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INTERNATIONAL  COMPETITION  POLICY  ADVISORY  COMMITTEE

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MEETING

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Washington, D.C.

December 16, 1998

This document constitutes accurate minutes of the meeting held Wednesday, December 16, 1998 by the International Competition Policy Advisory Committee. It has been edited for transcription errors.
__________/s/__________ James F. Rill Co-Chair	__________/s/__________ Paula Stern Co-Chair
INTERNATIONAL COMPETITION POLICY ADVISORY COMMITTEE MEETING Washington, D.C. Wednesday, December 16, 1998 Taken at The Carnegie Endowment for International Peace, Root Conference Room, 1779 Massachusetts Avenue, N.W., Washington, D.C. beginning at 10:00 A.M., before Bryan Wayne, a court reporter and notary public in and for the District of Columbia.

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APPEARANCES

Advisory Committee Members:
James F. Rill,  Co-Chair and Senior Partner, Collier, Shannon, Rill & Scott, PLLC
Paula Stern,  Co-Chair and President, The Stern Group, Inc.
Merit E. Janow,  Executive Director and Professor in the Practice of International Trade,
          School of International and Public Affairs, Columbia University
Zoë Baird, President, The John and Mary R. Markle Foundation
Thomas E. Donilon, Partner, O'Melveny & Myers
John T. Dunlop, Lamont University Professor, Emeritus, Harvard University
Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York University School of Law
Steven Rattner, Deputy Chief Executive, Lazard Frères & Co., LLC
Richard P. Simmons, Chairman, President and Chief Executive Officer, Allegheny Teledyne Incorporated
David B. Yoffie, Max and Doris Starr Professor of International Business Administration,
          Harvard Business School

Department of Justice Employees:
Joel I. Klein,  Assistant Attorney General, Antitrust Division
A. Douglas Melamed,  Principal Deputy Assistant General, Antitrust Division
Charles S. Stark, Chief, Foreign Commerce Section, Antitrust Division

Other:
Randy W. Tritell, Assistant Director for International Antitrust, U.S. Federal Trade Commission

Members of the Public Appearing before the Advisory Committee and Presenting Oral Statements:
None

Estimated number of members of the public in attendance: 20

Reports or other documents received, issued, or approved by the Advisory Committee: None

         Since our last meeting in September, the Advisory Committee has been busy with a number of activities designed to gain input from outside experts on competition policy issues. The centerpiece of this effort was our three days of public hearings held in early November. At those hearings, we heard from a really terrific roster of 48 participants including representatives of ten different foreign competition authorities as well as lawyers, economists and academics, not only from the United States but we pulled in folks from Canada, the European Union, Japan, Mexico, Venezuela, Poland among other places.

                  We're especially grateful to Advisory Committee members John Dunlop, Eleanor Fox, David Yoffie, and Steven Rattner who did an outstanding job of moderating the sessions during the hearings. By all accounts, I think everyone seems to agree it was a tremendous success. As an added benefit, the hearings have sparked offers from a number of individuals to aid our Committee in considering how to solve the problems associated especially with the exchange of confidential information between competition authorities.

         We're getting assistance in other matters as well. You've all received the briefing books which contain a summary of the key points from those hearings and they're at tab A-1. This summary, which was prepared by the Advisory Committee staff, highlights the points of agreement and disagreement among the panelists on many of the issues discussed at the hearings. In addition, the Advisory Committee is currently preparing the transcripts of those hearings for publication on our Web site which we hope to have available shortly. I'd like to just take a few moments to identify some of the themes that emerged from those hearings and which appear in those summaries in your briefing books. There was broad agreement among participants at the hearings that enhancing cooperation among antitrust authorities is valuable. In particular, many of the representatives from the foreign competition authorities spoke approvingly of the value of cooperation with the U.S., and pointed particularly to the U.S.-EU and U.S.-Canada cooperation agreements as moving in the right direction.

         Another theme that emerged at the hearings was the broad recognition that competition problems are increasingly transnational in character and that national responses may not be fully up to the task of effectively addressing competition issues absent cooperation from these foreign authorities. In response to this trend, a deepening of bilateral cooperation is important and further consideration of international approaches to addressing these issues is necessary.

         There was considerable discussion among the hearing participants as to what form these approaches should take. In particular, participants debated what role the World Trade Organization should play in competition policy, if any, and whether it should proscribe certain practices or only serve as a broad advocacy forum. I hope that as we continue our discussions today the Committee can bring the expert views expressed at the hearings to bear on the issues that are under our consideration.

         Just to take a couple of minutes to lay out a road map for today, first we'll hear some welcoming remarks from my Co-Chair Jim Rill and then from Assistant Attorney General for Antitrust Joel Klein. Then we'll move into the first session which will consider multijurisdictional merger review issues, and Tom Donilon has agreed to kick off the merger discussion. Joel Klein has kindly agreed to join us for that session.

         At around 12:15, we'll shift gears and begin a working lunch where we'll consider the issues of the interface of trade and competition policy. Here Co-Chair Jim Rill will lead that session. During this session we hope to also hear an update from Deputy Assistant Attorney General for Antitrust Doug Melamed, particularly about the recent report of the Working Group on Trade and Competition which has been ongoing at the World Trade Organization. Our final session will begin at 2:15 and consider enforcement cooperation and Eleanor Fox has graciously agreed to lead that discussion.

         We're now about a year into the two-year life of this Committee. At this time it would be useful for all of us to start a discussion about what the Committee's area of coverage and core recommendations might entail. Thus, during each session, we hope that all of you will identify issues and perspectives you think we should examine in the report that we produce in the coming year.

         At this time, I'd just like to note for the record that this meeting is to gain the input of our members and as we stated in the Federal Register notice announcing the meeting, there will be no participation by the audience. We're pleased that the audience is here and that there is the interested public. Our format does not, however, allow for participation from the audience. We would welcome any reactions they may have to today's meeting in writing. And members of the audience may contact the staff of the Committee if they wish to submit these written comments to the Committee.

         With these preliminaries out of the way, Jim, I'd like to turn the floor over to you.

         MR. RILL: I have nothing to add to the logistical and overview comments Paula has made. I think we should move forward and give Joel the floor and get to the substance of what we're talking about. I would only say that today I think we've come to the point where we have enough in the way of recommendations and suggestions so that as a Committee we can start evaluating, discussing, indeed debating some of the prescriptive aspects of where we may be headed. And that really now moves us on to the task that we have in front of us. Joel.

         MR. KLEIN: Thank you, Jim.

         I'm delighted to add my welcome to Paula's and Jim's. Let me start with a very sincere note of appreciation for the extraordinary set of hearings that the Committee put together. Obviously, Paula, Jim, Merit, and staff worked exceptionally hard on that and I think produced a treasure trove of information that will, I think, long be viewed as important primary materials by people in the international community. I think it was really quite remarkable how many competition authorities sent their chiefs to help work with us on it and a true reflection of the significance of the work that the Committee is doing.

         For my part, I continue to believe that with the evolution of the issues in antitrust and the globalization of our economy that what you are working on is critical. And even though it may not have the kind of short-term traction that certain trade or other issues might appear to have, in the long-term significance it is very, very important. I have spent a fair amount of time since your last meeting, meeting with groups such as the TransAtlantic Business Dialogue, National Association of Manufacturers, talking about these issues and hearing from them about their concerns.

         The Hill has held several hearings on it. We will have a hearing in April on all the issues of positive comity, trade and competition issues. The WTO has gone through, as you will hear later today, a rather extensive set of negotiations about reauthorizing the Working Committee on Trade and Competition. It was reauthorized. It has a mandate for 1999 in which time we will, I think, try to determine what if anything the WTO looks at in the 21st century.

         The Europeans will push hard for formal negotiations. As of now the United States uniformly -- the USTR, Commerce, Justice -- are opposed to formal negotiations, although we believe there ought to be a continuing working group. Other countries are, I think, more mixed in their reactions. There is going to be an interesting set of discussions going on in 1999, at a time when your report and recommendations will be perfectly positioned to influence, I believe, the outcome of those discussions.

         Simultaneously there is going to be and continues to be these multinational mergers that are interesting more and more competition authorities. As I predicted not so long ago, the Japanese are now going to look at, if you will, out-of-country mergers, which up until now they never did look at. For example, they stayed out of Boeing/McDonnell Douglas even though the planes were sold to Japanese carriers on the theory that this was two non-Japanese companies merging. However they are now going to look at Mobil/Exxon.

         So that is I think a harbinger of things to come. And at least in my meetings with corporate America, there is an ongoing concern about multijurisdictional review, what it will entail, the differences in substantive law, the differences in procedural concerns, timing, the ability, frankly, to play one jurisdiction off against another, as well as the ability of jurisdictions to leverage the process through their ability to influence other jurisdictions with respect to outcomes. And I see this as a significant issue, one which we will get to quite quickly this morning, so I will save any specific comments in that regard.

         Paradoxically, while we've generally run into a fair amount of business resistance to sharing of confidential information, in the multijurisdictional merger review they have actually encouraged it as a way to facilitate the process. The experience we had, which I can talk some about if you like, on WorldCom/MCI, the overall comments ended up being enormously positive. There was a fair amount of misunderstanding in the reported media about this stuff, but in fact it worked incredibly well with us and the Europeans and came to a single unified result on a two billion-dollar divestiture, it's the largest divestiture in the history of American antitrust.

         How that will play itself out on a going forward basis when we're looking at what's sure to be -- and I'm sure Steve will say this with a bigger smile than I do -- sure to be a multitude of these multinational 50 billion-dollar mergers in the next couple or three years, I think, is going to raise some profound questions and I would hope we will have some important answers.

         Finally on the third front on the cartel enforcement, international cartel enforcement continues to move forward with astounding success. Every time we crack one of these things, we see that they've been long running and that they are not cartels that dissipate in the market. They have been long running, significant -- that is, 20, 25 percent price overcharges -- to, typically, American businesses that buy these products. These cartels are enormously well oiled and effective. These are not haphazard operations. Every one that we get an amnesty application or a plea bargain from leads us to a second or a third, so there is not an obvious end in sight and the dollar volume continues to rise.

