Prepared Remarks At The Annual Lecture of the European Foreign Affairs Review
*The views expressed are those of the Chairman, and do not necessarily reflect the views of the Commission or of any other Commissioner
I want to thank the European Foreign Affairs Review, the Sussex European Institute, the law firm of Freshfields Bruckhaus Deringer, and Mario Monti and his colleagues for the honor of participating in this event.
I have spent most of my professional life in academia. I have found, and you may agree, that many university professors have a high estimation of their abilities. Among other activities, academics like to make bold, confident predictions about the future of the world. The predictions are occasionally correct, but never in doubt.
Let me recount a memorably inaccurate forecast. In 1963, Robert Heilbroner published The Great Ascent,(1) an influential text on economics and development. Heilbroner said public officials must accept the need for political authoritarianism and economic collectivism(2) to spur economic growth in less developed countries. He announced that capitalism is unlikely to exert its influence beyond the borders of the West, at least within our lifetimes.(3)
This assessment proved to be stunningly and wonderfully wrong. When Heilbroner wrote The Great Ascent, how many expected market ideas to reshape the global economy by the end of the century? Who foresaw that competition policy would become a prominent instrument of market reform?
When I reflect on my professional life, the scope of the transformation never fails to astound me. My career in competition policy began in 1974, when I first worked at the Federal Trade Commission (FTC). Then, it was improbable that a Review devoted to foreign affairs and European Union external relations would feature antitrust at its annual lecture. Neither could you expect that international antitrust issues would attract an audience of this size and stature on a summer's eve.
Recall the status quo three decades ago and into the 1980s. Few countries had antitrust laws. Most enforcement was purely domestic. There was no broad international consensus about the value of stringent prohibitions against cartels. Cross-border competition issues mainly involved using blocking statutes and claw-back laws to blunt the reach of U.S. antitrust enforcement. I have a clear memory of visiting London as an FTC official in 1984 and listening to the Department of Justice (DOJ) and Her Majesty's Government argue over a blocking statute.
Given the state of the global political economy, this is unsurprising. As a model for economic organization, capitalism was the exception, not the rule. To predict in 1974 that a wave of economic liberalization would sweep over the globe by the century's end would have seemed heroically optimistic.
But that's exactly what happened. Most countries today agree that markets form the core of a vital economy. Over 90 nations have adopted antitrust laws, including more than 50 in the past twenty years. The trend reflects a basic change in how nations see the government's role in the economy.(4) Antitrust policy views the government as a referee, not as the manager or star player.
Despite true progress, major challenges confront the move toward a market-based global economy. Tonight, I will address how competition agencies can help realize the promise of the transforming events of recent decades. I will focus on three points. First, I will provide my perspective on future progress toward common international standards for competition law. Second, I will examine the growing importance of cross-border consumer protection in shaping the competitive environment. Finally, I will discuss the importance of EU and U.S. technical assistance for creating sound institutions for competition policy.
All three points share a common theme. Our success as competition authorities will depend substantially upon improving the institutions we use to implement policy.
I. A Possible Path for Convergence: Lessons from the Past
Let me start by discussing what our past says about the likely path for the development of common standards. The modern transformation of competition policy is becoming a familiar story. In the 1970s, antitrust concerned a small number of Western countries. Today, antitrust spans the globe. Merger policy provides a vivid example. Over 70 countries have merger control regimes. Companies active in international markets no longer can limit their attention to the antitrust agencies in places such as Brussels, Ottawa, or Washington. Today nations such as Brazil, Poland, South Africa, and South Korea have active merger enforcement programs and must be taken seriously.
It should startle no one that the world's antitrust systems have important differences. We all know that these differences can cause tension between jurisdictions and impose needless costs upon business. The widely perceived need to mitigate differences has inspired many bilateral and multilateral initiatives to promote cooperation and convergence.
To some observers, this welter of activity is overwhelming. The spawning of new antitrust systems and the proliferation of measures to reconcile them sometimes seems haphazard. Tonight, I will suggest why this story can have a happy ending. My basis for optimism comes from considering the decentralized development of legal systems. Many systems of law feature dissimilarities at the international and national levels. In many instances, we witness a progression toward commonly accepted standards. How does this happen?
