down to the sales
|
19 | people in the same companies.
|
20 | As a possible remedy, Justice and USTR put forward a model
|
21 | antitrust compliance plan based on U.S. practices. It was disappointing to
|
22 | Guardian that Japan flatly refused to even discuss the model plan put forth by the
|
23 | U.S. Government. However, Japan's stonewalling was hardly a surprise. For |
123
1 | many years Japan has refused to recognize that it has a serious competition
|
2 | problem in its flat glass industry and has refused to take meaningful steps to solve
|
3 | it.
|
4 | During the 1990s, the U.S. and Japan have negotiated two bilateral
|
5 | agreements in an attempt to open the market for competition. Trade agreements
|
6 | are, however, blunt instruments to deal with deeply ingrained cartel business
|
7 | practices. And in this case the Japanese government and the Japanese flat glass
|
8 | companies have used the trade agreements as an excuse to avoid dealing with the
|
9 | root cause of the market foreclosure.
|
10 | Instead, they have taken steps in compliance with the trade
|
11 | agreements that were ineffective or were quickly reversed when the political
|
12 | pressure to comply subsided that. That is Guardian has urged the U.S. antitrust
|
13 | agencies and the U.S. Congress to pursue the matter under antitrust laws, either
|
14 | ours of theirs.
|
15 | As this Committee knows, the U.S. has unilateral authority to act
|
16 | when U.S. exporters are harmed by anticompetitive conduct abroad. The Foreign
|
17 | Trade Antitrust Improvements Act is a jurisdictional statute that permits the U.S.
|
18 | antitrust agencies to prosecutor foreign anticompetitive conduct in our courts.
|
19 | Guardian would like to see that statute strengthened by eliminating
|
20 | any possibility that it could be misinterpreted through guidelines or other devices
|
21 | that incorporate extrastatutory requirements such as a showing of harm to
|
22 | consumers. Legislation to do this is pending in the House of Representatives and
|
23 | is likely to be introduced in the Senate in the near future. |
124
1 | Even more importantly, there is the perplexing question of what can
|
2 | be done to bolster the ability of U.S. antitrust authorities and plaintiffs to
|
3 | investigate foreign anticompetitive conduct, particularly to discover evidence
|
4 | when it's located abroad. The problem has been talked about for many years, but
|
5 | to our knowledge no workable solutions have been proposed. We urge the
|
6 | Committee to deal prominently with it in the Committee's final report.
|
7 | Since legislation will almost certainly be part of a solution, the
|
8 | Committee may want to consider a Congressional commission. Of course, we
|
9 | consider it important that the business community have a role in any new
|
10 | deliberative process to address this problem that may be recommended.
|
11 | As the Committee is aware, two weeks ago during the visit of
|
12 | Japanese Prime Minister Obuchi the Department of Justice and the Japan Fair
|
13 | Trade Commission announced a joint U.S.-Japan antitrust cooperation agreement.
|
14 | This agreement is similar in most respects to the agreement the U.S. already has in
|
15 | place with the European Union.
|
16 | At a recent hearing convened by the Senate Subcommittee on
|
17 | Antitrust, Competition, and Business Rights, both the chairman and the ranking
|
18 | minority member expressed deep skepticism about whether Japan was up to the
|
19 | task of being an equal partner with the U.S. under the antitrust cooperation
|
20 | agreement. They cited Japan's refusal to tackle the market access problems in its
|
21 | flat glass industry as one of the reasons for their doubts.
|
22 | Not surprisingly, Guardian shares these doubts, based on our years
|
23 | of frustration in attempting to convince the Japanese Ministry of International |
125
1 | Trade and Industry to honor its obligations under trade agreements. Guardian has
|
2 | pledged to work with the U.S. Department to pursue the flat glass issue to a
|
3 | conclusion under the new joint commission obligation or, if necessary, through
|
4 | unilateral action on the part of the U.S. We believe that the flat glass issue will
|
5 | test whether the Japan Fair Trade Commission is up to the challenge of
|
6 | partnership with the U.S. antitrust authorities.
|
7 | To conclude, Guardian believes that private anticompetitive
|
8 | business practices represent significant barriers to access to foreign markets to
|
9 | U.S. firms. In removing this barriers, it is important for the U.S. to act
|
10 | cooperatively when we can. But when we cannot, it is important to retain the
|
11 | necessary unilateral authority to act.
|
12 | Up to now, the cooperative approach with Japan has had no
|
13 | meaningful effect on a serious market access problem in flat glass. As we go
|
14 | forward, we should be prepared to use all the statutory tools at our disposal, and
|
15 | we should consider forging new tools if those at our disposal prove to be
|
16 | inadequate.
|
17 | Thank you, Mister and Madam Co-Chairs. I'd be happy to answer
|
18 | questions.
|
19 | MR. RILL: Thank you.
|
20 | DR. STERN: Thank you very much.
|
21 | I'd like to hold the questions until we hear the whole panel. So
|
22 | we're now going to turn, I suspect, to Europe. Welcome, if you let me, Mr. Co-
|
23 | Chair, and give me some indulgence to welcome Drew Wechsler again and to |
126
1 | welcome Ray Calamaro, two very dear friends of mine who, as I think about how
|
2 | long I've known them, it's basically through the seventies and eighties I've had the
|
3 | privilege of working both with Ray on the Hill and Drew and I have worked
|
4 | together, Drew worked with me at the International Trade Commission for many,
|
5 | many long years and still collaborating. So it's a real personal, personal pleasure
|
6 | to welcome you here.
|
7 | We're very happy to have Mr. Stevenson from the United Parcel
|
8 | Service, who is going to give us the benefit of UPS's experience in the European
|
9 | market. How do you wish to proceed, Mr. Stevenson? Please. Welcome.
|
10 | MR. STEVENSON: Thank you. With the Committee's permission,
|
11 | I would like to submit a full written statement with attachments on behalf of UPS
|
12 | and I will try to summarize that statement here today.
|
13 | On behalf of United Parcel Service, I want to express my
|
14 | appreciation for the opportunity to present a statement before this distinguished
|
15 | Advisory Committee.
|
16 | As a way of beginning, I would like to give you a very brief
|
17 | summary of my background. My name is Larry Stevenson. I'm the Vice President
|
18 | of International Industrial Engineering for United Parcel Service. I'm responsible
|
19 | for all industrial engineering activities outside the United States. I report to the
|
20 | President of UPS International.
|
21 | With me are Ray and Drew, as you've already introduced, and also
|
22 | Phil Larson of the same firm as Ray, who is our antitrust counsel.
|
23 | This is my -- this year I celebrate my fiftieth birthday and my |
127
1 | twenty-fifth anniversary with UPS. I began my career as an unloader and then
|
2 | advanced to sorter and driver and have worked my way up to my present position
|
3 | through the ranks. This is my fourteenth year of working in international
|
4 | operations for UPS.
|
5 | I have lived twice in Germany, twice in the UK, and once in
|
6 | Brussels in that time. Today I travel to operations around the world from our
|
7 | world headquarters in Atlanta, visiting our operations and engineers in an effort to
|
8 | improve service and reduce costs, using process reengineering, improved operating
|
9 | computer systems functionality, and traditional engineering techniques, likes
|
10 | method and measurement improvement, and so forth.
|
11 | Since I'm not a lawyer, my area of expertise is how improper
|
12 | practices by state-owned or state- sanctioned monopolies affect the day-to-day
|
13 | struggle of our people to earn a living and a reasonable profit by providing service
|
14 | excellence to our customers.
|
15 | As a way of beginning, I would also like to give you some
|
16 | background information on UPS. The matters I would like to discuss with you
|
17 | today come within the Committee's agenda item identified as trade and competition
|
18 | interface issues. UPS itself in its day-to-day business epitomizes the combination
|
19 | of vigorous international trade and dynamic competition.
|
20 | Before addressing the subject at hand and knowing that everyone
|
21 | here is probably very familiar with UPS and its business and it's been a long day, I
|
22 | would like to provide just a few facts about UPS of which you may not be aware.
|
23 | UPS is the largest shipping company in the world. It operates in |
128
1 | more than 200 countries and territories, delivering more than 12 million packages
|
2 | each day. While some people think that international trade means fewer U.S. jobs,
|
3 | just the opposite is true for UPS, which creates one new U.S. job for every 70
|
4 | international packages that enter or leave the United States. UPS is the third
|
5 | largest employer in the U.S.
|
6 | Although everyone is familiar with UPS vehicles and delivery
|
7 | personnel, it may come as a surprise that UPS is also a high-tech company, an e-
|
8 | commerce leader, and a financial services company, as explained in my written
|
9 | statement.
|
10 | With 224 jet aircraft, UPS is the tenth largest airline in the United
|
11 | States. It's no surprise, therefore, that UPS is virtually synonymous with trade.
|
12 | UPS also means competition because not only do we compete, but our very
|
13 | mission is to help our customers compete, assisting them with just in time
|
14 | inventory control and advanced logistics services.
|
15 | The trade and competition issue I would like to discuss today
|
16 | involves abuse or improper practices by state-owned or state-sanctioned
|
17 | monopolies. Virtually every government in the world, including our own, grants
|
18 | vast powers to certain monopolies. We're all accustomed to monopolies in such
|
19 | areas as energy, telecommunications, transport, and postal services.
|
20 | A significant problem arises when a monopoly abuses the very
|
21 | special power granted to it by its own government. Not only are such abuses
|
22 | inconsistent with the public policy reasons for granting the monopoly in the first
|
23 | place, but they can also be significant distortions of competition, as with the |
129
1 | specific case I would like to discuss with you in a moment.
|
2 | Besides being a distortion of competition, monopoly abuse can be a
|
3 | very serious trade barrier when it is aimed at or significantly affects a foreign
|
4 | competitor. The particular kind of monopoly abuse on which I would like to focus
|
5 | this afternoon is improper cross-subsidies or state aids. In particular, I'm
|
6 | referring to the subsidies or state aids from state-owned or state-sanctioned
|
7 | monopolies to their privatized or deregulated sibling entities or activities.
|
8 | In some instances there's no clean line between the monopoly
|
9 | activity and the non-monopoly commercial activity. It is in these case where the
|
10 | improper cross-subsidy or state aid can be particularly insidious. Although this is
|
11 | not the appropriate forum to adjudicate a specific competition or trade matter, I
|
12 | would like to discuss one actual example where the abuse is so serious and the
|
13 | potential distortion of trade is so significant that it is worthy of this Committee's
|
14 | attention.
|
15 | This specific case involves the German postal service. In July of
|
16 | 1994, UPS filed a complaint with the EU's competition authority, DG-IV of the
|
17 | European Commission, alleging, among other things, that the German postal
|
18 | service inappropriately cross-subsidizes its nonreserved and nonmandatory
|
19 | services with funds derived from its highly profitable regulatory monopoly.
|
20 | The German post reportedly makes huge profits on its postal
|
21 | monopoly since it charges 66 cents for first class mail, twice the cost of the United
|
22 | States stamp. In fact, the German post's 66 cents is reportedly the second highest
|
23 | rate in the world. |
130
1 | UPS's complaint against the German post alleges that, because of
|
2 | the cross-subsidies that German post nonreserved commercial activities are
|
3 | offered at unjustifiably low prices. This in itself is a distortion of competition and
|
4 | a violation of Article 86 of the EC Treaty. In addition, UPS's complaint charges
|
5 | that the German post's non-reserved commercial activities benefit from
|
6 | inappropriate state aids, a violation of Article 92 of that treaty.
|
7 | Because of these subsidies and other improper benefits which the
|
8 | German post's non-reserved commercial activities receive, the German post is able
|
9 | to do more than just compete with unjustifiably low prices. It has also gone on a
|
10 | virtual shopping spree, acquiring companies in Europe and in the U.S. which
|
11 | expand its strength in the market and its ability to compete unfairly.
|
12 | There was a January 10th "Wall Street Journal" article that
|
13 | describes the situation graphically and we believe generally accurately. A copy of
|
14 | that article is submitted with the full text of my statement.
|
15 | UPS filed its complaint in the European Commission nearly five
|
16 | years ago and the Commission still has not acted. It is obvious to us at UPS that
|
17 | if our complaint had no or even little merit, it would have been dismissed long
|
18 | ago.
|
19 | Another point worth mentioning is that UPS's complaint could have
|
20 | probably been even stronger if we had access to all the underlying facts.
|
21 | Unfortunately, there's a significant lack of accounting transparency in the German
|
22 | post's activities. For that reason, the underlying accounting data are simply not
|
23 | available to the UPS in a way that would allow us to document the problem fully |
131
1 | and clearly.
|
2 | I mention that because I know that transparency is a concern to this
|
3 | Committee, but also because if we did have the full picture I have no doubt that
|
4 | our case as set forth here and to the EU would be even stronger and more
|
5 | convincing.
|
6 | The stakes here are very significant for UPS. The German post's
|
7 | activities threaten $800 million to $1 billion in UPS service revenues in Germany,
|
8 | not to mention our very substantial investment in that country. But UPS's German
|
9 | market is also an important part of our European operations, where billions more
|
10 | are threatened by the German post's unfair competition.
|
11 | This issue is bigger than UPS versus the German post. An
|
12 | important principle is at stake here. If unchecked, the German post's actions can
|
13 | become a dangerous precedent where state-owned or state- sanctioned monopolies
|
14 | are liberalized or deregulated or even if they just have commercial, in other words
|
15 | non-monopoly, operations.
|
16 | We find such monopolies in key sectors of virtually every country's
|
17 | economy, including transportation, energy, telecommunications, and of course,
|
18 | postal services. Each of these sectors is subject to potential monopoly abuse from
|
19 | cross-subsidies or from improper state aids. It is difficult to imagine how such
|
20 | abuse would not be a very significant distortion of competition wherever it might
|
21 | exist.
|
22 | The Deutsche Post matter is not only a competition distortion, but
|
23 | also a serious trade issue. On one level, state monopolies raise what are |
132
1 | essentially domestic questions of economic and competition policy. However,
|
2 | where the kind of monopoly abuse described here is directed against or in a
|
3 | significant way adversely affects foreign competitors, there is the potential for a
|
4 | very serious international trade barrier, often a kind of domestic protectionism, as
|
5 | in the case of the German post.
