COOPERATION BETWEEN ENFORCEMENT AGENCIES:
BUILDING UPON THE PAST
Prepared Remarks of
Hon. Christine A. Varney
U.S. Federal Trade Commission
APEC Committee on Trade and Investment
Conference on Competition Policy and Law
Auckland, New Zealand
July 25, 1995
I am pleased to be here in Auckland to participate in this APEC Meeting on Trade and Competition, and I appreciate very much the opportunity to speak to you on the subject of cooperation in international competition policy development and law enforcement. I am one of the five Presidentially appointed and Congressionally confirmed U.S. Federal Trade Commissioners. The views I will be expressing are my own, and do not necessarily reflect those of the Federal Trade Commission as a whole or of any other Commissioner. Although there is a very close working relationship between our Commission and the U.S. Department of Justice, my views do not, of course, necessarily reflect those of the Department. However, I am sure that I will not stir up any controversy at the Commission or the Department in expressing strong support for the goal of increased cooperation among nations in competition cases with transnational or multinational aspects.
I am going to begin today by briefly mentioning two recent manifestations of the U.S. commitment to cooperation, after which I will discuss, first, the U.S. current cooperation agreements, and second, our current cooperation initiatives. I will then discuss approaches APEC might take to cooperation, and I will conclude by discussing the relationship between cooperation among competition authorities and convergence of competition law.
I. The U.S. Commitment to Cooperation
There are two reasons I can be so confident in speaking about the U.S. agencies' attitude toward cooperation among antitrust authorities. First, on April 5th of this year, the Commission and the Department issued joint Antitrust Enforcement Guidelines for International Operations. Those Guidelines not only manifest cooperation between two sometimes competing U.S. agencies, they emphasize strong commitment by both agencies to cooperation with foreign authorities. Thus, the Guidelines begin by noting that "[t]hroughout the world, the importance of antitrust law as a means to assure open and free markets, protect consumers, and prevent conduct that impedes competition is becoming more apparent." As a result, the Guidelines state, the agencies "have made it a high priority to enforce the antitrust laws with respect to international operations and to cooperate wherever possible with foreign authorities regarding such enforcement."
Second, both the Department and the Commission strongly supported the International Antitrust Enforcement Assistance Act of 1994, an important new U.S. statute that permits us to provide confidential information to foreign antitrust authorities pursuant to agreements that meet the Act's requirements. We refer to this statute as the IAEAA, which certainly is a tongue-twister -- part of our cooperation at the staff level has been to advise officials in other countries that if they seek similar enabling legislation, as we hope they will, they should pay more attention than we did to its title. Seriously, though, I believe that the statute exemplifies how very serious is the U.S. commitment to cooperation.
II. Current Forms of Cooperation
Section 2.9 of our recent Guidelines describes the formal and informal types of cooperation we use. We have formal cooperation with some countries under multilateral, regional, and bilateral arrangements. Of course, we also have informal cooperation with these same countries, but much of what I see as informal cooperation occurs on a more ad hoc basis in our dealings with other countries. In addition to meetings to discuss particular enforcement issues, the technical assistance work that we and the Department of Justice do is certainly a form of cooperation, as is much of the discussion that occurs at conferences such as this one.
A. Multilateral Arrangements -- The OECD
As far back as 1967, the Organization for Economic Cooperation and Development ("OECD"), issued a set of recommendations to member states on the legislative and administrative treatment of restrictive business practices. These recommendations led directly to the collection and dissemination of information on competition law developments among OECD member states, and to the 1986 OECD recommendation that competition enforcement authorities provide government-to-government notification when an enforcement action may directly affect the interests of another member country or its nationals. Both the Commission and the Department follow OECD recommended practices with respect to all member countries.
B. Regional Arrangements -- NAFTA
There is a growing number of regional free trade agreements -- the European Union, Mercosur, and the Trans-Tasman Agreement to name a few obvious examples -- and others are under consideration, including the Asian Free Trade Area of ASEAN. For the U.S., our only venture into this area was to join with our two APEC neighbors, Canada and Mexico, in the North American Free Trade Agreement ("NAFTA"). NAFTA came into effect January 1, 1994, and will abolish over a period of fifteen years virtually all current restrictions on trade and investment among our countries. NAFTA represents a long-term commitment to promote competition, market access, business efficiency, and consumer welfare within and between the United States, Canada, and Mexico.
NAFTA is expected to promote competition by eliminating trade barriers, and although the agreement does not say much about competition enforcement, it does provide a framework for cooperation among antitrust authorities. Article 1501 of Chapter 15 of the NAFTA Act provides that the signatories shall adopt or maintain competition laws and shall consult and cooperate with each other about enforcement. Article 1504 establishes a "working group" whose mandate is to report on issues regarding competition law and policy and trade law in the free trade area. NAFTA's expression of intent to cooperate in competition enforcement, but our actual cooperation is handled on a bilateral basis.
