Enforcement of Consumer Protection and Competition Laws in the Global Marketplace: the North American Experience

The Sydney Global Commerce Conference 1998, Presented by the Australian Competition and Consumer Commission, Sydney Hilton Hotel

Sydney, Australia

Date:
By: 
Orson Swindle, Former Commissioner

Thank you for the opportunity to participate in this timely discussion. It's a pleasure to share information with this distinguished audience about the Federal Trade Commission's experience with "cross-border" transactions and with international cooperation in the enforcement of consumer protection and antitrust laws.

Most of you probably know that the Federal Trade Commission, of which I am a member, is an independent agency of the United States Government with law enforcement and regulatory responsibilities in the areas of antitrust and consumer protection. Today, however, I am speaking only for myself, and my remarks do not necessarily represent the views of the FTC or any other Commissioner.

For some years, the United States has benefited from a climate of increasing cooperation and coordination with other nations in the enforcement of the laws that protect competition and consumers. During this period, important developments have occurred. In 1994, the United States enacted the International Antitrust Enforcement Assistance Act, which yielded the recently concluded bilateral antitrust cooperation agreement between my country and Australia. In addition, the U.S. has launched a number of consumer protection initiatives jointly with several foreign authorities. The historic barriers to this kind of international cooperation have been coming down -- a development that appropriately responds to a larger trend toward increasingly open global commerce.

When I refer to "cross-border transactions," I use that term in both a narrow and a broad sense. In the narrow sense, the term refers to commercial dealings involving United States firms and their counterparts in Canada and Mexico. In a broader sense, however, the term refers generally to transactions that involve sellers and buyers from nations around the world. In more recent years, a good example of the cross-border phenomenon is the rapid growth of electronic commerce, often involving transactions that transcend national boundaries.

One of the more important developments affecting cross-border transactions in North America was the enactment in 1993 of the North American Free Trade Agreement (NAFTA) among the United States, Canada, and Mexico. As you undoubtedly know, NAFTA strives to reduce impediments to the flow of goods, services, and financing among the three nations. The NAFTA agreement included a chapter on competition and established a "Working Group on Trade and Competition" designed to recommend ways to reduce or eliminate barriers to trade and investment among the member countries.

If the FTC's consumer protection and antitrust work has taken on a more "global" look in recent years, some of the credit belongs to NAFTA. For example, several years ago, in an effort to reach NAFTA's goal of reducing or eliminating non-tariff barriers to trade, the Commission began to harmonize with Canada and Mexico the care labels that are affixed to clothing as well as certain information provided to consumers about the content and origin of textiles. The resulting care labels overcome language barriers by using symbols instead of words, and such innovations as abbreviated generic fiber names and symbols for country-of-origin information. Also in furtherance of NAFTA's goals, the Commission amended its Appliance Labeling Rule in 1996 so that energy use labels mandated by the Canadian and Mexican governments can appear directly adjoining U.S. labels on major home appliances.

These regulatory revisions prompted by NAFTA are only one aspect of the "globalization" of our consumer protection work. Our law enforcement activities have been significantly affected as well. Sometimes our cases involve active cooperation between American and other nations' law enforcement agencies, while at other times the FTC brings cases on its own against foreign firms whose activities harm U.S. consumers.

One area that has kept us very busy is cross-border telemarketing fraud. In cooperation with our Canadian counterparts, we have developed a number of investigations in this area and have concurrently filed lawsuits in both countries.

Two years ago the FTC and the attorneys general of 15 states began a series of law enforcement actions against U.S.- and Canada-based "boiler rooms" that violated the FTC's Telemarketing Sales Rule. ("Boiler room," by the way, is our term for what is essentially a bank of telephones that is simple to set up and -- if necessary to elude law enforcement authorities -- easy to disassemble.) The target of this coordinated effort was advance fee loan fraud, involving the offer of phony "guaranteed" loans. The Canadian Province of British Columbia brought similar lawsuits against the same boiler rooms. Just last January, we announced -- in conjunction with several state agencies as well as Canadian law enforcement authorities -- actions against 37 more perpetrators of this type of fraud. In June, we announced a settlement with Pinnacle Financial Services, one of the firms that allegedly aided Canadian telemarketers in their fraudulent scheme. We also worked with the British Columbia Ministry of Attorney General to recover funds from another firm involved in this fraud.