         That is, we were looking in some instances at cartels affecting hundreds of millions of dollars of commerce inside the United States alone. We are now looking at some that affect billions of dollars. We will probably go public in the next six months with one or two that are really quite remarkable. As a result of that, people throughout the world on that front are responding enormously positively. The Japanese have done work with us, helping us get documents, get evidence. The Germans conducted a search at our request not long ago. The European Commission appointed a separate cartel enforcement unit. The Canadians as a result of our leadership have prosecuted their single largest white collar case ever. Not just in antitrust, ever in the history of Canada based on one of our cartel cases. And as I say, this is a work that is still in its early stages in terms of uncovering what is out there in worldwide commodity cartels.

         Let me end with a sincere and perhaps, from my perspective, foolish thing to say. I hope as you look at these recommendations that while you remain practical, you are willing to be bold. Because not everything you will say will I, or certainly the Division or the Federal Trade Commission, ultimately endorse or support or may even think is sensible.

         But if you're going to do work that has medium to long-term value, it has to challenge some of those traditional assumptions that people in the agencies are comfortable with for all the obvious institutional reasons. And while you could create problems for us, I would urge you to push yourselves and try to think a little bit outside the box because none of these problems are obvious or easy to solve and there is a normal institutional view that we would like to go along with what we're doing in the hope that these problems don't become particularly significant.

         And I think the Attorney General would not have appointed this Committee had she not believed that these problems are both important and not easily solvable. If they were easily solvable, we wouldn't bring this many people with this much talent together over two years. So I mean it sincerely that I would hope that there are things in this report that actually upset the current institutional forces.

         DR. STERN: Thank you very much, Joel. And we've received our charge or recharge of our batteries here from Joel to be bold. And now I'd like to turn the discussion over to Tom Donilon to really start our work morning off.

         MR. DONILON: I'm still reflecting on Joel's last comments there.

         The first area of discussion this morning is that of multijurisdictional mergers. I think Assistant Attorney General Klein has underscored the importance of it. I think that's become clear with the extraordinary set of hearings that the Committee held in November. The way, Jim and Paula, we planned to do this today was have Merit give a presentation embodying an interim assessment of where we are on the various issues as a way to kickoff the discussion.

         But before we get to that, I've never been one to turn down the opportunity to take the microphone for just a couple of minutes, I'd like to get some observations and point out some things I hope we can discuss today. One is, as Joel said, this is a quite important topic. Two, there's a lot right that is going on right now, I think, in the multijurisdictional merger review process. And Joel has pointed to an example I hope we can work on today in some detail which is the WorldCom/MCI deal.

         But I think the evidence before the Committee to date would indicate that where there are in place institutional relationships, where there is in place structured communication, that in fact there is some degree of convergence and good work going on in the multinational, multijurisdictional merger area.

         Now, that's the good news. The next point, though, is that that's only in place in a few places. Obviously, the most important of those being between the United States and Europe. And I think we've heard compelling evidence that one, global mergers are going to be increasing in number and that the number of jurisdictions reviewing those mergers intensively is going to increase. And I think we need to try to get ahead of the curve on that through our work here. I hope that means we can focus on a set of core principles that the rest of the countries in the world can look to as they develop their merger review policies.

         I think we do need to discuss the appropriate role of international institutions in that respect and how the United States should relate to those institutions. We also have been focusing very hard on an area that I'm quite interested in, and that is procedural harmonization. Because I do think practice has shown that that will lead to substantive convergence over time, and we should test that proposition in our deliberations.

         And last before I turn it over to Merit for an outline of the areas to discuss today, I know this is an issue of some controversy in our deliberations, but I for one as a Committee member do believe that we need to look intensively at our own practices -- Hart-Scott-Rodino practices in our own country - - for a number of reasons. One, because they do have effects obviously on the multijurisdictional merger review practice such as transaction costs, and they actually have special effects in a number of instances, with respect to the burden of gathering documents from around the world as opposed to one office and one city in the United States. We've heard testimony during the Committee's deliberations on translation burdens and other burdens.

         Second, because I think that you want to provide a model and provide incentive for change around the world, and to do that I think this Committee has to demonstrate that it has looked at our own practices. And I think the same thing goes for multi-agency review of mergers which I hope the Committee could agree would also be on the table for its deliberations. With those personal opening comments, I'll turn it over to Merit for the official outline of our discussion today.

         MS. JANOW: Thank you very much. Based on the discussion that Committee members have had at previous meetings, input from our hearings, and discussions with practitioners and firms, I would like to offer a very preliminary assessment of the range of matters that might be encompassed in the report of this Committee in the merger area, and second, a sense of direction on these matters. These remarks are designed to trigger discussion and obviously do not represent the considered views of the Committee. Instead, let me offer a brief interim assessment for you to react to.

         I'll be brief.

         Tom has just spoken about the need to identify first principles, or good practices. And in the merger area, one such principle that seems quite apparent is that jurisdictions should be free to apply their own substantive standards, but they should refrain from using merger control to address noncompetition issues. To the extent that such noncompetition issues are influencing the decision whether a merger is permitted or proscribed, that reasoning should be stated and made transparent. How to implement that notion, either through advocacy or agreement, I leave to our discussion.

         Second, I'd like to make four observations about procedural aspects of merger control.

         One direction of possible recommendations is to seek the reduction in the volume of applicable laws in a transnational merger. There are a variety of methods that can be used for that to work -- e.g. revisions to notification thresholds; modifications to exemptions. Hart-Scott-Rodino is possibly a useful model in this regard, since it has some exemptions -- e.g. for acquisitions of foreign assets or stock in a foreign company.

         A second important procedural feature to consider is how the Committee might enhance the need for greater transparency and thereby reduce the ambiguity and uncertainty of laws and their application. The importance of transparency is applicable both to jurisdictions with established merger control regimes and transition environments, although they have different implementation consequences. One aspect, for example, for the U.S. system may be to increase transparency with respect to those cases that are not brought or, to include regular and explicated reasoning in speeches or other forms for increasing public awareness of the logic behind merger actions.

         A third approach is to address defects within jurisdictions, and a fourth approach is to seek harmonization on those areas that lend themselves to harmonization and could make a difference. That might implicate timing of merger control review, which is an issue that has been identified by most analyses, such as the ABA, the Wood/Whish report. Previous studies have considered harmonization of triggering events, review periods and information requirements, among other features.

         In broad brush terms, those are the four procedural areas. Let me highlight two additional aspects: One is the question implied by Tom Donilon regarding defects or difference within jurisdictions. This raises the issue of whether the United States should, too, address its flaws and lead by example, particularly if the U.S. is seeking to lead or trigger a global review of national merger practices.

         In the Hart-Scott-Rodino context we have heard a lot of opinion that one might look more broadly at the exemptions for foreign transactions, reconsider the scope of second requests and the disproportionate burden that that places on transnational mergers given the language requirements, and the broad scope of firm assets and operations and other factors.

         Another suggestion is that the Committee consider whether there are steps that could be taken to expand information sharing between U.S. and foreign authorities and perhaps even develop some sort of protocol for the exchange of information among agencies.

         A separate aspect about the U.S. system that has been raised and for which we are getting more input from the bar and elsewhere, is the consequences of multi-agency oversight of mergers by different U.S. non-competition agencies. Are there steps that could be taken to reduce the domestic impediments to consideration of U.S. procedural issues so that these issues can be considered on the merits? There is the view, for example, that one problem may stem from the fact that agency budgets come from filing fees and this in fact may be creating incentives that are problematic.

         Turning briefly to substantive enforcement, let me raise several additional points. Many have testified and spoken to the positive direction of enforcement cooperation and the soft deference that's occurring at least between those jurisdictions that have a high degree of confidence with the work that each are undertaking. And the area that I hope we can consider is how much further can that cooperation head over the medium term.

         Some jurisdictions review transactions where there's only a de minimis impact on their jurisdiction. The question in that instance is whether we can find ways of encouraging those jurisdictions to defer to those jurisdictions with more significant competition policy concerns. And over the medium term, if we can have as a goal -- MCI/WorldCom may be a good example -- situations where U.S. case handlers work as a team with foreign authorities with appropriate safeguards for confidential information, so that there is cooperative review occurring to the fullest extent possible.

         The challenge there is to consider whether it makes sense to permit an implicit or explicit lead agency, but to do so without losing the ability to apply differential remedies as necessary as the process proceeds. So the question that I'm trying to raise here is how far can we go down the road of cooperation to develop shared approach and experience so that agencies do not necessarily feel that each must undertake full review of a merger in circumstances of overlapping review.

         There are a number of steps that could be taken along this road. For example, in the information sharing and coordination context, one could build much further on the U.S.-EC type structure to develop procedures where agencies routinely identify notified jurisdictions and share public documents and develop more routine agency cooperation, including, say, the development of waiver procedures and practices.

         Further, in the area of dispute avoidance, comity can be developed still further, especially in circumstances where there may be an imposition of an extraterritorial remedy. And finally in the area of dispute resolution, this is an area where we need to think more fully, both about direct conflict situations and other forms of conflict, and what a dispute resolution approach might be under those different circumstances. And perhaps when there are differences in an analysis that lead to different agency outcomes, we may be able to go further down the road in terms of developing some proportionality of an extraterritorial response, depending on the nature of the transaction.

         So these are a few broad brush observations of both procedural and substantive harmonization. Let me stop there.

         MR. DONILON: Thanks, Merit. As we open it up for discussion, let me try to put a point on it. These are not formal proposals because we're not in the Committee's deliberations where we would do that, from my perspective here, but let me throw some things out of your presentation, Merit, and try to get some reaction from Committee members to try to drive us toward some recommendations and more concreteness.

         One, on core principles, one idea would be to come out of this meeting with a determination or a decision that we would ask the staff to draft a set of core principles that could be endorsed by the Committee, with discussion then about the right way to recommend to the United States Government that it be pursued, as Merit said, either by advocacy or by agreement, and then explore that issue once we have a document in front of us.

         And by advocacy, as we discussed, Dick in the last meeting, what does that mean to the United States? It means United States Government advocacy, it means business advocacy. But to try to have that as a discussion point, once we have a document in front of us about core principles, is one idea.

         Second to try to reach a determination whether or not the Committee wants to have Hart-Scott-Rodino reform on the table and then to maybe have a subcommittee or have the staff work on a proposal for reform. Third, Merit, out of your discussion, one thing that I found particularly intriguing given the amount of discussion that we have heard about information sharing, would be to take a crack at drafting a model information sharing protocol that could be advocated by the United States Government, indeed used by the United States Government in places where we don't have formal understandings and indeed I think even deepen the understandings we have, let's say the EU, to go further, to discuss privilege issues, downstream protections, and things like that.