|
6 | UPS believes it has a strong trade case here and we have taken it up
|
7 | with the U.S. Government. However, before resorting to all the trade remedies at
|
8 | our disposal, UPS would rather ask the U.S. Government to strongly encourage
|
9 | EU authorities to enforce their own competition law. UPS also hopes that our
|
10 | government can encourage the German government to take all necessary steps to
|
11 | end the German post's inappropriate cross- subsidies and-or state aids.
|
12 | UPS believes that the U.S. and the EU should find that they have a
|
13 | great deal in common when it comes to ending monopoly abuse. One reason for
|
14 | this is that both the U.S. and the EU are often trying to expand their markets in
|
15 | other countries where they face barriers resulting from the very same kinds of
|
16 | monopoly abuse. In short, we want our government to encourage the EU to do the
|
17 | right thing because it is in the EU's own interest and even in Germany's interest to
|
18 | do so.
|
19 | And this leads me to why UPS is so appreciative of this Committee's
|
20 | invitation to tell our story together. Although we believe that our government can
|
21 | encourage the EU to do the right thing, we are realistic and we know that this will
|
22 | take a lot of encouraging. Just because it is the right thing to do doesn't mean a
|
23 | government, whether it is the EU, U.S. or any other government, will do it. |
133
1 | Everywhere in the world, including the U.S., Germany and other
|
2 | countries, there are strong parochial interests. To overcome these interests, the
|
3 | EU will need strong, high level, and consistent messages from the U.S. on this
|
4 | subject. Such messages have already begun to be issued by the U.S. Government
|
5 | and we have every hope that they will continue and become even stronger in the
|
6 | very near future.
|
7 | There is, however, a very special role which this Committee can
|
8 | play. That role is based on the June 4, 1998, agreement between the U.S. and the
|
9 | EU on positive comity in competition enforcement. I'm sure I don't need to
|
10 | explain that agreement to this Committee, but I will say only that we at UPS feel
|
11 | this is an ideal case for the U.S. to request positive comity from the EU.
|
12 | Specifically, we would believe that it would not only be appropriate but also
|
13 | urgently necessary for this Committee to recommend that the Justice Department
|
14 | and the Federal Trade Commission immediately request that DG-IV rule promptly
|
15 | and fairly on the complaints against DPAG by UPS and others.
|
16 | We urge that such a rule should be based on a full and clear record
|
17 | that indicates all the relevant facts. There is very little doubt that such a request
|
18 | would be in furtherance of the law and policy in the U.S. and the EU. My written
|
19 | statement which has been submitted to this Committee contains extensive citations
|
20 | and support of the proposition that cross-subsidies by monopolies like those I have
|
21 | described today are contrary to law and policy in the U.S. and the European
|
22 | Union.
|
23 | UPS has taken a consistent position in opposition to monopoly |
134
1 | abuse and cross-subsidization right here in the United States, by the United States
|
2 | Postal Service. We have spoken out forcefully against proposals in Congress that
|
3 | would create an insufficient firewall between USPS's reserved monopoly activities
|
4 | and its nonreserved or commercial activities. UPS believes that the same rules it
|
5 | advocates for Germany or any other country should also apply here in the U.S.
|
6 | Although USPS's actions have also created competitive distortions,
|
7 | those distortions do not yet have as great a known effect on international trade as
|
8 | those of the German Post.
|
9 | In closing, I thank you for your attention today and I look forward
|
10 | to answering your question. Thank you.
|
11 | DR. STERN: Thank you very much. Very, very clear.
|
12 | Is there further presentation? Yes, Drew.
|
13 | MR. WECHSLER: I have a short presentation.
|
14 | MR. RILL: Excuse me. May I just make a preliminary comment
|
15 | that I've been hesitating to make? I think, as for all panelists, you are well aware,
|
16 | as you indicated, that we're not in a position to adjudicate the facts of any
|
17 | particular instance, and so we really -- I mean, if the WTO has very poor fact-
|
18 | finding abilities, ours are somewhat less. So we'll certainly take what you say at
|
19 | its own face value and have a policy observation perhaps during the question
|
20 | period, but we can't be expected to judge merits of any case.
|
21 | MR. STEVENSON: Understood.
|
22 | MR. WECHSLER: Thanks for your charming introduction earlier.
|
23 | I hope I live up to it. |
135
1 | I had the luxury and pleasure of being asked by UPS to look at the
|
2 | entry into unregulated markets by state-owned enterprises, or SOE's, and
|
3 | regulated monopolies to determine what the competitive effects were, if any, and
|
4 | to ascertain whether they constituted a threat to international competition.
|
5 | I will summarize my paper which has been submitted. As in
|
6 | Mr. Rill's caution, I did not seek to determine the facts of any particular dispute,
|
7 | just to determine the trends and the potential problems.
|
8 | There is a major worldwide trend now of corporatizing and
|
9 | privatizing SOE's. Regulated monopolies and SOE's are entering deregulated
|
10 | competitive activities. This raises several major questions. Is cross-subsidization
|
11 | a serious problem worthy of attention? Does it have significant international
|
12 | effects? If so, what kinds of actions would be needed to promote welfare and
|
13 | growth?
|
14 | Cross-subsidization is not really a very debatable issue any longer.
|
15 | It has long been accepted as a significant issue in the regulation of industries
|
16 | based on their returns on costs and investments. Shifting of costs from
|
17 | competitive activities to regulated ones results in overconsumption and
|
18 | underpricing of the competitive good, and overpricing and underconsumption of
|
19 | the regulated good. Consumers of the regulated good are forced to pay a hidden
|
20 | tax to underwrite a subsidy to which neither they nor their government ever
|
21 | agreed.
|
22 | The domestic and international impact is to undermine competition
|
23 | on the merits. We must be very careful in a competitive market to understand |
136
1 | what competition does. The market forces market participants to utilize
|
2 | opportunities to respond to incentives. Cross-subsidization creates an opportunity
|
3 | for the market to induce people to engage in bad behavior.
|
4 | Unsubsidized rivals become disadvantaged; this is also an equity
|
5 | problem. Inefficiency is rewarded, despite the basic premise of privatization often
|
6 | being claims of increased efficiency. We can work from a presumption that state-
|
7 | owned enterprises are less efficient than those in the private market. Otherwise,
|
8 | there would be little incentive to deregulate them in the first place.
|
9 | Investments are discouraged, technological change is injured, and
|
10 | predatory pricing -- long frowned upon as a concept -- can become a possibility in
|
11 | this kind of framework.
|
12 | The problem is both serious and expanding. First, the sectors
|
13 | involved are huge -- utilities, energy, transport, communications, postal services.
|
14 | Literally millions of jobs and hundreds of billions of dollars in U.S. GDP is found
|
15 | in these sectors.
|
16 | The fact that they provide key infrastructure to the entire economy
|
17 | makes them politically sensitive and vulnerable for heavy-handed intervention if
|
18 | competition is mishandled. These affected sectors are currently globalizing very
|
19 | rapidly, which brings us to the international consequences. It raises the
|
20 | possibility of painful transfers among nations, which are never without political
|
21 | consequences. It spawns pressure for protection and the picking of home country
|
22 | winners in response.
|
23 | A company like UPS can fear the initial problem. But it can also |
137
1 | fear the response to that problem if, for instance, its major domestic rival becomes
|
2 | the anointed standard bearer in a response. Such king making diminishes global
|
3 | welfare.
|
4 | The remedies lie in a proactive stance by the U.S. Government to
|
5 | recruit other governments, particularly the EU, to defend growth and equity, to
|
6 | expand an awareness of the problems and costs of cross-subsidization (not all that
|
7 | different than subsidization itself), and to take action before anticompetitive
|
8 | constituencies are created which could sustain the problem long into the future.
|
9 | This requires real transparency in accounting, adequate rules and statutes for the
|
10 | new era, and effective domestic and international enforcement. All these themes
|
11 | and examples are developed in the paper I have submitted.
|
12 | DR. STERN: Thank you very much.
|
13 | I think that then completes the testimony, which gives us the
|
14 | opportunity to ask some questions. Jim, Professor Dunlop?
|
15 | MR. RILL: I do have a number of questions.
|
16 | DR. STERN: Professor Dunlop, do you have some --
|
17 | MR. RILL: But John has been so patient and quiet, and I don't
|
18 | want to --
|
19 | MR. DUNLOP: Go ahead.
|
20 | MR. RILL: No, no. You please go ahead.
|
21 | DR. STERN: We've all been aware that we've monopolized things.
|
22 | MR. DUNLOP: Am I to come away from your testimony with the
|
23 | notion that all cross- subsidization is inappropriate and anticompetitive, or are |
138
1 | you going to tell me some kinds of it are competitive. I can say only in passing all
|
2 | health care involves an enormous cross-subsidization between people who are well
|
3 | and people who are sick. So I'm trying to figure out what your position really is.
|
4 | MR. WECHSLER: You have zoomed right in on a central issue
|
5 | which cannot be settled in 20 seconds. There is a long history of examining the
|
6 | instances in which cross-subsidization may not be a problem. And the answer
|
7 | changes over time as regulatory economic analysis improves. There are great
|
8 | debates in each affected industry on how to handle fixed cost and how to distribute
|
9 | them among regulated and nonregulated entities.
|
10 | I have avoided offering any "magic bullet." But what I will say is
|
11 | that in our regulated industries, the likelihood of tremendous problems has been
|
12 | reduced over the years by the regulatory process acting over time. At the margin,
|
13 | there may be problems one way or the other and they still matter if your firm is on
|
14 | the wrong end of it. But the process has reduced such problems.
|
15 | Here, we have been considering a deregulatory trend begun with
|
16 | some amnesia about the fundamentals. We must face the question again and
|
17 | again, "If there is an opportunity and an incentive for bad behavior, are we going
|
18 | to get an anticompetitive response?" I'll give one example which goes to your
|
19 | question, Professor.
|
20 | In telephony there are various cross-subsidies that have been, in
|
21 | effect, forced on local telephone providers in the past to provide universal service.
|
22 | The goals were worthy ones. Now, as one introduces competition, the market can
|
23 | cut in very complicated ways in two directions. |
139
1 | A regulated monopolist in local service may have been forced to
|
2 | engage in this cross-subsidization, while the new competitor may not have been
|
3 | saddle with this cost. One then gets a debate over whether to charge the new
|
4 | competitors a fee to balance out the market? Or instead, do we free the regulated
|
5 | monopolist from a burden originally imposed for social reasons?
|
6 | I think economic theory supports a general tax as more efficient
|
7 | than forced cross-subsidization to accomplish goals like universal service.
|
8 | MR. RILL: I think if we're going to get into the telecom issue it's
|
9 | going to take a lot more than 20 minutes.
|
10 | MR. DUNLOP: Well, you're not trying to sell me on the
|
11 | proposition that any cross- subsidization is inherently either uneconomic or anti-
|
12 | public policy or something, because the case you cite, I'm perfectly prepared to
|
13 | look at. At times it seems to me this was a universal principle and I do have
|
14 | trouble with that.
|
15 | MR. RILL: I agree with you.
|
16 | DR. STERN: Further questions? Jim?
|
17 | MR. RILL: I have a number of questions, and cut me off when I'm
|
18 | going too long. First of all, let me congratulate the panelists for coming here and
|
19 | giving us their experiences. I think those are very enlightening experiences and
|
20 | I'm familiar with some of them at a variety of levels. But I think it is good and
|
21 | very forthcoming of you to present your views.
|
22 | Chris, let me ask you, did Kodak apply to the Department of Justice
|
23 | for the exercise of positive comity? |
140
1 | MR. PADILLA: Yes.
|
2 | MR. RILL: It did?
|
3 | MR. PADILLA: In the case that I referred to, in which the JFTC
|
4 | found the sharing of disaggregated data among photographic paper manufacturers,
|
5 | we did apply to the Department of Justice for referral and they declined to give us
|
6 | one.
|
7 | Basically, the reason that was given was that they could find no
|
8 | harm to Kodak from this scheme. Our argument that the scheme itself with the
|
9 | sharing of the data was perhaps of concern to Japanese consumers, perhaps ought
|
10 | to be of concern to the JFTC, but they could not find a harm to Kodak that would
|
11 | justify in their minds a referral.
|
12 | And that is why in my view, while I certainly wish Guardian the
|
13 | best of luck, and if they succeed, believe me, we'll be right in there behind
|
14 | them --
|
15 | MR. RILL: I don't know whether they enjoyed that comment.
|
16 | MR. PADILLA: The question, though, really revolves around what
|
17 | incentives are there to, in a sense, require the Justice Department and/or the FTC
|
18 | to take action which they have authority to take. And in our case, despite our
|
19 | request, they refused to make a referral.
|
20 | MR. RILL: The request for positive comity was limited to the
|
21 | sharing of disaggregated data --
|
22 | MR. PADILLA: Yes.
|
23 | MR. RILL: -- and not the other courses of conduct of which you |
141
1 | complained?
|
2 | MR. PADILLA: No, in fact we submitted the entire body of
|
3 | evidence to them. We focused on the disaggregated data first because we thought
|
4 | it was the best, it offered the best hope, given that it's -- and I'm not an antitrust
|
5 | attorney -- a pretty clear violation of what would be U.S. antitrust laws if we were
|
6 | to share disaggregated data in a trade association.
|
7 | And that was the case that we had filed with the JFTC under article
|
8 | 45. So we thought this was clearly the best place to start, and it was a case that
|
9 | we had filed in 1996, I believe, and we hadn't gotten any action, which is why we
|
10 | thought a referral would help.
|
11 | We didn't get one. As it turns out, the JFTC acted on its own. It
|
12 | acted last fall, shortly after the U.S. Trade Representative issued a report
|
13 | following up on the film market access issue, this monitoring report that USTR
|
14 | promised they would do. And we think that the scrutiny of that may have incented
|
15 | the JFTC to make public its findings.
|
16 | MR. RILL: Which leads me to the next question. Talking about the
|
17 | Trade Representative, you suggested at least one of the possibly meritorious
|
18 | proposals was to have findings made by the ITC, which would then become factual
|
19 | findings, which would then become binding, I suspect, on the antitrust agencies or
|
20 | whomever.
|
21 | MR. PADILLA: Or compelling, at least.
|
22 | MR. RILL: Yes, excuse me. You said presumptive.
|
23 | MR. PADILLA: Right. |
142
1 | MR. RILL: Could you tell us how those findings by the ITC, these
|
2 | threshold findings, would be superior to the threshold findings of the FTC or the
|
3 | Department of Justice, and why the ITC is a better organ for making those
|
4 | findings than the Department of Justice or the FTC?
