"COMPETITION AND CONSUMER PROTECTION ENFORCEMENT:
AIMING TOWARD A COMMON GOAL IN THE EMERGING GLOBAL MARKETPLACE"
COMMISSIONER ROSCOE B. STAREK, III
FEDERAL TRADE COMMISSION
THE 20th ANNUAL INTERNATIONAL BUSINESS LAW INSTITUTE ON
THE PRACTICE OF INTERNATIONAL BUSINESS TRANSACTIONS
APRIL 11, 1996
I am pleased to be here at the 20th Annual International Business Law Institute on the Practice of International Business Transactions, and I very much appreciate the opportunity to speak to you about the shared objectives of antitrust and consumer protection law enforcement in an era of global transactions and borderless markets. Before I proceed, I should point out that the following remarks are my own and do not necessarily represent the views of the Federal Trade Commission or of any other Commissioner.
I. ASPECTS OF BORDERLESS MARKETS
It is clear that both antitrust and consumer protection issues are becoming increasingly important to American firms that are more and more involved in international transactions. These firms must be carefully attuned not only to the antitrust and consumer laws of the United States but also to the corresponding policies and enforcement regimes of the other nations in which they operate. A surprising number of nations are paying heightened attention to the role of both consumer protection and antitrust enforcement in keeping their markets free, honest, and efficient. Many of the United States' trading partners have either enacted new laws or strengthened their old laws and enforcement programs over the last few years -- a trend that shows no sign of abating. Any firm engaged in international transactions ignores these developments at its peril.
With agreements such as the General Agreement on Tariffs and Trade (or "GATT") and the North American Free Trade Agreement (or "NAFTA"), nations have made strides toward removing traditional, government-imposed barriers to international trade such as tariffs, import quotas, and domestic product subsidies. We anticipate that these changes will benefit consumers through lower prices and a greater selection of goods and services. And certainly manufacturing firms have the potential to expand their markets to reach consumers they could not reach before. At the same time, private anticompetitive behavior has come into focus as an appropriate subject for multilateral negotiations and, possibly, some type of multilateral agreement on enforcement rules and procedures.
Removing tariffs and other obvious trade barriers, however, is not sufficient to achieve an unencumbered borderless market. Governments must also consider non-tariff barriers such as product labeling requirements, product specifications, and advertising standards. For example, the FTC enforces a regulation requiring clothing manufacturers to include a label containing instructions for cleaning the garment. This Care Labeling Rule allows the use of symbols but requires that the instructions be in "appropriate terms." Canada and Mexico each allow care instructions to be conveyed in symbols, but Quebec requires that garments containing written instructions also contain those instructions in French, and Mexico requires that such garments also contain those instructions in Spanish. The U.S. requirement of written care instructions combined with the linguistic requirements in Canada and Mexico creates increased costs for manufacturers wishing to ship to the U.S., Canada, and Mexico. NAFTA, however, requires the U.S. to attempt to harmonize its textile labeling requirements with those of Canada and Mexico. So, once NAFTA was enacted, the Commission published a notice seeking comment on whether we should revise our Care Labeling Rule to allow the use of internationally understood symbols -- instead of words -- to convey the care instructions. The FTC staff is evaluating the comments received and developing a recommendation to the Commission on whether to amend the Care Labeling Rule.
Similar considerations are driving proposed revisions to the Commission's Textile Labeling and Appliance Labeling Rules to facilitate the uniform labeling of goods among NAFTA member nations.
In addition to product labeling requirements, product specifications and even advertising standards can similarly pose non-tariff barriers to trade. For example, if one government prohibits the use of a certain chemical in manufacturing, a manufacturer that makes products with that chemical must either forgo selling in that country or reformulate its manufacturing process. The result: higher manufacturing costs and higher prices for consumers.
Similarly, government regulations for advertising and marketing claims requiring strict prohibitions or performance standards may inhibit firms from advertising their goods in other countries. For example, one country may prohibit advertising that compares one brand to another or that makes a health claim for a food. If a television advertisement containing the prohibited messages is transmitted by a satellite, it will cross many national borders and potentially violate the law in some of those countries.
Yet for a borderless market to exist, manufacturers must be able to communicate effectively with consumers in other countries. This means that they must be able to provide consumers with information about their products through advertising. As a result, advertising standards must be flexible enough to accommodate both consumer protection enforcement and international trade considerations.
An example of this may be found in the current debate on international environmental marketing. Environmental labeling programs or "eco-seals" are flourishing worldwide. Canada and Australia both have Environmental Choice programs, Germany has the Blue Angel program, and Japan has its EcoMark program, to name a few. The International Organization for Standardization (or "ISO") is working to establish uniform international standards for environmental marketing claims. As you may know, the ISO promotes private-sector, voluntary, consensus-based standardization. The ISO has proposed international guidelines for environmental marketing claims. If adopted, these guidelines may provide a basis for assisting marketers in making claims about the environmental features of their products without running afoul of the varying laws of individual countries.