         Fourth, out of your presentation, Merit, it seems to me we should ask -- at least I would like to ask -- Joel Klein his view on this soft deference concept that you put on the table. My reason for asking is to try to determine whether or not that's a non-starter, whether or not a lead country concept is a non-starter in terms of the obligations that antitrust enforcers feel under their own laws to enforce the law, and whether or not it's tenable to have a formal deference protocol put in place, or the best you might hope for perhaps is informal understandings, which I do think exist today, as to who is going to take the laboring oar on some of these multijurisdictional transactions. I thought that might be a good discussion item to have.

         And last coming out of your presentation, I think we also need to think about whether or not we want to put multi-agency review in the United States on the table, for express discussion.

         Now, those are, again, personal. I tried to put a point on some of the things coming out of Merit's discussion. And they're certainly not intended to be comprehensive. But I thought that might be a useful thing to do to open up discussion.

         DR. STERN: I'm very interested. I mean, I have some views on all of this and I think it's very helpful what you've done, Tom, but I would really love to hear from some of the other members.

         MR. DONILON: Absolutely. Anybody want to start?

         MR. DUNLOP: May I have a preliminary question? And that is this: Is there, or does one expect there to be, significant -- I mean by that size, I'm only talking about size -- mergers in the United States or mergers covering several countries that do not get or do not warrant any agency review? Are we really talking about all large mergers or are there a class of mergers -- banks, I don't know, insurance companies, what not -- where mergers take place which, everyone starts by the understanding that it's outside of the jurisdiction of the sorts of people around this table.

         I'm looking at the big universe and I want to know whether you've got it all, or whether there's some significant proportion of merger arrangements that are admittedly outside your tent. You may not want to answer. But have to look at the big world before I come to your world, as you put it in those transcripts. What's the answer?

         MR. DONILON: We have one current and one former Assistant Attorney General for Antitrust with us today who could address that.

         MR. RILL: I'll talk about the current policy and he'll talk about the former policy.

         (Laughter.)

         MR. DONILON: As a general matter I think we should consider it all in. The trend I observe in the law is for exemptions to be viewed increasingly narrowly. And there are very few exemptions from the antitrust laws in the modern economy.

         There's a narrow exemption in the insurance industry which has been made even narrower over the last decade by court cases. There's an exception in mergers involving state entities, so-called state action exemptions, but the exemption, in terms of my understanding as a member of this Committee, is quite narrow. And I guess my answer would be all in, but I'll defer to people with more experience than I have.

         MR. RILL: Let me just suggest that, I think you raise a very good point when it comes to the process issue as well. Just because a merger involves a lot of dollars doesn't mean necessarily that it raises a competition issue. Many large mergers, and I think we could all think of some, while involving a lot of dollars do not raise competition issues, but most of them do, at least in some segments of the market.

         The DOJ/FTC merger guidelines do start with the smallest market concept. So if there's any market where there's a competitive effect, then that merger will generate review here and probably elsewhere, global.

         On Tom's point regarding exemptions and other agency responsibilities, I think from my perspective, we have no restrictions in coverage, regardless of whether a particular merger may not be finally reviewable by the Department of Justice, for example, the Surf Board's control over railroad mergers, which have at least a North American/Canada/Mexico global impact.

         That does not preclude us from taking the position, which I think gets to just a quick comment on your point, of multi-agency review. It seems to me that one possible approach would be to have competition findings by the Department or the FTC binding on the agency that has additional jurisdiction.

         For example, in telecom mergers, the current debate going on right now, it would be at least possible for the Department of Justice to have jurisdiction and to make a finding on competitive effects, and have that finding binding on the FCC along the lines suggested at least by two FCC commissioners. And then the FCC could, against that fundamental tenet, against that paradigm, make its own decision with respect to such issues as universal access and other phases of public interest. That's at least something that we can debate fairly fully on the table. So I think that's at least a slight contribution to your --

         MR. DUNLOP: Would you say the same about electric power?

         MR. RILL: Yes. And international airline alliances. I would say at least for purposes of our deliberation and I think for purposes of my own views, but that's just one member of the Committee.

         DR. STERN: I agree with that. There's one thing, though, in terms of the multi-agency review which I don't think we've really talked sufficiently enough about, and it's the references to foreign policy/national security consideration when it comes to transnational mergers, particularly in defense industries.

         I believe that that is going to happen. And I believe that there will conceivably be cases where it might be troublesome from a competition policy point of view, but which may, from a foreign policy or national security point of view, be in the interest of the United States to approve that merger.

         And I don't think that we have put that sufficiently on the table and I do think we need to do that. We've talked about your Surf Board and we've talked about--

         MR. RILL: It's not mine.

         (Laughter.)

         DR. STERN: I heard the word Surf Board at first from you, and we've talked about the Transportation Department, but I do believe we need to talk with regard to the defense industry consolidation.

         MR. KLEIN: Let me, just for clarity, John -- first of all, everything is in, John. I think that's the fair assessment. However, most everything is FTC/DOJ. But there are two other boxes that we'll just need to be cognizant of.

         There is the issue that Jim raises here. It's rare but there are occasions where another agency has final decision-making authority and we at most have advisory authority. The two that immediately come to mind are the Surface Transportation Board on rail and the Department of Transportation on international airline alliances which are short of mergers but are in some way de facto mergers. That's a relatively narrow class, but neither the DOJ or FTC have final say on either of those. Then there is a second class that Jim alluded to of concurrent review jurisdiction that involves the FERC on electricity, the Fed on banks, the FCC on telephony and TV, and so forth, and there's probably a couple of others.

         And there, basically, both the agencies are concurrently making some form, in our case of pure competition analysis and the other agencies a partial competition analysis. And we have various working relationships. Finally, I think Paula's point is an important point, but it's one that currently works pretty well on matters involving, for example, defense. We are intimately involved with the Department of Defense. We conducted essentially a joint review with them on Lockheed Martin/Northrop Grumman. And in the Boeing/McDonnell Douglas case, we actually went with the Department of Defense to Europe and said to the extent you have concerns about the defense rather than the civilian side of the merger, on those you ought to yield to paramount American interests, if the DOD thinks this is good for its defense procurement program. And the Europeans are quite sensitive to that. So that's actually a story that will work, has worked and I think will continue to work quite well.

         MR. RILL: If I may comment on one thing Tom said, the notion of whether something's a non-starter, I think there should be a very strong presumption that nothing on our table is a non-starter.

         MR. KLEIN: I think Tom's point is worth thinking about it. It's not a question of a non-starter. Deference in the form of nonbinding deference, that is, it's not like a court will say the Canadians didn't give enough deference to the U.S. It'll be a kind of spiritual thing, where they're supposed to do it. This may have a kind of feel-good quality but no substantive significance. Because I think in the end most jurisdictions are going to -- if you sell products into our market, most jurisdictions are going to say why would we defer?

         And this came up heavily in Boeing/McDonnell Douglas because they said, look, even though these are two U.S. companies, there's all these European air carriers that have to buy planes. We're not going to defer. So I'm not exactly sure that it ought to be a non-starter, but I don't think that it would be a complete answer on that.

         MR. RILL: It could tie in to the process issue, though, and that is, you could have, along the lines you are suggesting or Merit was suggesting, a consolidated task force -- effectively a task force of people working on a merger with consolidated discovery with the country or another jurisdiction having a principal consumer interest, perhaps dedicating more resources and timing to the work which is somewhere between -- it's more than "feel good" and it's less than binding. I think it would be a positive step.

         MR. DONILON: I think it would be too, and I think you could do that underneath the umbrella of jointly working together on mergers, but it would be quite informal. The point of my question was to ask, as we go through these deliberations, how much time should we spend on trying to reach for things? My question, put more pointedly, is would a formal deference recommendation just be inconsistent with the statutory and political obligations that an antitrust enforcer sees himself or herself under in a particular country, especially in the United States? And I think the answer is yes, but I wanted to check it.

         MR. KLEIN: In the absence of one, I mean to take Jim's point. If you have one merger where the impact on the U.S. market is quite small, the impact on a foreign market was very large, you might, then, at least feel in the exercise of prosecutorial discretion some willingness to defer. But if the impact on the U.S. market is considerable, as is almost just by the nature of our market, almost every case, then I think you'd feel an obligation to conduct a review.

         MS. BAIRD: May I make just a small comment on this point? I would suggest that we look to some of the state regulatory examples to identify ways in which deference between states, certainly in the U.S. and perhaps within the EC, has been developed to provide for some deference without a formal acknowledgment of deference. For example, procedures when we have multistate insurance or banking review or whatever. Procedural steps that, for example, allow a record to be developed in a certain state which might have a primary interest, and the record reviewed by another state, to be considered whether it's adequate or whether they have some specific questions that go to their own market.

         And I think there probably are some models of ways that you can get fairly close to deference and certainly good order in the same kind of factors and evidentiary bases for decision-making that could perhaps solve many of the problems that you're after when you ask if it's possible to achieve deference and make it more awkward for a regulator to come out in a different place, even though there isn't formal deference.

         MR. RATTNER: Can I ask a question on your last comment, Joel? If you take the comment you made a little while ago which sounds perfectly logical to me, as time goes on, the antitrust authorities around the world are going to realize that many of these huge mergers have implications for them even if the two companies are not based anywhere near their home country, the Japanese example, and if you then layer on top of that your last comment, which is that from a U.S. perspective, which probably means from any number of countries' perspectives, it's difficult not to exercise your responsibilities as regulator. I'm not sure how you get to the third point which is fewer jurisdictions all trying to climb onto the same merger, causing inevitable bureaucratic and ultimately business impacts that I think we're all here trying to avoid creating more of.

         MR. KLEIN: I think that's what the nut of the problem is. The solutions, for example, are to talk about things like procedural convergence and getting people on the same timetable. You could have -- and I'm not recommending any of this -- but you could do it. And I'd be willing to look at that. You take a merger with three or four countries, do the staff work together, write a report, an analysis, and then each of the countries working off of that will make a decision.

         That would be quite radical; you would meet with a lot of resistance. That's very different from having each of a dozen countries do its own thing. It's one thing when you have a European-wide authority. It's another thing when you have 11 different authorities on the Pacific Rim. I don't think it's easy, but I think that there are ways that can mitigate some of this.

