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

      This chapter reviews the landscape of global problems that implicate both international trade concerns about access to markets and competition policy concerns about anticompetitive practices that inhibit the operation of markets. Not all international competition problems are relevant to trade problems, however. As discussed in Chapters 2 and 3, the proliferation of merger control regimes is raising transaction costs and introducing new frictions. As discussed in Chapter 4, international cartels appear to be a serious problem for the United States and the global economy. These matters are global competition problems but they are not trade and competition policy issues. There is an important global competition agenda that needs greater attention by policymakers at home and abroad and also requires some new policy initiatives (see Chapter 6).

      This chapter considers a variety of acts of governments and firms that can restrict both international trade and international competition. Anticompetitive private arrangements can also have adverse effects on international trade and access to markets, while formal governmental actions around the world immunize some firm conduct that is excessively trade-restricting and anticompetitive. Governments may also take measures that are excessively trade restricting and anticompetitive, and in some instances private arrangements occur against a backdrop of supportive governmental restraints. The latter are neither purely private restraints nor purely governmental practices, but a mix of both.

      Trade and competition policies are designed to address these economic distortions from different sources. Trade policy is centrally focused on the actions of governments. Competition or antitrust laws are principally focused on firm conduct.⁽¹⁾ As this chapter discusses, aspects of these tools can be mutually supportive. At the same time, overlapping policy concerns lead to different conclusions regarding the effects of a particular restraint. For example, U.S. antitrust law might find a vertical distribution practice efficiency-enhancing and beneficial to consumers, while a trade policy perspective might find the same practice exclusionary and adversely affecting access to markets.

      Neither trade nor antitrust policy tools provide complete solutions to the problems that emanate from this mix of governmental and private restraints. Extraterritorial enforcement of national antitrust laws appears to have had little effect in removing restraints and opening access to markets. Rules promulgated by the World Trade Organization (WTO) are currently unavailable for private restraints, and U.S. trade rules, such as Section 301 of the 1974 Trade Act, as amended, offer only limited application to governmental practices that tolerate anticompetitive private restraints.⁽²⁾ At present, no international set of rules directly addresses business practices, although some observers are of the view that such disciplines should be developed at the international level.

      Through its outreach efforts and public hearings, the Advisory Committee solicited input from various enforcement officials, business groups, economists, organized labor, and other interested parties as to potential policy options for addressing foreign-based harms. The Advisory Committee is of the view that seeking full-scale convergence of antitrust laws is neither feasible nor desirable at this time. Hence, it considered the utility of positive comity, extraterritorial enforcement, and multilateral initiatives.

      The Advisory Committee believes that no single one of these approaches is capable of addressing all aspects of competition problems facing the United States and the global economy. Several different approaches may be promising. Bilateral agreements with positive comity offer a potentially useful instrument for addressing private restraints. The potential or actual use of extraterritorial enforcement of U.S. antitrust laws may be necessary and effective in some circumstances. And further development of international competition policy initiatives is, in the Advisory Committee's view, important for the global economy.

      This chapter considers and evaluates the utility of both old and new approaches to such problems. It starts by defining the scope of trade and competition problems, reviews cases that have animated international attention, and considers alternative policy approaches, including bilateral cooperative solutions, extraterritorial enforcement responses, and expanded international initiatives, at the WTO and elsewhere.

The Advisory Committee's Definition of Relevant Practices

      In thinking about the interface of trade and competition issues, the Advisory Committee believes that U.S. policy needs to take a broader focus than purely private business practices alone. Indeed, governmental practices as well as practices undertaken by firms with the blessing, encouragement or toleration of governments can also have anticompetitive and exclusionary effects. This section provides a non-exhaustive description of a range of practices that the Advisory Committee believes policymakers should consider as relevant practices.

      As noted in Chapter 1, there are also 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 a domestic or international market but that are not part of the discussion herein. Substandard wage and employment standards, utilization of child labor, or lax environmental regulations are a few such examples. The decision by groups of purchasers to boycott products that are exported under those conditions may also affect trade; however, these matters are all beyond the scope of this examination.⁽³⁾

     Private Anticompetitive or Exclusionary Restraints

      Broadly speaking, most countries that have established competition policies have identified a range of permissible and impermissible horizontal and vertical restraints and exercises of market power by firms in a dominant position. Many of the private business practices that are proscribed under U.S. or foreign competition laws can, if left alone, not only harm the domestic economy and domestic consumers but also harm foreign firms seeking to expand or gain access to those markets (see Box 5-1 for hypothetical example of a private anticompetitive restraint). This could in theory be the case for horizontal, vertical, or monopolistic practices. For example, if a group of domestic firms with market power agree to boycott foreign products the consequence of that horizontal cartel agreement can be to inhibit foreign firms from gaining access to the market But as the Report demonstrated in Chapter 4, business collusion is not just a domestic concern. Such cartels could, in theory, be comprised only of domestic firms or could be formed among some combination of domestic and international firms. The arrangements could result in market allocation agreements with respect to a single or multiple markets.

      Similarly, under some facts, vertical distribution practices can also prevent a foreign entrant (as well as a domestic firm) from developing the distribution networks necessary to penetrate a market. For example, a domestic manufacturer(s) with market power could threaten to cut off sources of domestic supply to domestic distributors unless the latter agree not to handle competing imported product. As discussed in Chapter 2, mergers may have anticompetitive spillover effects in other jurisdictions than the regulating nation where the transaction is occurring. One can imagine a set of facts whereby the development of national champion firms through domestic mergers can harm world markets and foreclose access to a market for would-be foreign entrants. Alternatively, nations have raised concerns over mergers that impact foreign markets and sought to ensure that a foreign firm's acquisition of interests in a domestic firm does not exclude their other domestic firms from entering the foreign market.⁽⁴⁾ Since the host government is approving the merger, the actions of the government are also implicated in these practices.⁽⁵⁾

      Private anticompetitive practices often occur with the blessing or encouragement of the national government. A state may limit or close off many avenues by which a newcomer might naturally penetrate a market (a government, for example, might limit foreign direct investment or licensing). In such an environment, exclusive dealing contracts and other exclusionary practices that would otherwise be innocuous can effectively close the market. In those cases, where the government action is supportive of the private action, the lines of accountability are blurred. Because such exclusionary practices are neither purely anticompetitive private restraints nor purely governmental practices, they are sometimes called "hybrid practices."⁽⁶⁾

      Anticompetitive restraints that can act as barriers to a market may stem from a set of circumstances that could not have occurred "but for" some antecedent action by a government that may or may not rise to the level of ongoing governmental supervision or regulation. For example, if a government were to delegate authority over whether or not to grant licenses or permits to an industry association that then used that power to exclude all foreign firms from entering into the market or to keep foreign presence to a minimum, these actions, taken together, might constitute a "hybrid" practice.

      Similarly, as new technologies are developed in high-tech areas such as telecommunications and information technology, the adoption of an industry standard can offer powerful benefits to the manufacturer of that standard. In a global market, the activities of standard-setting bodies can also have an increasing impact on international trade, as firms and consumers will seek to use technological standards that can work easily abroad. A standard that is not compatible with other technologies can "tip" the development of the technology toward the selected standard and eliminate the ability of other firms, particularly foreign firms unrepresented in the standard-setting organization, to compete in the market.

      Private restraints may also be encouraged by governmental regulators or even by the lack of enforcement by domestic competition agencies. Governmental policy makers may even be more proactive and encourage firms to allocate market share or develop interlocking distribution networks in the belief that such actions will stabilize or benefit a domestic industry in the early stages of its development. Moreover, a lack of enforcement by competition agencies may also give tacit encouragement to private firms that their anticompetitive conduct is permissible. Although these are hypothetical examples, they have all surfaced in some variant in international economic policy debates. Under many of these potential fact patterns, an important question is whether and to what extent the resulting competition problems are attributable to a government versus the private or quasi-private commercial entities that are engaging in the exclusionary or anticompetitive practices.⁽⁷⁾

     Governmental Practices

      Governmental practices can of course also be trade restraining.⁽⁸⁾ The governmental impact can be felt through formal antitrust exemptions or parochial state action designed to promote national champions at the expense of foreign competitors. These examples can imply the lack of law, exceptions to law, or a lack of enforcement. Other regulatory practices such as the strategic application of competition policy (at the expense of foreign firms and on behalf of domestic players) can also affect on market access. Governmental practices may be overt, or they may be subtle. Governments could be held accountable to some degree for acts of omission, such as the failure to enforce competition laws, and the toleration of private anticompetitive conduct, such as import cartels, as a de facto or de jure substitute for traditional protection from imports. These points are amplified by identifying three different types of competition policy problems arising from government actions.

      The availability of governmental exemptions and exclusions from competition laws has received extensive attention by policymakers and scholars.⁽⁹⁾ This Advisory Committee has given it some consideration because the effects of such practices can be felt outside the regulating economy as well as by would-be foreign (and domestic) participants in a market. While significant deregulation has occurred in many OECD countries, many nations have not unilaterally reviewed and constrained the scope of their applicable exemptions and exclusions to competition policy. Further, some exemptions may not be viewed as in an individual country's interest to repeal in that they promote exports or have anticompetitive consequences, if any, only in offshore markets. Individual countries may be reluctant to eliminate or reduce the scope of exemptions if its trading partners continue to permit comparable arrangements to thrive.

      A significant amount of economic activity around the world is insulated from challenge by competition laws. One important study commissioned by the OECD (hereinafter referred to as the 1996 Hawk Report) found substantial exclusions from competition 10 OECD countries including in employment-related activities, agriculture, energy and utilities, postal services, transport, communications, defense, financial services, and media and publishing, among other sectors.⁽¹⁰⁾ Additional empirical work is needed to better understand the amount of economic activity affected by such arrangements around the world.

      Various groups have considered the costs and benefits of exemptions. The 1978-79 National Commission for the Review of Antitrust Laws and Procedures undertook an extensive consideration of antitrust immunities and economic regulation. Their report called for a broad reexamination of antitrust immunities, affecting many sectors of the U.S. economy.⁽¹¹⁾

      The reluctance of governments to abandon their existing exemptions and exclusions is reflected in the recent 1998 OECD Recommendation on Hardcore Cartels. That Recommendation represented an important statement among OECD countries regarding their desire to cooperate with enforcement actions against hardcore cartels. This constructive undertaking notwithstanding, the Recommendation did not attempt to impose any disciplines on national exemptions and instead acknowledges a large carve out for arrangements that "are excluded directly or indirectly from the coverage of a Member country's own laws; or are authorized in accordance with such laws."⁽¹²⁾

      A second problem arises from private action unleashed by government approval. The U.S. federal analogy is the state action defense in Parker v. Brown⁽¹³⁾ and its progeny.⁽¹⁴⁾ In the United States, actions by one state that has adverse spillovers in other states can be corrected by the political process and the passage of federal preemptive law or other corrective measures. Internationally, however, the problem can be more intractable. A nation may undertake measures or immunities because it gains more from those measures than foreign parties. An additional problem with this type of state-blessed private action is that it is regarded as state action under competition law as a defense of the private action, but it is not typically regarded as state action in trade policy terms. Participants at Advisory Committee hearings offered several examples of negative crossborder spillovers from private conduct immunized by state action.⁽¹⁵⁾

      A third type of problem is harm caused to outsiders by private action taken against a background business environment of public restraints. Some of the mixed private-public restraints discussed above can fit into this category. When most avenues for market entry are unavailable (for example, when acquisitions are not possible or distributors are unavailable), seemingly innocuous business practices (such as exclusive dealing contracts) may close the market to a new foreign market entrant. Whether this last set of problems is one that should be seen as properly the concern of competition policy or even trade policy remains controversial.

