As the United States discovered, deregulation of the economy requires more vigorous enforcement of laws against anti-competitive practices, says Joel Klein, assistant attorney general. And as more countries open their markets and as more markets become global, he says, antitrust regulators will have to engage in more and more cross-border cooperation. This interview was conducted by USIA Economics Writer Bruce Odessey.

Question: What's the difference between antitrust and competition policy?

Klein: Competition policy is a much broader field than antitrust enforcement. Competition policy encompasses all the areas of deregulating regulated segments of the economy. In the United States we went through deregulation with surface transportation, air transportation, and other sectors. Now we're going through it with telephony. We favor less regulation, more free market competition.

A necessary concomitant of that world is effective antitrust enforcement; otherwise, the market participants would re-regulate themselves in a way that protects sellers of goods and services and operates against consumers. Antitrust is there basically to ensure that the market remains free, open, competitive, and robust.

Q: Why don't markets regulate themselves in line with demand and supply?

Klein: Just think of the obvious reason. If you have only two gas stations in a town, and they have to compete with each other, that could drive down prices pretty low. If there were no antitrust enforcement, the two gas stations could get together and say, "Look, we're operating on rather thin margins. There's not another gas station for 100 miles. Let's raise the price from $1.09 to $1.50, to $1.80," or whatever.

People who have market power want to increase their prices, want to make sure they get a monopoly profit. And that's what would happen in our markets without antitrust.

Q: Some administrations enforce U.S. antitrust laws more vigorously than others. Is there evidence that more vigorous enforcement has had positive effects for the U.S. economy?

Klein: The best evidence is in Michael Porter's book The Competitive Advantage of Nations. He goes through a lot of case studies showing that countries that pursue competition policy, including antitrust enforcement, don't have the domestic champions -- powerful domestic firms whose survival depends on their being protected by government industrial policy -- that some other countries have. I think that's a pretty compelling case.

Look at what's going on in the world. The U.S. economy is as strong as it is because it's as competitive as it is. While you could argue about the merits of any particular antitrust case, it's quite clear that you need effective antitrust enforcement.

I'm sure enforcement ebbs and flows a bit. To the extent that regulators focus on protecting competitors rather than protecting competition -- and there was some of that in the 1960s -- I think that was a mistake. On the other hand, in the early 1980s, there was a view that markets do just fine and that government should stay out -- I think that was a mistake. Now I think we're at a middle point.

There are two or three other things I think are important. First, we in the United States are moving toward a very deregulated economy. When you had regulation of airlines, regulation of surface transportation, regulation of telephones, regulation of electricity, regulation broadly of energy, you didn't need as much antitrust enforcement in those sectors. As those markets were deregulated, you had a much stronger need for antitrust enforcement.

Second, as we move toward an increasingly global economy, there's no question that we're seeing mergers the like of which we never saw before. Most of those mergers are pro-competitive or at least don't raise antitrust concerns in a global economy, but there are some that do. It used to be a big deal to see a billion-dollar merger. Today a $10 billion merger is routine. You're seeing some $40, $50, $60, close to $100 billion mergers. So that is also pushing some of the limits of antitrust enforcement.

Q: How has international antitrust policy evolved in the Clinton administration?

Klein: In 1988, the Justice Department said it would not challenge anti-competitive foreign conduct if the only U.S. impact was on exports but not on U.S. consumers. Assistant Attorney General Jim Rill, during the Bush administration, reversed that policy. He said that when you can show a foreseeable impact on U.S. exports, the Justice Department will consider bringing such cases. We have certainly looked at cases like that. My predecessor, Anne Bingaman, brought a case involving Pilkington glass company, which raised some of those issues.

We've also been cooperating more intensively with foreign antitrust enforcement authorities, especially the Europeans and Canadians. We've developed what we call a "positive comity" referral mechanism, where, if we think there is a problem with market access in the European market, we do a preliminary assessment and send the case to them for review.

Q: What's the record so far with positive comity?

Klein: It's a new concept that's just beginning to work. We had a pretty effective working relationship with the Europeans in an investigation of point-of-sale market information services -- how Nielsen's practices in Europe affected IRI, the U.S.-based competitor to Nielsen in the U.S. and Europeans markets. Essentially, we let the Europeans take the lead on that. We stayed informed. They brought their case to a successful resolution, and we essentially endorsed their results without duplicating their work. I think that was efficient for the parties.

We referred to the European Commission a case on airline reservations involving complaints about computer reservations systems in Europe. They're still investigating it now, but the process has been reasonably effective so far.

Q: Have you observed any broader trend toward international cooperation?

Klein: The international community is coming to recognize that, with markets increasingly global, antitrust enforcers must be able to work on a global basis. As a result, we are seeing cooperation among antitrust enforcers throughout the world.

At the OECD (Organization for Economic Cooperation and Development), all the members have agreed to cooperate against hard-core cartels.

Also, more countries are looking at mergers that take place outside their borders. The Europeans took a very hard look and put some significant conditions on the Boeing-McDonnell Douglas merger, even though that involved two U.S. companies. Because they sell into the European market, the Europeans scrutinized it. The Japanese just passed a law for reviewing mergers of non-Japanese companies affecting Japanese markets.

What you see is an increasingly global focus characterized by global investigations and significant cooperation by the agencies.

Q: Does the rest of the world have an extraterritoriality problem with the way the United States handles international antitrust cases?

