WORLD TRADE
ORGANIZATIONWT/WGTCP/W/67
26 March 1998
(98-1204)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM THE UNITED STATES
The following communication, dated 10 March 1998, was received from the Permanent
Mission of the United States with the request that it be circulated to Members.
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Answers to Questions on Competition Law and Policy Posed by Other WTO Members
at the Meeting of 16-17 September 1997
At the September 1997 meeting of the WTO Working Group on the Interaction between
Trade and Competition Policy, various delegations asked questions about the role, purpose and
implementation of national competition laws and policies.  While the United States delegation
responded orally to some of these questions at both the September meeting and the meeting held inNovember 1997, the following answers to all of the questions posed are offered with the aim of
responding fully to all Members and in order to further discussion of these issues within the Working
Group.
1. What is the role of guidelines or other official policy statements in facilitating smooth
implementation of national competition polici es and promoting compliance with competition
laws?  Can Members provide examples of such guidelines?
Guidelines describe how a competition agency analyses specific matters and inform the
public what standards apply to certain types of conduc t or transactions in greater detail than laws are
capable of doing.  In the United States, examples of guidelines jointly issued by the FTC and DOJ are:
Horizontal Merger Guidelines (1 April 1992, revised 8 April 1997);  Antitrust Guidelines for the
Licensing of Intellectual Property (6 April 1995);  Antitrust Enforcement Guidelines for International
Operations (April 1995);  Statements of Antitrust Policy in the Health Care Area (15 September 1993,27 September 1994);  Statements of Antitrust Enforcement Policy in Health Care (August 1996).
This more full-fledged guidance allows business es to plan with increased certainty, to lower
the costs of doing business by understanding in advance how the law will apply to contemplated
actions, and to avoid the cost and inconvenience of being challenged by the government, competitors
or consumers in court.
Guidelines save agency resources by providing guidance more broadly than individual cases
or opinion letters do.  To the extent that businesses conduct themselves in accordance with the
Guidelines, agency enforcement resources are spared.WT/WGTCP/W/67
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Guidelines can be particularly useful in areas where the economy is changing, where courts
have little opportunity to apply the law (and thus rules are uncertain) or where competition principles
are first being applied.  Examples of such areas would be the health care sector in the United States
(industry change);  mergers (no Supreme Court cases in over 20 years);  intellectual property (new
competition issues);  joint ventures (new forms of collaboration) or electricity (first opening up tocompetition).
Guidelines can be changed over time more easily than statutes so they can adapt more readily
to improved economic understanding or changes in the economic environment than laws can.
Official policy statements - such as speeches of top officials - can signal to the business
community what the concerns of competition officials are, what their priorities are or how they are
looking at new types of problems.  Such dialogue is important in promoting compliance.
Specifically tailored business review letters or advisory opinions can provide some comfort to
firms that are concerned about how the competition agency may view a particular transaction.  By
offering the public informal, non-binding guidance, th e agency encourages the public to work with it
and seek its advice, again improving compliance.
2. How do regional trade or economic integration arrangements bear on the
implementation of competition policy?  Should a country party to such an arrangement attempt
to establish or maintain its own national comp etition policy, particularly if other countries in
the arrangement lack such policies?  Alternativ ely, should a regional competition policy be
considered?
Regional trade or economic arrangements are based on some degree of shared values and can
be a forum for promoting a converging vision of competition policy throughout the region.  UnderNAFTA, for example, the parties made certain basi c commitments - such as adopting and maintaining
a competition law and accepting constraints on the operation of monopolies and state enterprises.  But
they also established a Working Group that meets regularly and effectively promotes convergence of
competition laws and policies.  An individual c ountry in a regional economic arrangement also can
elicit help from other members' competition officials in order to help promote its own domesticcompetition policy when the public support at home for such policies may be weak or just developing.
There is no reason for a country not to have a competition policy, even if other parties to a
regional economic arrangement do not have one.  Each country can always improve the welfare of its
consumers by having a competition policy.  A coun try with a competition policy also has one more
basis for attracting wanted investment.  And as various WTO Members noted at our November
session, a national competition policy forces domestic firms to be strong competitors, who likely will
be more effective competitors in global markets as well.  Finally, a domestic competition policy canpromote innovation, a critical component in economic growth today.
