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J1522 K Street, N.W., Suite 215, Washington, D.C. 20005 JPhone: (202) 8981108 Baltimore: (410) 7523376 JToll Free: (888) 4453376  ,hX #x  P@#  #Xx6X@X@# x F  22 LINE TEMPLATE 57 char/line rev 7/30/96 F X X 0 8@H! INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE 9ddddPdd@ddddPdd@9Udddd 1 Udddd 1 !<<X` hp x (#%'0*,.8135@8:(9:15 A.M.) 0 0 MR. RILL: I'm Jim Rill and together with Paula Stern we're co-chairs of the International Competition Policy Advisory Committee. Merit Janow, as you know, is our Executive Director. I would like to open the meeting with expressions of gratitude to both the Attorney General and Assistant Attorney General Klein and his colleagues. They had the foresight to put together this Committee at an extraordinarily interesting and, I think, catalytic moment in the relationship between trade and competition the global nature of business and competition policy. They have asked us to deliberate and come forward with policy recommendations for the Department of Justice and the U.S. Government as a whole concerning the role of the United States in global competition issues, from the standpoint of substance as well as process and structure, and to put forth these recommendations within what's scheduled to be an 18-month time frame. 0 0 I'm very honored as I'm sure my fellow colleagues are who have been selected to participate in what I consider to be a seminal effort by the United States Government to pull together the views of the Committee members, accepted leading authorities with diverse backgrounds in antitrust competition policy, trade, and very, very importantly, business. 0 0 I think the diversity in experience of this Committee, the Advisory Committee, is truly remarkable, and I think that the work that this Committee will do could truly make a difference. It certainly has the prospect of significantly making a difference in the U.S. policies on trade and global competition. 0 0 I'm personally very grateful to the very eminent academics, former government leaders, business community leaders and legal experts who have agreed to take the time to make this difference in formulating advice to the United States and the United States Department of Justice on the role of the United States in convergence of trade and competition and global competition issues in this increasingly shrinking world in which we live. 0 0 Today we have a tight agenda. We're going to hear this morning from the representatives of the Department of Justice, starting with the Honorable Joel Klein, the Assistant Attorney General. But before we turn the program over to Joel, I wonder if, Paula, if you would have some remarks? 0 0 MS. STERN: Thanks, Jim. Good morning. I'm so happy to be here with each and every one of you, all 100 percent, which is testimony to your diligence and the importance of this Committee. 0 0 I just would like to invoke again how critically important this moment is for us as an economy, and so I would also like to express my gratitude to the Attorney General and to Joel Klein for taking the initiative, or seizing the initiative, to pull us together to grapple with some very significant matters. 0 0 Over the years, the U.S. economy and global economy have changed enormously, becoming intertwined nation with nation. And during those years we have had a great deal of successful trade liberalization and deregulation. And we most certainly not only practiced it at home but we preached it overseas in international markets, therefore making what were previously domestic markets very much international, and making what were domestic competitors very much international competitors. 0 0 So equipping the U.S. Government and updating our regulations and grappling with the challenges that these changes in international economy will mean for our laws is something which I'm hoping all of us working collectively together will be able to come forward with some very good practical policy suggestions based on the collective wisdom of each and every one of you all here. 0 0 So thank you all very much for getting together in line so quickly and now I think it's time for us to do some listening to Joel Klein and our Justice Department colleagues, who have a lot of briefing to get us all up to the same speed, and at least, talking with the same vocabulary. Thank you. 0 0 MR. KLEIN: Thank you, Paula, Jim. On behalf of Janet Reno, the Attorney General of the United States, and the Antitrust Division, I am personally delighted to welcome each and every one of you here. I cannot tell you how much pride the Department of Justice has in having been able to assemble such a rich, diversified, and talented group of people to look at some of the most important issues affecting our economy that you can possibly look at. 0 0 These issues, frankly, are as challenging as they are important, and we're going to need the skills and talent of all of you, I think, to work through this. I think the Attorney General, in her words, said it is difficult to imagine, given the pressing schedules of the kind of people who have agreed to serve on the Committee, that we could bring so much talent to bear. I am delighted. 0 0 Let me tell you as a matter of history, this is really the third outside advisory committee in 60odd years at the Antitrust Division. It seems to me for reasons I'm not sure of but we appoint one of these every 20 years. The first one was appointed in 1955 and that one dealt with really the substance of the antitrust laws and produced a report that even to this day is still read, cited, and discussed among antitrust scholars. 0 0 The second committee was appointed by President Carter in 1977, and that focused on the whole issue of streamlining the antitrust laws. Antitrust enforcement in the '60s had become cumbersome and difficult, and there was a real question about its extension and where to go in that respect. 0 0 Indeed one of the current Committee members, Eleanor Fox, worked on that project as well. She was quick to remind me she didn't work on Attorney General Brownell's project. I figured that out, Eleanor. Even I was able to make that determination. 0 0 Why this Committee at this point in history? I think the answer, in a word, is globalization. In a speech by Principal Deputy Assistant Attorney General Doug Melamed not so long ago, I think he pointed out the crux of the problem, and why we need some new, creative thinking. And that is: We are essentially living in a world of nation states that are now being asked to regulate, to the extent regulation is appropriate, a global economy. And that is the challenge we face. 0 0 And so for the first time, in a sense, we need to really think through, in a systematic way, a series of unilateral, bilateral, and multilateral arrangements, the differences in laws and policies and once you're on the playing field the relationship with antitrust and trade as well as other economic considerations. And how it is that we in America, who now stand here today at a time when our economy is the strongest in the world, it also happens to be the most competitive it has been and those two factors I submit are not unrelated to each other how, in a sense, we can export, if you will, our view of competition policy to prevail in a global economy? So that, in the broadest sense, is the assignment before you. 0 0 Just to give you some sense of the dimensions from our point of view, our Co-Chairman, Jim Rill, when he was in the job I have now, which ran until 1992, he was probably the first person to really look ahead and see what was coming in terms of globalization and the need for internationalization. He probably did more to put us on the map in that regard than anyone had done certainly until that time. 0 0 In one sense he showed his foresight; because I went back and looked and at the time probably 2 percent of our cases had an international dimension. Today which is, what, seven years later, now probably almost a third of our cases have an international dimension. And that doesn't reflect the significance of the resource commitment, because the really big cases are often international cases such as the international cartels that my criminal Deputy, Gary Spratling, will talk about. 0 0 So we are heavily, heavily involved in these matters, and that will only increase. You read last week that there were four different enforcement authorities reviewing the KPMG merger, and that I think is a harbinger of things to come, things that we need to consider. 0 0 And I think for us in particular there are two specific challenges that we are looking at. One is our institutional capacity to enforce our domestic law in an international environment both practical as well as conceptual limitations; and, second, and as importantly, how when we and our colleagues and what will soon be numerous other countries review the same transaction, what problems that will create both for us and the businesses that are affected when people have different legal time tables, different criteria, different policies, different views of international trade and competition? 0 0 At least, as we see it sitting here today, there are three areas that we would like the opportunity to brief you on this morning that are front and center on our agenda right now, but this is, I want to assure you, a very involved process. 0 0 First, the area of international cartel enforcement. Let me say I was actually surprised when we got into this at how deep and serious a problem this is right now. Gary will go into detail, but essentially what we are seeing in modern markets is an extraordinary number of international cartels, and in essentially every major city people are meeting on every continent in any nation and country to set prices and sell products at 10, 15, 20, 30 percent above fair market value. 0 0 And for us this creates serious practical problems. Because of the limitations on our jurisdictional reach, we need to depend on access to evidence in other countries, raising issues of trying to extradite people and so forth. 0 0 Now, we have had some extraordinary success in this area. What our success has taught us is that we're just beginning to scratch the surface of the problem, and it is a serious problem for American consumers. I believe American consumers are losing literally billions of dollars a year as a result of international cartels selling a product at inflated prices. 0 0 The second issue that we can't avoid dealing with is the whole set of issues growing out of the multi-jurisdictional merger review. Everyone is aware of the intense focus and conflict that arose this past summer in the Boeing/McDonnell Douglas merger, and that the U.S. and the European Union reached divergent results, which leads to a very serious set of international issues. Ultimately, I think it was resolved in part through the intervention of the Department of Justice. But that problem, and those sets of issues, are going to continue to be before us. 0 0 As we sit here today, I found out recently that the Japanese are for the first time seeking jurisdiction to be able to review a merger like Boeing/McDonnell Douglas as well, and I suspect when you really have a global economy, you are going to see mergers that affect product in virtually every country. More and more countries are going to want to review these. Problems for businesses that try to go through these processes are going to be serious. 0 0 On the other hand, there is a legitimate sovereign interest for each country since product is sold in your country to be able to review and consider the competitive implications of a merger. That is something both we and Federal Trade Commission discuss. As I sit here today, in the past couple of weeks I had discussions on British Airways/American Airlines matter and probably two or three others in that respect. 0 0 Then the third set of related issues are perhaps in many ways the most difficult because they go to the core of how you deal with issues of competition policy in the globalized market, are those at the intersection of trade and competition. 0 0 This raises a series of questions really, essentially two and they are: How do we effectively coordinate, blend, work out arrangements between the paradigms of trade and competition; and whether these are paradigms that will merge, whether they will have to remain separate but respectful, and how do we facilitate that kind of process in a world in which issues of market access are critical to an effective global economy? If you have disparate market access rules, either governmental or certainly private in terms of antitrust policy, this can have significant implications in terms of the way one company can be protected at home while another company doesn't have the same protection. 