But eco-seals raise other concerns as well. One concern the FTC has had about such seals is whether they will be misinterpreted by consumers. Consumers might interpret an eco-seal to mean that the product bearing it is on balance good for the environment, or does not pose any harm to the environment. This is particularly a problem for certain of the European seal programs. Under the Blue Angel program, for example, a lawn mover can get a seal for being less noisy without regard to atmospheric emissions or fuel efficiency. Similarly, an oil-based paint that reduces its emissions of pollutants known as volatile organic compounds (or "VOCs") might earn an eco-seal, while a latex paint that has even lower levels of VOCs to begin with cannot qualify for a seal. One obvious concern here is whether consumers are getting the right message about which products are environmentally preferable. In addition, potential anticompetitive effects may result from the awarding of eco- seals. For instance, awarding an eco-seal to an oil-based paint because it reduced VOC levels could induce consumers to purchase this product instead of a competing latex product that had even lower VOC levels all along.
Although observers frequently discuss the FTC's two enforcement missions -- Maintaining Competition and Consumer Protection -- as if they were separate, that view misses the link that furnishes coherence to the FTC's activities. After all, both competition policy and consumer protection policy seek to ensure that markets can function for the maximum benefit of consumers. The common goal of both antitrust and consumer protection enforcement is to provide consumers with access to an array of competitively priced goods and services in markets unfettered by unfair or deceptive practices. The Commission's review of its Care Labeling, Textile, and Appliance Labeling Rules exemplifies this effort. Rules that are simplified to reduce manufacturers' costs and eliminate the need for country-specific inventory will serve the beneficial goals of conveying necessary information to consumers and removing undue burdens on trade.
II. INTERNATIONAL DIMENSIONS OF ANTITRUST AND CONSUMER PROTECTION
To ensure that our dual enforcement missions will remain viable in a world of borderless markets, the FTC seeks to work cooperatively with other countries' enforcement agencies. This sounds simpler than it is.
A. Sources of International Antitrust Conflict
Although some need for international cooperation among antitrust enforcers is clear, just how much and what kind are the focal points of the ongoing debate. Certain obstacles have historically impeded cooperation. I perceive two general sources of conflict. The first relates to territoriality or sovereignty; the second encompasses the extent to which substantive elements of antitrust law and practice outside the U.S. differ significantly from U.S. law and practice.
In recent years I have sensed a subtle shift away from territorial factors as sources of actual conflict, particularly as they relate to government enforcement actions. Instead, issues of substance -- including market definition, as well as the substantive criteria applied to evaluate business structure and conduct -- pose a much greater potential for conflict.
Although the antitrust laws of many countries share with the U.S. the goal of maintaining competition, a few basic differences between U.S. antitrust law and the laws of most of our major trading partners can lead to conflict.(1)
First, the U.S. is one of the few places in the world that criminalizes some antitrust conduct. Canada has made some conduct criminal and has prosecuted a few cases. Europe, on the other hand, relies on the threat of potentially large civil fines rather than criminal sanctions.
Second, although many nations subscribe to the view that certain hard-core conduct -- such as naked price-fixing and horizontal market division -- is to be condemned, quite a few outside the U.S. tolerate such schemes in particular economic circumstances (such as recessions, depressions, and other crises).
Third, there are differences between the U.S. and other nations over the concept of market power and the abuse of a dominant position. For instance, European Union law is nominally less tolerant than U.S. law of the practices of a firm that has achieved a leading position in a market.(2)
Fourth, considerations other than those exclusively involving competition -- such as employment or environmental concerns -- may be factored into some nations' antitrust regimes (to a greater or lesser extent than in the U.S.).
These differences have not stood in the way of cooperative efforts so far, such as the bilateral agreements that have been reached and the cooperation and information-sharing that take place under the aegis of the OECD's recommendation concerning restrictive business practices that affect international trade.
B. Convergence in National Policies
In recent years, practitioners, scholarly observers, and international organizations -- particularly the OECD -- have examined the concepts of substantive and procedural convergence among multiple nations' antitrust policies. Over nearly five decades, there have been proposals to take the ultimate step toward convergence -- namely, to develop an antitrust code of uniform global application, perhaps fashioned after the GATT.
Those who favor the process of convergence among the world's antitrust enforcement schemes point out that there is undoubtedly a core group of practices undertaken by direct competitors -- most notably naked price-fixing, output restraints, customer allocation, and market division -- that antitrust authorities recognize as posing the direst threat to consumer welfare, and condemn with virtual unanimity.