         MR. RATTNER: The implications for the U.S. are pretty great. As time goes on, what we're seeing from a business point of view, particularly in Europe, are an increasing number of mergers of very large size where an increasing percentage of them, and ultimately a very substantial proportion, are going to include sufficient impacts on the U.S. that you or the FTC or somebody is going to say that we have to be involved in this, even though neither of the two companies are domiciled here or even have most of their operations here.

         MR. KLEIN: Routinely, Guiness/Grand Met, the drug cases --

         MR. RATTNER: Drug cases are the ones that come to mind.

         DR. STERN: That's, in effect, what Japan did not do with the Boeing merger but is now doing with the Exxon/Mobil merger.

         MR. RILL: I think Steve has put his finger on it. I think that a lot of it has to be done through process. One of the issues that needs to be dealt with in the coordinated staff work would be waivers on information sharing. Some view it as a detail; others view it with passionate concern. A lot of the testimony that came out of our last set of hearings indicated that in the merger context at least, waivers on information sharing is a no-brainer. If that's really true, we need to probe that more, I think, and we'll get a long step towards the sort of suggestions that you all are talking about, the coordinated investigatory work.

         MR. KLEIN: I think you guys ought to get some input on WorldCom/MCI. Some made the comment that it was not a smooth-running experience, but I think that it would be interesting to see. That is a microcosm that is going to be expanded.

         MR. DONILON: One of the important things that Merit and her staff are doing is soliciting views from the lawyers who are on whatever side of a number of mergers. I think it's a very important project.

         MR. KLEIN: From my own experience, I think we ought to get the principal. That's always harder to do because the lawyers don't want them, but I find the level of discussion is much more direct and blunt and where the pain is felt. The lawyer discussion tends to be like lawyers.

         MR. RILL: We may have to get both, but we always get the principles, too.

         DR. STERN: We've certainly been endeavoring to do that, as you're well aware. We're, I guess, hoping again that the hearings in April will be an opportunity to probe again to get the business folk to come to the table. It's hard.

         MR. SIMMONS: I'll just make an observation as a nonlawyer. Having been involved with mergers, several of them over the last several years having been reviewed by the DOJ with regard to Hart Scott, I do think that there's something to be gained by examining the procedures that we used. To be honest, I've tried to avoid that inward look because of my fundamental pessimism that we can really make any effective change in that area. But I do think that if you accept the fact that we live in a rapidly changing world and if you accept the fact that this is indeed a global economy, look at the multijurisdictional mergers that occur every day, then it seems to me that our procedures do bear examining with regard to not changing the philosophy but making sure that we facilitate the process and don't delay it unduly.

         I think sometimes the process does get delayed unduly. The merger still gets approved, but in the world today, two, three, four months is a long time, the way the world works. So if Joel Klein says we ought to be bold, I would certainly think that examining the procedure that we would follow with regard to either U.S. mergers or multijurisdictional mergers would be useful.

         The second point is an observation rather than a statement of fact.

         It is my impression -- and I think I'm older than anybody else at this table, but I'm deeply involved --

         DR. STERN: The gentleman to your left is taking umbrage.

         (Laughter).

         MR. SIMMONS: I'm sorry, John. I thought I was older than you, but I'm wrong.

         DR. STERN: Deference to the senior member.

         MR. SIMMONS: You see, I go back to when John was the price control czar in 1974 and he and I still share a little exchange that we had when I went down there telling him what bad things he was doing, but that's another story.

         It is my impression, I think accurately, that the philosophy that we follow and that other jurisdictions follow with regard to merger policy has evolved. It seems to me there is little doubt that mergers that occur today probably couldn't have occurred 20 or 30 years ago. You can look at financial institutions; you can look at fundamental industries in the U.S., less so outside of our jurisdiction.

         It seems to me that one of the bold steps we could take would be to try and predict the direction that many of our trading partners are moving in with regard to merger policy, and I am going to use one very good example: There is one steel company in France. One. That one steel company was created because all of the steel companies effectively went through what we would call a reorganization in the early `80s. The government dealt with the problem by infusing capital and creating one nationally- owned company.

         Now, it seems to me, and I have said this to Jim Rill over many years, that you really don't know what the policy of a nation, a trading partner will be until they go through difficult times. It's not words; it's deeds. And by the way, I would say that that's particularly appropriate in today's current global economy, for a number of industries and businesses.

         And it really seems to me that this Committee ought to try and assess the directions that countries are going in; and I think probably within the next year, which is still within the purview of this Committee, are our trading partners moving in the right direction to increase the transparency of trade and making it easier to accomplish what it is we all want to accomplish?

         I think that this is a unique time in the world today, unlike any I have ever seen in many respects, economically and globally. But I think the whole question of multijurisdictional mergers should be examined from both of those vantage points.

         And the third point is to ask ourselves the question, when we're examining our own procedures, are two U.S. companies viewed with regard to the antitrust laws in a merger situation in the same fashion as one non-U.S. company and one U.S. company would? I would say as an observer, it may not be a fair comment, but as an observer, I would say generally the answer is I'm suspicious that there are differences. That a foreign company and a domestic company are not quite viewed the same way.

         By the way, one of the reasons, of course, under antitrust policy is that there are the Herfindahl calculations to be made and there is always the debate in a merger, are they going to be using global market share numbers? Are they going to be using domestic market share numbers? There's a great fear if the domestic market share numbers are bad, even if the global market share numbers are good. So it seems to me that at least those three points -- and perhaps the third one is more of a self-examination issue than anything else. But that's based on personal experience.

         DR. STERN: May I challenge you on your point about the tendencies over the last 20 years -- you've made this observation that things that might have been challenged previously are not being challenged now. I'm wondering if this is a secular trend or if it may just reflect changes in regulatory personnel from one administration to the next, or within administrations?

         MR. SIMMONS: You have two experts here, but I'll offer once again as an observer that I think it's partly style. I think it's partly different administrations.

         DR. STERN: But you still think there's a secular trend; it's not a pendulum swing or seesaw.

         MR. SIMMONS: No, I don't. I think there are of course cycles, but I think the cycles generally make it easier for a merger. I happen to be on the board of a reasonably large bank that used to be $3 billion in assets and today is $75 billion in assets. Those mergers could never have taken place before, whether it be by state law, federal regulations or antitrust policy.

         DR. STERN: I just wanted to get that kind of clarity out there.

         MR. SIMMONS: By the way, I think to the degree this has improved competitiveness, this is good. This is what we want. There are some downsides to the kind of mergers that create 800-pound gorillas with huge coercive power as we see throughout the world today.

         DR. STERN: Do you think we should opine on that? Do you think the Committee should say what you just said?

         MR. SIMMONS: No, but I think we at least should examine it, but I think as long as you have people and opinions and philosophies and different political styles, you can expect changes in policy, but I think you might want to examine the trend.

         MR. RILL: Dick, I think you raise some really good, challenging points. It seems to me, as far as your comment that it's easier now than it was in the late '60s.

         MR. SIMMONS: I didn't say it was easy.

         MR. RILL: Well, I'll say it. I think there has been a paradigm shift that was initiated probably by Bill Baxter, for whom we should all have a moment of silence, who passed a week ago. Probably he has had the most influence than anyone, present company excepted -- no, present incumbent excepted-- than anyone else on antitrust since Thurman Arnold.

         I don't think you ever go back. I don't think you go back to the 60s, I don't think you'll go back to some of Bill's immediate successors either, by the way. And I think there is a secular trend.

         I think the challenge that occurs to me that really goes back to Merit's first point on examination of core principles and transparency, is that we are in an interesting time to examine the prior criteria which our agencies and other agencies use to examine, not really mergers but joint ventures and other global transactions at a time when conduct may speak about its origin. We should also be recommending a way to flesh out those fundamental precepts through greater forms of transparencies in international organizations as well as through self-examination.

         MR. DUNLOP: Let me ask a question. The question is, when is transparency a substantive decision, and when is it only a process decision? I have listened to you all talk about transparency now at a few meetings, and I thought I understood it. And now I don't. Sometimes transparency in this discourse is used as a process. We ought to know what's behind this, everybody ought to be factually responsible. When is it national security?

         On the other hand, sometimes I hear you speak as if transparency was a substantive decision, and I'm a little confused, so I ask that question.

         MR. RILL: It's really both. You have a right to be confused, and all the rest of us are, too. And if you accept the notion that it is both, then you address it on both fronts.

         MR. DUNLOP: I would rather we be clear, if you don't mind.

         MR. RILL: It is part of the work that we have to do. I would appreciate efforts in that direction.

         MR. DONILON: I think that's an important point, Professor. Transparency, at least as I've been talking about it here, means that actors in the economic sphere should understand the substantive rules that are going to be applied to them. And I think that's a very important aspect of it. So that we know, for example, when we're trying to do a transaction, we know that there has been a paradigm shift in antitrust theory largely driven by economic theory advances.

         When you're trying to analyze a transaction, whether you're trying to decide as a business person whether to do it or not, you need to know whether it's possible and what the likely standard of review is going to be. Secondly, at least as I think about, its clarity of process. So I think it has to be transparency and clarity of the substantive standards to be applied and then clarity with respect to what you're supposed to do. Are you supposed to file, aren't you supposed to file? When are you supposed to file, and what are you supposed to file? I think those are the ways I've been thinking about it.

         DR. STERN: I'd like to tack onto your point another point about transparency but I defer to you.

         MS. FOX: Now, I have everything to address, so why don't you --

         DR. STERN: On the transparency, on the boldness issue, I feel very strongly. Tom knows this. Perhaps the members of this Committee should hear my prejudices on this, that in spite of the fact that it may constrain decision-makers for future decisions, we should push for greater discussions of precisely your point when there are paradigm shifts driven by economic changes, and that it should not be limited just to speeches. That it needs to be more regular and more predictable publications. The Supreme Court has to do it. Other agencies -- including my old agency, the International Trade Commission -- have to do it. I do know each have different considerations and concerns, but I don't think just more speeches is going to satisfy me.

         I think there needs to be some appreciation of the huge consequences of each decision being made and that we shouldn't have to wait around and have a Committee every couple of decades to talk about the WorldCom case and then see what the inside and the outside is. I think there should be a greater body of information available to the next set of companies who may want to come and have their merger reviewed, but have not benefited adequately from a transparent, clear expression of why a decision had been made that may have a bearing on the thinking of the regulators going forward.

