Alan Wm. Wolff, Thomas R. Howell and John R. Magnus
Trade and Competition Policy: A Suggested U.S. Strategy

Thomas R. Howell and John R. Magnus
Antitrust Safe Harbors for Joint Export Trade Make Good Policy Sense, Serve U.S. Interests, And Are Consistent With Trade Liberalization

William E. Kovacic
Merger Enforcement in Transition: Antitrust Controls on Acquisitions in Emerging Economies

          DR. STERN: This is our third and last day of our three-day hearings on behalf of the International Competition Policy Advisory Committee. I'd like to welcome you, and now to turn our attention to the agenda for the third day, which relates to two basic issues we are going to try to cover this last day: international cartels; and trade and competition policy interface.

          We see a lot of new faces here. We are very happy to greet every panel member, and I'd like to recognize Raymond Gilmartin, who has been able to join us today as one of our esteemed members of the Committee. And the idea is for us to kick off with talks from each and every one of the panelists. We will have in Session 1 for today a panel on international cartels in a global economy, and John Dunlop, our esteemed colleague on the Committee, has taken the responsibility of leading that first session. So John, I'd like to just turn it over to you.

          MR. DUNLOP: Thank you. From my perspective, we have had an extraordinary couple of days, Monday and Tuesday, with representatives from all over the world, you might say, and not only fine exposition, but a great deal of give and take in the informal discussion period, and I hope that we can have some of that same kind of exchange today.

          My understanding is that we should start this morning on the subject of cartels. Yesterday we dealt with mergers and, of course, in the merger area, there is not much question that we have seen a surge in the recent years in that field, and it has been suggested that we start this morning in our panel by calling on the panelists to deal initially with the question of whether there has been a similar uptick in the extent of cartels, or is it only perhaps a more vigorous exposition and expose of them that has led to the more -- the larger increase? And also, why? Whatever the developments have been, what's the reason for it?

          So with that format, I'd like to call first on Waverman and then Suslow, and then turn to the lawyers on the panel. So sir, if you would begin, we would like to know the answers to those questions.

          MR. RILL: Or any others.

          MR. DUNLOP: Or any others that may occur to you.

          MR. WAVERMAN: I must say I'm triple honored today. First, to be here at this Committee hearing. I appreciate the opportunity, and as I say, I'm honored. Second, I'm honored that one of the great names in economics, John Dunlop, is chairing this session; and third, honored that economists go before lawyers. That might be the greatest honor of the day.

          (Laughter.)

          MR. RILL: We need a rebuttal, though.

          MR. WAVERMAN: Now, what I'm going to be talking about is in fact not looking globally at cartels, but highlighting what I think will be a growing area of concern, which is standard-setting in high-tech industries as a means of facilitating cartels. And I want to go through standard-setting, what happens in the U.S. and Europe, and then look at two recent cases and, finally, to close with some recommendations. And this has both competition policy, and trade policy as well as market access results.

          Standard-setting is crucial in many high-tech industries, as we all know. And it's crucial for a number of reasons because these high-tech industries, most of them have the characteristics of network industries -- that is, the customers will buy the product of the firm or the firms whose products attract the largest number of customers. So it's similar to network industries such as telecommunications, if you are looking at software or other forms of high-tech, and how customers move between suppliers.

          Customers generally are better off with compatible products, and variety, and the trade-off between compatibility and variety is a key public policy issue. Now, firms, of course, can engage in policies which are designed to grow the market their way rather than the way which will increase public welfare, and they can do that by designing standards as a policy that -- and the word is tip markets, in the way of their products and in a way which will exclude their competitors. And they can engage in policies which will lock in customers early in order to have these network effects.

          So being early and having a standard which excludes your competitors is an advantage in many of these industries. Now, standards can, of course, be set by the market, but there are, as you know, many voluntary groups around the world which engage in standard-setting, and for competition authorities around the world, nonmarket standard-setting is an agreement under the anti-trust laws. But these agreements can be both procompetitive and anticompetitive, and there are issues to try to distinguish that fine line, so firms can cooperate for standard-setting. In the European Community, that's recognized as procompetitive and they receive an exemption under Article 85(3) that it's in the public interest and overwhelms the scope of the agreement part of 85(1).

          And in the U.S., industrywide standards, standards set by groups of firms have been found to be in the public interest. But there has to be an existence of a variety of safeguards to ensure that the standard-setting process is not captured and is excluding rivals anticompetitively. So that standard-setting then can also be anticompetitive if the agreement is exclusionary, if it's an anticipatory standard, you can try to freeze innovation by setting a standard very early in the process of an industry.

          If you can get a standard early, then you can exclude your rivals and you can tip the market your way. Also standards can be too restrictive or too pervasive. There can be far too much embodied in the standard, embedded in the standard, including all kinds of ancillary characteristics, technological characteristics which are not really required to be set before. It can be evolved in the market by competition between firms.

          And I want to look at one specific area which is of growing concern, which is the market for spectrum services. This includes the products for mobile telephony and for paging services. And there is a fundamental difference between the way the standards are set in the United States as compared to Europe. In the United States, there are a number of voluntary bodies. The membership is open. Votes are based on one vote per company. Multiple standards are accepted, and there are multiple current technologies.

          If you look at, for example, the cellular market in the U.S., the mobile market in the U.S. at this point, you have Analog, you have CDMA and TDMA and GSM. You have a variety of technologies, all of which have national coverage in roaming and so customers can choose not only firms, but technologies. They can choose service suppliers and they can choose technologies.

          But that does not occur in Europe. In Europe, there is one European institution called ETSI, European Telecommunications Standards Institute, which was established in 1988 with the very valid objective of basically ending the cacophony of multiple standards in Europe when they were attempting to form an internal market.

          Membership in ETSI is not open. For a full membership a company must belong to one of the countries of Europe, CEPT, and you have to a priori agree to contribute to ETSI's work and make use of the standards produced. And that is I think an ancillary part of an agreement which, I'm not sure how it would stand under U.S. or Canadian antitrust law.

          There is weighted voting in ETSI. The weights are based on telecommunications-related revenue and therefore incumbents have a much higher weight, much higher votes than do entrants. An entrant can have at most one vote if it has no telecom revenue but becomes a member of ETSI, whereas the largest incumbent firm, which is Ericsson, has 68 votes because of its size and its number of subsidiaries.

          ETSI comes up with one standard unlike the U.S. where there are multiple standards. The standard is voluntary but there is a process whereby the European Parliament takes that standard and makes it what's called the European norm, which then becomes the mandatory standard for that service across Europe. So you have a voluntary standard that becomes through the European Parliament something much more than any standard in the U.S. And Member States generally impose ETSI standards.

          If you look at the licensing directives of the European Commission, in fact, the licensing directive from DG-13 says that for telecommunications, Member States must apply the ETSI standard. And this then makes the process prone to cartel behavior. Originally, I don't think that was necessarily true back when ETSI was first formed in 1988, when you basically had no incumbents. But now you do have incumbents and incumbents as you can see from the numbers here, 4 percent of ETSI members, that is 15 in total, control 29 percent of the votes, and 30 percent of the votes block any standard. And 12 percent of ETSI members have 71 percent of the votes, and 70 percent is sufficient to force through an agreement on the standard.

          The weighted voting process is that 70 percent of the votes make the standard. And I think that for these what I would call follow-on standards, which are standards that then take an existing technology and move it to the next level or into a new dimension, we have a problem. When incumbents are producing equipment and providing service under an acceptable standard that exists, the follow-on standard, I think, can be prone to cartel behavior.

          And this cartel behavior favors EU incumbents. It limits consumer choice, and it has, I think, severe market access problems. That is, the ability for non-EU technology to penetrate the European markets becomes greatly limited. For non-EU technology to form an European standard, one has to get 70 percent of the votes of European firms, and that has proved impossible in the two cases I will discuss.

          Now, because of this tipping effect, it affects the U.S. and global markets, because Europe is a 350-million-person market before expansion, and therefore the standard which forms the basis for manufacturing equipment and providing service in Europe then is a signal to other markets such as Asia. And in the U.S. where you have these standards competing with each other, this tipping effect affects competition and the U.S. market as well.

          And the first example is a firm called Geotek, which bought an analog license for paging in the U.K. and tried to convert that to a digital paging technology using its own technology and that technology did not meet the ETSI standard. Geotek last year sold its licenses in Europe to a Canadian firm that agreed to use ETSI standards and Geotek is now bankrupt.

          A second example that is occurring now is a dispute between Qualcomm and its version of CDMA for third-generation mobile and the European manufacturers Ericsson and Nokia.

          These issues are really I think evolving as interjurisdictional conflict disputes and I have put up here a potential seven ways of dealing with these disputes. One is the "effects doctrine" and extraterritorial application of U.S. antitrust law in Europe or European antitrust law in the United States; it will work the other way.

          A second of course would be positive comity. A third would be that no regime mandates a standard as an exclusionary standard. And since that's only done now by the EU, that will say the EU stops mandating. The standards remain as voluntary and don't go to European Parliament, but as we are speaking, European Parliament is voting on the standard for third-generation mobile, and that will be, I think, accepted as a mandatory standard which excludes U.S. and other world manufacturers.

          There could be mutual recognition of standards, but that's not on the table either. The U.K. is presently auctioning off licenses providing third-generation mobile, and those licenses require ETSI standards, and so that the U.S. or other firms whose technology does not meet the ETSI standard cannot apply nor can their technology be used in the U.K. So if licenses were in fact not technology-specific but only performance-specific, saying that for third generation, we require roaming, we require guard bands of this size, then you could have multiple technologies. But the licenses, the indication is that the EU licensing provisions do not allow that.

          You could have harmonization at the ITU which is occurring now. The ITU is another fora where standards are examined and set, and if there is some harmonization of these standards at the ITU at an acceptable level, that could be an answer. But one thing I would put to the Committee is that this, in these areas, we do have regulators. In telecommunications we have the FCC and in Europe we have a variety of regulators, but they are not involved in this in the slightest. That is, they are involved in the sense that the FCC and their European regulatory counterparts will be involved in auction design.

          The FCC assesses the criteria for licenses, as do country regulators in the EU and across the world. In Japan, for example, where similarly third-generation mobile licenses are now being considered similar issues arise. There could be a common regulatory framework. I think we should begin at least with the regulators starting a dialogue with each other because these are also regulatory issues. And we can think instead of having antitrust as the way of handling market access, if we can have the regulators starting a dialogue with each other so they can maybe make more of a level playing field, then we could avoid a lot of the controversy that's going to come. Thank you.