0 0 We in the United States are, I think, quite vigorous in our enforcement of the antitrust laws without fear of favoritism in terms of issues of national origin of the company. And we do that because we believe our consumers benefit best by getting the product that is the most advanced at the best price. And if that happens to benefit a foreign competitor, we have been known to enforce the law in a way that does that. 0 0 I think it's fair to say not every country has the same history and tradition in that respect, and that obviously creates a disequilibrium in the world markets that we need to be aware of. As governmental barriers are coming down this is going to become increasingly important. In a nutshell, those are the issues we seek your guidance and your assistance on. 0 0 I think, at its largest level, as I said, it really will be a question of what role is there and what methods are there for dealing with regulation of a global economy by sovereign nations, and what kind of arrangements is that going to require. Is the WTO the kind of forum that offers the necessary opportunities? Do you need a separate forum? I said this somewhat facetiously, but I think it is something that needs to be considered. Do you need a world competition organization that is charged with a different set of important priorities? Are there bilateral relationships that can facilitate these kind of goals? 0 0 Putting aside procedure, how are we going to get substantive agreement on policy? There are many developing nations that really view antitrust law from a different perspective, and in some respects who are just beginning to learn about this and how they will factor into a world trade/competition environment. 0 0 So those are the issues. There is a tremendous amount going on. It is almost remarkable in one sense that just this past week, the Competition Law and Policy Committee of the OECD for the first time got the leading industrial nations of the world all to agree essentially on the importance of enforcement cooperation visavis international cartels. It took two years to agree on what is a hard core cartel. Can you imagine when you start to look at vertical restraints, exclusive dealing, market definition, and other important issues in other nations, what kind of congruence can one expect there? 0 0 After two years, visavis hard core cartels, the OECD recognized that there should be mutual support and enforcement efforts. We know of two occasions when we conducted a search, and on the day of that search, documents were destroyed in other countries because we had no means of conducting parallel searches in other nations. By contrast, we had one Canadian case where we were able to do parallel searches. The WTO is in the middle of its own proposal with respect to a global competition policy. The Europeans are far ahead of us in terms of what they see as a useful movement towards possible dispute resolution. At the WTO, I think we are reluctant to bring a move toward multilateral dispute settlement. 0 0 This is the short run and we will certainly consult with you in this regard, and we are evolving here today a very sophisticated, mature relationship with the European Union, one in which there will be interstitial inputs, I suspect, as we go along with this Committee. The primary charge of this Committee, as I see it, is to produce a landmark report and offer a vision for the next 20 years of how we move toward effective trade and competition integration and effective antitrust enforcement in a global economy. 0 0 If it is to be -- and I have no a priori view on this -- if there is to be a multinational coordination of these problems, we need guidance on the steps to get there. Premature efforts in that regard will be highly destructive. If there are meaningful bilateral ways to tackle this problem, we need guidance on both the processes and limitations. So this is a big charge. 0 0 And let me make it absolutely clear this is not a Committee we brought together to rubber stamp some series of ideas that we at the Department of Justice already have. This a Committee we hope will be able to work, think, and bring new ideas to the problems. In the end we may not agree with every suggestion of the Committee, but it would be a waste of your time and waste of our time to pretend that we have some agenda we're working towards. 0 0 We have people from business, people from public policy, people familiar with international events, people from the Academy all sitting around this table bringing collectively hundreds of years of experience, knowledge to these problems. Give us that. Don't worry about the fact that we may create some difficult discussion at times. What we need is the best thinking we bring together on these issues of critical importance, I submit, to the future of this nation. 0 0 As I view it, competition policy will become more important in an increasingly globalized economy. I want to thank you for your time and commitment. 0 0 MR. RILL: Thank you. 0 0 MS. STERN: Thank you so very much. We're running a few minutes ahead of time which I think will give us an opportunity to get started. You'll be introducing your team to us, and I thought it might be a good idea just to go around the table and have everyone who are Members introduce themselves, and you should just say if you have any short comments. 0 0 I want you all to know we do anticipate having the whole afternoon for discussion. That will be much more open, whereas this morning will be virtually a briefing from the whole Justice Department team. 0 0 So, Mr. Dunlop, would you? 0 0 MR. DUNLOP: John Dunlop, Harvard University. Main interests are in the world of labor, management and government interactions. 0 0 MS. FOX: Eleanor Fox, New York University. I, like the others, am very honored to be part of this group, and I am very excited about your charging statement, Joel. Conversations of this sort are going on all over the world. They're even going on in the European Union on the relationship of state restraints to private restraints. I'm very hopeful that with your leadership, we can make a serious contribution. 0 0 MR. DONILON: Tom Donilon. Again, Joel, I appreciate the honor of serving. My only initial comment would be, listening to you this morning, this may be an opportunity for us to get ahead of the problem, which is unusual in government and which I think would be a really quite useful thing to do particularly in this area where forces are moving so powerfully. I appreciate it. 0 0 MR. KLEIN: I think in the 4 years you served as the Secretary of State's Chief of Staff, you were way ahead of the problem. 0 0 MR. RATTNER: Steve Rattner, of Lazard Fr/res, and we're, I guess, reasonably active in the merger area, and deal almost every day with a lot of issues Joel was looking to, and I'm sure we'll talk about it a little bit later. 0 0 MS. BAIRD: I'm Zo- Baird, President of the Markle Foundation. It is a pleasure to participate in this. I too join Tom in complimenting you in being ahead of the problems and thinking in advance about what Government policy ought to be, rather than responding to the next crisis we may have, like when we have a merger situation that someone attempts to block. So I appreciate the approach you're taking. 0 0 MR. RILL: Jim Rill. I'm with the law firm of Collier, Shannon, Rill, and Scott, and I would like to commend Joel on the increasing activity of the Department in international antitrust and on the steps that have been taken to enhance global cooperation. It has been truly remarkable over the last several years. 0 0 I also, as is the case with Eleanor, am very excited about the charge you've given us and fully anticipate a fullcourt effort to make the contribution you look for. 0 0 MS. STERN: Paula Stern. I guess I bring the international trade piece and economic analysis to the table, having chaired the U.S. International Trade Commission and spent a great deal of time in the trade field. I would like to introduce everyone to Merit Janow who is the Executive Director of the Committee and who has already been bearing a great deal of the burden up until now. And, Merit, why don't you say a few words? 0 0 MS. JANOW: I am a professor of international trade law and policy at Columbia University. It is a great honor for me to be part of this effort which is enormously timely and deals with problems of real immediacy, not only for the U.S. economy but the global economy. Although discussions on these subjects are occurring around the world, I know of no other effort of this sort to bring together diverse leadership and experience, and so I'm delighted to be part of this. It's a great pleasure. Thank you very much. 0 0 MR. SIMMONS: I'm Dick Simmons, CEO of Allegheny-Teledyne, a producer of metals and composites. I've had the unique opportunity over the last 25 years to appear before Paula many times, as well as having had the perspective of the way that the world is changing with regard to trade and competition. So I welcome this opportunity. I appreciate the fact I was asked to serve. I'm sure I will learn a great deal about this blurring of the lines between trade and competition. 0 0 MR. THOMAN: I'm Rick Thoman. I'm Chief Operating Officer of Xerox. I think when you postulate a period of 10 to 20 years, one of the things that has been most interesting to me is the degree technology has changed these issues. If you think about the Internet and consumer sales over a 20-year period, how do you talk about -- there is a whole series of technology issues that I think will be relevant that I'm most interested in learning with you. 0 0 MR. GILMARTIN: I'm Ray Gilmartin with Merck and Company. We have a number of joint ventures as do many of us, across borders with French and Swedish firms. Also our industry has been consolidating with a couple of very high profile merger opportunities or abouttobe mergers which didn't occur, such as the Glaxo-Wellcome/ SmithKlineBeechum opportunity. I think they're very representative of the global nature of our industry and the kinds of business combinations and relationships that will occur over time and also since we are all pursuing emerging markets which have varying rules and so on, market access and competition is also of very keen interest to us. So given our experience in these matters, we look forward to contributing what we can and, at the same time as the others have said, learning a great deal. 0 0 MR. JORDAN: I'm Vernon Jordan. I'm here very simply because Joel sent for me. Having said that, I want to say I'm happy to be here. I'm glad that he sent for me. 0 0 Joel, what you did not tell us in your opening statement is, after you have drained us of our intellect and our creativity and productivity, you didn't tell us what you're going to do with all of this or what you anticipate doing with all of this. Is it going to end up on your bookshelf or the Attorney General's bookshelf? Are the results going to be publicly distributed? What is going to happen? 0 0 MR. YOFFIE: I'm David Yoffie, professor, Harvard Business School. I have studied international trade, written several books over the last 20 years. I also wanted to second what Rick Thoman said. We can easily get trapped and focus on commodity businesses and the existing economy as we've known it for the last 50 years. And we're at a major crossroad where intellectual property, information technology, is transforming almost every aspect of international trade and competition. So I think it will be critical for us to think about intellectual property questions because that's where a lot of the future of trade dynamics are ultimately going to be vested. 0 0 MR. RILL: Joel, I don't know whether you want to answer Vernon's question now or whether you want to proceed by -- 0 0 MR. JORDAN: I want him to answer my question. 0 0 MR. RILL: letting the response to the question unfold in the next 18 months? 0 0 MR. KLEIN: I'll answer it. I would say there are three things I expect of the work product: a very thorough report on these issues. Already, obviously, there are some interesting ideas that have surfaced in terms of changing technology. The work product of this Committee will not only be published and disseminated, but it will be a definitive statement with respect to what is going on with these issues in the world. I think our staff is already pulling together their -- with Merit's direction is pulling together a great library and so forth. 0 0 I hope, Vernon, it will certainly inform, if not define, policy of the Justice Department with respect to these issues. And if that would occur, I'm hoping to take it and see if we will define the Administration's policy with respect to these issues. 0 0 Our timing is such that realistically we ought to look to somewhere in the Fall of 1999 to complete these reports and analyses and then to let us, with your assistance, then make this the basis of policy. I don't think this is simply an academic study. 0 0 MS. STERN: It's also your time. 0 0 MR. KLEIN: It gives me great pleasure to be here with so many people on our staff, and we have one of our colleagues from the Federal Trade Commission with us as well this morning to report to you on these issues, and I do hope that in the course of this we will have time for questions and answers. That would be helpful. 