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This document constitutes accurate minutes of the meeting held November 19, 1999 by the International Competition Policy Advisory Committee. It has been edited for transcription errors.

_______________________________ James F. Rillp Co-Chair

_______________________________ Paula Stern Co-Chair

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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 Sue Ciminelli, a court reporter and notary public in and for the District of Columbia.

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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 (telephonically), President, John and Mary R. Markle Foundation John T. Dunlop, Lamont University Professor, Emeritus, Harvard University Eleanor M. Fox, Walter Derenberg Professor of Trade Regulation, New York University School of Law Raymond V. Gilmartin, Chairman, President and Chief Executive Officer, Merck & Company Richard P. Simmons (telephonically), President and Chief Executive Officer, Allegheny Teledyne Incorporated

Department of Justice Employees:

Joel I. Klein, Assistant Attorney General, Antitrust Division A. Douglas Melamed, Principal Deputy Assistant Attorney General, Antitrust Division

Other:

J. Michael Farren, Vice President, External Affairs, Xerox Corporation

No members of the public made an appearance or presented written or oral statements.

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IN ATTENDANCE:

Advisory Committee Staff:

Cynthia R. Lewis, Counsel

Andrew J. Shapiro, Counsel

Stephanie G. Victor, Counsel

Eric J. Weiner, Paralegal

Estimated number of members of the public in attendance: 25

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

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(10:12 a.m.)

DR. STERN: The order of the day is a discussion on trade and competition first, and Merit is going to lead that discussion. Joel is coming for lunch at 12:30. Jim Rill is going to be leading our discussion on mergers.

The room is booked until 8:00 o'clock tonight, but I'm not going to be here until 8:00 tonight.

MR. RILL: If I am, I'm asleep.

DR. STERN: And I want to thank everybody for coming. And we have Dick Simmons on the phone. Thank you very much for standing by, Dick, and I think that there is no other blessings that are needed. We can't say prayers since this is a federal meeting.

And turn it over to Merit, who has been a fabulous, fabulous guardian of all of our work of the last couple of years, and has delivered us, with the help of her staff -- Andrew, Cynthia, Stephanie -- wonderful sets of papers for us to pore over. I think that should be it.

We do have members of the interested public who are certainly welcome here, but we ask that they not participate directly in our discussions today. We would rather you put it in writing.

Merit.

MS. JANOW: Thank you very much.

This is the last scheduled full Committee meeting at present, and we've had a number of productive subgroup meetings on each of trade and competition, mergers and

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enforcement cooperation generally.

So what I thought I might do to start us off this morning is to briefly summarize some of the key points of discussion in the subgroups that are also main points of coverage in the draft chapters, with the understanding that nothing is final, and that this is our opportunity for comment across areas. There will be further substantial revisions to these drafts, but this is an opportunity to have a wide-ranging discussion both on substance, but also on presentation and style and so on, and what I'm going to report are not conclusions of the Committee, but directions recommended by the subgroup and embodied in the report in draft form.

So if we can bring closure to some of these directions, that would be a very useful day spent. We hope long before 7:00 that that will be achieved. But we'll start with trade and competition.

Our drafts are very lengthy, and we are intending to have a very snappy first chapter, I'm hoping, that might incorporate our main perspectives and recommendations. It's also been suggested to me that maybe we have a very short introduction that's a kind of global scene setter, and I think that it would be terrific if in the course of today's discussion, if there were themes or ideas that were felt to be particularly prominent to emphasize in that start, that we take this opportunity to raise those.

In the trade and competition chapter and the discussions, clearly we have incorporated the goals that started us off, that is to expand and deepen cooperation, to increase transparency, to ensure that U.S. policymaking structures are up to the challenge of the next century, as well as to think broadly about international perspectives such as

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developing more of an international perspective on reducing parochial actions of firms and governments, fostering soft-harmonization of systems, developing improved ways of resolving conflicts, and developing consensus on broad practices.

Those are the broad goals, if you will, that I think are contained in this chapter, although much of it is looking at the intersection of trade and competition and hence the market access issues.

Let me just briefly recap that discussion. We have spent a lot of time in this draft discussing and defining the scope of the problem and hence identified at length some of the sectoral examples that have surfaced, the views of different business groups, the discussions at multilateral and international fora, the academic literature, and the views that have come before us in our own hearing process.

From all of this, we have defined the problems that subgroups and Committee have concurred on the importance of defining problems broadly, to include both private, governmental and hybrid. There is an expanded discussion in the governmental exemptions and exclusions, should anyone wish to comment more on that section.

This discussion of the scope of the problem has suggested that the problems are real, they're not geographically limited, and that they require expanded policy initiatives in the U.S. and internationally.

The chapter discusses differences in approach between trade versus competition tools in addressing economic distortions that arise from different sources and areas where trade and competition tools and objectives can be complementary along the way with respect to those different types of distortions.

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I think all of our subgroup members have been of the view and the Committee has expressed the view that there is no single approach that responds to all aspects of competition problems facing the United States and the global economy and one needs to focus on a variety of approaches simultaneously. In that universe, we have a substantial discussion of bilateral agreements, but in particular of bilateral agreements with positive comity, and these have been characterized in our discussions as useful and important first steps on the importance of building on the U.S.-EU relationship.

An example, it's been suggested there may be ways to improve a structure of positive comity provisions, and perhaps these shouldn't just be limited to bilateral instruments. There may be a possibility of more OECD or other internationalization efforts with respect to positive comity, that they could be deepened and broadened, and that it's important that they be allowed to mature.

We have also had, I think, an extensive discussion of unilateral tools and an extensive discussion of the cases that have arisen, governmental cases, and the draft is suggesting that the effective utility and availability of this instrument as a meaningful remedy appears to be quite limited with respect to export restraints.

That is to say, there have been not so many cases. It remains an important part of U.S. policies, and the chapter is not supporting any amendments with respect to U.S. law or unilateral enforcement measures.

It discusses problems of an evidentiary nature and it suggests that there may be some value in additional empirical work or analytical work, perhaps in collaboration with private groups or even foreign governments, in understanding both the scope and the

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evidence of private restraints that impact access to markets and international trade.

Of course, the final and substantial part of this chapter and our deliberations have been focusing on multilateral initiatives, what should be the objective of such initiatives and what are the approaches that could be taken. The discussion of the World Trade Organization starts off by suggesting that there are two extremes that the Committee has not so far thought were useful. One extreme would be to try and achieve a harmonized set of rules subject to review or administration at some sort of global level. I think there has been no enthusiasm for that proposal, nor the view that purely national approaches are sufficient to remedy all problems of a global competition nature; that there is an opportunity to design more international instruments or methods or deepen the interest in the world in doing so, and that this is an opportunity that should not be lost.

And the draft suggests some incremental measures and some constructive measures that the WTO can play that are mostly of an educative, consultative nature to deepen awareness and build more consensus. There are a number of specifics under that: perhaps a continuation of the working group, perhaps increasing the competition competence within the WTO system, perhaps some competition reviews of countries that have competition laws, which is already being done, and areas where the U.S. and the EC can compete more fully. Although they appear to be in tension on the specific question of what should be done at the WTO at this moment, have many, many areas of overlap and congruence and that those should be built upon.

Over the longer term, we've been talking about the possibility that there are hybrid problems, where there are problems that clearly stem in some way from a

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government action, but are not clearly government action, that require more consideration.

The report is not suggesting, and the discussion has not seemed to suggest, a consensus on the notion that private restraints should be covered under any WTO framework. But there has also been extensive discussion, I think, by the subcommittee, that because all competition problems are not trade problems, and because there is an increasing interest in the world in increasing the role of markets, as well as many issues that cut across countries for which international discourse would be beneficial, that one should not take all problems and issues to the WTO, which may not be the optimal fora. It is an important forum where some useful discourse is occurring. However we need to think more ambitiously about what is the optimal forum, and hence there has been a discussion of a possible competition forum of some kind that would not be a big bureaucracy, that would in fact be member-driven, initiative-driven, that would be inclusive in membership, and could be a kind of virtual organization or it could be G-7-like in that it meets regularly, maybe not annually but regularly, and doesn't have a G-7 staff, but it has bureaucratic support and so forth.

So I think those are the range of things that we have been talking about, and so I open it up to comment and general discussion.

DR. STERN: I am mindful that I have made marginal notes all through this wonderful chapter and have sent them to the staff. I just want to make sure that they are looked at. And I promise to do that with the rest of the chapter, too. I didn't fax it off yesterday.

I think it is encyclopedic in scope and detail, which I think is extraordinarily

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valuable to have in a publicly available document where the facts at least can be agreed upon so that light can be shined on the policy recommendations and focused on just the policy recommendations.

There's been so much debate out in the public about using, if you will, the trade laws to resolve a lot of anticompetitive problems, particularly with regard to market access for U.S. producers trying to penetrate other countries, in particular Japan. So that having all of this law and history and discussions of cases available is very worthwhile.

Organizationally, I don't want to get rid of any of it. I just think that sometimes it's going to be hard for the reader, and we want to attract a reader beyond just the aficionados and the antitrust lawyers and those who have written papers at different OECD meetings. There is a way of mechanically putting a lot of the discussion of the cases either in footnotes or in an appendix, letting the recommendations rise out of presentation perhaps by putting in italics whenever we say the Committee recommends, so that at least it stands out.

And we might even precipitate all of those recommendations. I think we have already done that mechanical exercise where we have the recommendations in a separate list. I think, though, I want to encourage our readers to go beyond just the separate list. I really want them to go into these chapters.

I know that, Merit, you were talking about making sure that we have a very good -- you didn't use the word executive summary, but just for shorthand -- executive summary. I find this extraordinarily valuable. So I want to make sure that we don't just spend a lot of time editing the first chapter and making a list of the recommendations and then have this all as appendix. I would like to be able to see a more integrative approach.

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Now, I'll leave that. That's my kind of presentational comments, and I think I'll stop on the substance right now to see if there are others who want to make a general statement. I guess my one general take-away, one last general take-away, has to do with presentation as well.

There is obviously a lot of frustration built up over the years about the role antitrust law and enforcement has with regards to market access. And as a consequence, I think there has been great use of Section 301, a lot of jawboning, unilateral action by our trade bureaucracy.

I would like the reader to take away from all of this work that there is an opportunity to use positive comity, the antitrust bureaucracy, if you will, to affirmatively now listen to the angst, the frustrations of many of our producers, frustrations also aimed at the Justice Department oftentimes, the sense that the Department of Justice in the past, for a variety of reasons, has not acted.

But today, today 1999, you've got this positive comity agreement between the U.S. and Japan that was just signed after 20 years of negotiation. I would like to put a point substantively in this paper that it be a recommendation by the Committee to the Justice Department that they, if you will, exercise affirmative action and affirmatively invite parties who feel that they have the evidence, that there has been violations of the antitrust laws according to our interpretation, U.S. government interpretation, and that really challenge our trading partners and the partners who have just signed this agreement in Japan to demonstrate the value of that agreement.

It's a little bit of advertisement. I think that word "advertisement" was used, that

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the OECD has a paper that is very useful. But I think that we need to be very pointed when it comes to the U.S. angst by producers with regard to this.

We have had other recommendations to build on 301, to do other stuff, and the take of this paper is that those aren't as valuable as they could be, and so we need to really point to where we do think there can be serious action by the U.S. government to deal with these problems. So that's my biggest substantively plea.

I think when people read this chapter they're going to say, well, what really do they want to do with market access and with Japan as well as other countries. I think it's to affirmatively push positive comity and affirmatively push the Justice Department to affirmatively push the positive comity approach.

MR. RILL: Eleanor?

MS. FOX: I'll go after you.