          MR. DUNLOP: Before you go, I must put to you a question on the requirements.

          But would you say or would you not say that more generally this cartel activity is becoming more common or less common or about the same? What's your general impression to that?

          MR. WAVERMAN: Let me step to the microphone. I think this is going to be an area of growing concern. I think this is an area which the Committee should be examining as an area where standards are crucial for firms to have market access and to compete and that, I think we have seen just the tip of the iceberg. There will be a vastly increasing number of cases in these areas.

          MR. DUNLOP: Thank you.

          DR. STERN: Are there others who might want to ask questions at this point or should we go ahead and hear everyone?

          MR. RILL: Is your plan to go ahead?

          MR. DUNLOP: To go ahead although a good question has never been suppressed.

          MR. RILL: The plan as we talked earlier is that you should go ahead and answer.

          MR. DUNLOP: The comment I would make for my colleagues is that in the cases that you developed, it is not just private sector cartels that are involved. There is very much involvement of public sector agencies in the process. Is that a general phenomenon in your mind or not?

          MR. WAVERMAN: That's absolutely correct, Professor Dunlop. It is, both the procedures and the ways in which these institutions operate in some regimes, and the way that the government supports that procedure and makes it into a mandatory standard.

          MR. DUNLOP: Thank you. Now we turn next to a second economist, Professor Valerie Suslow, to develop your presentation.

          DR. SUSLOW: Certainly. I'm honored to be here and to participate. We were asked to think about two things. One is whether globalization of business is creating new opportunities for cartel behavior, and secondly, are there some structural factors that we can point to that are identified or associated with international cartels?

          I would like to give my perspective on those two questions, take us back into history a little bit, just for a couple of minutes, and then give you my opinion of the economic literature, empirical literature on international cartels and U.S. price-fixing conspiracies.

          First I just want to mention that in the questions that we were asked to think about, the question was posed in terms of cartel formation and cartel durability as one thought, and they are two very different phenomena.

          How cartels form, what are the characteristics that might lend themselves to cartel formation and then separately, how durable are they? What conditions affect that?

          The third area which wasn't mentioned is do they work? Which is also a completely different area. People argue about OPEC's success -- if we can't agree about whether OPEC has worked or not, I think we are going to have a hard time with some of the other cartels.

          But to just take a second in terms of lessons from history, comparing now to the 1930s and '40s, which is when we saw the last flurry of activity in international cartels, one figure that's cited is that between say 1930 and 1940, about 40 percent of the world's trade was controlled by international cartels. And since World War II, although there have always been international cartels in natural resources, in rubber and copper and tin and so on, the predominant feature in manufacturing has not been so much cartels as the rise of the multinational corporations.

          I think what we are seeing now, and I don't know all the reasons why -- I think the research is only beginning -- is a period where those multinational corporations are getting together to form international cartels. And so the question is what conditions have changed?

          Are we seeing a resurgence of cartel activity? I don't know that it will overtake in numbers what was happening prior to World War II. My own empirical research looked at a sample of 45 industries before World War II that had international cartel activity. I did a quick literature search, very preliminary, looking at what cartel activity now is in the same industries as it was back in the 1930s and '40s. And of my sample of 45 I could find very easily about a quarter of the same industries.

          Citric acid, acrylics, plastics, potash, etc.

          So is it new? No. Cartels tend to come and go, even of the 45 industries that I looked at before World War II, about 16 of those had cartel activity before World War I. So there is a history of cartel activity in some industries, and the interesting question is possible reasons why it might be on the rise again. A slowing of innovation -- since cartels prefer a static environment. Increased barriers to trade. The pre-World War II cartels were often formed by national monopolies. It was fairly easy then for those national monopolies to carve up the world geographically.

          One of the most stable international cartel arrangements is to have a geographic division, and so things that facilitate that will facilitate cartel activity. So one question to ask is: Tariffs are falling, but is access to markets falling as well in other ways? There has been a rapid increase in countries adopting anti-dumping laws. Have those been used to facilitate cartels?

          On the other hand, we know that communication is much easier now. That makes it easier to monitor activity and possibly to police cartel agreements. That's a quick historical perspective.

          The other question raised by the Committee is what generalizations can we make from the empirical economic literature. I had a grand idea that I could present to you on an overhead, a table that would show the different cross-sectional studies, the different variables included in each study and where they agreed and disagreed. It didn't work. The variation across studies, both in terms of statistical methodology and variables measured, is too great.

          Instead, I have about six generalizations from this empirical work that I think almost everyone would agree on and I would like to start with a quote from Jeffrey Jones, who studied all of the cartels that British firms were involved in before World War II. Jones exclaimed, "How multitudinous are the devices by which industrialists have attempted to restrict international competition." I think it was true then and it's true now.

          I have drawn together six statements that I think most economists would agree on when looking at cartels. The first is, you do need a favorable set of structural conditions, but that's a necessary but not sufficient ingredient for cooperation. Just having relatively few firms and a standardized product does not mean that there will be a successful cartel. There are other ingredients as well.

          Most people would agree that it's easier with a few firms in a non-advertising-intense industry. It's a fairly homogenous product. There is another little thread of the literature that's not mainstream but I think it's interesting, where people have asked is it really the number of firms or is it the number of decision makers? As companies go to centralized management where the decision making can be made at a fairly high level, that might tend to promote cartel behavior. If decision making is decentralized and it's the front line people, they are a little bit more prone to cutting price or making their sales quota.

          The second thing is that most cartel agreements do provide for sanctions or penalties. I note that some of the cartels that we are seeing now that Justice has prosecuted have fairly elaborate agreements. That is common. The agreements get more elaborate the more experienced the cartel is. Third, cartels are often formed during times of overcapacity. The fourth thing is that, and there is a lot of discussion of this in the literature, most cartels are unstable and short-lived, but not all.

          Fifth, the trend in the theory and in the empirical work lately has been to recognize that there is a natural cycle of cartel activity in competition. Cartels will form and they will break down. But they expect to come back. And successful cartels tend to come back. In my own work, I found that there was an average gap between cartels attempts of two years, but I think that would vary depending on the period that you look at.

          Finally, the most recent theoretical and empirical work has added a variable to the studies that wasn't there before, and that is demand volatility or uncertainty in the environment. Mistakes will happen where a cartel member guesses that another member is cheating, although its lost sales are really because of the demand shock, and so the price war occurs.

          The empirical work has tended to support the notion that volatility in economic conditions will increase the probability of cartel collapse. But minor structural remedies imposed by antitrust authorities will not have the same effect. Because cartel organizations are so creative, if you have conditions that are not favorable to a cartel, it doesn't mean that there won't be one, it just means that the arrangement might be that much more elaborate.

          I know that the Department of Justice is powerful, but unless they can affect demand, the most reasonable approach to affecting behavior of cartels probably is very strong price-fixing laws. I will end my comments there.

          MR. DUNLOP: Thank you very much. Do I infer from what you have said that you would answer the same question I put? That there has been some upsurgence in recent years in this phenomenon which you hopefully classify?

          Well it's at this point that I must turn to the lawyers. And see what they have to say about this subject, and particularly, we want to know from them, to what extent do they attribute the rise in U.S. prosecution, persecution as well, of transnational cartels involving both domestic and foreign defendants, and what is their appraisal of the incentives that there are for cooperation between the subjects of investigation, or defendants, and the U.S. Government, and between U.S. and foreign governments in the investigation and enforcement of antitrust laws?

          And I think what I should do is turn to the lawyers to answer those and other questions that they may regard as relevant to our discussion this morning, and then we can have a general discussion when we are all through. I follow the alphabetical order of our program, and turn to Mr. Donald Klawiter.

          MR. KLAWITER: Thank you very much. And thank you all for inviting me to attend and share some of my views on these subjects. As many of you know, I practice in the antitrust field and in recent years, primarily in the criminal antitrust arena. More specialized still is the area of the international cartel cases, where I've had the privilege of representing both U.S. and foreign companies and U.S. and foreign individuals.

          Some of the insights that come from my practice and from some of the things that have been going on in this area may prove to be helpful, and I'm happy to be able to share those with the Committee today.

          With respect to the issue of why cartels seem to be at the forefront these days, seem to be increasing or seem to certainly be in public discourse, I think there are several issues. Some of them have to do with the economy, and I'll defer to my economics colleagues on most of those issues since I am certainly not qualified to talk about them. But other issues deal with the enforcement program, about which I think I can share a few ideas.

          First of all, from viewing the cases that have come in to public view in the last few years, I believe that the fact of globalization of the economy has in fact increased the likelihood, or the probability, of the cartels that we are seeing in the enforcement arena today. One of the things that has happened, if we look at the morality play that just played out in a courtroom in Chicago in the ADM case, and in other similar cases, is that regional or continental cartels that were in existence for many years have become global cartels.

          Along the way, a U.S. company or a company with significant U.S. market share got involved with a cartel from another region of the world. Globalization of the economy really has brought this about because people are starting to deal with, communicate with, meet with their competitors and colleagues in all parts of the world. And in some instances, the temptation of getting together with these people in this context is irresistible, and I think that is what we have been seeing in enforcement over the last several years.

          When a U.S. company comes into such a cartel it changes immediately the effect and impact of that cartel and obviously changes in many respects the possibilities for enforcement action if it is in fact detected. And so, on the simple fact of how or why or why now, I think that we may conclude that very much of it relates to the globalization of markets.

          I would urge the Committee to look very carefully at some of the testimony in the ADM trial, and particularly at how the conspiracies in lysine and citric acid started, how the companies came into these arrangements, and what motivated them to join. I think that that testimony will give you some answers to the questions of why now, and what is really happening in global markets.

          In terms of the enforcement activity of current times, I would raise a few issues for you to think about. First of all, the Antitrust Division should be congratulated for a wonderful effort in the ADM case itself. What you ended up having was not your normal, typical antitrust case where we antitrust lawyers who are representing clients prefer these things to be done rather quietly, and certainly not in the newspapers.

          Here instead we did have a morality play acted out on the front pages of The Wall Street Journal and on the front cover of Fortune magazine. The effect of the publicity was much more than the fact that there was more than one conspiracy involved. This case brought to public notice, and certainly to the Division's notice, the fact that this type of conduct was probably very widespread.

