*EPF208 02/29/00
Fact Sheet: Justice Advisory Panel Summary on Antitrust Report
(ICPAC final report outlines future role of antitrust law) (4030)

Following is the text of a series of fact sheets from a final report by the U.S. International Competition Policy Advisory Committee (ICPAC) that outlines goals in addressing international antitrust law and competition policies. It was delivered February 28 to Attorney General Janet Reno and Assistant Attorney General for Antitrust Joel Klein.

A copy of the ICPAC report may be obtained from its website at http://www.usdoj.gov/atr/icpac/icpac.htm. For more information on international antitrust and competition policy issues, see the Economic Perspectives electronic journal "International Antitrust and Competition Policy," available from the Office of International Information Programs of the U.S. Department of State at http://usinfo.state.gov/journals/ites/0299/ijee/ijee0299.htm.

(Note: Under a positive comity accord, one country requests another to initiate or expand an antitrust enforcement action against conduct that is harming the interests of the requesting country.)

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[U.S. Department of Justice
Washington, D.C.
February 28, 2000]

INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE
TO THE ATTORNEY GENERAL AND
ASSISTANT ATTORNEY GENERAL FOR ANTITRUST

FINAL REPORT: SUMMARY SHEETS

BASIC PERSPECTIVE

-- In today's expanding global economy, markets extend beyond national boundaries yet law and its enforcement remain national. The Final Report addresses the role of competition policy in the global economy and identifies the new tools, tasks, and concepts needed to address emerging competition issues.

-- It offers recommendations for improving the ability of national antitrust laws to address the challenges posed by economic globalization while at the same time working toward the development of a more seamless international system that facilitates the operation of global markets.

-- The Report is the result of a two-year effort by this Advisory Committee to consider three cutting edge issues facing competition policy in a global economy: multijurisdictional merger review; the interface of trade and competition policies; and anticartel enforcement and international cooperation.

-- In arriving at the recommendations in this Report, the Advisory Committee had an opportunity to hear from experts from around the world, including business executives, lawyers, senior competition officials, investment bankers, economists, academics, and representatives from organized labor, business groups, and multinational organizations. The Advisory Committee held two sets of public hearings, in the fall of 1998 and the spring of 1999, and also undertook other, more targeted outreach efforts.

KEY THEMES

Three themes underpin the Advisory Committee's recommendations.

-- Increasing the transparency and accountability of government actions around the world and identifying "best practices" in competition policy and its enforcement;

-- Expanding and deepening cooperation between U.S. and overseas competition enforcement authorities, and between trade authorities and competition enforcement authorities, to ensure that domestic and international structures are in place to address shared problems and to manage tensions that might arise; and

-- Encouraging a process of greater compatibility of competition systems, in other words "harmonization" or "convergence" of systems, with the aims of limiting actions by governments and firms that stifle competition and have adverse impacts beyond a nation's borders, and increasing efficiency of effort and outcome for governments, business and consumers.

Recommendations are linked to these basic objectives.

MULTIJURISDICTIONAL MERGERS

CHALLENGES PRESENTED BY GLOBALIZATION

-- In 1999 mergers and acquisitions were at an all-time high, with approximately $3.4 trillion in activity announced worldwide. As the volume of merger activity has increased, so too has the number of jurisdictions around the world with antitrust merger control laws. Roughly 60 jurisdictions now have merger review systems in place and more are expected to enact merger control in the near term. These trends make it increasingly likely that mergers involving firms doing business in several jurisdictions will be reviewed by multiple competition authorities.

-- The proliferation of merger control has the potential to create significant benefits. Merger review regimes with notification requirements give competition authorities the ability to identify and remedy potentially problematic transactions, thereby benefiting consumers and competition. At the same time, the growing tendency of nations to apply their laws to offshore mergers and the sheer volume of law that firms undertaking mergers must now consider present challenges for the merging parties and for the reviewing jurisdictions. These challenges range from dealing with heightened uncertainty and increased transactions costs to ensuring consistent outcomes and compatible remedies.

