October 25, 2002
To: AAI Advisory Board
From: Bert Foer
A REPORT ON THE INTERNATIONAL COMPETITION NETWORK (ICN)
The International Competition Network has completed its first conference, in Naples, Italy. During its remarkably successful first year, it picked up as members 75 agencies from 66 jurisdictions. Fifty were represented in Naples. A second meeting is scheduled for Mexico City in June, 2003.
On October 8, the American Bar Association sponsored a brown-bag session to hear from three public officials who played a significant role in the Naples meeting. I will summarize their oral presentations and provide some reflections on what role the AAI should attempt to play in the on-going activities of the ICN.
Summary of Brown-bag Presentations
Bill Kolasky and Randy Tritell reported on the Merger Working Group. Adriaan Ten Kate reported on the Competition Advocacy Working Group. . Papers and much other information are on the ICN website, http://internationalcompetitionnetwork.org.
1. Bill Kolasky, Deputy Assistant Attorney General, U.S. Dept. of Justice
Kolasky spoke about the Merger Working Group's Analytical Subgroup, which was chaired by John Vickers. In Naples, there was a panel discussion covering three issues.
(a) Substantive Standards
This area has become controversial because of the EU's Green Paper and the Air Tours case. The question seems to be, primarily, whether the US model (substantial lessening of competition, "SLC") and the European model (dominance) are really different. There is agreement that they both focus on whether a merger will increase market power and whether it will create monopoly or collective dominance. But is there a 3rd (or a 4th) category that is reached by one test but not the other? And if there are differences, how important are they? The objective is not to support one model or the other but to clarify their relationship.
(b) Non-competition Factors in Merger Review
Some developing nations feel the need to include industrial policy (e.g., protection of home companies or empowerment of minorities) within an antitrust analysis. The ICN is focusing on safeguards that would be appropriate if a nation determines that other factors are to be considered. (E.g., considered by whom? Role of transparency?)
(c) Role of Efficiencies in Merger Review
The consensus is that efficiencies should be looked at and considered positively. Issues include (1) what should be the standard, i.e. consumer welfare or total welfare? (2) what should be the standard of proof - e.g., do many mergers fail and if so, what is the relevance of this fact? (3) should efficiency be part of the competition effects analysis, as in US, or handled differently?
The next steps, says Kolasky, will be to compile existing merger guidelines (i.e., Canada, US, UK, and EU) and then develop model guidelines.
In addition, there will be an inquiry regarding Investigative Techniques headed by Menachem Pearlman of Israel, featuring a workshop in Washington on Nov. 21-22 for working level officials to focus on practical suggestions on conducting merger investigations, leading to development of a manual.
2. Randy Tritell, Assistant Director for International Antitrust, Bureau of Competition, Federal Trade Commission
Tritell said that the mission of the Mergers Working Group is (1) to enhance the effectiveness of each jurisdiction's merger review mechanisms, (2) work toward convergence, (3) reduce the public and private time and costs of multijurisdictional merger reviews. He described 5 main projects: (1) a survey of costs/burdens of notification and review processes (a report was drafted); (2) transparency as to procedures (now has 20 jurisdictions on website explaining key features of their systems); (3) transparency as to features (working on a template to highlight key features of review regimes; (4) Guiding Principles (a baseline of fairly general obligations that should be in any country's merger review process); and (5) Recommended Practices for competition authorities. He went into more detail on the last two projects.
Guiding Principles-eight were adopted in Naples, although a few questions were left open. The eight are: (1) sovereignty - clarifying that small jurisdictions can also stop mergers; (2) transparency - that there is a right to know what's required and the reasons for adverse action; (3) nondiscrimination - merger decisions not on the basis of nationality; (4) procedural fairness - there should be a notice of the basis for concerns and an opportunity to address them, review of adverse decisions, opportunity for parties that suffer harm to express views; (5) efficient, timely and effective review; (6) coordination encouraged; (7) convergence toward best practices - desired but not mandated; and (8) protect confidential information.
Recommended Practices. This is handled by blackletter generalizations followed by comments, like the Restatement of Law. Three areas were deemed most pressing and amenable to consensus:
(1) Nexus to reviewing jurisdiction. One open question that was discussed is whether the appropriate basis for notification thresholds should be extended beyond what was in the draft, to cover potential competition (the draft would only require notification by companies that both do business in the jurisdiction or where an outside company acquires a company in the jurisdiction-e.g., should it also apply to a potential competitor outside the jurisdiction being acquired by a monopolist in the jurisdiction?)
(2) Notification thresholds. Want clear and objective thresholds that parties can determine whether they meet based on readily accessible data.
(3) Timing. Notification could be based on a certification of good faith intent to close the transaction, and suspensive jurisdictions should not impose filing deadlines.