          I think it also brought home to people who might be involved in similar activities that there are high costs involved in such activities. At about the same time, the Antitrust Division was broadcasting very clearly the fact that leniency was a possibility. One of the things we have seen as a result is more and more people coming in and saying, "Hey, I don't want to be Mark Whitacre, I want to have a different result. I want my company to survive this thing." This has caused companies to go in the door and cooperate.

          If you look at the statistics from the Division you are going to see that in fact a number of the international cartel investigations are directly the result of applications for the leniency program. This is a big, big factor that we did not see prior to 1993 when the present leniency program was put into effect.

          A second reason why enforcement has changed in the way it has, and why the Division can now take these international cases to a very successful and serious conclusion, is going to sound strange. I think the reason for the Division's current success is that it lost the GE case a few years back. The fact that GE was acquitted at the end of the Government's evidence, in part because of the inability to bring in witnesses from other countries has had a dramatic affect on antitrust prosecutions.

          In that case, as you know, there was one U.S. defendant, one international defendant, DeBeers, and two individuals who were European citizens. DeBeers and the European citizens politely declined the kind offer of the Division to come in and stand trial in the United States. That fact and the critical fact that important witnesses were not available at trial caused the Antitrust Division to sit down and think very seriously about how it is that they can make these cases work in the future. How can they get the evidence? What will the evidence be and how can they try these cases successfully?

          As a result of the GE loss, we saw several things. One, the need and really the new commitment of the Division to go out and find the evidence, to use things like surveillance, to be able to find witnesses who were not in this country, who are not otherwise available, and begin to develop the means to make these cases come together.

          Several things started to happen -- they were all there previously, they were all tools in some respect available to the Division, but there was, I think, a new incentive to do it well and to use the various new procedures that would make it happen. The first is border watches, which the Division has used much, much, much more since the time of the GE case -- and to great advantage. By having witnesses come in, be subpoenaed, be compelled to testify, the Division has obtained valuable evidence in its cases.

          The second is the international cooperation issues that have really come alive, particularly through the efforts of Joel Klein and Gary Spratling in recent years. There are now various cartel-specific cooperation deals with foreign governments which have allowed, in a number of these situations, foreign governments to begin their investigations by a search for documents simultaneously with the U.S. authorities in a situation where there seems to be a single global enforcement mechanism that is really very effective.

          Third, and very significantly, and the real problem in the GE case, is the cooperation of foreign citizens. The Antitrust Division has now turned in a very significant way to encouraging cooperation by foreign nationals who otherwise would not come to the United States. One of the ways of doing this successfully is the idea of a plea agreement with a fine and no jail sentence and no further recriminations that go with it. More importantly, the Division negotiated in 1996 the Memorandum of Understanding with the Immigration and Naturalization Service, which allows the foreign citizen to have his immigration status preadjudicated before he pleads guilty, allowing him freely to come to the United States afterwards and conduct the business that he really must do as an international businessman.

          Those issues, coupled with the leniency program, have really made a tremendous difference in terms of how international cartels are now enforced successfully. Whereas the GE case obviously showed that there were cartel arrangements to prosecute, the Division had a long way to go, and they have now come very, very far along that way.

          This will be my last point. One concern that I see if the Division continues to have the enormous success of using the foreign citizens as its sources of information, is the likelihood that U.S. companies and U.S. individuals will not be treated equally or in any way as fairly as the foreign individuals.

          I don't say this as a criticism of the Division, because I think this is where the law takes us. We have a situation where, to obtain cooperation from foreign individuals and foreign companies, you need to give them something because they are outside the jurisdiction of the U.S. On the other hand, one of the results in both the corporate and the individual situations is that the U.S. citizens and the U.S. corporations are hit harder in these cases. Some would say perhaps they should be.

          A few cases in point. With respect to the corporate fines, it is no accident that the two largest fines assessed under the Sherman Act were both assessed against U.S. corporations, and the simple fact is that in most of these cases, the U.S. corporation or a U.S. corporation is going to have a high volume of sales in the United States; therefore, under the Sentencing Guidelines, its volume of commerce calculation will be greater; therefore the base fine that you start with for the U.S. company will likely be greater.

          That is not always the case, but it is often the case, and that's an issue because the other cartel members are often going to have their largest volumes of commerce in Europe and Asia and somewhere else. For purposes of the U.S. law, how do we deal with this? I think there are ways we can think about it, but the simple fact remains that the U.S. companies are going to get the worst treatment. Certainly in the early cartel cases we have seen this trend.

          Secondly, a U.S. individual convicted of a Sherman Act violation these days is looking at a serious jail term. The Sentencing Guidelines provide for it. The Division encourages it, and that is the way things have been. Foreign individuals, however, because of these attempts to bring them within the Court's jurisdiction to use them as witnesses in these cases, have received fines, been given the blessing of the INS, and happily continued in their business.

          In some of these, using the cooperating non-U.S. witness is the only way to get the evidence in the case. In others, perhaps, there are other ways and I don't know what those ways are, but I raise the issue because I think there is an increasing perception that there may be some degree of inequality, unfairness, or at least a question that needs to be raised. And that is simply the point.

          The fact that the GE case demonstrated the need to do some of these things to crack these cartels is extremely important. On the other hand, as we go forward and we are really at the early stages of this, we ought to look at ways to deal with this issue to make sure that equality and fairness, to the fullest extent possible, are part of the system. Thank you.

          MR. DUNLOP: Thank you very much for those perceptive comments. Let me turn next to Mr. Mark Leddy.

          MR. LEDDY: Thank you and good morning. And I would also like to express my gratitude for being invited to join you today and offer some thoughts in response to the questions that were circulated to the group. I agree with most of what Don Klawiter said and I'll try not to be repetitive.

          With respect to question 1, there are probably six or seven actual questions in there, but I will break them down into two. The first is: To what do you attribute the recent rise in U.S. detection and prosecution of transnational cartels, and secondly, what are the distinctions between U.S. enforcement and enforcement in other jurisdictions?

          Maybe I should give you some background and reveal my biases. I spent 14 years in the Antitrust Division. To give you some idea of how long ago that was, in 1971, in my first criminal case in the Division's New York field office, I attended a hearing where a Defendant offered a nolo plea to a price fixing charge that had involved a conspiracy that had been going on for about 20 years. The judge accepted the nolo in about 30 seconds. The Government asked for the maximum fine at the time, which was $50,000. The judge imposed a fine of $8,500 on the Defendant.

          As an eager young prosecutor, I was upset at this "slap on the wrist" and stormed out of the courtroom. Just to give you a perspective on where we are -- I think context is important here -- about three weeks ago, with Mr. Spratling in the courtroom, a judge in Philadelphia accepted a plea agreement of a cooperating defendant, my client, and we paid $31.5 million.

          I think that offers some perspective as to what's happened with criminal enforcement over the last 26 years and I think the Committee ought to think about that historical perspective as part of this deliberation. Now, let me return to the questions.

          I'm not an expert in the economics of cartels. I would defer to the economists on this. My own observation, however, is that there has not been an increase in the incidence of international cartels or cartels in general throughout the world. I think there have been cartels since the beginning of time. Cartels prosecuted today result from increased detection and enforcement and not from an increase in the propensity of tradesmen to collaborate or to collude. In short, I don't think there has been any surge in cartel activity over the past 20 years, only in its detection.

          Secondly, as to the causes of the international cartels, I agree with Don to some extent on this. As markets internationalize, competitors compete internationally, and if there is going to be a cartel, the cartel is no longer going to be limited to, say, west of the Rocky Mountains. It's going to be an international cartel because that's the market in which these firms compete.

          Back in the 1950s, a cartel of automobiles in the U.S. was not going to be an international cartel. It didn't have to be. But a cartel in automobiles today would by definition have to be an international cartel. So it is the globalization of markets that drives cartels to deal with their competitive landscape which is international.

          Secondly, I think the rise in detection has a lot to do with the sophistication of the customers. Customers understand the input costs of the products that they are buying. They follow what the suppliers are doing in respect to price. Their own markets are much more competitive internationally than they were, I think, over the last 20 or 30 years. Most companies and most professions like the law are a lot more competitive than they were 30 years ago, and inputs or cost are monitored very, very carefully. A small increment, a small increase in the price of an input, can affect your downstream competition, and thus is a cause of concern.

          So the suppliers are a lot more sophisticated at detecting artificial increases in their input costs, and a lot more sophisticated in respect of how to deal with that. They can call the Antitrust Division or the Federal Trade Commission or DG-IV and have an investigation begin rather quickly. On top of that, you have, at least in the U.S., the lure, for better or for worse, of a treble-damage, joint and several liability, pot of gold at the end of the rainbow. So you have more sophisticated customers and you have a very powerful incentive for those customers to detect and then to punish their suppliers if they see a cartel.

          With the internationalization of markets, and the sophistication of customers, the third reason I would cite for the detection and prosecution of cartels is the rather elaborate criminal and civil enforcement system in the United States. Number one I would cite -- and it has to be distinguished, to answer a further question down the list, from other jurisdictions around the world -- you have individual liability. People can go to jail. On the other side of that, you have immunity.

          When you couple the ability for an individual to be immunized with the ethical rules that drive a corporate counsel to hire an individual separate counsel, that creates a very powerful incentive and context for that individual to go to the government and try to get leniency. You get immunity, you get a separate counsel. If I represent an individual, and I do some of this work, my only loyalty is to that individual, and I want to get that individual immunity and I want to get that individual out of harm's way.

          The first question you ask an individual -- not the first question, but the point of your first interview with an individual who may have criminal exposure is, "Do you want to be a defendant or do you want to be a witness?" While neither is very pleasant and both have tremendous costs personally and professionally, at the end of the day, 99.9 percent of the people the next day call back and say, "Well, I prefer to be a witness rather than a defendant."

          Cooperating individuals are a very powerful source of information for the Antitrust Division and a very powerful incentive that the system has created to cooperate with the Government early on.

          The second reason, I think, as Don has mentioned, is the amnesty/leniency program. There are two schools of thought on this, at least in my firm. I think the prevailing thought is that the amnesty program has created, as with individual immunity, a very powerful incentive for a corporation to cooperate early on with the Government. And if you just look back over the last five years on the incidence of early cooperation with the Government as opposed to the prior 15 years, you have to cite the amnesty and leniency program as a very important part of that increase in detection.