In another case, the FTC and the Attorney General of Nevada went to court to put an end to a scheme that allowed Canadian telemarketers to bilk U.S. consumers by deceptively selling foreign lottery shares. And in late July, Tracker Corporation of America, a firm operating in the U.S. and Canada, agreed to be permanently enjoined from engaging in the credit card protection and credit card registration business, in settlement of charges that the company deceptively telemarketed its services to U.S. consumers.

Cooperative and successful law enforcement activities with our Canadian colleagues in the past few years are encouraging. Nevertheless, cross-border scams seem to be a growth industry, and we have warned the public against schemes originating in Canada, including bogus prize promotions and investment opportunities. The FTC and Industry Canada formed a joint Task Force on Cross-Border Deceptive Marketing Practices that has been active since its creation in late 1996.

Equally important has been our effort with our southern neighbors in Mexico. Last year we announced "Campaña Alerta," an effort to prevent fraudulent advertisements directed at Spanish-speaking consumers. The FTC, the U.S. Food and Drug Administration, seven state attorneys general, and the Mexican government teamed up in a joint law enforcement and public education campaign against Spanish-language advertisements that fraudulently marketed health care products and treatments, exercise equipment, and weight loss plans. When Campaña Alerta was unveiled, the FTC announced settlements with four companies charged with fraudulent sales of various health care products by means of Spanish-language television, radio, and print ads.

Five months ago we announced "Campaña Alerta II," a joint undertaking of the FTC and Mexico's consumer protection agency that included further consumer education efforts as well as settlements in three cases involving dietary and nutritional supplements and weight-loss products marketed to Spanish-speaking consumers.

The phenomenal growth of commerce on the Internet has provided a greater sense of urgency to the FTC's seeking cooperation with its foreign counterparts. In fact, this is an issue with implications far beyond North America. Electronic commercial transactions, with their unequaled efficiency and speed, could turn the planet into one giant, interconnected shopping mall.

As with evolutions in communications and marketing in the past, it seems that scam artists are forever surfacing at the head of the line to exploit new methods and technology. For certain, the new cyberspace market place is a target-rich environment for those who prey on the innocent and naive. Monitoring and detecting deception and scams will be no easy task. At the FTC we are seeking ways to cope. In the North American context, we have held "Surf Days" during which U.S., Canadian, Mexican, and occasionally other nations' law enforcement agencies have "surfed" the Internet for instances of deceptive claims.

In April 1997, for example, American, Canadian, and Norwegian officials conducted a "Business Opportunity Surf Day." Last fall, American, Canadian, and Mexican authorities conducted a "Health Claim Surf Day," looking for potentially false or deceptive advertising claims concerning treatments or cures for a wide variety of illnesses. "Surf Days" have proved to be a very valuable technique for uncovering deceptive representations on the Internet. The task is daunting, and we have much to learn.

The FTC's antitrust work today has a scope far beyond our national geographic boundaries and often extends beyond just North America. The global market transformation is as much a reality in the arena of competition law as it is in the consumer protection field. Of course, this does not mean that we always investigate antitrust cases with such a broad focus. The FTC alleges North America -- or the United States, or even a region or a city within the U.S. -- as a relevant antitrust market when the economic evidence justifies it, as a number of recent FTC merger cases demonstrate.

Somewhat less often, however, the product at issue in an FTC investigation may be economically available to U.S. consumers from sources in numerous countries, and this may justify alleging a world market. In recent months, for example, the FTC has issued complaints alleging a world market for vacation timeshare exchange services, general-purpose microprocessors, and lead antiknock compounds for gasoline.