     

Box 5-1: Hypothetical Example of Private Anticompetitive Restraint       Imagine a concentrated product market abroad where three domestic manufacturers have held roughly stable shares for many years-- say 20, 25, and 50 percent. Imports of this product account for 5 percent of the market and most of the imported volume comes from the offshore plants of the three domestic manufacturers. Traditional barriers to entry include production experience, large investment requirements, and the local distribution system. The domestic manufacturers typically sell their product to intermediaries that sell and finance sales to end users. Virtually all of the wholesalers and other intermediaries deal exclusively with one of the domestic manufacturers or an affiliated wholesaler. Many of the largest end users also have close business ties to the major manufacturers and their affiliated wholesalers. Some domestic distributors and users have suggested that they are afraid of losing their most important domestic suppliers if distributors handle imported product. Market entry through acquisition is rare although not legally impossible. Distributors or dealers are required, either by contract or by practice, to notify domestic suppliers before handling competing imported products. Foreign firms are unable either to buy existing distributors or to convince distributors to handle their product, which they believe is competitive in both price and quality. The local producers control all of the available warehousing and storage facilities. In the past, this sector has been one of the targeted areas for national industrial policies, and government policies contributed to the current structure of the industry.       Is this a problem for trade policy or competition policy? The answer is not straightforward but it appears that both antitrust policy and trade policy tools would reasonably be considered:      Antitrust Policy Tools:      Facts as presented probably insufficient to determine whether conduct violates U.S. laws, although they suggest possibility of horizontal agreement to fix prices or allocate markets to protect status quo, as well as possibility of vertical restraints. Additional evidence would be required such as data showing effect on commerce is non-trivial, testimony from experts and participants, evidence of horizontal agreement. Potential violation of foreign antitrust law is also possible.      What are the options for obtaining evidence?       -- voluntary production from parties or witnesses, which is unlikely       -- utilize bilateral agreement if available or request assistance from foreign government if unavailable.       -- refer the case under positive comity provisions or initiate the case in the foreign jurisdiction, or possibly initiate US court proceeding if evidence is sufficient.      Trade Policy Tools:      Facts suggest exclusionary practices in the foreign jurisdiction. While evidence of past government intervention is suggested, contemporaneous involvement is unclear. The industry might well be able to establish that it is experiencing market blockage requiring some US government attention -- at least hortatory or political pressure.      Evidentiary standard for "unreasonable" practices under 301 are not uniform, only one 301 action alleging "toleration" has been attempted. Such a claim will need to show significant government nexus. Possibility of bilateral negotiation and agreement, although remedies are unclear.

     Not All Competition Problems are Trade Problems

      Surely, not all restraints are anticompetitive and not all competition problems that are global in nature are by definition matters of relevance for international trade policy. Countries differ as to what is considered impermissible conduct as a matter of domestic competition laws. For example, U.S. law with respect to most vertical distribution practices considers the economic consequences of distribution restraints under a rule of reason analysis, a method of antitrust analysis in which the court is permitted to make a detailed inquiry concerning the effect on price and output of a certain practice in order to determine whether consumers have been harmed. The treatment of vertical restraints has been an area of controversy and a fluid area of the law.⁽¹⁶⁾ The controversy surrounding vertical restrictions centers on whether or not antitrust should prohibit non-justified restraints that hinder rivals, or injure individual firms but cannot be shown to injure consumers or competition in a market as a whole. Business practices such as vertical distribution practices may have the effect of excluding other domestic firms or foreign firms from utilizing a distribution channel, but those practices may not be anticompetitive under U.S. or foreign law.

      And, consideration of a vertical restraint from a trade perspective versus a competition policy perspective can lead to quite different conclusions regarding the effects of a restraint. If the restraint is examined under U.S. antitrust law, it will consider the effects on efficiency and consumer welfare. Viewed from the perspective of trade policy, on the other hand, the restraint may be seen as adversely impacting trade flows and access to markets if the foreign producer is being kept out of a market by virtue of the restraint, even if the restraint may arguably have efficiency-enhancing properties for the participants in the local market.

      There are other competition problems that are not matters of concern for trade policy. For example, Chapters 2 and 3 considered the procedural and substantive features of multijurisdictional merger review that warrant additional efforts at convergence, harmonization and minimization. These issues, while important, are not matters customarily considered of consequence for trade policy, however. Similarly, expanding cooperation between competition authorities and developing protocols regarding the treatment of confidential information are important global challenges to competition policy but are not matters of relevance to trade policy.

      Thus, there are areas where the distinction between trade versus competition policy concerns can be drawn quite sharply. There are other areas, however, where there are overlapping concerns but the policy tools have different points of application.

The Scope of the Problem

      To what extent do anticompetitive or exclusionary practices inhibit access to markets around the world? Is this a problem of sufficient magnitude to warrant attention from policymakers? To answer those questions the Advisory Committee set out to consider the evidence. The following summary of that record brings together examples of restraints that have caused economic tension between nations in recent years. Many of the incidents have been the subject of bilateral discussion between the conflicting parties; occasionally incidents have been taken up in multilateral forums such as the WTO or the Organization for Economic Cooperation and Development (OECD). In addition, this Advisory Committee has undertaken its own outreach effort, and the views advanced by trade associations, individuals, corporate executives and other experts are also summarized here.

      The Advisory Committee did not attempt to determine whether the practices cited in the examples were in fact anticompetitive, commercially reasonable, or even accurately characterized. Its sole purpose was to illustrate the possible scope of the economic disputes stemming from this mix of governmental and private restraints. Indeed, some of the cases cited by foreign governments as representative of international trade and competition problems may not even be seen as competition problems under U.S. law. Measurements of the costs to the global economy of these alleged anticompetitive or exclusionary practices are not available now nor likely to be in the foreseeable future. Nonetheless, as discussed herein, the Advisory Committee believes that the problems are real and serious enough to warrant attention from policymakers.⁽¹⁷⁾

     Anecdotal Evidence

      Some of the evidence presented to the Advisory Committee came from U.S. companies that believed their entry or expansion in a foreign market had been hindered by the anticompetitive or exclusionary business practices of their overseas competitors, sometimes with the support of the foreign government.

     U.S. Complaints about Japanese Business Practices

      Many of the most well-known disputes in recent years have occurred between the United States and Japan. The American firms typically brought their complaints to the attention of U.S. trade officials, and negotiations or consultations occurred between U.S. and Japanese trade and foreign policy officials. The U.S. team often included representatives from the Office of the U.S. Trade Representative (USTR), Antitrust Division in the Department of Justice, along with officials from the Departments of State, Treasury and Commerce. The evidence presented by the aggrieved U.S. firm or industry was often anecdotal or circumstantial in nature. For example, many U.S. companies pointed to their unsatisfactory export performance in the Japanese market compared with other foreign markets, their overall competitiveness in third-country markets, and instances of exclusionary or anticompetitive treatment by local Japanese firms.⁽¹⁸⁾ Although the degree of industry concentration and other facts varied by sector, U.S. trade complaints have tended to center on vertical distribution practices seen as thwarting access to the Japanese market. And further, that some Japanese governmental practices, laws, and regulations have reinforced restrictive private arrangements.

      The Auto Industry: The U.S. automotive industry argued that Japanese auto manufacturers had established exclusive distribution networks and had made it explicitly or implicitly known to their distributors that they would not welcome sales of foreign automobiles. The U.S. industry also complained that U.S. auto parts suppliers were foreclosed from Japanese repair shops through a combination of government certification requirements and pressure on authorized facilities from Japanese manufacturers. The Japanese government and industry denied all of these, and other, allegations.⁽¹⁹⁾

      The Flat Glass Market: In the highly concentrated Japanese flat glass market, the U.S. government (and industry) argued that the major Japanese manufacturers had tied up the distribution system and were using a variety of inducements and coercive methods to ensure that distributors did not handle imported products. One Advisory Committee hearing participant representing a U.S. flat glass manufacturer told the Advisory Committee that access to the Japanese market is controlled by an entrenched oligopoly of manufacturers that have effectively organized themselves into a cartel. According to this hearing participant, there has been no successful entry into the market by foreign competitors since the 1960s, and market shares for incumbent manufacturers have remained essentially constant over most of that period. Furthermore, this alleged cartel is said to control the Japanese market through a variety of collusive and exclusionary practices including refusals to deal, exclusive distribution arrangements, and economic coercion over domestic distributors and potential purchasers of foreign glass. U.S. companies allege that an extensive network of industry trade associations ties distributors, retailers, and manufacturers to allow for collusive marketing efforts.⁽²⁰⁾

      In response, Japanese glass manufacturers and distributors have publicly stated that the market was open to all suppliers, foreign and domestic alike.⁽²¹⁾ Japan's Fair Trade Commission (JFTC) has undertaken several surveys in this sector. Those surveys, which are answered on a voluntary basis and therefore are not akin to a formal investigation and have resulted only in limited recognition that some industry practices restrained trade. Absent a formal investigation, the results of the surveys cannot be considered conclusive.⁽²²⁾

      The Paper Industry: A representative from the U.S. Forest and Paper Association made similar allegations about the Japanese paper industry. According to this witness, anticompetitive business practices in Japan that deter paper imports include a complex and largely closed distribution system; interlocking relationships among manufacturers, agents, wholesalers, trading companies, printers, publishers and other end users, and financial institutions that restrict the entry of new suppliers; financial ties between manufacturers and distributors; preferential bank financing of even uncompetitive domestic companies; a lack of transparency in corporate purchasing practices; and inadequate enforcement of Japan's antimonopoly laws.⁽²³⁾ In April 1992, the U.S. and Japanese governments signed a "Paper Agreement" intended to increase market access for foreign firms exporting competitive paper products to Japan. In the view of U.S. industry, the agreement has not had its intended effect.⁽²⁴⁾