From studying this experience, we can identify three phases in the process of convergence. The first is decentralized implementation. Here, different jurisdictions experiment with diverse processes and substantive standards for solving specific problems. Phase Two involves building consensus. Experts in and out of government study the decentralized experiments and identify the superior standards. In the third phase, individual jurisdictions opt in to the superior standards - what we might call best practices. Opting in sometimes occurs voluntarily, and sometimes it takes place through binding international agreements.
Let me offer some examples.
The first draws upon my experience in teaching and writing about the law of contracts. In the United States, the legal rules governing contracts have developed mainly by statute and common law decisions at the state level.(5) One hundred years ago, there was notable variation in the applicable state rules. Today, some differences persist, but consistency is the norm. When a company in New York City contracts with one in Los Angeles, the two have largely similar expectations about what promises the law in either state will enforce.
How did this consistency emerge? Basically through the steps I described above. Through the early 1930s, the states engaged in extensive experimentation with statutes and judicial analysis. Two crucial exercises in building consensus followed.
The first initiative occurred in the 1930s through the efforts of a nongovernment organization called the American Law Institute.(6) The ALI assembled legal experts from academia, the courts, and the practicing bar to prepare 'restatements' of the law. In 1932, the ALI published the first Restatement of Contracts, identifying general areas of agreement among states and consensus views about superior solutions to problems that some states had addressed differently.(7) As revised in the 1970s and early 1980s,(8) the Restatement has exerted great influence in the U.S. courts and has helped spur convergence in the judge-made law of contracts.
The second initiative began in the 1940s. The ALI and the National Conference of Commissioners on Uniform State Laws (NCCUSL) combined forces to study state commercial statutes. In 1954, the two bodies proposed a new Uniform Commercial Code (UCC).(9)Following several modifications in the 1950s, the UCC was adopted by the State of New York in 1962, and many other states soon did the same. Today, 49 states and the District of Columbia have adopted a version of the UCC. Differences among the state variants are relatively minor.
Two examples involving our own Department of Justice are equally illuminating. In 1982, the DOJ fundamentally revised its merger guidelines.(10) In the early 1990s, the DOJ bolstered the policy that provides leniency to wrongdoers who give information about illegal cartels.(11) You are well familiar with how extensively other jurisdictions have imitated, and continue to imitate, these approaches.(12)
Several points from these contract and antitrust examples stand out. First, the standards emerged through decentralized experiments. The experience of the 50 states supplied the raw material for the Restatement and the UCC. The 1982 Merger Guidelines and enhanced leniency were designed and tested by the DOJ in the United States.
Second, cooperation by government and non-government officials helped build the consensus about specific standards. ALI's work on the Restatement of Contracts and the similar work of ALI and NCCUSL on the UCC show how cooperation by experts in and out of government can identify superior standards. The drafting of the 1982 Merger Guidelines and their later amendments involved extensive interaction among government officials, academics, and the private sector.
Third, the acceptance of the best practices took place voluntarily. No legal rule told judges to use the Restatement of Contracts. No legal command made state legislators embrace the Uniform Commercial Code. No treaty forced foreign nations to borrow ideas from the U.S. Merger Guidelines or to create leniency programs. The standards gained adherents by the power of their intellectual vision and their success in implementation.
Looking ahead, these experiences have important implications for how national competition agencies spend resources at home and abroad. At the national level, to create standards that other jurisdictions will adopt as best practices, we must take two steps. We must first devote high quality resources to refining substantive antitrust principles and evaluating our efforts to apply them. Second, we must engage academics, practitioners, business managers, and consumers in the process of refining concepts and assessing results.
At the international level, our experience suggests the valuable function that bodies such as the International Competition Network can play in the consensus building that is necessary for the phase of opting in. The ICN might do for competition law what the ALI and NCCUSL did for contract law in the USA. For example, efforts by ICN working groups to identify best practices could evolve into a restatement of competition law that would command respect from antitrust authorities around the world.
Achieving success in the ICN, and other international consensus-building efforts, cannot be done on the cheap. The currency of exchange in this arena is analytical excellence and empirical study. To obtain this currency, public agencies must commit substantial resources to create standards whose intellectual power commands assent. Any process that fails to engage minds outside the government necessarily will be incomplete.
I am confident that collaboration among national competition policy agencies has genuine possibilities for establishing general agreement on best practices. Despite differences concerning specific legal standards and enforcement policies, competition policy officials share a basic commitment to market processes. The shared belief in the value of competition and markets provides an essential and promising basis for promoting acceptance of common standards.