ADDRESSING THE CHALLENGES IN THE 21ST CENTURY

-- To address these challenges, the Advisory Committee considered ways to bridge substantive differences between merger review regimes. The Report does not argue in favor of formal convergence efforts in the form of negotiated substantive rules. Complete harmonization will be achieved only in the long run, if ever. Instead the Report outlines in Chapter 2 several steps that can be taken in the short and medium term to facilitate greater compatibility (i.e., convergence) and minimize the risk that differing substantive standards will lead to diverging evaluation on the merits of a transaction, incompatible or burdensome remedies, and international friction.

-- The Advisory Committee also considered the notification and review practices and procedures within various jurisdictions around the world that could benefit from harmonization and adjustment. The Report identifies targeted reform in individual merger regimes through the promotion of best practices set out in Chapter 3. These best practices seek to ensure that each jurisdiction's merger review regime examines only those mergers that have a nexus to and the potential to create appreciable anticompetitive effects within that jurisdiction, and that each jurisdiction refrains from imposing unnecessary burdens on those transactions during the course of the merger review process.

FACILITATING SUBSTANTIVE CONVERGENCE

The Advisory Committee identifies three concrete areas where nations can take steps to facilitate the convergence process and further minimize transaction costs and conflicts.

-- A first step is increasing transparency by encouraging jurisdictions to publish guidelines, annual reports, speeches, and case-specific decisions (including decisions not to challenge a transaction that reflect a change in precedent or shift in doctrine or policy). This would highlight differences in merger laws and could stimulate international discussion and adjustments.

-- Another step is developing best practices, or what this Advisory Committee is calling disciplines, in merger review to facilitate sound enforcement around the world. The Advisory Committee has identified five illustrative disciplines designed to ensure nondiscriminatory treatment of firms based on nationality; to minimize the imposition of remedies unrelated to competition objectives or based on parochial political concerns (and ensuring transparency in the process if non-competition factors play a role in the decision making process); to minimize problems that may arise in competitor-driven processes by recognizing that competitor interests and consumer interests are not necessarily aligned; and, in the face of a clash, to tailor remedies with extraterritorial effects to cure the domestic problem, taking into account procedures in the foreign jurisdiction. Other disciplines should be discussed and developed through international discourse.

-- To further facilitate convergence and avoid or minimize divergent outcomes, it is important to encourage continued and deepened cooperation. Cross-border cooperation can be enhanced through the development of a transparent framework for cooperation, including a protocol describing how the agencies cooperate, model waivers of confidentiality, and the publication of policy statements regarding the treatment of confidential information. Such a protocol is important to instill confidence in merging parties by imparting transparency in the process and agency accountability for safeguarding confidential material from disclosure.

To further instill confidence, agencies should adopt a policy of refusing to disclose information unless legally required, to use best efforts to resist disclosure and to provide notice as is practicable prior to disclosure to third parties. Jurisdictions also should consider adopting a policy of providing notice, either before or after the fact, when exchanging confidential information pursuant to a waiver. Over the longer term, if jurisdictions begin to share more confidential documents, additional safeguards (such as those contemplated by the IAEAA) may be appropriate.

-- The Advisory Committee also asked: how far can and should the United States head in its efforts at cross-border cooperation? The most integrated approach the Advisory Committee envisions is work sharing between investigating jurisdiction in cases in which the enforcement efforts of one agency are likely to be sufficient to remedy the antitrust concerns of other jurisdictions. Work sharing may be accomplished in incremental steps with each step reflecting a different degree of integration and cooperation. For example, the Advisory Committee sees benefits to cooperation and coordination in the negotiation of remedies, to avoid conflicting remedies and the need to negotiate on multiple fronts. Work sharing in the remedy stage contemplates each jurisdiction conducting its own review of a proposed transaction and participating in the formulation, if not the negotiation and implementation of remedies. This could be done through joint negotiations in the formulation of remedies or, in some cases, one jurisdiction might negotiate remedies that address concerns of both that jurisdiction and other investigating jurisdictions.

-- Work sharing also may be a useful concept in the review stage. In some cases, this may mean a jurisdiction refrains from independent investigation, in others, it could mean that one jurisdiction coordinated the investigating with participation in the process by other interested jurisdictions. As the level of harmonization increases, an even higher level of work sharing may be feasible allowing agencies to consider analyzing the benefits and anticompetitive effects of a proposed transaction on a global scale.