The next steps, said Tritell, would be continued development of weblinks to national merger laws, policies and procedures, and completion of templates; fine tuning the recommended practices; developing additional practices such as, e.g., time frames and information requests; and implementation through speeches and outreach, incorporation into training programs, leadership by example, monitoring.
3. Adriaan Ten Kate, Chief Economist, Mexican Competition Authority
Ten Kate reported on the Competition Advocacy Working Group. This group designed and revised a questionnaire, obtained survey results, and drafted a report and executive summary. A number of generalizations flowed from the survey:
(1) Advocacy should be institutionalized as much as possible.
(2) Consultation should be timely.
(3) In case an advocacy opinion is not followed, regulators should be obliged to give reasons.
(4) Public access to advocacy opinions would be helpful.
(5) Advocacy is complementary, not a substitute for law enforcement (even in developing nations)
No conclusions were reached as to best practices in advocacy. Consensus has not been easy to reach. Four subgroups were formed in Naples. These will focus on: (1) creation of an information center; (2) development of a model advocacy provision; (3) specific sector studies; (4) practical techniques. Progress reports are desired in June.
It was also reported by one of the speakers that a new Capacity Building Working Group was decided upon. It will be chaired by Philip Lowe of the EU and will focus on three subjects: (1) building the case for effective competition policy in developing countries; (2) methodology for implementing policies and authorities in developing countries; and (3) strategy for support fom partner countries and multinatural agencies.
The ICN is a fundamentally good idea and it would appear to be off to a good start. AAI should be firmly in the camp of supporting the ICN.
Some questions have been raised about the ICN. If the question is whether the US is putting too much effort into this relatively loose approach to solving international competition policy problems, the answer seems to be that this is an important, long-term task, that it is attracting a great deal of international support and engagement, and that the personnel and resources committed to it by the US appear to be pretty small.
If the question is whether the US is using the ICN to push its own model (or a narrow ideological model) on the rest of the world, this seems unlikely today. The effort is one of consensus building, with nothing binding. There may be some opportunities to push an ideological view, but the effort thus far sounds moderate, technical, and relatively non-political. This could possibly change as the activity becomes more formalized and entrenched and the issues become less subject to consensus.
It is disappointing, at least in theory, that consumer and public interest advocates have not played a role. I am told that Alan Asher of the Consumers Association in the UK was the only consumer advocate in Naples. The rest of the private sector generally has not played much of a role, except in North America and, to a lesser extent, Europe. Decisions on who from the private or NGO sectors would play an advisory role are made on a decentralized basis in each country. If the AAI were to seek out a larger role, we would probably want to focus on all or some of the following issues.
(1) Procedural Fairness. We would probably advocate more than has been agreed upon, e.g. that in merger review there would be a role for NGO's as well as merging parties and some injured competitors. Admittedly, this would -probably for many years--open the door for interest groups more than for public interest groups (since so few around the world have any interest or expertise in competition policy). Given that the Guiding Principles merely try to establish a floor and that the argument over this particular point seems closed, there is not a lot to be gained by pushing on this.
(2) Potential Competition. AAI supports the idea that potential competition doctrine deserves a larger role than it currently plays. The 'nexus' best practice draft has created questions about the role of potential competition and is still deemed an open question. It was vigorously debated in Naples.
(3) Efficiency. AAI would not disagree that efficiencies are relevant and can be positive, but would take a relatively skeptical view on the implementation of a role for efficiencies as a defense.
(4) Training. AAI has strongly advocated and would continue to advocate solid training programs targeted on the staff of competition authorities in developing nations. ICN is not envisioned as a technical assistance provider.
(5) Advocacy. AAI would probably advocate policies aimed at encouraging the creation and empowerment of public interest advocates for the competition policy function within each nation. Such groups would likely have a specially intense interest in the advocacy function of competition authorities.
(6) Other issues will surely arise over the years as the ICN continues to expand its horizons. As it moves from low hanging fruits on which consensus is relatively easy to build, controversies will become more intense and a non-governmental voice may be more important than it is today.
The following members of the AAI Advisory Board already serve in their individual capacities as advisors to the Merger Working Group: Don Baker, Andy Gavil, John Nannes, Jim Rill, and Spencer Waller. Presumably any one of them could bring to AAI's attention any specific issues or problems that they believe would warrant our involvement. If AAI were to seek out a larger, on-going role, the costs in terms of time and money would require a restructuring. My sense, therefore, is that we should not seek out an on-going deep engagement, but rather keep our collective eyes open and offer occasional opinions through whatever channels are open when a need appears. It would be helpful if our own Advisory Board members are selected for each functional area of the ICN.