MR. RILL: No. I'll go after you. No, I'll go ahead.

Addressing what Paula said, I think "aggressive" is overstated, but a more active stance with respect to the powers that exist in terms of positive comity might be useful. I think as we talk about positive comity -- and by the way, let me say I think the chapter is very well done. A lot of editing's going to have to be undertaken, but still it's all there.

Just a couple of thoughts. With respect to positive comity, I think you should notice that the chapter makes some recommendations as to the strengthening of positive comity agreements consistent with some recommendations made by representatives of the business community in the hearings before the Senate Judiciary Committee several months ago. It's interesting to note those recommendations, basically more transparency, use of

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discovery powers, greater reporting and the like, have been picked up by the draft report, and I want to add my endorsement to those suggestions.

It's also noteworthy, I think, that those suggestions were commented on favorably by Chairman Pitofsky of the FTC.

We expected probably more out of positive comity when it was first installed than has been proven out, but I think that may be as much a commentary on our own impatience as on the ultimate long-term efficacy of positive comity.

I agree with Paula, I do think the enforcement tools of the United States, of Justice and FTC and private actions, may well have been underutilized and I think there has been perhaps more trepidation and timidity shown with respect to the ability to use those tools that exist than may be warranted.

I agree with Paula that I think that the Japan agreement and the Brazil agreement and the proliferation of positive comity agreements provides an opportunity to move on both fronts and provide more credence and weight to the notion. I recognize it's a delicate issue and one that has to be undertaken without throwing the baby out with the bath water, without undermining the concept of positive comity, so that we do not adversely affect the relationships that are so essential that we become the victim of our own aggression.

So that's something I think that the nation has to be careful about and we in recommending policy to the nation have to be careful about that, too.

I think I'm not clear actually where we're headed on Section 301. In reading the chapter, it's not been -- and maybe Dick will want to comment on this, but it doesn't

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seem clear to me where we're headed on it. But 301 has its limitations, so 301 has its limitations. Maybe we can point that out and move on, without being judgmental about it. If that's all we're doing, that's fine and we should be clear that's all we are doing.

Some comment has been made -- and again maybe Dick will want to comment on this -- about the role of the Department of Justice at the table. I think it's important to have the Department of Justice at the table in all of the competition matters that are within the purview of this Committee.

Implicitly, I'm not commenting on whether they should be at the table in antidumping or countervailing duty cases because those issues are beyond the purview of this Committee. I think we ought to make clear that they're beyond the purview of this Committee because if we don't people are going to say, well, have you ignored --

MS. JANOW: It's in the introduction.

MR. RILL: But I think from my own experience, I think there is even general agreement from USTR and Commerce that our presence at the table is helpful rather than disruptive in various competition and trade matters. I think we ought to recommend that that continue.

I'm not, John, so hung up on what structure that takes. I mean, sure, I'd love to have a Department of Trade and Competition as a retirement job, but a lot of things have to happen before that happens, like maybe a personality transplant. But apart from that, I think the function and the presence is important, however it's worked out.

And I think you made some very valid points at our last meeting that we could get hung up on the structure and undercut the substance.

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Other than that, I think the chapter is very much in the right direction. Oh, one other thing. Paula touched on it, that we've had a lot of suggestions -- I guess Merit did -- had a lot of suggestions for possible legislative amendments and we don't really pay much attention to them.

I think we should at least say that we've had these particular proposals and we as a group -- and I think this is certainly the consensus of the group -- do not recommend their enactment at this time, because I think we're not, we are not fair to the people who spent an awful lot of time putting together these proposals and putting them to us. I think in particular of proposals made by Alan Wolff and Dick Cunningham.

That's a personal view and I don't feel strongly about it, but I think it's a bit truncated if we don't at least touch on them.

Now you're going to tell me that I haven't read the report, but that's okay.

DR. STERN: Yes.

MS. JANOW: No, I was going to be a little more delicate. I was just going to say that there are some actual draft legislation that we haven't commented on, but I think some of those ideas we have briefly commented on.

So do you think it's important to speak to draft, or to legislation that may have passed one house but not both, and so on?

MR. RILL: I think our function is to recommend wherever we see it fit to recommend. I think on that legislation, sure, any view on that is going to be something of a lightning rod. But if we have a feeling on it, develop a consensus, and say that we think other courses of action are more profitable, we probably ought to say so.

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MS. FOX: I wanted to make some very general comments about where this chapter fits in the scheme of the report. And to begin, what I want to say is I think it would be unfortunate if we take up this issue as if the problem were that U.S. exporters are foreclosed from foreign markets and we need a better way to get in, because I see that as just symbolic of a much broader international picture that we ought to be looking at, and the international picture is that we ought to be looking at how we can enable world competition to take place without barriers so that the world markets are open and there is free trade and competition in the world markets.

This leads me back to what I view as our initial question and maybe an introduction, and also it leads me back to say that the issues that were entrusted to us, the three of enforcement, mergers, and trade and competition, do fit within a very general framework and that very general framework requires us to look ahead at competition, innovation, and the world. We have to look ahead 25 years or so and we have to think about e-commerce as helping to open up the world; and the trade liberalization, of course through the WTO, is part of this enabling of opening up the world; and that we want to enable the actors who are providing the goods and services to have free range in the world.

Then once we think about it that way, we do realize, at least I do realize, that there are some problems about having only national law and having world markets, and we have to find ways to connect the enforcers being national and the law being national and to lift nationalistic blinders off.

So the trade and competition point, as the market access point, is one point in this bigger picture, and a very important point in the bigger picture. I agreed with everything

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that Jim and Paula Said

The way the chapter is structured now, it's not hinged to the broader picture, and in addition it leads into WTO in a way that I'm going to say I think has to be unbundled and unbundled up front. And this is why. To talk about the unbundling, I want to say first that when a lot of people talked about the trade and competition issue for WTO they weren't talking about just a market access issue. I don't mean just, it's a very important issue.

The way the conversation has evolved in the WTO with the trade and competition group, interaction between trade and competition in the WTO, is the following: that there are all of these world competition issues out there and competition is basically for liberalization and trade is for liberalization, therefore WTO is the forum for talking about this great range of competition issues, which are virtually all of the issues we've been surfacing as points that have to be met, to try to make national law more compatible with the challenge of global markets.

MR. SIMMONS: Hello.

DR. STERN: Hello.

MR. RILL: Who's on? Dick Simmons?

MR. SIMMONS: Hello.

DR. STERN: Who's on, please?

MS. FOX: He can't hear us.

DR. STERN: Can you hear us?

Hello?

MS. BAIRD: Hello.

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DR. STERN: Hi. Can you hear us?

MS. BAIRD: I couldn't for a while,

but now I can.

DR. STERN: Is that Zoe?

MS. BAIRD: Zoe. Hi.

DR. STERN: Hi. Okay.

Is Dick Simmons still on?

(No response.)

DR. STERN: Dick must have gotten frustrated by that, too. So maybe you should call him.

We're sorry, but we're happy you've joined us. Did you just join us?

MS. BAIRD: Well, I've been just sitting here in silence for a while, but I'm delighted. I figured eventually, since they told me the conference was in progress, that I would get joined in. I really thank you for letting me participate by phone.

DR. STERN: Okay. Well, we're on trade and competition policy and Eleanor Fox is making some of her initial comments on that whole chapter. We'll proceed. Eleanor.

MS. FOX: Hi, Zoe.

So my thought about WTO, in view of the way the conversations have evolved in the WTO working group, is to put some part of the WTO conversations at the very outset, to say there are a panoply of world competition issues. Some people are talking about them as if they all belong in the WTO.

And there are many concepts that are being talked about that are concepts that

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we would in theory adopt, like transparency and nondiscrimination and involving all interested members of the world in the conversation about world competition problems. And after we talk about the concept of the world, and that some of these things are happening in the WTO, we might refer to the fact that we're going to revisit the WTO question in the trade and competition area so that we don't have to put something heavy on WTO at the front.

But we might signal the fact that there are, there is this great number of issues that we think have to be dealt with in someplace, in one place or another, and we might emphasize our skepticism at the outset that we're not so sure that the WTO is the right place, but these are issues we're going to be talking about throughout the report.

MR. GILMARTIN: Having participated on the Subcommittee, I very much agree with the direction of the report and would address a lot of the issues of competition that we encounter as an industry and so on. Basically, the way that I would summarize it from my perspective is that there is much wider agreement today than there may have been 10 years ago about the role of competition in stimulating economic growth and stimulating innovation, and so there is a different audience out there, but yet there is still probably pretty wide variation when people start talking about competition what they really mean by that.

So therefore continuing to work to build a consensus around that in a soft harmonization way is of great value, and the Department of Justice I think could play a role in that separately from the enforcement arm.

And that the -- so I think that competition policy as a way of stimulating economic growth is in the process of displacing the old industrial policy, which tended to be

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more, you know, develop lead industries and things like that. So in that environment it provides an opportunity, therefore, to create a forum for soft harmonization of the type we're talking about.

It also creates an environment for positive comity based on that kind of context. And I think we're suggesting this as a much more effective way of proceeding, although not necessarily the only way because there are a variety of ways, but probably over the longer term, looking out 25 years, a more effective way of dealing with these issues of trade and competition and market access and so on, and that along those lines we are saying it's important to distinguish between what is -- what are problems with competition and what are the problems with trade, and that it be very clear about that a lot of these things that are called market access or trade issues are really issues around competition. They affect local industries as well as the U.S. industry; and that because we want to maintain that distinction, create a forum where we can focus on competition, that we're suggesting, although the WTO has a role in terms of education, we really should have a separate place to talk about these things, and therefore continue to distinguish them, rather than running the risk, which they are now, of blended, and as a result of blending them we're not very successful in addressing them.

So I think that that's my sort of short summary, if you will, of where I think we came out as a Subcommittee. I'm very comfortable, based on our own experience, that that's very much in the right direction.

DR. STERN: Thank you very much.

MR. DUNLOP: May I make a couple of comments. Just as you are now

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proposing an introductory chapter or section in which you say what we're going to do, I think it is important to include in that what you are not going to do. Your point about 301 is only one of those point, but I want to come back to the statement at the bottom of 3.2 and suggest that that statement be incorporated up front with a change which I will comment on.

The statement that I'm referring to says: "There are a variety of practices that may be reprehensible, illegal or offensive under U.S. or foreign law that can fundamentally impact the nature of competition within the market or internationally, but which are not part of the discussion herein." Then you say: "Substandard wages, employment standards, utilization of child labor, or lax environmental regulation are two such examples."

I have no problem with that at all. Indeed, I encouraged you to say that before. But I also suggest to you that it may be excessive labor standards. Certain combines between longshoremen and stevedoring companies may have quite an impact on trade. So my own point is I don't mind the substandard.

I do think that's important, as you know, Merit, in view of the discussions that are taking place this coming week in Seattle, where all hell is going to break loose on this issue of combining or trying to separate trade issues from labor and environmental standards. We're going to have big demonstrations there and the whole conference I think is in jeopardy over that issue.

So my first point is that this element, both ways, needs to be put up front along with 301.

Perhaps the only other comment -- I agree with most of what you have done -- other, more substantive suggestion that I want to comment on is that -- and I use your

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summary to identify it at page 3 -- one potentially useful step would be for the U.S. government to sponsor or undertake a study of the magnitude of global trade problems that stem from private or hybrid anticompetitive restraint support.

Now, I have real doubts about the capacity of people to do that, frankly. Also, it is kind of a shot at one period of time where this is very much an evolving pattern. And I guess my proposal in the framework of the report is that if you were to establish this competition forum, which is a part of the recommendation, that continuing responsibility might be put there, so that you have a kind of ongoing picture of this situation.

