[Senate Hearing 106-458]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 106-458

 
                        INTERNATIONAL ANTITRUST

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

ISSUES RELATING TO INTERNATIONAL ANTITRUST COOPERATION AND ENFORCEMENT, 
  INCLUDING POSITIVE COMITY AGREEMENTS, THE FLAT GLASS INDUSTRY, AND 
                   PROBLEMS WITH THE JAPANESE MARKET

                               __________

                              MAY 4, 1999

                               __________

                          Serial No. J-106-21

                               __________

         Printed for the use of the Committee on the Judiciary



                    U.S. GOVERNMENT PRINTING OFFICE
63-623 CC                   WASHINGTON : 2000



                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire

             Manus Cooney, Chief Counsel and Staff Director

                 Bruce A. Cohen, Minority Chief Counsel

                                 ______

      Subcommittee on Antitrust, Business Rights, and Competition

                      MIKE DeWINE, Ohio, Chairman

ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont

             Pete Levitas, Chief Counsel and Staff Director

        Jon Leibowitz, Minority Chief Counsel and Staff Director

                                  (ii)



                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page
DeWine, Hon. Mike, U.S. Senator from the State of Ohio...........     1
Kohl, Hon. Herbert, U.S. Senator from the State of Wisconsin.....     3
Leahy, Hon. Patrick J., U.S. Senator from the State of Vermont...     4
Specter, Hon. Arlen, U.S. Senator from the State of Pennsylvania.    16

                    CHRONOLOGICAL LIST OF WITNESSES

Panel consisting of Joel I. Klein, Assistant Attorney General, 
  Antitrust Division, U.S. Department of Justice, Washington, DC; 
  and Robert Pitofsky, chairman, Federal Trade Commission, 
  Washington, DC.................................................     5
Panel consisting of Peter S. Walters, group vice president, 
  Guardian Industries Corporation, Auburn Hills, MI; Gorton M. 
  Evans, president and chief executive officer, Consolidated 
  Papers, Incorporated, Wisconsin Rapids, WI; and John C. 
  Reichenbach, director of government affairs, Pittsburgh Plate 
  and Glass Industries, Washington, DC...........................    25

                ALPHABETICAL LIST AND MATERIAL SUBMITTED

Evans, Gorton, M.:
    Testimony....................................................    27
    Prepared statement...........................................    29
Klein, Joel I.:
    Testimony....................................................     5
    Prepared statement...........................................     7
Pitofsky, Robert:
    Testimony....................................................    11
    Prepared statement...........................................    13
Reichenbach, John C.:
    Testimony....................................................    32
    Prepared statement...........................................    35
Walters, Peter S.: Testimony.....................................    25



                        INTERNATIONAL ANTITRUST

                              ----------                              


                          TUESDAY, MAY 4, 1999

                           U.S. Senate,    
    Subcommittee on Antitrust, Business Rights,    
                                       and Competition,    
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:30 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine 
(chairman of the subcommittee) presiding.
    Also present: Senators Kohl and Specter.

OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Senator DeWine. Good morning. I apologize for starting half 
an hour late. As you know, the Senate has been voting on the 
Kosovo resolution.
    Let me welcome all of you again to the Antitrust, Business 
Rights, and Competition Subcommittee. Today's hearing is the 
third in a series of our subcommittee's antitrust oversight 
hearings. At each of our oversight hearings, we have spent some 
time on international antitrust enforcement, and today, we are 
actually going to focus on that particular issue, which we 
think is a vitally important issue.
    Senator Kohl and I have worked closely on this issue with 
both of the antitrust enforcement agencies, and we are happy to 
have with us back again Joel Klein. Joel, thank you very much 
for joining us. Joel Klein, of course, is of the Antitrust 
Division, and Robert Pitofsky of the Federal Trade Commission. 
We welcome both of you here today.
    As noted at last October's hearing on this subject, 
international antitrust enforcement is becoming increasingly 
important. Expansion of global trade, the increasing impact of 
the Internet, and the more rapid cross-border flows of capital 
and resources are fundamentally reshaping the way American 
companies operate today. More and more business is conducted in 
the international marketplace, which means that more and more 
often, American companies find themselves involved in legal 
controversies in foreign jurisdictions.
    Unfortunately, many foreign companies do not have the same 
commitment to free and open markets that we in the United 
States do. Some of these nations do not have strong antitrust 
laws to protect competition, and even among those countries 
that do, enforcement is often less vigorous than we would like. 
As a result, American businesses are often faced with unfair 
anticompetitive actions by foreign competitors in these 
overseas markets.
    In order to address these concerns, U.S. agencies have 
entered into a number of agreements designed to increase 
cooperation among international antitrust authorities. As many 
of you know from our previous hearings on this issue, this 
subcommittee has been troubled by the implementation of these 
positive comity agreements. Enforcement by foreign antitrust 
authorities has sometimes not met the high standards set by our 
own agencies, leaving American businesses to suffer the 
consequences of unfair and anticompetitive business practices.
    Despite these difficulties, I am happy to report that we 
have been seeing improvement in a number of instances. Two of 
the witnesses at our last hearing, representatives of Marathon 
Oil and representatives of the SABRE Group, have seen 
significant progress in the investigation of their respective 
complaints. Senator Kohl and I have been working closely with 
Mr. Klein, Mr. Pitofsky, and with their colleagues in the 
European Commission and both matters are proceeding at a much 
better pace. We will continue to monitor and work on these 
issues and we anticipate further progress in the months ahead.
    While we seem to be making good progress with our 
colleagues in Europe, serious problems still remain in Japan. 
On our second panel today, we will hear from representatives of 
three companies that have been having tremendous difficulty in 
the Japanese market. Despite a great deal of work by this 
subcommittee and by the American enforcement agencies, we have 
seen virtually no progress on this issue. Accordingly, at 
today's hearing, we will focus on antitrust problems in the 
Japanese market.
    Before I turn to Senator Kohl, let me address one 
additional point. The Justice Department has been in 
discussions with its counterparts in Japan regarding a positive 
comity agreement. This agreement, as I understand it, is 
similar in substance to some of the earlier antitrust 
cooperative agreements we have signed with our colleagues in 
the European Community.
    On balance, I believe positive comity agreements are 
generally a good thing. Based on our experience, it seems that 
they help to diffuse some of the tensions that sometimes arise 
in the course of antitrust investigations involving companies 
from different countries. I think the jury is still out on how 
much they help, but they usually seem to provide some benefits.
    However, in the case of Japan, I think we must proceed very 
cautiously. We have signed a number of agreements in the past 
with Japan and have seen these agreements ignored repeatedly 
and the interests of American companies violated. Senator Kohl 
and I, along with 24 other U.S. Senators, sent a letter last 
week to the President making our position clear. In the current 
environment, given the continual failure of the Japanese 
government to honor past agreements, we do not think it 
appropriate to sign a positive comity agreement.
    I understand, however, that Mr. Klein will endorse a 
different position today, which we certainly respect, and that 
the administration is planning to enter into this positive 
comity agreement. I believe there were discussions about it 
yesterday. I think Mr. Klein and Mr. Pitofsky will have a long, 
difficult road to travel in their efforts to gain some 
cooperation from the Japanese, and we certainly wish them luck.
    Therefore, I do not believe that this is the best way to 
proceed. Instead, I think the Justice Department should 
strongly consider the extraterritorial enforcement of our 
antitrust laws in order to prevent Japanese companies from 
violating the rights of American companies.
    Let me emphasize again, however, this subcommittee has a 
great deal of faith in both of our witnesses today and we will 
support their efforts to implement any agreement that is 
reached. In the meantime, we will continue with our own efforts 
to protect the legitimate business interests of American 
companies in Japan.
    Let me at this point turn to the ranking minority member of 
this subcommittee and someone who I have enjoyed working with 
for the last few years, and that is Senator Kohl. Senator Kohl?

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. Thank you, Mr. Chairman, not only for holding 
this hearing on international antitrust enforcement but for 
doing so today, as Prime Minister Obuchi of Japan, a country 
whose markets are most decidedly closed, visits the President. 
It is a good time to assess competition in the international 
marketplace and determine whether our trading partners have a 
commitment to free markets. The truth is that we are doing 
fine, but our foreign counterparts are not. Let me explain.
    First, the good news. Our laws promote competition, our 
judicial process is open, and our enforcement authorities, led 
by Mr. Pitofsky and Mr. Klein, make sure that the system works 
well.
    Indeed, after a slow start, it is becoming clear that our 
most important positive comity agreement, with the European 
Union, is beginning to pay off. Although it has taken some 
time, the EU has now acted on the first ever positive comity 
request from the SABRE group, and we have also seen some 
progress in the European investigation of the Marathon Oil 
matter. Just last week, the United States signed a positive 
comity agreement with Australia, which will help our two 
countries work together on antitrust violations.
    But there is also bad news, especially from countries that 
have failed to open their markets. For example, after decades 
of trying to open the Japanese markets to paper, flat glass, 
and rice, and after we have signed several bilateral treaties 
to do just this, American companies are still frozen out of the 
Japanese market. Although the Japanese say all the right things 
and sign all the right agreements, their keiretsu of 
manufacturers and distributors has made it impossible for hard-
working companies to bring competitive products to Japan.
    Indeed, as Buck Evans of Consolidated Papers will tell us 
today, the Japanese work hard at appearing to open their 
markets, only in the end to deny foreign companies realistic 
chances to sell. After jumping through hoops for 6 months so 
his company's product would meet Japan's so-called market 
standards, his paper simply languished on the Japanese delivery 
docks, and languished, and languished some more, until finally 
he decided that breaking open the Japanese markets was not 
worth the headache. Keep in mind that American paper products, 
like flat glass, are unquestionably the best in the world.
    So the lessons of Buck Evans and his colleagues come down 
to this: The Japanese markets are about as open and competitive 
as ours were 100 years ago, when John D. Rockefeller controlled 
the oil and Jay Gould controlled the railroads. Perhaps that is 
why the Japanese declined our invitation to testify here today. 
But one thing is clear. We need to take more forceful action, 
not only with our trade laws, but also with our antitrust 
statutes, to go after this protectionist behavior.
    In that regard, this may not be the most opportune time to 
sign a positive comity agreement with Japan, but if we do, it 
needs to be monitored very closely to ensure that the Japanese 
adhere to the letter and the spirit of their promises, and we 
should not hold our breath.
    To be sure, we are not asking for favoritism for American 
firms to compete in Japan. All we want is for the Japanese to 
follow through with their commitments and open their markets 
the way we opened ours and for the President to more 
aggressively pursue compliance. Otherwise, I worry that if we 
do not see progress on the issue, it will continue to fester in 
Congress until it simply explodes, and that would not be good 
for either country.
    With that, I look forward to hearing what our witnesses 
have to say today. I thank you.
    Senator DeWine. Senator Kohl, thank you very much.
    At this point, I would like to enter the prepared statement 
of Senator Leahy into the record.
    [The prepared statement of Senator Leahy follows:]

             Prepared Statement of Senator Patrick J. Leahy

    Chairman DeWine and Senator Kohl, I greatly appreciate you holding 
this hearing. I applaud your continued efforts to protect American 
consumers and businesses from unfair foreign business practices.
    American consumers are often the victims of foreign collusion and 
cartels, and American businesses are often unable to play on a level 
playing field in foreign markets. Those who export to the United States 
and foreign interests that operate here gain the benefit of our 
antitrust laws--yet the favor often is not returned.
    As the world becomes more interdependent, it becomes more important 
for the United States to work to establish an antitrust enforcement 
scheme to assure fair and equal treatment of our companies in foreign 
countries. The problem of transnational cartels is very real, and it 
grossly distorts free trade.
    I was pleased to work closely with the Justice Department and the 
FTC on the International Antitrust Enforcement Assistance Act of 1994. 
I worked with then-Assistant Attorney General Anne Bingaman on that 
effort. As an original sponsor and supporter of that act, I am anxious 
to hear from the Justice Department and the FTC on how they feel it is 
working. International antitrust enforcement assistance agreements can 
give U.S. consumers greater protection against foreign monopoly power 
and can help promote U.S. commerce overseas.
    Vigorous international antitrust enforcement will be helpful to 
American businesses wishing to compete in foreign countries. The 
comments of the Director of Government Affairs for PPG Industries 
highlights the failure of the Japanese to enforce their own antitrust 
laws while, at the same time, Japanese glass firms take advantage of 
the fair treatment accorded to their companies in the United States.
    The costs of international cartels, in terms of business lost for 
U.S. firms, is certainly in the billions of dollars. Cartels affecting 
lysine, graphite electrodes, citric acid, pharmaceuticals, 
transportation, oil, gas and other products or businesses distort world 
trade and give non-U.S. companies an unfair advantage. In addition, 
anticompetitive policies of other governments unfairly hurt American 
producers and manufacturers. For example, Canada subsidizes its sales 
of dairy products into the United States yet imposes 300 percent 
tariffs on our sales of milk into Canada.
    I will be asking Assistant Attorney General Joel Klein and Chairman 
Pitofsky for their views on a number of matters to determine how we 
together can help alleviate these problems for our consumers, 
producers, inventors, investors and manufacturers. We must be 
determined and aggressive so that other countries are as fair to our 
companies and we are to theirs. This protects American jobs, helps our 
balance of trade and provides our consumers with lower prices.

    Senator DeWine. Let me turn to our first panel. Again, 
these are two veterans of this subcommittee. Robert Pitofsky 
was sworn in as Chairman of the Federal Trade Commission in 
April 1995. He has testified before this subcommittee on 
numerous occasions and we welcome him back.
    Joel Klein is the Assistant Attorney General for the 
Antitrust Division at the Department of Justice, a post that he 
has held since July 1997. He is also a very familiar face at 
these hearings. We welcome you back.
    Mr. Klein, we will start with you. Any written statement 
that you have submitted, any of the witnesses today, will be 
made a part of the record and you can proceed as you wish.

PANEL CONSISTING OF JOEL I. KLEIN, ASSISTANT ATTORNEY GENERAL, 
ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC; 
   AND ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE COMMISSION, 
                         WASHINGTON, DC

                   STATEMENT OF JOEL I. KLEIN

    Mr. Klein. Thank you, Mr. Chairman, Senator Kohl. I 
appreciate that. I will be very brief in my comments. It is 
delightful to be back here again.
    I want to commend the subcommittee for its prescience in 
this area. I think not a lot of people have fully appreciated 
the significance, and the growing significance, of 
international antitrust enforcement. But I think as we move 
into the 21st century and the globalized economy, I think what 
we are talking about now, what we have been talking about for 
the last 2 years, will be absolutely critical and I continue to 
welcome the engagement.
    As you mentioned, the President and Prime Minister Obuchi 
yesterday announced that we will enter a cooperation agreement 
with the Japanese, which I think is significant, although I 
certainly take the subcommittee's concerns and the other 
concerns expressed by the 24 Senators to heart, but I will say 
more about why I think this is important.
    Beyond that, last week, the Attorney General of the United 
States and Chairman Pitofsky executed the first international 
antitrust enforcement agreement act treaty, whereby we have now 
a very formal, much along the lines of a mutual legal 
assistance treaty, with the Australians, again reflecting, I 
think, the important significance of antitrust enforcement, 
putting it up there in the top echelon of international law 
enforcement.
    And most exciting, as we have talked about and I am proud 
to announce here this morning, the U.S. Department of Justice 
an hour ago filed in Philadelphia two criminal cases against 
the company, a major German carbon and graphite company called 
SGL, the largest company of its sort in the world. The company 
plead guilty and is paying a $135 million fine in our graphite 
electrodes investigation. That is the single largest fine in 
the history of antitrust enforcement.
    Second, its chairman and chief executive officer is going 
to pay a $10 million fine, and that is the largest individual 
fine by several orders of magnitude. Our highest fine up until 
now was $350,000, and now we took it to $10 million.
    I want to let you know, in that one investigation alone, we 
have brought in now close to $300 million in fines, reflecting 
money that has been taken out of the U.S. economy, out of hard-
working companies and ultimately consumers, been taken out of 
their pockets to go to a group of producers who were unwilling 
to live up to the law, and these are all the product of large 
international conspiracies. We currently have some 35 grand 
juries looking at this area and it is my view that in the next 
several years, we are going to crack open some of the most 
trenchant and longstanding conspiracies, and I look forward to 
working with the committee in making sure that the U.S. economy 
is free of this kind of theft from our people.
    Beyond that, the chairman mentioned and the ranking member 
mentioned the issue of positive comity. I am pleased to say, 
while there were some bumps in the road, the SABRE, and maybe I 
am mixing my airline and surface transportation metaphors, but 
the SABRE matter now seems to be moving toward a, I think, 
promising conclusion. The European Commission has issued a 
statement of objections with respect to Air France, one of the 
people that we were concerned about. In the meantime, SABRE 
itself has reached agreements with SAS and with Lufthansa, 
which will increase SABRE's access to key information in the 
European markets.
    I think when the final chapter is written on this, while we 
will have all learned some vital lessons, I think the 
subcommittee and its initiatives in this area, along with the 
work of the Federal Trade Commission, the Department of 
Justice, and the DG-IV in Europe, will show that this is a 
process that can work. It can work better, it can work more 
expeditiously, but I think we will show that it can work.
    As I say that, I want to caution all of us that positive 
comity is not going to be a panacea for all trade problems. 
What we focus on is antitrust access issues, and there are a 
lot of other issues out there, but we and our colleagues, I am 
sure, at the Federal Trade Commission are willing to do the 
hard work to separate out the wheat from the chaff, and when we 
find antitrust issues that raise significant barriers to entry 
for American countries in foreign markets, you can be assured 
we will pursue them vigorously with enthusiasm and with 
commitment. But when we do not find the antitrust issues are 
the paramount issues, then, of course, there will have to be 
other remedies and other agencies involved.
    I am sure there will be a great deal of discussion about 
this as we go forward, Mr. Chairman, so I thank you.
    Senator DeWine. Mr. Klein, thank you very much.
    [The prepared statement of Mr. Klein follows:]