In sum, the rapid emergence of competition policy systems and the development of new convergence initiatives can appear untidy and confusing. There is good reason, however, to believe that we can harness this abundance of activity to build commonly accepted standards. Achieving convergence is no easy task, but we are fortunate to know something from past experience about how to get there.
II. Consumer Protection
I now want to turn to a different but closely related topic at the frontier of international economic policy. The subject is consumer protection. Antitrust enforcement in the U.S. seeks to protect consumer welfare. An equally important means to that end is to enforce consumer protection laws.
I have the good fortune to chair an agency with jurisdiction to enforce both competition and consumer protection laws. Having one agency perform both functions makes sense because they have complementary and mutually supportive roles. Competition policy creates conditions that lead to competitive markets, which in turn increase the availability of goods that consumers want to buy at lower cost.
One fundamental element of a market economy is the free flow of information about goods and services offered for sale.(13) The more accurately consumers are informed, the better equipped they will be to make purchasing decisions to satisfy their needs. A competitive market thrives in direct proportion to the ability of consumers to inform themselves about the merits of alternative products and their ability to choose freely among those alternatives.
A major advantage of having competition and consumer protection authority in the same agency is that our work in one can benefit from the expertise we gain in the other. For example, years ago, governments saw that international cartels cause grave economic harm. To address this problem, competition agencies realized they had to work together, on a bilateral and multilateral basis, to fight the proliferation of international cartels. Competition authorities endorsed an OECD Recommendation against hard-core cartels.(14) This step has catalyzed legislative reform and spurred enforcement by myriad jurisdictions, and has improved cooperation and information sharing among enforcement authorities.
In consumer protection, the rise of cross-border fraud necessitates similar cross-border cooperation. The development of the Internet and improvements in long-distance telephony permit wrongdoers to commit fraud on a large scale across national borders. Fraudulent companies often set up shop in one country to target consumers in another. The Fraudsters, as we call them, exploit difficulties that enforcement bodies face in sharing information, exercising jurisdiction, and obtaining redress and conduct remedies across borders.
In these cases, we face many of the same challenges we faced in our international cartel program at its inception. For starters, we face the question of which agency can best take legal action. Is it the country in which the consumers suffer harm, or the country in which the scheme was hatched? To facilitate investigations, prosecution, and remedies, it may make sense for the nation in which the fraudulent firm is located to act. However, that country may not have the information or the incentive to prosecute if the company in question targets only foreign consumers.
Second, if the United States challenges a foreign company, how can we get information? There are many limits on our ability to share information with foreign enforcers. Many countries lack a direct counterpart agency responsible for protecting consumers from fraud. In the countries that do, there are no formal mechanisms for sharing information. Indeed, in some countries, including the USA, consumer agencies cannot share certain categories of information with their foreign counterparts.
Finally, how can we obtain effective remedies to prevent, stop, and deter fraud? A U.S. court injunction is not enforceable abroad. And, because our actions against cross-border fraud are usually civil in nature, we cannot use extradition treaties.
To stem the tide of cross-border fraud, we will need broader ability to act against the Fraudsters and better mechanisms to share information among consumer protection law enforcers. To reach these goals, we can borrow many tools used to enhance international cooperation against hard-core cartels and other anticompetitive practices. These tools include legislation to allow greater cooperation and information sharing, increased enforcement cooperation, more bilateral agreements, and more multilateral initiatives.
The FTC is now working on a plan to implement such initiatives to fight cross-border fraud. During this process, we are assessing how to adapt the tools used in our fight against international cartels to strengthen the campaign against cross-border fraud.
This problem is not limited to the United States, nor can it be overcome by U.S. action alone. The European Commission recently noted the problem of cross-border fraud and the need for cooperation to combat it. In its 2001 Green Paper on Consumer Protection, the EC argued that "[t]he online environment provides unprecedented opportunities for fraudulent, dishonest, or unfair businesses to target consumers from a different jurisdiction and evade enforcement authorities. Cooperation between public bodies in different Member States is essential to combat traders acting cross-border in a fraudulent, dishonest, or unfair way."(15)
The Green Paper also discusses the importance of cooperation with consumer protection enforcement authorities outside the EU. We understand that the EC is working on a legislative proposal to create an EU-wide framework for consumer protection enforcement cooperation. We have seen the benefits of U.S.-EU cooperation in antitrust. As we stated in our comments on the consumer protection Green Paper, we look forward to seeing an EU-wide framework for consumer protection so that we can expand U.S.-EU cooperation in this crucial area, as well.
