Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

Opening Keynote Speech: Makan Delrahim

Eleanor Fox:

Thank you very much, Trevor. Welcome to all of you. We're really very, very happy to see you all here. We've seen many familiar faces, many distinguished people. We are very, very pleased to have this opportunity to present yet this next edition of our conference on developing countries in competition which as the dean's said is based on the idea that we really want to hear first from developing countries and try to understand the special problems and opportunities of them.

I want to welcome you also on behalf of my colleague, Harry First, who is working closely with us, of course, Nicolas, who is our partner in the event, and our staff, our students, who are helping to make this all possible. Nicolas has asked me to ask you please after the program has finished to fill out the evaluation forms to give us your feedback so we can make it even better next year.

Now, we find ourselves in a very fraught world with new big mergers, big algorithms, data problems, technology developments, artificial intelligence, job concerns. People asking, "How does this affect me?" There is a big new surge of nationalism. That is what we wanted to focus on as one of our themes today. The surge of nationalism and populism and how it affects antitrust. Should there be a response and what should it be?

We see more skepticism about free trade and competition and we see more attempts to use industrial policy. There is no better person to be our keynote speaker today than Makan Delrahim, our Assistant Attorney General in charge of the Antitrust Division.

Let me just say a few words in introduction of you, Makan. Makan was confirmed on September 27th, which is just one month ago. I'll say a few years of his background. Makan was 10 years old when he immigrated to the United States with Persian-Jewish family, fleeing as political refugees. They came to Los Angeles and Makan did not then know English but he was in, of course, an English speaking school. Had to pick up the English, help attend his father's gas station at night and weekends. Obviously, met all of the challenges and succeeded amazingly.

First, after high school, attending UCLA and getting his degree from UCLA in Kinesiology, the route to being a doctor. Makan loves the physical sciences as you have told me and believes we all ought to know more about physical sciences. This was also one of the routes I believe that led you to have such a keen interest in intellectual property with rigor of physical sciences behind it. But for us, we're happy you didn't become a doctor but became a lawyer.

He got his law degree from George Washington in 1995. He then went to Patton Bogs where he worked as a lawyer and lobbyist. In 1998, he went to the Senate Judiciary Committee where he worked with Senator Orrin Hatch on antitrust, and became staff director and chief counsel. In 2003, he 1 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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went to the Justice Department and many of us know him from his service at the Justice Department under then, Assistant Attorney General Hewitt Pate.

Makan was in charge of appellate legal policy and foreign commerce and took it all very seriously but I think had a special love for the foreign commerce and the antitrust. In the antitrust area, he did a lot to build institutions and connections with counterparts all over the world and was active in International Competition Network and at one point head of the Merger Committee Working Group.

In 2005, Makan went back to Los Angeles and went with Brownstein Farber Hyatt and Schreck and worked as a lobbyist. I should mention, during this time he was on the Antitrust Modernization Commission and just before that time he was on the Attorney General's task force on intellectual property.

With the election of President Trump, Makan went to the White House and has worked as a deputy in the white house until the moment that he took his office as Assistant Attorney General. He is very well known for forging bipartisan relations by being a pragmatist by reaching out and being a real institution building person.

Everybody wants to know where Makan stands and we are very pleased and proud that Makan stands right here. I give you Makan Delrahim.

[applause]

Makan Delrahim:

Thank you.

Eleanor:

Thank you.

Makan:

Good morning. Thank you so much for that overly generous introduction by Professor Fox. It's a special honor for me to be here at the start of this fantastic conference. I was here 12, 13 years ago when we had an important US Supreme Court case affecting international law in what was called the Empagran case, and we talked a bit about that. It's my distinct privilege to be back here before you all.

Needless to say, this is an ideal setting for the global dialogue and while your law school has truly an outstanding program in international, comparative and foreign law, bringing together amazing faculty like Professor Fox, Professor First, Professors Rubinfeld, Hemfold, former colleagues from the New York AG's office, as well as my great friend, Professor Fréd Jenny, who is a fantastic scholar and a colleague from the OECD and the competition authorities in France.

The brilliant young students from around the world who come here to study under these luminaries would add to the vibrancy of what goes on at the law school here. We have much to learn and share from each other's experiences. It's also an ideal place to talk about competition policy. As a major center of global finance and business, New York City has long represented the dynamism of the free market and it has a special energy. You see that when you walk the streets, that epitomizes the

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competitive spirit in and of itself.

All throughout the city, even as we speak, small and large businesses are striving to attract consumers, enhance market opportunities, and compete for business. In so doing, they're driving the advancement of innovation opportunity and human welfare. Ultimately that's the process that antitrust law seeks to protect.

The world of New York City and the world of antitrust intersect in the person of our past President Theodore Roosevelt. As New York City police commissioner then, President Roosevelt was famous for his vigorous efforts to clean up the greedy, corrupt city of his birth. Later as president, he was famous for his vigorous enforcement of our antitrust laws. The first great trust buster in American history. In both jobs, it has been said, "Roosevelt was never quiet--" I'll quote. "Never quiet. Always in motion, perpetually bristling with plans and suggestions," which is not a bad model to emulate and try to aspire to as the nation's top antitrust cop at the Justice Department.

Let me begin my remarks by saying how excited I am to be back at the Antitrust Division. I've enjoyed reconnecting with the dedicated members of the career staff who I knew back in my prior service back in 2003 through 2005 when I was a DAAG. I've also met a number of talented lawyers and economists who've joined the Division in those intervening years. One thing that hasn't changed about the Division, it remains the best place to work in the Federal Government. I've been lucky enough to work in all three branches of the Federal Government at fun places. I can tell you both from my past experience, and in the short month that I've been there already, it is the best place to work.

It's got an incredible combination of interesting cases and just inspiring colleagues every day. We get challenged every single day. We wake up and read the Wall Street Journal, and CBS is attempting to merge with Anthem. There's not a day that goes by where we aren't posed with fantastic challenges at the intersection of law and economics. I'm humbled that the President selected me to serve in this role, and honored that the Senate voted to confirm my appointment. I may have been more honored had they done it faster, but-

[laughter]

- nevertheless, it was a true privilege for somebody with my background to come and be there before the Senate. When I was last in the Division, as Eleanor said, I focused a lot of energy on the international engagement. In 2004 I spoke about international issues in Greenberg Lounge in what I recall as an excellent symposium put on by the American Survey of American Law. The same hosts we have today. I said then and believe now that, "Respect and accommodation on our part will generate respect and cooperation with our foreign counterparts in return." This is a sentiment that I hope is shared still here today.

Although I'm not overseeing a broad set of-- Although I'm now overseeing a broad set of program areas at the Division, the international section will continue to be a point of special emphasis for me. In fact, I've been on the job just over a month and I've already undertaken efforts on this front. Some of you who may have already met my colleague, Roger Alford, who was professor at Notre Dame Law School and ran the international law program, and he's one of the preeminent US scholars in international law as my deputy for international.

He was a former student of Professor Fox's here at NYU so he's in good company. Indeed, my colleague David Lawrence who is also here along with several others in our front office are all NYU

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Law grads. We have opened up an investigation on the abuse of their dominance.

[laughter]

I've also renamed our foreign commerce section, just to reflect modern-day reality and they're now called the international section. They have new business cards to emphasize just the breadth of the work that they're doing, and of course, I chose this for them. To give the first published remarks, as the AAG, in this new role that I have, to underscore my commitment in international engagement on competition enforcement.

With your permission, I'll discuss three topics today. First, why antitrust enforcement is such an important part of a free-market system. Second, the progress we've made in sharing the value of effective antitrust enforcement around the world. Third, a few thoughts on what I hope we can achieve in the future in this arena. In all these points, I hope to emphasize the fundamental role of the rule of law and procedural fairness in the application of the antitrust laws, and to resist the temptation to discriminate against the nationality of any subject that's before your antitrust enforcement authorities.

Let me first start with the value of antitrust enforcement. If you knew my background, you knew that I was an unlikely candidate to represent antitrust enforcement when I was a child, when I immigrated to the States to escape the political upheaval back in Iran. In the years that followed, when we arrived here, my father, as well as other family members of mine, they succeeded here as entrepreneurs. They didn't speak a word of English. They came and they had to support a whole family. Proudly, my first job was at my father's gas station in Southern California.

That early insight into the struggles and the triumphs of watching my family build a business set me on a path to what, so far, has been a wonderful journey in the law and in public service. I got a special appreciation of the spirit of entrepreneurism, and what it can do to lift up the lives and the liberties of people. The great historian David McCullough has spoken insightfully about the connection between the entrepreneurial spirit and the foundation of this country. In an interview several years ago he told the Harvard Business Review that, "When the founders wrote about life, liberty, and the pursuit of happiness, they didn't mean longer vacations and more comfortable hammocks." Instead, McCullough said, the founders sought to create a nation where all are free to pursue "Improvement and excellence."

For my family as for so many others, particularly as you walk the streets in New York, America provided the opportunity to pursue a better life. The pursuit of improvement and excellence all through entrepreneurship. That life experience makes me a firm believer in what we call the American dream. Can there be any doubt that the American dream has at its core, a well-functioning free market economy. The free market enables entrepreneurship, and rewards innovation. It is the engine of opportunity. Competition enforcement plays a critical role in supporting that free-market system. Antitrust ensures the engine of opportunity remains in good working order for everyone to benefit.

Historic examples of market failure, from collusion and consolidation, demonstrate how important an antitrust regime is to the long-term stability and success of the free market. When it's done well, antitrust enforcement maximizes efficiency, supports the integrity of the market, and ensures the opportunity for everyone to compete on the merits. That's a point that warrants emphasis. The values of antitrust enforcement are core American values. Antitrust helps our free market economy maximize overall welfare, and as the Supreme Court has said, "Serves as a comprehensive charter of economic liberty promoting the general welfare and securing liberty." Those are the values enshrined in our Constitution itself.

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Antitrust is not merely a technocratic exercise, in fact, it is an ingenious body of law, supporting sound economics that serves our most important values. In addition to reinforcing basic economic values, antitrust enforcement is fundamentally about promoting the rule of law. At its core, antitrust law has an inherent equilibrium, wary of infringing on economic liberty, but willing to intervene to correct market failures.

A lot of times those are tough decisions, but important ones to take. Sensitive to the imposition on liberty inherent in government intervention, we apply a law enforcement framework to competition policy. That approach carries with it all the benefits and the constraints of the rule of law. We publicly promulgate laws, apply them equally to all, and pursue impartial adjudication from independent courts. They keep us honest. Market participants know what to expect and they organize their behavior in accordance with the law.

Prior to serving as Justice on our US Supreme Court, Robert Jackson, one of my personal heroes, served as the Assistant Attorney General for the Antitrust Division in the Franklin Roosevelt administration. Let me read an excerpt from one of his speeches. In remarks, in 1937, hundred years ago, and I believe it was September 17th, 1937, if I'm not mistaken, so a hundred and forty days ago. He said, "The antitrust laws represent an effort to avoid detailed government regulation of business by keeping competition in control of prices. It was hoped to save the government from the conflicts and accumulation of grievances which continuous price control would produce and to let it confine its responsibility to seeing that a true competitive economy functions. This," Jackson said, "is the lowest degree of government control that businesses can expect."

This was a speech he had given a hundred years ago about whether or not we need to update the antitrust laws. It's a speech that could be relevant again, today, in the new debate that is going on not only in the United States but globally.

Indeed, competitive markets are generally self-regulating. Competition reduces the need for intrusive, industry-wide regulation with the attendant risk of bureaucratic overreach, agency capture, and unintended consequences. Unlike a centrally planned economy or a highly regulated one, antitrust employs law enforcement principles to maximize economic liberty subject to minimal government imposition. The challenge is to strike the right balance between over and under enforcement. For example, with merger reviews, antitrust authorities spend a great deal of time thinking carefully how the transaction would affect competition in the future. That's an important part of the process because blocking a pro-competitive transaction can be as dangerous as clearing an anti-competitive one. It would harm consumers. The goal should be to promote not stifle competition and innovation.

Another important benefit of antitrust enforcement is ensuring the integrity of the competition process itself. For just that reason, our criminal enforcement program has been and remains a core priority. When companies fix prices, rig bids or allocate customers they attack the very premise of the free market system itself, the competitive process. Cartel activity not only harms consumers by raising prices and reducing output but it undercuts the faith in the free market. To prevent and deter the corrupting influence of collusion, we use a transparent unambiguous per se rule for the most harmful agreements among competitors so you can see why we at the Antitrust Division are so passionate about competition enforcement.

The Department of Justice is uniquely named for an ideal. Indeed justice is a moral ideal in and of itself. Our role in the Division is the pursuit of justice in the marketplace. When we do our jobs correctly, we protect the competitive process around which our economy is organized and on which

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the American dream, the entrepreneurial dream is premised and we do so through law enforcement consistent with limited government and the rule of law. It's a compelling mission.

Now let me talk about the progress in sharing these values internationally. It's equally important that we share the benefits of antitrust enforcement with other countries around the globe. Pursuit of economic opportunity through free market competition is by no means a uniquely American goal. With the global movement towards market-based economies we've seen a worldview embrace of how free markets raised standards of living and enabled the quest for a better life.

Today we live in the most prosperous time in human history with more economic freedom than ever before to work, produce, consume and invest. With market economies developing around the world, the need for antitrust enforcement has expanded internationally and rightfully so. Developing economies find themselves newly grappling with the threats to competitive markets that have challenged US enforcers for over a century.

We all face the same challenges and we're eager to share what we've learned and to learn from other countries' experiences as they go through this process. American consumers and businesses benefit when we share the value of antitrust enforcement internationally. Just as it does at home, competition in markets abroad drives innovation and quality and reduces prices. Given the global reach of modern supply chains, effective competition enforcement abroad leads to cheaper and better goods for US consumers.

American businesses too find themselves participating in global supply chains and competing in markets all around the world. When those markets are open to competition they're open for businesses both American and foreign to compete on the merits. We believe in the ability of every company to strive to succeed and we expect them to be treated with the same fundamental procedural protections that we accord to foreign-owned companies doing business in our states, on our shores.

Of course, I'd hope this audience doesn't need much convincing on the importance of international engagement in competition enforcement. We all share this goal. Let me now turn to some of the progress we've already made on that front. The ICN. When I was last at the Division, the ICN was founded in 2001 not too long before I joined the Department in '03. It was a young upstart organization. Now it's a network that numbers more than a hundred and thirty members and it has really become a platform at the forefront of global antitrust convergence.

One issue ripe for deeper discussion is perhaps the intersection of intellectual property and antitrust. I would strongly support efforts in the ICN to make progress in this area.

We need to be sure that the antitrust enforcement does not impede the incentives for innovation that intellectual property laws provide. Respect for the innovation process is great for those foreign economies to develop native technologies and creative goods. I should mention that the OECD as well, it has made strides in advancing international collaboration on antitrust. I've been proud to participate in the past at the OECD and I'm looking very forward to have the opportunity again to work with the OECD, especially with my friend Professor Fred Jenny and to re-engage on the important issues they undertake.

He mentioned bilateral agreements next. We have also made great progress in bilateral cooperation. We have 15 today, such agreements, including with many other countries in attendance today. I will renew our efforts at the Antitrust Division and work across the street with our colleagues at the

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Federal Trade Commission to evaluate our existing agreements. There are also a number of competition chapters in FTAs, the free trade agreements, and I'm happy to report that earlier this month we closed the competition chapter in the new NAFTA negotiations which the president initiated this year. Great improvements to the competition chapter of NAFTA which could serve as a model for future free trade agreements as well as bilateral and multilateral engagement. We will see what happens to NAFTA itself but the work that went into that is not a waste of time.