                  Prepared Statement of Joel I. Klein

    Good morning, Mr. Chairman and members of the Subcommittee. I am 
pleased to be back before you to continue our discussion of antitrust 
enforcement in the global economy, and what we are doing to meet the 
challenges it presents.
    As trade and commerce become increasingly global in scale, vigorous 
international antitrust enforcement is key to helping ensure that 
American businesses have the opportunity and the incentives to compete 
successfully and that American consumers and business purchasers are 
protected from anticompetitive conduct. Effective international 
antitrust enforcement requires not only that our own enforcers remain 
vigilant and active, but also that we are able to obtain assistance, 
where needed, from foreign antitrust enforcement authorities.
    In the last few years, we have worked to strengthen the 
international enforcement tools at our disposal. With the help of this 
Subcommittee, we were able to obtain passage of the International 
Antitrust Enforcement Assistance Act of 1994, which enables us to enter 
into agreements with our foreign counterparts to share information and 
provide assistance on a reciprocal basis. Last week, we signed the 
first agreement under the 1994 Act, with Australia, which we hope to be 
a model for other such agreements. In March, we signed a more 
traditional antitrust cooperation agreement with Israel, along the 
lines of our 1991 agreement with the EU and our 1995 agreement with 
Canada. These agreements, the 1994 Act itself, and the growing number 
of more general mutual legal assistance treaties to which the United 
States is a party, combined with the favorable ruling we obtained two 
years ago in United States v. Nippon Paper Industries Co. Ltd., 
reaffirming that Congress indeed has given us jurisdiction to prosecute 
anticompetitive activities that take place off U.S. soil but that have 
significant effects here, give us important building blocks for our 
continuing efforts to build an effective international antitrust 
enforcement regime and make effective use of it.
    We have achieved some remarkable successes recently, including 
unprecedented levels of criminal fines.
    From a practical standpoint, the increasing globalization of 
markets leads to increased complexity in our investigations, making it 
more difficult, time-consuming, and costly to pursue an investigation 
to its ultimate conclusion. Often, we must have the assistance of 
authorities in other countries in order to obtain crucial evidence. It 
is therefore particularly important, as Congress recognized in passing 
the 1994 Act, and as the Senate affirms on a broader law enforcement 
front when it ratifies additions to our growing network of mutual legal 
assistance treaties, that we be able to cultivate and maintain 
constructive working relationships with our foreign counterparts.
    Although the United States can rightly claim a large share of the 
credit for the adoption around the world of competition as a foundation 
for commercial relationships, each country's antitrust law is 
necessarily tailored in part to its own legal system and culture. That 
variation in approaches to antitrust enforcement, in a world where 
countries zealously protect their sovereignty, creates number of 
difficult challenges in building an international antitrust enforcement 
regime that works effectively, challenges which have been brought to 
the forefront with the increasing globalization of markets.
    As you know, in the fall of 1997 the Attorney General and I 
established an International Competition Policy Advisory Committee to 
look at these challenges with a fresh perspective, giving particular 
attention to three key issues. First, how can we build and strengthen a 
consensus among competition enforcement authorities around the world 
for prosecuting international cartels? Second, at a time when 
increasing numbers of mergers involve international transactions that 
directly affect competition in more than one country, how can the 
various competition enforcement authorities best coordinate their 
merger review efforts, while preserving their sovereignty, to achieve 
results that are sound and efficient, both for the parties to these 
mergers and for consumers in the countries affected by them? And third, 
how can we ensure that, as our international trade agreements remove 
governmental impediments to free trade, those impediments are not 
replaced by anticompetitive schemes on the part of private firms to 
impede market access? Getting the right answers to these questions is 
essential to the maintenance of free and fair international commerce, 
and its attendant benefits for the U.S. economy.
    The Advisory Committee continues its work under the leadership of 
co-chairs Jim Rill and Paula Stern, former Assistant Attorney General 
for Antitrust and former International Trade Commission Chairwoman, 
respectively. It has held a number of meetings and hearings, and has 
heard from numerous witnesses representing a wide range of viewpoints. 
It plans to submit its final report this fall, and I expect it to be of 
tremendous value to the Department of Justice and to this Subcommittee 
as we continue our efforts to internationalize basic antitrust 
principles and make them the foundation for the burgeoning commercial 
relationships among nations.
    Meanwhile, we are continuing to pursue our enforcement 
responsibilities vigorously in the international arena. Let me now say 
a few words about the three major facets of our international 
enforcement agenda: international cartel enforcement, international 
merger enforcement, and positive comity.
                    international cartel enforcement
    Vigorous enforcement against international cartels is a top 
priority for us. As a result of our aggressive overall criminal 
enforcement efforts against hard-core antitrust violations such as 
price-fixing and market allocation, we have set records in the last two 
fiscal years in the level of fines collected. In fiscal year 1997, 
criminal fines totaling $205 million dollars were secured in cases 
brought by the Antitrust Division. This total is five times higher than 
during any previous year in the Division's history. We broke that 
record in fiscal year 1998, with more than $267 million in fines 
secured. Of the roughly $472 million in fines secured in the last two 
fiscal years, nearly $440--million--well over 90 percent--were in 
connection with the prosecution of international cartel activity, a 
graphic illustration of the increasingly international focus of our 
criminal enforcement work, and our success in cracking international 
cartels.
    This focus is well justified. International cartels typically pose 
an even greater threat to American businesses and consumers than do 
domestic conspiracies, because they tend to be highly sophisticated and 
extremely broad in their impact--both in terms of geographic scope and 
in the amount of commerce affected by the conspiracy. The massive 
international cartels uncovered in citric acid, lysine (an important 
livestock and poultry feed additive), sodium gluconate (an industrial 
cleaner), and graphite electrodes (used in steel making) are prime 
examples. The criminal purpose behind these and other conspiracies 
investigated and prosecuted by the Division has been to carve up the 
world market by allocating sales volumes among the conspirators and 
agreeing on what prices would be charged to customers around the world, 
including customers in the United States.
    International cartels victimize a broad spectrum of U.S. commerce, 
costing American businesses and consumers hundreds of millions of 
dollars a year. For example, citric acid, which is used in products 
ranging from soft drinks and processed food to detergents, 
pharmaceuticals, and cosmetics, is found in virtually every home in the 
United States. Sales in the United States during the course of the 
citric acid conspiracy were over $1 billion. In each of these cases, 
American consumers--and, in cases where the U.S. government is the 
victim, American taxpayers--ultimately foot the bill.
    The international cartels uncovered by the Division have often been 
governed by elaborate agreements among the conspirators to ensure that 
each conspirator understood its role in suppressing competition and 
increasing prices in the varied markets of the world where the goods 
and services were sold. The cartel agreements, which were formed by 
high-level executives and carried out through conspiratorial meetings 
around the globe, included the following features: agreed-upon prices; 
agreed-upon volumes of sales worldwide; agreed-upon prices and volumes 
(market share allocation) on a country-by-country basis; exchanges 
among the conspirators of all types of otherwise competitively 
sensitive information, such as monthly sales figures by geographic 
area, prices charged (or bid) to customers in particular geographic 
areas, and prices to be charged (or bid) to specific customers; and 
sophisticated mechanisms to monitor and police the agreements.
    Thus far, while much remains to be done, we have had great success 
in prosecuting these international cartels. In the food and feed 
additives industry alone, our efforts have resulted in criminal 
convictions or plea agreements against 9 companies and 10 individuals 
from 6 countries, and nearly $200 million in fines imposed or agreed to 
in the past 2 fiscal years--including a $100 million fine imposed on 
Archer Daniels Midland Company and a $50 million fine imposed on 
Haarmann & Reimer Corporation, the U.S. subsidiary of the German-based 
pharmaceutical giant Bayer AG.
    In our investigation in the graphite electrodes industry, in 
February of 1998 we charged Showa Denko Carbon, a U.S. subsidiary of a 
Japanese firm, with participating in an international cartel to fix the 
price and allocate market shares worldwide for graphite electrodes used 
in electric arc furnaces to melt scrap steel. The company agreed to 
plead guilty, cooperate in the Division's ongoing investigation, and 
ultimately paid a fine of $32.5 million. In April of 1998, another 
participant in that cartel, UCAR International, agreed to plead guilty 
and pay a fine of $110 million, the largest fine imposed in antitrust 
history. Last Thursday, another participant, the Japanese firm Tokai 
Carbon Co., agreed to plead guilty and pay a fine of $6 million. Sales 
of graphite electrodes in the United States during the term of the 
conspiracy were well over a billion dollars. This investigation is 
continuing.
    Last fall, we achieved a tremendously important victory in our 
battle against international cartels, when the jury returned a verdict 
of guilty against three top executives of Archer Daniels Midland for 
masterminding their company's participation in the lysine cartel. These 
convictions send a strong deterrent message around the world that our 
commitment to vigorous enforcement against hard-core cartels includes 
prosecuting the top corporate brass in appropriate cases.
    Notwithstanding our recent success, I am convinced that these 
prosecutions represent just the tip of the iceberg. At present, more 
than 30 U.S. antitrust grand juries--approximately one-third of the 
Division's criminal investigations--are looking into suspected 
international cartel activity. The subjects and targets of these 
investigations are located on five continents and in over 20 different 
countries. In more than half of the investigations, the volume of 
commerce affected over the course of the suspected conspiracy is well 
above $100 million; in some of them, the volume of commerce affected is 
over $1 billion per year.
    The investigation and prosecution of international cartels creates 
a number of imposing challenges for the Division. In many cases, key 
documents and witnesses are located abroad--out of the reach of U.S. 
subpoena power and search and seizure authority. In such cases, 
national boundaries may present the biggest hurdle to a successful 
prosecution of the cartel. For that reason, we are aggressively 
pursuing cooperation agreements with foreign competition authorities to 
step up cooperation aimed at hardcore cartels.
    To that end, we have been working in the Organization for Economic 
Cooperation and Development (OECD) to encourage OECD members toward 
more systematic and effective anti-cartel enforcement and international 
cooperation. Last spring, the OECD endorsed at the ministerial level 
our proposal encouraging member countries to enter into mutual 
assistance agreements to permit sharing evidence with foreign antitrust 
authorities, to the extent permitted by national laws, and to take 
another look at provisions in their laws that stand in the way of these 
cooperative efforts.
                    international merger enforcement
    As trade and commerce have become increasingly globalized, 
inevitably there have been increasing numbers of mergers that cross 
international boundaries and thus are subject to review by more than 
one country's antitrust authority. To minimize the burden placed on 
merging parties by multi-jurisdictional antitrust review, and to 
minimize the conflicts that can result from differing conclusions 
regarding a merger, it is important that we establish and cultivate 
good relations with foreign enforcers and understand each other's 
merger enforcement policies and practices, and coordinate where we can. 
Given each jurisdiction's understandable interest in reviewing mergers 
that impact its markets, and in applying the substantive and procedural 
rules it deems appropriate, navigating these waters is not easy. After 
our experience with the Boeing/McDonnell-Douglas merger--where U.S. and 
European Commission authorities reached sharply differing conclusions 
regarding the merger--we redoubled our efforts to minimize that kind of 
conflict, if not eliminate it altogether. I believe that our more 
recent experiences with the MCI/WorldCom merger and the Dresser/
Halliburton merger, in which we and the EC shared our independent 
analyses of the transaction's as they, evolved, and ultimately reached 
essentially the same conclusions, are a good model for how close 
consultation in international merger enforcement can and should work.
                            positive comity
    Let me now turn to positive comity. It grows out of a recognition 
that, because of legal and practical constraints that may come into 
play, effective enforcement in the global economy may require action by 
more than one country's antitrust authority.
    Under a positive comity agreement, the antitrust authority of one 
country makes a preliminary determination that there are reasonable 
grounds for an antitrust investigation, typically in a case in which a 
corporation based in that country appears to have been denied access to 
the markets of another country. It then refers the matter, along with 
the preliminary analysis, to the antitrust authority whose home markets 
are most directly affected by the matter under investigation. After 
consultation with the foreign antitrust authority, and depending on 
what conclusions the foreign authority reaches and what action it 
takes, the referring antitrust authority can accept the foreign 
authority's conclusions, seek to modify them, or pursue its own action.
    Such an approach has many helpful aspects. First, competition 
authorities have a great stake in taking each other's referrals 
seriously, not only in the interest of promoting cooperative relations, 
but because their own consumers are affected. Second, such a process 
maximizes, the likelihood that the kind of evidence necessary to 
properly decide such cases can be obtained, as the antitrust authority 
in whose country the conduct takes place generally has greater leverage 
to obtain it. Finally, this process can defuse trade tensions by 
providing a sensible, systematic approach to fact-gathering, reporting, 
and bilateral consultation among competition authorities.
    We currently have cooperation agreements in place with the European 
Union, with Canada, and most recently with Israel, that have positive 
comity provisions, and we expect soon to have one in place with Japan. 
And as you know, last June we signed an enhanced agreement with the EU 
that provides additional details and outlines a formal protocol for 
referrals. We hope to reach agreements with other competition 
authorities as well.
    As was discussed in the Subcommittee's hearing last fall, we now 
have a positive comity request pending with the European Commission 
regarding possible anticompetitive conduct by several European airlines 
that may be preventing SABRE and other U.S.-based computer reservation 
systems from competing effectively in certain European countries. In 
January 1997, we requested that the EC investigate the matter, and we 
have been in regular contact with the EC to monitor progress. The EC 
issued a statement of 11 objections against one of the European 
airlines, Air France, in March, which is a preliminary determination 
that the airline has anticompetitively discriminated against SABRE. 
Under EC procedures, Air France now has an opportunity to respond to 
the statement of objections, after which the EC will make a final 
decision. Subsequently, SABRE has reached agreements with two other 
European airlines, Lufthansa German Airlines and Scandinavian Airlines 
System (SAS), that provide for those airlines' enhanced participation 
in the SABRE system. We will be continuing to follow the EC's progress 
in this matter, and will take a close look at their supporting analysis 
for whatever decisions they reach regarding whether to take further 
action.
    The computer reservation systems referral, our first such referral, 
has, I believe, thus far been a successful one, demonstrating that 
positive comity can be an important tool in the international antitrust 
enforcement arsenal. We have also gained valuable experience that we 
can apply in future referrals. This Subcommittee has played an 
important and constructive role in this process. Let me now turn to 
four steps we plan to take in future referrals, in light of our 
experience and the input we have received from this Subcommittee and 
elsewhere, to help improve the positive comity process.
    First, we agree that it is a useful idea to establish an intended 
time frame for completing an investigation that has been referred under 
a positive comity agreement. Our 1998 agreement with the EC provides 
for a presumptive time frame of six months. Based on our experience, we 
can now see that such a time frame will be unrealistic in some if not 
most cases. Indeed, many of our own investigations have taken 
considerably longer. We believe a better approach is to engage the 
foreign antitrust authority to whom we make the referral, after they 
have had a chance to familiarize themselves with the matter, but as 
soon as practicable, and arrive at an educated estimate. We would do so 
in full realization that the course of an antitrust investigation may 
take unpredictable turns and encounter unanticipated obstacles; but we 
would use the estimate to gauge the progress of the investigation as it 
goes forward.
    Second, we agree that it is a useful idea to maintain regular 
contact with the foreign antitrust authority to which a matter has been 
referred under a positive comity agreement. Suggestions have been made 
that an update every six weeks, or more frequently in the event of a 
major development, and we believe that is a helpful and workable 
schedule to adopt.
    Third, we agree that it is a useful idea that the complainant be 
kept generally apprised of progress in the matter. There are 
limitations on what we can reveal to the complainant without 
compromising the investigation. We have a obligation not to reveal 
information provided to us in confidence by our foreign counterpart. 
But I think at a minimum we can convey to the complainant that we have 
been in recent contact with the foreign antitrust authority to whom we 
referred the matter, and, as appropriate, at times we may be able to 
provide more information. The complainant may also want to take 
advantage of whatever rights and opportunities it has in the foreign 
forum to directly obtain information; in some instances, it may thereby 
be able to obtain information directly that we would not be in a 
position to furnish, as well as obtain other important procedural 
rights.
    Fourth, we agree that, having established a time frame for the 
investigation under a particular positive comity referral, when that 
time frame has run its course it is appropriate to take stock of where 
things stand and how we and our foreign counterparts can most 
effectively proceed. Of course, we would normally and will continue at 
all stages of a positive comity referral to consider these questions 
internally and to discuss them with our counterparts abroad. It should 
be kept in mind that, while we always reserve the right to initiate or 
resume our own investigation, there may well have been limitations on 
our own authority or practical ability to pursue the matter that led us 
to make the referral in the first place. If it was not feasible for us 
to pursue the matter ourselves initially, it may not become any more 
feasible later. And there may be very good reasons why an investigation 
is taking longer than anticipated. But we would expect to reassess any 
referral we make at appropriate junctures, and the running of the 
agreed-upon time frame would certainly be one such juncture.
    Positive comity is but one tool in our antitrust enforcement 
arsenal, a relatively new tool, and one that may not be practical to 
employ very frequently. But we believe it can be a useful tool in 
appropriate circumstances, and that its successful use is an important 
part of our effort to further strengthen international antitrust 
enforcement cooperation in general. We are committed to making it work 
as effectively as possible, and we appreciate the Subcommittee's 
interest and assistance.
                               conclusion
    Opening markets around the world to competition will require a 
sustained effort on the part of antitrust enforcement authorities in 
many countries. We are committed to that effort, and appreciate the 
continued support of this Subcommittee. We look forward to meeting the 
ongoing challenge to ensure that businesses can compete without being 
subject to anticompetitive behavior and that consumers can benefit from 
competition that produces low prices, high quality, and innovative 
goods and services.

    Senator DeWine. Mr. Pitofsky, thank you for joining us.

                  STATEMENT OF ROBERT PITOFSKY

    Mr. Pitofsky. Thank you, Mr. Chairman, Senator Kohl, 
Senator Specter. I am pleased to be here to present testimony 
on behalf of the Federal Trade Commission. Let me say how much 
I agree with the opening remarks of both of you that given the 
increase in international trade, the increase in the number of 
transactions that affect consumers and citizens in different 
countries, there is no more important area for oversight by 
this committee, and I commend the committee for zeroing in on 
these questions over the last several years.
    You have asked us to focus on positive comity and that is 
what I will try to do. It is a fairly new technique in which 
occasionally we will refer matters to one of our trading 
partners and inquire whether or not an American company injured 
by behavior in that foreign company is injured by behavior that 
violates the law of the foreign country. And, of course, we 
stand ready to do the same.
    I do want to emphasize that if we refer something to a 
foreign country, that does not mean we wash our hands of 
responsibility in this area. On the contrary, we stay in touch, 
we follow the matter, and if we are not satisfied with the 
investigation by the foreign country, we can go back and 
enforce our own law in the area.
    I know there is some discomfort about the way positive 
comity has worked and I also agree with the earlier comments 
that it got off to a shaky start, but I think we are doing a 
bit better, certainly in the last 6 months.
    Also, perhaps in some quarters, the whole concept was 
oversold. International coordination and cooperation is 
critical and we have made great progress with respect to 
working with our trading partners, exchanging information, 
although we recognize the concerns about confidentiality, 
discussing theories, applying consistent approaches to remedy.
    Positive comity is really a very small element. It is a 
useful one, but 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 
is hardly a common resort.
    We have referred two matters informally. One is to the 
Italian government. We got a very good result. One is to the 
European Community in the Marathon matter, and it looks like 
there is some encouraging movement there. There have been no 
matters referred to us and we have not invoked formal positive 
comity as yet.
    Although it is a modest device, it is still important that 
we get it right. The SABRE witnesses who were here last time 
made some suggestions about ways in which we could modify our 
approaches. I think they put forward useful ideas and I think 
we can probably adopt some of those ideas and make things 
better.
    First, there is a suggestion that we set a time deadline 
when we refer a matter to a country with which we have a 
positive comity arrangement. I think that is right. I would not 
do it at the opening of the referral because neither side knows 
very much about the matter. But perhaps 3 months after a 
referral, it would be a good idea for us to work out with the 
country we refer the matter to some sense of how long it is 
going to take to investigate the matter and come to a 
conclusion.
    The SABRE representatives suggested that the antitrust 
enforcement agencies maintain regular contact with the country 
to which the matter is referred and also advise the complainant 
about the status of the matter. That is what we have done, 
actually, in the Marathon matter. I have spoken with senior 
representatives in DG-IV and we have kept Marathon advised and 
I think it has worked well.
    Finally, there is the suggestion that after the positive 
comity matter is dealt with entirely, we come back and review 
the bidding and see if, at that point, based on additional 
facts that we have, we think it is worthwhile to try 
extraterritorial enforcement. Now, let me be candid about that. 
We would not have referred the matter to another country if we 
could have conveniently brought the case ourselves. But, 
certainly, we may have learned more and it may be that we are 
so dissatisfied that we want to bring an enforcement action and 
we would consider doing that after the--in fact, we would do it 
after the positive comity period has closed.
    Let me just conclude by saying that the committee's 
oversight in this matter and the testimony of affected U.S. 
corporate officials has offered some very constructive 
suggestions, and I believe several of those suggestions can be 
implemented. Thank you very much.
    [The prepared statement of Mr. Pitofsky follows:]

               Prepared Statement of Robert Pitofsky \1\
---------------------------------------------------------------------------

