The European Institute's Eighth Annual Transatlantic Seminar on Trade and Investment
One of the great challenges facing antitrust enforcement officials (and scholars and practitioners) around the world concerns the scope of cooperation in antitrust enforcement and convergence in antitrust views when reviewing international transactions. Because the topic is unusually broad, let me start with some premises that will frame and focus the discussion.
- First, international trade will continue to grow much as it has grown in recent years. For example, exports as a percentage of the United States gross domestic product grew from 7.2% in 1987 to 13.5% in 1997; imports grew from 10% in 1987 to 15.4% in 1997.(2) Even these remarkable figures do not capture fully the remarkable growth in international trade in recent years because they do not include cross-border financial investments.
- Second, transactions with a cross-border or even global dimension will increase in proportion to those that are confined within national boundaries.
- Third, more countries around the world will adopt antitrust codes, expand existing codes, and increase resources committed to enforcement. Today, approximately 82 countries have some kind of competition law, and 52 of those codes (63%) took effect during the past 10 years. An additional 24 countries are in the process of drafting or enacting an antitrust law.
- Fourth, these trends may accelerate because of the increased prominence of competition in high tech markets. Products that are essentially the embodiment of ideas often respect no borders and compete comfortably in regional or global markets. Most people quickly think of computers and software as examples, but these are only two among many sectors of the high tech economy. Other sectors involve biotechnology and other pharmaceuticals, finance and credit arrangements, international banking, international media, and a new but growing volume of international commerce on the Internet.
- Fifth - and perhaps more controversial than the first four premises - inconsistent antitrust enforcement and divergence of antitrust rules from country to country, at least where they are unfair, unwise, or enforced in a discriminatory manner, create an unlevel playing field on which firms must operate in transnational competition, and these are a burden on international commerce
Given these premises, how should we - people involved in competition and trade policy - think about the challenges of the future?
A minimal response to the challenge would seek procedural cooperation (mostly bilateral) among countries with antitrust codes, according due respect for the preservation of confidential information and for differences in approach from country to country. Essentially, countries would enforce their various and different antitrust principles with the aid and cooperation of antitrust allies.
A maximum response would be a world competition code, enforced by mandatory dispute resolution in some international tribunal. Perhaps the world community would not and could not agree on every detail of competition policy but, according to this ambitious agenda, it would agree on many essential principles.
Since I believe in exploring more than the "minimum," and doubt the practicality and wisdom of the "maximum," a challenge is to develop a constructive, feasible middle position between these extremes.
Before addressing these questions, let me briefly offer a side comment. One might ask whether I have been asleep for the past six months or so, and as a result missed the fact of what some believe is an emerging world economic crisis. Do these difficult times suggest that the trends I presume to exist will not continue? I think not. If anything, recent hard times on the international front illustrate dramatically the interdependence of world economies and the need to coordinate and cooperate in moderating the worst aspects of the international business cycle. Also, the trends I describe are economically inevitable and beyond the long term influence of ups and downs in regional markets. By analogy, I note the situation in the United States at the end of the 19th century when, as a result of improved transportation and communications, this country moved from local and regional markets to national markets. Shortly after that commercial revolution began, the country suffered an extreme recession - even a market collapse - in 1907. But as we all know, although the steady move toward national markets may have slowed temporarily, it did not stop. I expect the same expansion of international trade in years ahead.
Let me turn now to the future of antitrust in a global economy. I plan to address three topics: developments in procedural coordination; the concept of positive comity; and prospects for international convergence of antitrust law.
The most significant development over the last 15 to 20 years in international antitrust is the way in which enforcement authorities in various countries cooperate and coordinate on a daily basis in investigating, occasionally challenging, and negotiating settlements involving transactions with an international dimension.
This cooperation is evidenced and facilitated by treaties and agreements between the United States and other countries. As early as 1959, U.S. and Canadian officials agreed to notify one another in antitrust matters.(3) In the 1960s the U.S. and other industrialized countries discussed measures to cooperate procedurally within the OECD, and these discussions culminated in a 1967 recommendation providing for notification when one member's antitrust enforcement activity affects another member's important interests, consultation on antitrust enforcement, consideration of other members' significant national interests, cooperation in enforcement, and consideration of other members' requests to investigate anticompetitive practices taking place in the requested parties' jurisdiction (so-called "positive comity," to which I will return shortly).(4)
We continue to operate under the OECD recommendation and the United States made over 70 notifications last year.