There is a perception that some countries do not enforce antitrust policy at a level that recognizes the importance of international trade. A World Trade Organization code on competition policy could provide the mechanism for resolving disputes that arise out of a perceived failure to enforce national antitrust laws. The sticking point is whether agreement can be reached on a sufficiently stringent set of antitrust policies. Fear of a "lowest-common-denominator" antitrust code has made many U.S. policymakers skeptical about pursuing a world code.(3)
Similar fears exist on the consumer protection side. For example, one country may develop standards for product labeling designed to protect consumers from false or misleading information; other countries whose industries manufacture products that cannot meet those standards may oppose the standards. So the obvious concern is that reaching a standard that all can agree on would result in lowered levels of consumer protection enforcement.
How far and fast the convergence process should go, and whether a single antitrust or consumer protection code should ultimately reign in most or all of the world's nations, are issues deservedly undergoing intense debate. A report prepared in 1991 by a special committee of the American Bar Association made a number of recommendations for the revision of national laws in order to achieve a number of goals, including deterrence of cartelization, repeal of the immunity granted to export cartels, harmonization regarding the timing and content of sovereign states' various premerger reporting requirements, and an appropriate accommodation between antitrust laws and intellectual property laws.(4) As to whether a global antitrust code should be developed, however, the committee concluded that "[n]o world [antitrust] code initiative should be undertaken at the present time."(5) Has the world changed so much in the last five years that the ABA's recommendation is now obsolete? I don't think so.
The differences in nations' economic development and culture continue to dictate differences among their antitrust and consumer protection systems. Even if a nation with a sophisticated, open-market-based economy and a long-standing tradition of antitrust enforcement shares with a nation lacking those attributes the bedrock goal of maximizing consumer welfare and allocative efficiency, politics and national policy objectives may dictate marked differences between the enforcement priorities of the two countries' antitrust systems.(6)
Similarly, different cultural norms may dictate that some types of advertising and marketing that may be helpful and informative to consumers in one country may be ineffective or even offensive in others. Certainly, consumers' interpretation of and response to advertisements will vary among countries, so that different rules regarding substantiation of advertising claims might be in order. Differences in consumer preferences, infrastructure, and payment systems may all present obstacles to uniformity in international advertising laws.
C. Procedural Barriers to International Enforcement of Consumer Protection Laws
Although lowered barriers to trade ease the flow of goods across borders, they also present consumer protection challenges because they make it easier for fraudulent marketers to target even more consumers as victims. Technological advances in telecommunications and finance allow scam artists in one country to communicate easily with victims in another country and to transfer their ill-gotten gains from one country to another.
It has been our experience that vigilant law enforcement is needed to keep up with transnational fraudulent schemes. This is particularly true with telemarketing fraud. There are real barriers, however, to investigating foreign marketers who victimize consumers in the United States. Gathering information about fraudulent marketers abroad can be difficult.(7) American victims of foreign con artists may not know much about the people who defrauded them. Sources of information that we normally turn to in a domestic investigation -- such as former employees, local law enforcement agencies, and informers -- are less accessible in foreign countries. Even if those sources are inclined to supply information, they are less likely to know of the Commission's existence, and the Commission's staff is unlikely to know who they are. Moreover, the Commission's use of compulsory process may not suffice to compel the production of documents or sworn testimony of persons outside the United States.
There are other barriers to conducting investigations in foreign nations. Differences in foreign law can make it difficult to investigate conduct that takes place offshore. Just as in antitrust enforcement, some nations affirmatively block cooperation with foreign government investigations conducted on their soil. Some impose criminal sanctions on citizens who provide information to American or other foreign law enforcement agencies. Other countries restrict their law enforcement agencies from sharing information with foreign governments. Conducting an investigation in a foreign country can be an expensive proposition, and United States government personnel posted abroad generally do not have the resources to assist us.
Fortunately, however, the United States is not alone in the desire to respond to the globalization of marketing fraud. In 1992, I participated in the founding of the International Marketing Supervision Network, an international body of criminal and civil law enforcement agencies charged with protecting consumers against fraud. The members include the Commission's counterpart agencies from most European nations, Australia, New Zealand, Canada, Mexico, and Japan. One purpose of the Network is to find ways to cooperate in tracking consumer problems associated with cross-border transactions in goods and services. Cooperation is on an informal basis, with participants using their best efforts to help each other (subject to national law and practice and the availability of resources).(8)
The Network also publishes a bulletin advising members of developments in members' consumer protection laws and in allegedly deceptive advertising practices. The Network is an example of how cooperation among nations can help overcome some of the information problems inherent in prosecuting international fraud that I just mentioned.