Let me talk about case cooperation next. Whether subject to an agreement or not, the Antitrust Division has long welcomed case cooperation on overlapping investigations and these efforts will continue to have my full support. The US-EU divergence on the GE/Honeywell decision was then still fresh and in one of prior speeches I mentioned the assertion of overlapping antitrust responsibility by multiple jurisdictions and that it had the potential to harm the very competitive values that antitrust is meant to protect. Case cooperation helps alleviate the potential for conflict that has grown as more and more jurisdictions have adopted competition laws. It also enhances the effectiveness of our enforcement efforts by making us more efficient.

While all these goals have facilitated greater procedural and substantive convergence, the proliferation of competition regimes around the world has brought new challenges. With a hundred and thirty or so separate agencies we have our share of differences and substantive laws and enforcement decisions. Many of our international counterparts have different views about what constitutes sound antitrust enforcement. It's not to say that we don't have different views domestically about what constitutes sound antitrust enforcement in the United States but even within the United States, we have the good fortune of widespread bipartisan consensus on some of the most basic contours of antitrust enforcement.

I welcome the discussions that we'll have on those differences. Collegial dialogue on areas of disagreement only grows our understanding of antitrust law but I respectfully submit that there should be no debate about the fundamental approaches to the joint administration of the antitrust laws such as non-discrimination, procedural fairness and the transparencies in the administration of those laws.

I'd like to pause on that topic because it is of paramount importance. We must develop a worldwide understanding that antitrust enforcement has no exemption from universal procedures of law enforcement. A non-discriminatory approach. Let me mention that the first such universal principle that I'd like to pursue further and discuss with our colleagues is this idea of non-discrimination. Non- discriminatory application of the laws has been a fundamental aspect of rule of law systems all around the world for centuries. This bedrock principle of our legal system has its roots in the Magna Carta, dating back to the 21st century.

We have it in our Constitution. Ben Franklin had mentioned it, and 200 years later, Supreme Court Justice Frankfurter wrote in the McNabb decision that, "The history of liberty has largely been the history of the observance of procedural safeguards." Today, the principles of equality and procedural fairness are reflected in almost every constitution in the world. Non-discrimination has also been widely recognized as a universal value. In international law, the Universal Declaration of Human Rights, for example, proclaims that, "All are equal before the law and are entitled without any discrimination to equal protection of the law."

The Inter-American Court "Considers that the principle of equality before the law, equal protection before the law and non-discrimination belong to jus cogens because the whole legal structure of national and international public order rests on it as a fundamental principle that permeates all laws."

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Likewise in the European Union, the principle of equality and non-discrimination constitute an important part of the general framework of the law applied by the Court of Justice. Other examples abound without dissent on this clear principle. Non-discriminatory treatment is a fundamental component of any rule of law system.

We have heard some reports unfortunately that competition agencies in certain jurisdictions may have from time to time treated antitrust as somehow exempt from the fundamental requirement of non- discrimination, using it to favorite domestic champions, or discriminate against foreign firms. When they do, they not only violate universal norms, but they engage in short sighted and counterproductive public policy.

Consider the so called national champion. A company protected from competition by discriminatory antitrust enforcement. Absent the pressures of the marketplace, these companies typically grow stagnant, they deliver less value to domestic customers and fare poorly on the global markets. Instead of creating a champion to compete and win business worldwide as competitive markets can do, companies protected by discriminatory antitrust enforcement, they sap their local economies of energy and entrepreneurship.

On that point, let me also just take a quick moment to commend our colleagues in Brazil whose comments- some of the comments I read in preparation for this audience, and I understand they're taking a harder stance and they're facing some of the challenges of antitrust enforcement and applying it even handedly to Brazilian as well as foreign corporations. They found some of the benefits of antitrust enforcement abroad and are applying it very even handedly there as they have in the past.

The principle of non-discrimination carries international policy implications as well. The existence of supply chains and global business activity means every country benefits from non-discriminatory enforcement and that every country has the power to harm overall welfare through discriminatory treatment. When a foreign firm is punished for its success or discriminated against because of its nationality, its costs are distorted, impacting productivity on a global scale.

The stakes here are high and real. We need to work together on a mutual consensus toward non- discriminatory enforcement of the antitrust laws worldwide. Again, I want to emphasize that this doesn't mean that we cannot disagree on a particular application to any particular company, but we're talking about discrimination based on the nationality of any company.

On procedural fairness, let me also touch on that because it is important for the same reason. As competition enforcers, we act as referees. It is our job to create an environment where the rules are clear, rather than opaque and arbitrary. When we create clear rules and enforce them fairly, we create a playing field where innovation and ingenuity can thrive. It is important that we have the confidence of both the public that we serve and the business community that is subject to our rules. To build support we must be willing and able to open up our policies and decisions to review and challenge.

The ICN has been a great vehicle to help foster that. We live in a globalized economy. With so many different competition enforcement agencies that is routine now, that the conduct or a merger will be reviewed by multiple agencies. Different outcomes matter less if the decision making process was transparent and fair. The legitimacy of all of our agencies' decisions is strengthened by a collective commitment to transparent and fair decision making processes.

Let me conclude my remarks by sharing a vision of how I hope to translate these priorities into action

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in these coming years where I have the privilege of serving at the Division. Have you've seen in the news, the United States Trade Representative and trade agreements, has prioritized their renegotiation of certain agreements and discussions are already underway, as I mentioned, with NAFTA and the US-Korea Free Trade Agreement.

Recent trade agreements have competition chapters that set forth basic standards and protections. These protections help to ensure that when US companies are investigated by competition authorities overseas or when foreign companies are investigated here in the United States, they will all be treated fairly and afforded certain fundamental rights and procedural fairness. We look forward to working successfully with the USTR and our trade partners to craft competition chapters that fulfill the objectives of affirming basic rules of fairness in competition law and non-discrimination.

When I last worked, we recognized the significance of trade law, but there was a common belief that trade law had minimal overlap with antitrust law. This is no longer the case. There is an intersection between trade and antitrust that most people would recognize today. Upon my nomination in March, one of the first decisions that I made, was to reach out, as I mentioned, to Professor Roger Alford, then at Notre Dame and serving in London, to ask him to come join us at the Antitrust Division.

Many people were surprised by that pick because he wasn't part of the antitrust bar per se. His entire career has been devoted to issues relating to international economic law and he has a deep knowledge and an understanding of trade issues. I've known Roger for over 20 years and worked with him. I believe he'll bring new energies and new ideas to the Antitrust Division and our international effort. I'm glad you guys will be able to meet him and hear from him later this evening.

Roger and I plan to continue to invest in the Antitrust Division's international section and we'll build- and look to build upon its resources, increasing its ranks and recruiting highly experienced attorneys. Though we can expect some belt tightening throughout the US government in the coming years, I will look to ensure that the international section has the resources it needs to execute upon these priorities and also help with technical assistance in a number of ways with a lot of the new agencies in the developing countries.

We have recently increased our engagement efforts and support for newer competition agencies around the world. That benefits consumers and businesses both abroad and here in the US. It is to our collective benefit to engage regularly with the new enforcers, many of whom gathered here today and to encourage the development of sound, analytical frameworks and procedurally fair investigative techniques. To this end, we will encourage the new agencies to come to us directly and along with our partners at the Federal Trade Commission, we look forward to assisting in any way we can. That's an open invitation. Please let us know how we can help.

I'm also looking for ways to modernize the Division's facilities that will encourage greater engagement. We hope to invest in new technologies that will help make engagement via teleconference and distance learning a routine exercise to maximize the resources we have at the division to allow for technical assistance.

The strength of the relationships between the Division and our antitrust counterparts is essential to our enforcement mission and we will continue to devote more resources to our bilateral and multilateral relationships. We're thinking about new types of agreements with close partners that would focus specifically on these core principles I mentioned today of non-discrimination, procedural fairness and transparency. I hope to explore whether we can enshrine points of consensus around these principles

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into firm, enforceable commitments. I believe that by doing so, we would take the next step in developing international competition principles. It's a helpful international agenda but we were similarly ambitious during my last tenure at DOJ. I think with the great help of the whole international community we experienced great success.

To conclude, let me say that today is the perfect opportunity to continue and build upon that work. I'm familiar with many of the presentations for the conference today and I'm aware there's a lot of skepticism about competition policy as we know it today. I hope you'll take my remarks as an invitation to collegial dialogue on our areas of disagreement and as a reminder of how much we have in common for our part, in addition to our international engagement. At the Antitrust Division we have an ambitious agenda on the domestic front as well. As our initiatives here at home bear some fruit, I hope to be able to share those and advance them in the international dialogue. I look forward to sharing more on that in the coming months and for now, I want to thank you. Thank you for your time and hope you enjoy the rest of the conference. Again, it was my privilege to be invited here by Harry and Eleanor. Thank you.

[applause]

Eleanor:

Thank you so much for those very inspiring comments, Makan. If you will take a few questions, we would ask the audience.

Makan:

Sure. Happy to.

Eleanor:

Are there other questions? Is there a mic, Elisa or whoever? Yes, okay. When you enter, please say your name first.

Cecilia:

Hi. My name is-- I'm Cecilia [inaudible 00:41:56] I'm wondering-- [crosstalk]

Eleanor:

Just a second because you're going to get a mic in a second.

Cecilia:

Thanks for taking my question. Just wondering what you think needs to be updated domestically in the United States's Antitrust Law and what your priorities are going to be going forward?

Makan:

We are already doing a number of things. For example, we have redoubled our efforts in enforcing past consent decrees and taking a fresh look at them. I believe that we as the trustees of the public's

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trust and competitions' trust should be proactively looking to enforce commitments made by, for example, merging parties or subjects of some of our past investigations that they made to the Division, which is really to the consumer. We should not just stumble upon any violation so we're going to be adding resources to examine those consent decrees. We'll also be examining consent decrees to see if they have relevance in today's marketplace.

Upon my arrival, I'd asked for a survey and a study of all of our consent decrees and we have approximately 1,400 outstanding consent decrees with the Division. Some of which are timely, good and have relevance. Let me just mention one and I'll talk about them later but one actually deals, and this is not a joke, with the buggy whip. We have a live consent decree. As some of you know, big swaths of the economy have been regulated through consent decrees in the past. The AT&T, the [unintelligible 00:43:51] Bell consent decree before Judge Green went on for years until Congress stepped in 1996 and had changed the laws. We will see.

I view my role as a law enforcer not a regulator through consents. You either violate the law or you don't. We're not going to be seeking consents out of parties just because we can for the sheer joy of it. Let me just give you one of them but there's multiple ones. For some of you like Cecilia who has known me for years, they know that I like to be innovative in the enforcement of the program, make sure that we're doing what we can in the most efficient way for the taxpayer.

Cecilia:

Does that mean you're going to look narrow the scope of future consent decrees or not accept consent decrees?

Makan:

I don't think we would never accept consent decrees. I think consent decrees that address our competitive concerns, we will do that. I'm talking about looking backward at what the consent decrees are and whether or not they have any relevance in today's market economy.

Cecilia:

Thank you.

Eleanor:

Thank you. Time for one more question or comment all the way in the back.

Pauline:

Hi. Pallavi Guniganti from GCR. My question is with regard to the Antitrust Whistleblower Protection Act that is currently in front of the Senate Judiciary Committee. I think the hearing on it got pushed next week but I'd be interested in what you expect to be the Antitrust Division's position on this? I've certainly heard from people in the criminal enforcement side of the division in the past that they have concerns about extending certain aspects of protections that go to other whistle blowers. In particular, they're opposed to payment which is not an issue in this particular one but just in general, what is your view on the legislation?

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Makan:

The question is the Congress has legislation in the Senate that has been pending for a number of years about extending what's called the Whistleblower Protection to Antitrust Law Enforcement. I learned of it just this week about its movement and it was on the agenda. Chairman Grassley is a big champion of whistleblower protection. This is bipartisan legislation between Chairman Grassley and former chairman Senator Leahy to expand that.

I believe, is my understanding, the Antitrust division has provided comments and technical assistance to that legislation in the past. I expect it to be voted out next week, probably out of the Senate Judiciary Committee. I think by and large it would be unfair for me to comment on the legislation because I have not reviewed it itself but the general concept of whistleblower and antitrust enforcement, I think, is a positive improvement to our enforcement mission. I think it would be a good improvement and I don't see a reason to oppose it although sometimes we have to make sure there's not unintended consequences and we'll appropriately provide our technical support if there is any.

Eleanor:

Thank you so much Makan.

Makan:

Welcome.

Eleanor:

We hope you'll be able to stay around for a little bit. We understand you have a busy schedule. If you can't come back often.

Makan:

Thank you so much.

Eleanor:

This is a really great event for us to have you here. We look forward to working with you. Thank you. Panel 1, will you come, run up to the front so we can start Panel 1 right away. Thank you.

[applause]

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Panel 1: Impact of the New Nationalist on Competition and Economic Development in Developing Countries

Eleanor Fox:

I am going to start with very few remarks and we want to turn it over to our panelists in one moment. My background word for panel one is, this panel is on "The impact of the new surge of nationalism on competition and economic development in developing countries."

Just a few years ago, it seemed, that the countries were in a mode of openness and I would say cosmopolitanism, and now we see much movement inward and nationalism and parochialism. When we were on the mode of openness and cosmopolitanism, it was playing helpfully into the hands of developing countries who were integrating by the openness of markets.

We want to discuss the problem of developing countries with the two inconsistent poles of globalization and nationalism. To do that, we have a wonderful panel from all over the world; China, South Africa, Europe, South America, and we have these great panelists whom I will introduce to you. I'm going to introduce to you in the order of their first interventions. Each one is going to give a very short intervention, not more than seven minutes, then we're going to have a little discussion among us. Hopefully we have a little time for discussion with you, and then our closing.

Frédéric Jenny. Two in. Frédéric, who is our colleague this semester at NYU Law School, which we're very grateful for, and I'm co-teaching with him, and I'm very grateful for that. He is a professor of economics at ESSEC business school in Paris. He is well known as the chairperson of everything international competition.

[laughter]

Including of course the OECD Competition Committee, which he's done since 1994. He has been a judge on the French Supreme Court. He is the only economist who has been a judge on the French Supreme Court. He was also vice chair of the French Competition Authority, and President of the WTO Working Group on the interaction between trade and competition when it existed.

Number two, we're going to hear from Tembi Bonakele. Tembi is the Commissioner of the South African Competition Commission, and has been so since 2013. On his run up to that, he occupied various very important positions in the South African Competition Commission heading mergers, compliance, senior legal counsel, and he has as commissioner established the cartels division. He has practiced law in distinguished firms, and he is Chairperson of the African Competition Forum, which is in a way an African mirror of ICN. He is a member of the ICN Network Steering Group.

Ioannis Lianos. Ioannis, I am proud to boast my former student. Also a colleague when he was a fellow here at NYU. He holds the Chair of Global Competition Law and Public Policy at University College London, and has had so many visiting professors and fellowships all over the world, including Paris, Berlin, Santiago, Chile, many places in Europe and of course at NYU.