          And it's absent in most other jurisdictions in the world. I can't think of a jurisdiction that has that kind of program. The EC has recently, within the past year, adopted it, and I'll talk about that separately in a second. But it's not as powerful as the U.S. Obviously, since the combined criminal and civil penalties in the U.S. are so much more severe, the amnesty is a lot more of an incentive.

          You combine that with the Sentencing Guidelines, which start out as 20 percent of the sales of the cartel as being the baseline for the corporate fine, and the incentive to cooperate is enormous. By the way, I think the 20 percent baseline is wrong, frankly. Twenty percent is much too high. I do not think that it is anywhere near an average overcharge in these cartels. But that's what the Sentencing Guidelines say and that's where the Division rightly starts the bargaining. The results are fines way above the $10 million statutory maximum, way above it, as witness fines of over $100 million -- obviously 10 times the statutory maximum Congress passed.

          Because of that mountain of money that companies have to pay, the earlier they get into the government, the more cooperation they offer, the lower the initial fine. And that, coupled with the individual's incentives to get in to avoid jail, will create an extremely powerful and fast race to the Justice Department when the subpoena arrives and when there is even, I think someone said before, even a whiff of an investigation, you are going to see a cattle stampede down to the government in order to take advantage, again rightly or wrongly, of this system.

          So those are the reasons I think that there has been increase in detection. I'd like to see the evidence of an increase in, empirically, of cartel behavior. Maybe there are waves of cartels, maybe not, I don't know, and perhaps because I lived in Europe for three years I understand that cartels have taken place from time immemorial at least there, if not elsewhere.

          The second question, as I break it down, for the lawyers in number 1, is commenting on enforcement in other jurisdictions, what elements of the U.S. legal system distinguish it. I think I already mentioned most of them. I practiced for three years in Europe and did a lot of cartel work there. The absence of criminal sanctions is an extremely important difference between Europe and the U.S., and for the rest of the world for that matter. In their jurisprudence, the way they treat individuals is extremely important.

          Secondly, as a practical matter, the lack of a plaintiff's bar or damage cases elsewhere in the world, and I think that will change over the next 10 years or so, but in the United States, you have a very well developed, highly sophisticated plaintiffs' bar. As soon as there is that whiff of an antitrust investigation you have the plaintiffs' bar with a great incentive to find customers who are damaged in order to bring treble damage cases. They get their fees paid by the defendants. The class action is a well-known tool for use in antitrust cases. Those are absent elsewhere. So the whole architecture, the whole system for both civil and criminal enforcement, is profoundly different outside of the U.S.

          The second question, and I'll try to finish up quickly here, I think breaks down again into two questions. What incentives are there for cooperation between the U.S. and foreign governments? I think there are powerful incentives for cooperation and like most markets there are powerful incentives for competition. The way I see the landscape, having dealt with multiple enforcement authorities across the world, is that most of those jurisdictions are envious of the United States' aggressive enforcement program, at least the people who work in those enforcement agencies. I have had a lot of conversation with people in DG-IV in Europe who wish they had the same arsenal of weapons that exist in the U.S. I think that's just human nature.

          I do think there is competition between the agencies to try to outdo one another in respect of who gets the highest fines, whether that's a good thing or a bad thing I'll leave to the judgment of the Committee. There is an awful lot to be learned from the United States, good and bad, and I think that's taking place.

          There has been an ongoing exchange of information between and among the prosecutors around the world. I think that's generally a good thing because it does help enforcement and I'm a firm believer in antitrust enforcement. I think that's a good thing. On the other hand, I don't think the U.S. system is perfect. I think it has its flaws, for example, if there is to be my own tradeoff, if you will, if there is to be an increase in the penalties for criminal violations in the U.S. to $100 million, as many people seem to think is a good idea, I think treble damages perhaps should be rethought in the process.

          There is a huge amount of liability out there, and at some point someone has to think about whether or not there isn't a little bit of overdeterrance, that the cost of the system isn't perhaps catching up with the benefits. Again, I'm a firm believer in it, but at some point I think there has to be thought given to the balance between criminal and civil enforcement.

          There is one question that Don did not address and I think I'd like to address, and that is: How should the U.S. approach cartels in which the activities of some or all participants are state-sanctioned, state-mandated actions? My own view of that is that that should be a political rather than a criminal process.

          I don't think the U.S. should use criminal enforcement process against state-mandated cartels. I think the political process is a lot more effective. Now, how you define state-sanctioned, state-mandated is a very important part of that. And there are situations, I think, in which the words, "state-sanctioned" would mean really a private cartel in which the company received a wink and a nod from the government. I don't think that ought to escape criminal prosecution. I think it should be fair game.

          On the other hand, if it's a government decision to enter into a cartel, for whatever its political reasons may be, I think the idea of U.S. government using its criminal penalties to attack that is problematic.

          And that takes me to my last point, which I'd also like to offer to give some historical perspective from those who were practicing in the '70s. I know there are some around this table who were. During the '70s and early '80s, there were a series of so-called blocking statutes and claw back statutes passed by various governments around the world. The U.K., the Netherlands, France and elsewhere, in direct response to their perception that the Antitrust Division had overreached in a variety of circumstances, some criminal and some civil -- the Uranium cases, the Freddie Laker grand jury -- and I think there was a reaction, a disproportionate reaction by the foreign governments to the efforts by the Antitrust Division to assert extraterritorial effect or jurisdiction over behavior that had taken place abroad.

          And I think that retarded the growth, healthy growth and spread of antitrust throughout the world. It was a setback for antitrust and, I think, a very important development. And I think people should keep that in mind today, because my own view is there is no individual cartel case that is as important as the export of market-driven economies and the philosophy of the market-driven economy worldwide. Market economies are much better for the world and much better for the United States than centrally planned economies.

          We have more or less at least for now, I think, prevailed on that front, and the export of the market-driven philosophy has in its wake antitrust as the regulator of markets, as opposed to central planners sitting in the Kremlin. And I think that's a very, very healthy development over the last 20 years. And I guess that my plea is that the antitrust authorities here and elsewhere do not create a perception abroad that antitrust has more costs than benefits. Because I think that would retard not only the spread of antitrust but possibly also the spread of the philosophy of market-driven economies.

          I think I have probably gone on longer than I should have so I'll end there and let my colleagues follow me. Thank you.

          MR. DUNLOP: Thank you very much. I find your distinction of the role of the Antitrust Division, public against private, to be useful. I can't quite imagine what they would do with OPEC if it was left to their devices. Thank you. Now we turn next to Mr. Loftis.

          MR. LOFTIS: Thank you. Thank you very much, Co-Chair and members of the Committee, for the opportunity to appear here today. I suppose it is no coincidence that the five lawyers who are here have come to know each other extraordinarily well in recent years. I suppose it's no coincidence that the five of us are all members of joint defense agreements formed to assist in the defense of cases involving international cartels.

          In some cases, we each are members of the same agreement. And multiple agreements. And, given the watchful presence of our friends from the Antitrust Division, I will not go further into the joint defense agreements, but it is the case that there are two factors that have changed in recent years the prosecution, the defense, the detection, and the punishment of international cartels. And those two are the Antitrust Division's amnesty program or leniency program, and the implementation and development of international information-sharing in the context of criminal antitrust enforcement.

          Those two factors, however, don't work entirely in harmony. And in the prepared statement that I brought today and I will leave with the Committee, I suggest that there is a way that they can work in greater harmony. Sitting and listening to the presentations, I'm not sure that we want them to work in greater harmony, and let me explain just what I mean.

          The amnesty program, which from the Antitrust Division's point of view and I think from the point of view of American business, has been successful in accomplishing its goals, as it operates in the United States, the amnesty program provides an opportunity for individuals and corporations with varying degrees of culpability to end the uncertainty of how and when the cartel that they have become enmeshed in is going to unravel and present them with the very real expectation of being caught in illegal criminal activity. It gives a degree of control over the future.

          The important thing from the point of view of international cartel enforcement with the antitrust, with the amnesty program, the important thing to keep in mind is that as the program operates in the United States, the availability of the program depends on relative culpability. The Antitrust Division's guidelines for the amnesty program specifically state that the originator of criminal activity or the cartel leader or ringleader does not have amnesty available ordinarily as an option.

          When we take the amnesty program and put it in the international setting, as Don and Mark indicated, we get a somewhat different result, and the result is due to the unavailability of evidence. The availability of amnesty turns not on relative culpability but on the asset holder's ability to provide evidence that is otherwise unavailable simply because it is foreign-located.

          The parallel development in recent years that not only has brought the five of us together, but that has impacted the amnesty program, is the development and implementation of treaties and bilateral agreements for the sharing of information. The way that that impacts the amnesty program is that the leverage inherent in otherwise unavailable foreign-located evidence disappears.

          The United States Government can contact the Government of Canada, cause searches to be conducted in Canada, and reap the benefits of that evidence that otherwise would be sequestered abroad. That's due to the Mutual Legal Assistance Treaty between the United States and Canada.

          With the expected implementation of further bilateral agreements such as the pending one with Australia, we can anticipate similar information-sharing in the criminal international cartel context will take place. That will remove the imbalance that now exists in the amnesty program that causes U.S. firms and individuals to be worse off than their foreign counterparts, regardless of relative culpability.

          So I submit that the further implementation of sovereign-to-sovereign sharing agreements will restore a relative balance to the amnesty program and end the problem that Don Klawiter referred to in his remarks, of U.S. firms and individuals being relatively worse off despite their degree of culpability or lack of culpability than their foreign counterparts. That imbalance now exists simply because of the problem of foreign-located evidence and its unavailability to U.S. enforcement authorities. End the unavailability, and you end the imbalance. Thank you very much.

          MR. DUNLOP: Thank you. Now Mr. Schechter.

          MR. SCHECHTER: Thank you very much. I am very pleased and honored to be here this morning. The advantage of, or disadvantage of going first is that, is that no one has yet said anything but if you fail to mention some important point, you are subject to ridicule by your colleagues. Don didn't make that mistake. The risk of going last or near last today --

          MR. VICTOR: I have the real problem.

          MR. RILL: Paul is always griping about it. You ought to change your name.

          MR. SCHECHTER: Essentially everything has been said that can be said, so I will try and be brief, although I'm not particularly good at that. I was with the Antitrust Division for 18 years. That distinguishes me not at all from other of the panelists. I have for the most part represented companies that have been, and individuals that have been targets of Antitrust Division criminal investigations. That doesn't distinguish me from the other panelists.