I also think that the relationship between antitrust lawyers' and judges' standards and the economic profession is as far apart as it has ever been and growing wider. Therefore, I have reservations about who would do such a study.

But I think if you're going to have that forum, my own view is that the ongoing aspects of that are appropriate subject matter.

MR. GILMARTIN: I think that's a very good point.

DR. STERN: I do, too.

Are there further thoughts now, digging deeper?

MS. FOX: Yes. On trade and competition, I have two thoughts totally unrelated to each other. One is, as we all know, the United States might not have totally open markets and the European Community every year writes a report about the United States barriers to market access. I certainly would want to reflect problems at home if we are talking about free access in the world. It always has to be reciprocal. I don't know whether that was reflected anywhere, but I think maybe it should be.

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Now, the second --

MR. DUNLOP: Could you tell me some of the, since I don't know, some of the points which are made by such people?

MS. FOX: Maybe, Paula, you know better than I. There are booklets that the EC publishes every year, and you might --

DR. STERN: Well, I don't read them carefully. I'm mindful that we have a representative out in the audience. But I think it was actually done as a response to our legislative mandate that the USTR publish annually a list, estimate of trade barriers overseas, and I think it was a little tit for tat.

But as I recall, there's a lot of concern about some of our state and local jurisdictions and the buy-America and the buy-local. Those are the things that stick out in my mind, but you may have something more in mind.

MS. FOX: No, I don't really. But actually that would be very appropriate, to mention that we're saying that there are excessive state -- we said it in the sense of nation state, but state -- trade-restraining laws abroad. Our states also may have excessive restraints, and to the extent that we're proposing talking about this further and trying to ratchet it down, it comes within the same picture.

We don't even have to be very specific. I mean, I would say, especially if it is laws that we can look at that seem to us on their face to be excessive state laws, we could cite a page or so.

I had another, different kind of comment to make on trade and competition, and that is this. I apparently would go further than the Committee and I might write a page or

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two essay to say that I think on the market access-trade and competition point we ought to be, or at least I would be, out front a little more, that I do think that private anticompetitive restraints that bar markets are the other side of the coin from public anticompetitive and unjustified restraints that bar access, and that when nations sign on to the WTO and they agree to keep their markets open, they ought to be agreeing to keep their markets open and free from the unreasonable private restraints as well.

And I did have a proposal, which I don't think was adopted by the group, but I would probably write that into a small essay, I mean really small, a page. I would also include in that that I think that we ought to have harsher obligation on countries to eliminate public restraints.

I here would go back to the Fuji Film decision in the GATT-WTO to say the following: In that case, the panel said that among other reasons why the United States didn't have a case was because we had no right to expect the government to get rid of laws that we knew were in place when they signed up.

I think that that should be eliminated. I mean, if there is a law that otherwise is inconsistent with a member's obligation to keep its market open, the complaining country should not have to prove that the law wasn't there when they signed up. They should be able to contest it.

DR. STERN: Oh, I think that's a very useful point, particularly as so much of the concern, legitimate concern that some people have with extending the WTO's purview into the competition policy area, is that countries that don't have the same philosophies as we do on competition are going to sign up to some WTO thing and get a stamp of approval that

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they are now WTO competitive and yet they really aren't. So I think that's a very useful point.

MR. RILL: Eleanor, I wonder -- you make two points. One is that a signatory to a WTO agreement should agree to get rid of private restraints that impair market access, as I understand it. That may be the subject of a separate paper.

I don't know that you'd need a separate paper to say that a WTO member should undertake to get rid of public restraints on market access. I think that's consistent with what -- I mean, the paper might be modified and you might have some editorial comment, but I don't know that that point is particularly inconsistent with anything that's in the draft.

MS. FOX: It's not inconsistent, but it was never adopted into the draft. So I thought that you all weren't in favor.

MR. RILL: My view is it would be appropriate to adopt that into the draft. I may not agree with you on your first one.

MS. FOX: That's great. Fine.

MR. RILL: So we'll see.

DR. STERN: John?

MR. DUNLOP: There is one other question I think that I have and that concerns the processes of the WTO. I come to this at page 7 of your summary, point 3. I do think that the proposal that the WTO develop some nonbinding mediation in the handling of its disputes is an important development that that organization needs.

This litigation process seems to be formalistic and so on, and in bodies that are

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trying to work problems out some kind of experts who serve as mediators rather than judges -- I don't mind arbitrators. After all, I'm a lifelong founding member of the National Academy of Arbitrators. But my own view is that increasingly many disputes are better resolved, particularly national disputes, by some kind of group of people who have expertise in the subject matter and can facilitate agreement.

So I think in several places that kind of notion is worth making in my view, rather than leaving the state of play in the kind of litigation process that is so frustrating and so time-consuming.

MR. RILL: John, I think that's right. I fully agree with what you said. You mentioned, though, that that was within the framework of a recommendation related to the WTO. Actually it's related to a recommendation in the context of the global forum.

MR. DUNLOP: Yes.

DR. STERN: Yes.

MR. RILL: I think that's an important difference.

MR. DUNLOP: Yes, I agree. But that doesn't keep me from emphasizing the point.

MR. RILL: No, no. And I agree with you. I just wanted to be clear you weren't putting it in the WTO context particularly.

DR. STERN: Further comments?

MR. RILL: Have we lost Dick?

MR. SIMMONS: No, I'm back. I was cut off at your end for about 12 minutes.

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MS. FOX: That's because I accidentally pushed the mute button. I apologize. I'm very sorry.

DR. STERN: Eleanor, she had a lot of things she didn't want you to hear.

MR. RILL: Don't take it personally, Dick. It's just business.

(Laughter.)

MR. SIMMONS: No, no. I'm permitted to take it personally. I'm paranoid.

MR. RILL: Dick, when we had the opportunity, you were very kind to share with Paula and me your views, and I wondered if you wanted to share them with the group at this point, with the Committee at this point.

MR. SIMMONS: Well, I think that Jim and Paula -- Paula, you touched on and Jim touched on 301 and the fact that we really ought to say something.

Secondly, I express some concerns over the role of antitrust being carefully contained to areas of competition, and I, Paula, for your and Jim's benefit, I reminded you of situations where Justice has taken as a matter of policy a position in opposition to the use of certain of our trade laws by American companies.

Thirdly, I did talk about market access and specifically discussed the issue of Japan, which is in my opinion -- while we may not have a smoking gun, we have everything else but in the case of a number of commodity products such as plate glass and specialty steel.

I also discussed with you the cartel that has existed for several years between the European Community and Japan that rule out of bounds their markets and leave the United States market as a free zone for both trading groups. I reviewed some statistics with

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you and gave you a copy of that testimony, which I had just recently given.

But I think you've touched on most of these things. I'll be interested in seeing the last, the next draft, if that is the last draft. The final point I made is if you want to have more than the academic and legal community read this, a great deal of effort has got to be put into the executive summaries, with perhaps references to portions of the report that can be referred to for more detail, so that we can get, as Paula pointed out, as wide a readership as possible.

MR. RILL: I think, Dick, I don't know whether you were on or not, but Paula made the point that perhaps the U.S. DOJ and FTC might be more ambitious --

MR. SIMMONS: Yes, I was on for that.

MR. RILL: -- in their referrals under positive comity, and she mentioned particularly the Japan situation.

MR. SIMMONS: As a pragmatist and with the new agreement that's been signed between the United States and Japan, it would seem to me that the efficiency of positive comity should be tested. Will it really work? How will nations that are parties to it respond, both us and them?

And until that occurs, I think it's difficult to be overly optimistic about whether or not market access, which is private limitations as well as hybrid limitations in the case of Japan, will actually disappear or be reduced.

DR. STERN: Zoe, do you wish to make any comments on this chapter?

MS. BAIRD: I don't, but thank you very much.

DR. STERN: Merit, I have some other thoughts, but you want --

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MS. JANOW: No, I think that's enormously helpful, so I appreciate all of your comments.

I'd like to also raise the possibility of a discordant view here, namely I think the idea of an international forum is a great one, but there are a lot of proposals that have been directed there in this chapter. So I think John has raised the question implicitly, should that not come to pass, are there things that should come to pass independent in the event that a forum is not created?

In other words, all the ideas we've developed shouldn't all hinge on the existence of a forum.

DR. STERN: Absolutely.

MS. JANOW: If you believe in the ideas, is it better piecemeal than not at all? I think the sense of the group is yes.

DR. STERN: Yes, definitely.

MR. GILMARTIN: That's a good idea.

DR. STERN: Go ahead.

MS. FOX: Yes. I have one more point, but it wasn't related to Merit's last one.

DR. STERN: Merit, have you got more? Do you want to push on?

Why don't you let Merit just get those things, consensus problems.

MS. JANOW: The discussion of 301, Jim, you're absolutely right, is descriptive in this chapter. It isn't in any way prescriptive or normative. There is an effort to be respectful of its ambit of existence in the fourth chapter, which is simply to say that it has

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had its raison d'etre with respect to governmental restraints. It has certain benefits for those who trigger it because they can bring issues out to the world stage.

If you look at -- I'm trying to find the exact reference -- 4.6, that trade policy can rely on anecdotal and inferential data, and that there are benefits to this that have few parallels in the antitrust context, but the Committee has not endorsed that same methodology being applied with respect to private restraints.

I just want to make sure that we're comfortable with that kind of characterization. I think it is fully respectful of 301's utility and effectiveness with respect to governmental and its political nature which can be helpful in intergovernmental disputes. But it is not suggesting that that methodology be applied to private restraints.

MR. RILL: I think that should be made clear. You might want to move that kind of governmental restraint to a back stage settlement process, political nontransparent. You don't want to move that over into the resolution of private restraints, at least I don't.

MS. JANOW: That is a subject some feel keenly about, so I just want to make sure.

DR. STERN: I think the question -- I'm glad you did surface it. It sometimes is a thin line between what is a commercial dispute and what is fodder for government discussions and negotiations. And I have been there before and have seen that when at least the government gets involved in putting on the agenda for government-to-government discussions, a dispute, things sometimes get resolved that otherwise just would not have gotten surfaced.

In other words, it ups the ante. And in other countries enforcement may not --

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may be more politicized than it is in ours. And I don't want to send any signals that we are handcuffing the U.S. government in those instances where it can be helpful to up the ante in a politicized enforcement or lack of enforcement inaction overseas, even in a private situation.

I'm thinking of -- I'm thinking of a couple of cases that I've been involved in. This is different from actually bringing a case under 301. It's actually either putting it in the National Estimate of Trade Barriers. I don't want our government to be handcuffed and have another government come back and say: "Well, you shouldn't put that thing on a topic of discussion or in that list of trade barriers that you publish every year because that's a private thing; we think that's a private dispute."

I'm just, I'm a little worried that I don't want to send that signal. There is, you know, there is jawboning that we do and it has been helpful.

MR. RILL: Mostly in the governmental context, though, I think.

DR. STERN: Well, but that's the point. The other country comes out and says: Excuse me, but we'll be happy to talk to you on government constraints, but this is a private commercial dispute between two different companies.

MR. RILL: That was certainly the position that the government of Japan took on the photo film case.

DR. STERN: Right. And it's been taken in a number of other cases I've been involved in.

MR. RILL: On the other hand, you look at other situations when I think there has been jawboning, more or less effective jawboning -- whether it's effective in the long run economically or not is another issue, but effective at least in the dispute resolution. Well,

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take aluminum, where there was a government to government resolution ultimately by government in effect negotiations.

The question whether or not that type of thing might be more transparent is the only question I have. As to -- I don't know. Maybe there's something you can write on this. I'm a little unclear as to where you want to go.