C. Bilateral Arrangements
We have written bilateral cooperation agreements with three countries -- Australia, Canada, and the Federal Republic of Germany. In addressing this APEC Conference, I don't need to add that two of our three agreements are with APEC countries, but I do want to underscore that point because it, in turn, underscores the broader point that while cooperation may be new to APEC, it is not new to APEC countries.
These three agreements provide for cooperation, but their emphasis is defensive; they were designed largely to avoid conflicts arising out of antitrust enforcement, particularly the so-called "extraterritorial" enforcement of U.S. antitrust law. Thus the agreements are limited largely to notifications of enforcement activities, consultations to resolve differences, and sharing of information that can be is disclosed under our confidentiality laws.
In 1991, the modern era of cooperation arrived with the signing of a U.S./EC agreement. Although that agreement contained notification provisions that serve conflict avoidance goals, it contained much more emphasis on cooperation to make antitrust enforcement more efficient and more effective. The most significant innovation in the agreement is its "positive comity" provision, under which one party is able to ask the other to conduct an antitrust investigation. The provision has never been formally invoked, but it stands as an important symbol of a new spirit of cooperation.
As you all may know, last year the European Court of Justice held the U.S./EC agreement to have been improperly executed as a matter of EC law -- the European Commission had signed the agreement, whereas only the Council of Ministers had that authority. What you may not know is that the defect did not affect the validity of the agreement as a matter of international law, and we have never stopped cooperating. In the last year, we have exchanged dozens of notifications with the EC, and when we have had parallel investigations we have shared with one another extensive public information to help each other define product and geographic markets and to consider remedial approaches. We are in almost daily contact with the EC authorities to discuss one subject or another, and this level of contact helps us understand not only each other's laws, but also what each other's "significant interests."
The considerations that led to our "modern" cooperation agreement with the EC are similar to those that have put cooperation on our agenda today. In an increasingly global economy, an increasing percentage of transactions have some form or other of international dimension. In that kind of world, increased cooperation is necessary for competition enforcement to be effective in preventing or halting anticompetitive activities and also for it to be efficient, from the point of view of both the enforcement authorities and the international business firms. Therefore, we are discussing with various countries the possibility of entering into more "modern" cooperation agreements.
D. Informal Cooperation
As noted above, informal cooperation occurs in many different contexts - - too many for me to try to discuss. What I do want to say is how important we regard this informal cooperation. Section 2.9 of the Guidelines begins with the statement that "[t]o further the twin goals of promoting enforcement cooperation between the United States and foreign governments and of reducing any tensions that may arise in particular proceedings, the Agencies have developed close relationships with antitrust and competition policy officials of many different countries." Formal cooperation agreements are useful, and agreements permitting the sharing of confidential information will take cooperation to new levels, but most important is the development of close relationships, which are necessary both to negotiating formal agreements and to making them work.
E. Cooperation as a Theme of the Guidelines
We attempted to stress the cooperation theme in our Guidelines both by the discussion in Section 2.9, which I've just mentioned, and by including a substantial discussion of comity. I referred earlier to the "positive comity" aspect of the U.S./EU agreement, but the Guidelines focus on traditional comity concepts -- the principles of deference that are now, unfortunately but perhaps inevitably, referred to as "negative" comity factors. This comity discussion, contained in Section 3.2, states that "in determining whether to assert jurisdiction to investigate or bring an action, or to seek particular remedies in a given case, the Agencies take into account whether significant interests of any foreign party would be affected." The Guidelines also list the comity factors we consider and emphasize that we consider all relevant factors in every case.
Despite our emphasis on cooperation and comity, it is clear that at least in the proposed, "public comment" version of the Guidelines, the cooperation and comity theme was, in the eyes of some, obscured by the Guidelines' reference to the Agencies' willingness to enforce U.S. antitrust law against anticompetitive conduct abroad that has an adverse effect on U.S. exports. In taking this position, the Guidelines merely affirmed the Department of Justice policy that existed prior to 1988 and subsequent to 1992, and we were somewhat surprised to hear some say that this affirmation of the traditional U.S. position obscured the Guidelines' very new and important emphasis on cooperation. We tried to emphasize cooperation and comity even more in the final Guidelines. I hope we succeeded, and I trust that you will tell me if you think that we did not do so.
III. Future Cooperation -- The IAEAA
All of the current forms of cooperation, while important, are subject to an important limitation. U.S. law, like the law of most countries with competition agencies, prohibits the agencies from sharing with other parties confidential information they obtain in the course of their investigations. This prohibition serves an important policy. Public dissemination of such information could be harmful to the firm that provided it, to the future information-gathering efforts of the agency, and to consumer welfare.