|
5 | MR. PADILLA: Because they have a trade orientation and an
|
6 | understanding of how foreign anticompetitive practices can be used explicitly as a
|
7 | trade barrier. In our discussions with the Justice Department -- and through no
|
8 | fault of the Justice Department, let me add. They come at this from a perspective
|
9 | of the protection of interests of consumers primarily, and are not coming at this
|
10 | with a historical perspective that maybe USTR or the ITC may come at it, which
|
11 | is a perception of how individual barriers like disaggregated data, when added to
|
12 | other things, add up to a scheme that essentially conspires to keep foreign
|
13 | companies out of the market.
|
14 | It's making that jump to see the bigger picture where we, at least,
|
15 | have felt that the Justice Department and the FTC have, perhaps because of the
|
16 | orientation from which they come, are not as willing to go. And we think that
|
17 | perhaps the trade agencies may be more willing to do that and it would inject the
|
18 | trade perspective into this issue, but also keep the enforcement where it belongs,
|
19 | which is with the antitrust authorities.
|
20 | MR. RILL: What I'm hearing you say, then, it's the policy litmus
|
21 | through which basic facts are passed rather than the ability to find basic facts,
|
22 | that makes you think that ITC may be a preferable organ for fact finding.
|
23 | MR. PADILLA: For fact finding of this type, yes, I think so. We |
143
1 | had a tremendous amount of difficulty in outlining the overall nature of the
|
2 | scheme in the film case when we met with the Justice Department. We got
|
3 | questions back that suggested that the attorneys there were taking a look at this in
|
4 | individual pieces, in a smokestack slice of each piece, which again that's not to
|
5 | fault them. That's the way they come at these things and that's the historical way
|
6 | in which antitrust law is practiced.
|
7 | When you get into an area like Japan, though, we have found that
|
8 | that may not be fully descriptive of what's going on in the market.
|
9 | MR. RILL: Okay. I gather what you're saying is that it's not the
|
10 | ability to find facts A through Z, it's the way that facts are looked at --
|
11 | MR. PADILLA: Are interpreted, yes.
|
12 | MR. RILL: -- that makes you think that ITC is a preferable
|
13 | agency. Well, you're certainly clear about it.
|
14 | Steve, thanks for your testimony. I think everyone would agree, I
|
15 | think in fact the Japanese government representatives in conversation with me
|
16 | have agreed, that one of the real problems of exercising positive comity is that
|
17 | there's simply historically a different threshold, not merely to find a violation, but
|
18 | a different threshold, a much higher threshold, for the JFTC to even initiate a
|
19 | serious investigation, which creates a real dilemma.
|
20 | We've heard "bring us the facts and we'll start an investigation," but
|
21 | the level of facts that are required to start an investigation are the sort of facts
|
22 | that in the United States would probably start a consent negotiation. And I think
|
23 | that's conceded. |
144
1 | Now, as you pointed out, there is an agreement that's been
|
2 | announced and soon to be executed. Is it possible that through the exercise of
|
3 | positive comity under that agreement with some level of transparency that perhaps
|
4 | the Department of Justice can bring that threshold down and induce the JFTC to
|
5 | be more aggressive in conducting investigations? And isn't that agreement
|
6 | something that can be used as a tool in addition to, as I understand, your view of
|
7 | enforcement?
|
8 | MR. FARRAR: We're very hopeful that the agreement will bring
|
9 | the threshold down. For at least two years now the Japanese government has been
|
10 | saying that to us: Bring us the facts and we'll investigate them. The catch is that
|
11 | we're not in any position to discover the facts. And it's going to take a discovery
|
12 | process that, if it doesn't equal the Antitrust Division's normal standards, at least
|
13 | approaching them, I think, to uncover the facts in Japan.
|
14 | I'm confident that they're there, but it's not in our power to discover
|
15 | them. But I'm very hopeful that the joint agreement will produce that.
|
16 | MR. RILL: I think that both the government of the Japan and the
|
17 | government of United States have a good bit at stake in this agreement, and that
|
18 | more transparency could be evoked under the agreement and a greater sense of
|
19 | ability, willingness on the part of the JFTC to use what investigatory powers it
|
20 | has.
|
21 | I certainly can't disagree with you, by the way, that footnote 159
|
22 | should have been erased. And the enforcement, the maintenance of that unilateral
|
23 | enforcement tool is quite important in the final analysis. |
145
1 | Mr. Stevenson, what is the exact status of the DG-IV? Two
|
2 | questions: What is the exact status, if can tell me, of your DG-IV complaint?
|
3 | And have you asked DOJ or FTC for positive comity in support of your
|
4 | complaint?
|
5 | MR. CALAMARO: The status, Mr. Chairman, in DG-IV is that the
|
6 | complaint was filed in July of '94, and the Commission has not yet initiated
|
7 | an investigation, but it hasn't terminated it. It hasn't responded to the petition.
|
8 | MR. RILL: But there's no statement of objections, if you can tell
|
9 | me?
|
10 | MR. CALAMARO: There have been -- there have actually been a
|
11 | rather confusing number of letters from the Commission.
|
12 | MR. RILL: But no formal statement of objections at this point?
|
13 | MR. CALAMARO: Not that I'm aware of, no. But the Commission
|
14 | has actually notified UPS several times of the grounds on which it prefers to
|
15 | proceed, and that's changed a couple of times, whether it's on articles 85 and '6, or
|
16 | articles 92 and '3.
|
17 | UPS then brought an action under the Commission's rules to compel
|
18 | the Commission to act under 175, of the EC Treaty, and that's actually pending
|
19 | now.
|
20 | MR. RILL: I see. My second question, have you asked the
|
21 | Department of Justice or the FTC to invoke positive comity under the 1991
|
22 | agreement?
|
23 | MR. CALAMARO: We'll do that tomorrow. I thought we'd come |
146
1 | here first and tell you about it.
|
2 | MR. RILL: Pardon me?
|
3 | MR. CALAMARO: We'll do that tomorrow. We thought we'd come
|
4 | here first today.
|
5 | MR. RILL: I'm not advocating it. I have some interest.
|
6 | MR. CALAMARO: That was our plan.
|
7 | MR. RILL: But the agreement's been in place since '91 and was
|
8 | updated last year, and apparently has been invoked with some lack of success by
|
9 | Kodak. But on the other hand, if you looked at the testimony before Senator
|
10 | DeWine, there have been some examples of some modest progression in that area.
|
11 | If you're asking for action, why, you might want to take a look at that. And that's
|
12 | not a recommendation. That's simply a question.
|
13 | MR. CALAMARO: Mr. Chairman, that's actually what UPS is
|
14 | considering very seriously doing. But fact is that until recently it wasn't so clear
|
15 | that the Commission wasn't going to proceed on this. They could have dismissed
|
16 | it a along time ago. They could have rejected it, but they didn't.
|
17 | We think they want to do the right thing and they will do the right
|
18 | thing. So I think that, to summarize a long story, UPS has been reluctant to try to
|
19 | bring other remedies. But I think we're going to help the Commission by asking
|
20 | our government to agree to invoke positive comity.
|
21 | MR. RILL: That's all I have.
|
22 | DR. STERN: Merit.
|
23 | MS. JANOW: Well, I too would like to indicate my appreciation to |
147
1 | those speaking on this panel. As Committee members have reiterated, we have
|
2 | wanted very, very much to be hearing not only from business associations but
|
3 | individual businesses that are experiencing difficulty. So I really do appreciate
|
4 | your written and nuanced statements.
|
5 | Please take a minute to speak further on the WTO issue because
|
6 | that's a very live one also. In particular, it seems that much of the debate, at least
|
7 | between the United States and the EU, who have formally officials debate the role
|
8 | of the WTO, turn on what role for dispute settlement. And you've indicated your
|
9 | low expectations not only coming out of WTO, that has no positions on
|
10 | competition policy, but a generalized statement about WTO's fact-finding, et
|
11 | cetera, capabilities.
|
12 | I think, Steve, you weren't speaking so much to that issue of the
|
13 | WTO. But I wanted to at least ask you -- and I think maybe this is more directed
|
14 | at Chris. You suggested one shouldn't look to the WTO because it's there, but one
|
15 | often hears that it is the only inclusive body of the countries that have experience
|
16 | and don't have experience.
|
17 | So my question to you is would you feel differently about a
|
18 | continuation of a work program or deliberations on the role of competition policy
|
19 | in trade, that kind of ongoing work program within the WTO, as an educative
|
20 | function separated from dispute settlement and somehow useful to development of
|
21 | a competition culture? Or do you think unilateral measures, enhanced, are going
|
22 | to get us there?
|
23 | MR. PADILLA: Well, I think certainly we're not opposed to |
148
1 | educating developing countries about competition policy. And in fact, a number
|
2 | of the academic writers on this point have said that one of the valuable points,
|
3 | even if we get a least common denominator kind of agreement, is to bring many of
|
4 | the developing countries up to at least a bare minimum standard with regard
|
5 | perhaps to cartel- like behavior. And certainly that's a laudable goal.
|
6 | But I have to say when we look at the issue of trade and competition
|
7 | policy from the point of view of the economic interests of American companies,
|
8 | we're talking principally about Europe and Japan. I don't see that it would help
|
9 | many of us very much to spend the next five to ten years in a WTO round
|
10 | advocating a competition law for Bolivia while nothing is done about Japan.
|
11 | The problem is, in our view, Japan. We've got a positive comity
|
12 | agreement with Europe. It's had some success. You've got a DG-IV and a DOJ
|
13 | that come at this from roughly similar perspectives. In Japan you've got an
|
14 | economy that is grounded on a fundamental fear of competition. And I would
|
15 | refer you to Michael Porter's article in the current edition of Foreign Affairs,
|
16 | which I thought was very well done.
|
17 | Competition in Japan is viewed as something to be managed and
|
18 | constrained because it's harmful, it creates disorder. So the question is would a
|
19 | WTO negotiation do much to improve the situation of market access in Japan, and
|
20 | I think the answer is no, because we wouldn't get the high standards necessary to
|
21 | get at the very complex kind of barriers that Steve mentioned, and even if we got
|
22 | them, as we talked about the dispute settlement, how do you enforce it?
|
23 | So my view is we've got a clear problem here and the best answer is |
149
1 | until something else comes along a unilateral approach that involves using existing
|
2 | authorities under existing law, with some tinkering to compel the use of that
|
3 | authority a little more vigorously than it's been used in the past.
|
4 | DR. STERN: Further?
|
5 | MS. JANOW: No, I just wanted to invite anyone else to speak on
|
6 | that.
|
7 | DR. STERN: Let me follow up on the line of questioning that Jim
|
8 | was pursuing with you, Chris, about the fact finding capacity somewhere. You
|
9 | suggested the International Trade Commission and Jim was asking you about the
|
10 | Justice Department, and he was asking you what it was in terms of the capacity to
|
11 | analyze this information, was the capacity there? Yes, the capacity is there, but
|
12 | the analytic mind set was different.
|
13 | I would suggest that there may be other reasons why maybe
|
14 | subconsciously or subliminally you might be suggesting the ITC.
|
15 | MR. PADILLA: Or USTR.
|
16 | DR. STERN: Or USTR. Well, let me focus on the ITC, but then
|
17 | you can tell me how the USTR may be --
|
18 | MR. PADILLA: I put ITC first in deference to you.
|
19 | DR. STERN: Oh, I see. So, that was the reason. So that was the
|
20 | subliminal. Well, thank you. I'm flattered.
|
21 | But the ITC is nonpartisan.
|
22 | MR. PADILLA: Yes, indeed.
|
23 | DR. STERN: It is made of up of appointees who can't be removed |
150
1 | from office if somebody doesn't like the decision.
|
2 | MR. PADILLA: Right.
|
3 | DR. STERN: They may get shot in the back later, but that's
|
4 | something else. And they do have a staff of approximately 450 who do analyze
|
5 | industries from a variety of perspectives. They do have hearings.
|
6 | MR. PADILLA: Indeed.
|
7 | DR. STERN: And they have hearings which are transparent, they
|
8 | have records, and they make decisions which are published and are available so
|
9 | that one knows, and they have deadlines. Those may be other factors which are
|
10 | procedural, which might be useful cues for how the Justice Department in
|
11 | exercising its positive comity might give greater confidence to individual
|
12 | businesses such as yours.
|
13 | MR. PADILLA: Yes. I think you've hit it right on the head. And
|
14 | many businesses have experience in dealing with the ITC from a dumping point of
|
15 | view, of course, and all of those procedures are well understood, well documented.
|
16 | You make your case, you win, you lose, it's fairly clear. The standards are fairly
|
17 | clear.
|
18 | There also is in that agency, as well of course in USTR, an
|
19 | understanding of the historical nature of some of these things. When we go to the
|
20 | ITC or the trade representative and we talk about exclusive distributor agreements
|
21 | in Japan or pressure on retailers not to carry foreign products and not to discount
|
22 | them, we get nods of understanding because not only do they understand it, they've
|
23 | heard it, not only from the film people but from the glass people, the |
151
1 | semiconductor people, the auto people, or any one of a number of industries.
|
2 | Our experience, at least, and maybe we were just the victim of bad
|
3 | timing when we went to the Justice Department, was that we got: Okay, well, let's
|
4 | forget about all this other stuff. Let's break it into this one piece. Show me the
|
5 | specific harm to Kodak from sharing of disaggregated data among four other
|
6 | companies.
|
7 | Well, then you get into a highly legalistic question and you lose the
|
8 | overall picture, which is you've got four major Japanese companies sharing
|
9 | production data and also happening to control 90 percent of the market. So that's
|
10 | why we have suggested and others on the Hill have suggested that maybe we need
|
11 | to inject another view, not to take away the authority of the agencies to enforce
|
12 | competition laws, but to inject another view, and I think that's why we've
|
13 | suggested that.
|
14 | DR. STERN: What I was suggesting -- and we can have this
|
15 | discussion later; this is not a question -- was that there may be procedures that
|
16 | might be attached to existing authorities. In other words, so --
|
17 | MR. PADILLA: You may not need to do that.
|
18 | MR. RILL: I think this is one to discuss later, but the question is
|
19 | whether an investigatory proceeding or an adjudicatory proceeding should be held
|
20 | in public, and that creates a lot of controversy. I don't think many companies
|
21 | would want have a public investigatory proceeding, domestically or foreign.