A regional competition policy necessarily presumes a shared vision of competition, a
relatively equivalent level of economic development and a degree of economic integration in which
barriers to trade are largely absent.  A truly meaningful regional competition policy is an ambitious
undertaking.  Only where there is an overriding political, economic or security drive for integration isit likely that a regional competition policy will emerge.  (Notable examples are the European Union
and the Australia-New Zealand arrangement.)  Where countries already have somewhat differing
competition policies in place that reflect those countries' values, it is unlikely that a serious regional
competition policy will emerge in the near term.  Similarly, there are no examples of meaningful
regional competition policies where each member has not also adopted its own competition laws.WT/WGTCP/W/67
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It is conceivable that a group of relatively similar countries without a competition law could
agree upon a regional competition law or policy.  It is questionable how deep-rooted or enforceable
such a policy or law would be.  There also is virtue in competition among national competition
policies.  Hungary had some interesting ideas and variations in its proposed competition law, but saw
virtue in conforming to the EC model.  That sort of uniformity, while our understanding ofcompetition law continues to evolve, can have its drawbacks.
3. What is the importance of competition advocacy as an element of competition policy,
particularly in a country undergoing transition to market-based economy?  What is the
appropriate scope of a competition authority's involvement in:  (a) the privatization process;
and (b) monitoring developments in capital markets as a tool for ensuring compliance with
competition policy?
Advocacy is likely the single most important role of a competition authority in a country
undergoing the transition to market institutions.  Competition advocacy is often most useful where
traditional law enforcement tools do not apply.  Advocacy has a major role to play when competition
or regulatory laws are being enacted or amended by legislatures or implemented by regulatory bodies.
It is also useful where the competition agency has no direct enforcement jurisdiction, or shares
jurisdiction with other agencies.
The interesting question is who performs the role of advocate.  The enforcer can do so - to
achieve principled, consistent results, to educate the public and to build support for competition
policy.  But if the process dictates some measure of political compromise, getting involved can
compromise the enforcer's credibility and legal authority.  If the enforcer does not perform the
advocacy role, there might be a special "reform commission" or a ministry with special stature thatcan do so.  The most effective approach depends on the habits and styles of the local political (and
competition) culture.
Advocacy should be exercised both internally within government and externally toward the
public, consumers and businesses.  Government restraints on competition can be enduring and have
great economic significance - but these restraints are correctable through the political process.Competition officials should work internally as advocates on inter-agency or intergovernmental
committees or on special task forces that formulate economic policy.  Competition officials can
advocate publicly in hearings before regulatory ag encies, or more quietly by filing comments with
agencies addressing competition issues.
It is also important to advocate externally so  that citizens understand and value competition
principles.  Speeches to businesses and consumer groups build bridges and understanding.  Even press
releases explaining agency actions and positions help consumers to understand how much money theyare saving - or how their choice of goods has improved - when anti-competitive conduct is halted.
Building political support for competition principles is critical.
Competition authorities should be involved in the privatization process.  Without due care,
public monopolies can be converted into private monopolies.  Buyers of public monopolies may
undertake technological and financial restructuring but will not likely pursue competitiverestructuring.  The latter provides no special benefits to owners;  indeed, the owners may have
factored expected monopoly profits into their purchase price.  Thus, dividing public monopolies into
competing enterprises before or during privatization is desirable, especially where there is little
likelihood of timely firm entry and only limited import competition.  Competition agencies should
advise on such matters.WT/WGTCP/W/67
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A reasonable proposal for competition officials' involvement would be to require privatization
agencies to at least consult with - and perhaps obtain the consent of - competition authorities before
making privatization decisions.  If politically obtainable, the latter veto power is preferable.
