The globalization of international business has brought with it new challenges to the application of the U.S. antitrust laws outside the United States. Recent years have seen a sharp increase in the number and value of international transactions. Perhaps more than ever before, conduct by firms operating in one country have effects on consumers and businesses in other countries.

These developments, due at least in part to the success of trade liberalization through the World Trade Organization and various bilateral and regional arrangements, are generally beneficial to competition in that they often enable foreign entrants to compete with domestic incumbents. These new entrants frequently offer new products, better quality, or lower prices.

But more liberal and increased trade has not spelled the end of anti-competitive practices such as price fixing, group boycotts, exclusionary conduct, abuses of dominant positions, and anti-competitive mergers. Indeed, firms singly or jointly may have greater incentives to behave anti-competitively precisely to defeat the benefits that liberalized trade can offer.

Globalization has brought on a concomitant increase in the international component of enforcement by the U.S. antitrust agencies: the Federal Trade Commission and the Antitrust Division of the Department of Justice. Once a rare occurrence, cases with a significant international dimension occupy a large proportion of our dockets. For example, approximately half of all fully investigated mergers involve a foreign party, asset, or evidence, such as information about the affected market, and the Justice Department is prosecuting a record number of international cartels.

Yet there are still obstacles to effective investigation and remediation of foreign anti-competitive conduct that can arise from differences in how countries view the role of antitrust and differences over use of national investigational tools. This article discusses some steps the U.S. enforcement agencies have taken to confront this challenge, primarily through entering into cooperative arrangements with foreign antitrust authorities.

The Exercise of U.S. Jurisdiction

Long before the advent of the most recent globalization trends, the U.S. government, as well as private plaintiffs, sought to use U.S. antitrust laws to protect U.S. firms and businesses against foreign anti-competitive practices. Some early judicial decisions took a very expansive view of U.S. jurisdiction over conduct abroad with anti-competitive effects on U.S. commerce.

In the 1960s and 1970s, U.S. enforcement against anti-competitive practices, such as an alleged uranium cartel, created controversy with several countries that claimed that such "extraterritorial" enforcement was beyond the legitimate scope of U.S. jurisdiction and infringed on their sovereignty. Some countries enacted legislation making it difficult or even illegal for their nationals to cooperate in U.S. antitrust investigations.

In 1982, the U.S. Congress enacted the Foreign Trade Antitrust Improvements Act, which limited U.S. antitrust jurisdiction to conduct having a "direct, substantial, and reasonably foreseeable" effect on domestic U.S. commerce including exports. In 1988, the Justice Department limited the cases in which it would exercise jurisdiction over foreign anti-competitive conduct to those in which U.S. consumers were injured. However, this policy was repealed in 1992 so that the agencies can now challenge conduct that injures U.S. exports, whether consumers are injured or not. Most recently, in a case in which the Justice Department challenged an alleged cartel of Japanese fax paper producers, a federal appellate court upheld the department's ability to use the criminal provisions of the Sherman Act to prosecute anti-competitive foreign conduct that directly and substantially affected U.S. commerce.

Whatever the reach of the U.S. antitrust laws, there can be formidable practical obstacles to investigating and taking effective action against offshore anti-competitive conduct. To prosecute a contested case effectively, it may be necessary for the U.S. enforcement agency to serve a foreign party with process, compel the production of documents located abroad, obtain the testimony of foreign witnesses, and enforce a remedy against foreign parties and assets.

Each of these steps can be fraught with legal risks and impose burdens on the agency. Thus, it is often desirable for the U.S. enforcement agency to conduct an investigation with the active assistance and cooperation of a foreign antitrust authority.

Bilateral Antitrust Cooperation

One vehicle the U.S. antitrust agencies have used to increase the effectiveness of their enforcement is cooperative agreements with other antitrust enforcement agencies. These are "executive agreements," meaning that they are formal and binding but are not treaties that override inconsistent domestic laws. The United States currently has four such agreements -- with Germany (1976), Australia (1982), the European Community (EC) (1991), and Canada (1995, revising a 1984 agreement). Japan and the United States are currently discussing the possibility of entering into such a bilateral antitrust cooperation agreement.

Our bilateral agreements generally have arisen from a combination of a mutual interest in strengthening cooperation to enhance the effectiveness of both parties' enforcement and a desire to avoid or manage disputes arising from the assertion of extraterritorial jurisdiction.

These agreements generally provide for: notification to the other party of certain investigative and enforcement actions that may affect the notified party's important interests; sharing information relevant to each other's investigations to the extent permitted by domestic law; coordination of investigations when each party is investigating the same firms or conduct; consideration of the other party's important interests under principles of international comity; and consultation regarding potential or actual disputes. The agreements with the EC and with Canada also provide for positive comity, as discussed below. All of these provisions are consistent with principles to which all members of the Organization for Economic Cooperation and Development have subscribed through their adoption of successive Recommendations dating back to 1967.

The bilateral agreements are serving their purposes well, facilitating communication and cooperation that increase the effectiveness of the enforcement efforts of the U.S. agencies. For example, many mergers and acquisitions are now reviewed simultaneously by, among others, the United States, the EC, and Canada. Our antitrust enforcement staffs cooperate closely in the review of these transactions, always within the limits imposed by domestic laws protecting firms' confidential information. This not only improves the information that each agency can use to analyze the transactions, but also allows the agencies to coordinate any necessary remedies.