          I have also represented companies in the follow-on civil suits. That doesn't distinguish me either. I think perhaps the experience that may differentiate me somewhat is that I have also represented plaintiffs against defendants who are or were the subjects of international cartel criminal investigations and convictions.

          Let me say from the outset, it's not clear to me at all that there is more international cartel activity now than there previously has been. On one hand, the overall globalization of economic activity would suggest that there would be a greater likelihood of international cartels. On the other hand, because there is more competition that's being engendered by virtue of the fact that companies, foreign companies, are often able to compete as well in the United States, it may be more difficult to create and sustain an international cartel.

          I don't know on balance how that cuts. What is clear is that there has been significantly more antitrust enforcement directed at international cartels and it's clear that if international cartels were encouraged by an earlier perception that there was a low chance of detection, that perception clearly has come to an end, and it is to be seen as the shape of the enforcement mix in the future.

          In this regard, it's always been the case that when there is a significant change in the direction of antitrust enforcement priorities, that in the short run there are going to be many cases because people are caught somewhat unsuspecting. I don't say innocently. I simply say unsuspecting.

          I don't think there is any doubt by anyone on this panel, certainly there is none in my mind, that international cartels ought to be stopped. No doubt but that they should enjoy no preference vis-à-vis domestic cartels. I think the problem historically for the Antitrust Division, speaking from my own experience, is in successfully trying to investigate and prosecute international cartels. There is a real serious problem with documentary evidence that's located abroad, and business operations that are centered in foreign places with documents that are more likely be located in those foreign locations.

          There is also the witnesses located abroad problem. This is not just the problem of can you get access to a witness, but it's the dynamic impact of having some number of conspirators who generally are outside the reach of the investigative process. Because the entire game theory surrounding a witness' decision to cooperate, a conspirator's decision whether to cooperate is largely a function of how many other potential witnesses are available to the government.

          You can imagine in the extreme case of one domestic witness and five foreign witnesses, the domestic witness is going to be very unlikely to cooperate because that witness will perceive very little likelihood that someone else will cooperate if he or she doesn't.

          And so the real issue for the Antitrust Division, I think, has been how do you have an effective criminal program to stop international cartels in light of these problems? And quite logically, the Division has centered on two solutions. You either have to get access to those foreign-located documents or you have to substantially increase the likelihood of and quality of the evidence that you are able to obtain from domestic or U.S.-located companies and witnesses.

          As to the likelihood and quality of evidence, the benefits of cooperation to a company or an individual have to exceed what the company or individual perceives as the cost of that high-quality cooperation. And on the issue of obtaining foreign-located documents, to the extent it involves cooperation with foreign governments, it's simply a question of whether the governments perceive that there is some benefit to their mutual collaboration. And that converts parochially into a consideration whether each will be able to bring cases that they would not otherwise bring -- a point I want to get back to, and a potential source, I think, of a problem. And also less parochially, governments also may conclude it's just a good idea to have more open and competitive international markets. I agree with Mark Leddy that the United States ought to play a leadership role in this regard.

          Let me just mention that I think there are three tools that have driven the Division's increased effectiveness in investigating and prosecuting international cartels. First and most important, and I agree entirely with my good friend Jim Loftis, is the amnesty program. Second in importance, and alluded to by Mark Leddy, is the entire criminal fine structure, and in particular, the double the gain, double the loss basis for calculating a criminal fine. The need to negotiate to resolve uncertain and potentially huge criminal fines in a way that doesn't bust the bank, if you will, can drive a corporation to settle and cooperate with the government. And third in importance, in my view, is cooperation with foreign antitrust authorities. And I think a distant third, at this time.

          I would like to make a couple of points on amnesty, to make clear my view as to its overriding importance. There are real and powerful benefits to a company that enters the amnesty program. A company avoids the very large fines that have been alluded to. Fair enough. Second, you can, or the company can, obviate the prosecution of its officials and employees who, absent amnesty, may be very unlikely candidates for immunity. You can get immunity for a CEO who is very involved, who under normal circumstances just simply wouldn't get immunity, and would be a target of the investigation. But as part of the amnesty package, those type of officials can secure a pass.

          Third, and importantly for reasons that Mark alluded to, if you settle with the government, you are in a position to settle with the private litigants in treble damage cases. And it's certainly true that historically, that the first to settle has been able to strike a better deal in damage settlement with the private parties.

          Third, I guess I'm up to fourth, you are well positioned to avoid or to settle any kind of debarment claims with the Federal Government. Oftentimes, companies supply or some division of companies supply to the Federal Government, and there is a serious issue of debarment. And if you are in the amnesty program, you are in a much better position than your co-conspirators to resolve debarment issues.

          And finally you are better positioned to deal with foreign antitrust authorities, essentially for the reason that the Justice Department, in order to maintain the integrity or the effectiveness of the amnesty program, is I think going to go to bat for you with foreign authorities.

          I want to, so as not to take too much time, I want to just make a point or two on the area of cooperation by DOJ with foreign authorities because I think it is an area of concern. It's certainly an area where there is a perception by corporations resident in the United States that the program easily can run amuck. Securing information from foreign authorities that either secure it on behalf of the Department of Justice or otherwise supply information they secured for their own purposes, and in turn the Department of Justice supplying information to the foreign authorities, raises the following concern.

          The Department of Justice, as a prosecutive agency, develops evidence before the grand jury, both through its subpoenas and more importantly through the witnesses that it calls, through the witnesses that it immunizes. It tries to develop the best case that it can. It certainly at the same time wants to understand the defenses of would-be defendants. But, first and foremost, it wants to develop the best case it can develop. It's a very one-sided process.

          I don't think anyone, aside from perhaps the government, would suggest that it's not a one-sided process. The balance is in the judiciary. In the final analysis, the government has to prove its case beyond a reasonable doubt. And in the final analysis, the defendants, corporations and the individuals, have the ability to develop the best counterarguments and counterfacts to the government's case.

          The simple fact of the matter is that to a greater or lesser degree, foreign systems and foreign enforcement is not structured as it's structured in the United States. It's often the case that the foreign antitrust authority is the investigator, it is, as a practical matter or actually, the judge, and it's the jury. Therefore, there is the concern that the United States Government in providing information to foreign enforcement agencies, that cases abroad will be brought against U.S. companies that the United States Government itself might not bring based on that one-sided evidence.

          Because the foreign agencies often do less independent investigative work themselves and rely on that which comes to them, there is a real risk that the U.S. companies will be treated in a manner that is less than entirely fair. And I think that's a serious issue and that's an issue that the government should be concerned about, and it's an issue that I think requires some great deal of care and great deal of consideration.

          I have taken longer than the time that was allotted to me and I'll reluctantly give up the microphone. Thank you very much.

          MR. RILL: Very provocative. May I just for a moment, Mr. Chairman?

          MR. DUNLOP: Sure.

          MR. RILL: I'd like just to acknowledge with thanks Paul Victor's willingness as head of the Task Force of the American Bar Association which is assigned to help or perhaps watch us. Paul and Harvey Applebaum, who will be appearing this afternoon, co-chair a Task Force of the ABA Antitrust Section, whose sole duty is to help us.

          MR. VICTOR: Thank you. It's a pleasure to appear here before this Committee, and it's equally a pleasure, in a professional context, to appear before my daughter, who happens to be one of the staff. Going last, I'm not quite sure what I'm going to say but I'll say it anyway. By the way, there are some benefits of having a last name that starts with a "V". And that is, you weren't called upon very much in school.

          On the subject of detection, I guess Gary would be the best one who can answer that because he really knows how these things get started. But I would venture to say a lot of it is luck. I know from the lysine case it was pretty lucky because the FBI had been called in, by ADM itself, in connection with a different situation, and there was some suggestion of either industrial espionage or other industrial problems with people from other countries. And that resulted in the spotlight being placed on Mr. Whitacre, who finally understood that he was in trouble and once he saw he was in trouble, he apparently decided that maybe he can get out of that trouble and maybe even get out of all trouble by blowing the whistle.

          And so from that situation, at least three grand juries that I am aware of, of the 29 to 30 that are probably currently existing with international contexts, are going forward, and maybe even more, for that matter. So luck is one thing. Of course, one investigation breeds another.

          Our grand jury system is a pretty good system for ferreting out problems, I think. The availability of the immunity mechanism is very helpful. Of course, the amnesty program that we have been hearing about is very helpful, and the recognition that once a problem begins to surface someplace, it's likely to surface all around the world, is another stimulant and aspect that has to be taken into account.

          Somebody was mentioning that, at yesterday's panel, there was some suggestion about detection coming out of merger reviews. I haven't seen very much of that, whether you are going through a second request or not. In merger situations, what's really being looked for is prospective collusion, or the likelihood of collusion. I haven't seen much detection of actual collusion in merger reviews. I don't know. Maybe some of the other panelists have, but I haven't seen anything there.

          What are the effects of the sanctions? One of the questions is what are the effects of sanctions on prosecution and litigation of international cases?

          Well, as some of the panelists were mentioning, the U.S. is a very important business venue and these international business people do want to be able to come here freely. Therefore, when they get involved in a criminal investigation, there is an incentive for them to cooperate if the right deal can be made because they do want to continue to come here. The MOU with the INS has been helpful in this regard, although I have been involved in some glitches with that process which I hope the government will eliminate in the future.

          MR. RILL: Special committee.

          MR. VICTOR: And that is a helpful thing. On the other hand, we do have people like Mr. Yamada in the lysine case who was actually indicted, but never came, and so there is going to continue to be that sort of a situation.

          Treble damage sanctions are a real problem in terms of deciding whether or not to cooperate in a criminal case. And this brings to mind a broader issue. Mark was mentioning the possibility of going too far, breaking the bank, and the treble damage aspect is part of that. That really has to be thought through, especially by those in government. If you are trying to encourage more international cooperation and enforcement, and getting potential defendants to cooperate, somehow or another, some rationalization of this system, rather than the accumulation of penalties around the world, has got to be thought through. Otherwise, you are going to have real economic resistance, and people will fight.

          Remember, when one does fight, and I don't know, Gary knows the statistics about how often the government wins, I don't, but I don't think they are too good. When you fight a criminal prosecution, you have a pretty good chance of winning. When the government actually has to try the cases, they frequently lose. Most recently, in where was it, southern Kentucky, or someplace or southern Ohio, in the explosives case, 21 of 22 people and companies pled guilty and the government tried a case against the one individual who held back and the government lost.