DR. STERN: What I was trying was to hesitate -- was to temper the enthusiasm for signaling in the paper a new sentence that says: As for 301, we want to make clear that we just want -- that this should not get into, the government should not get into the purview of private disputes, if you will. Only limit it to hybrid or colorably government anticompetitive acts.

And I'm just saying you got to be real careful on how you write it, because I don't, I don't want to unilaterally disarm in those areas where sometimes jawboning does help. And it particularly helps when another country just throws back with us that, oh well, that's a private dispute, and so no enforcement gets done over there and our government just sits there and says, well, we have to sit on our hand because we have this recommendation.

MR. RILL: But maybe that's where positive comity comes into play.

DR. STERN: Oh, yes. That's why I wanted to affirmatively push the positive comity.

MR. RILL: And you're very much on the record there.

DR. STERN: Okay.

MS. JANOW: Can I ask you a question about that, Jim. There are problems that are a mix, that this Committee has identified of both public and private. So to the extent

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that there is a governmental dimension that is clear, there is no ambiguity as to 301's jurisdiction.

MR. RILL: That's right, that's right.

MS. JANOW: There may be ambiguity as to 301's effectiveness, but that's separate. But sometimes foreign governments' response, and I think this happened in the film case, is to say: This is private, so we don't have to engage on this.

MR. RILL: That did happen in the film case.

MS. JANOW: That did happen, and I think to say that there should be a demarcation between public and private restraints is not to say that governments, foreign governments, can evade responsibility by deferring it to a competition agency who may be of uncertain effectiveness.

MR. RILL: You headed where I was headed.

MS. JANOW: Okay.

MR. RILL: And that is the fact that I don't think anybody, least of all I, advocate a sitting on the hand or for that matter throwing up the hands approach --

MS. JANOW: Right.

MR. RILL: -- to dispute resolution. What we're talking about is the scope of 301, not the efficacy of 301.

You raised a point I think that may be another point worthy of consideration in the chapter. That is where we may not be sufficiently clear -- we may not be sufficiently clear -- as to what we consider kind of a hybrid restraint.

DR. STERN: Yes.

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MR. RILL: Doug Melamed, when he was here I think at one of the very first meetings, suggested that we might want to take a careful look at what we mean by hybrid restraints and where the antitrust laws or the trade laws might appropriately intervene. I think that's -- we could have a long discussion of what that means right now and it would be interesting perhaps to two or three of us.

But the fact of the matter is we don't, I think, try and draw a line, even by exemplar, as much as maybe we should. We have run into situations -- we need to take a look at this. We have run into situations where people, foreign businesses, have said this is something encouraged by the government, therefore it's a government restraint. That wouldn't get you to first base under the U.S. antitrust laws. Wickard versus Filburn. How is that?

The fact is that there are other forms of governmental intervention, blessing the standard. How far do we want to go with this? I think where you do get into government encouragement or government blessing of a standard without thorough review, the Ticor situation, the government, our government, may have more than just positive comity to deal with.

But I think we can't take this point in a vacuum without setting up the predicate of what constitutes the hybrid restraint.

MS. FOX: May I say a word on that, because it fits into my rejected proposal in this way.

MR. RILL: Uh-oh, am I going to agree with you now?

(Laughter.)

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MR. RILL: I've got to reconsider what I just said.

MS. FOX: You're not going to agree with me. But we don't want to be in a situation where a government can say, look, it's not my restraint, it must be private, and the private can say, oh look, it was encouraged by the government, so I'm off the hook.

If we had a stronger government obligation to at least have and implement a law that is going to prevent private restraints of trade that unreasonably block its market, you actually bring the two together and you shift. The government is going to have less of a long string to get off the hook; it's going to be responsible for more.

DR. STERN: You're shifting the burden.

MR. RILL: I may end up agreeing with you, actually. Then you'll have to reconsider your position.

DR. STERN: No. I think both of these points are really very, very valuable. I don't know what it means in terms of work, more work on defining what we mean by hybrid. Do you want to refer us to the first time we use the word "hybrid"? Because, quite frankly, there are other places, and I have circled them, where there are legal terms and terms of art which have to be defined the first time, because there are a lot of nonlawyers who are capable of understanding these concepts, but who may not be familiar with the particular legalese or the legal terms.

MS. JANOW: The chapter's treatment of hybrid restraints says, one way of looking at the problem is to say: This would not have occurred but for some antecedent action of the government that may or may not rise to the level of ongoing governmental supervision or regulation. So it's not state action, but it can still distort the market.

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If there was, say, delegation of authority to licensees and the result of that was exclusionary, it could be a hybrid restraint. And there are a few examples of that sort. Now, the GATT -- and this has been mentioned in the draft -- has had to consider this question in the semiconductor case and in the film case in the context of what is a government measure.

And in the semiconductor case, the panel argued that if there was reasonable grounds to believe that the governmental measure created sufficient incentives to persuade private parties to conform their conduct to the nonmandatory measure and the effectiveness of the private conduct was essentially dependent on this nonmandatory action taken by the government, then it constituted a government measure.

So I think that this is an evolving jurisprudence. The film takes it slightly farther, although it didn't reach that conclusion of a violation with respect to the facts of that specific case. So query: Can we -- do you think we should button this down further?

MR. RILL: Yes, I think some examples would be helpful.

MR. DUNLOP: May I make the obvious suggestion, namely that when you introduce the concept of hybrid you go on and have a brief discussion that there are varying proportions and forms of involvement, decrees and so on. So you start out with not one simple matter --

DR. STERN: A spectrum.

MR. DUNLOP: -- but a range, a spectrum.

MR. RILL: You've got a rich, if not -- and I think that's right, John. You've got a rich, if not altogether absolutely crystal clear, body of law from which you can extract

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some examples on active state and foreign sovereign compulsion in the U.S. I think, using those examples, it would be worthwhile to clarify what we're talking about.

MS. FOX: I think actually examples are very important and that there is not a definitional problem if you just look to see what you are doing. So for example, all we mean to say is there are certain things that ought to be caught by GATT-WTO and certain things that ought to be caught by private antitrust law, and we just should say when they should be or should not be exempted.

And we might say they shouldn't be exempted just because they're encouraged. We can recognize the fact that certain government restraints provide a background that makes it much easier to cartelize or restrain trade. We know that.

The United States, we know that. We don't make those laws illegal. We just look at the fact that these structures have existed. Like in Japan, the retail store law, which is being abolished as of March, I think, or May. But having a big retail store law in place makes it much easier to monopolize or cartelize, and that's a background fact we always take into consideration as to the structure of the market.

So we don't bog down, we're not really creating a new beast. We really are considering all of the facts on the private side. We consider the structure, which can include government restraints. On the public side we have to know when the government is and isn't on the hook.

DR. STERN: That's one issue. You then had an additional issue, which is to state that governments have an affirmative responsibility or --

MS. FOX: Just to have a law that

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prohibits, they could say anticompetitive or they could say unreasonable market-blocking private restraints, as long as they implement it. They put it into their law and they implement it as they are true to their own law and nondiscriminatorily; then they have carried out their obligation.

And there may be no good remedy unless they don't have the law in place. And this is where, yes, Jim and I have argued as to if there's no good remedy is it better to have such a law or not. I've been of the view that it advances us to have it in place even though we recognize that it's going to be almost impossible -- not quite impossible; almost impossible -- to prove a violation of the obligation if they have the law in place.

Does it advance us to say, but you had that obligation, you have it? One thing it does do is make more government responsibility, and the government responsibility will be harder to evade for, for example, a Fuji-Kodak when they say: Oh, it wasn't I; it was the private. Well, you had the obligation to monitor your own market.

DR. STERN: Particularly in light of the finding by the panel, I think it's very important for us to urge what you are saying, that governments have this law in place. The question then becomes what happens here in the United States? Does that then require us affirmatively to have the Department of Justice go through the whole inventory of all of our laws?

I mean, is there an additional --

MS. FOX: No, because we clearly have such a law in place.

DR. STERN: Okay, fine.

MR. RILL: I was thinking the other way around, Eleanor. And we might as

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well take a minute and talk about it a little bit. Your proposal is that in the framework of WTO there be an agreement on the part of a countries that accedes to the WTO that it have a law in place and that it implement that law.

MS. FOX: Yes.

MR. RILL: Implementation of the law is, as you know as well or better than I, is a matter that's not always quite clear.

MS. FOX: Yes. That's why --

MR. RILL: Let me just play out the thought.

MS. FOX: Procedural due process and private action.

MR. RILL: And then to have some sort of review body suggest that the government of Lower Slobovia, to bring back Al Capp, hasn't enforced its law, and the WTO review panel says Lower Slobovia has systematically not enforced its law, does that mean then that we can keep Lower Slobovian brandy and blue cheese out of the United States under a WTO proceeding?

And isn't there another way of cutting this, and that is to create some level of transparency within the global forum, for example, or plan B if there's a plan B, whereby there are transparent public reviews of countries' antitrust vitality to produce transparency, rather than to put it into a framework that tends to resolve disputes so that the consumers of one country injured by nonenforcement receive their sanction by injuring the countries of the offended -- the consumers of the offended country by not being able to drink brandy and eat blue cheese?

MS. FOX: Well, two responses. One, I never wanted a remedy that is

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retaliatory. The remedy would be an action in your own jurisdiction if there are some assets. This is the footnote 159 problem.

I think that it's illegitimate enforcement unless you have an agreement, but if you have an agreement it's not illegitimate. So I would never have trade remedies.

But, number two, I think that if you have a competition review mechanism it ought to be hinged to an obligation. And if the nations have an obligation to have a law in place and to implement and enforce it, that's exactly what then would appropriately kick in for a competition review committee.

Without any obligation, I don't even understand how a competition review committee can go into another country and say: You did this right, you didn't do this right. I would actually think there's more due process rule of law if, yes, you have a rule, yes, you have or haven't implemented.

So it's soft, it's jawboning, but it could be productive.

MR. RILL: That's not, that's not -- at least that's better than preventing us from drinking brandy and eating blue cheese.

MS. FOX: I don't approve of preventing us from doing almost anything.

MR. RILL: But one model that at least ought to be perhaps looked at in the context of what you are talking about is the country review mechanisms, which have been cut back a good bit, I guess, in the OECD, where there is a periodic review.

MS. JANOW: They exist at the WTO.

DR. STERN: They exist at the WTO and they are more robust.

MR. RILL: On antitrust policy?

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MS. JANOW: Yes. In the context of the TPRM, trade policy review mechanism, competition has come into some reviews. They look at it as I think in a kind of straightforward way, what's the law look like, is it transparent, does it look nondiscriminatory. It's not looking at particular matters.

MR. RILL: I just want to unhinge it from the WTO, at least over time, given our proposal.

DR. STERN: I see your point. But I don't want to, again, disarm before we have got something in place.

MR. RILL: That's fair.

MS. JANOW: Yes. But I want to be clear I'm understanding this exchange on the question of, if it is nonretaliatory, then it's not really a matter of dispute settlement in the WTO sense.

MS. FOX: Not unless you didn't have the law or you didn't have the due process or didn't have procedures for private parties, if you didn't have the law in place you promised to have in place. You can talk about a possible obligation if you have a pattern of nondiscrimination, but I just really think it could really be a talking subject, but I don't expect any really litigation on that.

MS. JANOW: Well, do you want to embed that into a forum that is designed to have its obligations subject to dispute settlement?

MS. FOX: I don't see why not, because it depends what you make subject to dispute resolution. So for example, I cited NAFTA Article 19 before. You're just looking to see whether the country has properly applied its law in a credible way and not a

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discriminatory way. That's the end of the review, and I think it's helpful to have such a rule. So I wouldn't think that you would have to have an intrusive dispute resolution mechanism to have a skeletal possibility of one.