      The Japanese Film Market: The Advisory Committee also heard testimony from a representative from Eastman Kodak Co. concerning its complaints about distribution practices in the Japanese film market and the resulting U.S. trade case. Specifically, Kodak alleges that anticompetitive practices in Japan had effectively blocked Kodak's ability to sell film and other consumer products in that market. According to Kodak, these barriers consisted of unlawful private restraints at the manufacturing, distribution, and retail levels that were condoned and encouraged by the Japanese government. Despite substantial investments to penetrate the Japanese film market, Kodak's market share there has been slightly less than 10 percent for the last 25 years.⁽²⁵⁾

      In 1995 Kodak filed a petition with the USTR alleging that the Japanese government's toleration of systematic anticompetitive practices by Fuji Photo Film in Japan's consumer photographic paper and color film market were a violation of Section 301 of the U.S. trade laws.⁽²⁶⁾ In 1996 the USTR made a determination of unreasonable practices by the Japanese government in the sale and distribution of consumer photographic materials in Japan. The United States initiated dispute settlement procedures against Japan in the WTO, alleging that the Japanese government built, supported, and tolerated a market structure that impedes U.S. exports of consumer photographic materials to Japan, and in which restrictive business practices occur that also obstruct exports of these products to Japan. The United States challenged Japan's practices under Articles III (national treatment), X (transparency) as well as Article XXIII (under a claim of nullification and impairment).⁽²⁷⁾ The U.S. government pointed to policy statements and administrative guidance by the Japanese government and statements by advisory committees, industry associations, and others, which recommended actions that the Japanese industry should undertake to respond to foreign competition. The Large Scale Retail Store Law and the JFTC's approval of industry fair competition codes were also challenged by the U.S. government as measures by the government of Japan designed to impede access to the market. In its final report, issued on January 30, 1998, the WTO panel on film ruled that it was not convinced that the evidence demonstrated that the Japanese government measures violated its General Agreement on Tariffs and Trade (GATT) obligations.⁽²⁸⁾

      Electronic Equipment: In 1991 the American Electronics Association (AEA) requested that the USTR launch a sectoral negotiating initiative to address a broad range of governmental and private market access barriers that U.S. manufacturers of electronic equipment allegedly encountered in Japan. AEA surveyed its thousands of member companies and found that the most significant market barrier the companies perceived was exclusionary purchasing practices by Japanese industrial companies.⁽²⁹⁾ Among other grievances, AEA companies complained of refusals to deal despite lengthy efforts and superior offers, demands that U.S. manufacturers establish production in Japan, predatory pricing to exclude foreign competitors, discriminatory bank lending, discriminatory standards, and a complex distribution system that acts as a de facto barrier to sales by foreign companies.⁽³⁰⁾

      The Soda Ash Industry: Anticompetitive practices in the Japanese soda ash industry have also been a point of contention. In 1973 four Japanese soda ash producers agreed to regulate the flow of imported soda ash through joint ownership of the Tokyo Terminal, Japan's sole facility for importing soda ash. The producers also pressured Japanese soda ash consumers not to purchase imported soda ash. In 1983 the JFTC found that the producers had formed an illegal cartel and ordered it to cease its activities. A second investigation by the JFTC in 1987 expressed concern that Japanese customers routinely requested permission from their domestic supplier before purchasing foreign soda ash.⁽³¹⁾ According to one observer, the cartel overreached when its company presidents called on the president of the Sumitomo sales company and asked him not to disturb the market. The JFTC reacted with a warning, and the Japanese market for soda ash is said to be open.⁽³²⁾

     U.S. Complaints about Japanese Competition Law

      The practices described above are but a sampling of the sectoral complaints that U.S. businesses have lodged against exclusionary or anticompetitive practices in Japan. Complaints have also been raised in other sectors, such as insurance,⁽³³⁾ semiconductors, amorphous metal transformers, some of which have resulted in formal trade cases and agreements. Some of these alleged barriers were thought to result from the lax enforcement of Japan's competition law (called the Anti-Monopoly Act).⁽³⁴⁾ Although the JFTC conducted several "surveys" of competitive conditions in sectors that were prone to bilateral tension, virtually none of the surveys found any violations of Japan's Anti-Monopoly Act. Nonetheless, many of the sectoral disputes resulted in bilateral agreements that focused on some combination of private and governmental restraints. Examples include semiconductors, paper products, glass, automotive cars and parts, and construction services. In these accords the Japanese government promised to encourage imports and new business relationships with U.S. firms seeking entry into the Japanese market; it also promised to enforce its competition laws vigorously and to ensure that domestic manufacturers did not use their market power to coerce domestic distributors to refuse to handle competitive imports.

      Systemic bilateral discussions about Japan's competition law and enforcement regime first occurred in the context of the Structural Impediments Initiative (SII) (1989-92), which represented a broad-based dialogue between the United States and Japan on a host of structural issues thought to impede trade and competitiveness. In the early 1990s the USTR and the Department of Justice together pressed the Government of Japan and the JFTC to make Japan's Anti-Monopoly Act enforcement "more effective" in deterring and punishing violations.⁽³⁵⁾ Notable developments that occurred through the SII process included increases in the JFTC's budget and personnel; increased penalties for anticompetitive conduct; increased enforcement actions against hard-core violators; reinstatement of criminal enforcement after a 16-year hiatus; and certain procedural improvements aimed at reducing obstacles to private litigation of antitrust violations.⁽³⁶⁾

      Bilateral discussions on deregulation and competition policy continued during the Clinton Administration, and further steps were announced under the auspices of the "Enhanced Initiative on Deregulation and Competition Policy" as part of the Clinton-Hashimoto Denver summit in June 1997.⁽³⁷⁾ Bilateral consultations continue to this day under that initiative.

     U.S.-European Conflicts

      The perceived problem of private anticompetitive restraints that impede market access is by no means limited to disputes between the United States and Japan. U.S. companies have alleged similar practices in Europe. For example, the U.S. Department of Justice's first formal positive comity request to the antitrust authorities of the European Union (EU), discussed more fully below, concerned complaints that a European airline reservation company was engaging in anticompetitive practices that prevented an American company from entering the European market.

      In addition, Airbus Industrie has been alleged to engage in numerous practices with its European suppliers that artificially preclude or limit the extent to which non-European suppliers of avionics and other components can sell products for use on Airbus planes. These practices include the development and use of standards that discriminate against foreign suppliers, joint proposals by Airbus and a domestic component supplier to induce an airline to specify use of the European company's component, and conditioning non-European firms' participation in Airbus-related research and product development on agreements to relinquish proprietary technology without compensation.⁽³⁸⁾

      Other complaints of discriminatory practices in Europe cover products such as computers and telecommunications equipment.⁽³⁹⁾ During its hearings, the Advisory Committee heard detailed testimony about the potentially anticompetitive telecommunications standards being established by the European Telecommunications Standards Institute (ETSI), which could act as a hybrid restraint to market access.⁽⁴⁰⁾ According to economists who have studied the issue, non-European firms that make telecommunications equipment do not have an equal voice in setting European telecommunications standards. The European firms use their influence inside ETSI to choose standards that have been developed by European firms and disadvantage technologies developed by non-European firms. In another European matter, a representative from a U.S. business complained to the Advisory Committee about anticompetitive cross-subsidization by the German post office of its package delivery subsidiary.⁽⁴¹⁾

      Classic international cartels, designed to fix prices, allocate markets, and jointly restrain output and delivery on a global basis, have long been alleged to operate in Europe in specific sectors such as steel.⁽⁴²⁾ The international Heavy Electrical Equipment cartel was found to have fixed prices at higher than competitive levels in many national markets over a period of several decades.⁽⁴³⁾

     Complaints about Latin American Practices

      Anticompetitive practices that restrict market access have also been identified in Latin America. In one example, the Corn Refiners Association, Inc. filed a Section 301 petition in April 1998 alleging that the Mexican government denies fair and equitable market opportunities for U.S. exporters of high fructose corn syrup (HFCS) by encouraging and supporting an agreement between Mexican sugar growers and bottlers to limit use of HFCS.⁽⁴⁴⁾ The USTR initiated a Section 301 investigation in May 1998 and in May 1999 appears to have ended the Section 301 investigation but announced that the United States would continue to explore the Mexican government's role in limiting importation and purchases of HFCS. The USTR maintained that the Mexican government has "failed to refute allegations that it promoted and endorsed conclusion of an agreement to limit purchases of U.S. HFCS."⁽⁴⁵⁾ Some aspects of this case are also being addressed in the context of an ongoing WTO dispute settlement proceeding.

      Two World Bank economists have described several examples of anticompetitive practices they learned of during their extensive consulting work in Latin American countries.⁽⁴⁶⁾ In Colombia, for example, the leading brewer allegedly has geographic market-sharing agreements with existing and potential competitors in neighboring countries. It also owns the sole bottle manufacturing plant and has exclusive-dealing clauses with the great majority of distributors. In another example, an attempt by a U.S. biscuit manufacturer to enter the Colombian market was stymied by the exclusive distribution clauses between the dominant manufacturer and leading retailers. Instead, the U.S. manufacturer was required to enter into licensing and joint marketing agreements with the dominant firm.

      In Ecuador, government enterprises and private sector firms are alleged to engage in price and market-sharing agreements in cement and steel. In addition, the industry associations for domestic oil and pharmaceuticals have persuaded the government to limit entry and to allow the coordination and increase of prices. Moreover, the distribution of automobiles remains the exclusive area of government-owned or -appointed dealers.⁽⁴⁷⁾

     Anticompetitive and Exclusionary Practices Alleged to Exist in Other Countries

      Other sources, including the USTR's annual National Trade Estimate Report on Foreign Trade Barriers (NTE), have identified several other countries where anticompetitive or exclusionary practices allegedly inhibit the ability of foreign firms to penetrate a market. These problems have often been brought to the USTR's attention by U.S. firms that believe they have been shut out of these foreign markets. The NTE references do not represent conclusions that the listed problem violates either U.S. trade or antitrust laws. The grievances do, however, serve as an indication of agency concerns, and future Section 301 cases that may be self-initiated by USTR may be drawn from matters reported in the NTE. At the very least, the NTE listings provide some feel of both the nature and variety of practices that U.S. firms find troubling in foreign markets.