The U.S. has also entered into bilateral agreements on procedural cooperation with Germany (1976), Australia (1982), the EC (1991, supplemented by a 1998 agreement on positive comity) and Canada (1984, revised in 1995).(5)
These agreements provide for roughly the same sort of procedural cooperation as called for under the original OECD recommendation.(6)
While these commitments to cooperation are important - even essential - to effective international enforcement, they are by no means the whole story. In many ways the real internationalization of antitrust enforcement is found in the day-in-day-out collaboration of enforcement officials in so many parts of the world. Incidentally this is a cooperation born not of ideology but of necessity. For example, at the Federal Trade Commission, 25% of the mergers filed last year involved parties or assets in at least two different countries, and sometimes as many as eight or ten. Of our full-phase merger investigations over the last several years, at least 50% have involved a foreign party or assets or information located abroad. That is a vast increase over the number of international mergers that were reviewed by the FTC 20 years ago. At the Department of Justice, where enforcement against international cartels has been pursued with unprecedented vigor and success in recent years, 30 ongoing grand juries - one-third of the total - are currently examining suspected international cartel activity. Without international coordination, law enforcement would be inconsistent, discordant and, in important ways, unfair to the firms subject to antitrust review.
Procedural cooperation of course does not lead ineluctably to common attitudes or approaches. At times, the United States sees problems and demands solutions that other countries might not - as when the Federal Trade Commission extracted a more extensive remedy than the EU as a condition of allowing Ciba-Geigy and Sandoz, two of the leading pharmaceutical firms in the world, to complete a merger.(7) On the other hand we all know that the EU saw more serious problems in Boeing's acquisition of McDonnell Douglas than the United States and imposed a set of conditions before approving the merger. I am confident that these examples will not be the last in which the United States and one of our trading partners see antitrust issues differently. After all, countries have different histories and cultures, enforce different statutes, seek to serve slightly different goals, and respond to concerns that reflect different levels of economic development. For example, one can see why some countries with economies that are less developed and mature as the economy of the United States would think it is in their interest to take the welfare of their infant industries into account in their competition policies.
But why should we be surprised at different views and different outcomes? After all, during my professional career, the United States Supreme Court was closely divided in some of the most important antitrust cases it heard.(8)
And certainly attitudes and rules have changed between Warren Court enforcement in the 1960s and enforcement today.(9)
Why would we not expect changes of approach and differences in attitude in international enforcement?
The important point to keep in mind is that the Ciba-Geigy/Sandoz and the Boeing/McDonnell Douglas disagreements are the exceptions rather than the rule. Especially with respect to the Europeans, our disagreements are vastly outnumbered by the instances in which there is cooperation, coordination and agreement about the essential elements of a review of competitive behavior. Slow but steady convergence of review and mutual respect is a proper characterization of relations between the EU and the U.S. enforcement authorities.
A recent elaboration of the goal of international cooperation is the concept of positive comity - an international agreement whereby a country agrees to consider another country's request that it initiate or expand a competition law enforcement proceeding against conduct that is harming the interest of the requesting country. In the recent positive comity agreement signed with the EC,(10) there is an agreed-upon expectation that the investigating country will act promptly, responsibly and diligently in examining allegations at issue.
Before addressing the details of positive comity - let me start with an assertion. I believe that U.S. firms are entitled to the opportunity to compete on the merits when they sell in foreign countries. The United States recognizes that right of foreign firms; indeed the United States is probably the most open market in the world. Of course, competition rules will vary substantially from place to place, and American firms doing business abroad are bound to follow the law of the place they do business, just as non-U.S. firms doing business here must observe our laws. But firms should not be disadvantaged when they do business abroad by behavior that violates the law of the foreign country, especially when laws are not enforced because the target is a foreign company.
By way of example, assume that an American firm is the target of a boycott abroad which directly or indirectly diminishes or even eliminates its ability to do business by export to the foreign country. Or suppose that an international cartel, organized and largely administered in a foreign country, injures consumers of both in the United States and the foreign country. What is to be done?