MS. JANOW: I guess all I'm putting squarely on the table is this idea: if we're thinking about the evolution of the World Trade Organization as distinct from this competition principle, does one want that institution to have a robust dispute settlement or does one want to develop principles under it that are in a sense not judiciable in the same sense of most of WTO rules?

MS. FOX: I think that TRIPS might be soft ground to try to plant anything on or stand on. But isn't that the kind of tradition that TRIPS is trying to establish, that there's not a lot that's justiciable, there's only a point at which you might violate TRIPS, but there's an awful lot countries can do before they could even possibly violate TRIPS.

For example, if they have an antitrust law that allegedly violates TRIPS they can go really far in their antitrust law that does takes away some intellectual property rights before it would rise to a level of a dispute point in WTO. And I thought that was a legitimate way of looking at dispute resolution under WTO. It doesn't have to be breathing down your back. It could give you a whole lot of latitude before you come to the point of no return.

MR. RILL: I'm not sure I know where that gets us.

MS. JANOW: Well, I do think that there's been a moratorium on enforcement for less developed countries under TRIPS and that moratorium is coming to an end in theory.

MS. FOX: But it didn't have to be a less developed country. It could be EU.

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It could be anything, any country.

MS. JANOW: I think those dispute settlement provisions fully apply with respect to those jurisdictions that were not subject to the moratorium.

MS. FOX: This is my point. They apply, but the EU can go a long way in using antitrust even in ways that will, some people would say, encroach on intellectual property rights before they're going to be called to account for it, because they have the freedom to do what they want in their own way as long as it's credible and nondiscriminatory.

So therefore, the --

MR. RILL: Where does that get you if they have that much latitude?

MS. FOX: Well, it gets me to a model that I thought was an appropriate WTO model, that I won't worried that the WTO -- I know you're not saying that the WTO should breathe down the backs of everybody, but I wasn't worried that it doesn't breathe down the backs.

MR. RILL: I mean, I don't know where that gets us if there's that much latitude -- I know what you're talking about -- in the TRIPS agreement before it ever kicks in. Where does it get us to put something like that into a trade dispute resolution, a trade dispute resolution organization?

MS. FOX: I'm trying to frame a principle that I think fits very much in the world trading system of market access. I mean, I think it really fits precisely into a world trading forum, and I think that it's useful to have a rule that will cause countries to at least have regard to the law and steer their conduct in a certain way even if it's not robustly

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enforced. And that's the point where, does it have to be robustly enforced? Because the principle I'm proposing doesn't get close scrutiny and I think it shouldn't, because I think countries should have leeway in deciding what is a good rule of law and how to apply it against private restraints that close their market.

DR. STERN: I have no problem with what Eleanor is suggesting and referencing it, not only with regard to our world forum, our world competition forum, but also with regard to the WTO.

MR. RILL: I guess my problem is I don't fully understand it.

DR. STERN: Well, maybe we should talk offline then and then go on to something else.

MS. FOX: Maybe we should. I had one other point I wanted to mention about 15 minutes ago that circles back to something Dick had said. Maybe I should bring it in right now.

DR. STERN: Well, let's see.

Do you have any other things?

MS. JANOW: No, no, thank you. That would be great.

MS. FOX: You talked about glass and an EC-Japan cartel which I think was a private cartel from Europeans and Japanese that would rule their markets out of bound but leave the United States as a free zone.

DR. STERN: I think he was talking about steel.

MS. FOX: I'm sorry. Whatever it was, steel. Whatever it was, I wanted to make this comment and it's about seamlessness. When there is a cartel in Japan or EC-

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Japan and that cartel results in less output sold and higher prices in those cartel countries, and then there's a stream of very low inputs coming into the United States, I believe that this is a seamless question and the United States is interested. And this happened in Japanese electronics.

I don't think as a matter of policy it's a full answer to say, as the Supreme Court did say in Matsushita, well, we can't look at the Japanese economy, even if it's closed and even if price is raised, and these are good low prices in the United States, so we want them to come in.

As a public policy matter, everything is seamless and that cartel abroad that causes the distortion of prices lower than our companies can bear in the United States is part of one picture which ought to be enabling cartel enforcement of us in foreign markets. I mean, we ought to be able to get at and we should have jurisdiction over the cartels in foreign markets that cause that seamless distortion.

And when we're blocked out of foreign markets, it's not just a blocked out of foreign market problem. It's really a world competition seamless problem.

DR. STERN: So what should the Justice Department be doing with those kinds of fact situations? Do you think they need to exercise positive comity?

MS. FOX: Well, yes. What it should be doing, of course, this is the question, and we may not be --

DR. STERN: Did I ask the $64,000 question?

MS. FOX: We should have a world understanding. This should be on our world agenda, that there should be some world understanding that somebody should have

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the right to take care of enforcement of that cartel. And our firms -- I mean, our enforcers should have the right to take care of that cartel.

MR. RILL: But Eleanor, it seems to me that that fact situation you just raised, and Dick adumbrated, is embraced within the 1995 Guidelines of the Department of Justice and the FTC as --

MS. FOX: Yes, but the problem is the unilateralism.

MR. RILL: -- as an area where the Justice Department would or the FTC would feel free to take action.

MS. FOX: The problem is that the focus even of those guidelines is: the problem is that our exporters can't get into the foreign market. And why do we care about our exporters? Do we really care about the Japanese consumers? This is a very narrow way to look at the problem. It's not the whole problem.

The whole problem has to be taken care of in an international forum, and if we surface the whole problem rather than this small and not representative piece of the problem, then you could see it's a world competition problem and there ought to be at least a world understanding that we could help one another out in the enforcement against this world cartel. So even though the high-priced goods aren't coming into the United States, it's a U.S. problem.

DR. STERN: But Eleanor, just to get back to what we're doing today, are you saying that you want to add a recommendation with regard to the discussion on the world cooperation forum that basically articulates what you're saying?

MS. FOX: What I'm saying is maybe -- it was maybe said too subtle -- I think

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that we ought to surface what are real world and intertwined problems.

DR. STERN: Do you want to do it in the context -- do you want to say it specifically at that point in the chapter where we talk about the world competition forum?

MS. FOX: I think I would like to do it -- yes. I would like it do it under world competition forum, but I'm not so sure world competition forum belongs under market access. That is a small piece. That's the competitive protection piece of the problem.

DR. STERN: Well, that's a presentational question which I think goes back to one of your earlier points, and I think that's a point well taken, that we just need to see -- you're shaking your head affirmatively here, Merit.

MS. JANOW: Sure.

DR. STERN: I mean, you can take care of that.

MS. JANOW: Well, we can certainly try. I think if there's an introductory section of the whole report that talks about global perspectives and global problems and the beginning of the trade and comp says part of this problem is market access, but part really is much broader than market access. So maybe it requires being broken out even further.

But I'm not quite sure where to go with your substantive point.

MS. FOX: The substantive point is we have to see more things as seamless. I'm not going to come to the support of an American electronics industry that's simply faced with competition, and that's not my point and that's how a lot of people see it. But there's political pressure that always comes in at that point. When the low-priced imports as a result of a cartel abroad start hurting the Americans, there's a political pressure.

But I just think everything ought to be seen more seamlessly and that you do

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that in an initial few pages, and then by the time you come to a market access question you see that the market access question is not about protecting our exporters. It's not really about only these particular exporters getting their right to get into this market. It's a world issue.

DR. STERN: I think that's correct, Eleanor, and it relates also to Ray's point that the world has shifted. Competition, the value of competition in enhancing growth, is seen differently. This really does go to the writing of the paper. I don't think we have any substantive disagreement on this.

MR. RILL: On that statement, certainly.

MS. JANOW: On the remedy issue and the responsibility, where should responsibility reside? Could we exchange paper on that?

MS. FOX: It actually comes back into our cartel chapter, that we should take seriously cartels that don't look like they're targeted

at our market. There's another example that some friends in the European Community in the Competition Directorate gave me. They said: We're seeing an awful lot of cartels that look like -- they say they're carving out the United States and the EU, and they're cartels that are seriously affecting less developed countries directly, but they might not merely be carving out the United States and the EU. And we have an interest against those cartels.

DR. STERN: Well, this gets to my earlier point about affirmative action. Just what affirmatively do we want to be recommending either by action by the Justice Department for their cognizance or cognizance of this world cooperation forum. I guess my view is to lean on affirmative action. Affirmatively say that as the world does become more

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seamless these anticompetitive activities do spill over the border and do have and will ultimately have some impact on our own national interests.

So I agree with you on this and it may be that, as Merit just said, you may have to do some writing on this to get that language into the paper. I encourage you to do it.

MR. RILL: Where are we?

MS. JANOW: I think it sharpens the focus. So I think we've covered a lot of ground very efficiently this morning.

DR. STERN: We are in fact at 10 until 12:00. What's our timetable, Merit?

MS. JANOW: Well, we have until 1:30 to discuss trade and competition issues, including the role of the Department of Justice and foreign economic policy. We have discussed that in part already. I don't know if we need to spend more time, but there is a set of issues that are raised here about antitrust being at the table and an elevation in a more formal role and an expanded profile in international matters, although not to the detriment of preserving an enforcement agenda separate from that process.

I think those have all been discussed. Now, e-commerce is something we could turn to.

DR. STERN: I think it's a good idea that we do so, because we touched on e-commerce in a certain sense when we were talking about the seamless point. Ray in the very beginning in his statement, I think -- I don't know if you used the word the "Internet." There is a discussion within the e-commerce paper which has the tones of twenty first century and the changes that will necessarily make actions that in the past looked like they were just of significance only within national borders and were the national purviews of that

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particular country, instead now have major implications for consumers and producers in other countries.

So I think that the e-commerce paper -- which was eight pages long, am I right? It's just an eight-page long paper?

MR. SHAPIRO: Yes.

DR. STERN: Yes.

MS. JANOW: I wonder if we might -- Mike, would you care to join us for this discussion?

DR. STERN: Mike, do you want to highlight anything in particular that you think needs more attention, more emphasis, stronger statements, weaker statements, or any problem areas?

MR. FARREN: Well, I thought it was very well done. I had two thoughts on it. One, I think it would be helpful to have more of an emphasis, even though it's reflected in the paper, of the benefits that e-commerce could bring to consumers. I think understandably, since the issue was how to deal with problems of competition arising from e-commerce, there was more of a negative tone of how to police problems rather than sort of starting out -- and it's referenced, I mean, it's discussed that consumers will significantly benefit, that there will be greater access by producers and markets, that there will be better understanding of consumers on prices and alternatives. But I think that could perhaps be emphasized more specifically.

The other, I guess two just quick points: One, the paper indicates that enough is not yet known to warrant specific legislation or regulation, and that in fact specific

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countries attempting to regulate aspects of e-commerce could in fact be against consumer interest and a market inhibitor. That's referenced certainly.

But I think it may also be helpful to go to the question, which is currently the view of the U.S. private sector, that at this point government should be conclusively showing forbearance on regulation. And that's stated, but I know some of my colleagues in the information technology industry in reading this probably would conclude that it's not stated conclusively enough. So I think that would be helpful.

In fact, that's not just a U.S. view. In the Global Business Dialogue in Paris in September, representatives of European, Japanese, other countries, private sector, all took that position collectively. So it's not unique to U.S. business. So I think that would be helpful to state.

MR. RILL: Is there a formal statement that was issued by the forum?

MR. FARREN: Yes.

DR. STERN: Maybe we'll cite it. MR. RILL: Can you make that available?

We'll cite it. In fact, Mike, if you circle language or provide language it would be really helpful. I'm mindful of how much we've got to do in the other chapters.