Next, I'm want to introduce Susan Ning who's at the end of the line here. Susan Ning is a Partner at King & Wood Mallesons in Beijing. She's one of the most outstanding competition lawyers in China. Handles so many cases and has a terrific feel for what is happening in the competition agencies in China. She is not only Senior Partner and Head of Commercial and Regulatory Group in her firm, she 13 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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also is a specialist on cyber security and data compliance.

Next and last for introductions is Adriana Giannini. Adriana is a Partner in Baker & McKenzie in Sao Paolo office. Adriana has had many experiences all over the world including once a stagiaire at the European Commission and including several degrees including from London Kings College. Adriana is particularly interested in the interaction of competition and anti-corruption, and its effects in the development of the Latin American countries.

Now to begin our discussion, I want to ask a question to Frédéric Jenny who will give the first intervention. Frédéric, the question to you is, what do you think accounts for this surge of new nationalism, and what can we do about it? Very small question.

[laughter]

Will you give some remark please? Thank you.

Frédéric Jenny:

In five minutes? Okay.

Eleanor:

Yes.

Frédéric:

First of all, I think that as the recent political events in Europe have shown, the surge in nationalism is quite widespread in a number of countries. Mostly developed countries, but also some of the developing countries.

Second, as an economist, I very much would like to refer to one thing that Makan [Delrahim] said, which is I think that we have to look at the combination of trade and competition because it's always been my belief that trade was driving competition along a straight policy designed to try to promote some form of international competition. As we have heard recently, a lot of competition provision now come through trade agreements. Let me mention the fact that I am going to talk about both trade and competition.

The third thing is that I very much like what Dani Rodrick has written over a number of years recently, that economists have badly mismanaged globalization, and that it is not unexpected that there would be a negative reaction to unfulfilled promises which were agitated when there was the, in the 1990's, the movement, and the 2000, the movement we saw with globalization. Why is it the economist who mismanaged the thing but it's only also the policy makers, but the basic issue is the following. The models that underlie both international trade, competitive advantage theory and competition, make assumptions about the real world which are not in fact born out in reality as a result of which some of the benefits that we expect from trade globalization and or increased competition do not appear. Whereas some of the costs very much appear and seem to deny in fact the expected benefit that one was expecting.

What is the main issue there? The main issue is that unlike what theory assumes, labor is not very

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mobile. Not only is it not very mobile, it becomes less and less mobile as time goes by for a variety of reasons. By mobile I mean not only geographically mobile, but also mobile across profession, across specialties.

Both trade and competition assume that there's going to be some reallocation through the increased competition, there is going to be reallocation of resources, and resources that were used in employment that was not so productive would gravitate towards more productive employment. This is the idea that leads us to believe that trade will increase GDP and lead to growth, but it is also the idea that reallocation of resources, thanks to competition, is going to increase the efficiency of the country.

The real question is, does this reallocation actually take place, and if it doesn't take place, what happens? It doesn't take place very easily because it's easy to be mobile on the page of a theory text book, but it's much more difficult when you have a family, when you have a spouse that works, for example, and you're told that they have very good job for you 500 miles away from where you are. That creates immediately the kind of problems that one can imagine. On top of this of course the development of modern technology has meant that some workers are able to gravitate from one industry to another fairly easily, which all the technologically educated workers, but those who are not so advanced in their knowledge of the new technologies are largely left behind.

We do see that in many countries, the rise of populism is associated with people who get stuck in the process of either international trade or competition in the situation where they were without any real possibility of migrating to another activity or to a better employment. Those people feel very bad about those processes.

There are some good examples of reallocation, about two or three weeks ago in the Sunday New York Times, there was a really interesting article about the coal miners in Wyoming. About the idea that the coal miners in Wyoming, the place where there was a lot of sun, could be turned into people installing solar panels. There was a firm which was actually re-tooling them, teaching them how to get to roofs and how to install solar panels. There were still some issues in the sense that-- This is an interesting case because reallocation was on the spot. You didn't have to move 400 kilometers or miles from where you were, and you could acquire those new skills fairly easily. On top of that, there was a movement from a regressive industry to a movement towards a very progressive demand new industry.

There were still some problems in the sense that the salaries were not quite the same between the coal miners and between roofing specialists, but at least this was a possible example. Now, what happens when this doesn't work? Which is most of the time. What happens also, and I go back to a trade for second, the theory of international trade assumes that there is going to be a benefit to trade if you start from a full employment situation, so therefore you cannot grow naturally because everybody's employed. The only way to grow is really to open up to trade, to specialize in what you do best, train the workers in what you don't do as well, and put them in what you do best. You have full employment at the beginning and full employment at the end.

This is not the reality of most countries when in turn to trade agreements. If this is not the reality, then the benefit from trades are not going to show up because there was never a constraint in the first place, which was the constraint for labor. Economists have known this for a long, long time, but they haven't said much about it. They have left policymakers take over those wonderful ideas which are basically sound, but which when they are applied on the one hand do not give all the benefits that one would expect and we all know that there has been a lot of controversy over what are the actual benefits from

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NAFTA or from the TTIP, or from the TPP, which were being negotiated with economists having very different views because it all depends what are the assumptions that you make about the mobility of people, about the level of employment.

The benefits have not really been there, and there have definitely been people who have been stuck in the sense that they've been-- their jobs have been competed away, either by another region or by another industry, and without any possibility or any short term possibility to react.

This has created the idea that competition destroys shops, basically, and that therefore competition is not favorable to the workers or to people, and that therefore what has been promised is just something which is going to enrich the one factor which is very mobile, which is capital. To this, there has been the additional discussion about the fact that all this was creating a widening difference of status between the capitalist and the workers and that this was creating inequality. The very last layer of this has been that in the fever to get into trade agreements, and to facilitate the trade, a lot of trade agreements have been passed with countries that have very different laws and very different level of social protection or health benefits and so on and so forth.

When you're a worker in an industry, or let's say the United States and you lose your job because there are some imports from a country that doesn't have at all the same kind of social benefits, or health benefits, or protection or regulation that you have in the US, you feel that on top of everything, it is also unfair. Not only is it disastrous, but it's also unfair because your job has been taken away by people who don't play by the same rules of the game.

What are the possible reactions that we've seen? To simplify them both on the trade side and the competition side, I think there are three types of reaction to this. One of them is retrenchment, another one is transformation, and the third one is adaptation. The third one is the one that would make the most sense but it is not necessarily the most common.

Retrenchment means okay, we stop trading, we close the borders. I'm not going to go into this because this is a familiar theme in the US these days. We try to get out of those trade agreements because they really were terrible deals for America, for some workers in America, and we have exactly the same theme of course in Europe. This is clearly from an economic point of view not a good solution, because clearly this is going to impose costs on everybody.

Second thing is transformation. This applies in particular in the US on the debate on competition policy. This is what I call the SWAT team in the US. Yes, one minute, the SWAT team is the team to Mr. Sanders, Senator Warren and Donald Trump, because they all have the same discourse, that power, if any power, should be checked, should be-- Amazon has too much power. That's an antitrust problem. I don't know. AT&T, Time Warner, that we give too much power. It's the idea that competition should be redefined to in fact prevent too much power from being given to some, to try to lessen this divide between the ones who get always richer and the one who gets the raw part of the deal. There are calls for a revision of the antitrust laws to try to bring in some more distributional objectives into competition law.

The third possible policy option is what I would call adaptation. Adaptation would be to say well, we do understand that there is a global benefit, but there are costs associated to the transitions, what can we do? Maybe we haven't thought about all the complimentary, the implementing policies that we could have, or that we should have together with competition. We know that trade and competition are complimentary, and we know that, I don't know, fighting corruption is complimentary with the first

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two and so on and so forth. Maybe re-distributive policies should be necessary to help people who are going to be stuck, those people who might be stuck in the process of reallocation to face the cost of the transition to be able to re-tool. That would lead to educational principles, educational policies, or it would lead to other types of intervention trying to make the labor factor more than it is.

When you think, for example, about the South African merger role, there is some of it. There is some of it in the sense that mergers, when they may lead to displacement of people, may lead to some injunctions on the part of the competition authority, that why don't you create a form that will help re- educate people, or why don't you help us face that social problem, which is the fact that we need to have more mobility to make competition and trade acceptable. Thank you.

Eleanor:

Thank you. That was really very instructive and leads right into my question for Tembi, which is, in view of these moving pieces and challenges, what is the particular impact in response of developing countries such as South Africa?

Tembinkosi Bonakele:

Thank you officer Fox for inviting me. I have three ideas in response to your question. The first which illustrates the point that deals with mergers.

But let me start by echoing what I think is now general consensus, that globalization promises as Fred says have not been realized. There's a sense that, in fact, developing countries are getting further and further marginalized. In the area of mergers, which is the first idea I want to talk about, we've seen two types of mergers really, if one looks at the recent past of global mergers. One is where the global firms largely located in developed countries are consolidating globally. This is where they take advantage of the geographic reach, many firms in recent mergers we've seen are consolidating where they are dominant in different parts of the world.

The consolidation would escape antitrust authorities because you wouldn't find much accretion in any particular market. This they can also do by consolidating around products. We've seen, for example, seeds and herbicides, things like that. Again, you can't see an obvious consolidation in any particular market. But in fact, the power that a seed company that has herbicides is very different from a company that is dependent on others for some of these. That's the first type of merger we've seen.

The second one is where firms from developing countries acquire a position in a developing country in order to expand. In Africa, we see a lot of these large firms, many of which are national champions actually, are being acquired by largely, foreign firms who want to have a foot in the continent. Again, there's very little that competition law can do about this. We think developing countries an entrance through these trends of very powerful firms that are very difficult to regulate for developing countries, because what do you do with a merger like that? You're not going to block a merger like that when you are a small jurisdiction somewhere in Africa, because that merger will take place whether you want it or not. If you are a country in Africa, you refuse this transaction, they may find another country as an entry point into the continent.

The size of firms, this is the idea I want to leave. The size of firms does matter for competition regulation. There are firms that have simply become too powerful for regulation, particularly by developing countries. This is the first problem of antitrust, that you have almost a regulatory gap in

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reality when you have these large mergers. Of course, this point is made worse by the fact that we don't have anybody looking after antitrust at a global level, because a lot of large jurisdictions would also look at these transactions from their own national perspective. Virtually, no one would define the market as a global market. Everybody defines a market at best as a national market.

The second idea is this issue of trade which is increasingly-- When international trade is advocated, or at least in the past, the benefits of it were in that, everybody opens up their markets. There's some fairness in the sense that where you are good at a particular goods or service, you would then win. It was a give and take. There were trade-offs. What we've seen in the recent past is in fact, trade is simply being used to advance national interest in a very crude way. I think it's always been, if one accepts that, countries would always advance national interest.

But I think what we've seen recently is a very crude way in which these advanced. It's a winner-takes- all type situation. There are no more trade-offs in trade arrangements. Give you one example, and there are many I can cite. To give you one example, in South Africa, we have a poultry problem where we benefit a lot from the entry of African goods into the American market through AGOA. Anything you do that's going to threaten AGOA is a huge problem for the rest of the economy. We've had to accept the entry of heavily subsidized poultry from the US because there's very little we can do when we are exporting cars and other goods to the US.

If you look at countries in East Africa, Rwanda, Uganda, and Kenya, this is a problem with second- hand clothes. We're exporting a whole lot of other things to the US, but the US dumps essentially, second-hand clothes to the market. It kills your potential for textiles completely, but there's very little you can do because you have this AGOA arrangement you need to protect. These are not negotiated. These are imposed trade terms. It's not trade-offs. It's about largely, power.

The last idea, I have one minute to go, is that, the narrow nationalism that we've seen rising in the West is of course, copied, is followed. The West is an example for a lot of countries who look up to it, particularly when it comes to the economy and the idea of markets. Once the US is an ardent supporter of free-trade and shuns often the use of public interest to protect local markets and jobs, you also see that the rise of nationalism within the antitrust area, sometimes on the grounds of national security, is having a lot of influence on how developing countries themselves perceive antitrust.

I'll give you just two examples. If you look at the record of the DOJ on cartels, the study by Professor O'Connor, from here in the US, shows that since 1997, more than 50% of firms prosecuted for cartel conduct by the DOJ were foreign firms. That number is quite conservative by the way because according to the former head of DOJ, that number should be between 60% and 70%. Largely, prosecution is against foreign firms. Since 2005, the largest portion of fines has been imposed on more firms had [unintelligible 00:29:27] in the US. Again, in terms of O'Connor's studies. This, by the way, is regardless of which administration in the US.

I'm just going to end with a quote to illustrate this. On this EU prosecution of Google, this is what President Obama said, "Americans have owned the internet, our companies have created it. What is portrayed as high minded positions on issues, sometimes is just designed to carve out some of their commercial interests." What here we're seeing is really an idea that competition laws or antitrust laws, in reality, are used to advance national interests. The idea of nondiscriminatory, which I fully agree with and has been well argued by the DOJ head of antitrust this morning, I think is unfortunately not borne out by evidence. Thank you.

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Eleanor:

Thank you so much, Tembi, and are we in a tit for tat world? Has the nationalism of developed countries caused a reactive protectionism by developing countries? We're going to turn to Ioannis now, and Ioannis you've done a huge amount of work in your scholarship in all of these the areas, including the new technology, big data, artificial intelligence, robots, jobs, pressure put on the consumer welfare paradigm. Will you respond with some of your ideas of the problem and the solutions? Thank you.

Ioannis Lianos:

Sure. Eleanor, thank you very much for the invitation. I think the discussion we have is about of interaction between trade and competition. I have to say that during the post-war period, these two areas were a little bit living in their parallel worlds in a way. From the point of view of trade, the objective was economic integration. The idea was that during the 1930s', there was a lot of protectionism coming out, following actually the Great Depression. There was a disintegration of the global economy, and the idea of promoting the GATT system and regional trade integration in the post world war period was somehow to come back to a more integrated economy.

Obviously, all these different trade regimes did not really have anything of the social dimension, the social let's say distributive consequences of trade. That was also absent in the European treaties actually. We have to wait until the 1970s' and 80s' to see the emergence of EU labor law or some form of a redistribution coming out of regional fronts. Trade was actually there to promote basically efficiency and economic integration. Competition at the same time, if you look to the 1950s' and 60s' and 70s', it was a completely different aim. I would say that competition law and antitrust in the US was mainly driven by the social question.

In the sense it was to make sure that losers, in a way, smaller and medium firms, had a fair chance to participate to the economic expansion, that was generated by trade liberalization and economic concentration that followed from the economies of scale, that were achieved by the large US multinationals, which were expanding in other parts of the world. Protecting small guys at home in known trade wars mainly was destined to achieve that. In a way, competition during populace era was basically motivated by this kind of social dimension and was basically there to deal with this aspect.

Obviously, we know the change, The Chicago cultural revolution of the 1970s' and 80s' obviously, changed completely the objectives of Antitrust and transformed this tool mainly in order to deal with the social question to achieve economic efficiency and to promote economic efficiency. In a certain way, sure we have a lot of talk about consumer welfare, or we call actually more consumer surplus. That is the ability of consumers to benefit from lower prices and higher output.

Generally, that model doesn't really look to the allocation of the surplus between different groups of consumers, let's say the most vulnerable ones, or we don't even try to define a standard for a fair allocation of the surplus. For different reasons, because no classical price theories based on the represented consumer approach and this an old story for everyone here. Now, I think that in my-- This is a guess I hope educated, that these consensuses that attempt to promote efficiency has collapsed, in particular after the financial crisis of 2007-2008.