0 0 First I would like to introduce Chuck Stark who is two seats to my right. Chuck is the Chief of the Foreign Commerce Section of the Antitrust Division. The Foreign Commerce Section is actually the part of the Division that coordinates all of our international efforts, and Chuck is a 25-year career veteran of the organization. He's been Chief of Foreign Commerce for some 10 years. He's not only well-written but well-known in all of the international matters we're discussing. I thought it would be helpful if he could give you some background of where we have been and where we are. Chuck. 0 0 MR. STARK: Thank you, Joel, and thank you members of the Committee. Joel has identified vividly the issues as they face us today, and what I'm going to offer is some background on how we've gotten where we are today in three areas of particular broad interest. First, I'll offer some history of and description of how our U.S. antitrust laws apply in the international setting. Second, I'll describe how the U.S. antitrust regime has over the years interacted with other governments because, of course, everything we do in the international area potentially impacts on the interest of other governments, and other governments have, in many instances, felt very strongly about that impact. 0 0 Finally, I'll say something very briefly about the way we, the antitrust agencies, and the Antitrust Division in particular, interact with other parts of the U.S. Government in the increasingly important area in which antitrust policy and trade policy come together. 0 0 The intensity and importance of the international dimensions of U.S. antitrust policy is greater today than it ever has been. But it has to be noted, to understand where we've gotten today, that the application of our antitrust laws to international matters is not something that has emerged only recently. In fact, it goes back to the very beginning of our antitrust laws to the Sherman Act in 1890 which from the beginning has applied to not only restraints of trade and monopolization of our domestic markets, but also international markets. 0 0 In early antitrust cases for example, the American Tobacco Trust Case, which involved a global arrangement to divide world markets in tobacco, the Supreme Court confirmed the application of antitrust laws in this kind of setting. But the case that really set the tone for the laws modern application didn't come until 1945: the famous Alcoa case which established the so-called effects test in U.S. antitrust law. Basically, it established the proposition that even foreign conduct by foreign firms is within the sweep of the American antitrust laws if that conduct was intended to have an effect on U.S. commerce, and it did have an effect on U.S. commerce. 0 0 Now, at the time of the Alcoa decision, in 1945, U.S. antitrust was, as a practical matter, the only game in town when it came to antitrust. That's not to say we had the only antitrust law in the world. Historically, Canada's antitrust law is one year older than the Sherman Act. But as a practical matter, antitrust was an American monopoly well into the post-war period. 0 0 Because of that, and because the U.S. was unique in the vigor of our attack through the antitrust laws on international cartels, those attacks frequently came up against the interests of foreign governments. What were efforts to preserve competition in the world, from our perspective, were often seen by other countries as efforts to frustrate their mercantilist policies. 0 0 Because of that, for many years antitrust enforcement in the international context was more a matter of constant confrontation than a matter of cooperation, as it's come to be today. 0 0 Before I describe that in more detail, let me describe some of the ways in which U.S. antitrust laws do apply in international commerce. The general proposition is they apply to conduct wherever it takes place if it has a direct, substantial, a reasonably foreseeable impact on U.S. commerce. 0 0 That can include international or foreign cartels that raise prices to U.S. consumers or allocate markets. It can include transnational or even foreign mergers or joint ventures that affect competition in the American market. It can include with increasing importance, as was recognized and noted by some of the panel members, intellectual property licensing arrangements, and it can include anticompetitive conduct here or abroad that limits the export opportunities of U.S. firms. I'll say something more about this last proposition. 0 0 The application of U.S. antitrust laws to export restraints that is to say, anticompetitive conduct abroad that impedes market access by U.S. firms has been part of U.S. law as far back as you can go. But in terms of enforcement policies, for the U.S. agencies or at least the Antitrust Division, it has been a subject of some variation. 0 0 As nobody around the table knows more vividly than Jim Rill, there was a time in the 1980s when the U.S. Department of Justice took the view that, notwithstanding the broader scope of the law, as a matter of enforcement policy the Department would not bring cases unless there was a direct impact on U.S. consumers. Jim Rill undertook to reevaluate that policy at a time when we were deeply involved, under Jim's leadership, in the Structural Impediments Initiative talks with the Japanese Government. 0 0 We had as one of our principal objectives in those talks convincing the Japanese to more vigorously enforce their antitrust laws, which were already on the books but which were not aggressively enforced. This raised the issue as to the extent our own antitrust laws could be used to reach export restraints, one of the kinds of conduct about which we were concerned. 0 0 Jim reversed a policy that had been in place for some four or five years at that time and announced we would no longer limit ourselves in this way, and that we would, in appropriate cases, use our antitrust laws to attack anticompetitive foreign conduct that restrained U.S. exports. It should be noted that this had long been part of the law, though it had never been the main thrust of U.S. antitrust enforcement in the international area. 0 0 The main thrust in terms of number of cases and number of investigations we have brought has never been, for quite obvious reasons, on the kind of conduct impacting on exports from the U.S. These export restraint cases always had peculiar problems both in the terms of our ability to get evidence abroad, in terms of being able to get cooperation by foreign governments since we're talking about cases that are and have always been very controversial with foreign governments and in terms of our ability to impose and enforce remedies abroad. But this is an important area, and I know Joel intends to speak about it in greater detail later this morning. 0 0 I started to say that U.S. antitrust was at one time the only game in town. International antitrust meant extraterritoriality. That was a term that was applied by those resisting it rather than by us in our own description of what we were doing. 0 0 But that has changed radically in the current world. When we were the only game in town that was controversial. Today some 70 countries around the world have antitrust laws antitrust laws that are, it has to be said, enforced with differing degrees of vigor and sophistication. 0 0 But beginning especially in the late '80s, with the fall of communist regimes and fall of the central planning paradigm and the more or less universal appreciation of marketplace economics as the ordering principle for a global economy, antitrust has come to be recognized as an important cornerstone of the regulatory structure that has come to underlie this marketplace system, both nationally and at the international level. 0 0 Increasingly, as the economy has become more global, more and more countries have come to recognize that antitrust enforcement is not an exercise that can realistically be limited to conduct that occurred exclusively within one's own borders. What was once looked at as an aggressive and imperialistic exercise of jurisdiction is now the mainstream view of most countries that have serious antitrust regimes. It is not the universal view, but on this issue the U.S., I would say, is a leader and at the same time a mainstream player in the antitrust world today. 0 0 The U.S. has developed, in order to implement this, cooperative relationships that we look at today as an increasingly important cornerstone of our program. These agreements with foreign governments go back initially to some that were designed to deal with the conflict arising out of our enforcement efforts when these were a more controversial item. 0 0 Our early agreements with Canada and Australia in the early 1980s were really designed to alleviate the kinds of conflicts that arose when our anticartel activities ran up against efforts by foreign governments to protect their own cartels. 0 0 It's ironic when we look at the world today, that some of these early controversies were with countries like Canada and Australia. Some of the most intense controversies, indeed, even reached the level of PresidentialPrime Ministerial discussions, in those early days with those countries. Canada and Australia are among our closest partners in antitrust enforcement in today's world, and that is really a concrete reflection of how the world has changed over the last decade and a half. We now have antitrust agreements in place with Australia, Canada, Germany, and the European Communities. The 1991 European Communities Agreement was the first of what we tend to think of as our modern antitrust agreements. It was hammered out in its key elements by Jim Rill and Sir Leon Brittan, who had the competition portfolio in the European Commission at the time. It was the first of the modern agreements in the sense that it looks not only to conflict resolution issues but it also looks ahead to the need to cooperate and coordinate in an increasing number of cases that will be of common concern to antitrust enforcers on both sides of the Atlantic Ocean. 0 0 Up through the US-EC Agreement, and this applies to all of our earlier agreements, there were important limitations. That is, none of these agreements provided for what has become a more and more obvious need the ability to share evidence with foreign antitrust agencies that are looking at the same deals we are looking at, as well as the ability to get assistance from foreign antitrust agencies in getting evidence abroad. 0 0 All of these needs were subordinated to provisions in our law and foreign law that made it impossible to leap over confidentiality protections in order to share evidence, even when there was a clear and common interest in doing so. 0 0 Now we recognize increasingly, as Joel has described, that we need that kind of ability. We need the ability to get evidence from our foreign counterparts; we need the ability to get evidence from foreign countries in order to effectively enforce our own antitrust law. We recognized a few years ago, under Anne Bingaman's leadership, that in order to get that, we were going to have to be able to offer reciprocal arrangements to our foreign counterparts. 0 0 That recognition led in 1994 to legislation called the International Antitrust Enforcement Assistance Act of 1994, the IAEAA, something we can say because we have been practicing it for a long time. 0 0 This is important legislation which allows us to enter into mutual assistance agreements with our foreign counterparts. These agreements have to buildin very strict protections against the improper use or disclosure of confidential business information, and require us to ensure that our giving assistance in each particular case is consistent with our national interest. 0 0 Subject to these important protections, the IAEAA gives us a very powerful tool to cooperate with our foreign counterparts in exchanging and obtaining evidence in order to meet our mutual need to enforce the antitrust laws in these global economies. 0 0 Just last year, we announced the first of these agreements with Australia, and we hope this will be the first of a number of agreements around the world. 0 0 We've also negotiated a pathbreaking new agreement with the EU really an elaboration of a provision that first appeared in our 1991 US-EC Agreement built on the concept of positive comity. That term was coined at the time we negotiated the 1991 agreement with the European Communities. It simply means that when there's anticompetitive conduct abroad that affects the interest of the jurisdiction in whose territory it is taking place and it also affects our jurisdiction, we can go to that other jurisdiction and say: You are better placed to deal with this conduct than we; it affects your consumers; it affects our interest perhaps, in particular, our export interest. You're in a better place to deal with it than we are, and we are prepared to help you deal with that conduct rather than undertake the difficult burden of investigating it ourselves if we have the confidence that you can and will adequately deal with it. 0 0 This is in our '91 agreement with the EC, and we have now worked out subject to final approvals and, we hope, very soon to be put in place this new agreement that will elaborate on this concept and put much more stringent assurances that this will work with the European Union. It was spearheaded by Joel and his counterpart on the EU side, and we think this concept has tremendous potential in the future where conditions for its use are right. 