MR. FARREN: The other thing which is somewhat related, I think the paper does a good job of citing ancillary issues like privacy that will come up in a competition setting, particularly given the role, for example, of the U.S. Federal Trade Commission on the issue of consumer interest in privacy.

Given the fact that it appears there will be an EU-U.S. agreement on safe

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harbor, it may be important to try to capture some of that and reference the approach that is being used on the issue of safe harbor guidelines, meaning, and I'll mention that in a second, I think it may relate to some of the other things that could be addressed more broadly on competition.

But if you reference the fact that one way that disparate regulatory regimes or approaches is being handled between the EU and the U.S. is for the U.S. and the EU to in fact agree that if certain private approaches to regulation or the policing by producers or service providers in the U.S. meets a certain standard, then in fact it does create a safe harbor so that the EU regulation will not create an impediment to U.S. companies operating freely in a trans-Atlantic marketplace.

I think referencing safe harbor and trying to capture what finally does come out of that agreement will be helpful, because I think the approach to privacy and the creation of a safe harbor agreement which relies on self-regulation on the U.S. side or a unique U.S. approach to regulation on issues associated with competition may be a good way of approaching some of the other areas of disparate regulatory approaches.

I just mention that. It's not obviously yet concluded, but it may be a very interesting approach that could be handled elsewhere. Professor Dunlop might have some thoughts on that because it almost goes to a self-regulatory arbitration approach outside of specific judicial or international agreement. And again, it's not yet concluded, but I think going back and looking at the approach of safe harbor and having it referenced would be a good idea.

DR. STERN: It's going to be a U.S.-EU agreement on safe harbor?

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MR. FARREN: On privacy.

DR. STERN: On privacy in the Internet?

MR. FARREN: Correct.

DR. STERN: What's the timetable?

MR. RILL: Same question.

DR. STERN: What's the timetable?

MR. FARREN: Well, of late -- it's being negotiated by Ambassador Aaron and John Mogg, and by all reports they're very close to coming out with --

DR. STERN: What are the consumer groups going to say about that, that you have some sort of a special carve-out safe harbor on privacy and you have this mediation?

MR. FARREN: Remember, the dispute on privacy is whether or not the EU is prepared to accept that the U.S. approach to protecting consumer private interests raises to the same level of safeguards or protection as the EU directive does.

The issue of safe harbor basically says the EU recognizes that BBBOnline and other approaches of self-regulation and certification does in fact at least at the outset look as though it does in fact achieve the same level of protection or at least they're prepared to accept that as a going-in position. So if a company, Company X, were to adopt the U.S. approach of self-regulation -- here is how we intend to protect consumer privacy; we're going to announce it, make consumers aware of it; we'll sign up to certain principles; we'll be subject to audit by those private sector entities, we'll be subject potentially to disbarment from that certification if we don't achieve it -- then the EU is prepared to say those U.S. companies that meet those obligations and in fact sign on to those private regimes will be

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judged to meet the same level of protections required under the directive and able to operate freely between the U.S. and the EU market. That's my understanding of this.

DR. STERN: Very clear.

MS. FOX: I'm wondering what would be an antitrust problem for which that would be a safe harbor? I'm having a little hard time seeing the antitrust problem unless it's a standards antitrust problem, but I don't see that it would be an antitrust problem.

The reason I'm raising that is I think that maybe there is some areas we shouldn't wander into so specifically when there are many other areas of, say, self-regulation of insurance companies, or self-regulation of sweatshops. And then I come to the question: Why e-commerce as opposed to everything else?

MR. GILMARTIN: One thought just listening to this, what Michael is saying, is is there a larger principle here or process that's in play that we could point to as a way of dealing in a general way? You alluded to that at the outset, in terms of how to deal with these kinds of situations where regulatory practices, you know, carried too far would end up as anticompetitive behavior, and how do you work that out.

So if there's something in this process here about who talked to whom, how did it get started, and then what does that suggest as a model generally.

MR. FARREN: It's another approach to comity.

MR. GILMARTIN: Yes, exactly.

MR. FARREN: I'm just saying, it would be important, I think, to reference the approach to safe harbor. And again, Eleanor's point may be correct. You may not want to take it too far, to draw any conclusions from it. But I think having the process that's being

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used on the privacy question may in fact be useful later on when other issues arise.

DR. STERN: I actually have a very basic question here, which perhaps Professor Dunlop will have to give me a tutorial on. The whole use of mediation by private companies in disputes in an international context versus our paper which talks about government authorities and how they relate and when they come into play, with regard to anticompetitive issues at least, is there a general statement that we want to make or a general reference putting this thing in perspective, that there are models of arbitration or mediation, international examples that Mike has just talked about in this emerging area of privacy, but which is already ongoing in the world already, which we just haven't even referenced even in a footnote?

MR. DUNLOP: If I'm not mistaken, a former Stanford Professor who is now head of the Negotiation Project at Harvard Law School came to fame -- his name is Robert Mnookin -- came to fame by mediating out the suits between IBM and Toshiba that settled as a result of his involvement. That sort of thing goes on often.

DR. STERN: I think we should talk about that, don't you, Professor Dunlop? At least put it in perspective, or put what we're saying in perspective?

MR. DUNLOP: Well, I was willing to settle for adding to the WTO this, mediation as an alternative to litigation. But by the way, I think, Mike, that I'd like to see on this, because as you and I know this thing is so much under change and so rapid, the same point that I made before: that this is an area in which some kind of ongoing forum to study or to follow it.

This idea of one-shot action on these things where the world is changing rapidly

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is nuts. What we need is to position our institutions to be following and studying and reporting. At some point you may have a breathing space or a plateau to do something on, but it seems to me that is --

DR. STERN: Evergreen.

MR. DUNLOP: -- underlies the points you were making.

DR. STERN: Yes, we'll have to constantly be reinventing and adding on.

MR. DUNLOP: Instead of doing a one-shot study like this commission or Committee.

DR. STERN: Yes, right.

MS. JANOW: I just put a little bit of a framework of this discussion. I mean, an e-commerce subgroup was formed because there was perception that there were areas of dynamic change in the economy, exemplified but not defined by e-commerce, that warranted attention and require us to at least ask: are there competition questions that are arising here that require new approaches?

And surely e-commerce by definition is global. So we have a discussion of this issue that is framed around e-commerce, but I think the intention of our discussions was not to have it defined and to ask the bigger questions and then -- and not be too conclusory about what were the right policy approaches or even define the problems that these developments might create of a competition policy nature.

And so this is how it's framed, as traditional antitrust problems that might rise, network problems, and sort of hidden mercantilism. And one of our members who's not here today asked that we consider whether the Committee wanted to be more (or less)

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conclusory with respect to the options that one might identify or recommend with respect to emerging problems.

I think, Mike, you've just suggested in some sense an answer to that, suggesting that at least there be consideration that the hands-off forbearance option not just be identified as one of six or seven, but get particular attention. But there are other options such as more international discourse, development of guidelines without legislation, and ongoing international consultations, which could occur at the world competition forum, John, as you were suggesting.

So I just thought it might be worth us taking a moment to be of a mind as to how these issues should be framed in the report and how far does the report want to go with respect to any recommendations.

DR. STERN: Ray, do you want to address this, because I think it relates to your earlier comments.

MR. GILMARTIN: Well, I'm just thinking about, well, not so much e-commerce for us, but just thinking about using e-commerce and maybe some other examples as what kind of processes or mechanisms have to be set up to deal with the potential anticompetitive behavior or hybrid behavior that could lead to limited competition, and are the ideas that we're coming up with robust enough to deal with e-commerce.

I'm just thinking here about -- and we're not in this -- genetically modified organisms, what does that raise in terms of different set of concerns by people, and what is the potential of regulation and hybrid action that really may be aimed at a totally different objective than simply worrying about what GMO's actually do to the world.

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So, you know, that's another innovation and so on, this technology that's introduced, that raises all these same kinds of issues. There's privacy in this case, it's something else, and how do you deal with that? And it is a global issue as well.

MS. FOX: I also think that this should be brought in exemplary if it fits. And I want to say a word about Michael's model and then I also want to say a word about your colloquy, Paula, with John on mediation.

What I heard your model as was mutual recognition. It was a way of mutual recognition where the countries involved would have trust in one another, and it should fit under that because mutual recognition of regulation is one way to avoid talk of a higher level of regulation. I think it's an interesting model under mutual recognition, but only if -- this is why I asked about the antitrust problems -- only if you're not already accelerating the anticompetitive behavior that you're allowing.

That's why I think it's very important to know what is the antitrust problem that the standard is allowing. But I think it's very important to talk about mutual recognition when we talk about accelerating regulation in the world.

DR. STERN: Before you go on to your next two points, we talk in here somewhere about the standard-setting process which can be anticompetitive. As you remember, we had testimony on this, and the genetically modified organisms and other technologically driven innovations are all related here. It's helpful that you call it the mutual recognition and relate it to standard setting.

I am really wondering if we are doing ourselves a disservice by having this as a separate paper, if you will, the e-commerce thing, because I really feel that presentationally

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we're talking about how to make government authorities capable of dealing with anticompetitive activities in a fast-developed emerging global economy. So this chapter that we haven't quite yet seen may solve all of our problems that Ray talked about, which sometimes get touched on here, but I just -- and which the seamlessness topic that you talked about earlier.

I just feel that we need that stage-setter so very much, and it will be an important thing that we'll all need to look at when it gets sent to us.

MS. FOX: Yes, the integrative aspect? One thing we might want to surface is which side do you want to make the error on? When you have something so new and dynamic like e-commerce and all sorts of new innovation, do we want to come out and say you should be liberal on the side of letting it through? You should not make the error on holding it back?

Maybe you don't agree?

MR. RILL: I don't know that it goes that far, though, that we're saying that we should be liberalizing or overly permissive. I think what the draft is saying -- I think what the draft is saying is that one doesn't want to be overly restrictive and one needs to be cautious in this dynamic situation, not only to be overly restrictive but also to avoid anticompetitive use of regulation --

DR. STERN: That's the hidden mercantilism.

MR. RILL: -- as a trade barrier.

MS. FOX: That's right. Oh, yes, I'm not denying that.

MR. RILL: And therefore I think -- I don't know. I'm not sure what Paula is

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suggesting, but I think we ought to think this. I'm not exactly sure where it goes, but I think we ought to keep this as illustrative of several points: antitrust can deal with a dynamic economy, we need to be wary of overregulation, and we need to be wary of the use of regulation as a trade barrier, as mercantilism.

And e-commerce is such a dynamic example of it that I think it can stand in there in an appropriate place.

MS. FOX: This is what I was saying. I think Michael's point is how to minimize the government intervention against it, which is really compatible with you let it work its way, you don't hold it back. If there's going to be government regulation, you try to get it as low level as possible.

MR. GILMARTIN: Yes, but let me just give you an example on the other side that people maybe feel uncomfortable with in terms of calling it liberalization, is that the -- what kind of clinical studies does one require in every country to approve a drug? You'd like mutual recognition, you'd like harmonization worldwide of that.

It's not something that people are going to say, we want to automatically let the technology flow. You want to be liberal about it. So what is the mechanism by which you can talk about these things and resolve these differences and so harmonize, say, between Japan, the European Union and the U.S., for example, on this?

MR. DUNLOP: I think I do very much agree with Jim that this should stand as a separate volume, partly because people are asking about it, but also because it stands as an illustration of the technological development which is happening in many fields.

You talk about the limitations of standard-setting as an inhibiting thing. Your

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idea of mutual recognition is another way of doing it at this stage; maybe at a later stage, go back to some comment. But I would think you could tack it onto four as it is now, but I do think that it has merit on its own.