I think that the social question has become one of the most critical issues of our time. Every day we have articles on inequality, on decline of wages in the middle class, the rise of monopolies, as well as

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a number of other social aspects like environmental degradation, growth stagnation. My prediction is that the social dimension of antitrust will move again center stage. I think we face considerable tensions as to the possible resilience of the system.

I was reading the last couple of weeks ago actually a public poll released by the Legatum Institute, which is a British Center, I would call it center right NGO, which a poll of the British public opinion, and actually it's quite interesting, because-- And in a certain way we can see looking to this poll that actually the majority of the British public that participated, at least were presenting a purview of capitalism. 80% of the British favored nationalizations were a number of utilities, while half of them were actually in favor of nationalizing banks. That is in Britain, we're not talking about France or Italy or Greece.

[laughter]

Somehow for me, it shows that things are moving in direction that we couldn't expect. There is now also I think a clear understanding that the bottom 60% of the economy struggles to manage. There is also a lot of evidence even recently coming out of the ECB, that there's a quite an important link between market power and inequality. In a certain way that increased margins towards the consumers as a result of market power, may disproportionately harm the poor and will pay more for goods without receiving a counterbalancing share of increased profits because they're not usually shareholders.

I think also what is quite important, and it makes things even more complicated, is that the multiplication of this inequality in other spheres of life. Because there's a sort of conversion process of economic power to political and cultural power, to a certain extent. This process of inequality and the lack of effective compensation for losers, is not only I think an issue that concerns as it was in the past, developing and emerging economies, but it becomes even more important for developed countries, and to a large extent it has been the source that I think in my view has fueled the recent populist movements in the West.

What antitrust can do to regain, I think, its functions as a tool to deal with the social question, at the domestic end, at the international level. First I think in my view, it is important to develop tools that do not only provide as a picture of the effects of competitive interactions in the context of relevant market, focusing only on output and price, but go beyond that and assess the various acts' social cost of market power, including pecuniary externalities, which are generally not taken into account by the mainstream economists’ calculus.

It is important to keep an eye on these, I think pecuniary externalities, because I think the main point here is not that we're interested in economic efficiency, but the idea is that we're talking about systemic resilience as being an objective that antitrust should pursue. Those are different tools to develop a little bit broader tools to understand the variety of competitive interactions.

One of them is the tool of global value chains that I've been using in my own work, and I would like to develop it a little bit further. Which I think offers a better way to map the various dimensions of the competitive interactions, not only at the horizontal level but also the vertical level, because there's a lot of competition between the various segments of the chain, in various countries of the world to gain a higher percentage of the total surplus value of the chain. That vertical dimension of competition usually is not taken into account. I think you need to take that into account if you're interested in systemic resilience, and not just about economic efficiency.

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I think the second point is to probably develop a broader perspective on the effects of restriction of the competitive process, by somehow using more public interest tests and not only in the context of major control but also in context of conduct. Obviously, there's a discussion now in the UK the about developing a bit further this aspect of public interest standards. Now, we have actually good experience of public interest standards, in South Africa, they would generally pretty well. We actually even use them in the US.

I was dealing with cases concerning air transport, and basically these are assessed by the Department of Transportation as well as Department of Justice through these public interest tests. The question is, should we leave them to a political authority independent from antitrust. I would say that, maybe it's not a good idea to delegate this stuff to separate political authority, and maybe probably superior to maintain them in the context of the antitrust assessment because it keeps somehow political passions under considerable control, and allows the issues to be orderly debated in a relative serene discursive space and more technocratically, let's say, space.

Of course, that will require some changes as to the way also we think procedure. For instance, NGOs or public interest organizations are usually not present in merger cases. They do not have the ability to provide evidence on their point of view and I think this is something that we need to do. Thank you.

Eleanor:

Okay. Thank you. Very provocative and interesting remarks, and we've almost come to the panel discussion period. I want to turn now to Susan. Susan, perhaps you can help us with one more piece of the puzzle, China, one very big piece of the puzzle and maybe even bigger since the last couple of days with the 19th Party Congress, the Chinese Communist party. Would you help us with this piece?

Susan Ning:

Thank you, Professor Fox, for inviting me to speak here. When talking about China, people always come across the riddles where they see a very powerful centralized institution at the central level, and also institutions at local level who run a so called socialist market economy, and drives the modernization of the ancient civilization. You could also see that a conflicting fact where China is portrayed as the second largest economic entity in the world as reported by IMF in 2014 and probably recently portrayed probably number one economic entity in the world.

China still calls itself a developing country, and also contradictingly, people see that the economy there is very dynamic, very efficient, while we also see distorted market structure and also vast interference by central or local government into the micro economy there at all levels of sectors, especially sectors that are highly regulated.

Before talking about how internationally China positioned itself in international trade policy or competition policy, we may also have to look at internally how China is nowadays for the market structure and how it make its best endeavor to reform as in legislation that the CPC has just closed its 19th national congress, what kind of an impact, in particular competition policy, may be affected.

Under the name of industrial policy, Chinese government used to directly intervene into the macro economy at the central level. The government departments are providing target sectors, especially those regulated sectors and enterprises, using preferential treatment for protection often at the cost or

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expense of non-favorite enterprises which potentially compete fearlessly. The use of such a preferential treatment is evident not only in the regulated industries such as tobacco, post, telecommunications, construction and machinery, but also seen in some non regulated industry such as food stuffs, beverage and real estate.

At the local level, local government will create barriers to internal trade, internal China trade between regions and protect locally owned and controlled enterprise. Regional monopoly and protectionism in China have resulted in excessive duplication of various industries across provinces. We saw very large number of local producers in industries such as automobiles and cement. Like in Europe, we in China we also endeavor to have so called unified market by among the provinces locality.

Some of the problems of the main stream monopoly are well recognized in China and also the basic aspects of the relationship in between the state and the market that China is seeking to reform.

Since last year, at the decree by the state council, since the 1st of June last year, we implemented a mechanism called fair competition review, and there, the Chinese government tried to gradually reconcile industry policies with competition policies and to liberalize certain regulated market. This system is to provide comprehensive review of all the government areas in place or in the future by the prescribed competition standards. This review will not only remove the roots of our strict monopoly but also promote awareness of all the government officials at different levels to fully recognize the importance of competition policy in a market economy.

Interestingly, the CPC national congress of the 19th national congress are officially closed on the 24th, which is just a few days ago, and the implementing rules for the fair competition review mechanism was dated the 27th, one day before the closing of the CPC national congress, and of course only disclosed on the website of NDRC yesterday, the 26th, the full content of the implementing rules. In the parliamentary rules, which is six chapters, 26 clauses, elaborate in details regarding the mechanisms itself, standard of review, and the procedural aspects.

They're also in this case administrative liabilities for non performance or non full compliance with the competition reviews regarding the governmental policies, measures or even some of the regulations. This is, of course, from a legal certain source. It says that the designer of the whole fair competition review is actually sitting on the think tank, the economic think tank of presidency even bigger drive, driven fiercely by NDRC.

This may be a implication and also response to Ioannis' question, what the impact of the CPCs national congress and competition policy in China, showing that the Chinese government, though interestingly not the legislative body, but the government is making its best endeavor to promote fair competition review in China. This is internally how the China is experiencing a well recorded transitional period for the plan with a long history of a planned economy into a socialist market economy.

Internationally, China has had very mixed feelings for so called globalization since the ascension into WTO in 2001, China has benefit greatly for globalized free liberalized international trade, but also have seen itself being targeted by many of the trade barriers, anti dumping, anti subsidiary, safeguards in particular with China specific safeguards in particular imposed many times by America. They also have seen that of course it has benefit greatly with a lot of trade surplus. Even President Trump has a complaint about China for such a trade surplus.

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When it comes to foreign investment with its economic growth, it also endevours to invest elsewhere globally, which is welcomed for the mandatory part, but also seeing blockage or barriers for investment policy. The recent Bridge Canyon [?] case is a good example of a blockage China experienced, China wide. This is at just the recent case not to mention many others in the history. We all know quite famous cases.

Also the recent experience with the European mapping company, the attempt by Chinese entities to acquire 10% of that mapping company in Europe, Germany in particular which is called HERE, is also aboarded because of the surface difficulty to approve it. After probably three rounds of negotiation of a surface.

China has a mixed of feeling of this globalization in term of a trade, in term of investments, in term of a competition internationally. Internally when talking about a welcoming the foreign investment into China, we also see it a reflection of that mixed feeling where China encouraged foreign investment, but also is complained before is restriction to regulate by the industry policy or public industry policy in particular for investment where they have they have encouraged list, restricted list, and the prohibited list.

Of course, reform has been seen since 2016 where China mostly runs as a foreign investment policy and the negative list alone, meaning that if it is not on the negative list then foreign investment are welcome or even encouraged in certain sectors of the industry.

Competition policy wise, even though China has been complained about its implementation of industry policy or public interest consideration in merger reviews. Since the implementation of the EML 2008, China has only officially, of course, officially blocked two transactions which is Coca- Cola Huiyian case, and the P3 case which concerns Maersk and two other international ocean carriers. Of course, we also have seen in these two cases where public interest consideration was taken there into the consideration.

Anyhow, we still are seeing China's motivation to reform. Talking about the fair competition review mechanism which applied internally, but also is implementing rules, of course, just publicized yesterday. We also see particular effort in lifting the constraint for free flow of commodities where protection elements are from outside of the region, and also from import products.

It particular addresses that they shouldn't discriminate the import where products from outside of the region by different policies including subsidy, or by the unfair or unproportional, like barriers from technical perspective like inspection or other policies.

I will say that China has the need for more international fair play or unified standard, and also the willingness to reform both domestically and internationally, and also eager for international cooperation. Even though at current stage, it is still agency to agency. We have seen China absent for ICN forum, still an observer in OECD. While international, it maybe there is an obstacle, I don't know how to describe it. At least at agency to agency level, China is more of willing and open. Thank you.

Eleanor:

Thank you so much, Susan. We can draw from that somewhat in that complex mix, some silver lining, and this leads me to go onto Adriana. Adriana as we said, has a very particular interest in corruption and competition. Do we see a silver lining in Brazil through all of this globalization and

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nationalization?

Adriana Giannini:

Thank you professor Eleanor, there's a very interesting question, and I'm not sure there is a simple answer to that. Actually, I don't know if there is a one correct answer at all. I'll give you a view on these merit from my very personal perspective, which is a Latin American woman and a mother.

Picture yourself at the top of a mountain with your arms wide open with the most stunning beaches at your feet. Imagine that in this fantastic place, you cannot walk safely because you might be shot at any time, either by the thieves or by the police. Imagine that you and yourself and your family do not have access to healthcare, to education, or to sanitation because the state doesn't have the money to provide it to you.

That is unfortunately the reality of Rio de Janeiro, one of the most beautiful cities in the world, and that a city the just recently hosted the Olympics, and where Spanish teacher has just been shot dead by the police.

The question here is how can we use such powerful tools as competition and trade laws to improve the lives of these people. This is not only the reality of Rio de Janeiro, that's the reality of most cities in Latin America, any of the developing world as a whole. That's what I'm going to talk [about] today. I will think I will just like to talk about how the new nationalism plays a role in, favor or against it.

As many other countries, Brazil is also undergoing a new surge of nationalism. However, this has not been fueled by the usual suspects, such as the rise of immigration or by the economic crisis, both of which we are experiencing but don't seem to play a relevant goal now.

What is fueling our new nationalism is the fight against corruption. Starting with the so called carwash investigation in 2014, which has been dubbed by external observers as the biggest corruption scandal ever. The Brazilian federal police, public prosecutors and judge have been investigating several corruption schemes, which essentially involved the Brazilian companies and Brazilian competitions, including our current president and many of our national champions.

As a result, we do have a new kind of nationalism here in Brazil. For the first time ever, Brazilians are proud of their institutions and wary of any major Brazilian corporation which attains rapid success. Because Brazil is such an important country in Latin America, this momentum is spreading to other countries in Latin America, in particular in Colombia and Peru.

The consequences for our competition policy are twofold. First, anti-corruption investigations are spreading over to antitrust ones. The result is the opening of many investigations linked to local conspiracies, which otherwise would be undetected. In particular in the healthcare sector which is a key sector for everybody. Second, the antitrust authorities are taking a harder stance, in particular cases involving Brazilian companies with an impressive number of mergers being blocked and more severe remedies being posed.

The result is, of course, the strength of the Brazilian antitrust authority and of Latin America antitrust enforcement as a whole. However, because of the historical moment we're living in, we're also more vulnerable to external forces such as large international mergers or trade policies that harm our consumers and our companies as we're simply not dedicating our limited resources to these now.

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What is the solution to this problem? I don't have an answer. International convergence of antitrust policy and trade policy seems like a good solution to this problem, but it's also unclear if we, and I'm referring to the developing countries here, had the resources to apply such policies to the extent it is required for them to have a lasting effect, since we like so many other basic things.

Just to give you an example, I recently become aware that the budget of our antitrust authority is less than $7 million, which is less than the budget of the Ecuadorian antitrust authority, a much smaller economy, and not to mention, of course, the US authorities or the European Commission. At the same time, even though we're vulnerable to these forces, we cannot stop the fight against corruption.

Taking all things into consideration and the moment we're living in, I would say I'd like to finish by saying that, at least what we're living in Brazil and in Latin America is a very positive moment. We have stronger institutions. We are finally living by the rule of law. The fight against corruption and the fight against cartels are key factors to stimulate a fair competition and economic growth and development. As also recognized by the 17 UN sustainable development goals.

In my opinion, the new nationalist in Brazil comes from a feeling that the country is finally steering at the right direction. That's it. Thank you so much.

Eleanor:

Thank you. Thank you very much. Thanks for all of your very interesting provocative remarks. We, as a panel, want to take a few minutes for discussion among us, and it's going to be shorter than we thought. What I want to do for our short panel discussion before we turn to you, the audience, I want to mention a couple of themes and have you react to them.

One theme, of course, has been "Trade is on the table." I mean that if we're in the competition field, it is not even possible to do our work without understanding the trade interface. Another thing is that, "Industrial policy is on the table," and has been elevated in its importance through this interplay of globalization and nationalization. Then thirdly, I want to refer to two particular comments that were made, and ask you to react if you wish, the panel, if you wish.

Power has come up a lot. An economic power of which might also be more, it might translate and flow into political power. Power is a big issue, and is especially a big issue in developing countries when developed countries do not see the creation of power, and impact is on developing countries. This was one of Tembi's themes.

Second is a theme from Ioannis, a quote from Ioannis to say "Antitrust to promote efficiency has collapsed. The consensus of antitrust to promote efficiency."

[laughter]

I would take that to be Ioannis to say and a consensus to promote only efficiency has collapsed, and that social dimension is front and center to do something about it.

Then one other theme through the whole panel is what is the role of antitrust to do about any of these themes beyond our normal, traditional antitrust. Then you can take that in two parts, one antitrust law itself, and one antitrust policy.

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Let's start with the, the Tembi theme, which is power. That power is being created. It's not even being caught. It's not even being looked at by developed countries, but it's impacting developing countries. Comments from the panel on that proposition of Tembi.

Do you agree with it? If you disagree, speak up because we're trying to see where the tensions are. Is there something not being caught? It might be big mergers. It might be big mergers that maybe even are bad for the whole world, and we're letting them go up by because we have silent thinking.