|
22 | DR. STERN: But they might want more transparency in the
|
23 | outcome. |
152
1 | MR. RILL: In the outcome, absolutely.
|
2 | DR. STERN: Right.
|
3 | MR. RILL: Absolutely. Let me suggest that -- I'm not here to
|
4 | wear my old school hat, because I didn't wear it all that long, but if Justice was
|
5 | asking for the effect on Kodak, it may be because of the limitations of the Foreign
|
6 | Trade Antitrust Improvement Act, which requires a showing of direct, substantial
|
7 | and foreseeable effect on the foreign commerce of the United States.
|
8 | So they may have been bound by their statute, and I don't hear you
|
9 | saying you want to change the statute.
|
10 | MR. PADILLA: No, because I think one could look at that statute
|
11 | and interpret that a disaggregated price fixing scheme that we believe had the
|
12 | effect not only of fixing prices but of excluding price competition from Kodak, did
|
13 | impede on the foreign commerce of the United States. So I guess the question is
|
14 | who makes that interpretation?
|
15 | We certainly felt and certainly there was a Section 301 finding in
|
16 | which the Justice Department concurred, I might add, that there was an
|
17 | unreasonable burden on U.S. commerce. Yet when we got down to the specifics
|
18 | and it came down to an interpretation of did this disaggregated data scheme
|
19 | impinge on the foreign commerce, they came to a determination that they couldn't
|
20 | find it or they couldn't find enough to make a referral. And that's where we
|
21 | disagree.
|
22 | MR. RILL: Our executive director reminds me quite correctly that,
|
23 | on top of that, positive comity doesn't require each and every element of the |
153
1 | Foreign Trade Antitrust Improvement Act to be in place before we, our
|
2 | government, makes a suggestion for enforcement by another government. So I will
|
3 | retreat a little bit from my point.
|
4 | MR. PADILLA: And I should say, we went to the Justice
|
5 | Department after the WTO case had been decided, and I should think that that may
|
6 | have had an impact as well on their willingness to throw themselves into the fire
|
7 | on this one, and perhaps that's the accident of timing. We had terrible timing
|
8 | throughout this case --
|
9 | MR. RILL: Well, we can't address that.
|
10 | MR. PADILLA: -- from the first day it was filed. But perhaps,
|
11 | then, our colleagues at Guardian will have better success, and I honestly hope they
|
12 | do, because their circumstances are very similar to ours, and perhaps the recent
|
13 | agreement and the profile that the Congress has put on this will wind up with a
|
14 | better result. I hope so.
|
15 | MR. RILL: And I think the agreement may be a timing issue that,
|
16 | not specifically referring to the Guardian case, but to situations of that sort, that
|
17 | could make use of positive comity very propitiously with Japan. That's a personal
|
18 | view, not a Committee view.
|
19 | DR. STERN: Okay. Why don't we take a break and resume at
|
20 | 4:00. We're running late now. Five 'til 4:00. Five 'til 4:00.
|
21 | (Recess.)
|
22 | DR. STERN: Now, shall we begin. This is the last session of the
|
23 | day, and we are honored to have representatives talking on institution building and |
154
1 | competition law advocacy. We have professors -- no, I'm sorry. It has been a
|
2 | long day. We have no more professors. Yes, we have no professors. I suspect
|
3 | they come in and out. Ex-professors. Yes, right, revolving door. How could I
|
4 | tell? Excuse me.
|
5 | (Laughter).
|
6 | We shall hear from Richard Gordon and Mr. Khemani and Ms.
|
7 | Simmons, in that order. Would you wish to begin, Mr. Gordon?
|
8 | MR. GORDON: Sure. I'll probably be fairly brief.
|
9 | DR. STERN: Representing the International Monetary Fund.
|
10 | MR. GORDON: And particularly with respect to saying
|
11 | representing the International Monetary Fund, I represent, I suppose, only myself
|
12 | here. We have quite a thing at the Fund where you have the Fund itself, and only
|
13 | the Executive Board -- through decisions -- can speak for the Fund, and then you
|
14 | have staff opinion and that opinion has to be cleared by very many different
|
15 | departments etcetera. And then you have an individual staff member like myself
|
16 | who's giving his views.
|
17 | I'm from the legal department of the Fund, which is quite small. We
|
18 | have I think probably 26 lawyers right now. Before I get into talking about the
|
19 | specifics of the Fund's role in competition law, I might just say that over even the
|
20 | past four years, which is as long as I have been at the Fund, the requests to the
|
21 | Fund to assist, shall we say, in legal development in various countries of the world
|
22 | has grown more than exponentially.
|
23 | I think, something that can be seen most recently with the Asian |
155
1 | financial crisis, that there has been a correct perception that one of the big
|
2 | difficulties in that particular crisis was not just typical macroeconomic errors, put
|
3 | it that way -- deficit spending, for example -- and that there have been some very
|
4 | serious fundamental problems or structural problems in laws and in legal
|
5 | institutions that carry out laws. And as that, as I say, correct perception has
|
6 | developed and really been shown to be the case in Korea and Indonesia and in
|
7 | Thailand, etcetera, and I guess in Brazil as well, and certainly in Russia, the Fund
|
8 | has been called upon to play a greater role in these areas.
|
9 | The Fund has been traditionally involved in macroeconomic policy.
|
10 | As I was just saying to Professor Dunlop, the Fund is a very large collection
|
11 | primarily of macroeconomists, whose training involves macroeconomic policy and
|
12 | spreadsheets. Turning to the development of laws or the review of,
|
13 | recommendations of and development of laws and institutions to implement those
|
14 | laws, is a fairly new thing and very difficult for macroeconomists.
|
15 | If I can go back to my first statement, I think we have 25 or 26
|
16 | lawyers in our department, although we do have consultants who come in. That is
|
17 | a long way of saying that much of the specifics we do we turn over to the World
|
18 | Bank, where there are considerably more staff of a great variety of expertises and
|
19 | a very large legal department that is more used to doing this kind of more specific
|
20 | detailed work on laws and legal development and institutional development.
|
21 | That being said, let me just give a quick overview of what the Fund
|
22 | does with respect to, say, policy advice. One is that every member of the Fund -- I
|
23 | think it's now 183 or 184 countries -- goes every year, pretty much, through |
156
1 | something called the Article IV consultation. An Article IV consultation is where
|
2 | a team of economists go off to the country and they review the books, basically.
|
3 | They look at what's going on at the central bank, what's going on with respect to
|
4 | the central budgetary policy, and they come up with a report. It's the Article IV
|
5 | consultation report.
|
6 | Going back to the few number of staff, the large number of
|
7 | countries doing this every year, what can be examined in this annual review
|
8 | process for every country is pretty limited. And since they're all
|
9 | macroeconomists, pretty much who do this work, review of legal issues is
|
10 | necessarily somewhat -- I don't want to say superficial, but it is limited because of
|
11 | resources.
|
12 | The second thing that the Fund does, which is much more popular --
|
13 | in the popular imagination, is to lend money to countries, which it does under the
|
14 | rubric of conditionality. The Fund creates conditions which the country must
|
15 | fulfill before they can get their loan, in essence. Of course, the system at the
|
16 | Bank is similar, but I'll leave my colleague to describe that.
|
17 | In the area of Fund conditionality, I think that this is probably what
|
18 | most people here would be primarily concerned about. At least that has been my
|
19 | experience in speaking with people in the past on not just competition law, but in
|
20 | other areas of the law, e.g. bankruptcy law, as I was discussing earlier, where it
|
21 | seems that the Fund has some sort of cudgel that it can beat members over the
|
22 | head with and say: Only if you adopt these appropriate policies will you get
|
23 | money. And whereas certain countries can jawbone with other countries about |
157
1 | adopting appropriate policies -- the Fund can as well during this Article IV
|
2 | consultation procedure -- it is only through conditionality that there is really a
|
3 | lever, a way of influencing countries quite directly to adopt particular policies,
|
4 | including competition policies, for example.
|
5 | However, again given the limited staff and the general nature of the
|
6 | training of staff, which is macroeconomists, even in the area of Fund
|
7 | conditionality, there is a limited amount that the Fund can do with respect to
|
8 | something as complex as competition law.
|
9 | Now, if you look at competition policy broadly defined, which
|
10 | would be looking at sort of broad-based macroeconomic structural changes such
|
11 | as free trade, privatization, to a certain extent foreign direct investment --
|
12 | although the Fund's Articles limit its conditionality with respect to foreign direct
|
13 | investment, in that freedom to impose capital controls is a right guaranteed by the
|
14 | Fund's Articles - - the Fund has traditionally played quite a role.
|
15 | But in recent times where aspects such as the enactment of a
|
16 | appropriate antitrust or competition law become more and more important, it
|
17 | would be very difficult for the Fund to design with any kind of great detail
|
18 | policies with respect to something like competition law. It is really not something
|
19 | that the Fund has had a tremendous amount of experience with, although it is one
|
20 | of many things that countries are interested in, that the Fund's shareholders are
|
21 | interested in, of which the U.S. is the largest and most influential.
|
22 | The U.S. has recently, in the latest amendments to the Bretton
|
23 | Woods Act, that provides for the most recent increase in the U.S. quota to the |
158
1 | Fund, listed a number of areas that the U.S. Congress was interested in the Fund
|
2 | becoming increasingly involved in with respect to conditionality. Again,
|
3 | bankruptcy I think was the most prominent. But it's very difficult for the Fund to
|
4 | be involved in any great detail.
|
5 | Now, I would step back, and I'll speak for only two more minutes.
|
6 | Prior to coming to the Fund, I was at Harvard Law School and I had worked with
|
7 | the Harvard Institute for International Development in working on a competition
|
8 | law for a particular country whose name I will not mention, with a broad group of
|
9 | consultants. Over the years we had, I think, perhaps 11 or 12 people working on
|
10 | this.
|
11 | I spent the better part of four summers and some other times in
|
12 | Jakarta, getting to know the language, the laws, pretty much everything, and to
|
13 | draft a competition law for a large country that had a complex, shall we say, legal
|
14 | and social environment was extremely difficult.
|
15 | In fact, one of the things we were most concerned about was that we
|
16 | would create a law that would be actually be used to suppress competition or
|
17 | against a particular dominant cultural or religious minority, and that became a
|
18 | very difficult thing. But we had lots of staff, lots of time, lots of expertise.
|
19 | Later on there was a condition, I think probably appropriate, in the
|
20 | Fund-supported program for this country that involved the adoption of an
|
21 | appropriate competition law. I think that was relying on the general view that a
|
22 | competition law was needed.
|
23 | Frankly, I think that there was some word from some of the |
159
1 | shareholders at the Fund that there were political constituencies that were very
|
2 | interested in a competition law. And finally, our colleagues at the World Bank,
|
3 | who had greater specific expertise in this area, wanted to play a role with the Fund
|
4 | in designing the conditions. And eventually a competition law was adopted, and I
|
5 | hope it was an appropriate one.
|
6 | But that's just a brief overview. I hope I haven't said so much that I
|
7 | will get in trouble with my management. Let me turn it over to my colleague from
|
8 | the Bank.
|
9 | MR. KHEMANI: Thank you.
|
10 | Like my colleague, I speak in my personal capacity. However, my
|
11 | lead responsibility in the World Bank is related to private sector development and
|
12 | of that competition law policy and competitiveness policies is one of the
|
13 | cornerstones. So while I'm speaking in my personal capacity, with all modesty I
|
14 | can say that the approach that I'm going to describe is basically the approach that
|
15 | the World Bank Group has taken into account as part of its policies.
|
16 | Let me just backstep a bit and remind people that the objective or
|
17 | the primary goals of the World Bank are poverty reduction and sustainable
|
18 | economic development. What our experience over the last few decades has shown
|
19 | is that private sector-led economic growth is much more sustainable, much more
|
20 | rapid, than when you have the public sector playing the lead role in an economy.
|
21 | And indeed the events of the 1990's has proven that to be the case even more so.
|
22 | The Bank likes to identify sets of policies as first and second
|
23 | generation. The first generation policies relate to macroeconomic policies, fiscal |
160
1 | and monetary along with the IMF, but also trade and investment liberalization.
|
2 | But the second generation of policies now relate to the way more
|
3 | markets work, and competition and regulatory policies in particular. Now, in the
|
4 | Bank/Fund division of labor, the Bank does take lead responsibility in the area of
|
5 | competition law-policy, but also in a number of other related areas, including
|
6 | bankruptcy and corporate governance as well, though the Fund has recently done
|
7 | some very commendable work in that area in the context of fostering economic
|
8 | restructuring in economies that are financially dispaired.
|
9 | The Bank is a bank. Many times people tend to forget that the Bank
|
10 | is a bank. They think that it's a foundation, a university, a grant-giving authority.
|
11 | But actually the Bank is a bank and it makes loans. Indeed, most of our income
|
12 | and our sustenance as an institution come from the interest income that we earn
|
13 | from our loans.
|
14 | However, we attach conditionalities to those loans and sometimes
|
15 | the conditionalities relate to the provision of structural assistance. So like any
|
16 | other good banker, if you're making a loan to a corporation you might want to
|
17 | have either a seat on the board of that corporation or you may want to have an
|
18 | oversight committee to see that that corporation is using the funds appropriately.
|
19 | That's our analogy or parallel with respect to the conditionalities that are put in.
|
20 | We do not have an Article IV country-by-country review like the
|
21 | IMF, but we are now are embarking upon what is called a Comprehensive
|
22 | Development Framework, where we will be systematically assessing the market,
|
23 | but also other elements of the development framework that an economy has, and |
161
1 | help those countries to try to formulate a strategy. And of those, the area of
|
2 | market support institutions and competition law-policy are very critical elements.
|
3 | Well, our approach to competition law-policy. Well, firstly we
|
4 | view that as a framework policy. Increasingly we are arguing that it should be
|
5 | viewed as the fourth cornerstone of government framework policies, the other
|
6 | three cornerstones being monetary, fiscal, and trade, and so competition should be
|
7 | viewed as the fourth cornerstone.
|
8 | We think that a competition law-policy should be one where it's a
|
9 | general law or general policy of general application which applies to state
|
10 | enterprises as well as to the private sector. Hence, the submission that UPS made
|
11 | earlier regarding to, albeit in Germany rather than in a developing country, about
|
12 | state enterprises using their position to undermine competition is very relevant to
|
13 | the work that we do in developing countries in the context of competition law-
|
14 | policy.