For example, we were able to coordinate the relief accepted by the Federal Trade Commission and the European Commission in the mergers between the Swiss pharmaceutical firms Ciba-Geigy and Sandoz and in the merger of Guinness and Grand Metropolitan. Coordination in such cases can be good not only for the agencies but also for the parties, who can benefit from streamlined investigations, faster clearance of mergers, and compatible remedies.

Firms are increasingly recognizing the advantages of cooperation among reviewing agencies and are increasingly agreeing to waive the assertion of confidential treatment of submitted information to facilitate this process. Such cooperation, while more prevalent in merger cases, where the parties are dependent on prior government approval, also occurs in nonmerger investigations, such as in coordinated 1995 U.S. and EC cases involving the Microsoft Corporation.

Increased cooperation does not mean that the U.S. agencies will always agree with their foreign counterparts. Perhaps the most visible instance of disagreement occurred in the Boeing-McDonnell Douglas merger, in which the Federal Trade Commission did not challenge the transaction but the EC conditioned its approval on a set of remedial measures. Indeed, tensions arising from this disagreement raised the specter of a trade war between the United States and the EC.

Differences among agencies in different countries, while not desirable, should not be surprising -- after all, there often are divided votes even within the Federal Trade Commission, or when the U.S. Supreme Court considers antitrust cases. Thus, one should not expect perfect harmony among agencies in different countries enforcing different laws and policies.

In any event, the Boeing case was exceptional in several respects; other cases in which the United States has reached a result different from that of a foreign agency proceeded without controversy. Nor does the Boeing case mean that cooperation is not generally productive; rather, it illustrates the potential perils of failing to work together in a global environment.

New Initiatives in International Antitrust Enforcement

The benefits of cooperation of the type envisioned by bilateral agreements and equivalent informal arrangements are limited by at least two constraints -- the difficulties inherent in carrying out an enforcement action beyond one's borders and the legal inhibitions on sharing confidential information. The U.S. agencies have taken steps to address these issues through the expanded application of positive comity and the negotiation of our first agreement under the International Antitrust Enforcement Assistance Act (IAEAA).

The term "positive comity" refers to the sympathetic consideration by one country of the request by another country to initiate or expand an antitrust proceeding against conduct that is harming the interests of the requesting country. For example, if a cartel among European producers is injuring not only European but also U.S. consumers, the U.S. agencies, under the principle of positive comity, could ask the EC to investigate and take action against this conduct.

Similarly, positive comity might be invoked if, for example, a group of Canadian firms divided their domestic market among themselves, excluding otherwise competitive U.S. firms from exporting there. In each case, the local competition agency is better positioned to investigate the conduct and to impose and carry out any punishment that may be due. In addition to enhancing efficiency, positive comity can avoid disputes that might otherwise arise over the assertion of jurisdiction over parties and conduct in another nation.

As mentioned above, the bilateral agreements the United States has entered with the EC and with Canada contain provisions for the use of positive comity. In 1998, the United States and the EC entered into a new agreement elaborating on the positive comity provisions of the earlier accord. An important feature of this agreement is the commitment by each party to defer or suspend its own investigation of certain conduct subject to positive comity procedures if the other party agrees to meet a set of conditions. These conditions include, for example, that the requested party devote adequate resources to pursuing the investigation, keep the requesting party apprised of significant developments in the investigation, and complete the proceeding, including any due remedial action, expeditiously. However, the agreement clearly preserves the ability of either party to initiate or reinstitute its own independent investigation.

To date, positive comity has been invoked formally on one occasion, in a request by the U.S. Justice Department to the EC to investigate conduct alleged to be impeding competition in the European market for computerized airline reservation systems. There have also been several cases of "informal" positive comity. It is too soon to judge the efficacy of positive comity, but the U.S. agencies are hopeful that positive comity, while not a panacea, will make a meaningful contribution to improving international antitrust enforcement.

With respect to the ability to exchange confidential information, in 1994, Congress enacted the IAEAA, which authorizes the antitrust agencies to enter into agreements under which they can share confidential business information with enforcement agencies in countries that have laws allowing reciprocal information sharing. Agreements concluded under the IAEAA would also provide that each agency could use its compulsory powers to obtain information for the purpose of turning it over to the other party for use in its investigation. These are potentially powerful tools that can significantly advance the ability of antitrust agencies to obtain the evidence necessary to determine whether illegal conduct has occurred.

The U.S. agencies have negotiated the first agreement under the IAEAA with Australia and look forward to signing it soon. The Canadian antitrust agency has expressed interest in entering into a similar agreement once Canada enacts the necessary legislation, and the U.S. agencies are pursuing opportunities to enter into such agreements with additional jurisdictions.

There is every indication that globalization will continue apace and that some firms will continue to engage in anti-competitive conduct. It is therefore important that antitrust enforcers have the tools necessary to protect their countries' consumers and businesses. Although some envision a worldwide antitrust code with some kind of global enforcement mechanism, such a regime is neither realistic nor necessarily desirable in the foreseeable future. In the meantime, the U.S. antitrust agencies rely on sound enforcement policies, buttressed by incremental measures such as bilateral cooperation, positive comity agreements, and agreements under the IAEAA, to meet the challenges posed by global antitrust enforcement.