MS. FOX: I was a little more skeptical of that and I was more on the other side, thinking --

DR. STERN: Me, too.

MS. FOX: -- that we don't want a Christmas tree with lots of things hung on it. And its importance is as important as other new technologies. I mean, this is one very dynamic technology. It's important as technology, unleashing technology.

MR. GILMARTIN: Right. And you know, there are some speakers that you see at various places that are already talking about that the information technology revolution be supplanted by the biosciences revolution. So the whole set of issues that we're talking about around e-commerce, ten years from now we won't be talking about that any more. We'll be talking about issues that relate to the bioscience revolution and what's the appropriate level of regulation, how do you provide safety, how do you stimulate the growth of this exciting new field and things like that.

So we've got to be able to be general enough to embrace that as well as the e-commerce activity, which I think is what you're suggesting.

MR. DUNLOP: Yes.

DR. STERN: I agree with you. And Merit, I don't know what you're going to do. And I think Mike and Rick will be important in terms of how expansive.

MR. GILMARTIN: It might be a great case study. You know, it's sort of an

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exploded example of multiple things that are going to occur.

MR. RILL: An example of multiple aspects.

DR. STERN: I think it would be better that way.

MR. RILL: Well, I think it serves that purpose almost as written. The only question is where to put it and the predicate to put on it.

DR. STERN: Yes, exactly.

MS. JANOW: Here's a thought. I don't know if it's a good one. But if this chapter, "Preparing for the Future," is really things that require action internationally, then perhaps the world competition forum concept is really better housed in that framework as a global problem, and that chapter three is more of a market access discussion and among that also are these new challenges, and then things that are also fundamentally domestic adjustments, and that goes to the role of DOJ in foreign policy as well as the sectoral overlap question in mergers.

DR. STERN: Sounds good to me, Merit.

MS. JANOW: Just a thought.

MR. RILL: That's fine.

DR. STERN: Yes, it sounds good to me.

MS. FOX: Could I have a word on mediation.

DR. STERN: Yes. I interrupted you so we could get on to that. But now let's go back to that.

MS. FOX: This is a skeptical note on mediation. Here is where I want to refer to what used to be our law until recently. It used to be the case that arbitrators could not

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arbitrate antitrust issues, on the theory that antitrust issues are about public policy and the parties are going to make a settlement that's good for them and not good for the general public or welfare.

Now, there was an exception made in a case about eight years ago now which said, at least in international disputes, we're going to allow mediation. In my view the reason was because people were seeing a lot of cases that were really private case, they were usually contract disputes with a distributor who was terminated, and it wasn't a real antitrust case.

So the Supreme Court when it made this decision, it doesn't want to hold up the parties from resolving what was really a private case. But I want to make a distinction between some cases that are really public and private. If you had an auto parts supplier trying to sell their auto parts into Japan to an automobile company and the automobile company says, okay, you end your action and I'll buy X hundred dollars from you or X thousand dollars from you a year, that's a private settlement that's not in the public interest if there is a market barrier problem and a real global problem.

If you take the steel cartel problems, if they ever surface into the courts, they're real public problems. So do we really want arbitrator-mediators dealing with those problems in accordance with what injured parties will accept or do we prefer to have some framework for rule of law litigation?

MR. RILL: Eleanor, I haven't seen any suggestion that there be arbitration.

MS. FOX: Mediation. Sorry, mediation I meant to say.

MR. RILL: Mediation, nonbinding, policy-related. I have seen nothing on the

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table that suggests arbitration that results in this kind of settlement that you're talking about. If it were, I would oppose it, too.

MS. FOX: But I meant to say one further thing, which is that I see mediation as cutting the baby, trying to bring the parties to a point where they both think it's great, like your automobile parts supplier -- I think it's great to get X amount of business into Japan -- and then you have maybe what turns out to be the same as a private interest settlement.

MR. RILL: What I guess is -- and you raise a point here that's something that I believe I focused on when I was thinking about this proposal that was put on the table. There is some drawing here on the OECD recommendations that gets into that area. And the issue there really is a government to government mediation that the governments may well bring into play, experts to look at your point, is the law implemented, what is the law?

It could also be used in a private dispute, I suppose. But I think it is a way of at least clarifying and adding some transparency and some thoughtfulness to the resolution without any binding, let's cut the deal and to hell with the consumer, type of arbitration. That just isn't contemplated, I think, by the report or the chapter.

MR. DUNLOP: I did mean mediation. Now, I do want to -- take an international area, the ILO. There you have a committee of experts which has authority to impose a solution on a country. Now, the ILO's new Director General is very much more in favor of mediation, of trying to work out problems, as I think I am.

But your principle has gone up in smoke in the United States because we are now arbitrating law. The Gilmer decision of the Supreme Court of '91, I am authorized to handle a dispute over whether somebody was sexually harassed by a company, a company

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and employees. I arbitrate those cases. I can arbitrate those cases.

Now, somebody can take my decision if it violate public policy to a court, but my commission report of '93-'96 was instrumental in pushing the arbitration of employment law in the United States. That is a growing development, an enormous development.

So I would not myself rule it out, although my proposal was solely with respect to mediation.

DR. STERN: But is there more that we should be saying in this report about what is happening in the world with regard to mediation on anticompetitive issues?

MR. DUNLOP: I don't know that, and therefore I have nothing more to say than that the process of the WTO and other efforts to resolve these matters might consider appropriate mediation efforts, which can be more timely or shorter, which have many other advantages, as they do in our own national picture.

But there has been an enormous advance in arbitration in public law in this country.

DR. STERN: Well, I would like to be able to say that at a minimum, and I don't know any more about what is going on in the rest of the world. You know, it may be a topic that we can't research at this late date and I should have surfaced it two years ago. But to the extent that some reference and light can be shed on it, I think it would be useful.

And by the way, I was -- this paper came to my attention -- I was at a conference a couple weeks ago -- by this Marico Zampeti. It's on "Settling Competition-Related Disputes: The Arbitration Alternative in the WTO Framework," and it's on market access stuff. I sent it to the staff as soon as I got it. Last week or so I e-mailed it over.

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MS. JANOW: We'll find it.

MR. RILL: Sounds like required reading.

MS. JANOW: Sounds terrific.

MR. RILL: Questions will be asked.

MS. JANOW: I don't know if we have Dick and Zoe on the line, but before we close out this e-commerce I just want to make sure we have an opportunity to get their views, if they are on the line.

MR. SIMMONS: This is Dick Simmons. I'm still on the line. I did want to make a comment on e-commerce.

DR. STERN: Please, sir.

MR. SIMMONS: I think that e-commerce offers the best hope yet of breaking down some of the market access limitations that I have seen in my career, some of which we've talked about this morning, since private market access limitations have to have a formula for success. There has to be a distribution agreement that prevents, for example, the Japanese companies from importing, say, American steel or European steel or whatever. E-commerce offers the way of getting around that distribution cartel.

I have never been more optimistic about the fact that markets that have been closed to my company and industry over a very long period of time will as a result of e-commerce offer a great opportunity to be able to bypass the limitations that have prevented us access in the past. I think this is the greatest opportunity to gain access to many countries in the world.

The second point I would make is that I really think it's too soon for anyone to

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try and determine what the problems will be. We're too new into this on a global basis and it's going to take at least a couple of more years, in my opinion, before we are in a position to at least identify what the global problems are. Are countries behaving in a fashion that would limit e-commerce access to their nations, causing them to do some of the things that are outlined in the e-commerce eight-page paper?

Until we understand what those restraints will be, it may be unwise of us to try and predetermine what kind of policies we should develop in that area. Those would be the two points I'd make.

MS. BAIRD: This is Zoe, if I could jump in on this one. I was very comfortable with what's said in the paper. I will say that, contrary to my wise colleague who just commented before, I wouldn't want to suggest that we think we can take a wait and see attitude. I think that you're absolutely right that we won't know how all this develops and how other countries act, but my own view is that a huge amount of the market structure and concentration that will take place will take place in the next three years, and that it's important that there be an active process in thinking about the issues.

I mean, I thought your paper did a very good job in where you came out. I think it's really important that there be an active process of defining these rules and being attentive to how it will all shake out. But you know, we will see a radical adjustment in the use of, for example, the Internet. Where 70 percent of the users today are American, by 2005 70 percent will be non-American.

But I think that the ownership -- it's just like the Europeans have given up on thinking that they're going to touch hardware, that it's going to be American hardware and

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they have just accepted that fact. I think that a lot of the major market concentration issues are going to be decided very quickly here.

DR. STERN: With reference to Dick's first theme, in his optimism of the importance of the Internet and e-commerce in breaking down barriers, what in effect he's I think saying is that the market will be more perfect, there will be less imperfections because there will be more knowledge by more actors, just like you get Ebay and everything else now. You can auction off just about anything because anyone can be part of that open auction.

So where the threat comes is through the introduction of imperfections back into the marketplace, often by regulators, government regulators, in the name of a lot of other competing, sometimes legitimate and sometimes not legitimate, goals.

We have written the paper very much without that kind of economic terminology and reference, but it may be useful to also reference market perfections and market imperfections, in a footnote if nothing else.

MS. JANOW: I think that's right, Paula, because one kind of market imperfection I think is the fact that, while you have markets being created -- you've mentioned steel as one example -- you know, it's also true that in other countries they have their auctions, they have their own software, their own auction in their own language. So they're not necessarily tapping in -- the users who might be the beneficiaries are in a closed system created for that country.

So the competition that may be created in the United States in a market doesn't, I think, automatically create a global market for that auction.

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DR. STERN: You're talking about like China; there are only certain people who are authorized.

MS. JANOW: Or even in Japan, it's a Japanese language utility that's used.

DR. STERN: I see. That's very interesting.

MS. FOX: I just wanted to say, to supplement your remark, Paula, that I think Zoe was saying watch out for the private as well as public constraints.

DR. STERN: Yes, okay. Another form of imperfection.

MS. FOX: That's right.

MR. RILL: That's what I was hearing.

DR. STERN: Further comments?

(No response.)

DR. STERN: Well that's great. It's actually 12:30. We're expecting Joel momentarily, I believe. Is this a good time to break, I think, for lunch and then we take up with you chairing, Jim, our discussion on mergers, is that right? Oh, enforcement first.

(Whereupon, at 12:30 p.m., the meeting was recessed, to reconvene the same day.)

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(12:57 p.m.)

DR. STERN: Joel, thank you so much for giving us this responsibility, and thank you so much for selecting Merit as Executive Director.

We have had a fabulous morning, thanks to really good substantive work represented in this staff here, and we just wanted to get your input.

REMARKS OF HON. JOEL I. KLEIN,
ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION,
DEPARTMENT OF JUSTICE

MR. KLEIN: Thank you. First of all, I would like the minutes to reflect what Paula just said, because when history is written there'll be a big fight at this point as to who it was precisely selected Merit.

(Laughter.)

I'm glad, at least for the time being, you're prepared to acknowledge that.

MS. BAIRD: Joel, I also wanted to warn you that someone is on the phone.

MR. KLEIN: Hi, Zoe.

MS. BAIRD: You're not being taped.

MR. KLEIN: Okay. Well, there'll be no fight. Everybody claims that they're responsible for your involvement.

A couple of just quick things. I have not, I told Merit, I haven't worked through all of the latest materials, but I did spend some time last night reading in them, if you will, and they really are terrific. I mean, you ought to be enormously proud of the scope, the depth,

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the sophistication.

I think, while there are some points that will be controversial certainly with the Division and with the Federal Trade Commission, I think it is clear that you will make a monumental contribution. I have no doubt about that. So in that sense it's very gratifying.