Privatization offices can be under considerable pressure to maximize the sales price of firms being
privatized.  The office may thus be reluctant to reduce the sales value of a dominant position.  Theyalso may have ties with the industry - what we call industry capture.  And foreign investors may seek
restrictions on competition before agreeing to purchase or joint venture.  Of course, some restrictions
are efficient and reduce investors' risk, but competition agency oversight can guard against overly
restrictive arrangements.
Several existing regimes require interaction between the privatization and competition
authorities. In the Czech Republic, competition law directs privatization authorities to submit
proposals to transfer state property to the compe tition authorities for their approval.  In Hungary,
competition policy directs privatization authorities to consult with the anti-monopoly authorities if a
firm being sold has the potential for market dominance.  Mexico also has mandatory consultation.
Competition authority involvement in monitoring cap ital market developments is less critical.
It is conceivable but very unlikely that attempts to monopolize such markets will occur, since such
efforts are likely to discourage the inflow of capital.  Moreover, allowing the competition agency tointervene against developments in capital markets ( e.g., capitalization and trading actions) would
create undesirable delay at best and corruption at worst.  Several transition economy agencies are in
the review loop for formation of corporations of all ki nds;  it is not clear, however, that this serves a
necessary purpose in terms of competition policy.
4. What measures may be appropriate in rela tion to the exit of inefficient firms (or
industries), particularly in the context of economic transformation?
What one wants are rules that enable the exit of the most inefficient firms.  Economics tells us
that the most inefficient firms should exit first but business realities, constraints on labour and asset
mobility, and even game theory sometimes work otherwise.  Some countries erected exit barriers in
the hope of protecting workers from unemployment and conserving scarce capital.  But suchrestrictions encourage inefficient firms to continue operating, which wastes resources, hurts
consumers and may lead to layoffs in any event.  Competition measures, in contrast, work to
encourage inefficient firms to shift product focus, down-size, attain efficiencies or shut down.  As
Argentina noted at the November session, it is not competition that creates persistent unemployment;
it is price controls and overregulation that does.
Another possibility is for a weak firm to merge with a stronger competitor.  United States
merger policy allows for a narrow exception when a failing firm merges.  Although initially intended
in part to ease dislocations and injury to worker s, creditors and others who suffer when firms are
forced into bankruptcy rather than sold, the policy 's narrow interpretation in fact has been consistent
with competitive outcomes.  (This is because the cr iteria for when a merger with a failing firm is
permissible are very stringent.  A merger is allowed only if the failing firm:  (1) is unable to meet its
financial obligations;  (2) would not be able to reorganize successfully under the bankruptcy laws;  (3)has made unsuccessful but good-faith efforts to find other buyers who may pose less harm to
competition;  and (4) would exit the market absent the acquisition.)  In recent hearings, the FTC
considered whether to broaden the failing firm defense.  The general reaction was no - the current
narrow exception makes economic sense and workers cannot be insulated from change.  They likely
will lose jobs regardless whether the firm fails or  merges to become more efficient.  But we also
believe that by incorporating efficiency considerations in our merger analysis, we can be sensitive to
changing industry conditions, which often reduce competitive concerns in such mergers.WT/WGTCP/W/67
Page 5
This is not to say that unemployment is not an important issue.  It is.  So are worker
retraining, continued health coverage and related concerns.  But policies other than competition policy
are best adapted to deal with these serious problems.  Competition policy will not work if it tries to
satisfy too many objectives, some of which are in tension.
5. How should countries ensure the harmonizatio n, or otherwise manage the interaction, of
national competition laws with other elements of their national legal regimes, which may
incorporate provisions that limit competition?
First, keep principal responsibility for enforcement of competition law in the country's
competition authorities.  Thus, when a country deregulates or liberalizes certain sectors such as
telecommunications or transport, it should seriously consider whether the competition authorities
rather than the old (or new) regulators should be responsible for maintaining competition in that
sector.
Competition officials need to be included on inter-agency groups and committees to advocate
the value of competition principles.  They should also maintain good relations with the legislature and
advise on important competition issues in pending legislative proposals.
6. Regarding the use of positive comity principles as a tool for resolving competition policy
problems while minimizing international conflicts of jurisdiction, is this workable incircumstances where anti-competitive practices originate in economic sectors which are
excluded from the purview of national competitio n laws in the jurisdiction where the practices
are occurring?