    \1\ This written statement represents the views of the Federal 
Trade Commission. My oral presentation and responses to questions are 
my own and do not necessarily reflect the views of the Commission or 
any other Commissioner.
---------------------------------------------------------------------------
    The Federal Trade Commission appreciates the opportunity to provide 
this follow-up report to the Subcommittee on the Commission's 
experience with the positive comity process.
    The Subcommittee's hearing last October focused attention on the 
role that positive comity can play as an antitrust enforcement tool. 
The testimony offered at that hearing also, however, illustrated that 
positive comity, like other enforcement tools, is not a panacea. For 
positive comity to be an effective means of redressing harm from 
foreign anticompetitive practices, antitrust enforcement authorities 
must agree to help each other by taking on, and giving due priority to, 
cases that involve anticompetitive conduct in their own territory that 
inflicts harm in other countries. Even where such agreement and 
commitment exist--as manifested in the bilateral agreements into which 
the United States has entered with the European Community,\2\ 
Canada,\3\ and Israel \4\--we can never be certain that the antitrust 
authority that investigates and prosecutes the case will be successful.
---------------------------------------------------------------------------
    \2\ Agreement between the Government of the United States of 
America and the European Communities regarding the application of their 
competition laws, Sept. 23, 1991, reprinted in 4 Trade Reg. Rpt. (CCH) 
para. 13,504, and OJ L 95/45 (27 Apr. 1995), corrected at OJ L 131/38 
(15 June 1995) (hereafter ``1991 Agreement''); Agreement between the 
Government of the United States of America and the European Communities 
regarding the application of positive comity principles in the 
enforcement of their competition laws, June 4, 1998, reprinted in 4 
Trade Reg. Rpt. (CCH) para. 13,504A; OJ L 173/26 (18 June 1998) 
(hereafter `` 1998 Agreement'').
    \3\ Agreement between the Government of the United States of 
America and the Government of Canada Regarding the Application of Their 
Competition and Deceptive Marketing Practices Laws, Aug. 3, 1995, 
reprinted in 4 Trade Reg. Rpt. (CCH) para. 13,503.
    \4\ Agreement between the Government of the United States of 
America and the Government of the State Of Israel Regarding the 
Application of Their Competition Laws, Mar. 15, 1999, reprinted in 76 
ATRR 279 (N4ar. 18, 1999).
---------------------------------------------------------------------------
    Although positive comity may be a valuable tool, it is important to 
recognize that it is a small piece in a developing mosaic that reflects 
broad cooperation in antitrust enforcement among the United States and 
its major trading partners.\5\ Much of the Commission's testimony for 
this Subcommittee's hearing last October was devoted to describing our 
enforcement efforts that have involved cooperation with foreign 
antitrust enforcement authorities. That work has continued in the 
intervening months, as was demonstrated by the settlements we reached 
in cooperation with the European Commission (EC) in the 4BB/Elsag 
Bailey and Zeneca/Astra merger cases. Thus, evaluating positive comity 
in isolation may miss important developments in the forest by 
concentrating on this individual tree. For example, only a small 
fraction of the cases that come before us lend themselves to referral 
under positive comity. In the seven months since this Subcommittee's 
last hearing, the FTC has not referred or received a referral of a 
``formal'' positive comity case, nor have we been involved in any new 
matters that could be classified as informal positive comity.
---------------------------------------------------------------------------
    \5\ See, e.g., Approaches to Promoting Cooperation and 
Communication among Members, Including in the Field of Technical 
Cooperation, Submission of the U.S. Government to the World Trade 
Organization, April 1999, WT/WGTCP/W/116.
---------------------------------------------------------------------------
    While there are few instances where formal or even informal 
positive comity comes into play, positive comity could be a device for 
assuring availability of relief and recognizing legitimate business 
concerns--without unduly contributing to international friction. In 
other words, positive comity could be a constructive, albeit rarely 
used, device.
    The Subcommittee's hearings in October 1998 focused on possible 
ways of improving the positive comity arrangements. We believe there is 
room for improvement and, in this regard, we believe the testimony 
presented by SABRE \6\ at the October 1998 hearings was particularly 
helpful. The FTC, along with the Antitrust Division, has been 
evaluating in recent months how to make the positive comity process 
work as efficiently and effectively as possible. We believe we can 
implement some of the suggestions offered at the October hearing.
---------------------------------------------------------------------------
    \6\ The SABRE Group, Inc., of Fort Worth, Texas, markets 
computerized reservation system (CRS) services and offered testimony 
before the Subcommittee's October hearing concerning its complaint 
against operators of CRS systems in Europe, which the Department of 
Justice formally referred to the EC under the positive comity article 
of the 1991 Agreement.
---------------------------------------------------------------------------
    A few additional comments about positive comity, particularly as to 
case selection and procedure, maybe useful. First, positive comity is 
still a relatively new experience for the U.S. agencies. There has been 
only one formal referral to the EC, and none to the U.S., in the eight 
years since the 1991 Agreement was signed. Thus, with respect to formal 
referrals, the Commission would be hesitant to burden the process with 
rules and obligations that might make it less likely that the process 
would be used in the future. On an informal basis, we have discussed a 
small number of matters with our foreign counterparts, including the 
Parma ham matter that was mentioned in our testimony last October.\7\
---------------------------------------------------------------------------
    \7\ As mentioned in the Commission's testimony of last October, the 
FTC informally encouraged the Italian Competition Authority (AGCM) to 
end a production quota agreement by a consortium of ham producers that 
exported to the United States, harming U.S. consumers with 
supracompetitive prices. The FTC held up its investigation while the 
AGCM conducted its investigation, which resulted in a finding that the 
consortium's production quota violated Italian law and an order under 
which the consortium agreed to end the quota.
---------------------------------------------------------------------------
    Second, and speaking for the moment just about our Agreements with 
the EC, while we might ask the EC to agree to certain conditions in its 
review in response to a positive comity request, whether the EC's 
Competition Directorate, DG-IV, agrees to those conditions is within 
its discretion. Only in cases within the scope of the deferral 
provisions of Article IV of the 1998 Agreement \8\ would DG-IV be 
obligated to fulfill certain conditions, and even these can be waived 
by agreement of the parties as appropriate. In other positive comity 
cases--i.e., in those outside the scope of the deferral presumption and 
in so-called informal positive comity cases-DG-IV (like the FTC or DOJ 
if the U.S. were the Requested Party) would not have any obligation to 
agree to conditions on accepting the referral, and might well be 
reluctant to handle such a case in away that significantly differed 
from its procedures in comparable cases outside the positive comity 
ambit. Moreover, many--perhaps most--cases to which the deferral 
presumption applies will be cases that the U.S. agencies could not or 
would not bring themselves. In some cases, we may lack the necessary 
subject matter or personal jurisdiction to prosecute the case and 
impose a remedy. For example, anticompetitive conduct affecting a U.S. 
firm located in and doing business in a foreign country--exporting from 
Norway to Turkey, for example--would not be reachable under U.S. law. 
Even if we could arguably assert jurisdiction, it maybe so difficult to 
collect evidence and/or impose an effective remedy that we would not as 
a matter of prosecutorial discretion, choose to allocate scarce 
resources to the matter. In such cases, there is no credible 
probability that we would bring our own case. This is the situation we 
would face not only in relation to the EC, but also in relation to 
other jurisdictions to which the U.S. agencies might seek to refer a 
matter under the positive comity provisions of either a bilateral 
agreement (Canada and Israel) or the OECD Recommendation.\9\ 
Nonetheless, the U.S. agencies would still, in appropriate cases, ask 
DG-IV and other authorities to whom we might refer a matter under 
positive comity to agree to apply the procedures described below.
---------------------------------------------------------------------------
    \8\ Under these provisions, the Requesting Party (that is, the 
competition authority making a positive comity request) will normally 
defer or suspend its own enforcement activities in favor of enforcement 
action by the Requested Party (that is, the competition authority 
receiving and acting on the request) where the anticompetitive 
activities at issue occur principally in the Requested Party's 
territory and the Requested Party agrees to certain conditions. In 
summary, these conditions include: (A) The adverse effects on the 
Requesting Party's interests can be and are likely to be fully and 
adequately investigated and remedied pursuant to the Requested Party's 
laws, procedures, and available remedies; and (B) the competition 
authorities of the Requested Party agree to (1) devote adequate 
resources to the case, (2) use their best efforts to pursue all 
reasonably available sources of information, (3) inform the competition 
authorities of the Requesting Party, on request or at reasonable 
intervals, of the status of their enforcement activities and 
intentions, and (4) use their best efforts to complete their 
investigation and to obtain a remedy or initiate proceedings within six 
months of the Requesting Party's deferral or suspension of enforcement, 
or such other time as agreed to by the competition authorities of the 
Parties.
    \9\ The 1995 Recommendation of the OECD Council Concerning Co-
operation between Member Countries on Anticompetitive Practices 
Affecting International Trade, OECD Doc. C(95)130/FINAL (1995), 
available at .
---------------------------------------------------------------------------
    With the above caveats, the Commission believes we can improve the 
positive comity process in certain cases under our Agreements with the 
EC. First SABRE has suggested that once the EC accepts a positive 
comity referral, the U.S. antitrust agencies should agree with the EC 
upon a time frame within which we anticipate that the investigation, 
including issuing any relief, would be concluded. The Commission agrees 
that this is a useful idea. In fact Article IV.2.(c)(v) of our 1998 
Agreement with the EC provides for such an understanding in cases 
falling under the deferral provisions of that Agreement. In retrospect, 
the six-month time frame in the agreement was probably too ambitious--
the Commission does not complete most of its domestic investigations 
within that period, and positive comity cases maybe more complex than 
our typical domestic investigation. However, the Commission is prepared 
to discuss with DG-IV an appropriate time frame in which DG-IV expects 
to complete its process.
    Of course, predicting how long an investigation will take is 
inherently uncertain. For example, critical evidence maybe more 
difficult to obtain than anticipated--or may not exist at all--and the 
target of the investigation may raise plausible defenses which must be 
investigated. The Commission, therefore, believes that it would be more 
productive to choose a target date once DG-IV has had a chance to start 
its procedure. Accordingly, we would expect to agree on a target date 
approximately three months after a positive comity referral takes 
place.
    The Commission also has considered possible options if the 
anticipated completion date for the investigation arrives without final 
resolution. As a practical matter, there maybe little or nothing the 
FTC could do because of the jurisdictional and evidentiary obstacles 
mentioned earlier. However the FTC regularly re-evaluates its 
investigations to determine whether we are proceeding on the right 
course. Such re-evaluations typically occur at certain investigational 
points, such as completion of depositions, when we assess the strength 
of the evidence supporting our theory of violation. The same would be 
true in a positive comity referral. Thus, during the course of an 
investigation pursuant to a positive comity referral, we may ask 
whether the referral is proceeding as expected, and even whether we 
should consider terminating the referral and initiating our own case, 
as provided for by the 1998 Agreement. The passing of the anticipated 
action date is the type of event that would normally cause us to focus 
on the referral and to consider what response, if any, would be 
warranted at that point. The action the FTC decides to take would 
depend on many factors, such as the reason the investigation has taken 
longer than expected, the time frame in which DG-IV expects to act, and 
our satisfaction with how the investigation is being conducted. Our 
range of options at that point would include, among other things: 
taking no action; having an in-depth discussion with DG-IV staff, 
setting a new deadline; and initiating our own case.
    Another productive suggestion made by SABRE at the October hearing 
was that the U.S. antitrust enforcement agencies maintain regular 
contact with DG-IV once DG-IV begins its investigation of a matter 
referred under the positive comity agreement. This is contemplated in 
Article IV.2.(c) (iii) and (iv) of the 1998 Agreement, which pertains 
to cases meeting the deferral presumption criteria. The Commission 
believes it would be useful to have someone from the FTC's staff in 
contact with an appropriate member of the DG-IV staff whenever there is 
a significant development in the investigation, but in any event at 
least once every six weeks. Sometimes, as a result of our meetings with 
U.S. complainants, those complainants continue their own efforts 
through their counsel, without asking our help. Sometimes the U.S. 
agencies make an informal inquiry of the reviewing authority about the 
status of the matter on behalf of a complainant, much as the FTC has 
done with respect to Marathon Oil Company's complaint that remains 
under EC investigation.\10\ The Commission believes that regular 
communications will affirm our commitment to these provisions of the 
agreement and make it easier for both sides to fulfill their respective 
commitments.
---------------------------------------------------------------------------
    \10\ Since last October's hearing, Commission staff has been in 
regular contact with DG-IV on the Marathon matter, and has kept the 
Subcommittee staff apprised of developments in this matter as 
appropriate.
---------------------------------------------------------------------------
    SABRE also suggested that the referring U.S. agency maintain 
regular contact with the U.S. complainant on developments in the DG-IV 
investigation. While this is a good suggestion, some caution is 
appropriate. Some of the information we learn from DG-IV is 
confidential, and the U.S. agency would be prohibited from disclosing 
it to the U.S. complainant. For example, it may involve nonpublic (but 
not confidential commercial) information concerning a third party, or 
it may concern DG-IV's internal nonpublic processes. The Commission 
does not routinely provide status reports on its investigations to 
domestic complainants concerning investigations of U.S. firms, and 
there does not appear to be any reason to provide complainants in 
positive comity matters with any greater rights. Nonetheless, the 
Commission is willing to inform the complainant that we intend to be in 
regular contact with DG-IV about the matter, and that the complainant 
is free to contact us for whatever information we are able to 
provide.\11\ Again,we have generally followed that procedure in the 
Marathon matter.
---------------------------------------------------------------------------
    \11\ As indicated in our follow-up responses to the questions posed 
by Chairman DeWine and Senator Kohl, some of SABRE's suggestions, while 
well intentioned, cannot be implemented in the current legal 
environment--specifically, SABRE's recommendations that the U.S. 
antitrust agencies develop and share confidential evidence with other 
antitrust agencies, and that each party to a cooperation agreement 
enlist and use the active assistance of professional staff supplied by 
the other party to overcome resource limitations.
---------------------------------------------------------------------------
    In conclusion, the Commission appreciates the Subcommittee's 
continuing interest which we share, in making the positive comity 
process work as effectively as possible. The Commission believes that 
the practices described in this statement can help improve the positive 
comity process. We understand and appreciate the concerns that the 
Subcommittee and witnesses before the Subcommittee have raised, and we 
will continue to work with you to make the process as effective as 
possible.

    Senator DeWine. Thank you both very much.
    Senator Specter, any opening comments?

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE 
                        OF PENNSYLVANIA