0 0 Very briefly, let me say something about the way in which we work on a multilateral level. Joel has referred to the OECD as the most important forum historically, because it's a forum in which industrialized countries with established antitrust regimes get together, at senior levels, to work out ways to work more effectively together. Recently at the OECD, as Joel described, officials met and reached an agreement on international cartels. 0 0 I'm not sure Joel mentioned that this was a U.S. initiative. It was hammered out in a working party that Joel chaired and into which he put tremendous personal initiative. It was a pleasure to work with him on that, an initiative which will have an important impact in the years to come, I think. 0 0 We are very cognizant and committed to the work that is going on in the WTO, looking toward how to deal with the interface between trade and competition policies, and examining how that work should proceed in the future. This area is a most important one and an area that is unresolved. 0 0 Finally something about how we work within the U.S. Government in the area of trade and competition policy. This is an interface which is increasingly important but one with which we and our counterparts on the trade side have been dealing for many, many years. 0 0 We tend to come to it because, as an Executive Branch agency, we are part of a network within the Executive Branch which deals with the intersection of international trade and competition policy at both the policy and legal level. We come into this in part because the many arrangements that our trade negotiators work out are arrangements on which they need advice to make sure they are consistent with U.S. antitrust laws. 0 0 It is sometimes observed that one person's solution to a trade problem is another person's cartel. We work with other agencies in making sure these arrangements fall on the right side of that line, and it is an important function on which we provide advice at the policy level, too. 0 0 There has been a growing number of instances in which U.S. firms have identified the problem of anticompetitive behavior abroad as an impediment to their ability to fairly compete in foreign markets. This is an area where the intersection of trade policy and competition policy is not yet fully developed, where both we and our trade colleagues have an important stake, and where we have worked closely to advise our trade colleagues and find solutions to come to optimum solutions which bring together and reconcile the diversity of interests that the United States has in this area. 0 0 The Kodak-Fuji dispute is the most recent and most well-known and vivid instance in which we worked together, but it is not a unique instance at all. This background, I hope, will help set the stage for what we're talking about this morning and over the next 18 months. 0 0 MR. RILL: Joel, if I may. Chuck, thank you. Let me tell those who don't know that Chuck is unduly modest regarding his own role in the 1991 US-EU Agreement. The real work was done between Chuck and his counterparts and the competition director of the EC. Chuck still has his job; his counterpart is off somewhere else. I don't know what that says. 0 0 Chuck, I think that was extraordinarily valuable to me, and I hope to my colleagues. I wonder if it would be possible, while the thought still occurs to me, if you and the Division could put together not merely what Chuck said but some kind of briefing memorandum that gets into the history of the global competition involvement of the Antitrust Division? For those of us who are lawyers, maybe also an appendix with cases that basically summarizes the story, perhaps from at least 1945 forward, so that we can have before the Committee the context in which we're working, at least insofar as the Department of Justice is concerned. We tried to put some of that together back in the early '90s. I think there is a lot written but it is scattered. And if it were put in one place, it would be very helpful. 0 0 MR. STARK: We'd be happy to do that. 0 0 MS. STERN: May I ask at some point if you could provide me, at least the Committee, the cases, the list of cases -- Joel, you mentioned the increasing international flavor that -- and if there is some kind of a list that can give us that, it would be helpful. Thank you. 0 0 MR. KLEIN: I think you'll get more of that as we go forward and as the people give us all the background material on it. Thank you, Chuck. 0 0 Let me now introduce Gary Spratling who is the Deputy for Criminal Enforcement at the Antitrust Division. Gary is a 27-year career veteran who has prosecuted many cases and is widely viewed as the most decorated career official in the Antitrust Division. He has just received a special onetime award today, given out by the Attorney General, for his work in criminal enforcement in the Department of Justice. 0 0 He was selected this year by President Clinton for the highest Presidential rank award given by the United States Government. He has been chosen as antitrust lawyer of the year in California this year. I only selected this year because it was actually a bad year and I didn't want to take up all your time. He is an extraordinary public servant. While working for the Division, he also served as mayor of Tiburon where he lives and -- 0 0 MR. JORDAN: Where? 0 0 MR. KLEIN: Tiburon. Is that acceptable? 0 0 MR. JORDAN: I just never heard of it. 0 0 MR. SPRATLING: You've missed a wonderful city. 0 0 MR. KLEIN: It's a place on the hill that overlooks the bay in San Francisco. And the only thing I would say is really his efforts and the people working with him in busting open these international cartels have been truly extraordinary, and he's going to have a chance to report in detail on this. 0 0 But I know, from the Attorney General's point of view and throughout the Administration, his work is sort of featured as a great career prosecutor. It is my pleasure to introduce Gary Spratling. 0 0 MR. SPRATLING: Thank you, Joel. Vernon said he was here because Joel sent for him. I'm here because Joel told me to be here. But, I want to tell you it would be hard to overstate how much I was hoping Joel would tell me to be here. I'm absolutely candid when I say I'm honored to be sitting at a table with the rest of you. 0 0 The Antitrust Division's criminal enforcement program has gone international, and it's gone international in a big way. We haven't yet developed a recruitment poster that says Join the Antitrust Division and See the World, but if we did have such a poster, it would fulfill its promise. 0 0 We look at the enforcement of the United States antitrust laws against international cartels as one of our highest priorities. We take that priority very seriously. And the reason we take it so seriously is because we have found out in our investigations and prosecutions that international cartels pose a greater threat to American businesses and consumers than their domestic counterparts. And they do so because they are generally more sophisticated and they have much broader scope in terms of geographic area covered, in terms of the number of victims, and in terms of the amount of commerce affected. 0 0 And so we have trained a huge amount of our resources into the investigation and prosecution of international cartels. 0 0 Let me pass in both directions around the table a few facts about our international enforcement effort. 0 0 You will see, in looking at the first full subtitle, "Grand Jury Investigations," that we currently have 25 sitting Federal grand juries looking at international cartel activity. That, of course, is the highest in the Division's history and under any standard is an extraordinary number of grand juries looking at separate international cartels. 0 0 The subjects and targets of these investigations are located in over 20 countries on five continents. But even those numbers, as impressive and surprising as they are to someone like me in the enforcement field for a long time, still don't capture the real geographic scope of cartel activity currently in the world. 0 0 To give you a better idea of that, we've prepared an exhibit. 0 0 MR. KLEIN: See what happens when you have a criminal trial lawyer. 0 0 MR. RILL: That reminds me of the Divisions Pacific Coast Office. 0 0 MS. STERN: I thought it was very California, very Tiburon. 0 0 MR. SPRATLING: This is a map of the locations of international cartel meetings affecting United States commerce. Each numbered location is a city in which a meeting occurred among cartel members to fix prices, allocate volume, carve up territories in the world that affected United States commerce. We have colored in yellow those countries where meetings occurred and provided to you a list. I won't go over the list, obviously, of the 60 cities, you can read those at your leisure. 0 0 But one thing to appreciate when you look at this chart of 60 cities where cartel members have gotten together and divided up the world in order to fix prices, is that we have only listed the cities in cases we've already brought or in cases where prosecution is imminent. We haven't listed the cities of all the other investigations that we have under way; if we did this would be a much larger list. 0 0 Some of the cities have a lot more meetings than others. Paris is a great place for a meeting. And Geneva, I don't know what it is, but there is something about Geneva, there are a lot of meetings there as well. You can see most of the countries of Europe have hosted these meetings. The United States has certainly hosted them as well. Does that give you a feel of the amount of this activity that is going on in the world and the dimensions of the investigative effort that we're undertaking in order to prosecute these? 0 0 MR. JORDAN: It does make you appreciate Paris more, doesn't it? 0 0 MR. SPRATLING: The volume of commerce affected by these conspiracies is also very large. In a number of our investigations, the volume of commerce affected is over $1 billion a year in the United States and certainly a lot more than that worldwide. 0 0 That's true, for example, in the case that we filed just this last Monday, a case in graphite electrodes. That's the first of the cases to be filed in that investigation and we expect there will be a number more. And in a large number of our investigations, more than $500 million in commerce per year is involved. In over half of our investigations, over $100 million in commerce is involved. 0 0 And you multiply that times the number of matters that we have under investigation. And when Joel said in his introductory remarks that it is his belief that international cartels are costing American consumers billions of dollars a year, it is very easy to extrapolate and make the calculations to come to those numbers. 0 0 I personally think that the statistics that give the greatest appreciation for the expansion of our international enforcement effort are the statistics about the number of foreign defendants, both corporate and individual, in our cases now compared to previously. 0 0 If we go back to 1991, the number -- the percentage of our corporate defendants that were foreignbased was 1 percent. The number of individual defendants that were foreigners was zero percent. 0 0 If you go to the fiscal year 1997, those figures are 32 percent of corporate defendants were foreignbased, 32 percent of individuals. And if you look at the first five months of this fiscal year, which is as far into the fiscal year as we are our fiscal year starts October 1st counting the case we filed yesterday, 48 percent of corporate defendants are foreignbased and 29 percent of individual defendants are foreigners. 0 0 MR. JORDAN: To what do you attribute that. 0 0 MR. SPRATLING: If you'll allow me, Vernon, I'm going to get into the reasons we think that's the case, and the reasons why we're successful in just a couple of minutes. 0 0 MR. JORDAN: Okay. 0 0 MR. SPRATLING: During the break I'm going to hand each of you an 8 and a half by 11 copy of the map, but I won't take the time to pass that around right now. I do want to pass around another exhibit which I'll pass in both directions. 0 0 This exhibit we think demonstrates the magnitude of the threat to American businesses and consumers that are represented by international cartels. The largest cartels, because of the way our Federal Sentencing Guidelines work, that is, those that affect the greatest numbers of consumers, are the ones that result in the largest fines against the individual companies. 