D. Transactions in Cyberspace
Perhaps the most intriguing development in the global marketplace, and the one that presents the most challenges to law enforcers, is the development of the Internet and online services in general. The Internet knows no borders. What happens when foreign-based advertisers electronically transmit their advertisements to American consumers? Not only are these advertisers more likely to be unfamiliar with American ground rules for advertising, but this advertising raises the same problems and issues involving jurisdiction and authority that I have noted with respect to traditional marketing.
In addition, law enforcement actions against global marketing on the Internet raise difficult choice of law issues. Although the United States can seek help from and offer help to foreign governments under existing legal assistance treaties, further specialization to deal particularly with Internet fraud may be appropriate. At the same time, any laws passed in the United States are likely to have international ramifications because of the large volume of U.S. advertising that reaches other countries and because the U.S. is such a large market for non-American firms.
In fact, there is an argument that too many individual nations' laws could stifle information and access to online technology. Some countries do not permit comparative advertising, while the United States encourages it. Similarly, some countries do not permit advertising for certain products or certain depictions, while the United States would permit these ads.
It is also technologically possible for government monitors to seek out and remove offending materials from the Internet. Such a situation could embroil countries in battles over what should and should not appear. As you might expect, many have cautioned against using Internet technology itself as a policing mechanism. There is a concern that a technological fix to problems could, in turn, "fix" or stifle technological development and limit competition in this rapidly evolving area.
Another problematic issue in cyberspace is the treatment of intellectual property. International laws in this area are inconsistent and have caused conflicts in GATT and treaty negotiations. The problem is compounded by the cyberspace "culture" that transcends national boundaries. For years, those using the Internet and computer bulletin boards have had access to what is called "shareware" -- software that is posted for all to download for free, with payment made on a voluntary basis if the user likes the program. This may have led to the perspective that all information on the Internet is free, obviously posing a risk to those making their intellectual property available online.
It may seem obvious to the casual observer that worldwide convergence in national competition and consumer protection policies holds out the long-run promise of making the law easier for multinational firms to understand and obey. Nevertheless, my inclination is to agree with the note of caution sounded in the ABA report and by many others. The great variety among nations' stages of economic development, and the numerous political and policy considerations that make up some nations' trade policies, counsel in favor of gradualism. The way to build a consensus on antitrust and consumer protection policy and enforcement is through expanded bilateral and multilateral cooperation in the enforcement of existing laws. Through cooperation, mutual trust and understanding can be built, and thus someday we may have sufficient procedural and substantive harmonization to begin considering whether a consensus on an international agreement can be reached.
The FTC can contribute to this effort by ensuring that its own regulations and law enforcement efforts are adapted to the global marketplace. Last fall the Commission conducted 23 days of hearings over the course of several months devoted to gathering information on how the Commission's law enforcement efforts should reflect the broad-based changes in today's global and innovation-based marketplace. I am confident that the Commission is up to the challenge of facilitating, through its enforcement efforts, international competitiveness and the advancement of innovation-driven industries.
Thank you for the opportunity to address this distinguished group.
(1)A thorough examination of substantive differences between U.S. and European Community law appears in the Remarks of Commissioner Roscoe B. Starek, III, Federal Trade Commission, at the International Business Conference on the Art of Networking: The European Perspective 7-26 (Los Angeles, Oct. 28, 1991).
(2)Different analytical approaches to market definition in the U.S. and Europe may suggest that this comparison is less than perfect.
(3)See, e.g., D. Wood, The Internationalization of Antitrust Law: Options for the Future, address before the DePaul Law Review Symposium (Chicago, Feb. 3, 1995).
(4)REPORT OF SPECIAL COMMITTEE ON INTERNATIONAL ANTITRUST, SECTION OF ANTITRUST LAW, AMERICAN BAR ASSOCIATION (DAFFE/CLP/WD(91)14), submitted to the Committee on Competition Law and Policy, Organization for Economic Cooperation and Development (Paris, 1991).
(5)Id., Chapter One at 30.
(6)See, e.g., D. Wood, International Competition Policy in a Diverse World: Can One Size Fit All?, in Fordham U. School of Law, 1991 Corp. L. Inst., EC AND U.S. COMPETITION LAW AND POLICY 71, 73 (B. Hawk ed. 1992) ("As we in the West rush to share our antitrust experience with others, it is worth pausing to make sure that we are not assuming that an unthinkingly homogeneous set of world-wide competition rules automatically creates the best of all possible worlds."). Wood concluded: "The challenge in years to come will be to find the common elements [among diverse nations' competition policies] and to build on them, without losing sight of the differences in perspective and culture that inevitably exist." Id. at 85.
(7)See generally Testimony of the Federal Trade Commission Regarding International Telemarketing Fraud, before the Senate Committee on Governmental Affairs, Subcommittee on Regulation and Government Affairs (Oct. 15, 1993).
(8)Memorandum on the Establishment and Operation of the International Marketing Supervision Network ¶ 5 (Oct. 27, 1992).