      For example, the 1999 National Trade Estimate cited both Hungary and Hong Kong for lacking full competition in their telecommunications sectors.⁽⁴⁸⁾ Egypt does not have a basic law prohibiting anticompetitive practices by monopolies and cartels, and a few players dominate most sectors.⁽⁴⁹⁾ In India, the NTE noted, "one can find examples of both state-owned and private Indian firms engaging in most types of anticompetitive practices with little or no fear of reaction from government overseers or a clogged court system."⁽⁵⁰⁾ In Korea, U.S. firms in the telecommunications and semiconductor industries have expressed concerns that the Korean government is spurring consolidation of different chaebols' business lines in a manner that impedes open competition in Korea.⁽⁵¹⁾ A number of other countries have been cited in the NTE for allegedly anticompetitive practices.⁽⁵²⁾

     Complaints Raised before the WTO Working Group

      Similar examples of anticompetitive or exclusionary practices that inhibit international trade have been brought to the attention of the WTO Working Group on the Interaction between Trade and Competition Policy. According to a report issued in 1998, the WTO Working Group said its members submitted examples of "actual cases of domestic export cartels, international cartels that allocated national markets among participating firms, unreasonable obstruction of parallel imports, control over importation facilities, exclusionary abuses of a dominant position, and vertical market restraints to competitors, certain private standard setting activities and anticompetitive practices involving industry associations."⁽⁵³⁾

      One set of submissions to the WTO came from the OECD, which has discussed trade-related anticompetitive practices in the OECD Joint Group on Trade and Competition, held conferences on the issues involved, and conducted analytical studies. The OECD materials included discussion of horizontal agreements such as cartels, standardization, and certification restrictions; vertical agreements such as exclusive dealing and licensing agreements; abuse of dominant positions through rebate systems; and international mergers.⁽⁵⁴⁾ Clearly, only some of these areas of discussion reflect "access" problems arising from private restraints.

      The OECD submission to the WTO identified a debate over exclusive dealing in the United Kingdom's automobile industry. According to the OECD, some argued that competition policy was not adequately tackling exclusive agreements between domestic auto manufacturers and distributors. Consequently, potential auto importers were unable to secure access to distributors and were thus foreclosed from the UK's domestic market. Others argued that restrictions on market access resulted primarily from other factors such as standards, government regulations, and trade measures rather than inadequate application of competition law.⁽⁵⁵⁾ The OECD submission also described how a domestic producer of fertilizer in Norway controlled distribution channels by using a rebate system that acted as a barrier to entry into the domestic market.⁽⁵⁶⁾

      The individual country submissions to the WTO Working Group also provide examples that have been challenged as restricting market access. The EU's submission to the WTO identified several cartels that it said had a significant international dimension.⁽⁵⁷⁾ These included a European cement cartel, in operation since 1983, which had formed a coalition to deal with the threat of Greek cement exports to several Member States.⁽⁵⁸⁾ European carton board producers formed a cartel to fix prices and regulate their market.⁽⁵⁹⁾ European producers of steel beams agreed to preserve their traditional pattern of trade and agreed on price increases in various Member States.⁽⁶⁰⁾ The European Commission (EC) has also challenged an organization (SCK) that hires out mobile cranes in the Dutch market. SCK established a certification system to guarantee the quality of cranes used in the crane hire business. SCK members, most of whom are Dutch firms, refused to certify these cranes from nonaffiliated firms, which in effect prevented foreign firms from entering the market.⁽⁶¹⁾

      EU cases have not been limited to cartels. The EU also identified examples where abuse of dominance hindered entry into a market. The EU's Court of First Instance recently condemned a practice by a group of dominant shipping companies that instituted a low price on shipping between Northern Europe and the Republic of Congo in order to eliminate a competitor.⁽⁶²⁾ The EU also has challenged the exclusive or preferential supply contracts of Roche, the world's leading vitamin manufacturer, concluding that the contracts improperly tied the most important buyers of bulk vitamins to Roche and prevented its chief competitors from supplying these products.⁽⁶³⁾

      The EU also described how the two manufacturers in the German ice cream market used vertical restraints, in this case freezer cabinets provided gratis exclusively for their ice cream to prevent competitors from selling to the tied stores.⁽⁶⁴⁾ This is a case that might be analyzed very differently under U.S. law, which might see the restraint as a legitimate means to compete rather than as an anticompetitive foreclosure.

      Individual countries have also identified anticompetitive practices that they allege inhibit access to EU markets. For example, in 1995, the French antitrust authority condemned 31 private civil engineering firms for sharing the construction markets on the Train à Grande Vitesse (TGV) high speed rail project in northern France. One objective of the cartel was to prevent foreign companies from entering the market.⁽⁶⁵⁾ In 1988 the French also fined Lilly France for granting substantial rebates to hospitals on an antibiotic patented and manufactured by Lilly France when the customers also purchased a heart disease drug that the pharmaceutical company made. The French authority concluded that this practice prevented hospitals from turning to more competitive providers of the heart disease drug, including foreign competitors. In 1992 the Italian competition authority investigated an agreement on harbor and berthing services among three shipowners' associations. The agreement provided substantial discounts on the maximum charges for the services supplied in each port. Members of the association, virtually all Italian-registered ships, qualified while foreign ships did not. The practice was subsequently discontinued.⁽⁶⁶⁾

      In its submission to the WTO, Canada identified anticompetitive practices within its borders that have an impact on international trade.⁽⁶⁷⁾ In one example, the Interac case, a company was alleged to have abused its dominant position in the supply of shared electronic network services in Canada by leveraging the control of demand deposits and automated banking machines in Canada through membership and participation restrictions in the Interac network. The Canadian competition tribunal approved a consent order designed to improve competition in the market.⁽⁶⁸⁾

      U.S. firms have also been alleged to use anticompetitive restraints to prevent foreign companies from entering the U.S. market. In one example, the Justice Department recently filed a complaint against Dentsply, an American manufacturer of artificial teeth, alleging that the firm engaged in exclusionary conduct to deny rival tooth manufacturers access to the primary distribution channels for artificial teeth in the United States. According to the U.S. complaint, Dentsply, using its monopoly position in the U.S. market, threatened to terminate its relationship with dealers that sold teeth produced by Dentsply's competitors, including two foreign manufacturers.⁽⁶⁹⁾

     Evidence from Business Associations

      While little rigorous empirical or survey work has been conducted on market access restraints from exclusionary business practices, several business groups have conducted membership surveys in an effort to assess the extent to which foreign private anticompetitive practices are perceived to restrict market access. The numbers generated by these surveys do not represent statistically significant results, but they are summarized here to provide a sense of the problems that many businesses find troublesome.

      In June 1999 the Business and Industry Advisory Committee (BIAC) to the OECD published the results of its Survey of Business Competition Law Concerns.⁽⁷⁰⁾ BIAC received 60 company responses from several different jurisdictions and types of businesses.⁽⁷¹⁾ Nearly half (46 percent) of those members who responded agreed or strongly agreed that anticompetitive practices significantly limit their ability to enter new export markets. Approximately 29 percent of BIAC survey respondents agreed or strongly agreed that these practices limit their ability to expand in their primary export markets, while 41 percent of survey respondents agreed or strongly agreed that the enforcement of competition laws is ineffective in new export markets.⁽⁷²⁾ In addition to conducting a survey of its members, the BIAC has also gone on record as recommending policy proposals to address the concerns of private actions and artificial barriers that impede market access and recommended greater cooperation among competition authorities.⁽⁷³⁾

      In response to an invitation by this Advisory Committee, the Business Roundtable surveyed their CEOs. Of the 54 respondents, 30 percent indicated that they had encountered market access barriers attributable to private anticompetitive practices abroad.⁽⁷⁴⁾ The U.S. Council for International Business, in an appearance before the Advisory Committee, urged continued analysis in areas such as market access and contestability.⁽⁷⁵⁾ In a submission to the Advisory Committee, the International Chamber of Commerce described U.S. business concerns about the potential for private anticompetitive restraints to impede market access.⁽⁷⁶⁾ The Transatlantic Business Dialogue (TABD) has also urged all countries to make market access a priority in applying competition laws and regulations.⁽⁷⁷⁾

     The Advisory Committee's Assessment of the Evidence

      As this quick summary demonstrates, the level of quantitative and empirical economic analysis concerning private and government anticompetitive restraints that inhibit market access still remains quite limited.⁽⁷⁸⁾ Examples of exclusion range from direct evidence to much indirect, circumstantial and qualitative evidence. Nor are private anticompetitive restraints limited only to those countries where the problem recurs as a source of tension.⁽⁷⁹⁾ Many of the trade complaints begin with less (and different) evidence than would be required to demonstrate an antitrust violation.

      The uneven quality of the evidence in many specific instances is also reflected in the corresponding absence of empirical analyses that determine or estimate the magnitude of the effects of these competition policy problems on global trade flows or the global economy. This very issue is itself a matter of debate. For example, the International Chamber of Commerce (ICC) notes that certain elements of the business community assert that there is little or no evidence of private anticompetitive acts which have not "(a) received the imprimatur of government, or (b) cannot be dealt with by domestic legislation."⁽⁸⁰⁾ According to the ICC, other segments of the business community maintain that evidence of international anticompetitive acts does exist and that these are a substantial barrier to market access.⁽⁸¹⁾ Similarly, the OECD has had difficulty quantifying the extent to which anticompetitive restraints inhibit international trade. As a senior official of the OECD stated, "[i]t is often said that as trade barriers decline, private anticompetitive practices become a more important and more pervasive restriction on market access. The OECD's trade and competition work has failed to turn up a large body of convincing evidence for that hypothesis, but it continues to examine the question."⁽⁸²⁾

      In the view of this Advisory Committee, this record, while uneven, is sufficient to show that private, governmental, and mixed public-private restraints that inhibit market access are a problem. Additional analytical and empirical work of an international and comparative nature is needed to better establish the extent and nature of private, governmental and mixed public-private restraints of trade with international or global consequences. But the Advisory Committee also believes that the current record is sufficient for the U.S. government to make some policy judgments about the nature of the global trade and competition problems.⁽⁸³⁾ This Advisory Committee does not assume that national agencies can naturally be relied upon to remove or address the distortions in their own economy produced by private anticompetitive or exclusionary restraints. As this discussion has illustrated, many competition problems also implicate acts or omissions by governments and are not self-correcting. For this reason, the absence of remedial action by a government does not indicate that problems do not exist.

      The Advisory Committee believes that no single policy tool is capable of addressing all aspects of the competition problems raised here. Thus, it has examined several different approaches that could be used in various situations. Bilateral agreements with positive comity offer a potentially useful instrument for addressing private restraints. Extraterritorial enforcement of U.S. antitrust laws may be necessary and effective in some circumstances. And further development of international competition policy initiatives may prove extremely useful in the longer run. As discussed in the remainder of this chapter, by making certain adjustments in each of these approaches, the United States can improve its methods for resolving problems that intersect both trade and competition policy concerns.

Positive Comity

      Cooperation among competition authorities has been and will be one of the most viable alternatives in addressing anticompetitive restraints that affect international trade. Since instances of anticompetitive conduct occurring outside domestic borders that impact or affect competition are becoming more prevalent, governments have worked to advance cooperation through the initiation of bilateral agreements. One mechanism contained within bilateral accords that has gained increasing support and recognition from the international community is the concept of positive comity.

