Donald S. Clark
Office of the Secretary

Federal Trade Commission
Sixth Street and Pennsylvania Avenue, N.W.
Washington DC 20580
January 29, 1996

RE: Comments on Hearings on Global Competition and Innovation

Dear Mr. Clark:

The Federal Trade Commission has recently concluded a series of hearings on global and innovation-based competition. Stewart and Stewart would like to submit for the record the following additional views and attached paper. We would appreciate the inclusion of these views in the official hearing record, although the January 26 deadline for filing comments has recently passed.

The Commission is to be commended for its lengthy and thorough investigation of antitrust and consumer protection policy in an era of global competition. We believe that the FTC's efforts to clarify the use of antitrust law in a global context have the potential to improve how these laws are enforced, as well as understanding of these laws and policies among U.S. corporations.

During the course of these hearings, several panelists addressed the relationship between U.S. antitrust law and trade law. See, e.g., Statement of Joseph E. Stiglitz, "The Role of Antitrust in a Changing Global Economy," at 5 (Oct. 12, 1995); Statement of Eleanor M. Fox, "Global and Innovation-Based Competition Heaings Before the Federal Trade Commission," at 2 (Dec. 13, 1995); Testimony of Thomas R. Howell, Dewey Balantine, on behalf of the Coalition for Open Trade, at 13-14 (Oct. 19, 1995). We believe it is important that the Commission consider several points with regard to this subject.

First, the FTC's hearings were not intended to examine the relationship between U.S. antitrust law and trade law. Therefore, these hearings, while valuable for many other purposes, are not a proper basis for action by the Commission in this area.

Second, as the record reflects, the brief discussions of trade law and antitrust law by at least some panelists appeared to present a fairly one-sided view: that of the innate superiority of antitrust law to trade law. See Statement of Joseph E. Stiglitz, supra, at 5 (stating that dumping law is "defined according to peculiar accounting principles

that make it a disguised form of protectionism"); Statement of Eleanor M. Fox, supra, at 2 (referring to antidumping duties as "parochial policy"). While a complete rebuttal of these attacks is unnecessary, it is certainly worthwhile to stress that U.S. trade law was established and is maintained to ensure that domestic industries are not harmed through "false" disadvantages such as actionable subsidies or price discrimination between national markets. These problems have not disappeared in an era of global competition; to the contrary, they have demonstrably increased at a time when tariffs and other overt trade barriers have been reduced. Antidumping duties, far from being "parochial," are recognized methods of combatting unfair trade, accepted and adopted by many other nations, as well as by Article VI of the General Agreement on Tariffs and Trade and the Antidumping Agreement of the World Trade Organization.

Third, there is an important structural difference between antitrust and trade law remedies which merits the Commission's consideration with respect to antitrust law.

In many respects, antitrust law and policy focuses on conduct which is deemed so objectionable as to warrant criminal or civil liability. This is true, for example, in the areas of price discrimination, attempted monopolization, and forms of anticompetitive exclusion (as governed by the Sherman Act, the Clayton Act, and other relevant U.S. law). Given this focus, the agencies which enforce these bodies of law (i.e., the Commission and the Department of Justice) address only the most serious or egregious market distortions through the punishment of wrongdoers (criminal suits) and the compensation of victims (treble damages).

In contrast to this body of law is U.S. trade law, which may be viewed as a more regulatory approach. This permits a greater variety of responses to misallocations of resources internationally and false market signals by the trade law enforcement agencies (i.e., the Department of Commerce's International Trade Administration and the International Trade Commission). (U.S. merger law and consumer protection law may fall somewhere between antitrust and trade, having a combination of penal and regulatory elements.)

This contrast in orientation between non-merger antitrust law and trade law has important consequences in a global environment, in which corporations of varying size, structure and product lines employ an even greater variety of competitive strategies. One area of particular concern in international trade law is that of selling below cost over time, as well as the interrelated issue of cross-subsidization of product lines.

Where a competitor is selling below cost, one of three situations must be taking place: (1) the competitor is in a non-sustainable position; (2) the competitor is being subsidized by a government or a third party; or (3) the competitor is cross-subsidizing its losses with supracompetitive profits elsewhere. Any of these

scenarios can and do result in "false" economic signals, and in companies that are economically efficient being driven from the market for reasons other than economic efficiency.

The problems of sales below cost are demonstrated in a variety of industries. Historical problems in steel, semiconductors, bearings, consumer electronics and many other industries have been richly documented in trade litigation before the Commerce Department. Other industries -- such as super computers -- have seen single product U.S. companies matched against horizontally broad foreign companies. Where selling prices are depressed below cost over time, the result is predictable. Companies, even if the most economically efficient at the commencement of increased competition, are forced to exit or lose competitiveness because of the lack of reasonable return on assets deployed. Such an approach necessarily reduces world efficiency and global growth.

Neither trade law nor antitrust law has a wholly satisfactory approach to the problem of cross-subsidization. However, U.S. trade law does address part of the issue through its provisions on sales below cost over an extended period. Currently, antitrust has much more limited and ineffective remedies for the cross-subsidization problem. Hopefully, the FTC will explore the problem of cross-subsidization and how U.S. antitrust law can be made more effective at reducing the market distortions that flow from such cross subsidization.

Enclosed for the Commission's consideration is a paper which I presented last year at the U.S.-Mexico Law Institute Conference in Santa Fe. This paper, which expands on the preceding issues, is scheduled for forthcoming publication in the United States-Mexico Law Journal. Professor Franklin Gill of the Journal has graciously agreed to waive the Journal's copyright so that this paper could be submitted for the Commission's further consideration.

Thank you for the opportunity to submit these views.

Sincerely,

Terence P. Stewart
Managing Partner