Who would like to react to that, anyone? If that wasn't your big issue, I'd actually like you to just speak to your big issue. I'm going to give you the chance. If you wanted to respond to this other big issue that I put on the table which is consensus of antitrust to promote only efficiency is collapsing like say or is having-- We're having second thoughts about it. Frédéric.

Frédéric:

As a matter of fact, I think that outside of the lawyers and the economist community, it is quite obvious that very few people believe that competition is justified by the desire to maximize consumer surplus. It's abstract, partial, and doesn't seem to work in any case. It's clear that there is a view that the lawyers and economist have hijacked the field and narrowed it to this particular thing, but which has led to a loss of political value, political understanding of what it is.

What I've heard here, no politician is taken by the idea that, yes, let's develop, protect consumer surplus outside maybe of the United States. I don't want to talk for the United States. Certainly, in Europe, it would be very hard to find anybody interested in this.

I think there are three things which have been said around the table which were important, that the first one is that well, one can try to help fix it by making at least this pure goal more acceptable by alleviating some of the cost that it can entail, which I was arguing about to try to help the reallocation of the mobility, and therefore to decrease the cost of moving towards more competition.

There's a second theme which has been developed, which is more complicated, which is in fact that this instrument is strategically used by some not in fact to protect the consumer surplus, but to advance their national interest.

There's a third dimension of view, which is the fact that we should enlarge the goals of antitrust rather than trying to fix it by including into the goals of antitrust various types of distributive goals. That's what we've heard among others from Brazil and because-- but also from Tembi.

It seems to me that there is, of course, a very strong reaction of the antitrust community against the last two possibilities. One of them is that it's very hard to justify the acquisition of strategic use of competition. They float around. We've heard some figures from Tembi. They are opposite figures that one can use. I'm not sure it's very-- it's easy to conclude that there's been strategic use of competition just by looking at figures. With the much of the figures are going to tell us to give us the answer.

There is a very strong reaction against the traditional community towards enlarging the goals. Going back to what you said was the original goal of the antitrust: much more social, much more redistributive, much more--

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That leads us into a difficult spot possibly trying to improve the reallocation mechanism to try to decrease the tension, and the position to competition law and policy. Whatever the answer is, I think that some answer has to be found and that the autism on this issue is not going to solve the problem. We have to take a stand one way or the other.

Eleanor:

Great.

Ioannis:

If I may clarify a little bit what I said.

[laughter]

My main concern was that I think that efficiency, the way actually we have defined it so far was very much based on the classical price theory concept of the effect on prices. I think that this has collapsed. Why actually I say that because even this morning would be a discussion by the Department of Justice, it sounds to me too Austrian in a way that everything is about entrepreneurship, everything is about innovation.

Those, I have read Austrians, the last ones have been at NYU actually for a long time, [unintelligible 01:09:02] et cetera. The idea was that it stayed towards equilibrium through this kind of discussion.

I think it was assumed that monopolistic profits are there and will disappear in the future because some great innovation will come in, a new circle of innovation. Obviously, this is a very different type of understanding that the classic NPT understanding of economic efficiency that we had. I think it's quite interesting that we see competition theories moving more and more towards the analysis of innovation.

If you look to the recent Dow/DuPont merger case of the EU, well those that are able to read 900 pages of the merger, a big part of that was about innovation effects. There we have a major disagreement actually. We don't really know very well what is the optimal structure, market structure for innovation. It's kind of a long debate.

From that perspective, I think that it collapsed. As well as obviously from the other side, for those that are somehow focusing on the fact that, well the market economy now has not moved that much based on price, but we're talking about-- We have access to free search, and obviously we pay for with our data. To certainly agree, we're talking more about quality. These type of effects. I think there, the classic tools that we have are not adequate.

The second thing I would say very, very briefly is that, I think there's a major issue concerning-- I think the debate about goals is the wrong debate because I think the first thing is to discuss about institutions. Depending on the institutions that you have, you can frame according to the goals.

Let me give you an example. Obviously, in the United States, the distributional effects of concentration may be taken into account by the tax system or transfers that are done through the various states, through the federal budget or different forms of transfers.

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Now in the European Union, that is that is not possible. You cannot really arrive to the same effect. We don't really have a European tax system. We don't really have transfers from member states where most of the companies that have market power basically, and exercise it throughout their value chains across the union are based to actually member states where most of the consumers are but not really.

There is actually an issue there in terms of your institutions. In the European Union, I remind as well, the Commission doesn't only do competition. Not the competition authority is actually a government. They do actually a number of things, and concerning-- There's DG Connect, there's DG Competition, and obviously all these elements are taken into account.

I think it's very important to think about institutions certainly the fact that most of the institutions that implement antitrust in the US are the courts. I think frame the objectives of antitrust in the US, it might be different story elsewhere.

Eleanor:

Thank you. Tembi, did you want to add to that? Then we're going to ask you if you have questions so be prepared. Go ahead Tembi.

Tembinkosi:

Just quickly to respond on one point. There is no doubt in my mind that antitrust is used for strategic reasons. By the way, my argument is not limited to statistics, Fred. The DOJ would be the first to admit that the biggest number of prosecutions against cartels are against foreign firms. There is no debate about that statistics. It comes from them as well.

Actually, I think a classic demonstration of this is the role of a committee that's called US Committee on Foreign Investment. This is the committee that blocks mergers on national security grounds. A lot of Chinese firms who have tried to enter the US market have been blocked by this Committee. What's worrying is that a lot of governments including European governments are finding the role of this Committee to be an interesting example to emulate in their own countries.

Frédéric:

I just want to say one thing. I completely agree with what Tembi said that this is what the statistics tells us. Where I disagree is what do I do with these statistics? What does it mean?

For example, in Europe a lot of their views of dominant case have to do with American firms in the high technology sector. Is it because we go against them because we are trying to develop all in the high technology sector? Or is it just because they are powerful and the other one were possibly in the position of abusing?

When you say that in the US most of the prosecution are against foreign firms, is that because the foreign firms respect the competition less than a US firm because US firm are afraid of the criminal sanctions in the US? That's a possibility. The statistic doesn't tell me anything. That's what I am concerned with.

Eleanor:

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Yes. We're all against discrimination -

[laughter] but it's not clear how it occurs, discrimination. You are-- I move to [unintelligible 01:14:27]

Audience Member 1:

I'll do it without a mic, please. You had two questions. First in terms of the collapse of the consumer welfare model, somewhere outside the US perhaps. Certainly, in the US, the buck stops with the Supreme Court and Chicago school hangover, as you can see it has been here for decades. Would you recognize as a panel argue that in the US, it probably would require some form of change in legislation to [unintelligible 01:14:57] on consumer welfare model that's now entrenched in Trump.

Second question, it is on the question of power. There was not much discussion about innovation and what power comes from innovation itself. In the US, that's embraced. In truth though, outside the US, it's perhaps not. Does the panel see that as just a continued area of divergence?

Eleanor:

Okay. Thank you. Make a note of that. We could probably take only one more question. Why don't you ask your question? Then I'll have the panelists answer whichever part of the questions you want. Yes.

Audience Member 2:

Thank you. Listening to the concerns that were voiced in the panel just now, I was wondering whether it was time to perhaps dust off one of the theories which has been slightly disregarded over the last couple of decades, which is ordoliberalism. Which may provide some answers to some of the issues that we're facing with undue economic power which may threaten to some extent, not only the economy, but also the political system and democracy as such according to a theory. Very happy to hear some of your views about that. Thank you.

Eleanor:

Great. Thank you very much. Panel members, we have only five more minutes for the program, our panel. Therefore, I think the way to use your closing minutes is to address the two questions or whatever else you choose.

[laughter]

Two on power. They're very different. Power and one on consumer welfare. Which one of you would like to go first? All right. I'm going to start with Tembi.

Tembinkosi:

[laughs]

Eleanor:

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I'm going to go down the line.

Tembinkosi:

Okay. The first thing is that there is a, I think there is a worrying sort of national perspective to antitrust. This is a challenge to international organizations. Whether we look at this from a merger's point of view, from an enforcement point of view, I think we are becoming more and more nationalistic.

This is not caused by us as antitrust practitioners. It is the global atmosphere. There's general rejection of globalization, both from the left and the right. I think we are finding ourselves in this situation where we are under more scrutiny. The big question is what becomes the role of antitrust in this environment.

I think the case we're making is antitrust can respond better to the shortcomings of globalization by protecting the most vulnerable in society through classic antitrust and non-classic antitrust tools. How you do it as a jurisdiction is going to be different from one another. I think we should not be dismissive of the concerns people have about globalization and the real impact on lives.

Eleanor:

Thank you. Frédéric.

Frédéric:

James, I would say that you're probably right, but this was not really what we were what we were discussing.

[laughter]

What I think we were discussing was the political acceptability of antitrust in the world in general, not so much in the US. If I quote literally President Trump, Amazon, it is controlling too much power. It has an antitrust problem. This is a public statement. AT&T Time Warner, too much concentration at the hand of too few. When you read a Democratic better deal the proposal, you have words about too much power. Now, I'm not taking sides. I'm saying that--

[crosstalk]

Audience Member 3:

-is pretty important.

Frédéric:

Yes. No. No. No. I'm just saying that politically, there seems to be a difficulty to accept antitrust as you and me understand it, and all of us around here understand it. On the question that was raised about ordoliberalism, the answer will come in a month. It will come in a month because at the OECD Competition Committee, we're organizing a panel in the global front, so that's also with the non-

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members on democracy and competition.

There are various origins of origins of the movement towards more competition, including ordoliberalism will be discussed. Whether it's time to dust it off, I don't know, but we'll see what comes out of that discussion. It will be a public result on the side of the OECD.

Eleanor:

Ioannis.

Ioannis:

Yes. Obviously, I was referring to the political acceptability aspect. Also I think, if we dig deep a little bit further, I think the consumer surplus paradigm is over even in the US. This is the way I read the Trinko case. In the sense that, to the extent that there is a circle of innovation in the future, in the long term, and might somehow create competition through a new technology.

The fact that there is some form of consumer surplus limitation now, it shouldn't be necessarily a concern. From my perspective, that's a more Austrian perspective. In a way, you might say that you basically are in a post-consumer surplus paradigm to a certain extent in the US.

I think the more we move towards analyzing effects on innovation, and there have been a number of interesting papers written by the Chief Economist of the European Commission, not in his capacity as chief economist but as an academic which raises a number of issues with regards to the effects of mergers on innovation. I think from my perspective, that it takes a very different perspective than the one that is applicable in the United States.

I can see divergence developing with regards to that because there is a major disagreement even between economists about the way to deal with the problem. The question is then, should we develop convergence at the point where we don't really know what's happening? Or should we actually care for experimentation and try to see what works and what doesn't? Maybe develop some form of iterative process where the knowledge that we get where it works might be used in other places as well. I think that's an important question.

Eleanor:

Thank you. Adriana.

Adriana:

Just to answer it. Those two questions, they come to-- The question, I'm picking up a bit on time at this point. What is the goal for antitrust? What should be we looking at? Should we have a convergence worldwide? Would that work? If we applied the US rules to other places, would that work? Should we have other interests in our competition law? I don't think there is a simple answer to that.

One thing that we should consider-- I don't know. At least from a Brazilian or a Latin American perspective, we start including other goals into competition law. There is a very real risk that these other goals will be captured by other interests such as the politicians, the unions, private corporations. Although I think in theory, that will work, and it seems to be working very well in South Africa for

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instance. I don't know if it will necessarily work in Latin America because we're still at a preliminary stage of combating corruption.

The second point is, whether we should have the convergence works for experimentation. I think that's a very interesting question. Because our problems are so different and because our enforcement is so different across the world, if we have convergence, and we've applied the same rules about for instance, innovation, the rules or the models that we have in the US, would the other authorities have the same capacity to apply the same models, the same theories? I think the answer is no.

I think what we should do is try to get a convergence, for instance, a regional convergence and see what type of convergence could we get in a worldwide level that would be adequate to protect everyone's interest. Otherwise, it would be a convergence, but it actually an export of models that work in the US and in Europe to the other countries which are not prepared to get these models.

Eleanor:

Thank you. Susan.

Susan:

Thank you. For the two questions raised by the gentleman, who I didn't get the name. First of all, you have a very respected judicial system, which has shown its efficiency and effect, particularly during the election of your President Trump, and also the following immigration policy that President Trump tried to implement but had bounced back by your judicial system by several judges. I will call it a very classical case study for traditional system to work very well.

Secondly, I do recognize the innovation in powers, economic entity, companies and that should be respected as well. Of course, as an antitrust or competition lawyer, we all know that dominance itself is not a problem itself, but the abuse of it is the problem. This is why we need to analyze particular cases instead of say, "I'm not wrong by just empower myself with my innovation."

This, where we see that in daily life of normal people, we all know that we eventually could go to court for some dispute. Daily life, we need to be abided by the so-called fair play rules, with common sense. This is where the so-called competition policy shall apply in the normal economic activities in merger reviews. Of course, we discussed that political consideration may be taken in the form of industry policy or public interest for merger reviews.

This is also why we need to understand each country's background to form an understanding mechanism, maybe internationally on different forum, so that to reduce the cost of what the burden of business especially when the intent to do a global mergers.

Taking the example of Office Depot and the staple case, where its condition in Europe got denied in the US, but actually cleared result condition in China ahead of time. In China, the office products are very competitive as a market. While in Europe, I personally experienced where I try to print an extra box of 50 cards in Brussels, where the printer asked for €150 for that particular box of 50 cards, where it's going to cost me less than €7 in China, which is less than 50RNB.

That's why I understand why a condition there while in the US, I really don't know the market here. I just don't understand because I represent in that case, and we cleared it in China without condition

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first, number one in the globe.

On the contrary, we see that in Google/Motorola case, in Merck/AC Electronic case, in Microsoft/Nokia case, where China conditioned in all of the three cases, where elsewhere, they just cleared it. You may have to understand China because the understanding shall be mutual, shall be bilateral. You may understand that the different market situation, competition situation, development stage lead to China's decision here.

In Google/Motorola case, it concerns about the open source of Android system. In Motorola-Nokia case, it concern about the SEP and FRAND terms. In Merck/AC Electronic case, it concerns about rent. [unintelligible 01:27:57] rent situation. We have to understand. That's why coming to your point, where we need to work internationally, cooperate internationally through channels or forums, whatever mechanism. Thank you.

Eleanor:

Thank you. Thank you. Frédéric, last comment.

Frédéric:

Just to remind James that this afternoon, there is a panel on innovation and technology.

[laughter]

Eleanor:

All right, a good closing. In our conversations among the panel, we did ask this questions to ourselves, is there a need for some new space to discuss the issues that are not part of traditional antitrust but relate to the trading competition, industrial policies, the power issues that go beyond our usual ones? This I believe as an open question to be thought about. Let's give a hand to our very wonderful panelists and come back in 10 minutes.

[applause]

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Panel 2: Pharmaceuticals: Pricing and Access

Harry First:

Welcome to our second panel Pharmaceuticals: Pricing and Access. I'm actually going to sit down. For a discussion in this panel, I'd like just try to pick up on some of the themes from what's already going on this morning. We've been talking about general and high themes about the goals of antitrust, and do we have to enlarge antitrust, and those issues. This panel is an applied panel. We're going to focus on a specific problem, but maybe some of the same issues that we've been talking about generally are also going to be the subject of our discussion on this panel.