No.  A positive comity request must be based upon a violation of the competition laws in the
country where the anti-competitive practices are primarily occurring.  Otherwise, the agency beingasked to investigate and prosecute would have no authority to do so.
Nevertheless, even if a competition agency could not formally accept a positive comity
request because the alleged conduct did not violate its law - due to an exemption or exclusion, for
example - in appropriate cases, that agency might assist the requesting agency in pursuing relief under
the requesting country's laws, for example by providing relevant information.  A trade policyapproach might also be appropriate where statutory exemptions are involved.
7. To what extent can countries "leapfrog" down the learning curve of formulating and
implementing sound national competition regimes by drawing on the experience of countries
with longer experience in the administrati on and enforcement of competition laws?
Greatly.  Thirty-five countries have enacted competition laws since 1990 and in the
intervening few years the vast majority have developed a far more sophisticated understanding of
competition theory and enforcement than United States officials had ten years after the Sherman Actwas enacted.  Technical assistance programmes enable countries with new competition laws to
establish an effective competition policy as soon as possible and "leapfrog" down the learning curve.
Experienced attorneys and economists from countries with an antitrust tradition are sometimes
available to work on a long term basis (six months) with officials in the new competition authorities.
Officials coping with how to enforce new competition laws also can come to visit agencies such asDOJ or the FTC for a short time to hear and see face-to-face how competition laws are enforced.
The Internet and home pages of various competition authorities with experience in enforcing
competition policy provide a wealth of guidance and legal precedent useful for grappling with
competition policy issues.WT/WGTCP/W/67
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8. Recognizing that, in some cases, anti-competitive practices by enterprises may have
their origins in tacit and explicit government poli cies that tolerate and encourage such practices,
what measures in addition to the implementati on of competition laws directed at enterprise
conduct may be necessary to fulfil the goals of competition policy?
Competition advocacy.  The domestic competition authority should dissuade other
government agencies at every level (national, regional and local) from designing or administering
legislation or regulations that impede competition in any market.  Competition authorities should
focus as much attention on removing domestic state-sanctioned impediments to free market rivalry as
they do on preventing purely private anti-competitive conduct.  They should be consulted or allowed
to comment when other government agencies are ma king decisions that affect competition policy,
such as deregulation.
Trade and competition officials from other nations should intervene with national authorities
that encourage or tolerate anti-competitive practices.  They should help to educate local businesses
and consumers to make them aware of how they are harmed by such practices.
The domestic competition law should provide for private rights of action so domestic and
foreign firms that are harmed by the anti-competitive practices (e.g., of standard-setting organizations
that unfairly exclude them) have some recourse and also exert pressure for change.
9. What is the optimal balance between enforcement and non-enforcement of competition
laws?  How do competition authorities avoid becoming "just another regulatory body"?
Given limited budgets, it is unlikely that an economically-attuned competition policy will be
perceived as over-regulatory.  If anything, a compet ition agency is likely to have inadequate resources
to cope with the wide variety of potentially anti-competitive practices that it confronts.
Whenever possible, an enforcement approach ra ther than a regulatory pre-screening approach
should be adopted.  An enforcement approach conserves resources, sends clear signals and is less
likely to become over-regulatory.  When a scre ening approach is necessary - as with proposed
mergers which are virtually impossible to undo after the merger - there should be clear safe harbours
or exemptions to relieve both parties and governments of the need to devote resources tounproblematic cases.  There also should be clear standards consistent with economic principles (not
rigid categories) to allow businesses to plan their conduct and predict official reactions and to enable
enforcers to act consistently.
Remedies should be one-time prohibitions or fines (or imprisonment) or structural fixes, such
as divestitures, that can be implemented once and for all up front to solve the anti-competitive
problem.  Competition officials should avoid remedi es that require ongoing supervision, regulation of
access, or pricing supervision, e.g., of intellectual property royalties.
10. How can countries promote a "culture of competition" to supplement and reinforce the
positive effects of implementation of competition laws?