One possibility is to declare the boycott or the cartel a violation of United States law, assume jurisdiction under the Sherman Act because the boycott affects United States export trade, and litigate in an American court the legality of the behavior that mainly took place in a foreign market. If the boycott or cartel is found illegal and the foreign firms have assets in the United States (as is often the case in global markets), enforcement officials would move against assets located here.
There are two sorts of problems with the approach of attempting to exercise extraterritorial jurisdiction. First, there are practical problems. Frequently, the U.S. court will be asked to determine, as a matter of comity, whether conduct that violates our law also violates the law of the foreign country - an undertaking local courts often would prefer to avoid. Also, the strongest evidence of discrimination against the American firm in a foreign market may be found in documents and witnesses located abroad. Without the cooperation of a foreign government enforcement agency, a fair examination of the charges may be impossible. Second, extraterritorial enforcement by the United States often generates a perception abroad of a sort of "United States imperialism."
Concerns about international friction generated by extraterritorial enforcement are not just theoretical. One need only think back 25 years to the efforts by the United States to enforce its law against foreign cartels - the uranium litigation is a glaring example(11) - followed by the enactment in foreign countries of blocking and claw back statutes(12) designed to prevent any further U.S. behavior they regarded as an intrusion on their sovereignty.
Positive comity is a promising, pragmatic way of addressing these sorts of issues. To date, final agreements have been negotiated with the EC and Canada, though others may be down the road. Under these agreements, a referring country first makes a preliminary determination that there is a reason to believe that its citizens or its firms have been injured by anticompetitive behavior in a foreign country. The alleged behavior of foreign firms, and the alleged injury to the domestic firms or consumers, is referred to a foreign jurisdiction for review. Under our new agreement with the EC, if the United States is the referring party, it will ordinarily agree to defer or suspend its own pending or contemplated enforcement activities and await the completion of the EC's inquiry, provided that the EC agrees, among other things, to devote adequate resources to the investigation, promptly pursue adequate enforcement activities, keep the U.S. advised, and devote best efforts to complete its investigation within six months. Of course, the EC makes a similar commitment to defer or suspend its investigations if the U.S. meets these same conditions.
I do not suggest that positive comity is a panacea for all of the enforcement problems likely to arise in a global market. On the contrary, it is a very modest step in the direction of coordination without the disadvantage of international friction.
The key point about positive comity that I think sometimes is missed is that the requesting nation, whether it is United States or one of our trading partners, does not wash its hands with respect to a practice by seeking investigation by a foreign nation. Each country retains the right, if it is not satisfied with the speed or quality of investigation, to initiate or reinstitute its own enforcement activities. Indeed, I expect there will be instances where positive comity is only a preliminary - a practical and comity-conscious preliminary - to old-fashioned extraterritorial enforcement.
Looking to the future, and probably not to the near term, what are the prospects for a competition code among nations, or least among many nations, that would apply uniform rules and uniform enforcement standards to all firms engaged in global competition? In many respects, that is the most tantalizing of international goals.
Very limited convergence is not hopelessly impractical. That is demonstrated by the resolution adopted in the OECD, a collection of 29 countries with the most developed economies in the world, pronouncing hostility to hard core cartels. To be sure, there was recognition that absolute uniformity, even in the area of cartels, was impossible. Thus the resolution called for countries to make clear any exceptions to the rule that cartels are illegal, render such exceptions transparent, and commit over time to keep exceptions to a practical minimum.
Just last month, 11 of the 12 countries in the Western hemisphere that enforce a competition code also adopted a policy pronouncement of hostility to cartel behavior and a commitment to cooperate in international enforcement against such behavior.(13)
One of the reasons why hostility to hard core cartels was an appropriate first step is that in most circumstances cartel behavior is illegal under the laws of virtually every country that maintains a free market system protected by antitrust. Can the cartel initiative be extended to other areas of commercial behavior?
I doubt very much that a consensus on international antitrust principles, even one subscribed to only by relatively more developed countries, is likely to be achieved outside the area of an anti-hard core cartel commitment. The present state of antitrust law with respect to monopoly power, mergers, vertical distribution practices and the whole range of competition issues varies too much country to country to expect a wide range of countries to find common ground. And of course mandatory dispute resolution, even if desirable, is virtually impossible if the countries cannot agree on the rule of law that will resolve the dispute.