0 0 This chart shows the Sherman Act violations yielding a fine of $10 million or more. In one sense it might be misleading because the Archer Daniels Midland fine really represents two fines that $100 million fine is comprised of separate fines of $70 million and $30 million. They're penalties for violations in the lysine and citrus acid conspiracies. This represents -- 0 0 MR. RATTNER: The earliest case in this is late 1995? 0 0 MR. SPRATLING: That is the first time we have a $10 million fine, ICI Explosives. You see the second fine under the dotted line, that was late August 1995. That was a domestic case. In Dyno Nobel, on the next line, the total fine there was $15 million. There were separate counts, one for 10 million, one for 5 million, and that case was filed in September of '95. 0 0 MS. BAIRD: Is this complete since then or are all the fines over 10 million? 0 0 MR. SPRATLING: These are all the fines and that includes the $20 million fine obtained yesterday against Fujisawa, about five down on the list, a Japanese company. So this shows all the fines. 0 0 MS. BAIRD: Here is my question: These fines are actually small compared to security fraud cases. Does the statute need to be changed? Are the fines in the Sherman Act cases just much too small? Is that a question we ought to look at here? 0 0 MR. SPRATLING: Joel and I are formally requesting the Sherman Act fines be increased from 10 to 100 million -- that is reported today in U.S.A. Today and Reuters and other publications. Yes, we do think the fine is too small, and you have pitched such a softball to me, if I tried to hit it, that I would spend much of my time on it. Yes, it is too small and all of these fines would be larger, all of these fines at $10 million or above would be larger if we weren't forced to adopt a separate methodology to get this fine level other than the methodology provided under the Sentencing Guidelines. I have to take one minute to explain because I see some puzzled looks. Under the Sentencing Guidelines, the fine against corporations is based upon volume of commerce. However, the Sentencing Guidelines' calculation is capped by the statutory maximum which is either the $10 million Sherman Act fine or double the gain to the conspirators or double the loss to the victims, whichever is higher. Anytime, under the existing statute we ask for fines above $10 million, we are either forced to prove or required to negotiate with the defendants what double the gain or double the loss is likely to represent, and explain that to the court in order to get above it. 0 0 The effect of that is that the larger corporations, and those that affect the largest amount of commerce, and those that have the most victims in the United States, are the ones that are treated, relatively speaking, the most leniently under the Sentencing Guidelines because they are taking the benefit of the cap of $10 million in the statute, which has not kept pace with our prosecutorial activity. 0 0 And something of which I'm sure, when we amended the statute in 1990 to $10 million and came out with the original Guidelines in 1991, no one at that time -- and I certainly worked on it and Jim Rill worked on it who was such a tour de force in getting the Sentencing Guidelines for antitrust so they would be based on volume of commerce none of us anticipated we would be at this stage today where every one of our international cartels would be far above this max. I did get side tracked more than I wanted to. 0 0 MS. BAIRD: I appreciate it. Thank you. 0 0 MR. SPRATLING: A point I wanted to make with this chart, my main point was if you count the very first entry as two instead of one, that is two fines instead of one, look at the countries where the defendants reside or their parents reside that have engaged in the international cartels. Out of 15 entries, counting the top entry as two, 12 are foreign. 3Again, it indicates the dimension of the problem and seriousness of the threat to the United States. 0 0 MS. FOX: I wonder if you try to estimate the cost of international cartels to world consumers as well as the cost to U.S. consumers? If the fine is based only on the impact on U.S. consumers, we may not deter the cartel. 0 0 When the U.S. Justice Department prosecutes a world cartel, it is a kind of surrogate attorney general for the world. 0 0 MR. SPRATLING: It is a very complex issue because the Sentencing Guidelines are silent as to whether or not you look just to U.S. commerce or look to foreign commerce as well. The Antitrust Division has taken the position that we can consider world commerce in addition to U.S. commerce in devising an appropriate fine under the Guidelines. Rather than including foreign commerce as part of the calculation, we look at it as a factor in aggravation. 0 0 And, in fact, in two recent cases, we have increased the level of the fine, with the consent of the defendants, to account for the large amount of commerce that occurred outside the United States because, in our view, we found that commerce in the United States understated the role of the conspirator in the conspiracy. 0 0 This is especially true in a market allocation conspiracy, where a defendant that you're charging is the one that agreed pursuant to the cartel arrangement not to sell much in the United States. Absent that agreement, of course, the cartel would not have been as effective in the United States. 0 0 So our argument is, if you would have been competing rather than participating in the cartel, you would have been selling here. The fact that you had very small sales thereby eliminates the volume of commerce as the relevant criteria. We have to add to that the worldwide sales as another criteria to consider. 0 0 You're absolutely right. We do look at a worldwide effect as well as -- and we -- and if you're interested, I can give you citations of those two cases and tell you what they are. 0 0 The next factor I wanted to point out to you is record fines, and here again I'm passing a chart around the table. 0 0 MR. SIMMONS: Just to complete the record, my firm is a very large customer for graphite electrodes, so we are following the announcement this week with interest. We can tell you that it has been very interesting for a very long period of time that certain foreign producers of graphite electrodes just didn't want to market it in the United States. But I would like to say to Zo-'s comment, this, of course, makes no attempt to include the civil suits that will be filed for treble damages by any number of customers who may have been injured by this practice. 0 0 MR. SPRATLING: That's correct. This chart is just a bar graph showing the Division fines. In 1997 we collected $205 million in criminal fines. That was a fivefold increase over the previous high year and, counting the 29 million that was agreed to in the case we filed Monday in graphite electrodes, and the 20 million we obtained from Fujisawa yesterday, we collected another 50 million this week. As of yesterday, we're at $130 million as of the first five months of this fiscal year. We're on a pace to obtain greater dollars in fines. 0 0 MR. SIMMONS: Are you defined as a profit center? 0 0 MR. SPRATLING: That's a point Joel would like to make. 0 0 MR. KLEIN: Our budget is just under $100 million, and we bring in total revenues of $300 million. 0 0 MR. RILL: This does not go to the Department? 0 0 MR. KLEIN: The fees do, the criminal fines don't. They go to victims' compensation. 0 0 MR. SPRATLING: And, in fact, it was the fines collected by the Division last year that paid for the Oklahoma City bombing people to travel to Denver for the trial. Our fines go into the Office for Victims of Crime and the funds for victims across the country. 0 0 I have some bullet points in Part B in the initial handout that are intended to address the question that Vernon asked as to why is this happening now. And Joel has reminded me of the time and told me to speed this up. And so what I'll do is I'll try to hit each of these six points in a minute or less. Is that okay? 0 0 The globalization of the economy, I don't have to tell you about that. You are all aware of the statistics that indicate the tremendous increase in the globalized nature of the U.S. economy. And while that has all the benefits that we all know, it also provides the opportunity for cartel activity to occur to victimize American businesses and consumers. That is an environmental factor that has to be considered. 0 0 The Division has reallocated its resources and changed its emphasis to place great weight on the prosecution of cartels. The amnesty program I should spend more than 15 seconds on because that has been an extremely important aspect of our international enforcement program.0 0 The Antitrust Division's amnesty program is one that provides that a company which comes forward and gives us information on its involvement in an international cartel may avoid criminal exposure in either of two situations: where we have an investigation already and where we do not. Corporations that qualify for amnesty may avoid criminal liability; and all officers, employees, and directors who come forward with full cooperation can also avoid any type of criminal liability in the matter. 0 0 And several of our international cartel cases have been broken up by amnesty applications. In the past I have been completely unable to talk about any but two of them and have been unable to make comparisons as to the tens of millions of dollars that companies save by coming forward rather than waiting until subsequent prosecutions occur. 0 0 But an unusual thing has happened and that is: Two different companies in the last six months have each issued press releases as to the fact that they came forward in the amnesty program. There are a lot of reasons for that, which is the subject of another discussion. 0 0 But in any event, in the graphite electrodes case that we have now mentioned a couple of times around the table, the Carbide/Graphite Group came forward and participated in an amnesty program, the first company to come forward, and obviously paid zero dollars in fines. The first company to be prosecuted, a cooperating company, on Monday agreed to pay $29 million in fines, and so you're comparing $0 to $29 million. 0 0 The company that agreed to pay $29 million has only 18 percent of the market, and so you can imagine what exposure the other firms have. That $29 million is a reduction from $75 million, which would have been the fine had they not been cooperating. In another example J. Ray McDermott came forward in the marine construction cases. They obviously paid zero dollars in fines. Heere Mac, the Dutch corporation, paid $49 million in fines. 0 0 Cooperation with foreign antitrust authorities, Chuck has said a lot about that. I think there will be more said about that. Let me -- Joel mentioned one thing, however, that I might amplify on. And he mentioned the importance of the simultaneous execution of the compulsory process, namely search warrants. 0 0 We have been successful in getting that in some cases. For example, and the example that is most public, is the prosecution of the international conspiracy in the area of plastic dinnerware, where on the same day and, in fact, simultaneously on the same day, 50 Royal Canadian Mounted Police and FBI agents executed search warrants in Montreal, Minneapolis, and Boston. This resulted in such powerful evidence that five corporations immediately came in, entered guilty pleas, and paid a total of $9 million. And seven individuals came in and pled guilty, including two Canadian nationals, each of which agreed to serve jail time in the United States jails. 0 0 An extraordinary result of the power of evidence, if you can get it that way, as distinguished from the lysine investigation where executives of Ajinomoto -- I'm able to say this because these are both public examples -- where executives of Ajinomoto ordered destruction of documents in Japan at the time the search warrant was executed in the United States. And the sodium gluconate investigation where they ordered destruction of documents at the time of the search warrant. 0 0 Another important aspect of cooperation, besides the fact of cooperation, is the psychological impact on targets of investigations. To know that separate countries are cooperating in the investigation sends a message: There is no place to run and nowhere to hide. And that has a tremendous impact on their incentive to cooperate. 0 0 We have a memorandum of understanding with the INS. It is the only such memorandum in existence. There is no United States Attorney's office that has it and no other division of the Department of Justice that has it. It provides for preadjudication of immigration relief for foreigners who decide to cooperate with us and plead guilty. 0 0 What that means is that the INS has agreed, for antitrust crimes only, to tell a foreigner who is anticipating cooperating in the investigation if he or she will receive the immigration relief that will allow them to travel unfettered to the United States in the continued conduct of their international business if they assist us in the investigation. This has been one of the single most important developments in terms of an incentive for individuals and their corporations to come forward. 