|
15 | The objective there is, of course, to foster mobility of resources.
|
16 | We believe that competition would lead to more flexible, adaptable dynamic
|
17 | markets. I think the proof of the pudding is somewhat evident from the East Asian
|
18 | crisis. Economies which have had more flexible and open markets have tended to
|
19 | fare much better in their recent economic crises than those that have had fairly
|
20 | closed or restrictive types of business arrangements.
|
21 | Hong Kong, Singapore, Taiwan, for example -- being flexible, open
|
22 | economies where they foster a lot of competition in their domestic markets -- have
|
23 | fared much better than Thailand, Indonesia, or Korea and, indeed, Japan, though |
162
1 | that's not one of our crisis countries, as such.
|
2 | However, I want to point out that one can have competition and
|
3 | competitive markets without having a competition law. Passing a competition law
|
4 | does not necessarily guarantee competition. However, what we do find is that
|
5 | those economies that are evolving and fostering more competitive markets, we try
|
6 | to remind them that having a competition law safeguards the competitive process.
|
7 | And of the flexible economies that I just mentioned, Hong Kong and
|
8 | Singapore, for example, do not have any competition laws. Of course in the
|
9 | English common law tradition, they do have various clauses that can get at
|
10 | competition problems. Taiwan has an effective and very vigorously applied
|
11 | competition law. What is interesting is that, oh, about six or eight weeks ago the
|
12 | Herald Tribune carried an article about the financial-industrial complexes that are
|
13 | emerging in Hong Kong and are engaging in various kinds of restrictive practices,
|
14 | particularly in the areas of non-tradables. So when you're in industrial
|
15 | development and you don't have access to capital but are competing with an
|
16 | integrated financial industrial company, you find that you're at a disadvantage.
|
17 | So, hence, the Hong Kong Consumer Council has been advocating a competition
|
18 | law for that jurisdiction.
|
19 | Again, to prove the point that by having a competition law does not
|
20 | necessarily guarantee competition, one has only to look at Latin America. Indeed,
|
21 | many of the Latin American countries have an à la Sherman Act type provision
|
22 | embodied in their national constitutions and have had so since the turn of the
|
23 | century. But only recently have they started embracing competition policy in a |
163
1 | more serious way.
|
2 | Well, the objectives of the competition law policy that we try to
|
3 | foster is that it should be an efficiency, consumer welfare oriented law, mainly on
|
4 | the argument that, even though many developing economies have to balance a wide
|
5 | range of socio-economic-political issues, we feel that it's not that those socio-
|
6 | political issues are not important, but that it's better to have those issues
|
7 | addressed by separate instruments and to have competition law address, primarily,
|
8 | issues of market efficiency and consumer welfare.
|
9 | So if one is interested in regional development or maintaining
|
10 | employment, enact separate policies, have separate instruments, rather than have a
|
11 | competition agency pursue -- like many industrial jurisdictions -- the UK, the
|
12 | European Union in particular -- which pursue a public benefit or public interest
|
13 | approach. And that often requires a balancing of various objectives which often
|
14 | lead to inconsistencies in policy application or lead to other types of conflicts.
|
15 | Most of the laws that we have actually worked on are sort of
|
16 | mainstream laws which have provisions dealing with structure, namely those of
|
17 | abuse of dominant market position, monopolization or monopoly, as well as
|
18 | mergers and acquisitions. And then of course they have conduct-oriented
|
19 | provisions dealing with price fixing, various kinds of anticompetitive practices
|
20 | that emanate, like exclusive dealing, et cetera.
|
21 | We recognize that the institutional capacity, in terms of the way the
|
22 | institutions are structured but also the way they're staffed, is a major challenge
|
23 | for many developing countries. And it's going to take them quite a while before |
164
1 | they can achieve the level of competence and sophistication that effective
|
2 | implementation of competition law requires.
|
3 | We're also dealing with economies where competition is not
|
4 | necessarily widely understood or there's no popular support for competition. So
|
5 | we generally try to suggest that the new agencies or government ministries or
|
6 | parliamentarians who are trying to push forward this type of agenda engage a lot
|
7 | on what we call competition advocacy. Particularly in educating the general
|
8 | population about the merits of competition, the fact that competition is not
|
9 | something that is culturally alien.
|
10 | Indeed, many times in many economies we hear the argument, well,
|
11 | this is an à la western industrial developed country approach. It is culturally alien
|
12 | to us. For example, in Indonesia some of the senior ministers that I met would
|
13 | say, "We are not a litigious society; we are a consensus-oriented society, a
|
14 | cooperative society."
|
15 | Well, since I'm speaking in my personal capacity I can just say that
|
16 | most of this is really excuses for corruption and bribery and hiding or maintaining
|
17 | their rents. I do not know of any cultures, and having grown up in five continents
|
18 | and then traveled in I don't know how many countries throughout my life before
|
19 | even joining the World Bank, I don't know of any culture which says that engaging
|
20 | in price fixing, monopolization, et cetera, is to be looked upon favorably.
|
21 | Whether it is Judaism or Christianity or Buddhism or any kind of religious
|
22 | following, I do not know of anybody saying monopolistic exploitation is good.
|
23 | So that gets me to: How do we then try to foster this kind of |
165
1 | understanding? Well, one of the arguments that I've increasingly been adopting is:
|
2 | Why not just have competition in your domestic market to start off with? When
|
3 | one looks at the evolution of U.S. or Canadian or most industrial country
|
4 | competition laws, this was in an era before international trade was really taking
|
5 | place extensively. It was the fostering, maintenance and encouragement of
|
6 | competition in the domestic market which was the focal point of most antitrust
|
7 | enforcement.
|
8 | So the argument that I advance is: Just foster competition in your
|
9 | own market. Give your own young people -- the young Indonesians, the young
|
10 | Thais -- an ability to participate in the market, to be able to benefit from their own
|
11 | entrepreneurship and risk-taking. Why would you want to erect various kinds of
|
12 | barriers on the argument this is a western industrial development country ideology
|
13 | and we don't need to apply it over here, or that we are such a cooperative society,
|
14 | don't worry, big brother will look after you, which doesn't happen to be the case.
|
15 | The critical area of the interface between competition law policy
|
16 | and other government policies certainly lies in the area of trade and investment
|
17 | policy. For example in Korea. Notwithstanding the fact that Korea did have prior
|
18 | to the crisis low tariff rates and allegedly open policies of various kinds, when one
|
19 | did a detailed analysis one found that there were various non-tariff barriers to
|
20 | trade. But in addition to that, there were various investment restrictions. So it
|
21 | made barriers to entry very high for new investors to come in.
|
22 | During the crisis, of course, there was a change of regime and Kim
|
23 | Dae Jung understood and appreciated the merits of fostering a more open and truly |
166
1 | effective competitive market environment, and one can see that the Korean
|
2 | economy is reviving much more rapidly than many of the other economies.
|
3 | The other area of interface between competition law policy is in the
|
4 | area of regulatory reforms, especially privatization of utilities, power, telecom,
|
5 | water, sanitation. This also very much fosters market development. When one
|
6 | looks at the market capitalization of many of the newly emerging capital markets,
|
7 | one finds that more than 50, 60, even as high as 70 percent of the total market
|
8 | capitalization lies in newly privatized utilities and telephone companies, et cetera.
|
9 | So this is a way of widening ownership in an economy, and also
|
10 | fostering capital market development. Of course, this also means that one has to
|
11 | have an effective regulatory framework in place, one which fosters competition.
|
12 | And indeed the developments in industrial organization theory and in technology
|
13 | make this much more possible, that the old arguments for having natural
|
14 | monopolies and having the heavy-hand-of-government ownership or regulation
|
15 | become less tenable these days.
|
16 | In our work on competition law policy, we face a number of
|
17 | challenges. Notwithstanding the fact that my colleague thinks that in the World
|
18 | Bank we have many more resources, I would like to point out that my unit consists
|
19 | of 12 people. And there are only 2 of us who have actually had hands-on
|
20 | experience in competition law-policy, having worked in antitrust agencies or have
|
21 | done consulting and advisory work in that area.
|
22 | In the past six years that I've been at the Bank, we have been
|
23 | involved in more than 20 countries in actually helping them draft and develop |
167
1 | competition laws. Many times we do look to U.S.A.I.D. funding, but I must
|
2 | confess that we have not be been able to find a focal point in U.S.A.I.D. on
|
3 | competition law.
|
4 | MS. SIMMONS: Here's my card.
|
5 | MR. KHEMANI: Maybe today when I meet Ms. Simmons I will
|
6 | now have a number to call on. So that is -- we try to do bilateral twining
|
7 | arrangements with the Germans, we try to do that with the Canadians, the
|
8 | Australians and whoever we can, including Harvard University.
|
9 | But it is an uphill battle. And resources are constrained. And the
|
10 | only way one can foster this policy, which I think is ultimately -- notwithstanding
|
11 | what the gentleman from Kodak said earlier, that he did not see this as being high
|
12 | priority on their agenda, that really Europe and Japan were their issue, I think
|
13 | that's a very myopic opinion. Because if you don't address these issues in the
|
14 | context of China and India, for example, then you're denying yourself access to
|
15 | major, huge markets.
|
16 | And indeed, this kind of argument I heard from Ford Motor
|
17 | Corporation when I was advising them on their Ford 2000 initiative. Subsequently
|
18 | they changed that, because they found a tremendous potential for U.S. trade and
|
19 | investment. And I'm not a proponent for U.S. trade and investment, but I think
|
20 | that by adopting competition law-policy one is fostering greater accountability,
|
21 | transparency, and also promoting market access.
|
22 | So competition, trade and investment really go hand in hand. Thank
|
23 | you. |
168
1 | MS. SIMMONS: Thank you. I too am pleased to have been asked
|
2 | to join this hearing of the International Competition Policy Advisory Committee,
|
3 | and I'd like to speak about the U.S. Agency for International Development. I'm
|
4 | going to call it "USAID," which is kind of the acronym that we use to make "U.S.
|
5 | Agency for International Development" slightly less of a mouthful.
|
6 | So USAID, or U.S.A.I.D., is in fact the bilateral agency which
|
7 | provides U.S. government assistance to developing countries and transitional
|
8 | countries. We now have operations in slightly over 70 countries around the world.
|
9 | We are principally a grant-making organization, that is that the resources that we
|
10 | expend in partnership with universities, with private sector business companies
|
11 | and so forth, are made on a grant basis.
|
12 | I'd like to address four points in my brief remarks and I think they
|
13 | respond to the Committee's questions that were asked in the letter, but simplify it
|
14 | slightly. And I'd be glad to answer any follow-up questions either now or after the
|
15 | hearing if you'd like.
|
16 | But I'd like to address: first, how support for developing
|
17 | competition policy and law relates to U.S.A.I.D.'s strategic goals and objectives;
|
18 | second, how U.S.A.I.D. makes its specific decisions to provide support to the
|
19 | development of competition policy and law; third, what have been the impacts of
|
20 | this assistance so far; and fourth, some of the future activities that are envisioned
|
21 | by our agency.
|
22 | Returning to the first point, how competition policy relates to
|
23 | U.S.A.I.D.'s strategic goals and objectives: Obviously, as an independent agency |
169
1 | of the U.S. Government these days, we are bound by the rules of GPRA, as is, I'm
|
2 | sure, the Department of Justice. And we have identified our six strategic goals
|
3 | and committed ourselves to their pursuit through the expenditure of both financial
|
4 | resources and personnel resources.
|
5 | The six goals are: the promotion of broad-based, sustainable
|
6 | economic growth in developing and transitional countries; the strengthening of
|
7 | democracy and good governance; the development of human capacity through
|
8 | education and training; the stabilization of world population and protection of
|
9 | human health; the protection of the world's environment for long-term
|
10 | sustainability; and saving lives in the event of natural and man-made disasters.
|
11 | Clearly, it is the first of these goals that I'm going to address. The
|
12 | agency as a whole is principally organized across geographic lines. However, The
|
13 | Global Bureau (in which the Center that I direct, the Center for Economic Growth
|
14 | and Agricultural Development is located) is organized in a way which reflects the
|
15 | goals of the agency.
|
16 | We have prepared a strategic plan which says that one of the keys to
|
17 | such broad- based sustainable economic growth is a policy environment that
|
18 | promotes efficiency and economic opportunities for all members of society. To
|
19 | us, this kind of policy environment is one that is market-oriented and open to
|
20 | external investment. It is also one in which there is a rule of law, substantial
|
21 | transparency in both public and private transactions, and the governors are
|
22 | accountable to the governed for decisions made on their behalf.
|
23 | So competition policy is clearly one element of the kind of policy |
170
1 | environment that we seek to promote. Competitive private markets are the most
|
2 | efficient way that we know of to protect both producers and consumers' rights, and
|
3 | the establishment and growth of competitive, successful enterprises is the best
|
4 | way that we know to ensure sustainable increases in economic opportunity.
|
5 | So it is no surprise that U.S.A.I.D.'s programs and activities
|
6 | frequently support policy, legal, and, I would emphasize, institutional reforms
|
7 | focused on removing the impediments to the expansion of competitive trade and
|
8 | investment as well as in the strengthening of the private sector.
|
9 | The kinds of activities that we support range from short term
|
10 | technical assistance -- in which, for example, American legal experts work as
|
11 | consultants to a host country counterpart to draft new laws for a period of two
|
12 | weeks, three weeks -- to something which we call training and capacity building,
|
13 | which may be implemented over a period of months or years to enable local
|
14 | experts to acquire the specific expertise that they themselves need to develop local
|
15 | policies and laws, perhaps along the lines that Richard Gordon was remarking
|
16 | about in Indonesia. And then, thirdly, we support more complex programs in
|
17 | which we try to address a range of issues and utilize a range of advisors with
|
18 | different backgrounds and expertise. In these programs, policy development,
|
19 | training, analysis, institutional development, legal and regulatory work are carried
|
20 | out by a mix of individual consultants, institutional consultants, other experts
|
21 | from the U.S. government, and so forth.
|
22 | With that background, then, how do we in U.S.A.I.D. decide to
|
23 | support such policy and legal reform activities, particularly with regard to |
171
1 | competition policy? We who work in U.S.A.I.D.'s Washington offices do some
|
2 | program development and management. But the most important program
|
3 | development work in all areas is done in partnership with people in developing or
|
4 | transitional countries in which the agency has resident offices, which we call
|
5 | missions, which is very unlike the World Bank, in which temporary touring groups
|
6 | of macroeconomists are called missions. We call our permanent groups in
|
7 | countries missions.