RATIONALIZING THE MERGER REVIEW PROCESS

The Advisory Committee considers problematic features within individual merger review systems that give rise to heightened uncertainty and unnecessary transaction costs and burdens that are unrelated to antitrust enforcement goals. The Advisory Committee recommends targeted reform in individual merger regimes through the promotion of best practices.

-- The Report proposes a set of best practices to ensure that notification thresholds are objectively based and transparent and that they screen out transactions that are unlikely to generate appreciable anticompetitive effects within a jurisdiction by requiring an appreciable nexus to the reviewing jurisdiction. Thresholds should be reviewed periodically to ensure they are set at appropriate levels. To ensure that potentially anticompetitive transactions do not escape scrutiny, agencies should be given authority to review mergers even if they do not meet notification thresholds. Further, to minimize impediments to reform, agency budgets should be delinked from filing fees provided alternative sources of funds are assured.

-- To ensure that each jurisdiction refrains from unduly burdening transactions that trigger a notification, merger review should be conducted in a two-stage process with reasonable deadlines and focused information requests. The first stage should be concluded within a maximum of one month. Filing should be permitted at any time after a letter of intent is signed, agreement in principle is reached or a public bid is announced (that is, definitive agreement requirements and filing deadlines should be eliminated). More certainty with respect to timing should be introduced in the second stage.

-- The initial filing should require the minimum information necessary to determine whether a transaction raises sufficient competition issues to warrant further review, with a long-form option or other mechanism to enable parties to voluntarily provide additional information to narrow the legal and factual issues. Follow-up information requests should then be tailored to the competition issues driving the investigation, and those issues should be conveyed to the merging parties either orally or in writing. The U.S. should continue to support efforts by the Organization for Economic Cooperation and Development (OECD) to develop a common framework for merger notification with emphasis on identifying the minimum information necessary as well as categories of data that may be useful to narrow or resolve potential issues early in the process.

RECOMMENDATIONS ALSO ARE DIRECTED AT U.S. PRACTICES

In the United States, the principle recommendations are directed at increasing the size of transaction notification threshold, introducing more certainty in second-stage review periods, reducing second request burdens, and achieving domestic policy harmonization.

-- To reduce the number of HSR filings without materially reducing the antitrust agencies' enforcement mission, the Advisory Committee recommends raising the size of transaction threshold. Depending on the base year and deflator used, increasing the size of the transaction threshold to account for inflation translates into an increase from $15 million to a range between $33 and $43 million. A majority of members recommend raising the threshold within this range; three members recommend raising it to $50 million. If an indexing mechanism is not employed, the thresholds should be periodically reviewed and adjusted (for example, every four years). Filing fees also should be delinked from the agency budgets provided alternative sources of funding are assured.

-- The Report recommends steps be taken to introduce more certainty in second-stage review periods. For example, the agencies could employ non-binding but notional time frames that vary in relation to the relative complexity of the transaction. Some members would recommend fixed maximum review periods, although the majority of members do not believe such an approach is feasible under the U.S. system.

-- The report recommends the agencies formalize two current practices designed to resolve potential issues without the need for a second request (or to craft a more focused second request). The first encourages parties voluntarily to provide additional information by creating a long form or a model submission list; the other practice permits the parties to withdraw and refile a notification without incurring an additional filing fee.

-- When a second request is issued, staff should articulate (orally or in writing) its reasons for not clearing the transaction. Staff should be open to negotiating modifications to the second request process and when negotiations break down, parties should be encouraged to use the appeals process. The agencies also should make the process more attractive by making it more expeditious and its outcome more transparent.

-- With respect to foreign productions and foreign language documents, staff should continue its current practice of allowing parties to produce summaries of documents and requiring full translations of only those documents the agencies deem particularly relevant to the inquiry. Parties, however, should not be required as a matter of course to forgo a defensible market definition in order to take advantage of this practice.

-- The report also looks at multiple review of mergers in the United States by federal and state antitrust and sectoral regulators. This multiplicity has the potential to generate inconsistent policy approaches in the United States, making global harmonization efforts and cross-border cooperation more difficult and further increasing uncertainty and transaction costs. The majority of the members recommend that exclusive federal jurisdiction to conduct antitrust review should be vested in the Department of Justice and Federal Trade Commission, while a minority would create a presumption in favor of DOJ/FTC antitrust review. This is not intended to strip sectoral regulators of other public policy considerations that pertain to merger review. The Report encourages state attorneys general not to use antitrust laws to pursue non-competition-related objectives and recommends that the DOJ/FTC file an amicus brief in select state actions challenging transactions that the federal authorities had already cleared or settled (in cases, for example, where there has been significant cross-border cooperation or the parties waived confidentiality protections).