0 0 There has been a great increase in the effectiveness of border watches. It used to be the equivalent of buying a lottery ticket but now, through new procedures, the INS is catching a lot of people at the border, detaining them for questioning. We have procedures so we can have attorneys and investigators on the spot immediately, and quite a number of these have happened. And the grapevine has told counsel around the world: If you're a target of investigation, you're likely to be caught in a border watch. 0 0 The last point is a revitalization of a partnership with the Bureau, something that was started under Jim Rill and continued with Anne Bingaman and Joel Klein. The Bureau, the Federal Bureau of Investigation, last year, for the first time ever, made antitrust a priority in white collar prosecutions. 0 0 There is at least one FBI investigator assigned to each of our international investigations. In a program that is unique to the Antitrust Division, they are now assigning in-house FBI agents in field offices of the Antitrust Division around the country to assist in these investigations. I took longer than I should have. 0 0 MR. RILL: I think we're into a discussion period now and, Gary, that was a terrific review. Just a couple of questions occurred to me and one observation. The level of fines only begins to identify the effects of a particular international cartel, and I wonder if there is any work that has been done that can be made public that would identify an assessment of the effects on business and on consumers, at least of the cartels that we've prosecuted? I know in some of the informations and indictments, allegations are made. I wonder if those could be pulled together so we can get some parameters as to the scope of what we're dealing with? 0 0 Secondly, by way of a couple of observations, I think that what's not widely recognized is not only the dimension of the issue, but also the impact that cartel behavior has, not only on consumers, but on business. Usually in the first instance it is the business customer that's gouged by price fixing and market allocation practices. I think that's a message that needs to be carried forward not only here but in your effort to increase the criminal fines to levels that are commensurate really with penalties that exist in other parts of the world. 0 0 Finally, and I think this is something we all need to consider, and that is: The cosmetics or pyrotechnics of global cooperation sometimes arise from a misunderstanding of the different enforcement systems in the United States and other parts of the world. 0 0 The fact of the matter is that the United States, Canada, and curiously enough, I think, Japan are the only countries that have criminal sanctions directed at antitrust violations, and the notion of cooperation in cartel enforcement sometimes raises concerns. The fact of the matter is, of course, that the European Community has a penalty system related to the global turnover of those caught in violation of Article 85, which governs price fixing the Sherman Act's Section One counterpart in the Treaty of Rome. 0 0 And I think there's some analysis to be done by this Committee and perhaps explanatory work to be done by this Committee and by yourself to demonstrate that the asymmetry is not as great as it might appear. Those are just observations to kick off discussion, perhaps. Any reaction? 0 0 MR. SPRATLING: I would like to respond to them in reverse order. Any work that the Committee would do on your third point would be very, very difficult. I think it is something like a policy statement that needs to be made. Your second point about the impact of cartel behavior on business customers, we do know that with respect to any work on the effects of cartels you will remember from your work on the Guidelines when you were Assistant Attorney General, when the Sentencing Committee asked for that kind of material it was and is difficult to develop, except anecdotally. But with that we were able to develop some information. 0 0 The same is true, only less so, in terms of availability of any type of widespread evidence in the international area. Our information is largely anecdotal. Many times we don't even have that with respect to international cartels, because so often we can't get access to the documents that are located abroad that would assist us in the analysis of overcharge -- so, often we have to base it on the testimony of people as to what the overcharge is, and then in negotiations with defendants try to arrive at a mutual view of what might be overcharge. 0 0 So, Jim, any type of widespread analysis or statistical work on effects, I think, would be next to impossible. 0 0 MR. RILL: On the other hand, the absence of that kind of report tends to diminish the ability to publicize the gravity of this kind of problem on the flow of commerce and free enterprise. 0 0 MR. SPRATLING: What we have done is part of Joel's testimony this afternoon. We have, without identifying cases because of grand jury secrecy, we have made public the amount of increases of prices during the term of the conspiracy with respect to some investigations. In one investigation, during a six month period during the first year of the conspiracy, the price went up nearly 70 percent. 0 0 MR. RILL: We would like to have that kind of information. 0 0 MR. SPRATLING: We can certainly make that available without identifying the product, just general statements as to the evidence of amount of price increase during the term of the conspiracy, and there is some evidence about the proposed overcharge, proposed increase testimonial evidence from individuals. 0 0 Of course caveats have to be issued with that, because many times these increases are occurring at the same time the cost of production is increasing for people as well. So we have to account for that as well. Jim, we will put together some information. 0 0 MR. RILL: We have time before the break. 0 0 MR. YOFFIE: I had two questions and one observation. The first question is: Do we have any evidence or do we know whether this is a new problem or just new awareness? When you look at this chart on criminal fines, you see, obviously, this jump up. Of course we know international cartels have been around for hundreds of years. And the question is: Is this really a function of some evidence that we know this is happening more, or is it really a function of greater awareness and greater prosecution? If you have any evidence of that, that's actually quite helpful. 0 0 It could also be -- that they're declining. I want to take the opposite pointofview that they may not, in fact, be more significant in the world, but we're paying more attention to this and therefore we're seeing these kinds of fines. 0 0 The second question gets back to Eleanor's point about thinking about this as a global problem and thinking about fines being levied on a global basis. The fundamental issue that we face in enforcement has to be an incentive problem, which is: How do we give our international partners an incentive to cooperate with us? 0 0 One way to think about that and, again, this is both the question and the observation: Is there a way in which we can think about defining the fines in terms of global volumes and then sharing the fines with our partners as a way of, on the one hand, taking the burden off of our partners and having to actually do the prosecution? We incur the costs and the risks. But on the other hand, because they potentially know they're going to be beneficiaries of the fines, they would ultimately have more incentive to participate. 0 0 MS. STERN: Good business school thought. 0 0 MR. THOMAN: Then another jurisdiction fines, then another jurisdiction, then you have not only more fines but more protracted issues to deal with it, which is another way of looking at the same issue. 0 0 MR. SPRATLING: Your first question is one that is put to us often and about which those of us on the criminal enforcement side have thought. I think it is a combination of the two factors. I think there is an increase in cartel activity. The fact that our economy is becoming more globalized is what has provided the opportunity for cartels. We're talking about cartels that affect United States commerce, not cartels in the world in general, but cartels that affect United States commerce. Yes, we think it's on the increase. 0 0 But it is also the case, because we believe it is on the increase, we have turned our resources towards it and view it among our most important priorities on the criminal enforcement side. 0 0 As to incentives for international partners to cooperate and maybe defining the fines in terms of worldwide volumes, let me tell you what is a potential downside in that approach. If a corporation with an incentive to cooperate by putting the matter behind it in the United States because it wants no further liability in the United States and because it wants its executives to be able to travel to the United States in continued execution of their international trade responsibilities and the way to do that is to pay the fine that the United States is going to extract. There is an incentive to come in and do that. But our fine system is very tough on antitrust violators, and if a company is considering coming forward and thought that they had to pay that type of fine on their total world volume, there would be no incentive for it to come forward because of the likelihood, I think, as they do their risk analysis, that there will be serial prosecutions as well. We're aware of some of our matters where the EC is also looking at them and the EC will undoubtedly take a crack at it. I think you remove the incentive for companies to come forward because in essence they would be paying a 20percentplus charge on their entire worldwide commerce which for a lot of companies may well put them out of business. 0 0 MR. KLEIN: One quick thing. I think these are some of the questions you and Eleanor raised and have been the main thrust of the Division's work. I think one of the most powerful deterrents is individual liability and jail time. What we have which creates another disequilibrium for us, we have the ability to lay that on U.S. people but not on foreigners. In a weird kind of way, a $10 million fine on a corporation is one thing; a senior executive going to jail three months will do it, but the rest of it is just economics. That is one of the problems we have right now. People cut us a $10 million check as if it was a simple tariff on the transaction and then go home. 0 0 I think that's where the disparate impact on the international arena is a critical problem, and we suspect, although we can't prove it, we suspect a lot of these cartels are coming up in response to the fact that as domestic protection is great now, some of the comforts they had at home they would now like to have on an international basis. So we don't see any reason to think this problem is going to abate. 0 0 MR. RILL: There needs to be a point of perspective on this too, picking up on Dick Simmons comment, we're not looking at the mandate, just at criminal enforcement. We're looking at cartel issues and one element of that is private enforcement. 0 0 One of the focal points of the Structural Impediments Initiative SII is that paradigm; it was an attempt to deal with the Government of Japan on this issue, as well as enforcement. I won't go into any detail on that. It's not something that's uniformly viewed with great enthusiasm, but private enforcement is an important vehicle that we at least ought to consider as an option among all the potentially effective attacks on international cartel activity and what can be done to enhance convergence. This may not happen tomorrow, maybe not the next day, but down the road it is something I think we ought to be considering. 0 0 MS. JANOW: May I clarify? Related to this and to make sure I understand the inference you're making, could you generally explain as to how cartel activity is coming to the Division's attention? Is it primarily a result of corporations coming forward to utilize amnesty programs or is it arising because of private litigation, or some combination? Is there a generalization you can make to help us understand how cartels are surfacing? 0 0 MR. SPRATLING: I cannot think of a single -- Chuck, you think about this, too -- I cannot think of a single cartel prosecution that we have brought that has been brought to our attention by private litigation. We are detecting international cartel behavior the same way we detect domestic conspiracies. A combination of complaints of customers, businessmen, and consumers. Lots of times it is disaffected members of the conspiracy somebody may think that one conspirator is cheating on the agreement and wants to get back at that conspirator. The amnesty program has been very effective. A company's senior management may not have been aware until they conduct an internal audit, find out and say, "My God, we're involved, we have to go forward and see if we can get in the amnesty program." 