We will, of course, sort of read through carefully and continue to assess the specifics. But it's a very serious and major and I think historical contribution. In that regard, obviously the people at the table deserve a lot of thanks, but I want to personally thank the staff. You guys have done just a terrific, terrific job.

Second, I just want to say a couple of things, because these are extraordinary times. Our timing for the delivery of this project could not have been better. What's going on in global antitrust enforcement now is just unbelievable in terms of both the sense that there is a stronger and greater commitment to the endeavor; the old issues of territoriality and sort of overly aggressive this or not aggressive enough that seems to be moving away, in my view, toward an increasingly strong consensus about both the importance of antitrust enforcement in the twenty-first century and the need to solve the kinds of problems that this Committee will be addressing.

Just to mention a couple or three highlights: First of all, there's no question there's a sea change in global perception as a result of the series of efforts that the Division launched culminating in the Hoffman-LaRoche and BASF guilty pleas, coupled with the ADM prison terms. Throughout the world, this thing has changed now.

The number of people we are meeting with globally to follow up on cartel enforcement is extraordinary. The resources, you can see a perceptible shift, not just in the

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EU but in Member States, in Asia. Yesterday there were two in Japan that came in in this regard.

And every day -- when I leave here, I've got a series of meetings on cooperation with X country this afternoon on international cartel matters. And it's just truly extraordinary. It's truly extraordinary.

The second thing that is much, much more modest in impact, but important, is the maturation of the EU-U.S. relationships on merger review. I think you saw at our last bilateral we really moved beyond process issues to start to move toward one of your recommendations on substantive convergence. We're actually going to have our first working committee to deal with fundamental issues, the tough issues in merger review, not when we go two to one.

You know, as I always use in my speeches, people can argue about Boeing and McDonnell Douglas Aircraft; nobody would seriously argue about a merger between Boeing and Airbus in terms of its anticompetitive impact. But there are a series of very tough substantive issues that we are going to start to meet about, not the least of which is what is the threshold for suit, how likely or how certain a predicted effect needs to be.

Issues of potential competition have become very important in a deregulatory environment, the kind of issues we looked at in Bell Atlantic-Nynex, that we're looking at in current merger cases involving where you have people who are breaking out of prior regulatory structures. It's going to happen in electricity. It's happening in Europe. Issues of innovation markets, R&D markets, in industries characterized by paradigm shifts, such as a lot of the technology industries are, and the whole set of issues at the intersection of the

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following two propositions, neither of which are there self-evident answers to, and so we have footnotes in our guidelines on them in order to say we don't know the answer.

The first is how you really balance efficiencies versus anticompetitive effects, and how you take those into account; how you deal with efficiencies in one market versus effects in another market; and lastly, how you deal with real efficiencies that are, because of market structure or other factors, unlikely to be passed on to consumers, that are likely to end up in shareholder benefit or perhaps increased R&D which may ultimately inure to the benefit of consumers.

So I think that's a significant step forward and I'm delighted that the EU has pushed ahead in that effort. Beyond that, again, I think the day-to-day working relationship on multijurisdictional merger review is terrific.

The third area continues to remain a complicated one, and we have the WTO coming up on the trade and competition issue.

For our part, I think it was a very modest but significant first step that we are about and will, I think, have a successful denouement on our first positive comity referral. I think Jim in his private capacity, as well as a leader who floated this idea, deserves a lot of credit for the concept and for its implementation.

We have made clear to Japan that if there are appropriate antitrust-grounded positive comity cases, we are ready to triage, screen them, and make referrals to the Japanese under our recently signed antitrust agreement. So this is an idea that is beginning slowly to take hold. We've said the same things, obviously, to the Brazilians and the Israelis, in our recent agreements. And, while it is by no means a complete solution, it's nice to see

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the small steps begin to take root.

As for the WTO, I will give you the latest news, and I will give it to you only because it's thoroughly unhelpful. If indeed it were significant --

MR. RILL: Why should it be any different than your other news.

(Laughter.)

MR. KLEIN: If indeed it were significant, I would be far more reluctant to share it. Not with the folks out there. I'd be glad to tell them, but with the people at this table I'd be much, much, much more reluctant.

DR. STERN: That's transparency gone too far.

(Laughter.)

MR. KLEIN: As we sit here right now ten days out, we have an event obviously coming up which will begin to focus everybody's view. But we've got the President and Romano Prodi meeting soon, and that will foreshadow some of what's expected in this round.

It is going to be a very interesting round. You all followed, as I did, the China accession, which I think was really a true tribute to Charlene Barshefsky's talents, skills, and perseverance. I really believe in some ways it was an enormous personal triumph for her.

Having said all of that, there are a lot of contentious issues in the mix. Among the -- not among the most contentious is competition policy. That's not to say it's not contentious. It's just not as contentious as a lot of the other issues.

At this point, the EU still supports and believes they have to have negotiations, modest to be sure, but negotiations. The U.S. position is that negotiations are unacceptable,

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but that we would like to have a rigorous, more expanded, working group moving toward, if you will, less academic, more hands-on kinds of efforts. So that is the current posture of both parties and, as I say, that hasn't changed and I suspect won't change until the final days of negotiations. We will obviously be privy to that, but it will be very fast-moving.

So that is in a very quick thumbnail. But I just have to say, it's just to me -- I'm a person who sort of believes that you can actually feel movement in history. What's going on in global antitrust right now -- I just delivered a satellite speech in Israel the other day to 300 people at a conference that was as exciting and as interesting in a tiny country like that. This year's Fordham felt different to me from past years' Fordham. Next week, the week after next, there's a big conference in Korea on international antitrust enforcement.

So I think when you guys are ready to launch, it is going to be -- truly, the timing couldn't be better and its significance is going to be overarching.

So I can answer any questions, but not predict.

MR. RILL: Joel, on the merger -- not necessarily related, and certainly not related entirely and perhaps not even predominantly, to the international scene -- there has been some legislation proposed on the Hart-Scott-Rodino. I don't know whether you want to comment on that at this point, the Hatch proposal.

MR. KLEIN: Yes, it's out there. There are two parts to it. There is the basic set of amendments on thresholds and fees. And again, it's a complicated issue, but we would be willing to and certainly could live with and be willing to support --

MR. RILL: They're revenue neutral.

MR. KLEIN: -- revenue neutral fee adjustments. I don't think that's a serious

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problem.

I think the second piece to that legislation is just a bad idea. I think of all the things -- the notion that we would have some access to the courts during merger review processes -- I think, frankly, either it wouldn't be invoked very much, because people don't want to protract the process. But second, I don't know how a judge is likely to figure out, when you're not doing the case, what the likely benefit of production would be versus the burden.

To be truthful, as one who does a lot of this, a lot of times I can't figure it out and I know a lot about the underlying case. I mean, to some degree it is in the nature of discovery that you are making some very loose predictive judgments.

And I also don't think -- I think it'll be gamed by people who have -- for example, if it is in your tactical interest to draw the process out, which it may be. I mean, there may be things, you know, you can imagine when you have two or three different companies pursuing the same company, there may be time issues that actually enable you to make tactical use of it.

So none of it seems to me to be very salutary. Having said that, I'm totally nondefensive about the fact that there are times, I'm sure, when the breadth of our second request is greater than it should be. I don't think that's a major piece, but I think it happens. And I don't think it's an abuse in the sense that it's malevolent. I think people are cautious, they want to cover the waterfront, and I would like to find ways inside the Division to triage cases more effectively.

But this seems to me to be really disproportionate and very misguided.

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MR. RILL: I wonder how much it really would be used.

MR. KLEIN: If it wouldn't be used, it wouldn't be so bad. But that's hardly an argument for legislation. But I think that's right. I'm not sure it would be used. But that's -- I mean, that's not a good argument to legislate, which is nobody would use it.

And the resource implications for us -- if we've got to have a lot of people in court fighting about discovery requests -- would be just dreadful, just dreadful. So anyhow. But you know, they've got a lot of strong support, industry support, for it, which I'm sorry about. But there is, so I don't know what will happen. It's obviously -- I think it's unlikely to pass this week, is my impression; that all the doing has been done already and this piece hasn't been done. So I don't think it'll get thrown into the budget process.

DR. STERN: Joel, one of the things that we talked a lot about this morning is this notion of a World Competition Forum which would deal with a lot of the issues which I guess folks would like to think, some folks would like to think the WTO could deal with. My personal feeling is, of course, that the WTO, and particularly the dispute settlement mechanism, is overwhelmed with so many other problems, and that those who would like to see negotiations at the WTO on competition policy may be well-meaning, but may be misguided; and that there is a lot more practical approach that can come out of a virtual forum like World Competition Forum, and a lot more practical results can come out of the exercise of positive comity in those cases where you do have bilateral agreements on positive comity.

My personal concern is that the headlines' take, that the U.S. and the EU are disagreeing on whether competition policy should be negotiated, makes the U.S. look like

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we're just obdurate and that we don't have other outlets to deal with these problems, such as positive comity when it comes to market access or such as the soft convergence when it comes to the merger cooperation and cartel enforcement that you are telling us about; and more emphasis, rhetorical emphasis, on some other options other than the WTO negotiations on competition policy might at least put the U.S. government in a better rhetorical public relations light.

That's not a question, but it's an expression of concern that I have.

MR. KLEIN: Well, it provokes a response. So let me say, first of all, I think there are two parts to what you said. The first part I agree with and I think it's very unfortunate. I need to think through how to deal with it. That is, somebody said to me the other day: Well, you're supposedly a visionary --

DR. STERN: Right.

MR. KLEIN: So how could you be on this side of this issue? Now you look like you're intransigent, obdurate, etcetera.

DR. STERN: Right.

MR. KLEIN: I yield to no one in my commitment to being a visionary.

(Laughter.)

MR. KLEIN: What I find the most baffling about this process is I cannot get my friends, the people with whom we work and have the best professional relationship, I cannot get them to explain to me what it is they want. That is, I don't know. I can understand a model that said we should be able to bring cases, say if country X rebuffed a claim, a market access claim, we should be able to bring them to review for dispute

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resolution before the WTO. I can understand that model. Nobody wants to go anywhere near there.

I guess I could understand a model, but I don't think you need negotiation to say, and I don't know that it's a good idea or bad idea, that everybody should have an antitrust law. But I don't know yet -- what I find baffling is what is the vision that animates those who want to start this process, other than -- and Sir Leon I found astonishing, said: Well, let's start it and see what comes of it. And I sort of said that I had learned when we do things, you don't start it and see what comes of it; you have a vision of where it's going to come out.

So I agree with you, Paula. I think the perceptions are not good and I'm not happy about them. But I don't quite know how to change those perceptions, given that there's nobody that's a proponent of this that has a view of, either in a stepwise basis or not, of where they want to go.

Now, the second point you make is a more complex point and that is, I wouldn't want for political reasons people to think that somehow we were going to abandon the WTO as a forum legitimate to competition policy. I have concerns about a trade-based forum and how it becomes a trade and competition-based forum. But I think if we were to strike out with a separate world competition organization or authority or something like that, that could be a perception of -- it could be viewed hostilely.

Second, I think from our point of view and other countries' point of view is the question of how much money would you be prepared to invest in such an activity. If you're going to get it off the ground, it has to be well funded. My own experience has been, with all

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the pressures we have with funding multinational and international organizations and the general political disfavor, it would be a hard time to a significant new undertaking.

So my own current view is that a serious project at the WTO that moves in the direction of peer review and that tries to recapitulate the kind of efforts we have successfully achieved at the OECD, that would take them from a 30-country to a 150-country basis, would really be significant. And that seems to me to be easy in a five to ten-year agenda.

Out of that, one could develop principles on multijurisdictional cooperation, principles on sort of the basic dimensions of the enforcement effort, principles on state aid, those kinds of things. But all of th