|
8 | Similarly, unlike the IMF and the World Bank, most of our program
|
9 | staff in fact is resident overseas, not in Washington, which explains why it's
|
10 | difficult often to find the point of contact in Washington for specific activities. In
|
11 | general, USAID's programming decisions are made at the country level, taking
|
12 | into the account the overall strategic goals of the agency and even larger foreign
|
13 | policy considerations, but specifically taking into account the particular situation
|
14 | in that country at that time.
|
15 | Strategic plans for the provision of U.S.A.I.D. assistance are
|
16 | prepared every three to five years for every country in which we have a mission
|
17 | and generally involve five factors: extensive consultation with the government of
|
18 | the host country; extensive consultation with various stakeholder groups in the
|
19 | country, including the private sector; sector or problem-specific analysis;
|
20 | discussion with other donors; and discussion with American groups both in that
|
21 | country and in the U.S. who may be interested in that country, for example, the
|
22 | large group of Armenian-Americans who are very concerned about what happens
|
23 | in Armenia. |
172
1 | Of the approximately 70 country assistance programs that
|
2 | U.S.A.I.D. manages, nearly 100 percent have identified the development of
|
3 | competitive markets, the privatization of state enterprises, or other areas of
|
4 | economic growth as a strategic objective for that country assistance program.
|
5 | And fully half of these programs have also identified legal and institutional reform
|
6 | as an important element of their program to meet the strategic objective they've
|
7 | identified. Of these legal and institutional reform programs, approximately half
|
8 | have specifically noted increasing competition as an important expected outcome
|
9 | of the legal reform programs that are being supported.
|
10 | Over the last few years, we estimate that U.S.A.I.D. has invested
|
11 | about $80 million a year in grants in providing support for legal and institution
|
12 | reform in developing countries.
|
13 | Examples of USAID mission programs supporting the development
|
14 | of competition policy, law, and related institutions are perhaps the easiest to find
|
15 | in Eastern Europe and the former Soviet Union as, prior to the collapse of the
|
16 | Soviet Union, competition simply wasn't an issue. They didn't have it, so
|
17 | therefore there wasn't any law to deal with it.
|
18 | These programs illustrate well, though, I think, how U.S.A.I.D.
|
19 | responds to local requests and the local situation with fairly complex sets of
|
20 | activities. Since I personally spent '95, '96, and most of '97 in Russia working on
|
21 | the program there, I would like to use an example from that country to illustrate
|
22 | how, in fact, we tried to provide support broadly to legal and institutional reform
|
23 | within the context of economic growth and the conversion of the economy from a |
173
1 | state-owned, state-directed economy into a market economy, and specifically
|
2 | within that, some of the areas of competition policy, law, and institutional
|
3 | development that we supported.
|
4 | The stated commitments of the governments of both Russia and
|
5 | Ukraine, (although I'm just going to just deal with Russia in the interests of time
|
6 | today) to convert their directed, state-owned economies into market economies led
|
7 | us and U.S.A.I.D. missions in these countries to develop a range of activities that
|
8 | could establish the building blocks for a privately owned and managed market
|
9 | economy as quickly as possible.
|
10 | So in Russia, for example, we supported the privatization and often
|
11 | the breakup of state-owned enterprises, the development of competitive private
|
12 | business and financial sectors, and the establishment of a rule of law essential for
|
13 | markets and private enterprises to function.
|
14 | Competition policy or antimonopoly policy and its implementation
|
15 | were an important element of these programs. Our U.S.A.I.D. mission in Russia
|
16 | worked with a range of government institutions in a number of sectors to define
|
17 | areas where technical assistance, training, and sustained support could develop
|
18 | public sector entities that would regulate, rather than own and operate, the
|
19 | economy. The magnitude of this sort of change should not be underestimated.
|
20 | Support to the Ministry of Economy and the Antimonopoly
|
21 | Committee resulted in the skills needed to draft and lobby for a Law on Natural
|
22 | Monopoly, which passed the Duma and became law in 1995. The major
|
23 | significance of this law was that it narrowed the range of legitimate state |
174
1 | intervention in the regulation and control of prices over the enterprise sector of the
|
2 | economy for the very first time.
|
3 | So as a result of that law, in the power distribution sector, it was
|
4 | considered to be okay to fix prices and control them; bakeries, no. Prior to that
|
5 | time, every single loaf of bread had a fixed price.
|
6 | This work complemented and accelerated the completion of the
|
7 | privatization process for many industries which had previously been state
|
8 | monopolies. Sometimes progress was made by preventing the enactment of laws.
|
9 | In 1995, for example, we funded a two-week seminar for policymakers and others
|
10 | which focused on a draft price control law which was then under control in the
|
11 | Duma. The seminar illuminated the costs of such anticompetitive action for
|
12 | specific parties and the economy. And the results of the workshop were so
|
13 | persuasive that the bill's authors did not go forward with the anticipated
|
14 | legislation: action through inaction.
|
15 | U.S.A.I.D. also supported efforts in a program on natural
|
16 | monopolies carried out by IRIS, which is a think tank-consulting group at the
|
17 | University of Maryland, between 1995 and 1997 documented, quantified and
|
18 | analyzed the efficiencies and inefficiencies and the financial management
|
19 | misconduct in the railroad sector. This was communicated officially. We actually
|
20 | told the Russians this.
|
21 | While U.S.A.I.D. did not provide major support to the government
|
22 | to implement these proposed reforms, this analysis had a substantial influence on
|
23 | efforts in 1996 and 1997 by First Deputy Prime Minister Boris Nemtsov in his |
175
1 | role as head of the reform Commission on Competition. He set performance
|
2 | targets for and began restructuring of the railway sector based upon these
|
3 | analyses provided by IRIS.
|
4 | Support to various organizations in the energy sector was launched
|
5 | in 1994. It began the painstaking process of moving that entire sector onto a
|
6 | market-based footing with competition rather than monopoly characterizing the
|
7 | generation and distribution subsectors. U.S.A.I.D. helped the Federal Energy
|
8 | Commission to set up shop as independent regulatory authority with responsibility
|
9 | both for electric power and gas pipelines.
|
10 | Long-term contracts with consulting firms, U.S. universities, short-
|
11 | term and long-term training mechanisms, partnership grants with the U.S. Energy
|
12 | Association, and other kinds of interventions, including that of our own technical
|
13 | personnel, were used to increase Russians' awareness of the options available to
|
14 | them in reforming the energy sector and, not coincidentally, to open it up to
|
15 | foreign investment.
|
16 | Unlike the World Bank, we in fact can promote U.S. investment.
|
17 | We are a bilateral agency.
|
18 | Initially, U.S.A.I.D. advisors contributed to drafting the federal
|
19 | commission's charter, regulations and procedures, and in 1996 and 1997 similar
|
20 | technical assistance and training was extended to several of the regional energy
|
21 | commissions which had ratemaking and regulatory access responsibility over the
|
22 | local energo's.
|
23 | Reportedly, progress in institutionalization of the Federal Energy |
176
1 | Commission and a number of the regional energy commissions has progressed to
|
2 | the point that, when the Primakov government at the end of December 1998,
|
3 | January 1999, attempted to abolish these agencies, it failed.
|
4 | The plan was to turn their functions over to a communist-led
|
5 | Ministry of Antimonopoly Policy, certainly an oxymoron, and it failed. The effort
|
6 | failed in part because, with U.S.A.I.D. technical assistance, the Federal Energy
|
7 | Commission and regional commissions had established themselves as credible
|
8 | regulators whose demise would have represented a real loss of that expertise and
|
9 | transparency to the economy.
|
10 | I could go on with more examples from Ukraine, but again in the
|
11 | interests of time, I will not. But I do want to share with you an example from
|
12 | Sub-Saharan Africa, where we now have a research activity under way which is
|
13 | analyzing the appropriateness of western-style competition law for the economies
|
14 | of Sub-Saharan Africa. The region-wide study, which is at this point being
|
15 | carried out on a case study basis in Madagascar, Senegal, and Benin, attempts to
|
16 | assess empirically the relative importance of various anticompetitive features of
|
17 | each economy.
|
18 | This will permit testing of the hypothesis that restrictive business
|
19 | practices adopted by private sector actors, which are the issues most often
|
20 | addressed by western-style antitrust laws, may actually be relatively
|
21 | inconsequential in Africa when they're compared to the barriers to entry and
|
22 | growth stemming from the lack of market-augmenting laws and institutions. The
|
23 | findings of this analysis should help to define priorities for U.S.A.I.D. assistance |
177
1 | in supporting legal and institutional activities to enhance trade and investment
|
2 | opportunities in the region.
|
3 | One might in fact generalize that U.S.A.I.D.'s competition policy
|
4 | work emerges from its general assistance strategies and programs, that it
|
5 | complements a variety of private sector development initiatives. And it tends to
|
6 | focus on legal and institutional changes to modernize, harmonize, standardize, and
|
7 | regularize competitive business environments in developing and transitional
|
8 | countries.
|
9 | But I should also note that USAID responds to requests for support
|
10 | on a limited basis in what we call our "non-presence countries," that is, the
|
11 | countries which are not yet considered to be developed, but in which we do not
|
12 | have a mission. In 1996, for example, the Department of Justice and the Federal
|
13 | Trade Commission approached us with a proposal to provide assistance to
|
14 | Argentina and Brazil. The DOJ and FTC presented a convincing case for support
|
15 | by arguing that competition policy assistance in these countries would have a
|
16 | demonstration effect, and would create pressure for smaller economies in the
|
17 | region to take steps toward bringing their policies into line with the Mercosur
|
18 | protocol.
|
19 | To accomplish this, we utilized something which some of you may
|
20 | be familiar with but others may not, called the 632A and 632B mechanisms.
|
21 | These mechanisms permit U.S.A.I.D. to enter into an interagency agreement with
|
22 | other U.S. Government agencies and departments and enable them to manage the
|
23 | technical assistance process, either with their own staff or with hired consultants. |
178
1 | Both the Latin American and Eastern Europe-New Independent
|
2 | States Bureaus have frequently used such mechanisms with DOJ and the FTC to
|
3 | support technical assistance and training activities relating to competition policy,
|
4 | law, and institutional development.
|
5 | Just briefly, let me outline some examples of the impacts which
|
6 | we've had. I will not talk about Indonesia, where in fact we've had a long program
|
7 | of support to competition policy, which until the financial crisis really set in, had
|
8 | been very hard sledding, I think you will agree, but where we have found a
|
9 | renewed interest in, in fact, installing competition policy and elaborating it in
|
10 | areas of the government action which had previously been.
|
11 | But let me give an example from Nepal and another one from
|
12 | Morocco, just to show how U.S.A.I.D.'s commitment to this effort has been
|
13 | longstanding, and in fact our approach permits us to take a gradual approach to
|
14 | developing the kind of local expertise which we feel is fundamentally the basis for
|
15 | the government or the country itself being able to undertake, to articulate, and to
|
16 | regulate and to implement competition policy and competitive practices.
|
17 | In Nepal, in the early 1990s, U.S.A.I.D. provided technical
|
18 | assistance and channeled support for a wide array of reform activities under
|
19 | something called the Economic Liberalization Project. There have already been
|
20 | several accomplishments in the area of competition policy, but they were
|
21 | implemented in a sequential fashion. A first step assisted the government to
|
22 | analyze the domestic airline industry and carry out its deregulation. And this has
|
23 | already increased competition sharply. |
179
1 | Follow-on activities helped the government to deregulate the
|
2 | petroleum industry and to eliminate fertilizer subsidies. A consumer protection
|
3 | law and a new streamlined business registration policy were the next targets. The
|
4 | latter reduced the time necessary to register a new business from as much as three
|
5 | years to a few days, and resulted in the substantial creation of small enterprises.
|
6 | Finally, U.S.A.I.D. support facilitated privatization of a number of
|
7 | firms as well as the design and finance of a next round of privatization which will
|
8 | include the national dairy company and some public utilities. So it's been a
|
9 | gradual process across sectors with sort of step-by-step progression to an
|
10 | increasing influence of competition in the economy.
|
11 | In Morocco the story is similar. We began in 1992 when the
|
12 | Ministry of Economic Incentives of the Government of Morocco requested our
|
13 | assistance for its initiative to draft, enact, and implement a competition law. A
|
14 | team from the Harvard Institute for International Development, funded by us,
|
15 | analyzed the legal and economic environment for competition policy, reviewed the
|
16 | existing draft statute, made recommendations for amendments, and outlined a
|
17 | strategy for the development of an implementation agency.
|
18 | The team also identified a number of existing public and private
|
19 | restraints on competition. Private restraints ranged from agreements to fix prices
|
20 | and share markets to tying sales and mergers to dominant inter-monopoly market
|
21 | positions. Public restraints included price regulations, licensing requirements,
|
22 | and provisions in a variety of peripheral laws, such as the labor code.
|
23 | In September 1995 a team from IRIS -- again, the University of |
180
1 | Maryland -- had extensive discussions with counterparts in the same Ministry, on
|
2 | a draft law that reflected many of the earlier recommendations. After a one-day
|
3 | seminar in Rabat in November of 1995, it was determined to go ahead.
|
4 | This year, 1999, four years later, the government of Morocco
|
5 | finally enacted a law which will serve as the driving force for competition and
|
6 | protection of the consumer. Development of the law involved all ministries,
|
7 | professional chambers, private sector representatives and universities. The
|
8 | orientation of this legislation complies with the government's commitment in
|
9 | international treaties and agreements, the free trade zone agreement with the EU,
|
10 | UNCTAD agreements on restrictive business practices, and the WTO agreements
|
11 | on transparency, competition, and nondiscrimination. We feel this is an important
|
12 | advance for that country.
|
13 | To generalize, the impacts of assistance depends very much on the
|
14 | country's own initiatives and complementary actions. USAID can help to draft
|
15 | competition policy; we can't apply it. Our consultants can help to draft laws and
|
16 | promote discussion of them; they don't pass them.
|
17 | Our technical assistance and training teams can help to develop the
|
18 | local human capacity, design organizational structures such as regulatory
|
19 | commissions, and even equip them with databases, communications equipment,
|
20 | and the like, and we do. But when the U.S.A.I.D.-funded teams go home, it is up
|
21 | to the local government to make the new structures work.