Assuring the confidential treatment of confidential information is an important goal, but the inability to discuss or share such information with foreign antitrust authorities severely limits our ability to cooperate. Antitrust violations can be a crime in the U.S. and some other countries, and Mutual Legal Assistance Treaties can provide a mechanism to obtain confidential information in criminal cases. Indeed, our Department of Justice and Canada's Bureau of Competition Policy have recently made very good use of this mechanism, to the benefit of both countries. Until recently, however, Australia was the only country I know of that had a statute under which confidential information could be shared with foreign antitrust authorities for use in civil cases. [The Mutual Assistance in Business Regulation Act of 1992.]
We have now caught up to our Australian counterparts. As I mentioned earlier, the IAEAA now permits us to share confidential information pursuant to an agreement that meets the requirements of the Act. We are delighted at the announcement just last month that the Canadian competition authorities will be conducting a consultation process on a legislative proposal that includes an amendment to permit them to share confidential information in some circumstances. It is our hope that other countries in APEC and elsewhere will consider and enact such legislation, because we firmly believe the ability to share confidential information is vital to cooperation in our global economy.
The IAEAA has a somewhat confusing structure, and I am going to explain it in some detail. The essence of the Act is that the usual ban on our sharing confidential information does not apply if we enter into an agreement with a foreign antitrust authority or government that provides for the reciprocal sharing of antitrust evidence, contains adequate guarantees of confidential treatment, and permits the requested agency to deny any request for assistance that it considers contrary to its public interest. Once such an agreement is in place, and after the necessary public interest finding is made, the FTC and the Department of Justice are authorized both to share confidential information in their files and to use their own investigatory powers to collect confidential information that a foreign antitrust authority desires. The Department is also able to go to court to get such information. We both can share information in our files or provide investigatory assistance to foreign antitrust authorities even if the conduct being investigated would not violate U.S. antitrust law.
There are three controlling principles of the Act and of the agreements it contemplates.
- A. Reciprocity
The first principle is reciprocity. There will be no "bean-counting"; cooperation does not have to be tit-for-tat. There must, however, be general assurance that the arrangement will be genuinely a two-way street.
- B. Protection of Confidential Information
The second principle -- protection of confidential information -- is manifested by several different parts of the Act. The statute provides us with full power to protect foreign evidence that we receive, and it requires us to ensure that information we provide will be given comparable treatment. An agreement must also contain a number of specific provisions dealing with confidentiality issues, including the possibility of a breach of confidentiality. Moreover, there are certain categories of information that may be exchanged only in particular ways or that may not be exchanged at all.
We are prohibited, absolutely, from sharing classified, national security information. Special rules govern the sharing of matter occurring before what we call a "grand jury" in a criminal case; these rules essentially place a foreign authority with which we have an IAEAA agreement on the same footing as the authorities of our 50 states. Finally, the Act does not allow us to provide to share any information collected under our pre-merger notification statute. Our business community was extremely concerned about our sharing that information because of its highly sensitive and often voluminous nature. Although we cannot provide the materials we get under the pre-merger statute, we can use our own regular investigatory powers on behalf of a foreign antitrust agency, and the responses we obtain through that process could include information that we had been given under the pre-merger statute.
There is one other confidentiality-related provision that I want to bring to your attention. All information obtained pursuant to an agreement is subject to a use restriction; it may not be used for any purpose other than antitrust enforcement, or shared with any other part of the government, without the consent of agency that supplied the information. We suspect that everyone -- the U.S. included -- would be reluctant to share some information without this sort of restriction.
- C. Case-by-case Public Interest Determinations
The third principle is that each request for assistance is subject to a broad public-interest evaluation by the requested party and may be declined in whole or in part based on the results of that evaluation; thus, assistance provided under IAEAA agreements is always entirely voluntary. I want to emphasize and re-emphasize this point, because when we have discussed the Act in the past with foreign antitrust authorities we have often found confusion in this area. Just as the IAEAA is enabling legislation, agreements satisfying the Act would be enabling agreements; they would permit foreign antitrust authorities to cooperate with us when they want to do so. They would not require cooperation in any situation. In every case, the requested country would decide whether and to what extent it wants to cooperate.
This principle of voluntary assistance based on case-by-case assessment of public interest has led some to question the likely utility of IAEAA cooperation agreements. I think this voluntary aspect is vital and does not negate the value of agreements. Clearly, it would not make sense for countries to enter into such agreements if one of them anticipated declining all or nearly all requests, and the reciprocity principle could become a problem if one country declined far more requests than the other, but we are prepared to enter into IAEAA agreements even if there is only a relatively small number of situations in which a country would be likely to cooperate with us. By making it easy to decline cooperation in particular cases, we hope we are encouraging countries to establish a mechanism for cooperation that we think will prove useful. In Madison Avenue terms, we are saying, "There is no risk. Try it. We think you'll like it."