Again, an aggressive advocacy of competition is the best defense.  Develop allies in
government, in the business sector and among c onsumers or consumer groups.  Give speeches that
demonstrate to consumers the savings obtained from enforcement actions.  Encourage businesses andacademics to work with the competition agency in drafting guidelines, or allow businesses to obtain
advisory opinions on proposed transactions, e.g., joint ventures.WT/WGTCP/W/67
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Promoting a "culture of competition" also re quires effective implementation of competition
laws to signal where the line lies between good and bad behaviour and to achieve a deterrent effect.
Potential penalties must be sufficiently large as not to be deemed a cost of doing business.  Personal
liability - as opposed to simple corporate liability - can dramatically contribute to establishing a sense
of personal responsibility to comply with the law.
11. [Question addressed to the EC]
12. Smaller countries are sometimes affected by mergers that eliminate rivalry between
local divisions of multinational enterprises (MNEs), where the merger has been "approved" or
authorized in the jurisdiction in which the MNEs are headquartered.  Do the competition
authorities of jurisdictions which are headquarters  to MNEs take into consideration the effects
that such mergers may have in other countries where those MNEs operate?
The substantive jurisdiction of a nation's competition laws determines where the effects will
be measured.  Section 7 of the Clayton Act prohibits a merger or acquisition where in any line of
commerce or in any activity affecting commerce in any section of the United States, the effect may be
substantially to lessen competition, or to tend to create a monopoly.  Thus, United States authoritiesfocus on the effects of the proposed merger within the United States.
However, the relevant geographic market may be larger than the United States.  In such a
case, the merger may well have effects outside the United States.  At the least, DOJ or the FTC may
want to contact foreign firms, which may be potential or actual competitors, suppliers or customers.
In cases with transborder geographic markets, United States authorities will notify a country whose
interests are affected or whose nationals may be contacted, pursuant to either the OECD
Recommendation on Cooperation or a bilateral c ooperation agreement (with Australia, Canada,
Germany, and the EC).  In addition, the merging firms may have filed in other countries if their
merger law thresholds were triggered.  Ideally, if a market includes more than one country, and the
competition laws of those countries are sufficiently similar, the competition authorities of those
countries reviewing the merger should come to similar conclusions.  There are exceptions,
nonetheless.  In Ciba-Geigy/Sandoz, both the United States and the EC found that there was a globalmarket in R&D for some of the relevant products.  The United States imposed a more stringent
remedy, however, in part because of differences in what our respective intellectual property laws
protected.  Boeing/McDonnell Douglas is also somewhat unusual.  There, notwithstanding a global
market in commercial aircraft and relatively similar competition laws, there were sufficient
differences in how each authority analyses mergers and vertical restraints to cause the United States
and EC authorities to come to different conclusions.
It is also possible that a merger has effects in several countries even though the relevant
markets are country specific (e.g., when national regulatory approval entails a national market) or
non-overlapping.  United States competition authorities would in such instances also contact countries
whose interests were likely affected whenever a cooperation agreement was applicable.  In addition,
the firms will have filed in those countries whose merger law thresholds were met.  In cooperating
with other reviewing authorities, competition officials become aware of each others' concerns and canwork together toward remedies that solve the co mpetitive concerns in the each jurisdiction without
imposing inconsistent obligations on the parties (and their ability to comply).  Cooperation among the
reviewing authorities enables each to focus effectively on the concerns arising in their own territory
without defeating efficiencies that may be realized in other countries as a result of the merger.WT/WGTCP/W/67
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This last point demonstrates the value of having a merger control law and being party to
cooperation agreements.  Recently, the FTC reviewed the merger of a German and Brazilian firm
which were the two leading producers of diesel truck engine pistons in the United States.  The FTC's
remedy addressed the problem in the United States market.  The FTC had no authority to inquire into
whether there might be anti-competitive effects solely in the Brazilian market, and Brazil might nothave wanted it to do so in any event.  If Brazil had a cooperation agreement with the United States, its
competition officials would be alerted to the possibility of such effects.
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