    Senator Specter. Thank you, Mr. Chairman.
    The issue of antitrust enforcement becomes more important 
each day as we see more mergers of major companies which limit 
consumers' alternatives as to where they are going to be able 
to look for competition.
    The bank mergers have had a very profound effect on the 
country as a whole. Last year, the acquisition by First Union 
of a major Philadelphia bank has resulted in precisely the dire 
consequences which many of us predicted, but that went ahead.
    We are now looking at a very complex acquisition issue 
involving Media One where there is a weighing of the size of 
the prospective acquiror, and this is something which is a 
matter of enormous importance.
    I have been deeply involved in the issue of the antitrust 
exemption enjoyed by football on revenue sharing and the 
antitrust exemption that baseball has in a blanket manner. And 
it has been a profound issue for Pennsylvania, which is now 
looking at four new stadiums. It is a little hard for me to 
understand why the taxpayers of Pennsylvania ought to be called 
upon to put up public money when the NFL has a $17 billion 
multiyear television contract which they enjoy by virtue of the 
antitrust exemption which they have.
    The school systems in Pennsylvania are in dire shape. 
Housing in Pennsylvania is in dire shape. And we are putting up 
a lot of public money.
    There is a war in New England at the moment, maybe recently 
ended, between Boston and Hartford on the Patriots, Hartford 
being called upon to pay $375 million for a stadium. And one of 
the questions which I am going to ask both of you gentlemen to 
take a look at would be: What would be the ramifications if we 
legislated away the judicial doctrine of an exemption for 
baseball from the antitrust laws? Where would we go? How far 
would the impact be?
    I am going to introduce legislation which would condition 
the continuation of the baseball antitrust law and the limited 
antitrust exemption which football has on their paying, in 
effect, half of the stadium construction costs. But the more I 
deal with baseball and the more I deal with football, with the 
executives, the less inclined I am to see them have any 
exemptions at all. They move teams around at will. They steal 
the Browns from Cleveland to Baltimore with extortion, a 
tremendous cost to Baltimore and Maryland, and baseball players 
move from one team to another for $91 million on a 10-year 
contract. Just a total blatant disregard of the public 
interest.
    And when it comes to a request to have them make some 
contribution to stadium construction, which they ought to be 
bearing all of, they throw up their hands in horror and fight 
in a way which is really unbecoming.
    So I like what you two men are doing. I have had occasion 
to sit down with both of you and talk to you about the work of 
your departments. This subcommittee wants to help you. We want 
to help you on funding. We want to help you do the very, very 
important job which you have.
    Thank you, Mr. Chairman.
    Senator DeWine. Well, Senator Specter, thank you for your 
comments. We are kind of flexible around here, and in the 
interest of continuity, why don't you take your time right now 
and just follow up with the questions? That way we can continue 
on, if you want to do that.
    Senator Specter. Thank you.
    Senator DeWine. We can stay on football and baseball. We 
will get to flat glass later.
    Senator Specter. Thank you very much, Mr. Chairman. Well, 
there are quite a few issues.
    I am fascinated by the antitrust case which Mr. Klein 
mentioned in Philadelphia about carbon and graphite. I want to 
know a lot more about that. I have a lot of questions about 
Media One, a lot of questions about banking. But in the limited 
time each of us has because of the time constraints, let me 
follow what the chairman has suggested.
    This may be something which will have to be studied, Mr. 
Klein, but baseball has the antitrust exemption because Justice 
Oliver Wendell Holmes, I think it was 1922, said it was a 
sport. And Justice Blackmun had a long opinion in the 1970's 
saying it was not a sport but we are not going to change the 
matter, it is up to the Congress.
    Well, the buck starts right here. This is where we start 
the change in the Antitrust Subcommittee.
    Is there any doubt, Mr. Klein, that baseball is a business, 
a big business, and not a sport?
    Mr. Klein. I do not want to say it is one or the other. It 
is certainly a very big business. It is a sport. It is many 
things. But there is no question that baseball is a big 
business, Senator.
    Senator Specter. Well, is there any reason why baseball 
should not be subject to the U.S. antitrust laws except for the 
historical Supreme Court decisions?
    Mr. Klein. I think in your opening comments, Senator 
Specter, you put your finger right on the issue, which is this 
is a matter that should be studied, and you are entitled to 
very, I think, thoughtful, careful engagement from us on this.
    In part, I think there are several issues. One, you need to 
think about where you are in the course of the particular 
development of baseball as a business in terms of its reliance 
on the antitrust exemption, what implications it would have if 
you were to consider changing that in any way.
    But I can assure you, Senator Specter, that we would 
welcome the opportunity to work with you and your staff on the 
issues that you have raised in your opening comments.
    Senator Specter. Would the issue naturally come to the 
Department of Justice as opposed to the FTC, Chairman Pitofsky?
    Mr. Pitofsky. I think it probably would. We have not really 
had much experience in recent years with the application of the 
antitrust laws to professional sports, but I think it probably 
would go to the Department of Justice.
    Let me say, to break it down a bit, the original decision 
which said that baseball was not interstate commerce is 
indefensible today, absolutely indefensible. Much of the--and I 
share your premise. I am very skeptical of antitrust exemptions 
generally, and I am very skeptical of this one.
    On the other hand, it has now become a very complicated 
question because much of what was accomplished under the 
umbrella of the antitrust exemption has now moved over to 
collective bargaining. And, therefore, one has to see fairly 
carefully exactly what it is that these teams, these 
enterprises are doing, that they could not do if the antitrust 
laws applied.
    But I have to say, to give them an across-the-board 
exemption with no limitations at all seems to me something that 
certainly deserves additional study, and I am skeptical about 
it.
    Senator Specter. Well, I would like to see the experts 
apply that study, and I am well aware of the collective 
bargaining issue and the labor issues which overlap. And the 
matter goes much beyond stadium construction. The matter 
involves the issues of revenue sharing for baseball and salary 
caps. But I think there is no doubt that as far as Major League 
Baseball and the NFL are concerned, it is the public be damned.
    Let the record show an affirmative nod by Mr. Klein. He can 
always negate my representation of his adoptive admission here. 
[Laughter.]
    Adoptive admissions are gone in criminal law now, but they 
are not in Senate hearings, Mr. Klein.
    Senator DeWine. Be very careful, Mr. Klein, what you do 
with Senator Specter. [Laughter.]
    Mr. Klein. This crick in my neck is going to cost me 
dearly.
    Senator DeWine. That is right. [Laughter.]
    It is like at an auction. Never raise your hand.
    Senator Specter. If you have a doctor's note, I will 
expunge the record.
    But we have seen the Dodgers move in 1958 from Brooklyn. 
Los Angeles should have had a team, but they did not have to 
have Brooklyn's team. Indianapolis should have had a team, but 
they did not have to have Baltimore's team. That just sets up 
three-ring larceny if it goes to Cleveland. And you have small-
market teams like Pittsburgh and Seattle in very terrible 
shape, and you have Mr. Murdoch buying the Dodgers for an 
astronomical price. At least we thought it was an astronomical 
price until the Redskins were sold recently. And Mr. Murdoch 
has his satellite and seeks to have the satellite operate in a 
way which is at variance with the FCC laws. And you have the 
super stations, and you have a tremendous amount of 
paraphernalia sold.
    I have had conversations with Commissioner Selig over the 
years and many of the Major League Baseball owners about trying 
to bring some rationality. They have a gigantic goose that lays 
a gigantic golden egg. But they are pressing the outer limits, 
refusing to have revenue sharing in baseball, refusing to have 
salary caps, and it puts tremendous pressure on a team like 
Pittsburgh.
    So what happens? The legislature recently authorized a lot 
of public money for the Pittsburgh stadium, and I support that. 
With a gun at my head, a person will do most anything or a city 
will and a State will with a gun at their head.
    And then you have football with the antitrust exemption 
which gives them an extraordinarily lucrative position, $17.6 
billion. In discussions with Commissioner Tagliabue, help build 
these stadiums. No, we cannot afford it.
    Well, if they cannot afford it, who can afford it? And if 
it is all heading for chaos, let the chaos be on the terms that 
every other business functions in America.
    Commissioner Pitofsky puts his finger on it. Ludicrous to 
say they are not in interstate commerce, shorthand for big 
business in interstate commerce.
    Do I have to do anything in a formal way to ask you to 
study this, Mr. Klein and Chairman Pitofsky, to give us an 
answer?
    Mr. Klein. I view these proceedings as sufficiently formal.
    Senator Specter. OK; I would like to know just what would 
happen if we just took it all away, no antitrust exemptions at 
all, not conditioned on building stadiums. If they do not want 
to build stadiums, we have to have a blood war, let us forget 
that one. Let us just take it all away. If we are going to go 
to war, let us make it unconditional surrender.
    Thank you, Mr. Chairman.
    Senator DeWine. Senator, thank you very much.
    Mr. Klein, I was a little surprised in reading your 
prepared remarks to see that the issue of flat glass was not 
dealt with. While the flat glass market is certainly not the 
only issue that we have with Japan and trade competition, it, I 
believe, is symbolic of what is wrong in that relationship. We 
examined this issue last fall at our last hearing, at which Mr. 
Walters from Guardian testified.
    Let me ask you your views on the state of competition in 
the Japanese flat glass market. Let me just say that I hope you 
share my view that signing an agreement with the Japanese on 
positive comity is not meant to signify that we are not going 
to aggressively address this problem in regard to flat glass.
    Mr. Klein. Sure. Mr. Chairman, let me make two points in 
response. As you may know, several months ago, several people 
from the flat glass industry came to the Department for the 
first time and requested that we look at this issue in terms of 
the possibility of pursuing some form of referral to the Japan 
Fair Trade Commission. Up until then, I think the issues had 
largely been dealt with on a trade basis.
    We have fully engaged that process. We are in the course of 
studying the information that has been submitted. We have 
notified the Japanese, who are now doing a survey, that we 
expect to fully review the survey results and what action they 
take in response and that we will certainly continue to do our 
work and our analysis.
    One of the benefits, I believe, of this agreement is if, 
and I underscore ``if'', Mr. Chairman, we come to the 
conclusion that there is a basis for a positive comity referral 
with respect to glass or any other product, we will then have a 
vehicle in which to make the referral. So I see that as a key 
benefit of the process and we will continue to do our work in 
that regard.
    I would also note, as I think you did in the beginning 
during your comments, that having an agreement and making a 
referral are only the beginnings of the process. You need to 
see the analysis that the Japan Fair Trade Commission would 
undertake. You need to see the decision they would make, the 
support for that decision. I think you know that from our part, 
we engage this with seriousness and purpose, and when we think 
there is a basis for referral, we will follow up.
    Senator DeWine. I appreciate your comments very much. As 
you know, and you and I have discussed this before, flat glass 
is a great concern of mine. It affects our State, affects our 
country, and I think we just have a long, long way to go and it 
is a real sore point with this Senator. I am not going to let 
go of it.
    Let me ask you another question. In your testimony, you 
discussed a number of specific changes that you think may be 
worth making in order to improve the positive comity process. 
Do you envision implementing these changes as part of the 
actual positive comity agreements or merely as internal 
procedural changes at the Justice Department? Let me also ask 
you whether you have discussed these changes with your 
counterparts in the European Commission.
    Mr. Klein. At this point, I would prefer, and I think the 
sensible way to go, since we have only had one experience, 
essentially, SABRE, and I remember the old line, one swallow 
does not a summer make, I think to try to really redo the 
agreement or amend the agreement would be premature. So I think 
the proposals, which, again, Chairman Pitofsky commented on in 
his remarks and I have some comments on them in my written 
remarks, I think we will seek to internalize those as working 
procedures under the agreement with the Europeans.
    In a general sense, not the specifics, but in a general 
sense about timeframes and about contact with the parties, we 
have, indeed, discussed that with our counterparts in the 
European Commission and DG-IV.
    Senator DeWine. Senator Kohl.
    Senator Kohl. Thank you, Mr. Chairman.
    Later today, we will hear from Buck Evans, president and 
CEO of Consolidated Papers, of how the American paper industry 
has had more than its fair share of problems with the Japanese. 
According to Mr. Evans, the Japanese market is not open for 
paper products, just as it is not open for flat glass.
    As I understand it, Mr. Klein, your policy permits you to 
go after antitrust violations abroad that harm American 
exports. So, Mr. Klein, will you tell us what you can do to 
help Consolidated Papers and other American companies and what 
should they do with the Justice Department to help move the 
process along and break open this very closed market?
    Mr. Klein. I think, first of all, what they should do, and 
I have actually talked to various representatives of the paper 
industry and made clear in my remarks that if they believe that 
the basis for their market access issue is an antitrust 
violation, or as they call it in Japan, an antimonopoly 
violation, we would be happy to meet with them and to consider 
whether we would make a referral, previously, before the 
agreement, in some informal manner, or now, once the agreement 
is executed, pursuant to it.
    What we have told them, Senator Kohl, is that just as in 
the United States we have companies come to us in the United 
States and say, I am having problems in this market because 
there is some collusive arrangement or there is a monopolistic 
practice and so forth, we need the support, the back-up, the 
evidence, the economic theories, and the hard work, because 
otherwise, obviously, we would lose our moorings. We have said 
this to various people with respect to access to foreign 
markets and we are prepared to engage, when the evidence is 
there in a prima facie way and make the appropriate referral.
    The second issue which both you and the chairman have 
raised is an important issue and I want to be very candid with 
the subcommittee. We have the power under U.S. law to be able 
to bring on our own a market access case where we think it is a 
violation of U.S. law.
    The real problem with that approach, and I know this from 
firsthand experience, is we do not have access to evidence in 
the foreign markets. So in order to bring a case in U.S. court, 
you need to both have the evidence and have a remedial plan 
that could exercise control within the foreign market, and the 
way sovereign power is now constructed in the United States, I 
think we would be unrealistic to think that we would 
frequently--I would not say never, and we have looked at 
several of these matters--frequently bring this kind of action 
in the United States.
    One of the reasons why I have been a big proponent of 
positive comity, even though it is flawed and it is limited in 
its implementation sometimes, is because the alternative may be 
nothing because we do not have subpoena power, we do not have 
access to the documents, and foreign countries will not 
voluntarily produce that to us because they view that as within 
their own domain.
    So I think we ought to continue to work to develop the 
positive comity option, reserve, and there may be cases in the 
future where we get the evidence, but we have had offshore 
meetings with people in affected industries who would not come 
to the United States but would talk to us outside their country 
of origin about these matters in efforts to tease out the 
relevant evidence to be able to launch an appropriate case. To 
date, we have not been able to put together that sort of 
evidence, and that is why we continue to hold out the hope that 
positive comity will be a meaningful avenue.
    I view it as a positive step, but by no means the last 
step, simply the first step in Japan's evolution and maturity 
in terms of commitment to antitrust enforcement that they are 
willing to do something that up until now they were never 
willing to do. While antitrust agreements were quite common 
throughout the rest of the world over the past decade, Japan 
had never entered any one of them. The fact that they chose to 
do so with us, I want to look at the glass now being half full. 
Whether it gets full or not will certainly matter.
    Senator Kohl. Mr. Pitofsky, what would you say to Mr. Evans 
from Consolidated Papers?
    Mr. Pitofsky. A very similar answer, Senator. I believe 
there are circumstances involving Japan and other countries in 
which they do not have the same commitment that we do to open 
markets and American firms are being injured unfairly. The 
question is what to do about it.
    My own experience is the same as Joel Klein's. Getting the 
witnesses, getting the evidence is extremely difficult, if not 
impossible, and, therefore, relying in the first instance on 
positive comity, asking the foreign country to help us out, is 
the right way to go.
    Senator Kohl. Mr. Klein, Mr. Pitofsky, you have worked hard 
on creating a positive comity agreement with Japan and I 
commend your efforts, although I am not entirely optimistic, as 
none of us are, that the agreement will be a success. Why do 
you think that the Japanese will honor this agreement any more 
than they have the two flat glass agreements or the 1992 paper 
agreement, for that matter? We would like to be optimistic, but 
past Japanese behavior leaves people doubtful. So would you be 
willing to talk to the folks at the paper industry and at 
Consolidated, in particular, to see whether you can help?
    Mr. Klein. Certainly, we would welcome them, if they would 
like to come in and talk to us and present their concerns. 
Again, I want to make it a fruitful engagement, so I would 
certainly urge them to engage antitrust counsel so that they 
understand the parameters in which we operate, because I think 
this is a new avenue for a lot of companies to explore relief. 
So consistent with, I think, the limited portfolio we carry, 
which is antitrust enforcement, I certainly would welcome 
meeting with those representatives, Senator Kohl.
    As for the Japanese, let me say this. I do not know what 
history will show. I think they made a classic mistake for 
which they are paying by not committing themselves to 
deregulation, competition policy, and open access to their 
markets. I think America's greatest strength in the 21st 
century is we got there early, we got there with enthusiasm. It 
has cost us in terms of certain domestic industry, but our 
market is strong, our companies are strong because they 
competed domestically and we are ready for the world stage. I 
think it has been a great benefit for us and a mistake for 
other countries.
    I think if you look at what Tom Friedman says in his recent 
book on globalization and you look at what Michael Porter says 
on the competitive advantage of nations, you understand that 
antitrust enforcement has been one of the geniuses of the 
American economy, and other countries are going to come to 
agree with that. I think we ought to at least suspend judgment. 
Perhaps optimism is more than history justifies, but we ought 
to suspend judgment because this is the first agreement that 
the Japan Fair Trade Commission has ever entered into. This is 
not an MITI agreement. This has been a Fair Trade Commission 
agreement and I would like to at least give them the 
opportunity when we find an appropriate case to refer to see 
what their response is.
    Senator Kohl. OK; Mr. Pitofsky, would you like to make a 
comment?
    Mr. Pitofsky. I would like to assure the committee that we 
are not going to be naive about this. We recognize that the 
agreement is meaningless unless there is some enthusiasm and 
there is some commitment to enforce these provisions. Each of 
you have suggested that we keep an eye on what happens and that 
we study the results of this agreement.
    I would like to be optimistic, as well. I think there is an 
important change going on in Japan in their attitudes toward 
foreign investment and international trade. But we will keep an 
eye on whether these agreements are, in fact, supported by the 
Japanese government.
    Senator Kohl. Thank you. Thank you, Mr. Chairman.
    Senator DeWine. Senator Kohl, thank you very much.
    Let me take a moment to welcome our students who are in the 
back and in the audience from the Close Up Program, a program 
that all the Senators are familiar with. We have the 
opportunity to see students, I think I do, about once a week 
from Close Up, so we welcome you here. This is a subcommittee 
hearing of the Judiciary Committee, the Antitrust Subcommittee. 
We are looking at antitrust issues and competition issues.
    Chairman Pitofsky, Marathon Oil has a major stake in the 
Norwegian offshore gas fields and is shipping gas to Europe. 
Marathon alleges that anticompetitive behavior by Ruhrgas and 
other European gas concerns has cost the company over $500 
million in losses. Marathon testified last fall with regard to 
its current complaint before the European Commission concerning 
Ruhrgas. Will you please provide the status of that 
investigation. When can we expect to see a conclusion of this 
case and the decision on whether a statement of objection will 
be filed? Are there any specific lessons that you think can be 
learned from the Marathon case?
    Mr. Pitofsky. Yes. Since our last hearing, we have been in 
touch with people in Europe on a regular basis. I have myself 
spoken to the Director General of DG-IV about the Marathon 
matter. They have done several things. They staffed up the 
group that was working on this matter. It was rather 
understaffed, I believe, the last time we met. There has been 
some progress. I believe that Marathon agrees that the matter 
is now moving. I think it has been slow. I think it has been--
--
    Senator DeWine. You think it has been slow? Did you say 
slow? I am sorry.
    Mr. Pitofsky. Yes, I think so. It is a complicated 
antitrust case, but I would have hoped it would move along more 
quickly. But I think it has now achieved some momentum. I think 
Marathon would agree with that. I cannot predict. I do believe 
that there will be action and movement in this matter in the 
near future. I cannot predict how long it will take.
    Let me just remind you, this is a matter in which we are 
talking about sales from Norway into Europe. We could not reach 
that transaction under any interpretation of American antitrust 
law. Therefore, we must depend on the Europeans. I am 
encouraged that there is movement in recent months.
    Senator DeWine. Both of you have indicated in testimony 
today and testimony in the past your belief that positive 
comity is a useful tool but will not be the only means to 
resolve international antitrust disputes. As the U.S. economy 
becomes more intertwined with the economies of other countries, 
we are sure to see more and more cases that require 
international cooperation.
    I agree that positive comity is not likely to provide a 
complete solution to these problems, but if not positive 
comity, how are we going to solve these problems? What else can 
we do?
    Mr. Klein. I would say, first of all, the fact that these 
economies are becoming intertwined makes the need for 
cooperation greater. And paradoxically, Mr. Chairman, in our 
cartel work, for example, the one I announced today, two of 
those companies involved in that were Japanese companies that 
we prosecuted with this cartel, and in numerous other cases, we 
have included Japanese companies. It is interesting. In those 
cases, we get terrific cooperation from the Japanese. We get 
good cooperation in Europe because these are worldwide 
conspiracies.
    As the economy becomes more global, I think you will find 
more effective cooperation. Indeed, the need to penetrate 
domestic markets is going to change somewhat because they are 
going to be globalized markets and that is going to 
increasingly happen as we move toward e-commerce and people 
able to hit a button here in the United States and buy a 
product anywhere in the world, and that is going to be equally 
true in other parts of the world.
    So I think that what we are doing now is setting the 
groundwork for effective interconnected antitrust cooperation, 
and I am actually modestly optimistic about where we are going 
in that respect.
    Mr. Pitofsky. Let me support the first point you made, Mr. 
Chairman. The Federal Trade Commission 20 years ago, maybe once 
a year, twice a year, would encounter a merger that had cross-
border implications. Today, 50 percent of the mergers that we 
take a careful look at, I mean, that we go beyond the initial 
investigation, involve more than one jurisdiction and some of 
them involve eight or ten.
    The real story, it is partly the bilateral agreements that 
we have worked out with some of our trading partners with the 
Department of Justice taking a lead in an excellent way, and I 
think they are important because they point the way. The real 
story is day in, day out, people on the phone, working together 
as we have very successfully with trading partners in many 
parts of the world, particularly with DG-IV, particularly with 
Europe. We have had tremendous success in coordinating our 
theories, coordinating our remedies, exchanging information, 
and so forth. That is the way the future is going to have to 
work out.
    Senator DeWine. Senator Kohl.
    Senator Kohl. I have no further questions. Thank you, Mr. 
Chairman.
    Senator DeWine. We thank you both very much. Again, you 
have been generous, as always, with your time. We look forward 
to continuing to work with both of you. Thank you.
    Mr. Klein. Thank you, Mr. Chairman.
    Mr. Pitofsky. Thank you.
    Senator DeWine. Let me invite our second panel now to come 
up and I will begin to introduce you as you head up. Peter S. 
Walters assumed his current duties as Group Vice President for 
Guardian Industries in June 1989. Mr. Walters testified before 
this subcommittee in October on the question of international 
antitrust enforcement and we welcome him back.
    Gorton ``Buck'' Evans joined Consolidated Papers in 1973, 
became President and Chief Executive Officer in 1997. We 
welcome him before the subcommittee today.
    John S. Reichenbach joined PPG Industries in 1958 and was 
named Director of Industry Business Analysis and Trade Policy 
for PPG's Glass Group in 1989. He currently serves as Director 
of Government Affairs for PPG.
    We thank all of you very much, again, for your patience. We 
apologize for the late start. We will turn first to Mr. 
Walters. We do have written statements that will become part of 
the record. We would ask you to proceed as you wish. We have 
allotted basically 5 minutes for your opening statement, and if 
you could try to keep it within that, we would appreciate it 
and we will have plenty of time for questions.
    Mr. Walters.

  PANEL CONSISTING OF PETER S. WALTERS, GROUP VICE PRESIDENT, 
 GUARDIAN INDUSTRIES CORPORATION, AUBURN HILLS, MI; GORTON M. 
  EVANS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CONSOLIDATED 
    PAPERS, INCORPORATED, WISCONSIN RAPIDS, WI; AND JOHN C. 
 REICHENBACH, DIRECTOR OF GOVERNMENT AFFAIRS, PITTSBURGH PLATE 
              AND GLASS INDUSTRIES, WASHINGTON, DC

                 STATEMENT OF PETER S. WALTERS

    Mr. Walters. Thank you very much, Mr. Chairman. As you 
mentioned, my name is Peter Walters. I am Group Vice President 
of Guardian Industries Corporation, of Auburn Hills, MI, and my 
responsibilities include overseeing the company's international 
business efforts.
    Last October, I described my company's efforts to establish 
a meaningful foothold in Japan's flat glass market. Our lack of 
success and the similar failures of PPG and other non-Japanese-
affiliated companies are due to a closed distribution system. A 
cartel of three Japanese flat glass producers has blocked 
competition from other non-Japanese firms for decades. Members 
of the cartel have acquired direct equity interest in important 
distributors or used highly effective coercive tactics to 
prevent otherwise independent distributors from switching to 
flat glass produced by foreign firms. The situation is 
described in detail in a paper prepared by PPG and Guardian 
that is being submitted along with PPG's testimony today.
    I can report little progress over the last 7 months. Sales 
volumes at Guardian Japan have been flat, despite new sales 
initiatives in our part. To deal with the temporary economic 
downturn in Japan, the three companies have tightened their 
grip over distributors and resorted to, among other things, 
selective predatory price cuts to fend off competition from 
non-Japanese firms. The Japanese companies are betting that 
they can drive foreign suppliers from the market and recoup 
lost profits after we leave.
    We have recently learned that the Japanese cartel assigns 
aggressive sales quotas to distributors. They must meet these 
quotas before they are free to purchase foreign glass. A 
distributor who fails to meet his quota faces financial 
retaliation that can ruin his business if, for example, he 
needs a credit reference from his main supplier or if he 
depends on rebates for returning the steel racks used to ship 
his glass.
    I mentioned last October that the Japan Fair Trade 
Commission had agreed to do a survey of the flat glass 
industry. Such a survey, if it were rigorous, transparent, or 
reliable, would identify and confirm the anticompetitive 
practices described to this subcommittee. While the survey 
results have not yet been released, we expect them any day now. 
We are skeptical that they will be valid or even fair.
    Discussions between the United States and Japanese 
governments since last October have not narrowed the perception 
gap much, if at all. My biggest concern is the Japanese 
government, and specifically MITI, simply is not taking this 
issue seriously. From the outset, MITI's approach to 
implementing the flat glass agreement has been to emphasize 
form over substance. They created a series of arguments 
intended to show that the market is open and they repeat the 
arguments despite these fallacies.
    Senators DeWine and Kohl, you received a letter from the 
Japanese embassy containing many of these arguments in late 
March. The complete, unabridged version is contained in a paper 
presented by MITI during a government-to-government meeting in 
Washington in early April. Let me give you just a sample of 
MITI's specious arguments.
    They argue that the share of the foreign glass in the 
Japanese market has doubled since 1994 to more than 14 percent. 
The fact is that nearly the entire increase is accounted for by 
imports from Japanese affiliates located abroad, and much is 
automotive glass that does not move through the distribution 
system.
    MITI argues that the market is open because the share of 
foreign-made flat glass is more than twice that in the United 
States. Our previous point applies here, that the pattern of 
Japanese imports is dominated by shipments between Japanese-
owned affiliates, nor has direct investment been an option in 
Japan, as is here in the States.
    Another MITI argument is that the market is open because, 
steadily, more distributors handle imported flat glass, up from 
about 14 percent in 1994 to more than 37 percent in 1997. The 
problem here is tokenism. Virtually all distributors who handle 
foreign glass let it account for no more than 5 percent of 
their turnover.
    A final example, and to me the most objectionable one, is 
MITI's assertion that U.S. firms do not work hard enough or 
understand the Japanese market. They cite figures that Japanese 
manufacturers have 30 times more sales people and 10 times more 
processing facilities. We have put more effort into penetrating 
the Japanese market than any other market in the world, with 
meager results. But we will keep at it. We will maintain and 
expand our efforts because the Japanese market is too important 
to ignore.
    Mr. Chairman, this leads to the question of whether there 
is any prospect for success through the use of competition 
authorities. Last fall, I testified in support of proposed 
legislation to strengthen U.S. antitrust authorities to deal 
with foreign anticompetitive conduct. In particular, we 
supported a bill introduced by Senator Abraham to codify 
footnote 62 of the current antitrust guidelines for 
international operations. We urge that similar legislation be 
introduced in this Congress and enacted now.
    We understand that substantive agreement has now been 
reached by the Department of Justice on a joint antitrust 
cooperation agreement with the Japan Fair Trade Commission. The 
positive comity provisions of that agreement could provide the 
basis for identifying and addressing anticompetitive business 
practices in the flat glass sector. In our view, if the 
agreement is signed, it is important for the Department of 
Justice to use the joint antitrust cooperation agreement to 
make early progress on flat glass.
    Japan's willingness and ability to undertake a credible 
investigation into the conduct of its own flat glass industry, 
in cooperation with DOJ officials, will be the test of whether 
Japan is up to the challenge of being an equal partner with the 
United States under the joint agreement. If not, we should 
pursue the matter through unilateral action on the part of our 
own U.S. antitrust authorities.
    Thank you very much, Mr. Chairman. I would be delighted to 
answer any questions.
    Senator DeWine. Mr. Walters, thank you very much.
    Mr. Evans.