I want to emphasize, however, that because a comprehensive code is not feasible today, it does not follow that efforts looking toward future convergence are futile.
Aside from convergence that occurs through internationally negotiated agreements, there is a kind of informal convergence by "learning." As scholars, practitioners and enforcement officials meet more frequently, explain the unique qualities of their system, and debate the merits of each, there is a slow, subtle but discernable trend toward more uniform approaches. At a minimum, as countries understand what has worked and failed to work in other jurisdictions, they adjust their own laws to take that knowledge into account. A classic example is recently promulgated European Union guidelines on how to measure market power. Those guidelines in many respects look like the measurement or market power portion of the 1982 U.S. merger guidelines - although of course some differences remain. Other examples include legislation or proposed legislation in Central European countries that appears to move in the direction of the EU's approach to competition issues - particularly with respect to abuse of dominant position. As commonly occurs in this kind of convergence, there are of course other areas of law and enforcement that depart from the model.
It seems likely that we will see a continuation and perhaps elaboration of discussion and working groups in settings like the OECD, NAFTA, the Free Trade Area of the Americas (FTAA), the U.N. Conference on Trade and Development and an initiation of discussion of competition policies in the WTO. What are the areas of law where discussion and debate are most likely to be productive?
My answer to that question reverts to one of the premises that I relied upon in initiating this talk - i.e. that divergent views of competition policy are an unnecessary burden on global competition. Our goal should be to open markets to free and fair trade. Our concern therefore should be that, with the decline of government barriers to free trade (successful reductions in both tariff and non-tariff barriers), those state barriers may be replaced by private agreements that have the purpose or effect of unreasonably denying international market access.
Generally speaking market access can be denied by a single firm through abuse of dominant position ("monopolizing" in U.S. terminology), through certain vertical restraints, or by a group of firms organizing a boycott against foreign firms that challenge or threaten their market position. Current laws defining abuse of dominant position, anticompetitive vertical arrangements, and illegal boycotts vary considerably from country to country. But that does not mean that we cannot learn a good deal from each other by understanding not just the differences in approach and in levels of enforcement, but also why the differences occur. Indeed we may even find that certain core types of conduct by single firms or collections of firms, denying market access, violate the law of many if not most jurisdictions. For example, when manufacturers organize a boycott of all distributors for the sole purpose of excluding rival imports, that probably is close enough to anti-cartel principles to be deemed anticompetitive under the laws of most countries that have a competition code.
Let me emphasize that I see these as topics for discussion - not areas where the give and take of negotiation could feasibly lead to a uniform rule of law. One advantage of convergence by learning and imitation is its flexibility. If a particular approach does not work out in the circumstances of a country's economic system, it can be modified or even abandoned. Thus United States antitrust law, under the broad precepts of the Sherman Act and Clayton Act has been modified many times in the last 100 years. An international code, once adopted, may be more difficult to change after common principles are adopted - if indeed we could ever reach common principles in a world with such various competition approaches.
There has been remarkable progress in recent years in the area of procedural coordination and cooperation. I believe there will be progress as well on convergence of law, but except possibly in the narrow area of anti-cartel enforcement, we are not ready for a comprehensive, internationally negotiated competition code. The important thing is to continue to take small but practical steps, all the while minimizing the extent to which divergence of antitrust rules from country to country impair the orderly development of international commerce.
1. Chairman of the United States Federal Trade Commission. The views expressed are my own and do not necessarily reflect the views of the Commission or other Commissioners.
3. This informal notification and consultation arrangement became known as the Fulton-Rogers Agreement, named after the Canadian Minister of Justice and the United States Attorney General.
4. 1967 OECD Recommendation on Cooperation between Member Countries on Restrictive Business Practices Affecting International Trade.