In a sense, I want to go back to what Makan Delrahim referenced which was a speech that Robert Jackson gave in 1937, defending maybe traditional antitrust. When you think about that in the context of the times, this was a time of intense debate in the Roosevelt administration between collectivists and those who thought that markets could never work, and that industry control was the best way, along with government intervention, and those who still believed in markets and competition. There was intense debate in the Roosevelt administration, but that was followed by Franklin Roosevelt giving a State of the Union speech supporting antitrust, and it was followed by Thurman Arnold in probably the most vigorous antitrust enforcement we've seen, historically.

Perhaps, Mr. Delrahim will be in the Thurman Arnold model, and we're going to see, maybe a-- I want to say revival of antitrust, but ramping up of enforcement. It'd be interesting to see whether this is one area that the US will turn its attention to. As there were political pressures of the day on antitrust enforcement on Jackson, and then on Thurman Arnold, the question we're going to think about here, I think is: what are the political pressures now? We mentioned in the discussion so far some issues about competitive process to markets' work. How does that impact in the area of pharmaceutical pricing? Concerning about distributional impacts.

A lot of discussion about those who have been adversely affected by global competition. The distributional impacts may be apparent here too. People who need but cannot afford, or countries that need but cannot afford the high cost of pharmaceutical drugs, is there something that Antitrust should be worried about? And politicization. Is this an area where nationalism is important? Is this a case where everyone in the world hates the Swiss? I use that because Novartis is a Swiss company. That was a joke, so I want to make sure you got that.

[laughter]

Or is it a different kind of political pressure? Maybe not politicization, but still politics. I think we're going to have some of that discussion as well on our panel.

I expect us to cover three general areas, and I'll ask you to listen to make sure that the panelists actually do get there in one way or the other. Our first goal is going to be descriptive, what's happening in this area? We had a similar, not quite identical panel for those of you who were there, who were at this conference last year. We had a panel on pricing, excessive pricing and collusion; it was more general. One of the things that has been quite interesting in that year has been the extent to which what was viewed very skeptically by last year's panel, and may still be this year, has actually shown up as actual antitrust enforcement in quite a few jurisdictions.

We're going to have some description of that so that all of you get to know what our expert panel 34 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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knows intimately, which is what's going on in this area. The second is of course antitrust policy, does it make sense to use antitrust to deal with excessive or high prices of pharmaceutical drugs. The third are the institutional issues, which we've also been discussing, are the institutions of antitrust up to this job, are they the appropriate ones? Should someone else do it? I always wonder why, in an audience of antitrust people, we would say, "Oh, no. Let's let someone else do it." We don't want to do it.

That's part of our discussion. As always, we have fabulous panelists, because all their panels are fabulous, but these are particularly great. One of the things that I think is going to be good for us is that we have some different viewpoints. In order in which they are going to present their initial four- five minutes of the critical issues, Felipe Irarrázabal, who is the National Economic Prosecutor of the Fiscalía Nacional Económica. How is that for my speak Chilean? No, wait a minute, it's Spanish, okay.

From Chile, and the title of national economic prosecutor sounds that he's going to put all of us in jail, but what this is, is of course that he is the head of Chilean Competition Authority appointed by the former president in 2010, and reappointed by the current president for an additional period, either doing something right or very wrong, depending on how you view the politics of that. He has a law degree from the University of Chile, and an LL.M from Yale. He practiced law in Santiago with a private firm, worked for Cleary Gottlieb, and also teaches graduate programs in several Chilean universities.

Our second speaker is going to be Paul Csiszar, who originally earned his first law degree in Budapest, and then studied international comparative law and then received a JD from Loyola University Law School in Los Angeles, and then practiced corporate securities mergers and acquisitions in the US, then returned to Central Europe working for Squire Sanders from 1997 to 2003, and now is with DG COMP.

His title is Director of, I love the title, Basic Industries, Manufacturing and Agriculture. There's nothing much that's outside his purview, including working on the Dow/DuPont merger. If you want to know what that case is about, and you don't want to read the 900 pages that Iannos referred to, because he didn't want to—Iannos didn't really want to read it either, he told me last night. You can come and ask Paul.

Our third speaker, Susan Jones. I apologize for the Novartis reference, global antitrust legal head at Novartis, based in Basel Switzerland, and just flew in from São Paulo this morning. This is a global business, I think.

[laughter]

Before joining Novartis, worked at the Basel's office of Allen & Overy, where she was a senior associate on a competition law team. She was a senior investigator in the enforcement branch at the Australian Competition and Consumer Commission, the ACCC, and is an Australian qualified lawyer, which you will know instantly once she starts speaking, because she speaks Australian, and she has an LL.M degree from Queensland University of Technology. As you can see, we have two government people, someone from industries and in-house counsel.

Fourth speaker, James Killick, who is a partner at White & Case in Brussels. He has led White & Case's global pharmaceuticals and healthcare practice from 2010 to 2014. Regularly advises leading pharmaceutical, multinationals and the major US and EU industry pharmaceutical associations on EU

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and national law affecting pharmaceutical sector, and is heavily involved in this area. BA and LLM from Cambridge and a degree from the University of Brussels. People steeped in this industry and from different perspectives. I'm going to turn it over first to Felipe, to give us roughly five minute introduction to the major issues and Chile's view point on them.

Felipe Irarrázabal Philippi:

Thank you, Harry, and thank you for the invitation. It's a pleasure to be here. I think I'm the only representative of the developing world. I will try to just give you a main flavor of how we should be reacting on these issues or topics such as excessive pricing. We do not have a lot of experiences or cases on that, but I would like to try to explain why we took that decision, and also I would like to show you what we have been doing in terms of improving competition on the health sector. Chile is a small market, it's 17 million, but the per Capita GDP is the highest in Latin America, is around 23,000.

The market economy is very broad. It has a lot of room space. From the antitrust institutional framework, we do have, as Harry mentioned, the prosecutor office, which I'm the head of the office. Also we have an antitrust court which is a specialized court. Just composed by three attorneys and two economists. After the judgment, we have to go directly to our Supreme Court. That's the whole silhouette. We don't have any ordinary judge involved in the process. We have a new law in 2016, which increase a lot the fines. I'm going to talk about that on the next panel. Also we changed from a voluntary merger system to a mandatory merger system.

What am I trying to say, is we have a lot of work to do, especially with applying the new law. In terms of the health market, is obviously a priority for us, because we think that it's a sensitive market. No doubt about that. The health market is composed basically of the public sector, which is around 80%. The rest, the 20%, is private insurance. Insurance in Chile does not cover expenses in medicine. Which is something interesting, because the patients, the people have to pay for the expenses. We have only three drugstores or pharmacy chains, with over 90% of the market, highly concentrated. As you can imagine, we have a very powerful doctors' associations.

What we have been doing is basically enforcement. Mainstream enforcement, on what? Basically cartels. We had a cartel in pharmacy chains, where we obtain the maximum amount of defiance. We are now with big rigging laboratories, which is basically Baxter and Sanderson, which are European Union. laboratories for serum. Again, Sanderson and Fresenius from ampules. We have also a very interesting case in 2016 of abuse of dominant position against Pfizer for a patent with the objective of delaying somehow the entry of new competitor for Celecoxib.

That was a tough case because it probably was the first case where we were dealing with IP law. Finally, we settle the case in a very good terms because Pfizer decided to give for free the license of the patent. In order to do that case, we even hire someone from the US, a law professor, Michael Carrier, to help us on date on the interaction between IP laws and antitrust law. With that I'm saying, that those are expensive cases for us. Especially for a small agency, and you have to win the cases. I will go with that in my conclusion. We also have been in this year termination of our promotion venture between Merck and [Saval?] and also this investment of a drug made by Abbot.

In terms of advocacy, we have been putting a lot, a lot of efforts. I think I can prove that. In 2012, we ask a Chilean university for a mark study of private health, which is, I don't know, 200 page document. They focus on vertical integration between the insurance firms and the clinics. In 2013, we did a study on generic drugs, which is a big issue. How to accelerate the process of having generic

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drugs. In 2014, we did a study on purchase bids by the public sector, which is also something that the government was not really buying wisely, in terms that they were not accumulating all their needs by just one entity.

The hospitals were buying by them self, just a hospital. They were not doing at a nice job on that way, so we wrote this study. We have a study on supplementary protection of IP loss and its effect on competition, that was in 2016. On the same year, we have a document which is a 100 page document on the main investigation done by the agency on public sector on health in the last couple of years. We have been pushing hard on sanction on any benefit given by laboratories to doctors. The need to have an open doctor's prescription that allow the patient to buy generic drugs and not the innovative brand. We are pushing harder for a sanction in the case of personnel in the pharmacies that may receive some economic incentive for sending a specific drug.

We are pushing the regulator to enforce the law. That's one of the problems that we see there, is that in some cases, the regulator or even the governmental agency, they are not doing their job. We are also pushing for an authorization for a supermarket and convenience store to sell OTC medicine. We don't have that. If you need an aspirin, you have to go to a pharmacy. You cannot go to a convenience store. So we have a lot of things that we would like to tackle in, some way. We have a lot of job to do specifically on health market. What can we say on excessive pricing? Not that much, but that's why I-

Harry:

You're finished? That's no.

[laughter]

Felipe:

We only have just one case, but it was buyers of a property against a real estate developer that they were also providing the water. They increase the price of the water. It was a pipeline. Basically I was not involved on that case. Look at the results, we have a judgment three to two. Three, they said that maybe you can have an excessive pricing case, but then that was not the specific case, but you need them, the firm has to have a very high market power. The power does not arise from investment or innovation. The price is significantly above certain reasonable benchmarks, without a specifying which are the benchmarks.

Two of the judges said, no way, we don't have excessive pricing in our legislation. The Supreme Court upheld the judgment. Then we have two papers, which is interesting, one written by the former president of the antitrust court, basically saying antitrust authorities does not have authority on price, because they are not price regulators.

Now we have two new-- We had my new paper written by two currently judges, which the title list is the following: "Excessive pricing towards a workable and objective rule". Basically, they said that you need to fulfill three requirements. First, super dominance, and they said it's over 75%, and need of a benchmark and no possible justification such as innovation and embracing investment. I will finish with this. What would be my advice being for almost eight years as the head of the agency in Chile, that prioritization is a must if you're a small and young agency.

You have to focus on clear cut cases on infringement, especially cartels and mergers. There's a lot of

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room for improvement on that. You have to win the cases. If you lose the cases, it will be very difficult to start a new case again for the same kind of infringement. If you win the case, then you have to be prepared to cope with the new expectation or any new cases similar to ones that we have already won. Be aware of expensive and unpredictable litigation where the law is not that clear. One. Two, the dominance requirements is very high. It's always a nightmare and also you need to put a lot of efforts on that.

The economic argument is so sophisticated, which is also something that you have to be reminded, especially if you have to convince the judges from the Supreme Court at the end of the process. If they are many possible defenses. Watch areas where there is no conversion within the US and Europe. This is a very wise advice, because if there are areas where there is a fight between those two main jurisdiction, then you have to put a lot of effort just to make sure that you're going to win the case. Push on the advocacy side, sending signals to a stakeholder, especially to a government that they have to change. Thank you.

Paul Csiszar:

Okay. Thank you very much. First of all, it's a pleasure to be here. Thank you very much for the invitation, organizers, Eleanor, Harry. This is a lovely law school I never attended, but my US mentor, he was a graduate from this law school. I learned two things from him, which basically put me through private practice relatively successfully. One is that when you write a letter or an email nowadays, you never really write that email to the addressee, but you write it to keep in mind that one day a judge will read that piece of document--

[laughter]

--down the line in many many, months. He ingrained that into me so well that even as of today, when I write an email to anybody, I think of that, that it would be in front of the ECJ one day.

The second one is a little bit, I don't know, maybe it's politically incorrect to say or whatever, but I think it's very useful for if you want to become, many young people in the room, to become a very, very good lawyer. There's a principle which there's no such thing as a little pregnant. Politicians and diplomats can fudge, but good lawyers cannot. Sooner or later, this thing will catch up with you. You have to be very bright. You have to think very, very, very clearly.

Now, that was my-- for the law school. It's a real pleasure to be here. I have to make two disclaimers. One is procedural, I'm speaking in my personal capacity. Please no attribution to the European Commission or to the institution. The second, and a little bit more substantive one, as this panel will develop, you might find that I speak enthusiastically about excessive price cases. You may know that the EC, just the European Commission, just DG COMP just open the case in I think May in the Aspen case. All these things should be put in the right context.

I strongly believe that excessive price cases should be the exception, and modern antitrust should continue to focus on exclusionary behavior. I've, of course, when it comes to price and price effects. Exploitative cases should be handled with care and caution. This is the context which I want want you to go away with. I don't think that there is a substantial drift in our thinking, in any areas actually with the US since GE/Honeywell. Maybe an excessive price cases, there is a difference because our basic statue to Article 102 of our treaty expressly says that unfair prices can be an abuse of dominance.

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You don't have that. In the US, should somebody want to create that type of violation, they would take it up to the Supreme Court probably or something similar or new legislation. In Europe, we have that. Now, if you look at the history of the cases, the last 20 years, there were three cases by the European Commission maximum. Again, the bulk of our enforcement is concentrating on exclusionary abuses as opposed to exploitative ones. Now, to make my points very clearly, I would like to just ask you to think of a hypothetical case. This name, Shkreli, may mean something to you because most of you are US based.

Martin Shkreli, he's the bat noir of the pharmaceutical industry. If you don't know anything about him, Google his name and go to images. There is a famous image on prime television when the tape said something, lifesaving drug price increased by 5,000% from $13 to $750. And there is this young guy from Wall Street 28 with a net worth of 70 million with some facial expression. So what? That's an interesting thing. Taking those facts, because that can happen in Europe, that can happen in Chile, that can happen anywhere else that you look at a pricing piece of a drug where you find that nobody else provides that drug.

More importantly, you have a vertical line of demand curve, because if people want to live, they don't shop around. There's only one drug, so they better cough up. Now, I have to say about the hypothetical that this drug got patented in 1952, I think. The patent expired in the '60s. This was a proprietary drug but obviously not patent protected. For whatever reason, nobody asked manufacturer this. The gentleman saw a wonderful business opportunity to acquire the drug. From thereon, given this vertical demand curve, just realized that: Hey, a 10,000 or 20,000 patients in the country here in the US. We can just raise the price."

Why I'm making a little bit theatrical about this case? Because you have to put these things in the right context, that you don't have to be an activist, or suggest that antitrust should bring in other policy considerations. You simply, you look at this case and you say it shouldn't happen in a civilized country. There shouldn't be families who don't buy meat for their children to afford this lifesaving pill where the patent expired 50 years ago. It's as simple as that. There is a problem. If you recognize that there is a problem, then you cannot avoid that something should be done. The real interesting discussion is not whether something should be done, but the real interesting discussion, what should be done, and peeling off the onion a little bit here.

More interestingly, should it be antitrust which deals with the problem? You will hear from the lawyers that probably antitrust is not the most ideal tool to deal with that. I do agree with them, I have to say upfront. It is a blunt instrument. We know that whether we call it price regulation or not, going directly for this type of problem and saying somewhere this shall not be the right price, figure out something less, is, again, it doesn't necessarily ideal for modern antitrust.

However, and this is my second point, what else can be done and what do you do as an agency when the regulation somewhere fails or there's a market failure? Because clearly in this case, since it wasn't a proprietary drug, there was a market failure where you combined with some regulatory failure that nobody rushed in and said, "Okay, you know what? I'm going to sell it for $500, not 730." Then he lowers to $450 and sooner or later, they're going to go back. That famous invisible hand, which we all trust so much, somehow got caught in the pocket. In this case, the invisible hand wasn't there to adjust the market.