      "Traditional comity" considerations have a long history in the extraterritorial enforcement of U.S. antitrust laws.⁽⁸⁴⁾ Nonetheless, the extraterritorial application of U.S. law has caused significant tensions over jurisdiction and sovereignty issues between the United States and its foreign counterparts. "Positive comity" attempts to avoid these conflicts by placing initial responsibility for investigation of market access barriers into the hands of the jurisdiction where the alleged anticompetitive conduct occurs. Since positive comity is a relatively untested mechanism and is premised on a high degree of trust and confidence in the antitrust enforcement policies of both jurisdictions involved, its actual application and potential are not fully known. The Advisory Committee believes, however, that use of positive comity as one element in the host of options available, including both unilateral and multilateral initiatives, holds the potential in discrete instances to reduce international conflicts and open foreign markets that are currently blocked by market access barriers.

      In its most basic structure, positive comity is a mechanism whereby the jurisdiction most closely associated with the alleged anticompetitive conduct assumes primary responsibility for the investigation and possible remedy. Specifically, when anticompetitive conduct that adversely affects the important interests of one party occurs within the borders of another party, the "affected party" may request that the "territorial party" initiate appropriate enforcement actions. In so doing, positive comity attempts to reap the benefits associated with cooperation by avoiding potential conflicts or disputes pertaining to jurisdictional issues. Positive comity potentially obviates the need to pursue extraterritorial enforcement if the territorial party can adequately resolve or remedy the anticompetitive activities. Additionally, by assigning initial jurisdiction to the territorial party, the investigation will benefit from enhanced access to documents and witnesses and thus greater ability and resources to remedy the anticompetitive conduct.

     Evolution of Positive Comity

      Although the term "positive comity" did not come into use until the early 1990s, the theory and practice of the basic principles of positive comity originated several decades earlier. The genesis of positive comity principles in bilateral cooperation agreements can be traced back to the 1954 Friendship, Commerce, and Navigation Treaty between Germany and the United States. The agreement acknowledged the existence of business practices that impeded or had "harmful effects" on commerce between the two signatory countries, and stipulated that "each Government agrees upon the request of the other Government to consult with respect to any such practices and to take such measures, not precluded by its legislation, as it deems appropriate with a view to eliminating such harmful effect."⁽⁸⁵⁾ Similar provisions also were contained in numerous other bilateral cooperation agreements from the same time period, such as agreements between the United States and Denmark, France, Greece, Italy, and Japan.⁽⁸⁶⁾ While some observers have hailed these early undertakings as a significant step toward cooperation through positive comity, there is little indication that these provisions were used.⁽⁸⁷⁾

      The concept of positive comity also was embedded in several multilateral initiatives adopted in early postwar years. In 1960 a GATT group of experts recommended that a nation "should accord sympathetic consideration to requested consultations . . . [and] if it agrees that such harmful effects are present, it should take such measures as it deems appropriate to eliminate these effects."⁽⁸⁸⁾ As the OECD Report on Positive Comity notes, this provision appears to have been first invoked during the photographic film dispute before the WTO although consultations did not occur.⁽⁸⁹⁾

      The OECD first incorporated positive comity principles in its recommendations pertaining to competition and trade issues when it adopted the 1973 Recommendation Concerning a Consultation and Conciliation Procedure on Restrictive Business Practices Affecting International Trade.⁽⁹⁰⁾ Over the years, the OECD has refined and modified the recommendation on positive comity and most recently revisited the concept in its 1995 Recommendation. The OECD proposes that a member country may request consultation with another member country when it believes anticompetitive activity occurring in another country is affecting its interests. If the territorial party "agrees that enterprises situated in its territory are engaged in anticompetitive practices harmful to the interest of the requesting country," then it should "attempt to ensure that these enterprises take remedial action, or should itself take whatever remedial action it considers appropriate, including actions under its legislation on anticompetitive practices or administrative measures, on a voluntary basis and considering its legitimate interests."⁽⁹¹⁾ If the affected country does not believe that the territorial party has handled the matter satisfactorily, the OECD Recommendation makes available a voluntary mediation mechanism whereby the Competition Law and Policy Committee acts as a medium for possible conciliation between the two Member countries.⁽⁹²⁾ To the best of the Advisory Committee's knowledge, this mediation provision has not been pursued by any OECD member country.

     1991 U.S.-EC Agreement

      Positive comity did not become a formal component of an international agreement until the U.S.-EC Agreement was negotiated and signed in 1991.⁽⁹³⁾ The inclusion of positive comity principles in the Agreement marked a significant departure and a step forward from previous international agreements. While the term positive comity was not explicitly used or defined in the Agreement, statements by the architects of the Agreement led to widespread recognition and discussion of the concept.⁽⁹⁴⁾

      Based on the recognition that anticompetitive practices occurring in one jurisdiction may negatively impact the interests of another jurisdiction, Article V of the allows a jurisdiction affected by anticompetitive practices to notify the jurisdiction in which the alleged conduct is occurring and to request that it commence appropriate enforcement action.⁽⁹⁵⁾ Such a request is predicated on an assumption that the alleged conduct violates the antitrust laws in the jurisdiction where it occurs. Article V is premised on purely voluntary cooperation; the territorial party retains complete discretion as to whether to initiate an investigation and any subsequent enforcement action against the alleged violations.⁽⁹⁶⁾ Nor do the Agreement and any formal referral preclude the affected party from pursuing its own investigation and subsequent enforcement action regardless of any action or inaction by the territorial party.⁽⁹⁷⁾ Additionally, Article V requires the territorial party to tell the affected party whether it plans to investigate the disputed practices, and, if so, what the outcome of the investigation is.⁽⁹⁸⁾

     1998 Supplemental Agreement

      On June 4, 1998, the United States and the European Commission signed an antitrust cooperation agreement that supplements the positive comity provisions outlined in the 1991 Agreement.⁽⁹⁹⁾ Importantly, the 1998 Agreement reaffirmed both the U.S. and the EC commitment to pursuing cooperative efforts through the use of positive comity. Furthermore, the 1998 Agreement took steps designed to clarify the procedures for formal referrals of cases under the terms of the Agreement. First, the supplemental provisions list appropriate instances for deferral of extraterritorial enforcement when the territorial party is proceeding with an investigation.⁽¹⁰⁰⁾ Deferral should normally occur, for example, when the anticompetitive conduct can be "fully and adequately investigated" and subsequently remedied by the territorial party.⁽¹⁰¹⁾ In an attempt to avoid protracted, lengthy investigations, the 1998 Agreement recommends that investigations generally should be completed within six-months.⁽¹⁰²⁾ Additionally, the 1998 Agreement outlines an appropriate course of action in which the territorial party should engage during the course of an investigation.⁽¹⁰³⁾ If these conditions are met, however, and the affected party chooses not to defer its own investigation, it must tell the territorial party why it is pursuing a separate investigation.⁽¹⁰⁴⁾ As in the 1991 Agreement, both the affected party and the territorial party reserve the right to pursue their independent action as to the conduct at issue.

      The 1998 Agreement appears to address, in part, concerns that had arisen regarding the positive comity process during the first formal referral and the subsequent debate occurring throughout the international antitrust community. The 1998 Agreement, itself, substantially improves upon various components of the inaugural 1991 Agreement, including addressing timing and communication concerns put forth by those involved in the Amadeus referral (see below). These improvements were noted by then-EC Commissioner Karel Van Miert through an acknowledgment that the supplemental provisions constituted "a substantial step towards closer cooperation through confidence building."⁽¹⁰⁵⁾

      Following up on the advancement of positive comity principles in the 1991 and 1998 Agreements between the United States and the European Commission, the United States has entered into agreements containing positive comity provisions with Canada,⁽¹⁰⁶⁾ Israel,⁽¹⁰⁷⁾ Brazil,⁽¹⁰⁸⁾ and Japan,⁽¹⁰⁹⁾ and an agreement has recently been signed between the EC and Canada.⁽¹¹⁰⁾ The positive comity provisions in these agreements closely mirror the provisions agreed upon in the 1991 U.S.-EC Agreement. Although none of these subsequent agreements incorporate the "next generation" provisions contained in the 1998 U.S.-EC Supplemental Agreement, they do set forth the primary requirements for the application of positive comity. None has yet been tested in a formal referral. It is clear, however, from the mere enactment of the agreements that several jurisdictions are cooperating and that a requisite level of confidence is developing between the respective competition enforcement authorities in jurisdictions with strong antitrust regimes.

      In this vein, the agreement recently enacted with Japan has generated significant attention and debate, particularly from U.S. congressional representatives. A coalition of twenty-six Senators sent a letter to the President expressing their belief that such an agreement with Japan would be inappropriate based on Japan's apparent failure to honor past agreements.⁽¹¹¹⁾ While expressing significant doubt as to whether the positive comity agreement could effectively reduce or eliminate market access barriers, the Senators noted that, if indeed enacted, close monitoring of the agreement should occur.

     Positive Comity in Practice

      While much discussion on the international stage has focused on the feasibility of positive comity, its effectiveness in actual cases still remains difficult to assess. The number of instances where positive comity principles have been employed remains very limited. Despite this fact, positive comity has been used as a vehicle for cooperation in several specific instances and the experiences gained by those examples can provide some level of insight as to its viability in concrete circumstances.

     Formal Use: Computer Reservation Systems

      In the only instance thus far of a formal referral under the 1991 U.S.-EC Agreement, the United States announced on April 28, 1997, that it had formally requested that the EC investigate alleged anticompetitive conduct occurring in Europe in the computer reservation system (CRS) industry.⁽¹¹²⁾ According to a statement released by the Department of Justice, the Antitrust Division had concerns that three national flag European airlines that own Amadeus, the dominant CRS in Europe, were denying a United States-based CRS of the necessary fare data and functionality needed to compete effectively.⁽¹¹³⁾ The Sabre Group, a CRS based in the United States and a would-be competitor of Amadeus in Europe, had lodged several complaints with the Antitrust Division regarding the practices of Amadeus and its carrier owners. A computer reservation system acts as a large database that contains fare, ticketing, and schedule information for airlines, trains, and other modes of transportation. Travel agents access the CRS to schedule and ticket reservations from a wide array of different transportation carriers. A CRS can be truly effective, and thus competitive in the marketplace only if its database contains complete and up-to-date information from a large percentage of carriers and is able to provide air travel services, such as ticket on departure and frequent flyer benefits (this is known as "functionality").