                  STATEMENT OF GORTON M. EVANS

    Mr. Evans. Thank you, Mr. Chairman, Senator Kohl, for the 
opportunity to appear before you this morning. I am Gorton M. 
Evans, President and CEO of Consolidated Papers, and with a 
name like Gorton, you can see why Senator Kohl refers to me by 
my nickname, Buck.
    Consolidated, headquartered in Wisconsin Rapids, WI, is 
North America's largest producer of coated printing papers. We 
are a $2 billion company in a $160 billion industry. I have 
samples, thinking that perhaps you were not familiar with 
coated printing paper as much as you are flat glass. These are 
samples of the products we produce. Sports Illustrated, 
Newsweek, Time, and catalogs are produced on our paper.
    Consolidated employs 7,200 people in the State of 
Wisconsin, and within the State of Wisconsin, there are 52,000 
people employed in paper and related industry. The United 
States employs about 700,000 people in the paper industry.
    The United States is the world's largest producer of paper 
and paperboard products. Paper obviously is a big part of our 
economy. That is because we are a Nation blessed with trees, a 
renewable resource, water, clay, minerals, chemicals, all the 
raw materials that are used to make paper, and this is 
important to our case because Japan is a very important market 
for our industry.
    After the United States, Japan is both the world's second 
largest producer and consumer of paper products. Yet, the 
import penetration into Japan is the smallest of any developed 
nation. Why? Because Japan is protecting an industry that 
without that protection would be so uncompetitive it would 
literally disappear. Japan's papermakers purchase the bulk of 
their wood and pulp and raw materials from North American 
suppliers. Their energy, chemicals, and raw materials are much 
higher cost than those of North American and Scandinavian 
competitors.
    American paper manufacturers cannot penetrate the Japanese 
market because the Japanese have set up a complex, largely 
closed distribution system. Interlocking relationships exist 
between members of the same keiretsu--manufacturers, agents, 
wholesalers, trading companies, printers, publishers, and 
users, and even the banks. These relationships result in 
exclusionary business practices that block the entry of paper 
imports and promote the growth of their industry at our 
expense.
    I would like to share with you a brief story. It is an 
example, first person, of what I am talking about, not too much 
unlike what we just heard from the flat glass.
    In April 1992, after a year of intense negotiations, the 
United States and Japanese Governments signed a 5-year 
agreement to increase market access for paper products. The 
Japanese government promised to encourage Japanese keiretsus to 
increase their use of imported paper products and adopt 
nondiscriminatory purchasing practices. Our industry 
association, the American Forest and Paper Association, 
encouraged its membership to make every effort to begin doing 
business again with Japan.
    So Consolidated Papers dedicated a number of people. We 
contacted Japan Pulp and Paper, an import agent located in Los 
Angeles. Our attitude was, we are going to do business, and we 
will do it their way. They were happy to represent us. Now I 
will shorten this otherwise long story.
    After about 6 months of intensive sampling, shared 
technical information, redesign, resubmission of packaging, 
labeling, and everything you can imagine to meet their market 
standards, we got our first order, one roll of paper--that 
would be the equivalent of one sheet of glass--to be tested 
upon arrival in Japan for market suitability. Senators, paper 
is paper and printing is printing. This is not rocket science. 
As far as we could tell, the paper arrived in Japan, but we 
think it never got off the dock.
    Overall, that 1992 agreement has not led to increased 
market access for American papermakers. How can I say that? In 
1998, imports from all sources worldwide accounted for just 3.9 
percent of Japanese consumption. One-point-seven percent came 
from the U.S. mills and 1.7 percent, more or less, has been our 
share for the past 20 years. In contrast, the U.S. imports 16.3 
percent of its total consumption of paper and paperboard 
products.
    Specifically, in our segment, coated papers, Japan exported 
27,000 tons to the United States in 1997, or 300 percent more 
than we shipped to them. The Bureau of Census data show that 
Japanese producers increased their exports of coated paper to 
the United States in 1998 by 74 percent, while our exports to 
them actually went down.
    How could an uncompetitive industry like Japan's paper 
industry grow their manufacturing capacity by over 10 percent 
in just 4 years, 4 years of negative GDP, and why is the U.S. 
paper industry shrinking within the same timeframe, a time of 
robust economic growth? It is simple--protectionism. 
Monopolistic practices by countries like Japan allows for 
domestic expansion of capacity at home while increasing exports 
abroad, especially to the United States.
    Senators if you happen to travel to Japan, perhaps you will 
come across that roll of paper that we shipped 6 years ago. We 
think it is still on the dock.
    On behalf of the U.S. paper industry, I would like to thank 
the committee for providing the opportunity to highlight our 
industry's market access issues in Japan. We believe that 
closer United States Government-industry cooperation is needed 
to keep pressure on the government of Japan to eliminate 
collusive business practices which limit United States access 
to the Japanese paper market. I have submitted a more 
comprehensive statement which I request be included in the 
record. Thank you.
    Senator DeWine. It will be made part of the record. Thank 
you very much, Mr. Evans.
    [The prepared statement of Mr. Evans follows:]

                 Prepared Statement of Gorton M. Evans

    The U.S. is the world's largest producer of pulp, paper and 
paperboard with annual sales of more than $160 billion. Until the onset 
of the Asian financial crisis in mid-1997, the industry's exports 
served as the major engine of growth. In the 1990-1997 period, U.S. 
paper and paperboard exports worldwide doubled to 11.9 million metric 
tons with a value of $10.2 billion.
    Access to the Japanese market is of crucial importance to the U.S. 
paper industry. After the U.S., Japan is the world's second largest 
producer and consumer of paper and paperboard. Yet, import penetration 
in Japan is the smallest in the world. In 1998, imports from all 
sources accounted for just 3.9 percent of Japanese paper and paperboard 
consumption and imports from the U.S. represented 1.7 percent of 
consumption. To put it in perspective, even a 1 percentage point 
increase in U.S. market share is worth more than $400 million in 
additional U.S. export sales to Japan.
    Low import penetration is especially difficult to reconcile with 
Japan's lack of comparative advantage in paper manufacturing. Quite to 
the contrary, Japan suffers considerable competitive disadvantage in 
the form of high wood, energy, chemicals and labor costs which 
translate into one of the world's highest production cost structures.
    Competition in the Japanese paper market has been suppressed 
historically by both governmental and private actions which have made 
access to the market for imported products extremely difficult (except 
for products that the Japanese paper industry does not produce such as 
liquid packaging board.)
    The U.S. paper industry believes that an array of anticompetitive 
business practices deter paper imports. Some of these barriers are:

   A complex and largely closed distribution system,

   Interlocking relationships between members of the same 
        keiretsu, which include manufacturers, agents, wholesalers, 
        trading companies, printers, publishers or other end users, and 
        financial institutions. (These relationships result in 
        exclusionary business practices restricting the entry of new 
        suppliers, including imports),

   Financial ties between manufacturers and distributors,

   Preferential bank financing even of uncompetitive companies,

   A lack of transparency in corporate purchasing practices, 
        and

   Inadequate enforcement of anti-monopoly laws.

    In April 1992, culminating a year of intense negotiations, the U.S. 
and Japanese governments signed a five-year agreement on measures to 
substantially increase market access for foreign firms exporting paper 
products to Japan (Paper Agreement). Without explicitly acknowledging 
that obstacles to market access exist, the government of Japan made a 
commitment to undertake a major effort to eliminate them.
    Under the Paper Agreement, the Japanese government committed to 
encourage Japanese distributors, converters, printers and major 
corporate users of paper products to: (1) increase their use of 
imported paper products; and (2) adopt and implement open and non-
discriminatory purchasing practices. Also, paper and paperboard 
producers, distributors, converters and printers were to establish and 
implement internal Anti-Monopoly Law (AML) compliance programs.
    Concurrent with the Paper Agreement, the Japan Fair Trade 
Commission (JFTC) undertook a study of the paper distribution system 
from the competition perspective. While the JFTC report, released in 
June, 1993, did not identify specific, actionable violations of the 
Anti-Monopoly Act, it cited certain aspects of the paper distribution 
system which it found to be problematic. These include,

   Capital relationships between manufacturers, distributors 
        and wholesalers that reinforce business ties,

   The use of oral agreements to determine the terms of a 
        transaction,

   Traditional after-sales price adjustment.

    What has been the effect of the Paper Agreement? We should 
acknowledge that the agreement produced a number of positive changes in 
business practices. One example is the use of written contracts rather 
than unwritten ``understandings'' between manufacturers and their 
distributors. Critically, the Agreement provided some legitimacy for 
Japanese customers who were inclined to use imported paper but were 
concerned about negative repercussions from their primary suppliers, 
the Japanese paper manufacturers. (This points to the need for a 
government-to-government venue for discussing market access issues and 
for ongoing review of progress in opening the Japanese paper market.)
    Overall, though, the agreement did not appear to have lead to 
increased market access for imported paper. The U.S. government and the 
U.S. paper industry concurred in the judgement that the agreement was 
not producing the results anticipated.
    As reported in the March 1997 National Trade Estimate Report on 
Foreign Trade Barriers, ``there has been no meaningful increase in 
Japanese imports of paper products.'' This assessment was based on the 
lack of any meaningful change in the level of imports in both absolute 
terms and as a share of Japanese paper consumption. Moreover, there was 
no evidence that the GOJ took steps to implement commitment to work 
with other ministries to encourage end users to purchase imported paper 
products and to require Japanese companies to develop Anti Monopoly Act 
compliance policies. The 1998, and the just issued 1999, National Trade 
Estimate Report arrived at the same conclusion.
    The full impact of the combined failure to implement the agreement 
and refusal to even discuss remedies can best be understood in the 
context of concurrent developments in the Japanese paper industry:

   Even though Japan is a high-cost producer and 
        notwithstanding a relatively slow 2 percent rate of domestic 
        demand growth--Japanese companies initiated projects which 
        added some 1.7 million metric tons of new paper and paperboard 
        capacity in the 1997-98 period;

   The major players in the industry underwent a 
        ``consolidation'' which substantially strengthened the position 
        of the leading producers and minimizes direct competition;

   Several paper companies obtained special treatment under 
        Japan's Business Reform Law, which provides, inter alia for 
        special tax credits and JFTC approval for cooperation with 
        other companies in the industry in the course of restructuring.

    Finally, in April 1997, with this new capacity substantially in 
place and Japanese domestic industry control over the market 
reinforced, the GOJ refused to renew the government-to-government paper 
agreement on the grounds that the paper market was ``open'' (sic) and 
that government interference in the marketplace--presumably encouraging 
imports and requiring policies for compliance with the Anti-Monopoly 
Act--were not consistent with Japanese government policy.
    In refusing to extend the 1992 paper market access agreement, the 
Japanese government pointed to the almost 50 percent increase in 
Japan's imports of printing and writing papers in 1996, primarily from 
Finland, as an indication of the openness of the Japanese paper market. 
However, results in 1997 confirmed the U.S. judgment that the previous 
year's situation reflected short term market conditions. Total paper 
and paperboard imports dropped from 1.56 million metric tons in 1996 to 
1.32 million metric tons a year later. In the important printing and 
writing paper sector, Japanese imports dropped by 38 percent, from 
625,933 metric tons to 387,139 metric tons. In 1998, Japanese paper and 
paperboard imports fell an additional 11.7 percent.
    The issues of compliance with the AML and GOJ toleration of anti-
competitive practices in the paper market closely parallel in structure 
and in market effects the pattern in the photographic film, flat glass 
and other industry sectors. Specifically:

   The JFTC's 1993 paper market survey documented the existence 
        of ``traditional'' business practices which impede access to 
        new market entrants,

   The JFTC has failed to act on indications of problematic 
        behavior by Japanese paper companies. Japanese press reports 
        during the period of the Agreement and since then documented 
        meetings and discussions among Japanese paper producers 
        regarding prices and other conditions of the Japanese paper 
        markets, but there have been no subsequent enforcement action 
        by the JFTC.

    The 1996 merger between New Oji Paper and Honshu Paper companies, 
creating the largest paper company in Japan, indicates that the JFTC 
will sanction the increased consolidation in the Japanese paper 
industry. While the JFTC expressed some concerns about the merged 
company's stake in the top two paper distributors, and about the 
practice of loaning executives to distributors, no effective action was 
taken to initiate the thorough reform of the distribution system 
promised in the several announced distribution reform programs.
    At the same time, Japanese paper manufacturers, in spite of their 
industry's generally high production costs, are expanding exports to 
Asia-Pacific markets. Japan's total paper and paperboard exports were 
up 35 percent in 1997, with printing and writing papers exports rising 
by an extraordinary 52 percent. Paper and paperboard exports advanced 
14.8 percent in 1998. It is evident that Japan's long term strategy of 
protecting the local paper industry from import competition, has 
allowed Japanese paper producers to significantly expand production 
capacity of high-value added paper products for both the domestic and 
export markets.
    The genesis of this strategy can be traced back directly to the 
1994 report issued by the ``Study Committee on Basic Issues of the 
Japanese Paper and Pulp Industry'' organized by MITI. Among other 
things, the report urged the Japanese paper industry to become more 
international in outlook and expand into foreign markets for further 
growth. It is evident that Japan's long term strategy of protecting the 
local paper industry from import competition, has allowed Japanese 
paper producers to significantly expand production capacity of high-
value added paper products for both the domestic and export markets.
    The Japan model represents an extremely well developed system of 
protectionism. Some would say that this is a failed system that has 
contributed to Japan's economic malaise. So why does it matter? There 
is evidence that other countries have proceeded down the same path. 
South Korea, for one, has also built up a large paper industry without 
any apparent comparative advantages. China is also a concern. Right 
now, our main concern with China are high tariffs and traditional 
nontariff barriers. However, as it lowers tariffs and traditional 
nontariff barriers once it joins the WTO, we are concerned that China's 
non-transparent trade and economic structure would allow it to protect 
the domestic paper industry through a combination of administrative 
guidance, government-industry ties, toleration of cartels and other 
anticompetitive business practices.
                            recommendations
    Our experience with the 1992 U.S.-Japan Paper Market Access 
Agreement and the Japanese Government's unwillingness even to discuss 
its renewal, illustrates the limitations of trade negotiations as a 
tool to open Japanese markets to competition. It seems apparent that 
the primary cause of the U.S. industry's inability to obtain reasonable 
access to the Japanese market is collusive and exclusionary practices 
among the Japanese paper manufacturers and between those manufacturers 
and distributors. The Japanese Government has been unwilling to bring 
an end to those practices by vigorous enforcement of the Japanese Anti-
Monopoly Law.
    Our industry's situation should provide the Committee with support 
for Recommendations it could make to antitrust enforcers along the 
following lines:

  (1) U.S. enforcers should request the JFTC conduct a follow-up to its 
        1993 Survey of the Paper Industry and Market, in order to 
        assess compliance by Japanese paper companies with the Anti-
        Monopoly Law.

  (2) U.S. enforcers should request the Japanese Government's 
        cooperation with a U.S. investigation of conduct in Japan that 
        is hindering exports from the United States.
  (3) U.S. enforcers should help educate Japanese enforcement 
        authorities and Japanese companies on the value of 
        comprehensive anti-monopoly law compliance programs and 
        encourage their adoption by Japanese companies. If adopted, 
        such programs could help deter employees from violating 
        Japanese and/or U.S. law.
  (4) U.S. enforcers should work with the 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.
  (5) U.S. antitrust enforcers should consider supporting amendments to 
        the antitrust laws clarifying their application to conduct 
        outside the United States which hinders access to foreign 
        markets.
    Thank you.

    Senator DeWine. Mr. Reichenbach.

                STATEMENT OF JOHN C. REICHENBACH

    Mr. Reichenbach. Thank you, Mr. Chairman and Senator Kohl. 
My name is John Reichenbach. I am the Director of Government 
Affairs for PPG Industries, Incorporated. It is the hope of PPG 
that today's hearing will shed light on the manner in which the 
antimonopoly law is, or perhaps more accurately, is not, 
enforced in Japan.
    PPG entered the Japanese flat glass market in 1967 and has 
had continuous presence there ever since. Japan has the second 
largest glass market in the world. It is, therefore, an 
important one from both economic and strategic points of view.
    Despite the company's world class technologies and global 
success in manufacturing and selling a wide range of glass and 
other products, they have encountered severe market entry 
barriers in the Japanese flat glass market which for many years 
have frustrated the attempts of PPG and other non-Japanese 
producers to enter the Japanese market due to fundamental 
distortions in Japan's flat glass market.
    The Japanese producers of flat glass and downstream 
products of flat glass have engaged in a wide range of patently 
anticompetitive activities. The evidence available to us 
strongly suggests that the Japanese producers originally 
established a collusive market allocation arrangement with the 
knowledge and acceptance of their government.
    For as long as I can remember, the market shares in Japan 
of the three Japanese glass producers have remained essentially 
the same, as shown in Graph No. 1. These practices have been 
and are pervasive and are of a nature that, if undertaken in 
the U.S. market, would be subject to intense antitrust 
enforcement activities by authorities at the Federal and State 
level. By contrast, the Japanese government has not pursued 
even the most egregious instances of anticompetitive behavior.
    Attached to my testimony, you will find a longer listing of 
anticompetitive trade practices in Japan and I would like to 
highlight several areas for you.
    Japanese flat glass manufacturers have imposed informal 
sales quotas on their customers. These quotas operate by 
prohibiting Japanese distributors from buying any non-Japanese-
affiliated foreign manufactured glass until a minimum quota 
amount of Japanese-produced glass is first purchased. If a 
Japanese distributor does not meet the quota for purchases of 
glass from his Japanese suppliers before buying glass from 
independent foreign producers, the distributor faces any of a 
number of pressures, ranging from unfavorable credit reports to 
forfeiture of cash deposits made in advance of purchases to 
social ostracism.
    Japanese glass producers exercise control over the 
distributors in many ways. Some are direct, such as the 
acquisition of partial ownership or forced consolidation of 
distributors. In some cases, Japanese producers require 
distributors to open their accounting and purchasing records to 
the producers so that the source of purchases is known to the 
Japanese producers. In other cases, Japanese producers have 
been known to place their personnel on the management staff of 
their distributors. In effect, this means that Japanese 
producers can monitor and then later pressure distributors to 
limit the amount of glass that is purchased from other 
suppliers, such as PPG.
    One of the strongest proofs of the collusive nature of the 
Japanese market came from a Japanese employer of a U.S. glass 
producer who stated that in his previous employment, he 
personally collected and aggregated the production numbers of 
the Japanese producers so that each could regulate their 
production according to the agreed upon market shares.
    Additional strong evidence of collusion is contained in 
recent comments reported in the Japanese press which suggest 
that Japanese producers and distributors are engaged in price 
signaling, if not outright price fixing. In the April 15, 1999, 
issue of the Nippon Keizai Shinbun, an executive of one of the 
large exclusive glass distributors signaled that he was going 
to accept a manufacturer's proposal for a new pricing structure 
for the entire industry and encouraged the rest of the industry 
to do so, as well, stating, ``It is a good time for the glass 
industry to reconsider the current glass pricing structure when 
the whole industry is suffering from excessive competition 
among themselves.'' This clear call for price coordination was 
designed to allow an increase in prices.
    Japanese glass manufacturers also employ a less-than-arm's-
length relationship in their business dealings. These 
relationships extend to credit suppliers and advertisers as 
well as to their distributors. In one instance, PPG called a 
Japanese trade publication to arrange to buy advertising space 
for the sale of PPG glass products. Despite having been told 
that space was available initially, in a subsequent meeting 
with the newspaper to finalize arrangements for the 
advertisements, PPG representatives were told that the 
newspaper could not offer space to a foreign flat glass 
producer. The reason given was that the newspaper would suffer 
the loss of all advertising revenues from Japanese producers if 
it sold space to a U.S. glass producer.
    Distributors have in the past explained to our sales 
personnel that if they made large flat glass purchases from 
PPG, they could expect higher prices or even a total cutoff 
from supply on special glass products which are not made by 
independent foreign suppliers and, thus, must be bought from 
Japanese makers. These threatened reprisals intimidate 
distributors from buying large quantities of foreign glass.
    These producer practices are designed to monitor, 
discipline, and ultimately control the distribution channels in 
the Japanese flat glass market. These practices run counter to 
both U.S. antitrust law and the letter of the Japanese 
antimonopoly laws.
    A 1993 JFTC study confirmed the firsthand experiences of 
PPG by finding that essentially all primary wholesalers are in 
actuality the exclusive agents of one of the manufacturers. The 
surveys also found that the Japan's flat glass market is 
virtually monopolized by the three glass makers and that the 
system of sales through exclusive distributors had barred 
access by other suppliers.
    During its 30-plus years in Japan, PPG has tried every 
plausible way to increase its market presence. PPG has hired 
Japanese nationals for its sales staff, both as inside and 
outside staff. PPG has participated in trade shows and even 
formed a Japanese glass marketing joint venture with the 
Japanese trading company Itochu. Over the years, we have 
established sales offices, fabrication facilities, and cutting 
centers in Japan. A 1997 survey by Japan's Ministry of 
International Trade and Industry found that Japanese buyers 
viewed PPG's products as equal or superior to the quality of 
Japanese products.
    Initially, because of producer pressure, Japanese 
distributors demanded that PPG repackage its glass into 
Japanese style containers so that distributors' purchases of 
non-Japanese-affiliated glass could be more easily disguised. 
For the same reason, PPG also was told to deliver its products 
only on Sunday. Additionally, deposits collected by the 
Japanese producers from distributors to reserve future glass 
purchases have been threatened with confiscation if 
distributors continued buying U.S. glass products.
    The Japanese government has claimed that the flat glass 
agreement has resulted in a larger market presence for foreign 
manufacturers. This claim, however, runs contrary to the facts. 
As Graph No. 2 shows, the 1998 USTR national trade estimates 
report listed the import share of the Japanese market at only 
six percent, with only three furnished by independent foreign 
producers.
    This highlights the stark imbalances in the flat glass 
market of Japan versus the United States. Graph 3 will show 
that Japanese glass producers and their affiliates in the U.S. 
enjoy unfettered access to the U.S. market, holding 
approximately a 22 percent U.S. market share through wholly 
owned subsidiaries and another 15 percent of the U.S. market 
through joint ventures with other foreign producers. By 
contrast, U.S. producers are virtually blocked from the 
intensely anticompetitive Japanese market.
    In addition, the Japanese affiliates based in the United 
States and other countries also enjoy unrestricted access to 
the Japanese market. For example, 91 percent of the automotive 
glass parts shipped to Japan from the United States in 1998 
came from wholly owned subsidiaries of Japanese flat glass 
producers, as shown in chart 4. Thus, the independent foreign 
producer share of 2 to 3 percent has remained relatively 
unchanged in the flat glass market of Japan.
    With these facts in mind, we hope that the U.S. Congress 
and the administration will act to ensure that the Japanese 
enforce antitrust laws which they currently have on their 
books. We have asked the JFTC to investigate these practices 
and take action. We believe that a thorough, unbiased 
investigation of the Japanese flat glass market will reveal a 
number of anticompetitive practices.
    We also recommend that the measure of success in this 
undertaking be the accomplishment of defined objectives within 
the near term. In order to pursue this type of success, we also 
urge that the U.S.-Japan Flat Glass Agreement be strengthened 
and renewed before the end of this year.
    This concludes my prepared testimony. I will be pleased to 
attempt to answer any questions you may have.
    Senator DeWine. Thank you very much.
    [The prepared statement of Mr. Reichenbach follows:]