ANTICARTEL ENFORCEMENT AND ENFORCEMENT COOPERATION

THE U.S. ENFORCEMENT RECORD

-- The Final Report examines the recent U.S. anticartel prosecution record and enforcement cooperation, including through intergovernmental forums such as the OECD. The recent U.S. record clearly shows that international cartels are widespread and harmful at home and abroad to consumers and businesses. Significantly, an increasing number of jurisdictions today place importance on enforcing their anticartel and other competition laws and in cooperating with U.S. authorities. This emphasis is a departure from the past and a worthwhile one that needs to be fostered.

ENHANCING DETECTION AND FACILITATING COOPERATION

The Advisory Committee recommends that:

-- The United States continue to lead by example in prosecuting international cartels using transparent standards that encourage cartel participants to come forward and cooperate with government enforcement efforts -- and imposing serious penalties on their participants.

-- U.S. antitrust authorities should continue to pursue more and deeper cooperative relations with other competition authorities on practical aspects of enforcement through expanded bilateral antitrust cooperation agreements, including through agreements that permit the exchange of confidential and privileged materials where necessary and appropriate. The Report also sees the positive role that bilateral agreements with newer competition regimes can play, such as that signed with Brazil in 1999 featuring provisions for cooperation, positive comity, and technical assistance.

-- One way to instill greater confidence in business circles at home and abroad about interagency cooperation, particularly when it can entail exchanges of confidential information, is for U.S. antitrust authorities to provide notice, either before or after the fact, when doing so would not violate a treaty, prejudice an investigation, or violate a court order. Clearly, cooperation involving sharing confidential information should be premised on U.S. antitrust authorities having confidence in the requesting agency's ability to safeguard any nonpublic or confidential information it receives from unauthorized use or disclosure.

-- The Report also considers novel approaches that U.S. authorities might undertake to provide positive incentives for cooperation between competition agencies. For example, it suggests that a fund be established through some allocation of fines that would provide support for the operating needs and capabilities of new or burgeoning regimes.

THE INTERSECTION OF TRADE AND COMPETITION POLICY AND THE BROAD INTERNATIONAL AGENDA

ANTICOMPETITIVE PRACTICES THAT INHIBIT MARKET ACCESS

The Advisory Committee considers the intersection of trade and competition policy. Notably, the Advisory Committee focuses on anticompetitive or exclusionary restraints on trade and investment that are implemented by firms, governments, or some combination of the two, and that hamper the ability of firms to gain access to or compete in a foreign market. Traditionally, such problems have been considered primarily the responsibility of national competition authorities concerned about anticompetitive effects to markets and consumers on their soil. Some countries, notably the United States, have at times applied their law extraterritorially in an attempt to remedy such practices. As formal governmental barriers to international trade and investment are reduced or eliminated, international attention is turning more to anticompetitive practices occurring within nations that affect trade and investment flows from other nations. As a result, perceived restrictions emanating from exclusionary or anticompetitive practices have generated economic and political tensions between nations and firms.

EVALUATING THE EVIDENCE

As a first step in considering appropriate policy responses for addressing exclusionary or anticompetitive practices abroad, the Report reviews the current record of cases and disputes that have both competition and trade or market access features. In the view of this Advisory Committee, this record, while uneven, is sufficient to show that private and governmental restraints that inhibit market access are a problem. While the problems recur as a source of international tension between certain countries, private anticompetitive restraints are not geographically limited. The Advisory Committee believes that the current record is sufficient for the U.S. government to make some policy judgments about the nature of these trade and competition problems.

POLICY OPTIONS

The Advisory Committee believes that no single approach responds to all aspects of competition problems facing the global economy and U.S. firms. Several different approaches may be promising. Bilateral agreements with positive comity offer a potentially useful instrument for addressing private restraints. The extraterritorial enforcement of U.S. antitrust laws can be necessary and prove effective under some circumstances. Importantly, in the view of this Advisory Committee, economic globalization requires the further development of international competition policy initiatives. Through certain adjustments in each of these approaches, U.S. policy can improve upon its approach to problems that intersect both trade and competition policy concerns.