That maybe the regulators can do something. Now in Europe, prices are regulated unlike in the US. If you want to come up with the drug in most instances, it's not freely price yet because the

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reimbursement scheme directly or indirectly provides a price regulation. However, for one reason or the other, the regulators are not doing their job in this case. I don't know why. But somehow, they're in one of the cases and James maybe got to mention it, the agency said we were threatened, that this life saving drug will be withdrawn from the market. I had no choice because the agency, the price regulator indirectly is the patient who has no choice. If you know you have 20,000 patients for this one single drug, you go alone, if you get the lightest threat or withdraw, and so forth. You go down the list first. You trust the market. By the way, the FDA just during the summer published a list of drugs where the original patent expired, but there is only one supplier of the drug. Kind of publicizing "come on, let's have some entry". That should be the first line of defense, the foster competition. I fully agree.

But somehow in cases, again, the invisible hand gets stuck in the pocket. It doesn't work. Then you look at the regulator, and the regulator is not acting well for one reason or the other. Then what do you do when you have a law which the treaty exists in Europe, which says abuse of dominant position could be, for example, unfair pricing? From that, the whole thing follows that it's reasonable to consider that in exceptional cases. You go ahead and you consider whether or not to do a case, a specific case in exceptional circumstances.

Now, if you go back to my hypothetical, the exceptional case, a 5,000% price increase when for 30 years the price was somewhere two, three dollars actually, and now it's $750, may cut it as an exceptional case. There are many good arguments why nevertheless, the agency shouldn't do an excessive price case. I let the panelists talk about it and then maybe I'll get a chance to have a rebuttal to say why nevertheless, though, notwithstanding those good arguments, one should consider exceptionally doing a case. Thank you.

Harry:

Okay. Now, we'll pass to the good arguments.

[laughter]

Susan.

Susan Jones:

Okay. I'm also speaking in my personal capacity, obviously though it is informed by the fact that I am in an in-house counsel in a pharma company. I can't deny that. Before getting into discussing my thoughts about excessive pricing cases, I thought I'd provide a little bit of context about what this all means in practice for an in-house counsel because that's my day to day. Obviously, as an in-house counsel I hope for predictability in competition enforcement. But I am accustomed to advising in a context where it's often far from obvious where the line between a permitted and prohibited practice laws. Therefore, I try to stay updated obviously on legal developments across jurisdictions because I'm in a global role. I try to think on a longer term basis essentially. Looking for trends across jurisdictions and industries and trying to predict where enforcement's going and to mitigate the risks in advance.

Now, to advise in a way you cannot point to precedent or clear precedent, at least, you really do need the trust of your business. The clients and also obviously senior management's buy in. Generally, certain level of predictability and transparency, at least in the approach to enforcement is important, at least for what I do. Why does this matter? You're probably thinking, why do I care? I think it's often not fully appreciated that in-house counsel play a key role in compliance.

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We're essentially the first line of compliance. I would hope that that's ultimately what competition authorities want, is for companies to comply before there's a problem. That's why I think that it's where you've got new developing theories where perhaps it's not so clear where the line draws is drawn. It can create some difficulties. Another thing which is really interesting now is there's, what I would say is now global community essentially of competition law and authorities, and this is all supported by organizations like the OECD and the ICN. Through this international cooperation and coordination and conversation, where you've got new court decisions, new theories of harms, new enforcement trends, different priorities.

These are now being disseminated and influencing competition in law enforcement around the world. Even though that competition laws, even if they're similar, that they might be implemented differently depending on the legal, political, economic system over jurisdictional, the design of the enforcement authority. You do get these theories kind of go sometimes passing very quickly around the world and you see these trends kind of happening rather fast. There's this article I read recently by Ariel Ezrachi called "Sponge", which I found really interesting and thought provoking.

Particularly in this respect because the article is discussing the dynamic nature of competition law. Its ability to absorb a wide range of values and considerations beyond competition policy. While still retaining its conceptual coal, it also refers to where you have diverging views in the adequate level of intervention. The goals of competition policy or disagreements over the ability of markets to self- correct. This article, so questions whether the fluid nature of competition law opens the door for opportunism and undermines the predictability of competition analysis. I do think it's important, as an in-house lawyer, that you know what to expect when you're advising clients.

Also, personally that the authority starts with seeking to truly understand the facts and the context and then sees whether a theory applies versus the other way round. Starting with a matter with a goal or a theory and then looking for the facts to support that theory. It does worry me if there is ever a matter of starting with a preconceived notion. I won't get into the cases yet. We're going to do that subsequently. I just wanted to set the scene a little bit with the things that I'm grappling with on a day to day basis.

Harry:

Okay. James.

James Killick:

Thanks. I think my starting point, especially if you're a developing country authority, is that if you want to ensure patient access to medicines, competition law is not the route you should take. It's not the first route, not the secondary. There are so many better ways to ensure access to medicines and competition law. If the government is the payer, which is the European model, the first thing is if you were just saying, make sure the negotiators are properly trained, they know what they're doing, they're using all the clever techniques they can.

Your report is a perfect example of how a competition authority can help that by doing the advocacy of making sure they're doing what they need to do to get the best prices lumping or demand together, proper bargaining. The next thing you can do as a government is pricing your reimbursement regulation. We have that all around Europe. The price of medicines are more or less everywhere

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regulated. That's a process you can take into account. You can ask for price cuts, price freezes.

That gives the government a lot more leverage and authority. The other thing is for new medicines, what you can do is a health technology assessment, which we do again a lot in Europe. Well, how much is this treatment costing? What does it deliver in terms of patient benefits? You fail, you're too expensive. That actually gives us as a country a very good leverage to say, I forget the price down here. You don't meet the test. There's lots of leverage you can use, whether it be new medicines, health technology assessment, negotiation or old fashioned generic medicines.

I think the competition authority's main role is really making sure the government is doing things as smartly as they can in the advocacy role. I think that's where you can add value without necessarily spending a huge amount of resources but you can really deliver a good service. On the other hand, if you enforce successive pricing by competition authority, you'll run into other problems. Competition authority can maybe do one, maybe two, such cases a year, so by definition, you're having to pick maybe three, I don't know. Compared to the number of medicines out there, you're having to focus on a rather narrow subset, which means some people will get away with it just because you have to prioritize.

Competition takes a long time compared to if you have a very active price regulator who picks up the phone and says, "I've just seen the price you proposed, you must be joking, send me a new one." Now, that's a five minute call from somebody who does this all the time. If you get the same call from the competition authority, you call your lawyers and it's a much longer process even if you settle it. I think there's a good reason to have a good regulator, a good negotiator who's there rubbing the competition authority. You missed the soft par approach if it's all done by a competition authority.

I think also from a-- If you want from a theoretical perspective, having competition law as the sweeper, which I mean, and I need to clarify, I mean this in the European football. Sorry, soccer, since, as in Beckinder standing behind the defense. When the attacker gets through, he neatly takes the ball off and runs upfield, not the kind of man with the broom. Competition law as the sweeper, we shouldn't be too-- I think it's competition laws, we shouldn't be too confident about ourselves that we're always the right people to clean up everybody else's-- Things that aren't working.

I think in special kind of cases, there is room for them, but they should really be exceptional. I think I've agreed with Paul and Felipe up to now, but I'm going to disagree with Paul now. If you'll look at what's happening in Europe today, if you look at where the enforcement activity for competition law in the pharma sector are, the new case are renounced, they all seem to be excessive pricing. It doesn't seemed to be exceptional anymore, it seems to be the new trend, and I think that's a mistake. I think, well, there is room for excessive pricing cases, but we need to be careful not to make it too broad. I think one of the problems is as a competition authority, you're setting a price on supplies to everybody.

It's not-- You do a case for Mr. Schreli and you catch people who are in a very different situation. That's the difficulty, you set across the board principles, can you limit it to pharma? Does all supply to other sectors? It's much more complicated. It's much easier to have the price regulator picking up the phone or the government negotiator picking up the phone and said, "Enough, stop this." I think that's my underlying principle. It shouldn't be too common, excessive pricing cases, and that's what we've seen in Europe. There's been two, three cases over the last 30, 40 years in Europe, and in the last year it's been five, six, seven, it's an odd change. I think it should stay exceptional.

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Harry:

Okay. I want to thank everyone for your initial interventions and points. So, as I'm sitting here thinking about this, particularly James, after your discussion, it strikes me we have something of a paradox going on. I want to hear a little more about the current cases which you've mentioned. In the US, which has no price regulator to lift up the phone and say, "Oh my God." Well, unless he tweets it.

[laughter]

We don't have that in the US. We abjure cases, we don't bring the cases, so we have neither a price regulator nor antitrust on the beat. Although, I will say, the states actually are now starting to get worried about this, including passing laws against price coaching in generic drugs, and there's a Marilyn Roche now under challenged in federal district court. Something is going on even in the United States. But paradoxically in Europe, where I don't know the full scope of your PN pharmaceutical drug regulation, but apparently someone can pick up the phone. I don't know people pick up phones even anymore, but they do that. There we see this outpouring, as you point out, of cases.

I'd like to hear a little bit about what those cases are and I do want to remind people is, not just Europe, this is about what developing countries can do. South Africa now has an investigation of free drugs on underway. China just came down with a recent case involving pharmaceutical drug pricing of two Chinese pharmaceutical companies, not non-pharma companies, non-Chinese companies. Something is going on in the world, in a world where apparently there's a lot more regulation that we have in the US to pricing. We're a little upside down on this, a little paradoxical. I'd like to hear and to give all the audience a sense of what the cases that are being brought are about. I don't know who wants to lead off probably with the Pfizer group. What's going on in the UK? Susan.

Susan:

Okay, all right.

Harry:

As far as the UK or Europe?

Susan:

Pfizer was in Italy, but that was the triggering, I think, the case.

Harry:

Aspen?

Harry:

Yes. Sorry, no, you brought Aspen, sorry. See, we have too many. There's too many jurisdictions here.

Susan:

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No, sorry.

Harry:

We started out with Italy, then we have Europe, then we have the UK. Even the Brits are going after it, as someone said in the earlier panel.

James:

Not Europe anymore, yes.

[laughter]

Harry:

They're not, well, we don't know where they are right now. Susan, go ahead, sorry.

Susan:

Okay. As we've already been discussing, excessive pricing cases have been rare in Europe until recently. Previously, the cases were more focusing on incumbent, former state-owned monopolies, and undertakings instead of these natural monopolies or league of monopolies essentially. I do think that traditionally there has been concern about over enforcement. My sense is this resulted in a reluctance to pursue these type of cases, and that this was perhaps influenced by, as Harry was indicating at the beginning, general belief and free market economies.

If you give the market a chance, it'll correct the problem, particularly, because normally you'd say that high prices would invite competition. If I quite attest, they can signal the entrance where new opportunities lie. The very prospect of high profits is what drives companies to reduce costs and introduce new products and technologies to become market leaders. It's a pretty basic concept in competition law I think. But then, if we look at the origin of competition, essentially in Europe, what is kind of the case, well, sorry, I should say the European court judgement which set the approach that's now being applied essentially. In 1978, you've got the United Brands case where the European court determined that prices is unlawfully excessive where it has no reasonable relation to the economic value of the products supplied, and it laid down this two-part test. Although it did leave open the possibility of using other tests as well, and we're seeing this in the cases now that there is some alternatives being applied essentially.

The first prong of this two-part test is to ask the difference between the cost including a reasonable return and the price excessive, this is cost price analysis. The second is more subjective. Is the excess, unfair, either in itself and they are looking intrinsic, economic value, and analysis compared to competing products. You've got benchmarks whether you look at competing products in the same country or the same product in other countries, and already you're probably thinking this sounds like there are a lot of variations here.

My view is that the United Brands test provide insufficient guidance for this, in practice, the actual assessment of excessive pricing.

If you just think about it, if cost pluses is just the baseline, how far above this does the price have to go

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to become unfair, excessive? How do you determine the fair value of the drug? What is the reasonable return on sales? How do you remedy this, really, without regulating prices in the place of the regulator itself?

Okay, so, if I then turn to 2016, and we've had this series of this excessive pricing cases in Europe that have been focusing on the pharma industries, James has indicated. You've got, obviously the Italian and the UK competition authorities leading the way and Spain is also looking at this obviously, European commission as well has also announced cases.

If we look at this in Italy, the Aspen or is that [laughs] the Aspen case, I think it could be considered like a triggering case essentially for this flow of cases afterwards. On the 29th of September, 2016, it's not that long ago, the Italian Competition Authority fined Aspen, a generic drug maker, over five million Euros for abusively increasing prices for certain oncology treatments. The range of increase was from 300 to 1,500%. The background was that Aspen had purchased several mature oncology products. I emphasized that. These are not brand new innovative launches, these are old mature products from GSK and these patents had expired several decades ago. Then, you know, Aspen started negotiations with the Italian medicines regulator. I'll refer to it as AIFA-- that's the acronym I use-- to obtain a substantial price increase and to align-- the stated purpose was essentially to align the price level across Europe. Aspen also threatened to first remove the treatments from their reimbursement system, and then to withdraw the products from the market. It wasn't just an increase. There were these other things kind of associated with it. The Italian Competition Authority applied the United Brands test and they used two different cost measures when they did this, and they determined that the price increases were excessive and ordered Aspen to decrease the prices.

Then, and this is where it gets interesting, this is where you see how difficult it is to try to remedy this. In March 2017, so March this year, the Italian Competition Authority opened a noncompliance investigation against Aspen for allegedly ignoring its decision and not decreasing its prices. Then, in June 2017 the Administrative Appeals Tribunal, the TAR Lazio in Italy, rejected Aspen's appeal and confirmed the Italian Competition Authority's decision. It's an interesting case. One thing that was quite interesting here was the tension between the Italian price regulator and the Italian Competition Authority.

The way that Italian Competition Authority addressed this in its decision, was to say that because essentially the question whether it's moving into the field of competence of AIFA was to say that AIFA was not a price giver but a purchaser which is interesting. That AIFA was in a weak negotiating position especially in essential life-saving product, and that they were pressured into accepting the price increase by these threats of delisting and withdrawal. It's interesting now that you can see that there is this tension here that they're trying to address. I guess that's introduction for Italy.

James Killick:

Sure. The Pfizer case, it's Pfizer and Flynn and it's quite topical because on Monday, there's going to be a four-week trial. Starts in the UK, where the decision finding Pfizer and Flynn is challenged before the Competition Appeals Tribunals. That kicks off on Monday morning. MLex who is probably here has already sent out a report announcing it and I'm sure there's going to be quite a lot of coverage about this going forward. What are the facts of the case? Again this is a very old drug, itself patent for a number of years. On the case that's one thing that's important to stress. On this case in Europe it's all off-patent drugs, the sort of drugs you'd think in a market there should be competition, they should be cheap, but, for some reason, there is relatively few people in the same market. It's an old product. It's

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called Sodium Phenytoin and it concerns the capsule of this product. The capsule, a kind of squidgy capsule. It's important because the tablets are separate. It's a capsule-less product. Pfizer was selling it at a loss. It's one of these old products, they did a review of it. Flynn came and made an offer to buy it, Pfizer offered to sell the marketing authorization to Flynn, and was going to manufacture for Flynn for a certain period.