0 0 MR. KLEIN: The biggest problem we have is cartels that don't have U.S. members, and I suspect there is a lot of this out there in the world. We just cracked one recently in facsimile papers where it was a Japanesebased conspiracy to raise the price. Foreignbased conspiracies are going on a lot -- the people are beginning to bang around how we're going to get those in here. They take real money from U.S. businesses and consumers. 0 0 MR. SIMMONS: One of the things I think you're really leaning to is not just to identify the cartels but to try to change the mind set for international companies so they don't want to participate in cartels. In my experience over the past 25 years, it is very clear that foreign business people were far less sensitive to the antitrust laws of their own country, which were not administered the way U.S. laws were. 0 0 I do think the ability to urge foreign countries to sensitize their business people to a much greater degree than they have been in the past could go a long way toward making everyone understand the consequences and the reasons why such practices should not be carried out. 0 0 For any businessman around the table, if you had side bar conversations in Japan or in Europe over a 20- or 30-year period, it is very clear that 10 or 15 years ago they didn't know what you're talking about. They really didn't understand, and keep in mind Japan had exactly the same antitrust laws that the United States had, but they were observed in the breach rather than in practice. 0 0 I think that our Government's Antitrust Division can play a role in helping to educate foreign governments in the need to sensitize business people. 0 0 MR. STARK: I think that is a good observation because it impacts not only on cartel activities abroad but in the U.S. This goes to David Yoffie's question of how much of this activity really represents an increase. 0 0 We have had a couple of cases where cartels in the U.S. have originated, where U.S. firms have been bought by foreign companies, European managers have come to take over the now U.S. subsidiary and sat down with their domestic managers and said, "First thing we need to do is eliminate this competition, and I want you to go out and contact our competitors and start getting prices up." That occurred in more than one conspiracy that we have successfully prosecuted. 0 0 MR. RILL: I think we could go on for quite a while in this discussion. The time has elapsed, and we have other important things to talk about today. We're about 15 minutes late on a break. I don't know how long you all are going to be around, but we have another discussion time and might want to pick up this discussion again. I have approximately 11:00. We can take the break and cut it down to ten minutes and get back at 11:10. 0 0 (Brief recess taken.) 0 0 MR. RILL: Joel, I know we have limited time. I would like to get started again, and we're back to you on international merger review. By the way, excuse me one second. The reporter has asked we speak into the mike, obviously, but she's having some trouble picking up what we're saying. 0 0 MR. KLEIN: We're known as the soft spoken Division. 0 0 Now, it's my pleasure to introduce actually a joint venture presentation. This is a lawful joint venture to present views on merger review. First, I believe we'll hear from Charles Biggio. Charles has been actively involved in all of our merger work and was personally involved in the McDonnell Douglas matter on behalf of the Administration. 0 0 With Charles is George Cary, who is the Senior Deputy Director of the Bureau of Competition at the Federal Trade Commission. George has had a long, distinguished career. Why don't we start with you, Charles? 0 0 MR. BIGGIO: Thanks, Joel. It is a pleasure for me to be here. Years ago as a law student at Fordham, my antitrust professor had made a reputation as one of the few people in the old days who was interested in international antitrust. It is a different world now where it seems like everybody is interested in international antitrust. 0 0 Consistent with our long and amicable history of resolving disputes between the FTC and DOJ, we have struck on dividing our time up this morning, and I'm going to speak a little bit about the general issues that confront business and antitrust enforcement agencies reviewing international and transnational mergers, and try to set a general stage or framework for thinking about the problems that arise when a transnational merger is being reviewed by multiple jurisdictions. George is then going to spend a few minutes talking about several cases that the FTC has recently reviewed that have raised significant international issues, so to give you an understanding of some of the problems we face and some of the problems the business community faces in getting a deal through the various regulatory regimes in our world. 0 0 Gary's talk pointed up the issue of cartel enforcement, which is trying to get a large and somewhat unwieldy group of independent enforcement agencies all on the same page and ferreting out and prosecuting cartels that span multiple jurisdictions. That chart tells you the amount of coordination that is necessary in prosecuting international cartels. 0 0 It is a slightly different issue with respect to merger control. You've got one merger and you've got a growing number of merger control regulations around the world. It is not a question of rallying the troops to review a transaction. It is more of a question of coordinating or, at least from a business standpoint, understanding various jurisdictions that will be actively involved in reviewing the transaction. 0 0 The number of jurisdictions with regulations is quite large and growing. As Joel pointed out earlier, Japan is considering expanding its merger review authority. Many countries around the world have some sort of mandatory filing requirements that raise, at the very minimum, transaction cost issues of doing any transaction with an international component to it. 0 0 At the same time, the EU is lowering its jurisdictional threshold in terms of turnover. So there is certainly great opportunity and growing opportunity for a single transaction to be looked at by a variety of independent antitrust enforcement authorities around the world. As Joel mentioned, the KPMGErnst and Young transaction was being actively reviewed by four jurisdictions: Canada, Australia, the EU, and the United States. 0 0 To understand what the basic problems or issues are that confront us at the Antitrust Division, or any other antitrust enforcement authority, as well as the problems that confront parties to a merger, we should step back and look at what are the economic objectives of business and the enforcement objectives of the antitrust authorities. 0 0 From the business standpoint, obviously the business community wants to obey the antitrust laws wherever they may be. They don't have an interest in violating the rules of any jurisdiction in which they're doing business, and there is no exception with respect to transnational mergers. They want to conform with the regulations in the jurisdictions that might be affected. At the same time it is important to recognize that the process tends to be adversarial. The business community does not want to merely acquiesce in the process without presenting its position on what the antitrust merits are. There are some opportunities for conflict, at least over the antitrust merits, when the transaction is reviewed by antitrust authorities around the world. 0 0 Second, a company wants to do the minimum it needs to do to comply with merger control regulations around the world. My experience has been that simple transaction costs around the world can be quite staggering. Even in circumstances where there is little prospect of a substantive review, there are numerous filings that have to be made. That creates a need for duplicate and redundant filings. It also certainly takes a lot of time to coordinate making the filings around the world. 0 0 More importantly, the business community and parties to the transaction want some predictability as to whether they can go ahead at all. Is there a jurisdiction that can stop the deal full stop? More practically, what is going to be the restructuring, if any, required around the world? Is the United States going to ask for divestiture? Is the European Union going to ask for divestiture. In the cases where the EU doesn't apply, Britain or Germany, are they going to require some sort of restructuring? 0 0 It is very important that the parties understand the economic reality of what the likely restructuring cost might be before they strike the purchase price, to see whether the deal makes sense. That becomes an exceedingly complicated question, however. Now, what are the objectives of the antitrust enforcement authorities? The key objective is to get premerger review, which is so important. The HartScottRodino Act [HSR] was promulgated about 28 years ago principally because it was recognized that trying to undo done deals was extremely expensive, unproductive, and wasn't an effective enforcement tool. So it is very important that the antitrust authorities around the world be able to look at a transaction reasonably before it's closed, in order to effectively stop anticompetitive mergers. 0 0 It is also important for antitrust authorities to be able to do triage. It is very important that the authorities be able to ferret out very quickly those transactions that pose no substantive concerns and go forward without any further impediment. At the same time, it's very important that the authorities be able to detect and evaluate those deals that are in the gray area. Many transactions that are suspect on their face turn out not be a problem. It is very important that we have the ability, before the deal closes, to make sure that the transactions are carefully evaluated. At the end of the day, it's very important to be able to collect evidence and understand transactions that are actually going to be anticompetitive and take measures that will allow us to either stop those transactions or get them restructured in a way that preserves competition. 0 0 In order to do all of this, the enforcement agencies have to collect a lot of information. The process is complicated by the fact that merger review tends to involve extraordinarily complicated analytical elements. And the very detailed facts required to make sure the analysis is applied properly are quite voluminous. And all of this has to be done in a fairly restricted time frame, which is usually imposed. For example, the HartScottRodino waiting period is 30days after the initial filing in the United States. 0 0 If there is a second request for information made in connection with the transaction, the waiting period is extended for another 20 days following compliance of that request. Basically we're talking about a minimum of 50 days and perhaps a bit more before our agency can develop some view of whether the transaction is anticompetitive. In the EU, they have one month followed by a four-month review. 0 0 Four, five, six months may seem long, but in fact, its not so long, considering that these are complicated transactions that require those agencies to devote significant resources and their best efforts to make sure we make the right decision in the time allowed. 0 0 So each jurisdiction that now has merger control regulation has to protect its own interests, and, moreover, the competitive circumstances in each of these jurisdictions may well be different. 0 0 So there is opportunity for any single transaction to be subject to a merger control regime that may have a different perspective on the transaction because the effect may be different from one market to the next. Or the facts necessary for them to understand the impact of the merger may be localized in that market, or maybe the information is to be found in some other jurisdiction. So it's a very complicated fact process that each jurisdiction has to go through in order to make sure it's doing the right thing. 0 0 One thing also that distinguishes the merger control regimes around the world from the cartel enforcement efforts is that, unlike cartels, mergers can be good or bad. And so the process is complicated by the efforts of the antitrust agencies to make sure they're not making a mistake in challenging transactions that actually are beneficial to society. 0 0 So enforcement authorities have a clear stake in making sure the right transactions get challenged and the benign transactions go forward. All of this, I think, creates an obvious dilemma for both business and government: How much of a review process should a large company doing a transnational deal be subject to in keeping with the local law enforcement objectives of each jurisdiction? 0 0 Now, the problems that merger review gives rise to, I think, basically fall into two categories. One is process. The large number of filings created for any transaction, as I mentioned before, creates numerous opportunities for duplicative filings. The other basic issue that arises is the problem of the substantive review of the transactions. 