               Prepared Statement of John C. Reichenbach

                              introduction
    Mr. Chairman and Members of the Subcommittee: My name is John C. 
Reichenbach. I am the Director of Government Affairs for PPG 
Industries, Inc. (``PPG''). This Subcommittee asked PPG to provide 
testimony regarding the Company's experiences with anticompetitive 
practices in the Japanese market and the Government of Japan's 
responses to such practices. It is the hope of PPG that today's hearing 
will shed light on the manner in which the antimonopoly law is--or 
perhaps, more accurately, is not--enforced in Japan.
    Because my career at PPG has caused me to deal with this problem 
extensively, I have been asked to appear here today in order to share 
my Company's views. I joined PPG in 1958 and have served in a variety 
of positions in the glass business of the Company, including Director 
of Industry and Business Analysis, Director of Market Planning, and 
Director of Marketing. I became the corporate Director of Government 
Affairs for PPG Industries, Inc. in 1994. In these capacities, I have 
dealt often with the long-standing problems PPG has encountered in 
Japan's flat glass market.
                               about ppg
    PPG was the first commercially successful plate glass manufacturer 
in the United States and has been a glass technology leader since 1883. 
PPG's glass operations had global sales exceeding $2.5 billion last 
year. PPG Industries has 18 glass manufacturing facilities in 14 states 
employing nearly 10,000 highly skilled American workers. The Company is 
the largest manufacturer of glass for commercial and residential 
construction in North America. PPG's glass business units supply 
automotive, aircraft and other transportation original equipment and 
replacement glass parts, glass for commercial and residential 
construction and remodeling, and products for industrial, mirror and 
furniture applications. PPG is also a global producer of fiber glass, 
coatings and chemicals.
    Most glass today is produced by the float process. Molten glass is 
poured continuously from the melting furnace into a second furnace 
containing a bed of molten tin. The molten glass floats on the tin and 
gradually cools until it forms a continuous ribbon. The solid state 
form is conveyed into another furnace known as an annealing lehr, where 
the controlled cooling process is completed. The continuous glass 
ribbon is then cut into the customers' sizes and packaged for shipment.
                              ppg in japan
    PPG's interest in the Japanese market is long standing. Indeed, PPG 
entered the Japanese flat glass market in 1967 and has had a continuous 
presence ever since. Japan has the second largest glass market in the 
world. It is, therefore, an important one from both economic and 
strategic points of view.
    Despite the Company's world class technologies and global success 
in manufacturing and selling a wide range of glass and other products, 
we have encountered severe market entry barriers in the Japanese flat-
glass market which for many years have frustrated the attempts of PPG 
and other non-Japanese producers to enter the Japanese market. During 
the more than thirty years PPG has operated in Japan we have attempted 
every plausible method to gain greater access to the flat glass market. 
Our efforts, however, have yielded very little success due to 
fundamental distortions in Japan's flat glass market.
    Broadly speaking, the Japanese producers of flat glass and down-
stream products of flat glass have engaged in a wide range of patently 
anticompetitive activities. Moreover, the evidence available to us 
strongly suggests that the Japanese producers originally established a 
collusive market allocation arrangement with the knowledge and 
acceptance of their government. For as long as I can remember, the 
market shares in Japan of the three Japanese glass producers have 
remained essentially the same.
    These practices have been and are pervasive and of a nature that, 
if undertaken in the U.S. market, would be subject to intense antitrust 
enforcement activity by authorities at the federal and state level. By 
contrast, the Japanese Government has not pursued even the most 
egregious instances of anticompetitive behavior, thereby attracting 
widespread criticism for inadequate enforcement of its antimonopoly 
laws.
                    anticompetitive trade practices
    During its more than three decades of operation in Japan, PPG has 
observed a litany of anticompetitive practices occurring in the 
Japanese flat glass market. Attached to my testimony you will find a 
longer listing of some of these practices, but I would like to 
highlight several areas for you. (See Attachment 1 for description of 
barriers to entry in the Japanese market.)
(1) Restrictive distribution practices
    Japanese flat glass manufacturers have imposed informal sales 
quotas on their customers. These quotas operate by prohibiting Japanese 
distributors from buying any non-Japanese affiliated foreign 
manufactured glass until a minimum quota amount of Japanese produced 
glass is first purchased. If a Japanese distributor does not meet the 
quota for purchases of glass from his Japanese suppliers before buying 
glass from independent foreign producers, the distributor faces any of 
a number of pressures ranging from unfavorable credit reports, to 
forfeiture of cash deposits made in advance of purchases, to social 
ostracism.
(2) Oversight of distributors by producers
    Japanese glass producers exercise control over the distributors in 
many ways. Some are direct, such as the acquisition of partial 
ownership or forced consolidation of distributors. In some cases, 
Japanese producers require distributors to open their accounting and 
purchasing records to the producers, so that the source of purchases is 
known to the Japanese producers. In other cases, Japanese producers 
have been known to place their personnel on the management staff of 
their distributors. In effect, this means that Japanese producers can 
monitor and then later pressure distributors to limit the amount of 
glass that is purchased from other suppliers, such as PPG.
(3) Evidence of collusion
   One of the strongest proofs of the collusive nature of the 
        Japanese market came from a Japanese employee of a U.S. glass 
        producer who has stated that he personally collected and 
        aggregated the production numbers of the Japanese producers so 
        that each could regulate their production according to the 
        agreed market share.

   Additional strong evidence of collusion is contained in 
        recent comments reported in the Japanese press which suggest 
        that Japanese producers and distributors are engaged in price 
        signaling, if not outright price fixing. In the April 15, 1999 
        issue of the Nippon Keizai Shimbun, an executive of one of the 
        large exclusive glass distributors signaled that he was going 
        to accept a manufacturer's proposal for a new pricing structure 
        for the entire industry and encouraged the rest of the industry 
        to do so as well stating, ``It is a good time (for the glass 
        industry) to reconsider the current glass pricing structure 
        when the whole industry is suffering from excessive competition 
        among themselves.'' This clear call for price coordination was 
        designed to allow an increase in prices. (See a copy of the 
        article and translation at Attachment 2.)

   Japanese glass manufacturers also employ a less than arms-
        length relationship in their business dealings. These 
        relationships extend to credit suppliers and advertisers as 
        well as their distributors. In one instance, PPG called a 
        Japanese trade publication to arrange to buy advertising space 
        for the sale of PPG glass products. Despite having been told 
        that space was available, in a subsequent meeting with the 
        newspaper to finalize arrangements for the advertisements, PPG 
        representatives were told that the newspaper could not offer 
        space to a foreign flat glass producer. The reason given was 
        that the newspaper would stiffer the loss of all advertising 
        revenues from Japanese producers if it sold space to a U.S. 
        glass producer.
(4) Tie-in sales
    Distributors have in the past explained to our sales personnel that 
if they made large flat glass purchases from PPG they could expect 
higher prices, or even--total cut-off from supply, on special glass 
products which are not made by independent foreign suppliers, and thus 
must be bought from Japanese makers. These threatened reprisals 
intimidate distributors from buying large quantities of foreign glass.
    These producer practices are designed to monitor, discipline, and 
ultimately control the distribution channels in the Japanese flat glass 
market. These practices run counter to both US antitrust law and the 
letter of the Japanese antimonopoly law. Yet, in each of these cases no 
effective remedial action has been taken.
    In a 1993 JFTC study, the government of Japan noted a number of 
anticompetitive practices in the flat glass industry, confirming the 
first-hand experiences of PPG. This remarkably frank examination of the 
Japanese flat glass market provided many insights into the state of the 
industry. The survey found that ``each [domestic] manufacturer does not 
engage in trying to sell to the distributors of another manufacturer, 
nor does it try to induce the distributor of another manufacturer to 
become its distributor.'' The survey acknowledged that there is a 
vertically integrated structure to the flat glass market, in which 
``essentially all primary wholesalers are in actuality the exclusive 
agents of one of the manufacturers.''
    Further, the JFTC found that there were instances in which makers 
or exclusive distributors, had ``either lodged complaints to or 
harassed agencies who had sold imports'' and it confirmed that ``there 
were instances of [retailers] being pressured by manufacturers or 
contract agencies * * * if they expanded purchases of imported products 
or initiated new purchases.'' The surveys finally found that ``Japan's 
flat glass market [is] virtually monopolized by the three glass makers, 
[and that] the system of sales through exclusive distributors ha[d] 
barred access by other suppliers.''
    The JFTC market survey confirmed the anticompetitive experiences 
that PPG had witnessed. During its time in Japan PPG has tried every 
plausible way to increase its market presence. PPG has hired Japanese 
nationals for its sales staff, both as inside and outside staff. PPG 
has participated in trade shows, and even formed a Japanese glass 
marketing joint venture with the Japanese trading company, Itochu. Over 
the years we have established sales offices, fabrication facilities and 
cutting centers in Japan. A 1997 survey by Japan's Ministry of 
International Trade and Industry (``MITI'') and Ministry of 
Construction (``MOC'') found that Japanese buyers viewed PPG's products 
as equal or superior to the quality of Japanese products. Moreover, PPG 
cost advantages consistently enabled it to price its glass at 20 
percent-30 percent below comparable Japanese products until last year, 
but now we are encountering selective predatory pricing by Japanese 
producers.
    Thus, all of these efforts have been thwarted by a coordinated 
scheme to protect market share and preserve a closed market structure 
in Japan.
          effect of the 1995 us-japanese flat glass agreement
    The U.S.-Japan Flat Glass Agreement held out the hope for change, 
but after nearly five years of its operation, it has not lived up to 
its initial promise. Today, the Japanese flat glass market remains 
largely unchanged. The practices which I have cited have not gone away. 
Indeed, PPG continues to experience overt and covert anticompetitive 
behavior.
    Initially, because of producer pressure, Japanese distributors 
demanded that PPG repackage it's glass into Japanese style containers 
so that distributors' purchases of non-Japanese affiliated glass could 
be more easily disguised. For the same reason, PPG also was told to 
deliver its products only on Sundays. Additionally, deposits collected 
by the Japanese producers from distributors to reserve future glass 
purchases have been threatened with confiscation if distributors 
continued buying U.S. glass products. These practices, and a laundry 
list of others, continue unabated despite the U.S.-Japanese agreement.
    In addition, we now see aggressive new predatory pressures in 
Japan. Perhaps in desperation over the economic recession in Japan, 
during 1998 and 1999 to date the Japanese producers have resorted to 
unprecedented, deep, selective price cuts. This practice by the 
Japanese producers is a narrowly focused attempt to retain distributors 
who had begun to purchase quantities of PPG glass by offsetting PPG's 
cost/price advantages.
    The Government of Japan has claimed that the flat glass agreement 
has resulted in a larger market presence for foreign manufacturers. 
This claim, however, runs counter to the facts. Even if one accepts the 
market statistics presented by the Government of Japan, they do not 
reflect greater foreign producer participation in the Japan market nor 
do they support claims that the Japanese glass market is becoming more 
open or that anticompetitive practices are abating.
    For example, the Government of Japan's simple assertion that 14.7 
percent of the Japanese flat glass market in 1997 was supplied by 
imports does not tell the whole story. Of that 14.7 percent, 
approximately 4 share points were accounted for by PPG sales of 
automotive privacy glass to the Japanese flat glass producers. Clearly, 
this glass did not go through the traditional distribution channels. 
Another 8 share points were attributable to imports from affiliates of 
the Japanese flat glass producers in the U.S. and elsewhere. In 
addition, much of this glass consisted of fabricated automotive glass 
parts which, once again, did not travel through normal flat glass 
distribution channels. Thus, the remaining 2 or 3 share points were the 
only flat glass imports relevant to a discussion of the anticompetitive 
structure of the flat glass market.
    This highlights the stark imbalances in the flat glass markets of 
Japan versus the United States. Japanese glass producers and their 
affiliates in the U.S. enjoy unfettered access to the U.S. market, 
holding approximately a 22 percent U.S. market share through wholly 
owned subsidiaries and another 15 percent of the U.S. market through 
joint ventures with other foreign producers ventures. By contrast, U.S. 
producers are virtually blocked from the intensely anticompetitive 
Japanese market. In addition, the Japanese affiliates based in the U.S. 
and other countries also enjoy unrestricted access to the Japanese 
market. For example, 91 percent of the automotive glass shipped to 
Japan from the U.S. in 1998 came from wholly owned subsidiaries of 
Japanese flat glass producers. It is particularly frustrating that 
these imbalances are founded on business practices which would be 
vigorously prosecuted by the competition authorities in the U.S., 
Europe, Canada, and elsewhere.
    Thus, the independent foreign producer share of 2-3 percent has 
remained relatively unchanged in the Japanese flat glass market. Of 
equal concern to PPG is the continuing lack of enforcement of Japan's 
antimonopoly laws. It is these laws and the practices they are designed 
to prevent that hold out the hope of significant change in the Japanese 
flat glass market.
    conclusion
    With these facts in mind we hope that the United States Congress 
and the Administration will act to ensure that the Japanese enforce the 
antitrust laws which they currently have on the books. We have asked 
the JFTC to investigate these practices and take action. We believe 
that a thorough, unbiased investigation of the Japanese flat glass 
market will reveal a number of anticompetitive practices. Elimination 
of these market distortions would substantially open the Japanese flat 
glass market to independent foreign manufacturers.
    We also recommend that the measure of success in this undertaking 
be the accomplishment of defined objectives within the near term. In 
order to pursue this type of success we also urge that the U.S.-Japan 
Flat Glass Agreement be strengthened and renewed before the end of this 
year.
    This concludes my prepared testimony. I will be pleased to attempt 
to answer any questions you may have.

                              ATTACHMENT 1

Barriers to Entry in the Japanese Flat Glass Market: Opportunities for 
                         Bilateral Cooperation

                        statement of the problem
    Access to the Japanese flat glass market is controlled by an 
entrenched oligopoly of manufacturers that have effectively organized 
themselves as a cartel. They have entered into tacit agreements among 
themselves to allocate the flat glass market through their control of 
the distribution system. The oligopoly was originally organized with 
the active support of the Government of Japan. There has been no 
successful new entry into the market since the 1960s and market shares 
for the incumbent manufacturers have remained essentially constant over 
most of that period.
    U.S. and European flat glass manufacturers have unsuccessfully 
attempted to enter the Japanese flat glass market. For U.S. 
manufacturers, efforts to penetrate this market began over 30 years 
ago. Since then, U.S. manufacturers have steadily built efficient sales 
and service capabilities in Japan in an attempt to reach customers. At 
the same time, these U.S. manufacturers have urged the Government of 
Japan, including the Ministry of Trade and Industry (MITI) and the 
Japan Fair Trade Commission (JFTC), to exercise their authority to 
deter market foreclosing, anticompetitive conduct by the Japanese 
manufacturers.
    Despite their initial promise, successive trade agreements between 
the United States and Japanese Governments to open the Japanese flat 
glass market have not been successful. Japanese undertakings in the 
1992 Bush-Miyazawa Action Plan did not succeed in the goal to 
``substantially increase market access for competitive foreign firms.'' 
Indeed, the Japanese Government failed to implement key elements of the 
agreement. Likewise, a 5-year bilateral agreement on flat glass signed 
in 1995, which was intended to ``deal with structural and sectoral 
issues in order substantially to increase access and sales of 
competitive foreign goods and services * * *,'' has not been effective 
to open the market to competition.
    In retrospect, it is not surprising that trade agreements alone 
have failed to open the market to competition. The root cause of the 
market access problem is collusive and exclusionary conduct among the 
Japanese manufacturers and between the manufacturers and distributors 
that is most effectively remedied by vigorous enforcement of the U.S. 
antitrust laws or the Japanese Antimonopoly Act. To date, neither the 
U.S. antitrust authorities nor the JFTC has taken an enforcement action 
against Japanese manufacturers and/or distributors. Consequently, the 
Japanese flat glass market remains effectively closed to new 
competitors.
    U.S. and Japanese antitrust authorities have recently announced 
negotiations on a bilateral antitrust cooperation agreement in line 
with similar agreements that the U.S. maintains with Canada and the 
European Commission. While potentially useful, such an agreement would 
not likely be accepted by the U.S. business community unless the JFTC 
is able to demonstrate that it is a reliable and credible antitrust 
enforcement agency on par with the Department of Justice's (DOJ) 
Antitrust Division and the Federal Trade Commission. Nothing in the 
JFTC's actions to date with respect to its own flat glass industry 
suggests that it would meet such high standards. Indeed, the JFTC's 
lack of enforcement resolve has enabled an oligopoly of Japanese glass 
manufacturers to engage in cartel behavior by controlling the 
purchasing decisions of its customers and by blocking new entrants, 
including U.S. manufacturers, from gaining a foothold in their market.
             barriers to entry impede sales and innovation
    The $3 billion per year Japanese flat glass market is the second 
largest single market in the world. Nearly the entire market is 
supplied by three Japanese producers--Asahi Glass Company, Ltd. 
(Asahi), Nippon Sheet Glass (NSG), and Central Glass Company (Central). 
Each Japanese glass producer is a member of one of the powerful 
keiretsu groups, with Asahi part of the Mitsubishi Group, NSG part of 
the Sumitomo Group, and Central part of the Mitsui Group. Since the 
late 1960s the three producers have maintained steady market shares in 
a 5-3-2 ratio. Asahi has consistently been the largest, with a market 
share of around 50 percent. These constant market shares are in stark 
contrast to the patterns in the U.S. and Europe, where flat glass 
market shares have shifted dramatically since the 1960s and new 
entrants have thrived.
    The exclusive distribution system for flat glass in the residential 
construction market represents the single greatest barrier to market 
access. That distribution system consists of three rigid channels, each 
controlled by one of the domestic flat glass manufacturers. Secondary 
distributors and dealers are, in turn, controlled by the distributors. 
As a result, the domestic manufacturers are able to control the market 
down to the smallest customer at the retail level.
    One consequence of the tightly controlled flat glass market in 
Japan is that the use of innovative, high-value-added products such as 
insulating glass, tempered and laminated safety glass, and energy-
efficient low emissivity (low-E) glass has lagged behind that of 
Western Europe and the United States. The relatively low level of these 
value-added fabricated glass products in Japan can be traced directly 
to the lack of competition, both among the Japanese flat glass 
producers and from foreign suppliers. Even as Japanese manufacturers 
have increased production of value-added products in recent years, they 
have done so in a highly vertical fashion. In the U.S. and Europe, the 
value-added coating and fabrication is primarily done downstream by 
independent companies. In Japan, the domestic makers preserved the 
value-added processes for themselves to prevent the distributors from 
gaining any measure of control over the production process and thereby 
asserting even a modicum of independence from the manufacturer with 
which they have an exclusive arrangement.
    The Japanese flat glass cartel controls the market through a 
variety of collusive and exclusionary practices, including refusals to 
deal, exclusive distribution arrangements, and economic coercion over 
distributors and potential purchasers of foreign glass. While Japanese 
glass manufacturers do not always hold controlling ownership interests 
in distributors, their control has been achieved by similarly effective 
means, including tacit supply contracts, partial ownership, quotas and 
targets, financial leverage (such as delayed settlement of accounts), 
exchange of personnel, and ultimately by threats of retaliation should 
the distributor purchase products from outside the exclusive channel. A 
recent example of the leverage that the manufacturers exert over their 
distributors comes from salesmen for foreign suppliers who have 
reported that Japanese manufacturers have informally assigned quotas to 
their distributors. The distributors are permitted to buy imported 
glass only after they have satisfied their domestic quota requirements.
  foreign flat glass firms have not been able to penetrate the market
    No major foreign flat glass company has succeeded in penetrating 
the Japanese market. The market's sheer size and the relatively higher 
prices historically enjoyed by the domestic manufacturers have made it 
a prime target for foreign firms, including the major international 
companies (e.g., Pilkington, St. Gobain, PPG, and Guardian) as well as 
regional manufacturers from Taiwan and Korea. A 1998 survey by MITI 
found that prices for imported flat glass products were 20 percent more 
or less expensive than domestic products.
    Pilkington (U.K.) has attempted to export high-value-added 
architectural glass from its European operations, as well as raw float 
glass from its Chinese manufacturing facility in Shanghai. St. Gobain 
(France) recently became affiliated with a Korean supplier and for many 
years has attempted to sell products from its European operations.
    PPG Industries, Inc. (United States) has been one of the most 
patient and persistent of the major international firms. They have 
maintained sales operations in Japan since 1967, and have a joint 
venture with the trading firm Itochu Corporation that was established 
primarily to market and distribute its imported flat glass products.
    Guardian Industries Corp. (United States) began its Japan efforts 
more than a decade ago. It has built up a significant sales and 
distribution network in Japan, with sales offices and warehouse/
distribution centers in Tokyo and the Tokai region. It also plans to 
add additional warehouse/distribution centers. Guardian also cuts glass 
to size at these centers to ensure that it can sell to smaller, more 
demanding customers.
    The major international glass manufacturing companies have 
uniformly experienced failure in entering the Japanese flat glass 
market. This failure can be attributed directly to the systematic 
efforts of the Japanese flat glass manufacturers to deny entry to new 
entrants. All of the potential foreign entrants to the Japanese market 
are technologically advanced, have proven marketing skills, aggressive 
pricing, and compete effectively with each other and with Japanese 
firms (especially the largest, Asahi) in all other world markets.
lack of sales opportunities in japan contrasts with the u.s. and europe
    Japan's distribution system for flat glass contrasts sharply with 
systems in North America and Europe, where a glass distributor is free 
to choose from the products of competing manufacturers and where most 
distributors handle products of multiple manufacturers. In these 
markets, manufacturers tend to cater to the requirements of the 
customer/user, giving rise to manufacturing technologies that allow for 
efficiencies unavailable to the Japanese market. In North America and 
Europe, product innovation is encouraged and distributors are free to 
secure capital and buy supplies from the most competitive sources 
available to them.
    The United States flat glass market is open for both investments 
and imports. Japanese firms participate in the U.S. flat glass industry 
and account for about one-fifth of total sales.