          The government still has to convince a jury of 12 people, beyond a reasonable doubt, and there can be lots of documents that show that there is real competition in the marketplace notwithstanding the "agreement" which is being put forward as evidence. Some people may not agree that there was an agreement, and so that's a real issue. As a matter of fact, it would be interesting, if the government would ever publish the results of the polling of the jury in the lysine case, to see how the jurors might have come out had there not been any tapes. How often are there going to be tapes? Maybe more often than I would like to think, but that was a very unusual situation.

          Concerning the issue of what are the effects of cartel activities, now that's an interesting question. Most of the time, I suppose it's pretty clear cut. If there is price fixing, usually you can get an idea of how much the price went up and how much people suffered. The lysine conspiracy is a very interesting situation, though.

          I suppose I would have liked to have had the opportunity to have been in court with the government on the twice the gain or loss concept there, because that was a commodity situation. There was a ceiling on the price of lysine by virtue of the so-called "shadow prices," which was related to the price of soybean meal and corn. And it is not at all clear what the real impact, economically, was in that situation. And I don't know how this plays out in other situations, but certainly it's not a slam dunk all the time.

          Problems with cooperation from the defense side, in light of the fact that today most of these kinds of situations that are not purely local are really going to have international ramifications, include what's going to happen in Europe, what's going to happen in Canada, etc. In Europe, where they do have a leniency program that's relatively new, and some of us have been involved with that situation, it's quite different from the U.S. I mean, you are buying a pig in a poke because you can't know what the fine is going to be until it's all over, until you have already cooperated and given the damning evidence. This presents a real problem, I think, ultimately for the Europeans.

          Also, if the Europeans are the ones who are starting an investigation, rather than the Americans, that could be a disincentive to cooperation in many situations. It really depends upon the timing, where you are involved in various parts of the world in different antitrust proceedings that are going on at different times of the life of an international cartel investigation. Access to the file problems in Europe exist. For example, will the Member State countries individually seek to do something and prosecute? The fact that the EC puts out a statement of objections, which has a detailed description of the evidence, creates an issue of whether to cooperate with the EC in light of potential treble damage actions and criminal proceedings in the U.S., if the European case began first. I don't know why I'm -- well, I'm saying this in case it's helpful for the U.S. authorities when they talk to the Europeans, so that maybe they can figure out how better to cooperate with them and still encourage cooperation from potential targets. If they can be more sensitive to potential multiple penalties, perhaps they can provide greater incentives to the defense side to try to figure out how to play all of these different pieces of the puzzle together.

          Let me see. I don't want to take much more time, but I wasn't completely sure I understood the thrust of the question on the incentives for cooperation between subjects and defendants in the U.S. vis-à-vis foreign governments in transnational cartel investigations. If that means, how can there be better cooperation by the parties involved in a U.S. criminal investigation internationally, will the defendants want to work with everybody internationally at one time, such as happened in the coordination in some merger investigations, again, I think that really requires that enforcement officials around the world somehow bring their enforcement mechanisms and potential penalties together more rationally to apportion the potential fines to avoid duplication and breaking the bank. They have to work that out a little bit better together to encourage people, I think, to work on a multiple jurisdictional level in cartel situations.

          As for the issue raised by Leonard earlier, obviously there are defenses, for example, the sovereign compulsion defense. This is on the issue of standard-setting vis-à-vis a government mandate or sanctioning. If you are really attacking a foreign law, that's another problem, so I agree with, I think it was Mark who said that it's really more of a political kind of a situation. I think opening up the European mechanism is probably a wise effort.

          On the other hand, there are lots of U.S. companies that are actually based in Europe through subsidiaries. I don't know whether they can be participants to those standard-setting organizations and, in effect, have an opportunity to compete under the local rules in that area.

          One other thing, amnesty. I think, Mark, there is an amnesty program in Canada. I don't, I don't remember if you mentioned that. And that program does have some teeth in it. It is one where, at least up to now, if you are the first in, you have a shot to get some real benefits for your client. I think I'll stop there. Thank you.

          MR. DUNLOP: I think I want to thank all seven of our presenters for their informative contributions, and I think we have reached the stage of our discussion when members of the Committee who have been artificially quiet for a while would ask whatever questions they may have, and more than one member of the panel can respond to it.

          MR. RILL: Let me just seek help in a particular area. And really the first and the last presentation, by Leonard and then a comment by Paul Victor. And that is the difficult question of hybrid restraints which applies to standards and applies to other areas as well. This is a subject we have talked about on the Committee from time to time.

          The question is what position should we recommend the Department and perhaps anyone else who might listen to us take with respect to (A) civil, and (B) criminal prosecution of standard-making activity which is, or similar government hybrid activity which is encouraged, mandated, delegated, or implemented by a foreign sovereign?

          MR. SCHECHTER: I'll maybe take a crack. The issue that is raised in an international context is precisely the same kind that comes up in a domestic context. That is, when ultimately a government agency sanctions the standard, you are left with an antitrust case that is based on how much of the impact of the collaboration is separate from the governmental action.

          To the extent that it's separate, it's a reasonable target of a footnote 159 case, if you will. The other alternative is U.S. government advocacy abroad. And in fact, I'm recalling, and I believe it's the case that the Division made reference to its involvement to some extent in just such a situation. I believe I recall an ETSI case in which the Antitrust Division had some involvement, and it was just this kind of concern about unreasonable exclusion of a U.S. technology in a foreign market.

          The bottom line here is that there is a political dimension to it. There is a trade side, informed to some extent by the competition folks. And there is a pure and simple, stand-alone antitrust side. And I think it's fair game for the Antitrust Division or the FTC to consider such cases. Indeed, as of at least, Jim, your time, those types of cases are cases that the Division has said it is prepared to bring and it has brought. Advocacy on the trade side is equally important, however, if not more so.

          MR. DUNLOP: You called on more than one person?

          MR. RILL: No. I just wanted to see if there was a consensus in this area because it is an area we are grappling with.

          MR. WAVERMAN: Let me add a footnote to that. Let's assume there is an institution such as ETSI, or it could be in any country, that sets the standard. And there is not a parliamentary vote on making that a norm. Would that by itself violate antitrust laws?

          I think there are two separable issues here. Even without the European Community establishing these as norms, once ETSI comes up with a standard, any country that then wants to use another standard thinks it may be an odd man out, that the market is going to go the other way because this is the ETSI standard. So when you do have these kinds of processes, unlike the processes within the U.S. or Canada, even without this, the government side of it, I think you have a fundamental problem in terms of market access and competition.

          DR. STERN: I'd like to make sure that the discussion that we are having this morning addresses some of the fundamental issues, in addition to pursuing the discussions of how to prosecute these cases. And if I could take the first presentation, Professor Waverman, which you made, which was extremely helpful, along with your presentation, Professor Suslow, on what is pushing and generating whatever volumes of cartels actions exist, and I think that's a very fundamental question which we are trying to tackle here.

          The standard-setting is becoming an increasingly critical piece of any technologically sophisticated globalized economy. And you were good enough to put up on your chart a number of ways of tackling what might be deleterious aspects of standard-setting, including a more unilateral reach which most of the discussion this morning has focused on. But you also talked about mutual recognition agreements. You talked about harmonization. You talked about performance-based standards which can be manufacturers' recognition of each other's standards.

          All of these are areas that go beyond the Antitrust Division's cartel enforcement, and nevertheless, have extremely important provisions. My question to the group, which I know is heavy with lawyers, but I would like to put down at least for the record, is whether we are coordinating our public policy with other arms of the U.S. government, including the Department of Commerce and NIST -- National Institute of Standards and Technology -- and the other standard-setting bodies adequately. Or whether we are looking at the important issue of standards just in an uncoordinated way in which the prosecutors will go after footnote 159 and other footnotes to footnotes.

          I would like to get on the record whether this is a significant issue and whether we, as a public policy in the United States, we are using all the instruments available to us and using them in a coordinated fashion. Because I agree with you that standard-setting is going to be extraordinarily important and I have been working very much with U.S. and European business folks on standard-setting. There's a lot of work going on but I have a feeling this conversation is not informed by that conversation, and that conversation is not informed by this conversation.

          And so we are here to make recommendation for public policy, so I put that out, both as rhetoric, and also to try to elicit some discussions here.

          MR. DUNLOP: Who wants to respond? I want some answers to her.

          DR. STERN: No, no, I'm satisfied. I'm trying to frame some of this discussion. And if Mark wants to comment, please do.

          MR. LEDDY: Well, I'll defer on this topic to Eleanor. She knows a lot more about it than I do. I have been involved for clients in situations where they are extremely concerned about standard-setting elsewhere in the world affecting their ability to compete. There is no question about that. And I think it is important for the government on the one hand to be vigilant and make sure that anticompetitive standards aren't set elsewhere that affect the ability of U.S. corporations to compete.

          And I think the Department of Commerce and NIST, for example, are very much aware of these issues. Whether they coordinate, I don't know, but know they are made very much aware, by lawyers like myself, of the importance competitively to U.S. corporations of standards that they can compete with. And the U.S. has not always prevailed in those situations, as I'm sure you are aware.

          As far as the Antitrust Division is concerned I think I have to defer to Gary and others from the Antitrust Division to figure out whether they are involved in the intergovernmental discussions about standard-setting. I simply do not know. When I was in the Justice Department they were. As of today, I'm just not sure about that.

          I guess my last point is, I would like to respond to Jim and your question, with an example. I don't think criminal enforcement in respect of standard-setting that is sanctioned by foreign governments is a wise use of resources, and I think we'll have a backlash effect that I worry about.

          On the other hand, I think, and my own example involves ETSI, we represented a U.S. company when I was in Brussels, which was very concerned about a standard that ETSI was about to implement. They contacted the Antitrust Division and DG-IV and the Department of Commerce and USTR and I'm happy to report that that result was effective, that that implementation did not take place. It was put back for reconsideration, ultimately a standard with a more -- to my kind of perspective -- equitable and procompetitive result, was effected. So I think governments are important to that. I think the Antitrust Division has a role in that. I do not think criminal enforcement is always the best resource.

          DR. STERN: Thank you.

          MR. WAVERMAN: Can I just add one thing to that? I think that's a very important question because for standard-setting clearly it's not the detection which is important, because this is in the open. So it's a different animal. The question is: When does a standard become anticompetitive, and what are the tools which a country can use to effectuate a solution to that? So as you said, a lot of discussion is on how do you detect, how do you know there are international cartels? Standard-setting is a somewhat different animal.