         We had a discussion on this in a sidebar with some of the staff of some of the agencies involved. I just think we've got to move transparency, notch it up more than just more speeches.

         MR. RILL: Eleanor.

         MS. FOX: I want to start out by making one comment regarding the deference discussion and then I'm going to take Tom's list from the top. Some markets are really world markets with no separate national markets, and I think that there will be an increasing number of those world markets. If you look at what we were calling the deference issue before, I would say we shouldn't call it deference. What we should be thinking about is what's good for the world is good for all of these countries in the world. I mean, what's good for the market, which is the world, assuming we're applying liberal antitrust principles, is going to enhance everybody within that area and if the world weren't so big, we'd have a world enforcer to take charge of what is really a world problem.

         We have national law, and we're trying to have a collaboration, more than deference. Several of you spoke about ways for more collaboration such as seconding people from our country to their country or working in a team. This is a kind of different model, a different way of thinking about it, if you're thinking of a team of these experts from the U.S., from the EC that are doing the factual investigations, and having the record of whether competition is or isn't impaired in this market. I'll come back to principles, but whether there is an increase of market power that is predictable and then what to do about it. And if there is no certain national policy, like defense, if it's not a defense issue so there's no legitimate national policy interference, one should be getting the right rule and the right relief for the whole market.

         Now, I'm coming back to deference, but I just wanted to put that on the table, that there are certain issues where you should really be looking at them as the whole market issue rather than nations against nations; nations deferring to nations. They're really collaborating.

         MR. DUNLOP: What is a world market? As an economist, I can make no sense out of the distinction between a world market and national market.

         MS. FOX: I would give as a definition where buyers buy all over the world without tariff barriers, and sellers sell all over the world.

         MR. DUNLOP: Is clothing a world market? Is apparel a world market? U.S. purchasers buy all over the world for apparel from 175 different countries. Is apparel a world market?

         MS. FOX: There are too many tariff barriers. I'd say you have to look at consumers prices and whether they're going to go up, and consumer prices could go up in a nation that has tariff barriers. I'd rather do it by way of example, after my first statement, and say Boeing/McDonnell Douglas was clearly a world market because there were no barriers to buyers or sellers. Sellers look all around the world, and buyers look all around the world.

         MR. KLEIN: Just to make it easier, some of these questions any economist could spend years on. Hospital care is, say, a local market. People don't come from Paris to Des Moines and when we look at a hospital merger in Des Moines we don't consider consumer preferences in Paris.

         MR. DUNLOP: The King of Jordan.

         MR. RILL: Except tertiary care.

         MR. KLEIN: Sure. People can always go to Sloan Kettering. When you look at what people who price hospital services in Des Moines do, they do not study consumer demand in Teheran. By the same token, when people who are thinking about buying airplanes, or these days buying automobiles, they look at a Mercedes every bit as much as they look at a Chrysler. Now they are one and the same, but it doesn't matter.

         MR. DUNLOP: There are two ends of your spectrum, but operational or intellectual property, I would reject it.

         MR. RILL: John, if you look at the Merger Guideline analysis, the answer to your question would be if price in one producing area goes up by a small but significant nontransitory amount, will suppliers from other areas move in? Or does demand move out from that area to pick up suppliers from other areas? And if the answer to that is yes, if they'll move out in a global framework, then I would say you have a world market.

         So the answer is, I don't know the answer to your apparel question, but I think once you decide what the product market is, you ask those questions about what would happen in the case of a price increase, and that would answer whether or not there's a world or some narrower market.

         MR. DUNLOP: Let me put on the record that I regard that as a totally non-operational question. I would be happy to give you literature on it, and I will dissent from that as an essential element of any analysis.

         MS. FOX: Dissent from what?

         MR. DUNLOP: Dissent that there are world markets that are markedly distinguished from national markets. I don't deny that there are markets that are predominantly local and that there are other markets that have competitors and suppliers around the world, but that's not what the argument is.

         MR. RILL: In acknowledgment of your statement, you are not the first person to suggest that the small significant nontransitory price increases are a difficult operational problem.

         DR. STERN: I think you can bridge it with the word local as opposed to national. And then I think that would help bridge these two points of view.

         MS. FOX: I'm starting from the top of Tom's list now and you had five points. The first one was should we develop core principles and ask our staff to draft them. And this I take to mean substantive. I think that this is a very good idea. However, I think that there's an easy way of saying what I think is the right core principle, and it is what the U.S. uses, which might cause resistance in other countries.

         But the question is whether a merger creates market power or facilitates its exercise and there are ways to test it and most countries are involved in thinking about that question and the answer to that question. If it does, the only question left over is if there's some national industrial policy like defense which those policies, like defense, could be listed.

         As to whether preserving jobs is an admissible defense, that's a much more difficult question with less agreement on all sides of the ocean. I see that question coming in as to what would be a good reason to authorize a merger even though it creates market power.

         Other countries that don't have the same principle have sometimes at least often very close principles. If it is a dominant firm problem, the European analysis is virtually the same. If the merger creates an oligopoly, there's a problem because the European Community catches it only in the small case where the oligopolists have links between them like stock holdings. I don't expect Europe to be changing that principle in the near future, even though they probably think our law is right on oligopoly.

         In other words, if we try to get core principles in the world, we're going to run into different countries' law that's sticky, very hard to change.

         There's a third kind of principle or model which I would say is less principled, which goes something like this. A lot of countries have a law that says something like this: The agency is to consider whether the advantages of the merger outweigh its disadvantages, and at that point they will count almost anything in disadvantage including loss of jobs.

         Here is where I'm coming back to the point of transparency, and I'll define what I mean and I think Merit started with a principle like this. I think it's also very good to try to get agreement on a principle that would say nations will do their analysis to determine whether competition is harmed. If they find competition is harmed and think that nonetheless the merger should be authorized because of other criteria, and it has spillover effects in the world, then they must be very clear about what these other criteria are.

         The last kind of law I mentioned, advantages outweigh the disadvantages, causes very muddy analysis. A number of the Eastern European countries have laws like this and what they usually or often will do is to say, without a serious competition analysis, well, we think this helps jobs and exports. The market shares are high but we think it helps jobs and exports and therefore it should go through. And I think we should encourage countries not to do these messy and nontransparent analyses.

         So going down to the second point, Hart-Scott-Rodino, and should it be on the table for reform, I definitely think it should be on the table. I think it would be a great idea, as Tom suggested, to get staff to work on the proposal. We've seen a lot of papers on various people's proposals, and I think it would be nice to see how the staff puts it all together and comes up with some recommendations.

         The main question here is whether Hart-Scott-Rodino imposes enormous unnecessary transaction costs on companies that may be required to file. Of course, as I said, the problem is the filing fees and also an incentive/disincentive problem that budget is based on filing fees.

         Third, on information sharing, I think it's a very good idea to have a draft model protocol. I'd love to see the staff draft a draft model protocol, including privilege, which is one of the very difficult questions. It would be nice to see a draft with maybe some options in front of us.

         Fourth, on the soft deference and is it a non-starter? I guess that's what we have to figure out. I think that it would be interesting to get some statistics. I think it's probably the case that there's a number of large transnational mergers where we don't suspect that we're going to have a different point of view or different driver or motivation from another major jurisdiction that might be the one chosen to do the analysis.

         And if there are a lot of mergers that fall into that category, it makes it more fruitful because it gives up less, even by going into teamwork where one country goes first. And as I said before, I love the idea that if we do that, we do get a system where there's a mixing up of personnel so that countries that have a major interest in vetting the merger are on the ground floor at the same time.

         I also think that getting a world principle that could be a deference principle would be extremely useful to the United States. Here, however, I think it's mostly going to be the deference of very small countries that I would be proposing. It's not because they're very small countries, but where you have a big merger and the sales are enormous in five countries but minuscule in Bulgaria and Lithuania, it may be appropriate to have a model of deference or a protocol of deference provided that these countries where there are some sales, but which represent only a very small percentage of the transaction, are first of all not a separate market, meaning that the trade barriers in that country are not so high that you would expect to see a price rise in that country even if you don't expect to see a price rise elsewhere, and have only a trickling of the sales --

         So, I would like to see something drafted regarding either who should go first, or even who should give up the idea or right of vetting the merger for itself. Vetting often leads to holding up the merger, and often it's holding up the merger by a country that doesn't have much of a claim of interest.

         Where you have a large merger, take Boeing/McDonnell Douglas, where the United States is very interested and the EU is very interested, especially if you can see the significant possibility that the two sides are going to come out in different directions, I would not think that one ought to even imagine a principle of deference.

         When you have a merger -- if it was price-raising, it's price-raising all over the world. I think it's also correct to say that any country with a significant impact ought to be respected as having jurisdiction over that merger. I think the United States, at least, antitrust authorities agree with this, the fact that the assets are all in another country does not discredit that country's authority. And I think that we ought to put that principle on the table, too, so it doesn't become a contested principle.

         It seems to me in Boeing/McDonnell Douglas that there are certain people in our own administration that didn't realize that this was an operating principle of jurisdiction within our antitrust authority and that our antitrust authorities respected the jurisdiction of the EU. There was a tendency, at least as we put it in the paper, by some officials or ex-officials saying that Boeing was our merger and nobody else should touch it. And I think we should put in our record that we don't claim that to be the case.

         As to multi-agency review, which is the last of the five points that Tom raised, we discussed the case of an agency like FERC or an agency like Surf Board having jurisdiction in one case and then in one case having exclusive jurisdiction.

         I do like the idea, Jim said it here, that it would be very useful if in our own house, the United States, there could be recognition that the antitrust agencies' antitrust analysis is the antitrust analysis that is accepted. And if the agency wants to find that there's a different public interest -- it's a kind of similar problem where you have a national industrial policy that might compel a different result - - that should be clear. Transparent.

         Nobody yet mentioned the states' review of mergers, and I'm sure that that should be on the table. I'm not planning to suggest that states should not have power to review mergers, but I think clearly it's one of the factors that comes up when we talk about putting our own house in order.