  * Asahi, Japan's leading producer, purchased a 20-percent share of 
        AFG Industries, Inc., the third-largest glass maker in the 
        United States, through its Brussels-based subsidiary Glaverbel 
        during a management buyout in 1988, and acquired the remainder 
        of the firm in December 1992. The acquisition expanded Asahi's 
        North American distribution network and product capabilities, 
        giving Asahi float lines and fabrication equipment in both the 
        United States and Canada. The operations of Asahi and AFG are 
        especially complementary in the United States, linking Asahi's 
        two automotive-glass plants with a supply of raw flat glass 
        from AFG's float glass plants. The AFG acquisition gave Asahi 
        control of approximately 20 percent of the U.S. market.
  * NSG, Japan's second-largest producer, bought a 20 percent share of 
        Libby-Owens-Ford (LOF) in 1989. The balance of LOF is owned by 
        Pilkington of the United Kingdom. The acquisition gives NSG a 
        presence in all three North American markets through LOF's U.S. 
        and Canadian facilities and the NSG-LOF joint venture to 
        produce automotive glass in Mexico, L-N Safety Glass. Another 
        NSG-LOF joint venture to produce automotive glass, United L-N 
        Safety Glass, Inc., began its first full year of operation in 
        Versailles, Kentucky, in 1988.
  * Central Glass, Japan's third-largest producer, initially entered 
        into a joint venture with Ford to produce automotive glass at a 
        plant in Tennessee called Carlex. Central has now purchased 
        Ford's shares and owns 100 percent of the company.

    Depending upon economic circumstances, imported flat glass products 
tend to account for 10 percent to 50 percent of most of the world's 
major markets. The high end of these percentages tends to be in 
European economies, where logistics are relatively efficient. Countries 
such as England and Italy, with their own domestic glass producers, 
still show import shares between 30 percent and 50 percent of the total 
market. In Japan, imports come primarily from overseas suppliers that 
have affiliations with Japanese manufacturers. According to official 
Japanese statistics, aggregate flat glass imports account for 
approximately 14 percent of total consumption. However, imports from 
non-affiliated foreign suppliers account for only 5 percent to 6 
percent of the total market.
    Despite its own economic difficulties, Japan seems impervious to 
the free market forces that have boosted sales of imported flat glass 
products from Asia in both the U.S. and Europe. Preliminary statistics 
for late 1997 and 1998 demonstrate that both the United States and 
European markets saw significant increases in imports from Southeast 
Asian countries due to the economic slow-down in the region and the 
devaluation of currencies. Even though the Southeast Asian countries 
are much closer to the Japanese market, statistics demonstrate that 
there was virtually no increase in imports for these countries into 
Japan. This pattern provides additional evidence that domestic 
manufacturers exert significant anticompetitive restraints on the 
Japanese flat glass market.
        a litany of private anticompetitive activities in japan
    The current structure of Japan's flat glass market was created in 
the 1967-1973 period, as the Japanese Government was encouraging the 
domestic industry to adapt to the float glass technology. The system of 
three vertically integrated supply networks, one for each manufacturer 
and based on keiretsu relationships, was created with the active 
support of MITI, according to longtime participants in the flat glass 
industry. Japan's flat glass market is held together by a wide range of 
coercive forces and unwritten anticompetitive agreements and 
understandings, some of which are tacit, but all of which are effective 
in deterring successful new entry.

  * Restrictive Distribution Practices. Unwritten supply contracts, 
        sales quotas imposed by the producers, partial ownership of 
        distributorships by producers, the placement of producers' 
        personnel in management positions of distributorships, the 
        practice of producers accompanying distributors on calls to the 
        latter's customers, and financial levers such as delayed 
        settlement of accounts, leave wholesalers controlled by and 
        dependent on producers and make it possible to discipline 
        distributors who step out of line. The domestic makers' 
        leverage has been sufficient to give them open access to the 
        financial records of their affiliated distributors. They have 
        been able to orchestrate amalgamations when to their advantage. 
        As a result, over the past two years, Japanese manufacturers 
        have steadily increased their equity holdings in the larger 
        distributors, making it even less likely that such distributors 
        would respond to favorable economic incentives to handle 
        products sold by new entrants.
  * Opportunities for Collusion. An extensive network of industry trade 
        associations ties distributors and retailers to manufacturers 
        to allow for collusive marketing efforts. There are informal 
        associations consisting exclusively of the distributors of a 
        given manufacturer on a regional and national basis. In the 
        past, meetings of these associations were attended by 
        manufacturers' representatives who also attended parties and 
        social occasions. There also are retailer associations attended 
        by distributors and manufacturers.
  In the current ``soft'' market, the domestic makers are attempting to 
        retain market share at all costs. Asahi, for example, closely 
        monitors the sales calls of foreign suppliers and their bids 
        through a sophisticated e-mail system linking its affiliated 
        distributors. Then, to prevent any possibility of its 
        distributors deviating from their exclusive arrangement, Ashai 
        lowers its prices selectively as much as necessary to prevent 
        foreign suppliers from winning the bids. While this strategy 
        clearly has been costly for Asahi--it realized a loss for the 
        second half of 1998, its debt has been downgraded by Standard 
        and Poors, and it has begun a major cost-cutting effort--it 
        persists in using its market power to drive out any threat from 
        upstart new competitors and will continue to do so until sales 
        improve and it can reap the financial benefits of its 
        exclusionary tactics.
  * Refusals to Deal. The threat of sanctions for dealing with foreign 
        manufacturers, although pervasive, is rarely explicit. In the 
        past, potential customers have told U.S. glass companies that, 
        despite favorable pricing, they could not purchase U.S. glass. 
        They explained that purchases from a foreign supplier would 
        affect their ability to purchase other products, such as 
        polished wire glass, from Japanese manufacturers. Several end 
        users of flat glass have told a U.S. producer that, although 
        that producer could supply 90 percent of their glass needs, 
        they were afraid that the domestic glass manufacturers would 
        either cut off their supplies of other products or charge them 
        unreasonably high prices. In 1995, under the terms of the 
        bilateral flat glass agreement, Japanese flat glass producers 
        notified distributors in writing that they are not bound to buy 
        exclusively from them. As a result, domestic makers have 
        altered their techniques for preventing distributors from 
        buying meaningful amounts of imported products. According to 
        salesmen for U.S. suppliers, domestic makers have imposed 
        informal quotas on their distributors, allowing imported glass 
        to be purchased only after the quota has been filled.
  * Exclusive Distribution Arrangements in Sash Kits. Japanese flat 
        glass manufacturers and their distributors control a large 
        portion of the sash (i.e., window frame) market. They buy sash 
        kits, cut the glass, assemble finished units, and sell them 
        directly to buyers in the construction market. This is unlike 
        the practice in the United States and Europe, where sash makers 
        are major buyers of glass for assembly of windows sold directly 
        to the construction industry. U.S. flat glass producers seeking 
        to establish facilities in Japan to assemble cut glass into 
        sashes from kits purchased from Japanese sash makers have been 
        told that they could not purchase sash kits because the 
        Japanese sash makers were too dependent on sales to the 
        domestic glass manufacturers and therefore were vulnerable to 
        retaliation.

    Because of the restrictive business practices outlined above, U.S. 
flat glass producers and other foreign producers continue to hold an 
abnormally low market share. All non-affiliated foreign producers 
account for only an estimated 5 percent to 6 percent of Japanese 
consumption, and of that total U.S. companies account for barely 2 
percent.
    Unlike in the United States and Europe, it has not been possible to 
enter the Japanese market through foreign equity participation. U.S. 
companies have explored the possibility of joint-venturing in Japan 
with existing glass manufacturers, distributors, and fabricators. 
However, because all of the major distributors and fabricators are 
effectively controlled by one of the three Japanese flat glass 
companies, no such alternative has existed.

   evidence of anticompetitive practices revealed in the jftc survey

    Under the January 1992 Bush-Miyazawa Action Plan Agreement on Flat 
Glass, the Government of Japan committed that the JFTC would conduct a 
survey of competitive conditions in the flat glass market. The JFTC 
completed that survey in June 1993. Although the survey did not purport 
to be an in-depth study of the Japanese flat glass industry, much less 
a credible investigation into actual industry practices, it nonetheless 
presented a remarkably detailed picture of the structural and 
competitive problems in the market as of 1993, many of which persist 
today. For example, the survey:

   Confirmed that ``each [domestic] manufacturer does not 
        engage in trying to sell to the distributors of another 
        manufacturer, nor does it try to induce the distributor of 
        another manufacturer to become its distributor;''

   Reported on a ``state of monopoly by three makers, pricing 
        by consensus, and creation of sales networks of distribution by 
        each maker;''

   Acknowledged the vertical organization of the market, and 
        the long-term market shares in a 5-3-2 ratio for the three 
        producers;

   Reported that prices for imported raw float glass are some 
        20 to 30 percent lower than domestic glass;

   Confirmed that ``almost all distributors are brand name 
        dealers belonging to one manufacturer;''

   Acknowledged that imports are essentially shut out of the 
        market by conceding the ``meager penetration of imported goods 
        in the area of construction float glass'' and also by conceding 
        the ``fact that essentially all primary wholesalers are in 
        actuality the exclusive agents of one of the manufacturers;''

   Reported that ``with Japan's [float] glass market virtually 
        monopolized by the three [float] glass makers, the system of 
        sales through exclusive distributors has barred access by other 
        suppliers'' [and] ``has encouraged coordinated efforts among 
        the three makers to preserve the monopoly situation;''

   Confirmed instances in which manufacturers and exclusive 
        distributors ``have either lodged complaints to or harassed 
        agencies who had sold imports;''

   Found that ``there were incidences of [retailers] being 
        pressured by manufacturers or contract agencies'' and reported 
        that various retailers feared retaliation ``if they expanded 
        purchases of imported products or initiated new purchases;''

   Revealed in great detail the lack of competitive forces in 
        the market; and

   Described how the keiretsu system results in the allocation 
        of glass for construction jobs.

    Notwithstanding the evidence of private anticompetitive restraints 
presented to it by importers and the survey findings, the JFTC 
concluded that ``the survey revealed no evidence of violation of the 
law.'' Instead of using the evidence of collusion, attempts to 
monopolize the market, and/or exclusionary conduct as the basis for a 
credible investigation into industry practices, the JFTC simply 
suggested that the three manufacturers implement ineffective measurers 
such as voluntary antitrust compliance programs, curtailing certain 
rebates, and informing their distributors that they are ``free'' to buy 
imports to address the existing competitive problems. Not surprisingly, 
these suggestions were implemented in a cursory and ineffective manner.
         recent efforts to remove barriers to entry have failed
    In January 1995, after long and complex negotiations, the U.S. and 
Japan concluded a bilateral flat glass agreement. The five-year 
agreement spelled out the responsibilities for all parties to, create 
an open flat glass market. Japanese flat glass manufacturers and 
distributors released public statements that the market was open on a 
non-discriminatory basis for competition by all suppliers, foreign and 
domestic alike. The government of Japan endorsed these statements and 
agreed to survey the industry annually to ensure that the goal was 
being met. The data required to be collected in the annual survey was 
spelled out in great detail in the agreement. The Japanese government 
also agreed to strengthen building standards to require greater use of 
energy-efficient glass products and safety glass.
    Since the flat glass agreement was signed in 1995, there has been 
no significant enduring change in the Japanese glass market. There was 
a slight increase in imports in the first half of 1995, as distributors 
were encouraged to purchase glass from other suppliers and found this 
freedom of buying satisfactory. However, by the end of 1995 this 
diversification trend was reversed, and for the last three years little 
change has been noticed in purchasing patterns within the Japanese 
glass economy.
    Representatives of the United States Trade Representative (USTR) 
have sought additional measures from their MITI counterparts in 
attempts to encourage MITI to take the flat glass agreement seriously, 
but these efforts have met with no success. President Clinton on two 
occasions has raised lack of compliance with the agreement with Prime 
Minister Obuchi. No change in the Japanese negotiating posture has been 
detected. MITI essentially insists that the market is open, that 
compliance with the Agreement has been achieved, and that there is no 
need for further discussion.
    In 1998, the DOJ encouraged the JFTC to help the Japanese glass 
producers institute effective antitrust compliance plans, but MITI 
blocked the discussion and suggested that MITI has no authority to 
force Japanese firms to improve their compliance plans. The JFTC is in 
the process of conducting a second survey of competitive practices in 
the Japanese flat glass industry. But unless the survey and the 
information-gathering techniques used to compile it are improved 
substantially, it is unlikely that the JFTC will gather sufficient 
evidence of anticompetitive conduct to overcome its historic inertia 
and launch a credible investigation into the competitive conduct of the 
entrenched incumbent manufacturers.
     barriers to entry susceptible to antimonopoly law enforcement
    Japan has an Antimonopoly Law prohibiting monopolies, unreasonable 
restraint of trade, unfair trade practices, and restraint of 
competition. The wording of the law closely parallels U.S. antitrust 
statutes, because U.S. antitrust experts provided extensive advice when 
the law was being drafted.
    Despite the Antimonopoly Law, the JFTC has pursued very few 
enforcement actions. The JFTC has limited resources and has always been 
extremely short on personnel, but its ineffectiveness likely reflects 
deliberate government policy. As part of its industrial strategy, the 
Government of Japan has not only tolerated but actively encouraged the 
formation of cartels and other anticompetitive actions by the Japanese 
industry. Thus Japanese companies have been permitted to engage in bid-
rigging, restrictive distribution practices, restrictive industry 
standards, customer boycotts, and restrictive distribution arrangements 
that would violate the antitrust laws of virtually any other 
industrialized nation. These anticompetitive practices are pervasive in 
the glass sector.
        japanese law condemns collusive and exclusionary conduct
    The Act Concerning Prohibition of Private Monopoly and Maintenance 
of Fair Trade (``Antimonopoly Law'') and related Regulations and 
Guidelines prohibit anticompetitive conduct of the type used by the 
Japanese manufacturers to restrict imported glass.

    1. Section 3 of the Antimonopoly Law states: ``No entrepreneur 
shall effect private monopolization or any unreasonable restraint of 
trade.'' Section 7 empowers the JFTC, in accordance with certain 
procedures, to ``order the entrepreneur concerned * * * to cease and 
desist from such acts * * * or to take any other measures necessary to 
eliminate such acts in violation of the said provisions.'' Section 45 
et. seq. sets forth a wide array of compulsory investigative and 
enforcement tools that the JFTC has available with respect to suspected 
or established violations.

    2. Section 19 of the Antimonopoly Act states: ``No entrepreneur 
shall employ unfair trade practices.'' Section 20 empowers the JFTC, in 
accordance with certain procedures, to ``order the entrepreneur 
concerned to cease and desist from the said act, to delete the clauses 
concerned from the contract and to take any other measures necessary to 
eliminate the said act.'' Section 45 as above applies.

    3. Section 8 of the Antimonopoly Law states: ``No trade association 
shall engage in any acts which come under any one of the following 
paragraphs: (i) substantially restraining competition in any particular 
field''* * * ``(v) causing entrepreneur to employ such acts as 
constitute unfair trade practices.'' In the event of a violation, the 
JFTC, in accordance with applicable procedures, may order the trade 
association ``* * * to cease and desist from such act, to dissolve the 
said association, or to take any other measures necessary to eliminate 
the said act.'' Section 45 as above applies.

    4. Section 2 of the Antimonopoly Act defines ``unreasonable 
restraint of trade'' as meaning:

          That any entrepreneur, by contract, agreement or any other 
        concerted actions, irrespective of the names, with other 
        entrepreneurs, mutually restrict or conduct their business 
        activities in such manner as to fix, maintain, or increase 
        prices, or to limit production, technology, products, 
        facilities, or customers or suppliers; thereby restraining, 
        contrary to the public interest, substantially competition in 
        any particular field of trade.

    5. The Antimonopoly Act Guidelines Concerning Distribution Systems 
and Business Practices (1991) (``Guidelines'') set forth the JFTC's 
interpretation of what conduct constitutes an ``unreasonable restraint 
of trade.'' Examples include:

          Where competitors concertedly refuse to deal with a new 
        entrant or cause their customers or suppliers not to deal with 
        a new entrant etc. and if such conduct causes substantial 
        restraint of competition * * * by making it very difficult for 
        the refused firm to enter the market. * * * [Guidelines, Part 
        I-Boycott]
          Where firms concertedly engage in such conduct as described 
        above with their customers. * * * [Guidelines Part I-Boycott]
          Where firms concertedly * * * allocate a market to each Firm. 
        * * *'' [Guidelines, Part I-Customer Allocation]

    Special restrictions apply to firms deemed ``influential in a 
market.'' Such firms are in the first instance judged by a market share 
of not less than 10 percent or by virtue of being within the top three 
in the market.

    6. Section 2 of the Antimonopoly Act defines ``unfair trade 
practices'' as including ``(iii) unjustly inducing or coercing 
customers of a competitor to deal with oneself * * * (v) dealing with 
another party by unjust use of one's bargaining position.''