          MR. RILL: There is a small modicum of protection in a sense of what is the body, how are the inputs set and so forth.

          MS. FOX: I want to take up Paula's challenge to put this in a larger context and end up right back with the ETSI market access problem, using perhaps some of the ideas also that Professor Suslow has put on the table. One of the, I think, important themes that came out of certain remarks, including particularly Professor Waverman's and Professor Suslow's, is that there are new forms for and opportunities for cartelization in the globalized world and in the high-tech world.

          Now obviously globalization also has increased opportunities for competition but sometimes those increased opportunities for competition also feed right back into chances and desires for cartelization. So one of the things we saw coming out of your presentations was companies that in the past maybe did not meet one another, now are meeting one another and they have an opportunity to cartelize.

          Another thing is that nations, companies that had been big in their own national market now suddenly feel threatened in their national market and they may want to have market division agreements of some sort.

          And one of the very interesting points that both Professor Waverman and Professor Suslow said was that barring market access is a very important tool, whatever the tools are for barring it, for facilitating cartelization. And market access can be barred by standard-setting, and can also be barred by anti-dumping, as Professor Suslow said. It could also be barred by specific anticompetitive restraints, some of which may be private some of which might be public. And going back to Jim's question, some of which might be hybrid, and we are seeing all of these today.

          One of the paradigms I keep coming back to is what we can learn from the European internal market, because the exact same thing happened there and it is a microcosm for the world. It was, in forming the internal market they removed market barriers, so there was opportunity for much greater competition, and there was much greater competition. But there was great incentive for recartelization and market division.

          So what did the EC do? I mean, it did of course several things. One is it put limits on state trade restraining action. And what are those limits? And I want to use this in answer to the question of: Should we be thinking more about an international conversation on limits to state trade restraining action? They also abolished dumping in the internal market and they also provided, of course, for common antitrust policy focusing very specifically on market access.

          So coming back now to whether there should be an international conversation on state trade restraining action, and drawing from the EC internal market microcosm, I think, as Professor Waverman gave us in his example, he said there are various levels of the nation state order or encouragement or some other kind of more flimsy authorization, of what the private companies are doing. And Professor Waverman also said something else which I thought was very important and makes this a world problem. One of the things that you said that I thought was so interesting was that perhaps the EU is developing a European-champion policy, because there is a single standard in the EU and there are diverse standards, competing standards, in the rest of the world. And because of the network externalities, everybody is going to gravitate toward the EU standards.

          So one thing I was wondering was: Is the EU standard-setting going to a common standard simply efficiency promoting? Or is it really European-champion promoting? Can you separate the two?

          If you can separate them, should there be an international conversation against the standard-setting that's going to be a severe market access barrier, but not just a market access barrier, because it affects the whole world very much? It affects the U.S. competition even within the U.S. and that's why it's not strictly a footnote 159 issue. We are not talking just about American firms being kept out of the European market, we are talking about one country setting the standards through the world, through what starts out being private and maybe goes up to being public.

          MR. VICTOR: Yes. This is not on standard-setting. Am I allowed to make two proposals or offer some thoughts for consideration by the Committee?

          MR. DUNLOP: You are part of the process. Yes.

          MR. VICTOR: Okay. I guess I didn't say this before, but two possible things to think about in terms of how cooperation might be improved, either internationally amongst enforcement agencies or even with respect to individual targets, whether they be persons or companies. One thing, for companies in particular, is to consider the possibility, and I know it's sort of heretical to say so, but to consider the possibility of offsets in treble damage actions with respect to situations where, in effect, a kind of restitution has been paid to the United States in the form of criminal fines under the alternative fine statute, where the concept of twice the gain to the wrongdoers, or twice the loss to the victims, is involved. I haven't thought this through. I don't know whether the --

          DR. STERN: Well, we had some discussion on this actually on the first day stimulated by one of our members, David Yoffie, related to where you are going.

          MR. VICTOR: Oh, okay. I see. Happily, I was totally unaware of it. As far as I was concerned, this is an original idea. For whatever it's worth.

          (Laughter.)

          Secondly, for the U.S. enforcement officials, who have obviously been striving hard in this respect to make the program more compatible internationally, what can be done to get our foreign friends in the competition law enforcement world, and their governments, to view hard-core cartel-type conduct as criminal conduct? Or, if great strides cannot be made in that direction, maybe the U.S. should back off a little bit and not prosecute all of these situations criminally, but instead consider prosecuting these cartels civilly in return for cooperation from foreign officials through their own enforcement mechanisms abroad. Again, maybe there should be some treble damage offsets in that context. Something to think about at least.

          MR. LOFTIS: Paul --

          MR. DUNLOP: We can see you disagree with that, so let's have it out in the open.

          MR. LOFTIS: I'm glad you said that, Paul, because I do disagree with your last observation and I do so for this reason. I think it's important, for context, to have in mind that two different discussions have been going on this morning. The label cartel is a label that covers activity which is far, far broader and often much more ambiguous in structure and effect than the activity that is the subject of U.S. criminal antitrust enforcement.

          U.S. criminal antitrust enforcement has credibility because the charges that are brought are against alleged conduct on which there is an absolute consensus, I would offer, international consensus, that it is wrong. And to suggest that cutting back on that kind of enforcement program, I think would be yielding to a definition of, of cartel that is also incorrectly applied in this context.

          MR. GILMARTIN: Just a general question to the panel. I really appreciate the presentations and the opportunity to participate with such a distinguished group on these topics, as a CEO engaged in a strategy of globalization. We have discussed the fact that globalization could lead to increased cartel behavior. And let me ask the panel if you see any evidence to the contrary? Because in addition to exporting market-based economies, in many respects I think we are exporting competition. We have a group of companies and executives who see the way to win is to compete.

          And therefore, just as in some of the examples you gave, U.S. companies I think are interested in breaking up cartel-like behavior and in what way will the enforcement and the policy issues we're talking about help us, in effect, break up cartels? Because I don't think we should make the assumption that all of us as we get into global economy are therefore happily entering into cartel arrangements. The fall-back position is not to go toward lack of competition or the full orientation is to go for competition.

          MR. LEDDY: I'd like to respond to that. I think it's a very good point. Part of what we do as antitrust counsel in the international arena is to help our U.S. clients, and sometimes non-U.S. clients, fend off invitations to collude, by in effect arguing not only that it's not in the interest of the client because the client does want to compete, but because there are these tremendous penalties if you do collude. And there are situations where U.S. companies, because of their competitiveness, have obliterated pre-existing cartels by entering into markets that were formerly cartelized.

          There is a very procompetitive mentality in the U.S., much more so I think than abroad, and I think it has brought tremendous competitive benefits to consumers everywhere and to U.S. corporations.

          I just wanted to respond to what Jim said, very briefly, and go back to this. I think, I do believe in the criminal enforcement process and I do think it's an effective tool, but if, Jim, you meant that there is worldwide agreement, that there is moral opprobrium attached to price-fixing, I wouldn't agree with that.

          I think there may be more or less international agreement that it is unambiguously anti-consumer, but I don't think other countries and other cultures attach the same kind of moral opprobrium that we do to it, and that is really what creates the drive behind the U.S. criminal process, especially in respect to individuals. So I think there is disagreement worldwide on the use of criminal sanctions.

          MR. LOFTIS: I think just to explain myself, I offer no moral judgement. I think one of the beauties of antitrust is that it is amoral.

          MR. SCHECHTER: There is an interesting corollary to which Mr. Gilmartin pointed. I really do agree with him. There is both a culture in the United States built on competition, but it's also true that the U.S. firm that's entering a foreign market has also a different incentive structure. It's not the incumbent; it has no stake in any existing cartel.

          This might explain why some foreign authorities take a more protectionist view towards antitrust, it may indeed originate from the fact that in the United States when there is foreign entry, it doesn't have a big impact on U.S. firms in the sense of the price effects. On the other hand, when U.S. firms penetrate foreign markets where there isn't a tradition of competition, antitrust enforcement does have a big impact on the bottom line of those foreign firms, which kind of explains why there may not be the same level of enthusiasm towards antitrust enforcement.

          While I have got the microphone, I would like to make a last point. In the context of HSR, it's certainly the case that foreign-located documents have to be produced and it's self-enforcing. If you don't produce them, you are not in compliance with HSR and you are subject to big fines. I wonder, at least with respect to corporations that have a presence in the United States, whether some thought might be given to empowering subpoenas, grand jury subpoenas to reach foreign-located documents? The theory would be something like, to the extent that a company has chosen to do business in the United States, to avail itself of the rights and privileges of doing business in this country, there are likewise certain exposures to doing so. And one of those is that you have to produce materials that are relevant to criminal investigations. You have doubtlessly thought of it, and I'm, I'm doubtlessly behind the curve on the counterarguments that I'm sure my friends will point out. That said, it seems worth considering.

          MR. DUNLOP: I have four or five people who have asked.

          MR. WAVERMAN: I wanted to ask Mr. Gilmartin in this way, which is again a different mechanism. If I take the case of Geotek, and I only know this secondhand, a small U.S. technology company who wanted to compete in Europe, but could not get its technology licensed. This is for paging for which roaming is unimportant, there are none of the internal market arguments that the Commission tries to bring. And it went through the Department of Justice. It went to State, it had all of the good noises. But it decided it's a small firm, small pockets and they finally sold and have gone bankrupt. So the ability to compete was there -- the desire to compete was there, but the ability to enter was not present.

          MR. KLAWITER: As somebody who has been involved in a number of these cases -- and I'm feeling a little bit like the historian of these cases -- there are situations that have come out in the course of the investigations that demonstrate that where a company, and in at least one case a U.S. company, did not accept the invitation to be part of the cartel, and actually stayed away, it did have the affect of immediately eroding the value and the significance of the cartel. And I'm sure we will see that repeated in many, many situations of that kind.

          I think the ultimate issue is going to be will the U.S. company when confronted with this global situation of a European or an Asian cartel or a regional cartel already in place. Are they going to take that perspective which is what the assembled lawyers here who do compliance programs are going to tell them to do every time, or will they, as came out in the context of the ADM trial, want to know what those other guys are up to?