More generally, we anticipate a need for greater efforts, in fora such as the OECD and in bilateral relationships, to focus on best practices in consumer protection. In terms of possible policy fragmentation and complexity, consumer protection is a decade or more behind competition policy on the global scene. It is time for those of us with an interest in competition policy to devote more attention to building consumer protection programs that reinforce the teachings of competition policy and support the development of sound market processes.
III. Technical Assistance
Another central element of our efforts to promote sound antitrust policy is providing technical assistance to countries that are implementing competition regimes. Since 1980, over 50 transition economies either have enacted their first competition statute or augmented older laws.
Jurisdictions with well-established competition systems have devoted significant efforts to assist these transition economies. A major example is the EC's work in building the capacity of competition bodies in Central and Eastern European nations that desire to join the EU. Another example is the participation by the DOJ and the FTC in long-term advisory projects, including a current project in South Africa and a new project in Indonesia.
These technical assistance initiatives reflect our common view that creating new competition statutes without effective means for implementation can retard, rather than promote, economic growth. At the Doha Ministerial held last fall, the WTO recognized that building strong institutions is vital to the success of new competition systems.
Consumer protection also is ripe for international technical assistance. The attention devoted to competition technical assistance has obscured the rapid growth of new consumer protection systems. By my rough count, at least 30 developing nations have enacted consumer protection laws since 1980. Many nations have assigned enforcement of these laws to the national competition authority, like the FTC.
With the development of new competition and consumer protection regimes, we must ensure that competition and consumer protection policies press in the same direction - toward improving consumer welfare. A key focal point for our future technical assistance programs is establishing consistent, unified policies for competition and consumer protection.
To finish, let me emphasize why Mario Monti, Charles James, and I assign such urgency to enhancing the excellent cooperation among our agencies and to fostering international acceptance of superior standards. We have a remarkable chance to establish the primacy of markets as engines for economic progress around the globe. This once-unimaginable opportunity may not come our way again. We mean to make the most of it.
1. Robert L. Heilbroner, The Great Ascent: The Struggle for Economic Development in Our Time (Harper Collins, 1963).
2. Id. at p. 148.
3. Id. at p. 149.
4. See William E. Kovacic, "Institutional Foundations for Economic Law Reform in Transition Economies: The Case of Competition Policy and Antitrust Enforcement," 77 Chicago-Kent L. Rev. 265 (2001) (describing role of competition policy as element of law reform in the transition from central planning to a market economy).
5. See Edward J. Murphy et al., Studies in Contract Law 5-10 (5th edn, The Foundation
Press, Incorporated, 1997) (tracing the developing of contract law in the United States).
6. The ALI was created in 1923 as an outgrowth of another nongovernment body, the "Committee on the Establishment of a Permanent Organization for the Improvement of the Law." The history of the ALI is recounted in Herbert Goodrich & Paul A. Wolkin, The Story of the American Law Institute 1923-1961 (1961).
7. Restatement of Contracts (1932).
8. Restatement (Second) of Contracts (1981).
9. Uniform Commercial Code (1954).
10. U.S. Department of Justice, Merger Guidelines (1982), reprinted in 4 Trade Reg. Rep. (CCH), ¶ 13,102.
11. Antitrust Division, U.S. Department of Justice, Corporate Leniency Policy, reprinted in 4 Trade Reg. Rep. (CCH), ¶ 13,113 (10 August 1993); Antitrust Division, U.S. Department of Justice, Individual Leniency Policy, reprinted in 4 Trade Reg. Rep. (CCH), ¶ 13,114 (Aug. 10, 1994).
12. On the recent enhancement of leniency policies in the EU, see J.M. Joshua, "Leniency in the U.S. and EU Cartel Cases," 14 Antitrust 19 (2000).
13. J. Howard Beales, III, and Timothy J. Muris, State and Federal Regulation of National Advertising (1993).
14. Recommendation of the Council Concerning Effective Action Against Hard Core Cartels, OECD C(98)35 (1998).
15. Green Paper on EU Consumer Protection Presented by the Commission, COM(01)531 final, available at <http://europa.eu.int/comm/consumers/policy/developments/fair_comm_pract/fair_comm_pract_index_en.html>