    7. The Guidelines provide illustrations of what constitutes an 
unfair trade practice, including:

    ``Where an influential firm in a market engages in transactions 
with its trading partners on condition that they do not engage in 
transactions with its competitors, or causes them to refuse to deal 
with its competitors, and if such conduct may reduce business 
opportunities of its competitors and prevent them from easily finding 
alternative trading partners. * * *'' [Guidelines, Part I-Dealing on 
Exclusive Terms]
    ``Concerted refusal to deal'' [Guidelines, Part I-Boycott]
    ``Restriction of sales (or resale) price of distributors by a 
manufacturer'' [Guidelines, Part II-Resale Price Maintenance]
    ``Where an influential firm in a market engages in transactions 
with its continuous trading partners on condition that the trading 
partners do not engage in transactions with its competitors so long as 
the influential firm lowers its price to meet the competitors' price 
quotations * * * and if such conduct may reduce business opportunities 
of the competitors and prevent them from easily finding alternative 
trading partners.'' [Guidelines, Part I-Other Unfair Trade Practices]

    8. The Antimonopoly Act, Section 2, defines illegal ``private 
monopolization'' as meaning that ``any entrepreneur, individually or by 
combination or conspiracy with other entrepreneurs, or by in any other 
manner, excludes or controls the business activities of other 
entrepreneurs, thereby restraining, contrary to the public interest, 
substantially competition in any particular field of trade.''
       conduct by japanese firms would violate us antitrust laws
    In the past, the Japanese flat glass cartel has divided up the 
Japanese market by customer and territory. Some of the anticompetitive 
conduct, such as customer and territorial allocation, would constitute 
a per se violation of U.S. antitrust law. For example, there is 
evidence that the three Japanese manufacturers have engaged in a 
combination or conspiracy in restraint of trade by dividing markets and 
fixing prices, all activities that would be in violation of Section I 
of the Sherman Act. American Tobacco Co. v. United States, 328 U.S. 781 
(1946) and Monsanto Co. v. Spray-Rite Service Con., 465 U.S. 752 
(1984).
    Other conduct involving non-price vertical restraints, such as 
exclusive distributorships, would be analyzed under the rule of reason 
to determine the effect on competition and, ultimately, consumers. 
However, considering the demonstrable anticompetitive effects, such as 
inflated market prices and the lack of product innovation, of what in 
other circumstances might be deemed benign or procompetitive conduct, 
even non-price vertical restraints would not likely survive scrutiny 
under the rule of reason.
    The exclusive dealing arrangements that each manufacturer maintains 
with its own distribution network, especially in light of the enduring 
market power of Asahi and the substantial foreclosure created by the 
parallel conduct of the others, would constitute an unreasonable 
restraint of trade in violation of Section 1 of the Sherman Act and 
Section 3 of the Clayton Act. Tampa Electric Co. v. Nashville Coal Co., 
365 U.S. 320, 329 (1961) (in evaluating the competitive effects and 
determining the amount of market foreclosure, the Court should consider 
the relative strength of the parties, the proportion of commerce 
involved and the effects on effective competition).
    In light of its market power, Asahi's (and likely Nippon's and 
Central's) practice of conditioning the sale of certain desirable or 
unique products on the purchase by its agents and customers of other 
products could constitute tying arrangements in violation of Section 1 
of the Sherman Act and Section 3 of the Clayton Act. Jefferson Parish 
Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984).
    The tacit agreements among the Japanese manufacturers and between 
each manufacturer and its exclusive distributors to limit dealings with 
non-affiliated foreign suppliers could constitute both horizontal and 
vertical boycotts in violation of Section I of the Sherman Act. 
Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 
(1988); Klor's, Inc. v. Broadway-Hale Stores, 359 U.S. 207 (1959).
    Anticompetitive conduct in foreign jurisdictions that affects U.S. 
exporters can be challenged under our own antitrust laws. 1995 
Department of Justice and Federal Trade Commission Antitrust 
Enforcement Guidelines for International Operations (citing the Foreign 
Trade Antitrust Improvements Act of 1982, 15 U.S.C. Sec. 6a (1988) and 
Sec. 45(a)(3) (1988)). Anticompetitive conduct that violates both U.S. 
and foreign antitrust laws would appear to be a particularly good 
candidate for U.S. prosecution. A recent appellate court decision 
expressly rejected a Japanese defendant's claim that notions of 
international comity should prevent the application of U.S. antitrust 
laws to extraterritorial conduct that violates both U.S. and Japanese 
antitrust laws. U.S. v. Nippon Paper, 109 F.3d 1, 8 (lst Cir. 1997).
                               conclusion
    Based on years of experience, it is clear that the Japanese flat 
glass market cannot be opened without the active involvement of the 
Government of Japan. The JFTC has gathered significant evidence of 
conduct-exclusive dealing, threats and coercion, concerted and 
collusive behavior, suppliers' interference in the resale prices of 
their distributors, and improper trade association activities-to 
warrant the institution of formal proceedings as permitted by the 
Antimonopoly Act. Failure to do so constitutes toleration by the 
Government of Japan of anticompetitive activities by private Japanese 
firms that harm Japanese consumers.
    No U.S.-Japan bilateral antitrust cooperation agreement will be 
credible or acceptable to the U.S. business and consumer community 
until the JFTC demonstrates that it is a credible enforcement 
authority. To do so would require decisive action on the JFTC's part. 
The Japanese flat glass industry is an excellent candidate for U.S.-
Japanese cooperative enforcement action because the long-standing and 
widely recognized nature of the anticompetitive practices that block 
market access, inflate prices and stifle innovation adversely affect 
both foreign manufacturers and Japanese consumers.

                              ATTACHMENT 2

  Central Glass Requesting for Separate Delivery Charges for Treated 
                  Glass Products, Starting Next Month

        (source: the nippon keizai shinbun, 4/15/1999, page 26.)
    Central Glass Co., Ltd., ranked third among Japanese glass 
producers, decided to start charging delivery charges on top of the 
prices of special, treated glass products that include multi-layered 
glasses. The company has initiated negotiations with its exclusive 
distributors.
    The company aims to begin the extra delivery charges this May. 
Through this arrangement, the company plans to establish a marketing 
system in which it can raise delivery costs when necessary.
    Central's new pricing approach appears to reflect glass 
manufacturer interests in protecting their own profits by reviewing 
current business practices in which raw material (glass) costs are 
eating into delivery costs.
    Traditionally, flat glass prices were set as ``delivered prices to 
users, which include freight costs.'' This pricing practice was 
established approximately 25 years ago, and has been employed to the 
present. Glass products are typically delivered in a ten-ton truck. 
Popular treated glass products, in recent years, come in small lots 
with a larger variety than standard sheet glass products. Thus, it is 
now becoming increasingly difficult for glass manufacturers to recover 
full costs because deliveries of the popular glass products are made in 
a smaller four-ton truck.
    Ikeda Glass (of Chiyoda, Tokyo), a large exclusive glass 
distributor, is going to accept Central's proposal for a new pricing 
structure. The company states

          It is a good time (for the Japan's glass industry) to 
        reconsider the current glass pricing structure as the whole 
        industry is suffering from excessive competitions among 
        themselves (President, Ikeda Kazuo).

Ikeda Glass plans to develop similar pricing structure, keeping glass 
delivery costs and glass prices separate.

    If Central's new pricing structure for special, treated glass 
products is accepted well by the distributors, then, this pricing 
structure may spread to other glass products as well.
    Two other large glass manufacturers, Asahi Glass and Nippon Sheet 
Glass, are expected to follow Central's new pricing structure.
    Multi-layered glass products provide high energy-efficiency and are 
expected to grow in use by providing an opportunity for energy 
conscience Japanese consumers to save energy. Central Glass appears to 
have concluded that the company needs to revise its pricing structure 
to recover delivery costs for special, treated glass products as their 
sales are expected to grow very rapidly.
[GRAPHIC] [TIFF OMITTED] T3623.001

[GRAPHIC] [TIFF OMITTED] T3623.002

[GRAPHIC] [TIFF OMITTED] T3623.003

[GRAPHIC] [TIFF OMITTED] T3623.004

[GRAPHIC] [TIFF OMITTED] T3623.005

    Senator DeWine. Senator Kohl.
    Senator Kohl. Thank you, Mr. Chairman.
    Gentlemen, your statements are very forceful, informative, 
and factual, and not very debatable. So I would like to ask 
you, if you were today at the meeting with the Prime Minister 
who is here meeting with the President, what would you say to 
Mr. Obuchi and what would you recommend to the President?
    Mr. Evans.
    Mr. Evans. Ambassador Barshevsky, the U.S. Trade 
Representative, has identified a number of encumbrances, and I 
am not an attorney, so as a businessman, I do not use the same 
language, but there are a number of barriers that continually 
are thrown in this country's face, principally by Japan, the 
leader of the pack, if you will.
    At the November 1998 APEC ministerial in Kuala Lumpur, the 
Japanese government singlehandedly tore it apart. U.S. Trade 
Representative Barshevsky and her staff had brought everyone 
along on trade issues, world trade issues, to complete the work 
in the coming sectorial, I think this November. At the 
conclusion, literally at the conclusion of the negotiations, 
Japan, in essence, backed out.
    Japan is a stumbling block, Senator, to further progress by 
refusing to eliminate tariffs on forest products and threatened 
to derail agreements that other nations have welcomed and said, 
in some cases reluctantly, they could get on board with. But 
Japan keeps derailing the process.
    Senator Kohl. What would you say to the Prime Minister if 
you were at that meeting today and what would you say to the 
President?
    Mr. Evans. The evidence is clear. Japan is a protectionist 
society, but I know it is a cultural thing, so I am frustrated. 
I know we cannot go in there and police their culture. We 
cannot impose what we would like to see on them. But on the 
other hand, if they are going to be part of the global 
community, I would say, you had better get on board, because if 
you do not, we already see the EU now having been a resister in 
the paper industry only a couple of years ago. They are on 
board. Consolidated Papers is now exporting paper to, of all 
places, Finland. You could not say that 2 years ago. But Japan 
is isolating themselves to a point where who would want to do 
business with them?
    There is a phrase that goes around. It is called ``Japan 
fatigue,'' where they wear you down with their Asian patience, 
and that is what we were talking about today. We have all made 
the effort, made the effort, and made the effort, but they wear 
you down, and at some point in time, the people of Japan will 
be missing out on better products.
    Senator Kohl. Are they their own worst enemy?
    Mr. Evans. Pardon me, sir?
    Senator Kohl. Are they their own worst enemy?
    Mr. Evans. Yes, absolutely.
    Senator Kohl. OK; Mr. Walters, what would you say to the 
Prime Minister? What would you say to the President?
    Mr. Walters. I think it would be the same, actually, and I 
will just make two brief points. One is that, unfortunately, it 
has been our experience that in a variety of industries, I 
think including those of us on the panel today, the Japanese do 
not seem to take a U.S. point of view seriously if there is not 
some form or threat of retaliation or leverage on our side of 
the negotiating table.
    So it is hard to imagine today that there is a will to 
change without some forceful action on our part, and I think we 
should search, actually, for what is in our arsenal, which is 
one of the reasons why I have testified twice in front of your 
subcommittee.
    Second, aside from that, I think all you have to do is look 
at Mr. Reichenbach's chart and see that from 1970 to today, 
there is not any competition in the Japanese glass market, 
forgetting foreign competition. The three producers do not 
compete against each other.
    I have every confidence that if that market was opened up 
for the benefit of their own consumers, Guardian and PPG will 
compete. We do not need anybody's help to compete. We do it 
everywhere else in the world. We batter each other's brains out 
elsewhere in the world. For the good of the Japanese consumer, 
they need to open their market and then the chips will fall 
where they may and those aggressive, pricey, high-quality, good 
delivery companies will do well, and those who are not will not 
do so well--for the benefit of their own economy.
    Senator Kohl. You are also, of course, suggesting that they 
are their own worst enemy?
    Mr. Walters. In a sense, that is correct.
    Senator Kohl. If you were speaking to the Prime Minister 
today, you would, what, make a plea based on that to him to 
open up his market?
    Mr. Walters. Right, for the good of his own processors, for 
the good of his window manufacturers, his mirror manufacturers, 
his commercial glass high-rise office building manufacturers. 
They all need access to other glass in order to compete 
globally.
    Senator Kohl. OK; Mr. Reichenbach.
    Mr. Reichenbach. Senator Kohl, building on what Mr. Evans 
said, I would say to the Prime Minister of Japan that integrity 
is not cultural and I would urge him to force through the JFTC 
the various industries in his country to live up to the 
agreements that his government has signed with the Government 
of the United States.
    And I would say to the President, please, Mr. President, 
force him to do that, if necessary, through the powers that are 
already conferred upon the United States Government through the 
means of the Department of Justice and their extraterritorial 
reach, because integrity, if it cannot be learned, can be 
forced, and that is what I would suggest to the President.
    Senator Kohl. All right. I thank you. Senator DeWine?
    Senator DeWine. Thank you very much, Senator Kohl.
    Let me ask all three of you to comment on this. The 
Japanese have charged that your companies and your industry in 
the United States are flabby and not capable of competing in 
Japan. I would like for each one of you to address that.
    It has also been alleged that part of the problem is that 
your industry and your companies do not have a Japanese sales 
force, you do not have sales literature in Japanese, you 
basically do not know how to deal with the culture. These are 
some of the allegations that are made.
    Specifically in regard to flat glass, it has been alleged 
it is very costly to ship glass from the United States to 
Japan. Would you like to comment on that? Mr. Walters, do you 
want to start?
    Mr. Walters. Well, firstly----
    Senator DeWine. True or not true?
    Mr. Walters. Not true. Guardian Industries is a global 
manufacturing company and we are quite familiar with competing 
against our Japanese competitors elsewhere in the world. They 
are noble competitors. And depending upon which continent we 
are traveling, Guardian typically has anywhere from 10 to 20 
percent market share, bigger here, smaller there, depending 
upon where we are, with one exception and that is Japan.
    For the life of me, I cannot imagine that there is any 
reasonable justification for the fact that Guardian and PPG and 
others have anywhere from 10, 25, whatever it is, percent 
market share elsewhere in the world and we have less than 1 
percent in Japan.
    Second, there is a little chicken-and-egg thing in terms of 
questions like sales force, which is to say that if you are a 
large Japanese glass company in a $5 billion market and you 
have 50 percent market share, well, of course you are going to 
employ more sales people than a company that has 1 percent 
market share. So that is a disingenuous kind of an argument.
    Whether or not Guardian has tried hard enough, I think it 
is not true. We have no ex pats in Japan. We employ only 
Japanese nationals, many people who were previously employed in 
the Japanese glass industry. We have set up warehousing, we 
have set up distribution, we have set up cutting facilities so 
that we can deliver glass to customers and you cannot tell the 
difference between the distribution of a Guardian product 
versus one of our Japanese competitors.
    So as far as I am concerned, there is no effective 
difference and that is a lame excuse for why the market, in 
fact, is not open.
    Senator DeWine. Mr. Evans.
    Mr. Evans. Mr. Chairman, I really cannot speak to that 
because our company is not large enough and diverse enough 
except to say we have made the effort and we were thwarted. But 
I can use a different example. Some of the larger companies, 
like a Weyerhauser and Westvaco, are selling considerable 
paperboard product and/or lumber products in Japan because it 
suits the Japanese purpose. But those larger paper companies 
also manufacture this type of paper and they are thwarted. They 
would like penetration on the total product line.
    So I would not be the best candidate to testify as to what 
is the problem, except, as we know, it is a protection issue, 
and while they need certain products, they welcome those in 
from the producer, but while they in their mind do not need 
these products, then they are thwarted.
    Senator DeWine. Mr. Reichenbach.
    Mr. Reichenbach. Mr. Chairman, I think the assertions that 
you mentioned on the part of the Japanese are completely 
untrue. Since 1967, we have hired all Japanese nationals. All 
of our literature, our technical literature, our price lists, 
our product literature is all printed in Japanese and always 
has been. We have maintained, as Mr. Walters said, cutting 
centers, distribution warehouses, and fabrication facilities in 
Japan. It is simply patently untrue. We have had typically in 
the last 4 to 5 years almost as many salespersons in Japan as 
we have in the United States, which is considerably larger 
geographically.
    And in addition to that, I would like to point out that in 
1967, the same year that we attempted to enter the Japanese 
glass market, we formed a chemicals manufacturing joint venture 
with one of the three Japanese glass producers and that, being 
in a different market and being welcome, has done extremely 
well and we have had no problems. But in the glass market, it 
has been a total case of frustration.
    Senator DeWine. What level of penetration would you expect 
to see before you would believe that Japan is truly open? You 
mentioned, Mr. Walters, that in other countries, you are at 20, 
25 percent, is that right?
    Mr. Walters. Correct.
    Senator DeWine. Is that the figure you would expect in 
Japan before you would consider it open, or what would that 
figure be?
    Mr. Walters. I think our expectations would be less than 
that. The first measure of competition in the market, 
forgetting foreign producers for a second, would be changes in 
market share in Japan. One company attacks another company and 
there is a shift in market share. I have a chart that is 
attached to my full testimony that shows the difference between 
North America, Europe, and Japan over this same period and you 
see dynamism. You see companies entering, you see companies 
exiting, you see changing market shares in those regions. Only 
in Japan do you see this constant line without any competition. 
So that would be a measure even among the existing producers.
    We would probably, and I say probably, need to obtain 4 to 
5 percent market share in Japan through our exporting from the 
States and elsewhere, distributing in Japan, before we would 
then begin to make significant investments, more than these 
smaller $2, $3, $4, $5 million investments, and that is what it 
would take us to get to a 10 to 20 percent market share. But we 
need to walk before we can run. If we cannot sell anything, we 
cannot justify the significance of that investment.
    Senator DeWine. Mr. Evans.
    Mr. Evans. Our industry, a commodity industry, would be 
comfortable with 10 percent.
    Senator DeWine. Mr. Reichenbach.
    Mr. Reichenbach. I would tend to agree with the progression 
that Mr. Walters has indicated, but our ultimate objective and 
our ultimate level of satisfaction would probably not be 
reached on our part until we had somewhere in the neighborhood 
of 15 to 20 percent market share, because that is what we have 
done elsewhere in the world.
    Senator DeWine. Would each one of you like to recap as far 
as what you would expect the Japanese to do to open their 
markets?
    Mr. Walters. I will briefly respond.
    Senator DeWine. Give me two or three top things.
    Mr. Walters. In my view, after less time than PPG--Guardian 
has been in the Japanese market about 10 years--I have come to 
the conclusion that until the ties between the producers and 
the distributors are in some fashion broken, there will not be 
competition in the market. The ties are too strong. What we are 
forced to do is go so deep in the market that we sell glass 2 
or 3 tons at a time instead of 2,000 or 3,000 tons at a time, 
which is the way a normal market would allow us to sell. So 
rather than two or three, Mr. Chairman, that really is what I 
view needs to happen in Japan.
    Senator DeWine. Mr. Evans.
    Mr. Evans. We are looking for honesty and integrity. Come 
to the table, be honest, do not be deceitful, have no hidden 
agendas. Let us know factually what we have to do to penetrate 
the market to better serve that population. We are open. We are 
forward. That is the way we deal with them as they come here. 
Our distributors, consolidated distributors on the West Coast, 
all carry Japanese products. They are welcomed.
    Senator DeWine. Mr. Reichenbach?
    Mr. Reichenbach. Mr. Chairman, I agree with Mr. Walters. 
The control of the distribution system, which three Japanese 
producers have, just absolutely has to be broken, and a simple 
letter sent once or twice saying, you are now free, Mr. 
Distributor, to buy foreign glass, is not going to do the 
trick. That has been tried and that is an exercise in futility. 
It is the control over the distribution market that has to be 
broken, Mr. Chairman.
    Senator DeWine. I appreciate the testimony of this panel. I 
think it has been very instructive. It has pointed out major 
problems that we have with Japan in two very important 
industries. Your testimony has been very, very helpful.
    These are important issues. They are difficult issues. But 
I want to assure everyone concerned that this subcommittee is 
going to continue to work on these issues. We want to make sure 
that American companies are able to compete fairly in foreign 
markets and on the same terms and conditions as other 
companies.
    We plan to have another hearing on international antitrust 
and competition issues. We plan on having that hearing this 
fall. We hope to see by that time some substantial progress in 
the Japanese market and we will take a look at it again at that 
point. This will leave plenty of time for the Japanese to 
address the underlying issue, and the underlying issue, let us 
make no mistake about it, is their closed markets. We will be 
working with Mr. Klein and Mr. Pitofsky to ensure that our 
industries are able to compete as effectively in Japan as 
Japanese companies are able to compete here. In the meantime, 
we will continue to assess whether or not legislative remedies 
are appropriate.
    Again, we appreciate the panel's testimony very much. Thank 
you.
    Mr. Walters. Thank you, Mr. Chairman.
    Mr. Evans. Thank you.
    Mr. Reichenbach. Thank you.
    Senator DeWine. The subcommittee is adjourned.
    [Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
  

                                