Klein: Increasingly less so. There was some concern expressed over past decades, but in recent times very little. That's not to say none. There are two reasons. First, as the global economy becomes more and more predominant, people understand that you need a global reach, and more and more countries are doing that in their own antitrust enforcement. Second, we have looked for mechanisms like positive comity to try to work cooperatively with foreign enforcement authorities rather than do the enforcement here.

This has shown that we are looking for ways, consistent with our obligation to enforce the law, to be sensitive to the territorial concerns of other countries. We're getting enormous cooperation from other countries with respect to worldwide cartels. We've really begun to see, over the last two or three years, far more cooperation. We have had very close cooperation in this area with Canada for some time. More recently, the Japanese have been tremendously cooperative, and so have a number of European countries. Recently, the authorities in Germany conducted a search for us in one of our cases, and that's becoming much more commonplace. So I think the shared-mission view rather than the separate-island view of antitrust enforcement is clearly in ascendance.

Q: The Justice Department has an advisory committee -- the International Competition Policy Advisory Committee -- looking at three issues connected with international antitrust: the interface between antitrust and trade policy, multi-jurisdictional merger reviews, and enforcement cooperation. What's the status of that work?

Klein: The global market more and more will characterize our economy. That's not to say there won't be local or national markets, but there are going to be relatively few national markets because the barriers to trade are coming down. In that world, the questions that we face are: How do you get evidence, information that enables you to do a job worldwide? How do you do it without stepping on the toes of foreign enforcement agencies? And when a number of countries have a similar interest in a particular transaction, how do you make sure the process works efficiently so that businesses that want to merge can do so when there is no competition problem?

All of those issues have been out there, but there's been no world court that you could bring these cases to. This prompted the attorney general of the United States, upon my recommendation, to appoint the advisory committee to take an outsider's look at how to deal sensibly with the issues you mentioned.

My hope is that some time in late fall 1999 the committee will make its proposals. They're looking at ways to minimize frictions in multi-jurisdictional merger reviews. We've had a real success story in that respect with the WorldCom-MCI merger, the single largest divestiture in the history of U.S. merger enforcement. We and the Europeans worked on it especially effectively.

The committee is looking at the implications for timing, costs, as more and more countries start reviewing mergers of companies based outside their borders.

I think they are going to press very hard for even greater cooperation. They're looking at the problems of transmitting confidential information from one agency to another. And they are trying to define the appropriate boundaries between trade policy and competition policy -- when can antitrust enforcement agencies work effectively in the area of trade and competition.

Q: Does the Clinton administration prefer any multilateral forum over others for considering international competition issues?

Klein: I think such consideration ought to take place in whatever fora are available -- the OECD, the WTO (World Trade Organization). However, I am quite skeptical about a world court at the WTO that could decide these issues -- that U.S. antitrust cases having global impact would be decided at the WTO instead of in the United States. I don't think we're at that point in history where the WTO can be a successful dispute resolution forum in this area.

On the other hand, there's clearly a lot of work for the WTO to do with respect to developing the culture of competition policy, the culture of antitrust enforcement. There are many countries coming into the global economy with increasing enthusiasm but without a history of commitment to competitive markets and antitrust enforcement.

Q: The WTO basic telecommunications agreement was the first multilateral agreement on regulation. Some time far off, do you see any prospect for such an agreement on antitrust?

Klein: Some time far off -- events between now and then will affect what kind of negotiations people will ultimately consider, but I really don't think that's on the horizon. What concerns me is that people focus on those issues prematurely. The really hard work that needs to be done in the WTO to build the culture for competition policy and antitrust enforcement could get swamped in the arguments about the forum for dispute resolution. That would be a big mistake.

Q: How do you characterize the differences in approach between the United States and the European Union (EU) on antitrust?

Klein: The principal difference has to do with the fact that the Europeans are trying to break down national barriers for a single market. As a result, they take a look at some vertical issues such as exclusive distributorships somewhat more aggressively than we do. For example, if you have a company that sews up all the distributors in its country, it may create barriers to entry to a company from another country. We wouldn't have that kind of problem in the United States because our markets are all open nationally. You wouldn't have somebody in Texas or Mississippi who is in the position to bar entry to competitors from other states.

But these differences are on the margin. We do a lot of day-to-day work now, a tremendous amount, with our colleagues in DG-IV (EU antitrust regulators). The vocabulary, the analysis are remarkably similar. I don't foresee a big divergence between us and the Europeans over the fundamental consumer welfare principles that are the basis of antitrust.

That kind of de facto convergence will take a lot more time for countries that have had a lot less experience with antitrust enforcement.

Q: Are there any countries pointedly not cooperating?

Klein: There are places that either for resource reasons or for policy reasons are less willing to do the searches, to find the witnesses for us. But I wouldn't say it's affirmative noncooperation. A lot of times countries just don't have the resources or don't view the issue to be as important as we might.

Q: Do you see convergence as likely?

Klein: This is an enormously exciting time in international antitrust enforcement because countries throughout the world are moving toward increasing participation in the global economy, toward increased deregulation. What we're going to see in the next 10 to 20 years is greater emphasis on competition policy, and antitrust enforcement will be a chief part of that. I look forward to the day when the recognized legitimate form of government intervention in markets is consumer-based antitrust enforcement. That paradigm is beginning to take hold.