Even in cases involving a U.S. (or narrower) market, however, we may find it useful to cooperate with our antitrust enforcement counterparts in other countries. We have worked closely with European Commission antitrust experts in a number of such cases. For instance, when important evidence is located both in the U.S. and in Europe, and when a transaction is likely to have effects in both markets, there are great benefits to coordinating with EC authorities. In furtherance of this cooperative relationship, the U.S. and the EC signed an agreement last June that clarifies the circumstances under which they will refer cases of anticompetitive conduct to each other under the doctrine of "positive comity." In simple terms, we have agreed on conditions for deferring to each other's laws and enforcement authorities in specific types of cases where the anticompetitive practices occur in the other party's territory. Each party to this agreement, however, also reserves the right to pursue or re-institute its own investigation of the practices in question.

Some recent mergers involving pharmaceutical companies illustrate cooperation between the U.S. and the EC. The FTC has investigated a number of large pharmaceutical mergers in recent years, some involving firms headquartered in Sweden, Switzerland, the United Kingdom, and elsewhere. Research and development for some of the drugs involved in these mergers is often conducted in several countries. Cooperation and assistance from authorities in those countries has been critical to our investigations. In addition, in such cases as Upjohn/Pharmacia, Ciba-Geigy/Sandoz, and Glaxo/Wellcome, we have consulted and coordinated extensively with the EC's antitrust enforcers. However, when it comes to ascertaining the relevant market for purposes of analyzing these transactions, the U.S. Food and Drug Administration's power to control who can sell in the United States has generally led us to conclude that the market is no broader than the U.S. alone.

We do not always reach the same conclusion as our European colleagues about a merger's likely consequences, a result probably affected more by differences in market conditions between the U.S. and Europe than by conflicting analytical approaches. For example, we diverged from our European counterparts in connection with the Lockheed Martin/Loral merger case. In March 1996, the EC announced that it had cleared that transaction, but later that year the FTC issued a consent order to settle charges that the acquisition would lessen competition in several markets, including air traffic control systems and certain commercial satellites. And many in this audience are likely familiar with the Boeing/McDonnell Douglas case -- one of our more visible disagreements with our EC colleagues. Nevertheless, even when we end up disagreeing, this process of close consultation at least increases the chances that U.S. and EC officials will look at the same set of facts and apply similar analyses, and international cooperation has enabled us to get a clearer understanding of why we differed.

This climate of growing cooperation among national competition authorities has had an effect on the private sector in many countries. For example, firms in the United States are increasingly attuned not only to our own antitrust laws but also to the antitrust policies and enforcement practices of the other nations where they operate. Many of the United States' trading partners have either enacted new antitrust laws or strengthened their old laws and enforcement programs over the last few years. For example, a new Swiss competition law went into effect in 1996; the Dutch enacted a new Economic Competition Act (with a new merger control regulation that took effect earlier this year); and Germany, the United Kingdom, and South Korea are all considering significant amendments to their competition laws. The FTC and the U.S. Department of Justice, with funding from the U.S. Agency for International Development, have furnished advice on antitrust issues to a number of nations in eastern Europe, the Confederation of Independent States, and our own hemisphere. It becomes more and more apparent that any firm engaged in international transactions ignores these developments at its peril.

All of this enforcement activity taking place around the world raises the question of how much "convergence," or harmonization, can be achieved among diverse nations' antitrust programs. Strong advocates for greater convergence point to a core group of practices undertaken by direct competitors -- naked price-fixing, output restraints, customer allocation, and market division -- that antitrust authorities widely recognize as grave threats to consumer welfare. Antitrust laws of diverse nations almost totally agree in condemnation of these practices.

Champions of convergence say that consumers in all nations will benefit if we achieve harmonization among the world's competition laws, at least concerning the detection and eradication of such blatantly anticompetitive behavior.