|
22 | What are we looking at in the future of competition policy? As I
|
23 | said before, approximately a quarter of our missions right now are undertaking |
181
1 | some activity in the area of promoting competition policy, and about half are
|
2 | doing broader legal and institutional reforms. As long as our commitment to
|
3 | achieving our strategic goal of promoting broad-based sustainable economic
|
4 | growth in developing and transitional countries remains firm, and we receive
|
5 | funds, it is likely that USAID will continue to include this kind of support in its
|
6 | portfolio.
|
7 | We are looking to develop more tools, such as tools that we've
|
8 | called "Investors' Roadmaps" and "Commercial Policy Tool Kits," which enable
|
9 | countries themselves to apply somewhat of a checklist principle to their own
|
10 | environments, undertake the analysis empirically themselves to determine where it
|
11 | is that there is restraint of trade, and where it is that increased competition would
|
12 | improve the situation.
|
13 | We are also looking at coordination with others. Coordination with
|
14 | the Department of Justice and the Federal Trade Commission has already been
|
15 | mentioned. We also cooperate very closely with the State Department in terms of
|
16 | their legal reform program. We expect this to continue.
|
17 | We also coordinate closely with multilateral organizations such as
|
18 | IBRD and FIAS in helping to prioritize, shape, and inform the agenda. USAID
|
19 | and FIAS, for example, jointly sponsor the development and application of this
|
20 | one tool that we've found very helpful in more than 20 countries, so far, called the
|
21 | "Investors' Roadmap," because application of this diagnostic tool has led to the
|
22 | adoption of several reforms which have already helped to reduce corruption and
|
23 | reduce anticompetitive behaviors. |
182
1 | Finally, as noted, the majority of our legal and institutional reform
|
2 | activities are undertaken with private sector or university contractors: IRIS; the
|
3 | Harvard Institute for International Development; a number of other individuals
|
4 | from other universities. These have been very, very loyal partners in this effort.
|
5 | We are also looking to work increasingly with NGO's and PVO's
|
6 | such as the International Development Law Institute, currently based in Rome,
|
7 | which trains developing country lawyers in competition policy.
|
8 | Then, finally, we work with the regional development banks who
|
9 | have some interest in this area.
|
10 | We are looking in the future to focusing a bit more on Africa,
|
11 | because Africa is currently undergoing a major political and economic transition,
|
12 | the outcome of which we feel will be very important to the future interests of the
|
13 | U.S. The Africa trade and investment policy program is a major component of
|
14 | USAID's implementation of President Clinton's Partnership for Economic Growth
|
15 | and Opportunity in Africa.
|
16 | This program, like others, provides training, technical assistance,
|
17 | and consulting advice to countries in Africa. Funded in 1998 at an initial level of
|
18 | $5 million, in 1999 and FY 2000 we plan to spend about $30 million a year in
|
19 | support of this Africa trade and investment initiative. So within this pot of
|
20 | funding, there should be a substantial amount of resources available for African
|
21 | countries wishing to, in fact, increase their emphasis on competition policy, law,
|
22 | and institution building.
|
23 | I could give a number of other examples of future program |
183
1 | possibilities, but I think that in the interests of time, I will cut it short here. We
|
2 | plan to continue working with developing countries even when the U.S. is not
|
3 | perceived at this point as a very fair partner -- in large part because our
|
4 | competitiveness on the global marketplace is so much stronger than theirs.
|
5 | We in U.S.A.I.D. don't believe that the infant industries argument
|
6 | often cited -- that somehow "we should be protected against the U.S. predation
|
7 | until we grow up" -- is valid. We feel that open economies and positive trade and
|
8 | a focus on fairness and transparency will be to the advantage of all sides in the
|
9 | trade bargain.
|
10 | But we also feel that it is important to make sure that the human
|
11 | capacity development, the institutional development, and just the understanding
|
12 | that goes into writing up laws that people really truly can implement is an
|
13 | important part of our mandate. And so we look forward to working with the
|
14 | Department of Justice, our colleagues in the World Bank and IMF, and to
|
15 | continuing this kind of work in the near future.
|
16 | Thank you.
|
17 | DR. STERN: Thank you very much for your very thorough
|
18 | response to our questions.
|
19 | Are there any questions for this panel?
|
20 | MR. RILL: Actually, yes. We're tasked, of course, to advise the
|
21 | Department of Justice, and anyone else who might want to listen to us, with regard
|
22 | to competition policy within the United States. I certainly think that the
|
23 | development of competition policy throughout the world is, personally, a very |
184
1 | salutary effort that could be encouraged by the United States.
|
2 | A couple of thoughts for both IMF and World Bank. One, the
|
3 | notion that the more free market countries are faring better in the Asian crisis than
|
4 | the more command and control economies. Can that be documented in some way
|
5 | and can we correlate free market to, broadly speaking, competition policy and
|
6 | deregulation?
|
7 | And then the next question I would have is: In conditioning financial
|
8 | assistance to the development of competition policies, whether it be laws or not,
|
9 | what kind of assistance, what kind of review, do your organizations give to both
|
10 | the existence and implementation of competition policy?
|
11 | And then, third: What kind of coordination is there between your
|
12 | agencies and the competition authorities, and for our particular purposes, the
|
13 | Antitrust Division of the Department of Justice and the Federal Trade
|
14 | Commission? And you can answer that in 30 seconds.
|
15 | MR. KHEMANI: About documenting that free markets and
|
16 | competitive processes have led to better withstanding of economic crisis, I think
|
17 | one has to look at that in two levels. One is at the broad level, which is the
|
18 | economies that I've mentioned, Hong Kong, Singapore, and China-Taipei, as it is
|
19 | referred to to be politically correct. I think that there one can find that the
|
20 | stability of their currency relatively speaking, but also the entry and exit
|
21 | processes for their business firms. For example, The Economist carried an article
|
22 | based on a Brookings discussion paper, and I may add by one of my staff
|
23 | members, on what was called a "Flexible Tiger". It mentioned the fact that if you |
185
1 | look at a three-year period in China-Taipei something like 40 percent of the firms
|
2 | did not exist three years earlier. So there was a fair amount of churning and there
|
3 | was a significant amount of productivity notwithstanding this churning in the
|
4 | number of firms.
|
5 | So I think those are some sort of the broad brush documents that
|
6 | one could point to.
|
7 | However, whenever in developing countries people question the
|
8 | merits of having competition, one needs to just simply point out the record of the
|
9 | performance of newly privatized state enterprises in terms of their productivity, in
|
10 | terms of their revenue generation, and so on. Or one has to point out the
|
11 | performance of newly deregulated sectors. So for example in a country like India,
|
12 | the deregulated automobile sector, the deregulated domestic airline sector, the
|
13 | deregulated airline sector of Nepal which was mentioned, clearly indicate lower
|
14 | prices, increased traffic volume, increased purchasing power of people.
|
15 | So I don't think one needs to belabor that point too much. There are
|
16 | some sectoral-specific as well as broad-based economy pieces of evidence.
|
17 | In terms of what kind of assistance, when the World Bank helps
|
18 | countries draft or strengthen competition laws and policies, we've had a variety of
|
19 | approaches. We've organized workshops and seminars where we relied on the
|
20 | staff from the U.S. Antitrust and Federal Trade Commission, from the Canadian
|
21 | Bureau of Competition, as well as from the competition bureaus of newly
|
22 | developed economies, those that have recently adopted competition law policies.
|
23 | So when we organized training sessions in Vienna we made sure that |
186
1 | we had officials from not only the Slovak and the Czech Republics and Poland,
|
2 | but also Russia, etcetera, participating and indicating the difficulties that they
|
3 | have been encountering in implementing competition law and policy.
|
4 | But these are one-shot affairs. They are not -- they don't really
|
5 | build institutional capacity. What one needs is a bit more long-term advisors,
|
6 | those who are either willing to take leaves of absence -- and I'm aware of Federal
|
7 | Trade Commission officials and Justice Department officials who have done that
|
8 | in the Czech, Slovak and Ukraine -- or to find retired executives who may be
|
9 | interested in spending six months to eight months in helping countries get their
|
10 | system up and running.
|
11 | We certainly tap on a lot of the private law and economic consulting
|
12 | firms. But the transaction costs involved in all this are very, very high, and what
|
13 | I'm very keen to explore in the Bank is to see whether we could not create a
|
14 | multidonor trust fund so that we're not looking for funding each time we have a
|
15 | program in a particular country, but that we have this trust fund with an Advisory
|
16 | Committee drawn from the antitrust officials, agencies of the various contributors,
|
17 | and trying to enlist the staff in sort of short term assignments or getting private
|
18 | sector consultants using this trust fund so that one can have quick response and
|
19 | more sustainable assistance. This is something that we are still talking about.
|
20 | Coordination. We coordinate a lot with the U.S., Canadian,
|
21 | Australian, and other antitrust authorities. However, one recommendation that I
|
22 | would like to make is that the OECD committee which deals with international
|
23 | cooperation makes it as a standing item of their proceedings on a quarterly basis |
187
1 | of reports from the various member countries as to what technical assistance is
|
2 | being provided, for two reasons: to avoid duplication and to get greater
|
3 | coordination.
|
4 | Now, Indonesia, curiously, is an interesting example, because in
|
5 | Indonesia we had the Germans, we had the Australians, the Canadians, the U.S.,
|
6 | all providing assistance. Finally what the Indonesian authorities did was they
|
7 | asked the World Bank to be the coordinator of all technical assistance to Indonesia
|
8 | in the implementation of their new law. Their new law is not perfect, it's got lots
|
9 | of warts, but it at least is not as bad as the one that my colleague, Richard, was
|
10 | alluding to. That was about six or seven months ago we did manage to do some
|
11 | damage control there.
|
12 | But however, in implementation of that law what we've done is
|
13 | we've signed a formal agreement where the representatives of the various countries
|
14 | have said that they will coordinate all their technical assistance through the World
|
15 | Bank, so as to avoid duplication. Not that we want to be in the driver's seat. As I
|
16 | said, our resources are scarce as well.
|
17 | But it certainly avoids situations like in Russia, where five different
|
18 | countries were advising it initially on competition laws. They actually ended up
|
19 | with three securities law drafts from three different countries and jurisdictions.
|
20 | We want to avoid that wasteful duplication.
|
21 | MR. GORDON: I'll just add a couple things. With respect to proof
|
22 | as to the superiority of free and open markets, the entire Fund is premised on that
|
23 | view. In fact, if you look at the foundation of the building you'll find that those |
188
1 | words are inscribed somewhere.
|
2 | MR. RILL: I wasn't asking about objectives. I was asking about
|
3 | realization.
|
4 | MR. GORDON: I think I would only add that probably pretty much
|
5 | every publication that comes out of the Fund at least tries to make that argument
|
6 | and to support that with as much empirical evidence as they can. With respect to
|
7 | the effect of competition policies, that's another thing.
|
8 | I might step back again and say that another difference between the
|
9 | Fund and the Bank is you guys have three buildings. I just want to point that out.
|
10 | MR. KHEMANI: Nine.
|
11 | MR. GORDON: In D.C.?
|
12 | MR. KHEMANI: We have nine buildings.
|
13 | MR. GORDON: Nine buildings. We have one, a much smaller
|
14 | staff.
|
15 | But also the Fund often does deal in crisis situations. Perhaps it
|
16 | shouldn't, it should anticipate crises better than it does. And often it is very
|
17 | difficult, for example in Indonesia, where I had worked, for a flying mission to
|
18 | wind up in Jakarta and to say: Okay, what's wrong that needs to be fixed? We've
|
19 | got 24 hours: We have to have a list of prior actions before the Indonesian
|
20 | government is going to get money.
|
21 | Now, you can imagine how impossible that is. Think of
|
22 | competition, not only in terms of competition policy in economies, but also
|
23 | competition among different objectives for achieving overall economic recovery. I |
189
1 | was just jotting down a few. We used to think that the most important things were
|
2 | budget reform, then tax. I used to do tax technical assistance when I was teaching
|
3 | law before I joined the Fund.
|
4 | Then banking supervision became the big thing because in Korea,
|
5 | there was this terrible banking trouble. Then bankruptcy, because when you went
|
6 | to Indonesia it turned out it wasn't banks that were borrowing, but it was private
|
7 | companies. Then it turns out that all the private companies were in difficulty with
|
8 | respect to corporate governance and that became a major thing, and on and on and
|
9 | on.
|
10 | I think in the Korean program there were a list of 96 -- I could be
|
11 | wrong -- prior actions having to do with passing laws and enacting new policies.
|
12 | It's going to be very, very difficult.
|
13 | So when providing either policy advice or technical assistance,
|
14 | competition law is only one of many, many things that need to be done. Think of
|
15 | chaos theory, where one little change can result in enormous unintended
|
16 | consequences. This is one of the concerns that we had had in Indonesia, where
|
17 | very minor aspects of the draft competition law could have helped shut down
|
18 | competition, that perhaps the issue was not necessarily that what we needed was a
|
19 | competition law to break up the conglomerates. Perhaps the conglomerates were
|
20 | actually competing with each other very effectively. The principal problem with
|
21 | economic sclerosis was corporate governance, related party lending.
|
22 | I'm not saying that was the conclusion, but these are issues that
|
23 | came up, with a very brief period of time to try to figure out what to do, which is |
190
1 | an advantage of having the World Bank and U.S.A.I.D. and other bilateral donors,
|
2 | multilateral banks, who can probably have greater in-depth, prolonged
|
3 | examination of these issues and help sort out what the priorities are, because when
|
4 | you have limited resources, and I mean limited intellectual resources, particularly
|
5 | on the part of governments, they have to know what do we need to do now and
|
6 | what's the most important of the things we need to do now if we're going to
|
7 | straighten out a particular crisis. And the Fund is more crisis-oriented.
|
8 | MR. RILL: As Shyam has had a great deal of experience in this
|
9 | area, I've had some experience in the 1990, 1991 period with AID programs in
|
10 | Eastern and Central Europe. And we found that the two or three week visit was
|
11 | generally viewed by the Central and Eastern European authorities that we were
|
12 | sending people to visit as, while I think I'm overstating a little bit, tourist trips.
|
13 | And that to be useful, long-term, six, eight-month or longer assignments of U.S.
|
14 | Department of Justice and FTC personnel under AID funding were, to the
|
15 | contrary, quite useful.