         It also gives one a perspective on checks and balances even within systems themselves, and therefore within the world system on possibly having jurisdictions with stake coming in and vetting a merger, especially when nobody else is there minding the store. Our states did take an enormous role on mergers at a time when in the early 1980s there was a philosophy of laissez-faire concerning federal enforcement. The states came in and vetted a number of mergers, and that was the point at which they staked a ground out for themselves which they have kept.

         They do have a mode of cooperation, very great cooperation now with the Federal Government. Now they work like a team, whereas before the states and the federal government were working with great hostility against one another. It might be worth exploring more, from that experience, what helps different agencies and jurisdictions who are like teams rather than hostile fighting partners.

         MR. YOFFIE: I wanted to propose a procedural question for the Committee. On the one hand, I'm encouraged by Joel's suggestion that we should be bold, though as I learned at the last hearing, being bold is not always welcomed. If you remember, my proposal to share penalties was not welcomed by anybody, foreign as well as domestic.

         So we have to recognize that bold will not necessarily be welcomed in many cases. But if we want to be bold again, I think there are two approaches. One is to look at the various aspects of multijurisdictional reviews and try to look for incremental improvements on a variety of different lines. That's basically what we've been proposing here.

         The other way to look at it is to say let's start with a clean sheet of paper and start out with a couple of assumptions. Assumption number 1, that more mergers of a global scale are going to take place for a set of economic reasons that we can pretty much outline and expect should be more important going forward, rather than less important going forward.

         As a consequence we can make incremental changes, but those incremental changes are not likely to serve us well in the next 20 years. They may serve well for the next two or three but not the next 20. And then if we consider starting with a clean sheet of paper, let's put on the table a set of issues that would be much more significant. I would say that Hart-Scott-Rodino and multi-agency procedures should be on the table. In addition, do we want to specify an ideal set of procedures for U.S. review of multijurisdictional mergers?

         Could we go beyond streamlining what we're doing? Are there ways to coordinate internal U.S. policy and to significantly reduce transaction costs as opposed to adjust at the margin? Then we can ask what would be the proposals we might get from the staff, if you had that clean sheet of paper internally within the U.S.? What would those procedures be?

         And second, we made the argument before about timing. Can we actually get some more radical thinking about timing of these reviews? I suspect that DOJ might not like it, because it will put enormous pressure on getting reviews done in a timely basis. It is quite clear that this environment is entirely different than it was ten years ago in trying to make these mergers work and thinking about very strict deadlines that we would impose on allowing these mergers to go forward. Maybe a potential for subsequent review in case things were missed, might still allow us to think more radically.

         Third, and I actually like Joel's notion that instead of thinking generally around the question of harmonization, should we be thinking about real collaboration in terms of actual multijurisdictional reviews. It would be a much more radical proposal for potentially thinking 20 years out, where we're really looking at many countries involved. That would potentially allow us to do things far more efficiently and quickly, especially if we have guidelines in place for timing. What we might want to think about is under what conditions would we want to propose that there be a collaborative effort rather than a harmonized effort? Do we put teams together and lay those out specifically?

         Finally, I want to raise a question. I don't know what the answer is, but I think there is some danger going down the path of saying any country should have some rights of jurisdiction when a merger is going to affect them. In the case of McDonnell Douglas/Boeing, for example, it's hard to imagine any country that's not going to be in some significant way potentially affected. I can see even Bulgaria saying we've got to buy Boeing planes. If this leads prices to go up, this is a huge percentage of our economy. We have some difficulties if we go down this route, particularly if we think these markets are inherently more global. Again, I want to pose that as a question. How do we prevent Bulgaria from saying they have a right to review this when at some point it gets to be absurd? And yet, if we just use this rule of, does it have an effect on their economy, we're going to be left in that position.

         MS. BAIRD: I'd like to make a comment. It's a framing comment because I'm very self-conscious as to what this is going to sound like. When I was a corporate general counsel, and every now and then Senator Metzenbaum would say to me, "My God, you really are a Democrat," so I'm very self-conscious of what this is going to sound like, but what I don't hear in this conversation is a commitment to defining what the public interest is.

         I hear general comments about the market and market power. I hear general comments about efficiency in speeding up the review process, but you know, the seasoning of review can be very important to allow the public interest to surface. And so before we get caught up in how fast the world changes and how much we might be inhibiting things because the government takes 30 or 60 days, and that even two months is too long these days, I really think this Committee has an obligation to look at what is the public interest we want to preserve and fortify, and in fact even are there new areas of public interest? And to very consciously help define those as much as we might define legal principles of antitrust review to test recommendations we make against what we would define as public interest issues.

         Because if we look at this only as business people or only as legal analysts of market power, I think we're going to miss a lot. And so I say those are very general comments. They are very vague comments. I realize that. I realize I also gave you my framing comments. I know that they sound out of sync with the conversation here, but I think that they are terribly important.

         And I think if you look at these issues of efficiency, for example, and you say, we need to streamline the data and we need to streamline the time frame and we'll still make sure that we are able to evaluate what's the relevant market and do our Herfindahls, and we can do it on a computer now so that it's a lot faster than we used to have -- we used to have to use an abacus -- I just think that we miss some of those public interest issues of allowing people who don't have the business infrastructure to do their analysis, of allowing impacts to season and surface, and some of these other issues that I hope we might be able to define.

         MR. YOFFIE: This is going to be specifically a follow-up: there are two ways we can look at this. One is that we need to ensure there is an adequate time for these issues to be digested, for interests to be able to mobilize and to have a complete debate before making decisions, with potential efficiency effects being discussed.

         The other way to potentially think about structuring this, again with a clean sheet of paper, would be to say in this world we can make decisions faster, precisely for the reasons that you said, and we may also be able to revise decisions at a subsequent date if more information becomes available. And then the question becomes, are we better off waiting to make a decision until we're sure we're making the right decision? Or the alternative is can we make a faster decision with the right to review and potentially change it as new information becomes available?

         MS. BAIRD: Well, I just have to respond to that. I think that that's fine in theory, but my own experience in the business world is that it is a lot harder for a government to come in and say we're going to disassemble a business than it is to not allow it to be merged, and that you would find, I would guess, almost no, if not no, examples of ever being able to come back in and take steps. Because then government's running business. That is really a very different environment.

         MR. SIMMONS: Well, there are situations where the government says hold separate, until we decide what it is we want.

         MS. BAIRD: Oh yes, absolutely. I'm sorry; I didn't understand David to be saying that. And certainly that's a good point.

         MR. SIMMONS: If I may, Zoë, my comment initially about speeding up the process is not debating whether it takes one day or 60 days. How about 12 months? How about a potential merger that's delayed for a year as more and more input is obtained, as more and more different constituencies offer their opinion?

         That's what I'm really talking about. I'm not talking about some modest length of time. I would be the first to admit that 30 or 60 days is what we would be very happy to get. But what we get under Hart-Scott is we get the first time period, and then on the day of the expiration we get the second request or, in due deference to DOJ, what we get is, "Give us another 60 to 90 days. We won't give you the 142 questions that we normally send out, but you give us enough time." And of course we always say -- business always says, "Of course, we understand how the process works."

         I'm personally familiar with one, it has nothing to do with my company, that did go for a year. If, in fact, we choose to examine our own processes and procedures, I think that there is an area that reasonable people on both sides, whether they be from the private sector or the enforcement sector, could reach an agreement that, in a world that is indeed changing rapidly, there is some reasonable basis to come to an agreement on it.

         I would like to challenge Eleanor on one point she made. I can't conceive of why you would want to give states review. There's transparency at the borders of all of our states, at least last time I checked, there was. There is no such thing as a local state market for anything of any consequence that I know about. We don't have tariffs back and forth between New York and New Jersey and Connecticut.

         If in fact, as you said, that the states work more closely with the federal agencies responsible, it would seem to me that that would really become a technique to further delay the process, for reasons that might have nothing to do with the fundamental antitrust issues connected with the merger review. And so perhaps that's both a statement and a question. I mean, why on earth would you want to get the states --

         MR. RILL: If I could just footnote your state comment, I think perhaps the states do not play a major role in global transactions, but I would like you to spend one week dealing with a supermarket merger before you push aside the states' ability to intervene.

         MR. SIMMONS: And I'm saying why would you want that? Or why would you want to exacerbate it?

         MR. RILL: Some of us are not really thrilled with it.

         MR. DUNLOP: I want to get at a question that's central and definitional. We've all talked around here this morning, about the rest of the world, and I don't know -- when you're talking about the rest of the world, you're talking about other states that have had antitrust regimes. But there are an enormous number of major countries, in Saudi Arabia, Brazil, places like that, where I'm not entirely clear what you are talking about impacting them.

         Now, also when you get to questions of transparency, it seems to give some credence to the general defense, going back to Ricardo, the infant industry argument in those kinds of countries is alive and well, and I'm not in any way willing -- modern economics, that is most cutting edge today, does not throw that idea out, as David Ricardo did.

         So the impact upon countries like that of what you are proposing to do, to the rest of the world, is a question that I want to be pretty clear about -- what is the rest of the world? And I'm not trying to define it. I can understand if you have an antitrust regime in which you are in a position to consider making deals about -- I'm very much aware of the enormous disputes going on in the WTO, as it seeks to admit or not admit a number of the countries Joel Klein has made reference to, and some of the things they are trying to impose on those countries as a condition of entering the WTO. But I'm just asking for us to be a little clearer about what's the rest of the world.

         MR. KLEIN: There's one parting comment I want to make. I think this has been a very, very productive discussion. I think, as you think on whether it's on a sort of clean sheet basis or so forth, one of the ways to deal with the issues that you and Zoe are talking about is to, it seems to me, think about resources and to make sure that the agencies are properly staffed up to do things within a proper time frame. Hart-Scott itself actually has tight trigger points. It's often when you have multiple jurisdictions and multiple agency review, since you can't close until the FCC approves it or somebody else approves it, that's where we have maximum flexibility and obviously, like most people, we would use it.

         And I think it's fair to think about all these issues. I don't think they are off the table. What I think you need to think about, though, Eleanor touched on it, you touched on it, others have touched on it, other countries are going to have more or less say.

         When China starts to do merger review, which they will start to do, people are talking about the impact of being able to sell goods -- it may be that Bulgaria could oppose the merger, but if that's true, Boeing/McDonnell Douglas could decide that that market is small, that they'll sell elsewhere. If everybody else agrees to it and Bulgaria opposes it, Bulgarian Airlines can fly an Airbus. But you can't take that position in Europe. And you're not going to take that position in Japan and you're not going to take that position, to be sure, in China.