Many observers -- especially international organizations, and particularly the Organization for Economic Cooperation and Development -- have thought about the issues of substantive and procedural convergence among multiple nations' antitrust policies. Over five decades, there have been proposals to take perhaps the ultimate step -- to develop a substantive antitrust code of uniform global application, perhaps enforced through the World Trade Organization. In fact, the WTO's Singapore Ministerial Conference of December 1996 established a Working Group on Competition. The Working Group's mandate expires next month, and there will likely be a report issued.

Other observers, however -- and I count myself among them -- wonder whether circumstances will ever be right for the development of an antitrust code of global application. Convergence -- in the sense of a careful, gradual movement toward international agreement on core principles -- holds out the promise of better coordination among enforcement agencies, and it can certainly make the law easier for multinational firms to understand and obey. But the speed and breadth of convergence deserve careful study. There seem to be significant impediments to reaching the point where the world might be subject to a global antitrust code.

One potential obstacle in the path to convergence involves whether nations can reach agreement on a sufficiently stringent set of antitrust policies. From my observations, policymakers in the United States have been reluctant to pursue a world antitrust code out of fear that the United States' fairly stringent antitrust doctrine could be watered down to accommodate other nations' more lenient approaches. I suggest that a "least common denominator" approach to a global antitrust code would be unacceptable as well as undesirable.

I favor a cautious approach to convergence. The disparity among nations' stages of economic development, sovereignty concerns, and the numerous political and policy considerations that make up some nations' competition policies counsel in favor of gradualism in attempts to craft a global substantive code.

The way to build a consensus on antitrust policy and enforcement is to keep doing what we've been doing in recent years. Specifically, we should continue to expand bilateral and multilateral cooperation in the enforcement of existing laws and aim toward the more attainable goal of procedural convergence. Perhaps this strengthening of ties among nations will someday furnish the basis to decide whether an international antitrust code can be written, but I believe that day is distant.

In the meantime, laws like the International Antitrust Enforcement Assistance Act (IAEAA), passed by the U.S. Congress almost four years ago, should help nurture procedural antitrust convergence. This statute authorizes the U.S. Federal Trade Commission and Justice Department to negotiate and conclude bilateral agreements for sharing confidential information with other governments. Those agreements can also provide for the parties to use compulsory process to obtain information for each other. The agreements must also stipulate that the confidentiality of shared information must be assured.

The U.S. and Australia recently negotiated the first bilateral antitrust assistance agreement under the authority of the IAEAA, and I expect the parties to sign this agreement in the near future. This is a major step forward in international antitrust cooperation. The Australian Competition and Consumer Commission and its American counterparts will be able to exchange confidential information obtained in the course of their antitrust investigations, subject to strict requirements for maintaining the information's confidentiality.

I'd like to close by widening the focus a bit more and addressing briefly the relationship between trade policy and antitrust policy. There seems to be a growing consensus that there are benefits to be gained from reducing tariffs, quotas, and other barriers to international trade. One of the widely acknowledged benefits is that goods, services, and financing will flow more efficiently among nations if these obstacles are reduced, and consumers will have a better chance of getting access to competitively priced goods and services.

At the same time that trade impediments are falling, nations are also recognizing the value of international cooperation and compatibility in their antitrust enforcement programs. As I see it, this trend toward greater antitrust harmonization flows from the same impetus that drives the elimination of trade barriers: to maximize the welfare of consumers.

As an enforcer of my country's antitrust laws, I am heartened that pro-consumer, pro-competition, free enterprise philosophy not only seems to be growing throughout the world, but also appears to be driving developments on both the trade and antitrust fronts. There are numerous challenges before us in the expanding global marketplace, and those challenges will confront us with greater and greater speed, frequency, and complexity. Despite the demands those challenges place on us, I am convinced that the world will be a better place for our efforts, and our people will be the beneficiaries.

Thank you.