      The Antitrust Division asserted that the European "airlines did not give Sabre many air fares on a timely basis, refused to provide it with certain promotional or negotiated fares, and denied Sabre the ability to perform certain ticketing functions, although they provided these fares and functions to Amadeus."⁽¹¹⁴⁾ Despite a preliminary investigation undertaken by the Antitrust Division, then-Acting Assistant Attorney General Joel Klein noted that "[t]he European Commission is in the best position to investigate this conduct because it occurred in its home territory and consumers there are the ones who are principally harmed if competition has been diminished."⁽¹¹⁵⁾ While Assistant Attorney General Klein emphasized that the EC maintained an advantage in pursuing an investigation and possible remedial action regarding the alleged conduct, he also implied that the United States retained the option of pursuing its own investigation as it had a "strong interest" in the case since "U.S. companies may have been blocked from becoming effective competitors and the exclusionary conduct might have adverse effects on U.S. markets as well."⁽¹¹⁶⁾

      Following the formal referral, the EC reiterated its support of the positive comity process through remarks made by its director-general for competition, Alexander Schaub, who noted that the referral represented an important first step in this heightened level of cooperation between the two jurisdictions. Furthermore, he illustrated the EC's commitment to this specific case and the reciprocity factor associated with all positive comity requests, stating that the EC had "given our people the instruction to consider this as a priority case because we are aware of the fact that how we handle American positive comity requests will certainly determine largely how the U.S. authorities will handle our future requests."⁽¹¹⁷⁾

      Despite the EC's announced commitment to the Amadeus referral, some in the United States expressed concern as to the pace and attentiveness afforded to the EC's investigation. The U.S. Senate Judiciary Committee, acting in its oversight role, convened several hearings designed to study and evaluate the positive comity process in general and its relevant application in international antitrust cooperation. As will be discussed in greater detail below, one of the witnesses testifying at the hearings was a representative of The Sabre Group. Sabre relayed its own experiences with the positive comity referral process and expressed its reservations regarding the delay associated with the referral and several procedural "obstacles" confronting the process in general. Furthermore, Sabre set forth several recommendations designed to enhance the process in light of the firm's experiences during the Amadeus positive comity request, including increased communication between all involved parties and a more defined timetable for the investigation. Some of these concerns were addressed in the 1998 Supplemental Agreement.

      On March 15, 1999, more than two years after the Justice Department made its formal request, the European Commission announced that it had issued a Statement of Objections against Air France for possible abuse of its dominant position as a national carrier to foreclose competition in the CRS industry. Although the Statement of Objections has not been made public, the EC's press release asserts that Air France favored Amadeus, "having provided Amadeus with more accurate information and on a more timely basis than it did to other CRSs, thereby putting the latter at a competitive disadvantage."⁽¹¹⁸⁾ The release further noted that pursuant to the provisions outlined in the U.S.-EC Agreement, the Commission maintained regular contact with the Antitrust Division and "kept the DOJ closely informed on its analysis and on the progress of the procedure."⁽¹¹⁹⁾

      In accordance with EC procedure, the Statement of Objections does not represent any final determination on the part of the Commission. Air France has an opportunity to respond prior to final action by the Commission. Furthermore, as Assistant Attorney General Klein has observed, since the issuance of the Statement of Objections Sabre has entered into private settlements with two additional European airlines that will allow for enhanced access to essential data on the European markets.⁽¹²⁰⁾ It is important to an evaluation of positive comity's effectiveness at this stage to note that of the companies whose practices were identified by the U.S., the Statement of Objections is directed only at Air France, and this preliminary action was not taken until some twenty-six months after the referral.

     Informal Applications

      While the positive comity provisions encompassed in current bilateral agreements have resulted in only one formal referral thus far, competition enforcement officials have publicly endorsed several informal referrals. In these instances, a country may informally request that another country investigate potentially anticompetitive practices occurring within its borders. One of the most widely publicized informal positive comity referrals involves the retail sales tracking industry. The Antitrust Division had been investigating possible anticompetitive practices by AC Nielsen Co. in the way it tied the terms of service contracts for its multinational accounts in one country to its contracts in other countries. When it became known that the European Commission also was conducting an investigation of the same conduct, the Department of Justice allowed the EC to take the lead in the investigation since the majority of the disputed conduct occurred in Europe. The Antitrust Division eventually terminated its investigation when the EC and AC Nielsen entered into an agreement to resolve the charges that also satisfied the Division's concerns. Both the U.S. and the EC publicly heralded this level of cooperation not only as an example of conditional deference of jurisdiction to the party most closely connected to the conduct, but also for the high level of cooperation between the parties, who were permitted to exchange confidential information pursuant to a waiver and closely coordinated the legal theories of the case.⁽¹²¹⁾ This instance, together with several others, confirms that bilateral agreements support enhanced cooperation on many different levels and calls into question those commentators who may assess the benefits derived from positive comity solely on the experiences gleaned from the single formal referral lodged to date.

     Assessments of Positive Comity

      The positive comity concept has ardent supporters as well as some skeptics. Upon signing the 1991 Agreement, both the EC and the United States openly extolled its benefits, calling it "innovative" and "an important first step" toward increased antitrust cooperation.⁽¹²²⁾ The authors of the Agreement said the Article V provisions would deter not only conflicts over jurisdiction, but also would "be an important step toward minimizing disputes over the extraterritorial application of the antitrust laws."⁽¹²³⁾ Even then, however, some commentators were questioning its likely effectiveness. One concern revolved around inherent national interests that directly conflict with the practical application of positive comity. As one commentator noted, the principle of positive comity cannot be expected to alter the fundamental "proposition that laws are written and enforced to protect national interests."⁽¹²⁴⁾

      After nine years and the experience derived from both formal and informal applications, the public officials appear to have tempered their enthusiasm. While it is apparent that government representatives still maintain visible support for positive comity, the emphasis now has shifted to the "limited role" it can achieve in international cooperation. FTC Chairman Robert Pitofsky recently noted that positive comity is "a small and modest element that you use in unusual cases to try to protect American firms doing business abroad or foreign firms doing business in the United States. It's hardly a common resort."⁽¹²⁵⁾ This shift in public declarations seems to have emanated from practical experience with the concept. While U.S. government officials appear not to have relinquished their belief that positive comity holds the potential to minimize international conflicts and enhance enforcement efforts against market access barriers, the scope of its applicability, at least in the current environment, has been drawn more narrowly.

      Similarly, some foreign officials publicly have lowered their expectations for the role that positive comity can play in international antitrust cooperation. EC Competition Director Schaub said in January 1999 that the concept of positive comity had been "oversold" at its inception.⁽¹²⁶⁾ Despite statements of this kind, however, officials of foreign government have clearly voiced their continued support for positive comity and, in some instances, are pressing for expansion of positive comity agreements. At hearings before the Advisory Committee in November 1998, then-EC Competition Commissioner Van Miert noted that recent experiences with positive comity had led to efforts to improve the process. While positive comity itself should not always be the first approach taken, Van Miert said, it "should be part and parcel nevertheless of a global approach."⁽¹²⁷⁾ Canada's Director of Investigation and Research in the Competition Bureau, Dr. Konrad von Finckenstein, commended the 1998 Supplemental Agreement between the United States and the EC and urged Canada and the United States to work to expand their current agreement to include provisions similar to those contained in the U.S.-EC Agreements.⁽¹²⁸⁾ The OECD expressed similar support in a report issued in June 1999. The report noted that even though the ultimate viability of positive comity has yet to be determined, no apparent risks were associated with using the positive comity mechanism, and significant benefits were apparent in specific instances.⁽¹²⁹⁾ The OECD recommends its Member nations continue to support such forms of voluntary cooperation.

      The discussion and debate centered around positive comity has extended far beyond the reaches of antitrust enforcement officials. The Advisory Committee heard from various commentators during its series of hearings and meetings regarding the viability and effectiveness of positive comity. The business community generally has expressed its support for the positive comity mechanism. In statements before the Advisory Committee, both the U.S. Council for International Business and the Business Roundtable noted that the principles of positive comity help to alleviate potential international tensions while also providing "a sensible, systematic approach to fact-gathering, reporting, and bilateral consultation among competition authorities."⁽¹³⁰⁾ Both organizations also cautioned the United States to retain its authority to pursue extraterritorial enforcement of domestic antitrust laws when the application of positive comity is not feasible or does not have satisfactory results. Despite a significant level of confidence in current positive comity agreements, several commentators representing business expressed concern regarding the application of positive comity principles in an agreement with Japan. In the words of a spokesperson for the National Association of Manufacturers, "such an agreement would . . . not be advisable until the JFTC acts to resolve [several] outstanding competition issues in a manner that is both transparent and credible."⁽¹³¹⁾

     The Advisory Committee's Assessment of Positive Comity

      Taking into full consideration any shortcomings in the positive comity approach, some of which are attributable to the novelty of application and thus are correctable, the Advisory Committee believes that positive comity remains at the least a useful first step in addressing anticompetitive restraints affecting trade where the territorial party has the authority and the willingness to take effective action.⁽¹³²⁾ The benefits associated with the positive comity process hold the potential for enhanced cooperation and minimization of conflicts that can arise during cross-border investigations of conduct affecting market access. By requesting that the territorial party assume responsibility for determining whether an investigation into disputed conduct is warranted and for pursuing ways to remedy the conduct if justified, the need for extraterritorial enforcement can be diminished in some specific circumstances. Thus, the application of positive comity can permit the resolution of at least some conflicts in a cooperative manner that is consistent with sovereignty considerations.

      A significant hurdle in extraterritorial enforcement lies in the considerable difficulty encountered during the discovery process. Attempts to obtain access to necessary documents, evidence, and potential witnesses, all of which may be located outside the borders of the investigating jurisdiction, can prove to be an insurmountable obstacle or, at the very least, a barrier to effective and timely enforcement.⁽¹³³⁾ By requesting that the territorial party pursue the investigation, chances of successful prosecution of the case improve because the territorial party maintains significant advantage in securing necessary documents and witnesses to aid in the investigation of the alleged conduct. Furthermore, the extraterritorial application of domestic laws can result in the inability to secure the necessary remedies to resolve the anticompetitive practices. When the territorial party assumes responsibility for the investigation and potential enforcement actions, such requisite remedies are within the jurisdictional scope and reach of the territorial party.

      In addition to these tangible benefits, some have recognized that bilateral accords containing provisions such as positive comity may promote or facilitate increased convergence of domestic antitrust laws between both parties to the agreement.⁽¹³⁴⁾ As cooperation on any level--formal or informal -- increases, jurisdictions become more cognizant of the laws and policies of other jurisdictions. Such awareness potentially could lead to enhanced mutual recognition of the antitrust laws of each party involved in the cooperative efforts and, therefore, potentially minimize the possibility of divergent outcomes from any investigation.

      The OECD has noted that an attempt at positive comity through a referral does not, in itself, entail any substantial risks.⁽¹³⁵⁾ The initial pursuit of the resolution of anticompetitive practices through the positive comity channel does not eliminate any future options, including extraterritorial enforcement of domestic antitrust laws if positive comity does not resolve the disputed practices appropriately. It is significant, however, that in some instances, the time delay associated with a positive comity referral that does not satisfy the concerns of the requesting party may affect consumers or competitors adversely. Nevertheless, the array of benefits associated with an attempt at positive comity merits its application as a first step in appropriate situations, taking into account the explicit retention of all prosecutorial discretion as noted in current positive comity agreements.