          They say to themselves, "I'm not going to agree to anything, I'm not going to be part of it, but I have got to go to that meeting because it's going to affect my business." That's the thing I worry about the most in terms of this whole process, and again, I think they do it in good faith. I don't think they go there to collude or agree, but you can so easily get pulled into that and the results are very clear in what we have seen in these cases.

          MR. GILMARTIN: Just a quick comment. You see, my, you know, our discussion this morning was more around the situation of U.S. companies that did, you know, engage or apparently engaged in this kind of cartel behavior, and how do you deal with that from an enforcement standpoint and how do you get cooperation and things like that.

          Whereas from my perspective, the issue is more along the lines of the case that Mr. Waverman talked about. It's where you, because of a hybrid private sector, set up either through standards or whatever, are in effect precluded from it. So what are the avenues that are available then through the judicial, through the legal system and so forth that would allow you to take on these situations?

          And therefore, how do the things we are talking about fit together, that would allow U.S. companies to be even more competitive as we enter globalization and we export market-based behavior? Because there is a tendency, I'm sure, where if a U.S. company coming in is going to disrupt the local companies dramatically, there is probably a tendency to be less enthusiastic to cooperate on an antitrust-type situation. So how do you enforce then?

          DR. SUSLOW: I just want to make a few comments on some of the issues that have been raised. One is to clarify something that economists are used to saying. We don't know. I don't think we know whether cartel activity has increased substantially. I don't think that we can know because so much of it is underground, although it's an issue that's worthy of study.

          I think the interesting thing is that there seemed to be a fall-off in cartel activity after World War II, and there seems to be a bit of a resurgence, but I think that any effect of increasing cartel activity is swamped by the effect of the increase in enforcement. The lawyers on this panel raised this as a significant issue.

          One of the things to observe is that we could have had an amnesty or leniency program in the 1950s or '60s or early '80s, and I'm not sure that the companies would have come forward. So something else has changed their internal calculation of the probability that the price-fixing scheme will be detected and that a large fine will be levied. Something has changed so that they are willing to come forward, and I don't think they would have before, so I think that the enforcement can't be ignored.

          The other quick comment pertains to other countries and how they view price-fixing schemes. They will often call them price stabilization agreements instead, and so I think that in terms of exporting our views and asking for cooperation in terms of antitrust enforcement, we will encounter some resistance because sometimes they are seen as pro-consumer or at least pro-downstream industry, if it's price stabilization.

          MS. JANOW: In the interest of time, I will defer.

          MR. DUNLOP: I'd like to take one more from our overseer.

          MR. VICTOR: This is just an effort to respond to Mr. Gilmartin's point, which maybe I'm completely off-base on, but as things currently stand, you have just a few options. You can go and complain. Let's assume this was in Europe. You can go can to complain to the European officials and see if you can get anywhere. You can complain to the U.S. officials and see if they will go to the European officials or do something on their own to assist you in that situation. I suppose you can go to the USTR and evaluate the possibility of a 301-type proceeding. Or, if you feel you can get evidence on your own and it would really show some type of collusive conduct and activity, you can consider bringing your own case here and see whether or not you can get jurisdiction over these companies in the United States and proceed that way. Maybe there are others as well, but I mean if I understood --

          MR. GILMARTIN: You know, and that's well recognized and everything. All of those avenues are available and are used, and with varying degrees of success. But in the spirit of what we are working on here as an Advisory Committee in terms of world cooperation and what kind of policy changes might be made that would make that an easy, you know, a more effective process, let me put it that way.

          MR. RILL: Let me just, I want to leave one question on the table regarding detrebling as a tradeoff for criminal sanctions and cooperation. Are we talking about detrebling for cartel behavior but not for noncartel behavior? How do we deal with that situation?

          DR. STERN: Okay. I would like to wrap up this session with a question that I would like to put on the table as well. In response to the provocative remark from Professor Suslow about companies that are now willing to come forward more, and that something has happened, I would say that we ought to look at that in the context of another conversation going on in international discussions about bribery and corruption.

          Somehow the OECD has been able as a matter of public policy in the international community to negotiate and agree to -- and Congress to ratify the signature on this OECD agreement on bribery and corruption. I think the reason has to do with the demise of the Soviet Union. U.S. authorities and some of the authorities in the Western alliance have now been willing to look under the carpet and acknowledge things, some dust that may have been swept under there while we were busy fighting the Cold War. That's a provocative statement but I think it is worth putting on the table since we are searching for reasons for these major, fundamental shifts.

          I would like to put on the table particularly for the attorney practitioners to talk or add in later discussions to the issue of confidentiality.

          Paul Victor was good enough to bring up the point that he has not seen in the context of merger reviews, the Hart-Scott-Rodino review, the documents that you, Mark Schechter, were starting to extend through subpoena authority. In merger review, has there been any leakage, to your knowledge, of information that goes into cartel enforcement?

          This is an interesting issue because, as we have discussed in our previous panels on merger cooperation among the authorities, there are business people who have been very reluctant to share information for fear that there is some kind of leakage. And we are just looking for facts, factual data points.

          With that, I would like to say that we appreciate very, very much all of your preparation and your presentations this morning. We are going to close this. We have allocated a 15-minute coffee break but now I think we'll have a 10, 5? A 10-minute coffee break and we'll resume at 25 to the hour with our next discussion on trade and competition policy interface. Thank you.

          (Recess.)

          DR. STERN: I'd like to bring to order this next session of the trade and competition policy interface. We have now assembled all of our panelists, who I believe have been listening, if not for the last three days, all day today. And in fact, I think we may have had a good segue into this discussion, and I'm going to turn the chair now over to Professor Eleanor Fox, who will lead us on this panel on international antitrust cooperation and bilateral and plurilateral efforts.

          MS. FOX: Right. Thank you. To the panelists I'd like to say thank you very much for appearing here today. We are very much looking forward to your comments. We have a most distinguished panel, just going around the table from Professor Matsushita, the leading Japanese antitrust law and trade law expert, who is professor at Seikei University and on the World Trade Organization dispute panel. You have so much to add to all of our various points of view.

          And Professor David Richardson, who is a leading professor and writer and scholar and consultant in the field of international economics, and is a visiting fellow at the Institute for International Economics and has just coauthored a major book on global competition.

          And next to him, my dear friend Anna Fornalczyk who was the first head of the Polish agency, the Polish Competition Agency in the post-Communist times in Poland and was there for five years and built that foundation up very strongly, and we are all very proud of that, Anna.

          And coming over here to Richard Cunningham, who is a senior partner in international trade at the law firm of Steptoe & Johnson, who is a major participant as lawyer in the international field in anti-dumping cases, countervailing duty cases, World Trade Organization issues, and is the Chair of the ABA International section, Committee on trade and competition.

          And next to him, Ana Julia Jatar, who is the first head ever of the Venezuelan Antitrust Agency and made a wonderful mark while she was there. And next to her, my dear friend Diane Wood, who is a judge in the Court of Appeals for the Seventh Circuit and a professor of law at the University of Chicago, and was Deputy Assistant Attorney General for Antitrust when Anne Bingaman was Assistant Attorney General for Antitrust. And Diane was on the ground all over the world collaborating and facilitating cooperation of nations that has brought international cooperation to the high point that it is today.

          So we are very, very happy to have you here. As we know, this session is about the interface of trade and competition, and particularly we are asking about the comparative advantages between bilateral cooperation, regional cooperation and plurilateral cooperation. There is another panel following, on multilateral cooperation, but we invite your comments on that too because we know you are experts in those fields also.

          You all have gotten the questions that we handed out. Let me just let you go on and address them in the way that you would like, and then we, of course, will have our follow-up and our discussion. We are going to do this in alphabetical order again and that means that Richard Cunningham will be our first speaker today.

          MR. CUNNINGHAM: Thank you, Eleanor. And I'm grateful to speak here. I'm pleased both because I think this is an important issue and because it's an area where I have had a lot of experience and a lot of frustration in my own practice.

          I want to particularly focus on the issue of market access and the extent to which we have or can develop means to deal with the problems in that area. And I want to start with an observation that I think most of the debate in this area ends up being unproductive because it goes at it the wrong way.

          Most of the discussion of competition policy and trade policy, in dealing with private practice market access barriers, starts out saying well, let's look at competition law and let's look at trade law instruments, and let's see what they deal with and how we can apply them to the market access issue. That leads you to a dead end, certainly for the United States.

          It leads you to a dead end because unless there is substantial government involvement in the market-access-denying practices, what you have to deal with is essentially what a competition policy lawyer would refer to as vertical restraints. And vertical restraints are largely tolerated by current, I'll underline the word current, and I hope somebody will ask me why I keep saying current, U.S. competition policy.

          And that puts us in the position that essentially makes unilateral and bilateral action, bilateral efforts to address that issue impossible. It makes unilateral effort to address the issue impossible, even under Section 301, which has a provision which allows the United States Trade Representative to move against a foreign government that tolerates anticompetitive practices.

          And it makes unilateral action with regard to antitrust enforcement equally impracticable, because in both cases, you are going to the mat with a foreign government on a practice which we ourselves say in our competition policy is not a forbidden, certainly, and absent rather unusual circumstances, not a realistically challengeable anticompetitive practice.

          It also makes bilateral negotiation of such issues as a trade matter unproductive, and lest there be any doubt on that, and I can see Merit wincing at this point, one can think back to the framework discussions with Japan on these issues, in which the U.S. sought to discuss with the Japanese the issue of structural, which was an euphemism for private, anticompetitive structural practices, keiretsu practices that the U.S. felt were access-denying private practices. And that never got anywhere for a very good reason.

          The United States was in a position of not coming down on such practices here in the United States. Why the Japanese would say that "Gee, we have a problem doing the same thing that you don't object to when it's done in the United States." That same argument was the crux of the response argument in the Kodak/Fuji case by Japan, and therefore we are in a position on private-practice market access barriers where we are not in a position to use current bilateral or unilateral mechanisms to go after such practices.

          And therefore it seems to me not a productive exercise to say all right, let's look at what remedies we have, what procedures we have and see how they can deal with private market access barriers. Instead it seems to me that the analysis ought to go more like the following: Is there a real economic problem out there? If there is, what can we devise to deal with that problem?

          I come to that with something of a conviction, I confess, and it's a conviction that grows out of my own practice. As Merit will recall, I often represented the American Electronics Association in the years leading up to the framework negotiations. We were asked by that association to prepare for them a strategy to devise an approach to dealing with their industry's access problems in whatever form in Japan. Hopefully through bilateral negotiation, not through belligerence.