0 0 The United States, for example, has a different review standard for evaluating acquisitions than does the European Union. In Europe, the standard is whether or not the transaction creates or enhances the dominant position within the common market. Whereas in the United States, our focus is more on whether or not the transaction creates an opportunity to raise prices through coordinated behavior or some other effect. Consequently, there may well be a circumstance that results in conflicting conclusions as to the competitive nature of the transactions or the remedy. 0 0 The significance of the different review standards, I think, depends on the type of case involved. Transnational deals with discrete antitrust concerns in global markets that have a localized impact or that can be solved with localized remedies make up one type of transaction. While that type of case raises international concerns, it may well be that the transaction doesn't pose a considerable opportunity for conflict or disparate results. 0 0 Another category of transactions, which is somewhat more problematical, is where the transaction might be localized but the remedies required may well involve multiple jurisdictions. We had a case recently of KimberlyClark/Scott where the impact of the transaction was fairly localized. The Europeans had -- the European market was a different market from the United States, so there was not any possibility that our review of that transaction would conflict with the EUs. But, we were trying to obtain the divestiture of a plant and it meant involving Canada, because there was a North American market, and it affected the disposition of that plant. So it is very important for us to be in contact with the Canadians. 0 0 Finally, the most troubling transaction is the one where there is no localized impact. The transaction affects commerce, and there is no easy way to fix the transaction, because the production assets are sufficiently localized that there is no way to fix the transaction in one jurisdiction without affecting the other markets. 0 0 The key example of that is the McDonnell Douglas merger, where there was no opportunity to fix the transaction in a way that would have allowed the Europeans to go forward with divestituretype relief in Europe without altering the global structure of the transaction. 0 0 There are several efforts under way to deal with the possibility of redundancy or conflict in efforts to make the process more predictable. These are the types of things that the Committee could be considering. 0 0 First, there is streamlining premerger procedures. At the OECD, there is currently a working party that is considering whether or not changes to premerger notification forms will reduce the burden on business in complying with premerger notification around the world. So there is a simple effort to streamline the process. The other way that the possibilities for conflict can be resolved is through the various cooperation agreements, as Chuck mentioned, with the EC, Canada, and so forth. Another idea is to provide interested jurisdictions with notification of mergers that may affect each other's interests to the extent possible, consistent with confidentiality provisions. These information exchanges, as I'm sure George will talk about, allow the enforcement agencies to better understand the issues and facts and to make better decisions and coordinate other activities. 0 0 There is also the opportunity for consultation, so if a possible conflict emerges, the two jurisdictions can talk to each other in order to understand each others concerns where, for example, a conflict over remedy arises. 0 0 In Boeing/McDonnell Douglas, I was personally at the hearings the EU conducted in this case. Also, Joel and I and Chuck Stark and John Goodman from the Department of Defense were able to speak with the members of the DGIV staff looking at the transactions, so we could discuss our views of the impact of the EUs investigation on legitimate important U.S. issues, interests which they took into account. 0 0 It is an example both of the possibility of having consultation minimize the amount of conflict that might arise as a result of multijurisdiction antitrust enforcement, and of the fact that the process is full of pitfalls and can well be a very tense circumstance between the two reviewing nations. 0 0 The most sensitive and difficult area for possible review is the convergence of substantive antitrust standards. It is our biggest challenge. 0 0 As I said, that is a very sensitive area and requires cooperation of the various nations around the world to modify their perceptions and their antitrust enforcement regimes in a way to make the process more predictable and transparent. On that note, looking at my watch, I'll turn to George for some case-by-case discussion. 0 0 MR. CARY: Thanks, Charles. As you know, the FTC and Department of Justice do not usually investigate the same transactions. In keeping with that practice, I'll try not to cover the ground that Charles covered, but I want to go through some specific examples that raise some of the issues that Charles has raised. 0 0 First, the information that the various national antitrust agencies get is not always the same kind of information. Each antitrust regime has its own rules about what has to be produced and when, the detailed type of information requested, the extent of the information, and the processes that are applied. But there is some information that we do routinely share with our partners overseas and in Canada when more than one country is looking at the same transaction. For example, we may discuss the relevant product markets that we're looking at, the names of third parties and the types of third parties that we would be interviewing in the foreign jurisdictions so that we can better obtain cooperation. These are the types of information that we might share. 0 0 Second, during the course of a merger investigation, it would not be unusual for us to share our perspectives about what the transaction is about, what the concerns are, what issues we're looking at, and what our competitive assessments are of the transaction. 0 0 Finally, it is not unusual for us to coordinate with foreign agencies with regard to remedies that we might impose or that they might impose. We might have conversations about what kind of a fix would resolve problems here and overseas at the same time. 0 0 As has been pointed out, in the global economy in which we now operate, many of our most significant transactions are viewed by several antitrust authorities and there is the potential for different results in different jurisdictions. This potential arises: first, because the different jurisdictions might be applying different substantive standards; second, because factual conditions in local markets might be different; and third, because we might have different information than other jurisdictions which leads us to different conclusions. 0 0 One can debate the extent to which we ought to harmonize the substantive standards. Toward that end, I'll discuss why we apply the standards we apply and why we think that harmonization towards different standards might not be in the best interest of consumers. But certainly a process that allows us to work off the same base ought to yield consistent results. It's preferable that, if we arrive at different conclusions, we vindicate our own policies. We would not want to impose a remedy that is not necessary here just because there is a problem overseas. 0 0 Let me start with the Boeing/McDonnell Douglas case because it has become somewhat of a focal point for people analyzing treatment of mergers domestically and overseas. This was obviously a very important transaction to the U.S. economy and very important transaction to the world economy. The FTC was the agency domestically responsible for investigating the transaction. We did what we always do, with one major difference possibly being the extent and detail of our annual review. 0 0 This was probably the largest investigation in terms of numbers of boxes of documents that we received from both parties, and it was also very extensive in terms of interviews with customers and interviews with competitors. 0 0 We interviewed over 40 domestic and international airlines and we developed a very detailed understanding of the way the airplane manufacturing industry works and the underlying economics of the industry, which is the key to our analyses. 0 0 We considered in great detail the cost to McDonnell Douglas of upgrading its technological capabilities and bringing to the market a new generation of aircraft, and we did both a subjective and objective economic analysis of the kind of investment that would be necessary to bring that technology up to being competitive with Boeing's, and whether such an investment would make economic sense. 0 0 In the course of doing this analysis, we came to several conclusions. First, we concluded that Douglas Aircraft division was lacking in major customer support, even among its traditionally most loyal customers. The airlines were telling us that in the next generation of bids they did not view the Douglas Aircraft Company as a viable competitor and would not consider buying Douglas Aircraft planes. 0 0 We concluded, as a result, that Douglas Aircraft was not a viable competitor going forward based on existing technology. Finally, we concluded that the economics of the industry, the huge investments it would require, and the amount of time it would take meant that, going forward, it was very unlikely that Douglas could become an effective competitor to Airbus and Boeing. In short, we came to the conclusion that Douglas Air merging into Boeing would not reduce competition significantly, because Douglas going forward was not likely to be a very significant competitor. 0 0 Now, it has been well-publicized that the European Union required certain conditions for the transaction to go forward, and it has also been well-publicized that there were some in the European Union that did advocate a stronger antimerger position than ultimately came out of the European Union. 0 0 This should not be read to lead to the conclusion that they viewed the facts in a fundamentally different view than we do. Ultimately their review revealed the same bottom line conclusion about Douglas Aircraft's future viability as a competitive force as that reached in the United States. 0 0 The fundamental facts that they discovered in their investigation were very similar to our own in terms of whether airlines were willing to commit to a Douglas fleet going forward; whether Douglas would be in a position to compete in that business on a going forward basis; and exactly what the competitive posture of Douglas was. Ultimately, they did not determine to challenge the transaction, but they did require concessions relating to exclusive contracts that Boeing had entered into with domestic and foreign airlines. 0 0 Some have concluded the fact that they required such concessions means that the EU viewed the underlying facts differently than we did, but I would suggest that the difference in outcome really reflects a different legal standard. The European Union was applying its standard that a merger is problematic if it has a tendency to enhance a firms dominant market position, and it came to the conclusion that the addition of Douglas' spare parts business and customer relations to the existing business of Boeing would, in fact, strengthen Boeing's position going forward and therefore enhance its dominant share. That is not a concern that is implicated in U.S. antitrust law. In U.S. antitrust law, the concern is was Douglas an effective competitor and will its elimination negatively affect consumers in the U.S. marketplace, either in terms of innovation or price competition. So ultimately it was the different legal standards applied that led to a different result in Europe than in the United States. 0 0 Let me describe the degree of cooperation that the Federal Trade Commission and the European Union undertook in investigating the transaction. First, the staffs of the two agencies were in regular communication about what we were looking at and what we were finding, and what issues we were exploring in our investigation. 0 0 As the investigation proceeded, those discussions became more frequent and ultimately went to the highest levels of the agencies. Chairman Pitofsky had several conversations with DGIV to advise them of the progress of our investigation, the substantive issues we were looking at, and to explain in some detail the factual predicates on which the decision might turn. The EU was therefore aware from the outset where we were going, what we were looking at, and how the facts as developed might influence the decision. Efforts were made to make sure that there was no misunderstanding as to how we arrived at our decision, so as to minimize any negative repercussions of the agencies coming to different conclusions. 0 0 Many across the Atlantic, mostly observers outside the agency, some of whom represented parties with an interest in the t