      Although the benefits derived from positive comity are clear, the Advisory Committee recognizes that the current climate and prior experiences illustrate several shortcomings that need to be addressed if positive comity is to become a fully effective element of international cooperative efforts. First, the historic enforcement record of worldwide antitrust agencies does not promote unqualified confidence in the willingness of antitrust authorities to pursue action against domestic firms that impair the ability of foreign firms to compete, despite possible domestic consumer harm. In the absence of a nation's serious commitment to take such actions, the benefits of positive comity may remain modest or illusory.

      Delay following a referral to another jurisdiction to investigate alleged violations also remains a significant obstacle to effective and timely resolution of cases. As illustrated by the one formal referral to date, more than two years elapsed between the time the territorial party was asked to initiate an investigation and the time the territorial party issued an official statement on its progress. As one member of Congress said during congressional hearings, the current situation where a referral is "started reluctantly, staffed inadequately, and dragged out interminably . . . is clearly unacceptable" as a means to resolve potentially damaging private restraints of trade.⁽¹³⁶⁾

      Any delay in the investigatory process by the territorial party is magnified when a lack of transparency exists in the process. Uncertainty about whether an adequate or appropriate investigation is occurring engenders doubt on the part of the affected party and strengthens any tendency toward pursuing extraterritorial enforcement. Confidence and trust remain preeminent components of effective cooperation through positive comity channels. Transparency in the entire investigatory and procedural process promotes increased assurance that the affected party's concerns are being addressed in a manner consistent with the premise of the bilateral accord.

      To be truly effective, positive comity also requires fundamental symmetry between the parties' antitrust laws and enforcement commitment.⁽¹³⁷⁾ Without confidence in the authority and effectiveness of the parties' competition agencies and a requisite level of similarity in domestic antitrust laws,⁽¹³⁸⁾ the possibility for a multitude of bilateral positive comity agreements in today's international environment is not feasible.

      Finally, the application of positive comity remains a viable option only for market access or restraint of trade cases. Statutory timing issues make positive comity infeasible for merger cases. Thus, while positive comity holds the potential to make a contribution in international antitrust cooperation, it should not be viewed as a singular vehicle for enforcement of cross-border antitrust violations of all forms.

     The Advisory Committee's Recommendations for Strengthening Positive Comity

      Certain improvements in the positive comity process could be implemented to promote a more effective mechanism for addressing cross-border market access violations. These modifications should aim to provide a heightened degree of confidence in the process for both jurisdictions and the restrained private parties.

      At congressional hearings held in October 1998 on the effectiveness of positive comity, a representative from Sabre, the only private complainant involved in a formal referral to date, put forth a number of recommendations to improve the procedural elements of the process.⁽¹³⁹⁾ FTC Chairman Pitofsky subsequently endorsed the essence of these recommendations. The Advisory Committee supports some of the proposals which were advanced by Sabre, including the following: provision of a realistic assessment at the outset of an investigation whether the requested party can devote adequate resources to the investigation; dissemination of status updates from the affected party to the private party whose complaint is at issue to the degree permissible under domestic law and practice; and establishment of a timetable to the extent possible for processing the referral. The central purpose behind these suggestions is to ensure that the referred jurisdiction pursue a case vigorously and provide at least as much information to involved private parties and the referring jurisdiction as would occur in a domestic investigation.

      The Advisory Committee recognizes that future experience with positive comity in actual referrals might induce additional refinements in the process. Such additional modifications might usefully include the right of the restrained private party to participate in the process, at least to the extent permitted under its domestic laws; a commitment by the territorial party to use its discovery powers to the fullest extent; and timely advice to the restrained private party regarding the focus and substance of information needed to support its complaint.

      Confidence in the application of positive comity principles is essential to ensure its effectiveness and success. By instituting measures to increase communication and transparency in a positive comity referral, such as those outlined above, the Advisory Committee hopes that the procedural components of a formal referral will further enhance international cooperation.

      In addition to visible support for positive comity by competition enforcement agencies, international organizations that address trade and competition issues also should endorse positive comity in their mission. By "advertising" the advantages reaped from effective positive comity cooperation, international organizations hold the potential to expand such cooperation to jurisdictions that have similar antitrust laws and enforcement policies.

      The OECD has played an important role in demonstrating the merits of international cooperation. In addition to incorporating provisions related to positive comity in its recommendations on trade and competition, the OECD recently published a report expressing support for the principles of positive comity and concluding that positive comity "has significant potential benefits in a limited number of situations [and] smaller benefits in a wider range of cases."⁽¹⁴⁰⁾ Such an endorsement can steer countries toward the establishment of bilateral agreements and the use of cooperation as a mechanism for combating private restraints blocking access to foreign markets.

      As set forth in the 1998 U.S.-EC Agreement, positive comity appears to be a useful course of action for pursuing some types of market access cases. The Advisory Committee recognizes its importance as a vehicle for minimizing conflict and enhancing enforcement of law in market access violations. Positive comity, however, can succeed only if the international antitrust community maintains a full understanding of its ultimate goals and potential. It is imperative that both parties to an agreement set realistic goals for what positive comity can and cannot accomplish. As Assistant Attorney General Klein recently noted, "positive comity is not a quick and easy panacea for all antitrust-related trade problems."⁽¹⁴¹⁾ Indeed, positive comity is not a replacement for the aggrieved jurisdiction's option to enforce its laws. Since positive comity remains an option in a limited number of instances, it should be used as one tool within the entire framework of options available to antitrust enforcement officials (e.g., both unilateral and an expanded array of multilateral initiatives).

      In summary, positive comity should be used in a manner that develops its potential and prevents it from being perceived as either an idealistic objective or a vacuous policy tool. This will, of course, be driven by actual cases. Recently, the United States entered into a number of bilateral antitrust cooperation agreements that contain positive comity features.⁽¹⁴²⁾ It is the hope of this Advisory Committee that a conscientious effort will be made to implement and test those agreements as a first response to solve real problems, when meritorious cases arise.⁽¹⁴³⁾

U.S. Enforcement to Gain Market Access

      At the Advisory Commitee hearings in the Spring of 1999, representatives from several business organizations argued that the United States should use its antitrust tools more robustly to remedy foreign restraints on market access experienced by U.S. firms. For example, one trade association recommended that U.S. antitrust laws be amended to clarify "their application to conduct outside the United States which hinders access to U.S. markets" and that "U.S. enforcers could work with U.S. agencies responsible for compliance with existing trade agreements to determine whether conduct that constitutes non-compliance with such agreements amounts to an antitrust violation."⁽¹⁴⁴⁾ Another business organization urged U.S. authorities to "continue to exercise extraterritorial antitrust jurisdiction where foreign relief is not forthcoming, substantive violations are presented, the standards for U.S. jurisdiction are met, and effective relief can be obtained."⁽¹⁴⁵⁾ Another suggested that "the United States antitrust enforcement agencies must aggressively investigate and prosecute persistent anticompetitive conduct abroad," and "the U.S. should consider forging new tools if those at our disposal prove to be inadequate."⁽¹⁴⁶⁾

      Extraterritorial antitrust enforcement is one of the approaches available to the United States to remedy anticompetitive conduct that deters U.S. firms from entering or expanding their operations in foreign markets. This section examines the record in an effort to assess, first, when the use of extraterritorial enforcement is appropriate or feasible, and second, what changes, if any, might be made in the process to make it a more effective tool.

     The U.S. Government's Extraterritorial Enforcement Policy

      Justice Department policy has varied in its approach to conduct abroad that restrains U.S. export commerce. In its 1977 Antitrust Guide for International Operations, the Antitrust Division stated that a major purpose of its effort was "to protect American export and investment opportunities against privately imposed restrictions. The concern is that each U.S.-based firm engaged in the export of goods, services, or capital should be allowed to compete and not be shut out by some restriction introduced by a bigger or less principled competitor."⁽¹⁴⁷⁾ This reflected the concern in the guidelines with competitor opportunities. In the 1980s, the DOJ rejected this concern and imported the consumer welfare paradigm into the international arena as well as domestic law. In 1988, the DOJ stated that as a matter of prosecutorial discretion, it would pursue enforcement actions against only those export restraints that harmed U.S. consumers and not those that only harmed U.S. exports. The 1988 Antitrust Enforcement Guidelines for International Operations included a footnote 159 which stated:

      Although the FTAIA [Foreign Trade Antitrust Improvements Act] extends jurisdiction under the Sherman Act to conduct that has a direct, substantial and reasonably foreseeable effect on the export trade or export commerce of a person engaged in such commerce in the United States, the Department is concerned only with adverse effects on competition that would harm U.S. consumers by reducing output or raising prices.⁽¹⁴⁸⁾

      In 1992 the Antitrust Division deleted footnote 159, stating that "Congress did not intend the antitrust laws to be limited to cases based on direct harm to consumers. Today, when both imports and exports are of importance to [the U.S.] economy, we would not limit our concern to competition in only half our trade."⁽¹⁴⁹⁾ This policy was later incorporated into the 1995 guidelines, which state that "the Agencies may, in appropriate cases, take enforcement action against anticompetitive conduct, wherever occurring, that restrains U.S. exports, if (1) the conduct has a direct, substantial and reasonably foreseeable effect on exports of goods or services from the United States, and (2) the U.S. courts can obtain jurisdiction over persons or corporations engaged in such conduct."⁽¹⁵⁰⁾

      The guidelines also state that the Department of Justice and the Federal Trade Commission "have agreed to consider the legitimate interests of other nations in accordance with the recommendations of the OECD and various bilateral agreements."⁽¹⁵¹⁾ A number of factors that the antitrust agencies consider are itemized in those guidelines.⁽¹⁵²⁾

      In addition, the enforcement guidelines say that the Department of Justice, as a matter of prosecutorial discretion, would take "full account of comity beyond whether there is a conflict with foreign law."⁽¹⁵³⁾ As part of a traditional comity analysis, the agencies would consider "whether one country encourages a certain course of conduct, leaves parties free to choose among different strategies, or prohibits some of those strategies. In addition, the Agencies [would] take into account the effect of their enforcement activities on related enforcement activities of a foreign antitrust authority."⁽¹⁵⁴⁾ Taking a controversial position among legal commentators, the Justice Department has stated that it "does not believe that it is the role of the courts to 'second-guess' the executive branch's judgment as to the proper role of comity concerns under these circumstances."⁽¹⁵⁵⁾ These comments suggest that at least as a matter of stated policy, the Department of Justice remains committed to pursue foreign restraints that harm U.S. exports, but would do so only after considering how foreign governments might react to U.S. actions.