         And then the question will become how all of those people -- because for example, if in fact the Chinese Fair Trade Commission can drag this out for a year and a half, it doesn't matter what timetable you put on me. Because if they don't close the deal, I'm going to be able to take as much time as I want.

         I agree that you don't ignore history. The reason we have the Hart-Scott statute or whatever improvements there might be, I think undoing mergers once done -- holding them separate is no answer to business. If you tell me I can hold you separate for two years, with all the efficiencies, the world has moved on. So holding separate is no answer. And second, Bob Pitofsky studied this at some length looking at the Canadian experience of being able to undo them after a certain period. That, it seems to me, is a non-starter. Seriously, it's going to go no place. Once the employment contracts are drawn, and so forth and so on, you're not going to undo the merger.

         MR. YOFFIE: I just want to add one clarification. I certainly didn't mean to suggest you could undo the actual integration of the two companies. However, often what takes place in many of these reviews is a discussion that certain assets need to be disposed of. And that's the kind of thing that can be done at a subsequent date.

         MR. KLEIN: Not always, but in a lot of cases we will allow the deal to close, subject to divestiture, let's say, of a defense plant that Texas Instruments owns.

         MR. YOFFIE: Or in Exxon/Mobil, there may be a lot of divestitures of individual stations or refineries or whatever, and those can always be done at some subsequent time. So you're right, undoing Exxon/Mobil would be impossible, but a lot of pieces could be broken off at a later time, if that turned out to be anticompetitive.

         MR. KLEIN: It's a complicated question based on that. But that is conceptually possible if you know ahead of time. The problem is, particularly if it's a major divestiture that's going to compete with the merged company, their incentive to divest it to a less powerful competitor may change the impact of the previously imposed order, court or otherwise.

         MS. BAIRD: I also can't imagine that any business person would prefer to have the deal closed in a shorter time and have the government continue to watch its operations from an antitrust point of view, with the option to require that they behave. We're probably beating this in a direction that's not helpful, but --

         MR. KLEIN: Anyhow, the basic point is you ought to think about the fundamental deal closing or not closing.

         MS. BAIRD: Right.

         MR. KLEIN: Well, let me thank you all. I'll have to excuse myself. I'm going to miss what I know will be a very lively discussion on trade and competition policy.

         DR. STERN: Thanks, Joel, for joining us.

         MR. DONILON: Anybody else on the merger review front? Merit?

         MS. JANOW: I just want to add one footnote. I think the term deference is a very loaded term, and I think no jurisdiction wishes to give up rights over a significant transaction. But when we talk about real collaboration, I think as a practical matter, it is the case that some agencies have started the review process first, ahead of other agencies.

         And I think what I was trying to get at in the initial remarks was the notion of how far we can go down the road of collaboration without necessarily invoking full-blown investigations in all jurisdictions that are affected, while preserving the rights for a jurisdiction to apply different remedies if, as one goes down that road, it becomes evident that substantive law leads you to different remedies.

         And I think that kind of collaboration, I have been thinking of that as a fairly significant development, were the United States and foreign jurisdictions to really go down that road. And not a procedural one. That would be buttressed, in your words, by strict deadlines, would make that operationally dramatically different. And I just wanted to get a sense whether David saw that as a significant or a procedural directional change.

         MR. YOFFIE: I'll have to see it once it gets into some written form.

         MR. SIMMONS: One comment. I believe that American business, the private sector, really trusts the confidentiality of information supplied to FTC and DOJ. They really do. I've never, ever heard of anyone questioning that. But as you discuss, as we've discussed the kinds of information-sharing, the jurisdictional reviews, it seems to me that is important. Some of this information, of course, is very, very sensitive. And the more different jurisdictions that have access to it -- I'm not quite sure that perhaps a foreign country might not trust our enforcement agencies, any more than we would trust them, but as you widen the circle, I think that there's an issue here that at least has to be addressed.

         MR. RILL: It's an issue that's very much being focused on by those who are helping us out. I would say, though, Dick, that as experience just within the merger realm has increased in dealing with, for example, the Advisory Committee to the European Commission's Merger Task Force, as experience has broadened, I think we're getting more confidence across the Atlantic, at least, in the confidentiality of what is --

         MR. SIMMONS: How about Bulgaria or Lithuania?

         MR. RILL: Well, they're not a part of the European Commission yet.

         MR. SIMMONS: You see my point.

         MR. RILL: Yes.

         MR. DONILON: I think that's a very good point in advising companies on mergers. One of the very important things that a counselor can say to them, in the United States, is, we don't know of a single instance when any information that's been turned over to the enforcement authorities has ever been leaked or improperly used. And that degree of confidence will have to be built up, I think.

         But one way to start is to put in place model guidelines for protection. But I agree with you, Dick. It's a very important counseling point here and it really undergirds the proper functioning of the system here, and that type of confidence will have to be built before business accepts it in other jurisdictions. I agree with that.

         DR. STERN: Tom, thank you very much for directing us. Everyone has agreed that this has been very lively. And it's wonderful to get some new kind of challenges to what we have been doing heretofore. And on the information leakage issue, your observation from a business point of view is very welcome.

         We challenged in the hearings the authorities from these different member states of the EU, plus the EU authorities plus Brazil and all these other countries that came, to ask them what their experience had been in working with the United States. And again, no examples of any leakage. So it's extremely important particularly to get this message over to other business communities, say in the EU, so that if we do push for greater collaboration and greater teaming up to advance the public interest in competition policy areas, that the business communities over there will be comfortable.

         I have observed that there are some concerns there that may slow down the collaboration among the authorities. So it's very good to get the business community's expression of confidence.

         I would just like to say one final thing on the materials for this morning, which were all very helpful from the staff. The overview of the experience in multijurisdictional merger review, and particularly the Hart-Scott-Rodino activities, was extremely helpful. I'm sitting here trying to find it now. Here it is. The U.S. Premerger Notification System.

         I would ask that if these three charts, which talk about the Hart-Scott-Rodino transactions over the years `89 through `98, can be broken down to break out the DOJ versus FTC, so we can see if this experience holds true for both agencies equally, in terms of the numbers of transactions, the numbers of second request investigations and the number of merger challenges. I think it just will be more revealing.

         And also if we had data, which I thought we had requested, on how long these cases generally do take, is it a 60-day matter, is it a year matter, and are there some trends in this observation. We're still working on that.

         MS. LEWIS: The breakdown of statistics between the DOJ and FTC is available. As to the length of review, it's a question of whether it's publicly available or not.

         DR. STERN: On the second point, well, I'm wondering if it might be available if the two merged, if you will, the data. I don't understand why that shouldn't be publicly available, frankly.

         May I ask a question? It's not a loaded question. Has the GAO asked these kinds of questions? Has the Congress ever asked the GAO to ask these kinds of questions? Has the Justice Department, the Antitrust Divisions of Justice or FTC been subject to any GAO auditing?

         MR. RILL: The answer to your second question is yes. The answer to these kinds of questions, in my recollection, have not been asked by GAO or Congress.

         MS. JANOW: They're just concerned about waste, as against efficiency.

         MR. RILL: There are periodic GAO inquiries into every aspect of government, including antitrust.

         DR. STERN: Absolutely. So I just thought there might be some data sets available there. But these are the kinds of questions which I think the GAO would sometimes ask and I'm not suggesting that there be such an investigation, but if we could get the data, I think it would be helpful.

         I think that we should adhere to our schedule and now adjourn for a working lunch. Let's take a break, get ourselves back together in ten minutes. Is that satisfactory?

         MR. RILL: And work through lunch.

         DR. STERN: And work through lunch. We'll have a working lunch.

         Okay, great. Thank you.

         (Lunch Break.)

         AFTERNOON SESSION

         DR. STERN: All right. Let's bring the meeting back together. And I'm going to turn this thing straight over to Jim Rill who is rip-raring and ready to go on the trade and competition policy interface. Jim?

         MR. RILL: Before I get started, I would like to acknowledge the presence of Doug Melamed, who is indulging in his dessert. But basically Doug has a limited amount of time with us, and I'd like to ask Doug what remarks he wants to make up front, before we get into the portion of the Committee meeting itself on trade and competition.

         MR. MELAMED: Well, I don't have any great remarks, but I was asked to update the Committee on the state of play of the WTO. There was, of course, a working group to study, for educational purposes, the interface of trade and competition. Its chair was Frédéric Jenny of France, a very sophisticated and terrific guy for this task. Its two-year mandate has come to an end. I'm not precise about the dates but in any event, the time was ripe to decide whether to extend it, and the mandate of that group has been extended. First the group decided, and then the Council of the WTO agreed on December 11, to extend it for six more months. So the anticipation is that there will be two more meetings devoted to the study and discussion activities of the group.

         There are three topics that have been agreed upon for this ongoing discussion. One is the relevance of fundamental WTO principles of national treatment, transparency, and most-favored nations treatment to competition policy. Second, approaches to promoting cooperation and communications among WTO members in these matters, including technical assistance. And third, the contribution of competition to achieving the objectives of the WTO, including particularly promotion of international trade.

         Two points of elaboration here. This decision by the working group, by the WTO, to proceed on these terms reflected a careful, and sometimes it appeared very precarious, compromise within the WTO community. Let me first talk about the compromises within the United States and then talk a little bit about those within the WTO community.

         There are, I suppose, three strands of thought in the United States about what should have been done in terms of extending the working group. The competition agencies, the Antitrust Division and the FTC believed it was important, or valuable at least, to have a continuing dialogue as a way of spreading the wisdom about competition in the largest international commercial forum. And in particular, these agencies thought it was important that we not appear to be opposed to the continuation of such dialogue because, it was feared, that might diminish our influence in ongoing matters of this nature within that group.

         USTR in some ways had a more aggressive agenda in that they are very interested in competition in particular as a means of aiding their market-opening access agenda. By the same token, they were very sensitive to a matter that seemed to be of primary concern to the Department of Commerce, which was that this not be used as an occasion for those countries in the world, particularly some Asian countries, to challenge our antidumping policies by saying that they are not really procompetitive policies.