|
16 | I'm not familiar now with how many of those longer term programs
|
17 | using Department of Justice and FTC personnel are extant with USAID. So I
|
18 | wonder if you could tell me? Or at least supply that information if you don't have
|
19 | it off the top of your head.
|
20 | MS. SIMMONS: I don't have it on the top of my head. We do have
|
21 | a number of agreements with the Department of Justice to provide those kinds of
|
22 | assistance. I'm not sure that in most cases we've overcome the short term
|
23 | consultant problem for the reason that my colleagues said, which is that DOJ |
191
1 | people don't often want to spend the whole year.
|
2 | MR. RILL: I didn't have a lot of trouble finding people --
|
3 | MS. SIMMONS: Oh, really?
|
4 | MR. RILL: -- who wanted to go to, well, Prague.
|
5 | MS. SIMMONS: But we can find that, we can find that data out for
|
6 | you if you're interested in knowing how many there are right now.
|
7 | MR. RILL: I'd like to know how many over the recent past, say the
|
8 | last two years, how many of these longer term, six month plus, programs are
|
9 | underway. And I'd also like to ask you now if you think those have been useful
|
10 | undertakings?
|
11 | MS. SIMMONS: Oh, yes. As I was trying to say in my remarks, I
|
12 | think that the institution building side of U.S.A.I.D.'s program is the side that we
|
13 | provide that's somewhat unique compared to the World Bank and IMF. We are
|
14 | actually able to get a contract team or a university team to spend three years, five
|
15 | years, six years, doing a range of activities both providing actual product, such as
|
16 | laws, but also training and actually setting up and helping a new organization,
|
17 | such as the federal energy commission in Russia, to learn how to work.
|
18 | MR. RILL: I was really asking -- you're going more broadly than I
|
19 | wanted. I was just asking the efficacy of the Department of Justice and FTC long-
|
20 | term training programs, whether there's been an evaluation and what are the
|
21 | results of those evaluations, because anecdotally I found from the heads of the
|
22 | agencies that I talked to that those were the programs in the area of competition
|
23 | policy that were particularly useful. And I'm wondering if they're continuing and |
192
1 | whether you also find them -- currently and formerly -- to be useful?
|
2 | MS. SIMMONS: I will check. I don't actually know right now.
|
3 | MS. JANOW: It's sometimes said that the budget of the WTO is
|
4 | less than the travel budget of the World Bank.
|
5 | MR. KHEMANI: Possibly.
|
6 | MS. JANOW: And yet you have a lot of institution building,
|
7 | capacity building obligations embedded in WTO commitments, some of those of a
|
8 | legal nature, whether it's IPR enforcement, competition dimensions in telecom
|
9 | agreements, et cetera.
|
10 | So my question to you is -- I think this idea you've raised, Shyam,
|
11 | of a trust fund for competition policy purposes is fascinating. Can we imagine a
|
12 | circumstance where the Bank and the Fund and U.S.A.I.D. is actually
|
13 | systematically collaborating in areas of shared objective, possibly when those
|
14 | overlap with objectives that we have in, say, the WTO? Can you imagine a
|
15 | meaningful ongoing collaborative scheme being designed? Is there a way of doing
|
16 | that? Should we be thinking along these lines or are the bureaucratics of that just
|
17 | pulling in too many different directions? Because it seems that there's an
|
18 | opportunity here for pulling these resources together, at least collaborating in the
|
19 | design or the implementation of capacity building exercises while retaining the
|
20 | autonomy of agency action.
|
21 | Is there more scope for this or is this just an Advisory Committee's
|
22 | dream?
|
23 | MR. RILL: Or Shyam's dream. |
193
1 | (Laughter.)
|
2 | MR. KHEMANI: Can I give you an actual concrete example?
|
3 | MS. JANOW: Yes.
|
4 | MR. KHEMANI: We have a $32 million trust fund -- we expect it
|
5 | to grow to $50 million in another year or so -- which deals only with privatization
|
6 | of infrastructure services. Now, this trust fund has been predominantly
|
7 | contributed to by the UK.
|
8 | And my -- and since I'm speaking in my personal capacity here, I
|
9 | think that there are two incentives that drive this. One is of course that
|
10 | ownership, state ownership or control of infrastructure facilities represents
|
11 | potentially a huge revenue source for addressing the deficits, not just the current
|
12 | deficits but the running deficits of many developing countries because they don't
|
13 | run these facilities on an efficient basis. But also, water, sanitation, power, are
|
14 | basic fundamental areas that are lacking in many developing countries. So I think
|
15 | that the trust fund is motivated by helping to alleviate poverty by increasing health
|
16 | standards through more effective water and sanitation facilities while giving
|
17 | electrification to villages and communicating and connecting them to the world.
|
18 | In tangent I could mention that the cocoa farmers in Cote d'Ivoire,
|
19 | once they got more effective market-driven telecommunication services, they were
|
20 | able to check what the stock market price of cocoa was in London without being
|
21 | cheated by the middlemen who previously used to deny them that information. So
|
22 | this is empowerment as we see it.
|
23 | On the other hand, I may also say that there's no doubt that the UK |
194
1 | is a leader in terms of selling its privatization services, and so this trust fund
|
2 | could also pave the way for UK companies' access in providing advisory as well as
|
3 | engineering and other services in the countries where this type of regulatory
|
4 | system is being put into place.
|
5 | So this is an actual example and it's developed on competition
|
6 | principles.
|
7 | MS. SIMMONS: Could I just perhaps remark that it's very unlikely
|
8 | the United States will put its bilateral assistance money into this trust fund.
|
9 | MS. JANOW: But can you imagine a collaborative effort on a case-
|
10 | by-case basis --
|
11 | MS. SIMMONS: Certainly --
|
12 | MS. JANOW: -- what are you doing in country X and how can we
|
13 | supplement that, or where are we in conflict?
|
14 | MS. SIMMONS: In virtually all countries in which the World Bank
|
15 | and U.S.A.I.D. work together, there is some mechanism for donor collaboration,
|
16 | often, as Shyam mentioned, under the leadership of the World Bank in something
|
17 | called a CG, or consultative group, in which there are regular meetings, regular
|
18 | exchanges of information.
|
19 | The success of these is somewhat based upon personality, but it also
|
20 | is based upon the fact that people realize that it's inefficient for everybody to go
|
21 | full-bore at the same problem from seven different directions. That's not to say
|
22 | that in all cases we agree, and that indeed there are not differences of opinion as
|
23 | to the appropriate way to proceed or not proceed. |
195
1 | We in U.S.A.I.D. have spent a great deal of time on donor
|
2 | coordination, and I think most staff people would have a kind of mixed reaction
|
3 | that, yes, it's something that's essential to do, but no, it's not fun, because you
|
4 | have your own institutional background, you have your own, in our case, our own
|
5 | government's perspective and our own government's policy, and it's difficult often
|
6 | to sort of make that same policy and that same perspective link with that of the
|
7 | UK or EU or whoever.
|
8 | So I think it's important to be realistic about the level of
|
9 | collaboration that one can achieve, but I think it's also important to note that we
|
10 | all do it, that we totally agree with you that it makes sense to do, and that to the
|
11 | extent that we can actually program our money either in a trust fund joint activity
|
12 | or whether we do it in what we call parallel financing, where everybody sort of
|
13 | lines up their financing next to each other, we think that it's an important thing to
|
14 | do.
|
15 | MS. JANOW: Thank you.
|
16 | DR. STERN: Further questions?
|
17 | MR. RILL: No, thanks.
|
18 | DR. STERN: My question, just very briefly, is if you have any idea
|
19 | either within the Bank or U.S.A.I.D. how much funding resources are spent on
|
20 | developing antidumping laws versus competition policy laws? From my personal
|
21 | experience, I know quite a bit of work has been done in a number of different
|
22 | countries. We've been hearing, of course, about the proliferation of competition
|
23 | policy laws, but there's also a proliferation of antidumping laws. I wanted to |
196
1 | know if you had any general statement or if you could provide something later that
|
2 | would document that differential.
|
3 | MS. SIMMONS: I can look for some examples, but I can't
|
4 | immediately cite anything regarding antidumping policy. The database that I have
|
5 | right now does not make a distinction between what sort of competition policy and
|
6 | general trade policies are being supported.
|
7 | DR. STERN: Right.
|
8 | MS. SIMMONS: -- the antidumping area.
|
9 | DR. STERN: Right. Well, in fact one of my questions is whether
|
10 | the competition -- the breakouts for the resources for competition policy includes
|
11 | the work and training for new trade laws.
|
12 | MS. SIMMONS: Yes, it does.
|
13 | DR. STERN: So the data that we would get on competition policy
|
14 | would then be both in setting up something that would be dealing with mergers and
|
15 | cartel enforcement as well as the trade laws? It's agglomerated.
|
16 | MS. SIMMONS: Yes.
|
17 | MS. JANOW: Is it all legal development or is it trade,
|
18 | bankruptcy --
|
19 | MS. SIMMONS: We've consulted with the missions who actually
|
20 | manage these programs and -- as I tried to emphasize, these are often fairly
|
21 | complicated programs -- and what folks are focusing on this six months may be
|
22 | quite different from what they're focusing on in the next six months. I'd actually
|
23 | have to talk with some of the people who are implementing those programs and try |
197
1 | to figure out what the balance is. But I could do that if you're interested.
|
2 | MS. JANOW: Could you take a stab at that? Based on what we
|
3 | were hearing from the Department of Justice staff on competition development,
|
4 | could we get your reactions to our draft memo that we have shared with you?
|
5 | MS. SIMMONS: Yes.
|
6 | MS. JANOW: And I'm sure you can sort it out for us. It would be
|
7 | wonderful.
|
8 | MS. SIMMONS: Yes.
|
9 | MS. JANOW: Thank you.
|
10 | MR. KHEMANI: Six and a half years ago when I joined the World
|
11 | Bank, I was shocked to learn that as one of the World Bank's conditionality to a
|
12 | loan in Venezuela said you should pass an antidumping law.
|
13 | DR. STERN: Yes.
|
14 | MR. KHEMANI: So I quickly met with the economist, who was a
|
15 | macroeconomist, and corrected his basic economics about competition. So I can
|
16 | say now with a great degree of confidence that since that time the Bank has not
|
17 | assisted any country in drafting an antidumping law, and we would not devote any
|
18 | resources towards that.
|
19 | However, in a country like Jordan, for example, we did help them
|
20 | draft a safeguard law. And we certainly do not mind in assisting countries with
|
21 | respect to safeguard laws, because Jordan was suffering from transitory dumping
|
22 | or a transitory increase in supply -- one shouldn't use the term "dumping" in that
|
23 | context, but increase in supply -- of basic steel rods coming from the Ukraine, and |
198
1 | it was disrupting their own market in that regard. So basically their producers, a
|
2 | few of them, were suffering a bit.
|
3 | In any case, that's our position with respect to that particular area.
|
4 | Now, in terms of how much resources do we actually expend on
|
5 | competition law Bank-wide, I would have to canvas my colleagues, but I think I
|
6 | can say with also a fair degree of confidence that we spend less than, I would say,
|
7 | $700, $800,000 a year in providing technical assistance or some assistance to
|
8 | countries globally -- this is 184 member countries -- in the area of competition
|
9 | policy. Which is grossly inadequate.
|
10 | DR. STERN: I have another line that I'd like to pursue a little
|
11 | deeper: Merit's on coordination with the WTO. I suspect that much of the
|
12 | outcome of the debate between the U.S. and the EU on what the future role of the
|
13 | WTO shall be with regard to competition policy will yield a lot of pledges for
|
14 | greater education and the educational role of the WTO.
|
15 | And, as Merit pointed out, the WTO's resources are extraordinarily
|
16 | limited, which gets to the whole question of the coordination with the other
|
17 | Bretton Woods institutions, such as the World Bank and the IMF, in carrying out
|
18 | such a goal. You've talked about your limited resources. Do you anticipate that
|
19 | the World Bank and the IMF, either through pressure from the WTO Secretariat or
|
20 | pressure from the bigger countries like the U.S. and the EU, will start to develop a
|
21 | new budget that will work with the WTO on this "educational role" in competition
|
22 | policy?
|
23 | MR. KHEMANI: Well, first I'd like to point out that the WTO has |
199
1 | had three symposiums on the interface between competition and trade policy.
|
2 | DR. STERN: Yes.
|
3 | MR. KHEMANI: All three have been cosponsored with the World
|
4 | Bank, albeit on a very limited budget. For the future, I do not know, really. I do
|
5 | not have a good enough crystal ball in that regard. There's a lot of internal
|
6 | pressure, pressure generated by Joe Stiglitz and myself and others, that the Bank
|
7 | needs to do more in the area of competition policy. So certainly recommendations
|
8 | or views expressed by committees like yours will buttress that cause.
|
9 | DR. STERN: Well, that's good to know.
|
10 | MS. JANOW: I think we've made a contribution simply by
|
11 | introducing Ms. Simmons and Mr. Gordon and Khemani today.
|
12 | DR. STERN: That's right.
|
13 | Well, I don't hear any other questions for now and I hope that -- I
|
14 | have heard a lot of statements of pledges to cooperate after the hearing in trying to
|
15 | provide some more information on how to make this a more efficacious going-
|
16 | forward.
|
17 | I can't help but to close this panel with my memories of going to the
|
18 | World Bank in the very early seventies with my husband, who had just published a
|
19 | book on the role of merchants in rural development in India, and was talking about
|
20 | this word that was called "privatization." And it was as if he had horns, because
|
21 | at that time -- it may be the fundamental tenet today of the World Bank, but at
|
22 | that time there was tremendous support for state-run cooperatives and other such
|
23 | statused activities. |
200
1 | MR. RILL: Antitrust was different in the seventies, too, Paula.
|
2 | DR. STERN: So we have to remember that we have to keep on
|
3 | keeping on. That sometimes the pendulum may swing back again. So we're
|
4 | hopeful that this work that we're doing today will have an impact, not only
|
5 | medium term, but in the long-term, in the event that the pendulum swings again.
|
6 | MS. JANOW: Thank you very much.
|
7 | DR. STERN: Any other questions? Gratuitous comments, besides
|
8 | mine?
|
9 | Thank you very, very much for your time and your energy. Thank
|
10 | you.
|
11 | This meeting is now adjourned.
|
12 | (Whereupon, at 5:30 p.m., the meeting was adjourned.)
|
13 |
|
14 |
|
15 |
|
16 |
|
|