     The Government Case Record

      The Advisory Committee has examined the record of antitrust cases filed by the United States and identified 44 cases since 1912 in which the United States claimed that defendants were engaged in conduct that restrained U.S. exports abroad.⁽¹⁵⁶⁾ An analysis of the case record does not manifest a clear pattern of antitrust enforcement actions regarding export restraints. The cases deal with several types of practices, including allegations of anticompetitive conduct that also affects U.S. domestic commerce.⁽¹⁵⁷⁾ Indeed, many of the cases include a combination of U.S. and foreign companies acting in concert to limit competition in a particular industry. For example, two cases from the 1950s demonstrate how enforcement actions against export restraints were designed to break up international cartels, rather than ensure U.S. firms market access.⁽¹⁵⁸⁾ The Advisory Committee was able to find only five cases since 1978 that involved export restraint allegations.⁽¹⁵⁹⁾

      Thus, the record of U.S. government antitrust enforcement against foreign restraints that bar market access by U.S. firms is limited. Although some have generously viewed this record as indicating that enforcement is "not infrequent,"⁽¹⁶⁰⁾ unilateral government enforcement cannot be considered to have played a major role in opening foreign markets. Many of the early cases address international cartels with U.S. members or conspiracies by U.S. firms with foreign firms or subsidiaries to restrain competition. The record has not produced antitrust enforcement cases directed at the prototypical market access problem: where non-U.S. private firms or firms located outside the United States, perhaps with the support of the host government, engage in anticompetitive conduct that restricts exports to that market and inhibits access by U.S. firms.

      There are several possible explanations for this record. First, while the U.S. Department of Justice has expressed a willingness to use its antitrust laws to reach foreign anticompetitive arrangements that harm U.S. exports, the difficulties of establishing jurisdiction, overcoming potential objections to offshore discovery, conducting the investigation, establishing proof, and enforcing any remedy can all act as practical barriers to bringing such cases. U.S. officials may not have considered export restraints to be a priority in some years; certainly few cases with that profile appear to have been brought to the attention of U.S. enforcers. It is not publicly known how many, if any, firms have discussed antitrust problems in foreign markets with the Justice Department or sought official action by the Antitrust Division. It is curious that only a few such instances, even anecdotal, have surfaced in the press. Firms may be discouraged from bringing their problems in foreign markets to the Department of Justice because of the difficulties in developing evidence to prove a case in a court of law or because they have decided that the benefits of such litigation are too uncertain to justify the expense. It is also conceivable that some U.S. officials have been reluctant to pursue such cases because they have not wanted to antagonize their foreign counterparts without a strong case.

      Finally, some complainants may have turned to trade laws to try and settle their grievances, rather than antitrust laws. In cases where either antitrust or trade law might apply, complainants may have found formal or informal trade policy instruments to be a more attractive option than antitrust tools because trade officials are more accustomed to using public jawboning and pressure to try to induce foreign governments to undertake corrective measures. Antitrust officials have generally been much more circumscribed with respect to their public statements about possible enforcement matters.

     Private Enforcement Record

      The Advisory Committee has also considered the extent to which private litigation can serve as a meaningful tool to open markets. Two private antitrust cases reviewed by the Supreme Court, Continental Ore Co. v. Union Carbide and Carbon Corp and Zenith Radio Corporation v. Hazeltine Research Inc. have delineated the reach of the antitrust laws against export restraints.⁽¹⁶¹⁾

      To aid its inquiry into the utility of private litigation as a means of enhancing market access, the Advisory Committee invited the Section of Antitrust Law of the American Bar Association to prepare a submission discussing this issue. The resulting paper noted that the total number of private antitrust cases had declined dramatically from 1978 to 1998.⁽¹⁶²⁾ The paper also pointed out that private antitrust litigation against export restraints faces many of the same difficulties as governmental enforcement.⁽¹⁶³⁾ Obstacles to obtaining jurisdiction, gathering evidence and developing effective remedies all exist in private export restraint litigation.

      Besides the hurdles inherent in litigation, whether public or private, tackling foreign-based restraints that bar access or sales through private antitrust litigation poses additional problems. First, while the U.S. Department of Justice considers principles of comity before considering whether to bring an enforcement action, private parties are not bound by such strictures. U.S. law gives little guidance to governments and international business executives where U.S. competition policy comes into direct conflict with the competition policy of foreign governments.⁽¹⁶⁴⁾ Thus, the Advisory Committee believes that significant improvements should be sought in the process and standards by which competing interests are balanced for comity purposes or otherwise. Moreover, federal, state and local judges hearing private disputes that raise claims or defenses based on considerations of governmental policy should invite concerned governments at an early stage in the litigation to submit their views, which commonly takes the form of amicus curiae submission.

      Second, the previously dormant application of the doctrine of forum non conveniens in antitrust litigation may be revived. This doctrine applies when another forum has superior contacts with the subject matter of the litigation and is better able to conduct the litigation.⁽¹⁶⁵⁾ Until recently, few nations had competition law systems sophisticated enough to offer litigants antitrust remedies and many nations opposed private rights of action. Thus, U.S. courts were unwilling to use the doctrine to dismiss transnational antitrust cases.⁽¹⁶⁶⁾ Recently, however, a U.S. court applied the doctrine to dismiss a private antitrust claim. In Capital Currency Exchange, N.V. v. National Westminster Bank PLC, the court ruled that the English courts, which are bound to enforce competition provisions of the Treaty of Rome, provided for a more convenient alternative forum to resolve a private antitrust dispute because the conduct was alleged to have taken place in England and most witnesses and documents were located there.⁽¹⁶⁷⁾ As other nations develop more sophisticated competition law structures, the doctrine of forum non conveniens may play a greater role in private international antitrust litigation.

      An additional problem concerns the private treble damage remedy in private antitrust cases. As the ABA Working Group notes, a private defendant who is found to have violated the U.S. antitrust laws can be subject to automatic treble damage liability with the potential for enormous judgments.⁽¹⁶⁸⁾ Concerns abroad about the U.S. treble damage remedies have led to the passage of "clawback" statutes, such as that in the United Kingdom, which allow a national to file a suit in a local court to recover damages from the successful U.S. plaintiff paid in excess of compensatory amounts in connection with a foreign action for multiple damages.⁽¹⁶⁹⁾ For these reasons and others, one business group has urged that "the U.S. Government needs to intensify its efforts to enhance the rights of parties attempting to enforce judgments in antitrust actions."⁽¹⁷⁰⁾ Finally, given the difficulties of litigating a private export restraint case, the ability to bring a complaint under Section 301 of the U.S. trade laws may offer private parties an attractive alternative for addressing anticompetitive restraints, at least in those instances when the foreign government may have played some role in the perceived problem (see discussion of Section 301, below).

      Thus, on the one hand private antitrust litigation of foreign-based restraints that hinder export commerce offers an opportunity for aggrieved firms to pursue their claims without relying on the enforcement choices of the U.S. Department of Justice. On the other hand, such suits can be difficult to pursue for all the same reasons as any litigation and can also lead to greater tensions with foreign nations that believe such suits violate notions of traditional comity or that object to U.S. treble damage remedies.

      The private action treble damage remedy has been a particular source of tension between the United States and other nations. Many foreign jurisdictions chafe at the prospect of having their firms pay treble damages in another country's courts, particularly for conduct that may not even violate their own competition laws. In light of this considerable opposition, the Advisory Committee considered whether the United States should detreble, at least with respect to export restraint claims, and concluded that such action would not be appropriate. The U.S. private treble damage remedy plays a useful deterrent effect against anticompetitive conduct both at home and abroad.⁽¹⁷¹⁾ U.S. antitrust law currently does not distinguish between foreign and domestic defendants. The removal of the treble damage remedy in these export restraint cases might result in fewer conflicts with foreign law, but it would also reward jurisdictions that have proven to be the most adamantly opposed to the offshore application of U.S. antitrust laws. Such an approach would result in foreign defendants gaining better treatment under U.S. law than U.S. defendants and could lead to protracted litigation over whether the offending conduct harmed "import" commerce or "export" commerce. Moreover, as the case record shows, such a distinction in claims may itself be very difficult to make; most of the cases that have had an export commerce claim have also claimed anticompetitive effects in the United States. As discussed in Chapter 4, the Advisory Committee concludes that the potential benefits from increased cooperation from foreign authorities and firms, notwithstanding, modifications of the treble damage remedy is not recommended.

     Reactions from Abroad to Extraterritorial Enforcement

      The issue of treble damages aside, some governments have strongly resisted the extraterritorial application of the U.S. antitrust laws in general. A Canadian government official outlined the dilemma succinctly in the late 1970s: "Where a transnational antitrust issue is really a manifestation of a policy conflict between governments, it should be recognized that there may be no applicable international law to resolve the conflict. In such cases, resolution should be sought through the normal methods of consultation and negotiation. For one government to seek to resolve the conflict in its favor by invoking its national law before its domestic tribunals is not the rule of law but an application, in judicial guise, of the principle that economic might is right."⁽¹⁷²⁾

      Several jurisdiction expressed similar sentiments in their comments on the Antitrust Division's draft 1995 extraterritorial enforcement guidelines. The United Kingdom, for example, argued that "the Agencies assert that foreclosure of a foreign market or refusal to adopt U.S. technical standards is sufficient to establish the requisite effect. Such jurisdictional claims show U.S. antitrust law being used as an instrument of trade policy to open markets perceived as closed to U.S. exporters. The U.K. Government regards this as an objectionable and inappropriate use of antitrust powers."⁽¹⁷³⁾ The EC's comments noted the potentially harmful impact of U.S. extraterritorial enforcement on antitrust cooperation: "The Commission believes that the accent which the Guidelines lay on unilateral action by the U.S. authorities in fact contradicts on the one hand the commitment to take account of comity principles and on the other hand, the efforts of the U.S. authorities to strengthen international cooperation. . . ."⁽¹⁷⁴⁾

      U.S. officials and U.S. antitrust policy need to consider such complaints. Any decision to use the antitrust laws against restraints in foreign markets that restrict U.S. exports will need to take account of the potentially negative consequences to both U.S. foreign relations and U.S. efforts to enhance cooperation with other competition authorities.

     Consideration of Proposals for Dealing with Anticompetitive Practices Abroad

      Some lawyers and business executives have called for more effective policy tools to open foreign markets, including proposals to involve the trade agencies in making determinations of market foreclosure stemming from anticompetitive practices abroad. For example, lawyers at the firm of Dewey Ballantine have argued that "traditional antitrust law quickly runs into limits where the hand of a foreign government intervenes, and when private practices are involved, there are serious problems of gathering evidence in a foreign jurisdiction."⁽¹⁷⁵⁾ In addition, these lawyers argue that few foreign antitrust authorities can be relied upon to attack conduct that affects U.S. producers because very few foreign competition agencies are as effective as the Department of Justice or the Federal Trade Commission.

      This perspective sees anticompetitive restraints abroad as barriers to market access and therefore the necessary response is enhanced unilateral trade remedies rather than enhanced antitrust tools. The Dewey Ballantine lawyers recommend that the Department of Commerce or other U.S. trade agency undertake an empirical inquiry into foreign market access restraints. A study of this kind could "(1) identify large markets where there are few or no imports; (2) identify where there are no exports from one major country to another; and (3) identify where persistent and dramatic price differentials exist between markets."⁽¹⁷⁶⁾ Infe