5. Agreement Between the Government of the United States of America and the Government of the Federal Republic of Germany Relating to Mutual Cooperation Regarding Restrictive Business Practices, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,501 (June 23, 1976); Agreement Between the Government of the United States of America and the Government of Australia Relating to Cooperation on Antitrust Matters, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,502 (June 29, 1982); Agreement Between The Government of the United States of America and The Commission of the European Communities Regarding the Application of Their Competition Laws, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,504 (Sept. 23, 1991); Agreement Between The Government of the United States of America and The European Communities on the Application of Positive Comity Principles in the Enforcement of Their Competition Laws, located at "www.ftc.gov/bc/us-ec-pc.htm" (June 4, 1998); Memorandum of Understanding Between the Government of Canada and the Government of the United States of America as to Notification, Consultation and Cooperation with Respect to the Application of National Antitrust Laws, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,503A (Mar. 9, 1984), superseded by Agreement Between the Government of the United States of America and the Government of Canada Regarding the Application of their Competition and Deceptive Marketing Practices Laws, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,503 (Aug. 3, 1995).
6. One problem in international cooperation arises from national restrictions on sharing confidential business information. The International Antitrust Enforcement Assistance Act,15 U.S.C. §§ 6201-6212, enacted in 1994, enables the United States to enter into agreements providing enhanced cooperation through sharing of confidential information with those countries that have reciprocal provisions. We recently negotiated the first agreement under this Act with Australia, and we look forward to signing that agreement shortly.
7. Ciba-Geigy Ltd., Docket No. C-7325 (March 4, 1997).
8. For example, cases decided by 5-4 votes include Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495 (1969), andUnited States v. General Dynamics Corp., 415 U.S. 486 (1974); cases decided by 4-3 votes include Arizona v. Maricopa Medical Society, 457 U.S. 332 (1982), and Otter Tail Power Co. v. United States, 410 U.S. 366 (1973).
9. Among many examples, compare United States v. Von's Grocery Co., 384 U.S. 270 (1966) and Klor's, Inc. v. Broadway-Hale Stores, 359 U.S. 207 (1959), with United States v. General Dynamics Corp., 415 U.S. 486 (1974) and Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985).
10. Agreement Between The Government of the United States of America and The European Communities on the Application of Positive Comity Principles in the Enforcement of Their Competition Laws, located at "www.ftc.gov/bc/us-ec-pc.htm" (June 4, 1998).
11. See In re Westinghouse Elec. Corp. Uranium Contracts Litig., 563 F.2d 992 (10th Cir. 1977); In re Uranium Antitrust Litig., 617 F.2d 1247 (7th Cir. 1980); In re Uranium Antitrust Litig., 480 F. Supp. 1138 (N.D. Ill. 1979).
12. Blocking statutes prevent or limit the ability of United States litigants to obtain information, witnesses, or documents located in countries with such statutes. See, e.g., the United Kingdom's Protection of Trading Interests Act, 1980, ch. 11 (Eng.), amended by Civil Jurisdiction and Judgments Act, 1982, ch. 27, and Statute Law (Repeals) Act, 1993, ch. 50, Sch. 1, pt. XIV; Canada's Foreign Extraterritorial Measures Act, R.S.C., ch. F-29, § 3 (1984) (Can.), as amended by Department of External Affairs Act, 1995, ch. 5, 1994-1995 S.C.; France's Law concerning the Communication of Economic, Commercial, Industrial, Financial or Technical Documents or Information Law No. 80-538, 1980 J.O. 1799 (July 16, 1980); Australia's Foreign Proceedings (Excess of Jurisdiction) Act, No. 3 (1984) (Austl.), as amended by Foreign Judgments Act, No. 112 (1991); and South Africa's Protection of Business Act, No. 99, § 1 (1978) (S. Afr.), as amended by Protection of Business Act Amendment, No. 114 (1979), and Protection of Business Act Amendment, No. 71 (1984), and Protection of Business Act Amendment, No. 87 (1987).
Claw back statutes authorize citizens to seek and recover extra-compensatory damages paid to plaintiffs that have prevailed in United States litigation. See, e.g., the United Kingdom's Protection of Trading Interests Act, 1980, ch. 11, §§ 5-6 (Eng.) as amended; Canada's Foreign Extraterritorial Measures Act, R.S.C., ch. F-29, §§ 8-9 (1984) (Can.) as amended; and Australia's Foreign Proceedings (Excess of Jurisdiction) Act, No. 3, cl. 10 (1984) (Austl.) as amended.