Although our law lays down some requirements that must be part of every antitrust enforcement assistance agreement negotiated under our statute, each of our agreements will also need to include provisions tailored to the requirements of the laws of the country with which we are dealing. That leads me back to the point that other than Australia, every country we are aware of would need to change its confidentiality laws before it could share confidential information, and many would probably need statutory changes before they could protect the confidentiality of information they receive. I hope that other countries will consider such changes, because we believe that information-sharing agreements can usher in a new era of antitrust cooperation and enforcement.
IV. Prospects for Antitrust Cooperation Within APEC
As I have said, there is a large and growing amount of antitrust cooperation among some APEC countries. I think that APEC can and should play an important role in increasing the frequency and the breadth of such cooperation. Although I am here to learn as well as to explain, I would think that for the near term, the appropriate role for APEC as an organization would be to serve as a clearinghouse, helping its member countries to keep abreast of what both its members and other countries are doing in the way of cooperation. In the future, APEC might want to take on a broader role, more similar to the role the OECD now plays. At present, however, given the variations in the economies and legal systems within APEC, I think that APEC can usefully study and encourage cooperation but should probably not try to coordinate or mandate it. Cooperation should be introduced when and as the various APEC countries decide that it would be useful to them, not as a system imposed from above.
V. Convergence Rather Than Cooperation?
As you know, there are those who believe that enforcement of national competition laws cannot adequately handle the antitrust aspects of our increasingly global economy. Some doubt that antitrust cooperation as I have been discussing it will ever occur; others believe that cooperation would not be useful absent "convergence" or "harmonization" of competition law; and still others believe that even convergence and cooperation will not work, that only an international competition code, perhaps enforced by an international antitrust agency, can lead to effective and efficient enforcement.
I believe that movement in the direction of convergence is important, but I think that cooperation -- not drafting a code -- is the best way to move in the direction of meaningful convergence. Let me explain.
Even among those countries that have competition statutes designated as such, and despite growing consensus in recent years, there are significantly different approaches to some competition issues. For example, different industry sectors have statutory exemptions in different regimes, and whereas nonexempt cartel behavior is always illegal in the U.S., in some areas the antitrust authorities may grant exemptions not only to what we would consider joint ventures, but to actual cartels. There are also substantive differences among countries, including many APEC countries, in the legal status of vertical restraints by a manufacturer on its distributors and of "unconscionable terms" in business contracts with sub-contractors. While some countries balance anticompetitive effects against benefits such areas as international commerce, regional development, and labor markets, other countries' laws either as written or interpreted focus on such economic concepts as consumer welfare and allocative efficiency.
In addition to these substantive differences, countries have different legal systems. Like several other APEC members, the U.S. has a legal system based in common law rather than in a civil code; most of our competition law is judge-made and has grown up gradually out of judicial precedents elaborating broadly worded statutes. Other countries have civil codes and require judges to apply precise rules without being either bound by precedent or free to reason by analogy to prior cases and other statutes.
I am not here to say that these differences are insuperable, but rather that countries are not likely to be eager to give up competition rules that they know in favor of rules that are entirely new to them. Similarly, countries that do not have competition laws may want to build on their existing legal structures rather than, or at least before, signing onto an international code. This, I believe, is how cooperation promotes convergence: it exposes people to new systems, builds understanding and trust, and permits incremental convergence of analytical approaches.
I want to emphasize that I am not basing my views only on theory. The cooperation that we have been engaging in has in our experience been leading to what some have called "de facto convergence." For example, everyone here knows that U.S. antitrust law is different from EC competition law. Now, our cooperation with the EC has obviously not changed the statutes we enforce, but working together has, we believe, led to convergence of the core principles that underlie both statutory schemes. To illustrate, it is often and accurately said that market definition can be outcome determinative in competition cases; cooperation that increases the similarity of market definition principles can result in convergence that is far more meaningful than that which is likely to result from making the FTC and Sherman Acts read more like the Treaty of Rome, or vice versa.
Thus, I don't really think we face a choice between cooperation and convergence. I do think that convergence of competition laws themselves should and will happen; the question is how. I think the answer is that the best approach is convergence through cooperation.
I hope I have given you a sense of the direction that the U.S. enforcement agencies are pursuing. I want to stress two points. First, we think that cooperation among antitrust authorities is vital to effective and efficient enforcement. Second, cooperation, like convergence, is an evolutionary process that involves the growth of understanding and trust; APEC should at this point support cooperation by serving as a clearinghouse, but it is not necessary and could be counterproductive to seek to coordinate or mandate cooperation among countries that have many common interests but also many different economies and approaches to competition law.