The Report considers the potential for expanding and deepening cooperation through bilateral agreements that contain "positive comity" provisions. Positive comity provisions allow a nation affected by anticompetitive practices to ask the nation in which the alleged conduct is occurring to initiate an appropriate enforcement action. These provisions exist in a number of current bilateral agreements, and the Advisory Committee argues that there is further scope for developing positive comity.

The Report offers recommendations for improving communication and transparency in the positive comity process and suggests that the positive comity agreement between the United States and the European Commission could serve as a model for future agreements. Furthermore, international organizations that address trade and competition issues also should endorse the benefits associated with positive comity in their mission. Finally, to ensure that aggrieved U.S. firms view positive comity tool as a serious policy option for addressing anticompetitive practices in foreign markets, the Department of Justice should make a conscientious effort to implement and test recent bilateral agreements with positive comity provisions as a first response to solve real problems, when meritorious cases arise.

Most of the Advisory Committee members believe that extraterritorial antitrust enforcement tools must remain part of the potential U.S. policy response, although these are likely to be useful in only a limited number of cases.

The Advisory Committee recognizes that U.S. extraterritorial antitrust enforcement against foreign market-blocking restraints is a sensitive issue for foreign governments that can affect antitrust enforcement cooperation efforts in particular and law enforcement cooperation more broadly. Because of these concerns and the potential obstacles discussed above, the expected results of extraterritorial enforcement against offshore restraints on U.S. exports should not be overestimated. Indeed, it is for such reasons that the Advisory Committee recommends that a first step in attempting to address these restraints should be to consider whether it is realistic to seek cooperation from the foreign nation where the practices occur. Where such cooperation is not forthcoming, a willingness to use U.S. antitrust enforcement tools may encourage excluding nations to pursue their own enforcement actions. A tenable U.S. antitrust enforcement effort against market-blocking restraints may contribute to a greater culture of cooperation and enforcement.

It is also essential to the credibility of U.S. antitrust enforcement that the business community have confidence that the Antitrust Division will vigorously pursue cases, including export restraint cases, wherever possible and when no superior alternatives such as positive comity are available. Further, the Advisory Committee recommends that the U.S. antitrust agencies continue to have responsibility vis-a-vis trade agencies over legal determinations of the anticompetitive conduct of private firms, at home or abroad.

The report argues that new multilateral approaches are also needed, although it does not see the World Trade Organization (WTO) as the natural home for all global competition policy initiatives. The WTO already has undertaken some good work on trade and competition policy through its discussions. The Advisory Committee believes the WTO can play a constructive, educative, and deliberative role in facilitating greater understanding about how trade and competition policies can intersect. The Advisory Committee recommends, however, that the WTO should not develop competition rules subject to dispute settlement. The OECD also should continue to play a useful role in fostering greater understanding and "soft convergence" on trade and competition issues.

Global Competition Initiative: The Advisory Committee believes that there is a global competition agenda that is broader and different from a trade and competition agenda and that offers great scope for international discussion and possibly forging recommendations or consensus agreements. This need and opportunity should not be lost. Hence it recommends the creation of a Global Competition Initiative.

This forum could be similar in structure to the G-7, where global competition issues could be considered. The forum might discuss steps to deepen positive comity, develop consensus on best practices in merger review, including disciplines to facilitate sound enforcement around the world, and undertake collaborative analysis of issues such as international cartels and market blocking private and governmental restraints. It may also be a place where international mediation of competition policy disputes could occur.

The Report recommends that U.S. antitrust authorities and the world community devote more resources to the development of competition policy structures abroad and seek opportunities to deepen consultation and cooperation with other organizations, such as the OECD and the World Bank, which provide technical assistance to developing economics.

And finally, the Report considers other cutting edge issues such as the interaction between competition policy and e-commerce. Here, specific recommendations are not offered, but clearly this is a frontier area of economic activity that warrants attention in the years ahead.

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(Distributed by the Office of International Information Programs, U.S. Department of State. Website: usinfo.state.gov)
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