         So it was important to the United States, in terms of the consensus position that emerged in the administration, that it be made clear that the continuing WTO dialogue would not involve trade remedies. Some of the other countries insisted that trade remedies be on the table as a condition of carrying on the dialogue. And what came out was the agreement that I tried to summarize a minute ago.

         Looking forward in terms of where we go after the six months are up, the issue will be what, if anything, will the WTO take up in the 2000 agenda. And I think the candidates are: nothing, continuing talk and study, or some kind of negotiation-anticipating agreements ranging from the most general -- such as a general agreement in principle that each country shall adopt and enforce some rudimentary competition policies, for example, policies that prohibit cartels -- to more detailed agreements. And then there's a question of what kind of dispute resolution if any might be agreed upon. Dispute resolution would range from very general -- such a dispute as to whether a particular country doesn't have or enforce a competition law -- or, at the other end of the continuum, case-by-case dispute resolution where there's disagreement about the resolution of individual cases.

         Again, there are likely to be very diverse views within the WTO community. There will be some Asian countries that will want to use some kind of continuing trade and competition work as a device to beat us up on trade remedies and antidumping laws. The Japanese might prefer talk as a way of forestalling action. The EU is going to push very hard, with perhaps tacit support from Canada, for negotiations leading to some kind of agreed-upon principles.

         The present inclination of the antitrust agencies continues to be that talk and discussion is wonderful as a way of trying to forge international consensus and broaden understanding of the important policy issues and of the value of competition policy, but that negotiations would be imprudent for two related reasons. One, there really isn't enough international consensus on what the policy resolution ought to be to enable us to envision with much confidence a principled agreement other than simply a kind of ad hoc compromise. Second, there is a concern that the WTO might not be the right forum, because it's a forum that historically and currently has been dominated by trade interests of the member countries, which are likely to treat competition issues as simply additional items for negotiation. The fear is that they might agree or disagree about particular competition matters in order to get a better break on textiles or whatever and that that kind of process is not likely to result in sound policy decisions. But come the end of 1999, when the six-month extension of the working group is up, or maybe beginning earlier in '99, there will be a lot of energy focused in the administration here, and in the WTO, about the question of what, if anything, should the WTO do after the expiration of this six-month period in the trade and competition area?

         Have you finished your sandwich, Jim?

         MR. RILL: No, but I'm working on my dessert. Let me just ask you a question. You mentioned that the USTR was looking towards or thinking in terms of a more aggressive stance in using competition policy to deal with market access. Can you tell us a little more about that?

         MR. MELAMED: I think maybe I overstated it because I'm reading more between the lines here. I think USTR perhaps sees a potential upside there, and I think they were very instrumental in achieving the compromise result that the WTO actually reached. I think frankly they were under some pressure to just say "no" from those who were terribly concerned about the trade remedies issue and the fear that it would sneak in somehow in the back door. USTR did not do that and I surmise, more than I know, that that was in part because they see some upside here.

         MR. RILL: Thanks. Any other questions for Doug about the continuation of the WTO working group?

         MS. FOX: I just wondered whether our agencies said anything positive in terms of an end game at the meetings other than saying talk is good? Like opening market access, as an example.

         MR. MELAMED: I don't know. Chuck or Randy, do you know if the actual dialogue there --

         MR. STARK: Ed was at the meeting. If the question, Eleanor, is whether we said anything positive in the sense of opening the door to a positive attitude toward some sort of negotiation, the answer is no, there hasn't been any change on that.

         MS. FOX: No, I didn't mean on that. I meant in terms of what affirmatively could be done if one were talking with a view to getting agreed principles, perhaps it was inappropriate to even talk about the upside, but I just wondered if anybody did talk about the upside.

         MR. MELAMED: I would guess that that's a hypothetical that they didn't want to talk about.

         MR. RILL: Okay. Any other questions? Picking up on this morning's format --

         Randy, I'm sorry.

         MR. TRITELL: I was just confirming what Doug said. Actually I was present then and there was no specific substantive discussion of what might come out of future discussions of the working group.

         MR. RILL: Okay.

         MS. FOX: Were the Europeans specific about what might come out in terms of agreed principles?

         MR. TRITELL: No.

         MR. MELAMED: My sense from discussions I had with some of the EU people and others in the weeks prior to this is that they are less specific now than it appeared some months ago. I think they like the idea of negotiations but haven't yet figured out exactly what form or what end game that might have.

         DR. STERN: Is the report --

         MR. RILL: I've got it. It's very short. It's here somewhere; it was on the WTO e-mail Web site.

         DR. STERN: Maybe we can just circulate it among the Committee.

         MR. RILL: If you can just pull it up -- I pulled it up from the WTO Web site.

         DR. STERN: Doug, you've just kind of given us a review of the status today. Do you have a specific comment on the report itself?

         MR. MELAMED: No.

         DR. STERN: I knew you were going to say that.

         MR. RILL: Moving along --

         (Laughter.)

         Picking up on this morning's format, but modifying it slightly, I'm going to try, I'm sure with only minimal success, to emulate what both Tom Donilon and Merit did. And given both their status report and some of my own thoughts, with the disclaimer that my thoughts do not necessarily reflect the views of anyone else on the Committee, do not necessarily reflect the views of the staff or the executive director, and probably do not reflect the views of many of my partners. So with that in mind --

         MS. FOX: They do reflect yours?

         MR. RILL: They do reflect mine, at the moment. Today.

         DR. STERN: Let us know if you change your mind.

         MR. RILL: Well, I may do that during the course of the presentation. Basically on the question of core principles relating to trade and competition it is even more difficult, it seems to me, to develop a consensus within the United States as well as overseas as to what is the objective of an analysis. What are the underlying premises of analysis of the issue of trade and competition?

         I would posit that enhancing the elimination of artificial barriers to open global markets is a good start. That, for our purposes, we should look at the source of those restraints that create those artificial barriers. The source of those restraints I think within our purview cannot only be private anticompetitive conduct, but hybrid, that is, conduct encouraged by government and essentially implemented by private parties -- in standards organizations is an example. And indeed, governmental restraints. I don't think we should feel barricaded from considering all three of those types of restraints.

         And perhaps less controversial, we should look at those restraints as they affect not only inbound but outbound commerce as well. And indeed, commerce that indirectly affects inbound or outbound commerce by affecting restraints in another jurisdiction. For example, if Country "A" and Country "B" agree that they'll stay out of each other's market, the natural effect of which is to affect Country "U.S.," I think that's also within our purview.

         Not all competition problems are trade problems, not all trade problems are competition problems, and I think that has to influence our analysis as well. And not all restrictive practices are competition problems. There may very well be restrictive practices -- I think in terms of questionable labor standards, environmental standards -- that if they are not pretext for effecting competition problems, they are in fact probably beyond our purview, at least in my initial thought.

         So let's turn to, as Tom and Merit both did, what are some of the substantive areas that we can examine with those possible a priori analytical principles? I think, and I pick up here on a point Eleanor has made, that we ought to have a very narrow -- we ought to recommend the Justice Department take a very narrow view of immunized conduct by foreign governments. That the so-called doctrines, to be legalistic for a second, of foreign sovereign immunity and foreign sovereign compulsion should be very narrowly construed by the U.S., so that we can reach conduct that is encouraged by but not mandated by -- specifically expressly mandated by foreign governments and where foreign entities, foreign instrumentalities behave in the commercial context. For example, if a government-owned competitive entity, hypothetically an airline, is behaving as a commercial entity rather than an instrument of foreign policy, it should be reachable under the U.S. antitrust laws. It's a thought for our recommendations.

         I want to extend from the merger area to the trade and competition area the notion that consultations should be held to advance convergence on these core principles. Specifically, discussions as to what is the international view of hard-core horizontal restraints. There's already an OECD principle, an OECD recommendation out on that, perhaps hedged a bit more than I would like, but nonetheless it's there, and it's a step in the right direction. Then move from that to convergence discussions and debate and evaluation of abuse of dominance position, what we would call monopolization or attempted monopolization in the U.S., and if possible even open up to discussion of vertical restraints. And the circumstances and market conditions under which vertical restraints are procompetitive and perhaps anticompetitive.

         I guess I'm taking up Joel's challenge to reach out fairly far. This isn't going to happen tomorrow. It's important these consultations include emerging nations as well as the core nations that have an antitrust tradition, and that nations without or with newly-enacted antitrust laws should be involved in these consultations. We now have 90 countries and rising that have some form of antitrust law, and I think I'm probably on the low side of that total number. Chuck and Randy are debating that now. But I think that the fact of the matter is that there is a need to embrace these countries in that kind of consultation so that whatever knowledge and understanding can be shared is being shared in all senses.

         When we do this and when we share these ideas, we have to be cognizant of the fact that other countries have other ideas on occasion, and a convergence may produce consensus in some areas that we may not find particularly attractive from a business standpoint in the U.S., where principles that are other than perhaps consumer welfare principles, or even consumer welfare-related principles, might be turned on us. In my view, okay, well, so be it, if that's the outcome of discussions.

         And I want to emphasize I'm not talking about negotiations. I agree with Doug's premise, the Department and FTC premise, that negotiations at this point are probably premature. Discussions certainly are not.

         I think the priority in negotiations should be the elimination of internal -- of course, antidumping and countervailing duty issues are not on our agenda -- so I emphasize internal government laws and regulations that also artificially inhibit open global markets. I'm thinking there in terms of at least a look at government standards which are not government-encouraged private standards, but purely government standards. And I think we need to look also at the use of government trade regulation laws, here and elsewhere, that while purporting to be trade regulation laws really inhibit global competition. I think intellectual property laws in some areas, limits on licensing, discriminatory non-national treatment of foreign filing and notification requirements, and various miscellaneous market-blocking restrictions that have popped up from time to time deserve our attention. From my experience in the SII talks with the Japanese, I think of the large retail store exceptions, there are the preclusions, and elimination or the prevention of the use of new-entry pricing practices such as premium codes. I think that the government should probably enter into negotiations, focus on negotiations that would eliminate those kinds of restrictions.

         Just in the interest of being controversial, I think we should consider at least whether or not we want to recommend a repeal of the Webb-Pomerene Act. Webb-Pomerene is a stick that's been used to beat up on U.S. antitrust by foreign jurisdictions. The jurisdiction of the Sherman Act itself does not reach purely export trade. There's no spillover effect in the U.S., so export cartels that have no spillover in the U.S. are not amenable to attacking that under the Sherman Act, so wh