The price at which Pfizer and Flynn then-- Pfizer sold it to Flynn and Flynn then sold to the National Health Service, for significantly higher than the price of Pfizer had previously been charging. I think it's about 2,000% higher for the Flynn end price. Interestingly, the way they set this price was they benchmarked it to the cost of the tablets of the same molecule. There's a squidgy capsule and a hard tablet of exactly the same molecule. The National Health Service had for a decade been happily-- for seven or eight years have been happily paying the tablets at this price. Pfizer benchmarks its price for the capsule at 50% of the tablet price roughly, and Flynn was about 75% of the tablet price.

It's exactly the same active ingredient, exactly the same drug. One's a capsule, one's a tablet. They're well below the tablet price which the NHS actually negotiated and brought down seven or eight years previously, but there's still a big price increase. It's an odd scenario. In the meantime, after this a new entrant entered and the pricing, the Department of Health, the purchaser didn't actually pick up the phone. Far less tablets were put on the table, and far less shipped at people, they went to the Competition Authority instead, and that's how the decision started.

There are a few rather interesting features which will be debated in court. The market definition is the narrowest one could possibly imagine. The market definition is the capsule of this drug manufactured by Pfizer. As you can imagine Pfizer is dominant in that market. The second thing is very interesting is that both Pfizer and Flynn, one manufactures it, Pfizer makes the drugs, sells it to Flynn, Flynn sells it to Health Service. They are both accused of excessive pricing in turn. Which again, I've never heard of that before, it doesn't mean it's wrong but it's an unusual fact pattern. They're both collectively accused of excessive pricing.

The benchmark is cost plus 6%, and it's a pure excessive pricing case. It's cost plus 6% is the benchmark. The CMA says, "Costs plus 6% is the benchmark. You're above that, therefore, it's excessive, and you're quite a long way above that, so it's unfair in itself." It's cost-plus is the test that's used. Obviously, it's quite a long way above cost plus 6%, but it's a pure cost-plus test is the way they're judging whether the price is excessive.

If you're criticizing it, that test without looking at the comparable product, it shows how difficult it is for a competition authority to get involved. Because you're saying, "Well, this is the right test, but this product up here, the much more expensive tablet, well, we decided we're not going to pursue them as a competition case because it's not an enforcement priority," which encapsulates the problem, if you're competition authority. By definition, you have to pick which battles you're fighting, and you may, especially when they're almost identical, you've gone against one but not the other. The other thing that's perhaps I'm sure will be criticized next week is the 6% benchmark.

That was taken from the voluntary pricing regime for on-patent drugs. So, it is for drugs and it was taken slightly out of context because actually, it's one of the factors but doesn't actually ever come into play. That would apply for the whole benchmark of a company, the whole basket of the companies’ drugs, not an individual drug. We have a test which is, it's clear but it is slightly unusual and cost-plus tests in pharmaceuticals is rather unusual as a test. The other problem we have is if you actually look at the UK generics market, again just generics. Not originator drugs, it's just generic for now.

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I would say there are several drugs that don't pass this test, cost plus 6%, no more. There's a real issue of how this test could be applied in practice going forward. It shows the difficulties of a competition regulator who sees a problem they want to deal with, but you create a precedent that's difficult to apply across the board. Cost plus 6%, is it just for generics? Which would make sense, it wouldn't make sense for originator drugs which are innovative, because they're your bigger risks. Where does that apply in other sectors? Is cost plus is now the test for us? It's quite complicated.

What we've seen since the Pfizer decision which was in December last year, I should say this was the biggest ever a fine for a UK competition law violation. The annual percentage that they give you as the gravity was the maximum. 30% out of a maximum of 30%. It was treated more harshly than any price-fixing cartel. That's another unusual factor, but you've seen a number of excessive pricing cases. There's one I think involving Aspen. At least one, if not two involving Concordia and then if you read the CMA's website in October, it opened four new cases, of which I think at least one and perhaps two may also be excessive price.

Harry First:

It's hard to tell.

James:

Yes. There's a lot going on in the UK in particular.

Harry:

I don't know if our two regulators have any reaction to whether it's possible for competition law enforcers to go after obscenely high spikes in pharmaceutical drugs that people need to live. How's that for stating it? That are on off-patent drugs and have no justification other than price gouging.

Can competition authorities possibly deal with this? So, Paul, I don’t know if you want to--

Paul Csiszar:

Of course, I appreciate that James worries how difficult for us to determine, one way or the other, with some excessive price. I fully agree with him. We have a policy that we don't comment on pending cases and we don't comment on NCA's, National Competition Authority cases. I would let the Pfizer- Flynn case just evolve and then we will all read the outcome.

It's clearly, it's not an easy job to do. Nevertheless, I would go back to my very first, first point that do we all recognize that there is a problem? There's a problem in society especially in pharma. We all have finite resources for health care even in the richest country. One of the richest countries which spends the highest percentage of its GDP, you will always find finite resources for health care.

Which means that if you are unnecessarily overpaid to these astronomical prices for these drugs where the inventor had been dead for a long time because his patent expired 50, 60 years ago. In those cases when you allow that to happen there will be less money for another hospital bed or for another pill or another vaccination. This is just-- it's obvious. So, something has to be done. I'm not an activist and I don't want to repeat what I said. Just because it's difficult to argue how you draw the line.

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One more thing, at least in European law, the legislature when it said abuse can be unfair, it didn't say that the regulator also should define that on the continuum on the shades of gray where is that line to be drawn. That's unfortunately for Susan, that's her job to do. For us they just said, “Look, bring in front of the European courts a case and prove it. Argue that it's unfair.” That prompts me to the famous, “I know it when I see it,” definition of justice [unintelligible 01:02:26] that when he was

[cross talk]

How do you define obscenity or pornography, which is not covered by the First Amendment? He said, "I cannot define it, but I know it when I see it.” When I-- and that's why I go back to my favorite bat noir guy Martin with his face. I look at it and I feel confident that if I have to stand in front of an independent judge with my economist's reasoning computing what is unfair price compared to price and cost and so forth whatever, hopefully, I will succeed. Now there's an illusion we have too many cases but it depends on which period you look at. Yes, in the last 18 months, we had relatively several cases. If you look at a rolling average 20 years or so, we still would have very few cases.

Why perhaps we have many of these cases? Nobody, as far as I know, did a study. What about these price increases on the tail end? We all concentrate on the first two or three where we talking about 5, 10, 15,000% price increases of a drug which was supposedly, according to Pfizer, has been manufactured at a loss and given as a charity to the UK population in the last 30 years. Suddenly, they had to adjust the cost of manufacturing but do you know what percentage Pfizer adjusted upwards?

James: I think I said 2000%. That's the best price of the NHS. It gets 1500% for Pfizer. It's not nothing.

[cross talk]

Harry:

2600.

Paul:

I just wanted to remind everybody that allegedly-

Harry:

It's 2600.

Paul:

-Pfizer has been kind of giving it away as charity for decades this drug. In order just to bring in this cost plus reasonable profit, whatever test that is. It had to jack up by thousands of percentages. I don't know but certainly, there is room to argue there on the final test.

Harry:

So, Philippe do you have some reactions from your vantage point. Are these cases-- if you had one of

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these extreme price right cases which is the case that Paul’s talking about, or the case that James was talking about, or the case in China where it was it went up three times or 17 times. Could you do something about it or you still want to pass?

Felipe Irarrázabal Philippi:

Well, I will study a lot. [laughs] Obviously, we don't have laws as the European Union. So, it is very clear in terms of language. I think everybody agree on this. Those are tough cases where you can easily explain to people that something is wrong. You can be very popular from the beginning but then in the long term you don't know the results. Really drawing the line on prices is something very, very difficult. We have tried some price discrimination cases on our Rail Whale company.

We were accusing the state-owned rail company to discriminate prices. Even that case was very-- and we settled the case at the end but it was very, very difficult. To draw the line is really difficult. Again, I will study a lot and it is true that from the agency point of view, you are put in a very tough and difficult position if a case like this one came out on the media because sometimes you have to do something. In our countries like in the US, we don't have price regulators. Probably that would be my first reaction. If we have a price regulator, I would try to put them uncomfortable on the merits of the case.

Harry:

I want to give you a warning. I’m going to ask for questions in about two seconds, but I think this is a good reminder both that laws differ around the world. Many countries who have followed the European model of abuse dominance, excessive pricing is in the statute as an abuse of dominance. China followed that and South Africa but not Chile, not the United States.

Different laws, different institutional structures, so you happen to go before a court that has economists on it. Whereas in the US we have to go before courts that has law professors who think they're economists. That was a joke. There are different institutions. They're generalists courts. So, different institutional qualities as we're thinking generally about what's the appropriate model.

Market studies is another idea which is what you’ve done and maybe that can have some effect but there is this worldwide drumbeat in this area that's very interesting to observe even across different countries, different institutions, but some of which are really dependent on some of these drugs. We have a few minutes anyway, 10 minutes or so to throw out. I was hoping-- we can't put Tembi on every panel but we try. We do leave some people as shills in the audience. Oh, Tembi, would you like to say something about South Africa? Or, about anything, but go ahead.

Tembi:

Two very quick points. I can tell you I agree with James that [unintelligible 01:08:43] regulations is the best way to deal with this but I think the most important thing is that you must be careful. Just like what they say about the case, it doesn't mention which product [unintelligible 01:09:00]. There are instances where regulation fails or some other part of interventions fail.

I’ll give you an example, In south Africa, the government buys for the public sector and the private sector which is where most people will [unintelligible 01:09:21]. Part of this was the cost of health care in the private sector is largely unregulated. In one drug, which we are currently in distribution

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now, the price difference is over 500%, between the public sector and the private sector.

The minister has done very well negotiating for the public sector but there's a whole host of people who are outside of the public sector. We're always going to need a combination of this. In the antiviral drugs, we had a complaint from civil society about drug pricing. We took up that excessive pricing case which was going to be very difficult to win but we-- the impact of just investigating this drugs forced the multinational companies to settle and agreed to license the production of the drugs in South Africa.

It's always known to be a combination of [unintelligible 01:10:40]. I suppose it depends also on the long term context, and why we are focusing on pharma. I suppose because it's socially sensitive and remember and that in developing countries, drugs might be socially sensitive but food might be equally socially sensitive. Again this shows very interesting thing about when do you use excessive price. Do you accept that you use it for drugs? Then you have to accept in many developing countries you're going to use for all sorts of equally sensitive products.

Harry:

Thank you.

Audience Member 1:

Thank you, and thank you to panel for very, very informative discussion. I'm from Caricom from the Caribbean. You know the little dots in the ocean that you see on the map? I just wanted to make a comment that ties in the first panel, and the discussion of the first panel. A lot of the discussion, there's an assumption that the drug is being produced in the country, but in many developing countries the drug is imported. If it is being produced, it is by a subsidiary of a big multinational corporation, and a the dimension of power comes into play. A point that was made this morning, that the smaller competition commissions in these countries cannot take on these big multinational corporations.

Worse than that, the big multinational corporations engage in political capture. They just make a phone call to the president or the prime minister and any inquiry on the part of the competition commission disappears, because they instructed not to follow up on it. That is the first point that this assumption is flawed for many developing countries. We import the drugs and we go after the large multinational corporations and at the tie-in with what was being said by Felipe, I think our focus has to be more the distribution sector because we import the drugs and the distributors can then increase the prices excessively.

We, in our countries think we'll need to target the distribution sector, the doctors that are tied to the pharmaceutical companies, and maybe we can make some headway there, but the original high price and in cartels that target developing countries and the weaker developing countries. I have profound respect for South Africa. I teach competition law and I always use my cases, a lot of cases from South Africa because it is one of the most vibrant competition commissions in developing world, and I'm really proud to see how they take on some of the big multinational corporations, but I can't imagine another Caricom country doing so. Just to put it into context that we are actually quite powerless in the face of large multinational corporations.

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Harry:

Thank you. Omar.

Omar:

Hi, thank you very much. My name is Omar Vasquez. I am from Chile. I would like to share with you while also with the panel, a case of Chile because I show you about disability in investigation, but Felipe probably didn't mention because it's settled. I've been engaged in excessive pricing cases in Chile a lot and I've also wrote about it and I think that we tend to exaggerate the problems of definition. I think it was [unintelligible 01:14:53] who said, "I know what pornography is when I see it." I think that are many excessive pricing cases that you can see quite readily.

In Chile, there was a pharmaceutical company who was producing a biological product consumers could not substitute. They were charging cost to the hospitals and then they were charging, I will say at least 30 times the price they were charging to the hospitals to the final consumers. We received a complaint and we investigated and we actually negotiated with the pharmaceutical company. Well in this case, I don't remember the numbers very well but I think it was at least 20 times the price they were charging to the hospitals.

And you're going to say, "Well what if they had charged seven times the price?" Well maybe it wasn't like a big deal, but 20 or 30 times. I think that was a big deal and actually thanks to the Chilean Antitrust Act that in fact limits excessive pricing, we managed to settle with the pharmaceutical company and they lower the price considerably. This I think, it's also very interesting from a developing countries' perspective because we said, "Well, we're going to offer the product at a lower price, but actually we're going to sell directly to consumers because we know that the pharmacists have probably colluded so the consumer wouldn't benefit if we just lower the wholesale price to them because their retail price would just keep constant." Yes. Thank you.

Harry:

Thank you.

Omar:

Thank you.

Audience Member 2:

I ask the panelists about pricing and about the developing countries. I was wondering how could we pursue conducts consisting on dual pricing toward developing countries? There is no intra-US state effect, the standard is not even clear the in the European Union as the European Commission did not open an investigation in 2014 as there was no European interest following the [unintelligible 01:17:11] judgement.

Harry:

Dealing with what? Just, can you just repeat a little bit? Dealing with which pricing? I wasn't quite--

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Audience Member 2:

Dual pricing?

Harry:

Dual, yes. Meaning what?

Audience Member 2:

Dual pricing meaning that there is a price that is fixed for selling it into a country. For instance, in Spain, that it's negotiated with the government and then there is another price for resales towards UK or countries where you can sell more expensive this medicine.

Harry:

So, price discrimination. We have time for one other question if there is and then I'll let the panelists answer both. In the back. I can't see.

Audience Member 3:

Thanks. I have a question that is a little forward looking because we're talking a lot about the different kinds of drugs where we had proceedings with regard to excessive pricing, but now we are seeing developments in the pharmaceutical industry that they're actually not drugs against a certain disease, but drugs that are specifically made for a certain person that has a certain disease. With regard to market definition, when we talk about abuse of a dominant market position, I wonder how do you try to deal with these kinds of issues when you basically have a market of one? Because the drug is specifically genetically engineered to cure a certain disease in a certain person. Thank you.

Harry:

Well, what a great question for market definition to discuss in class. I like that. A market of one. Perfect.

[laughter]

Yes. So, James, I'm sure you're convinced that that too, like the Pfizer case would be-- Well anyway, reactions either to the price discrimination question or the question putting Max's question a little more broadly, how specific can that market be when it's just targeted to specific kinds of users, which in a sense in Pfizer was, right? I mean there were specific. There is a specific group.

James:

I think generally if you look at the cases in the pharmaceutical sector over the past eight years, you find the market definitions get narrower. In your scenario, don't be surprised if it ever came before a competition authority that they take a narrow view. I think that if you're advising people, you have to assume market definitions are narrow and then that's the rule of thumb. How exactly you do it depends on the exact facts. It's unlikely to be a drug just for one person. It's probably for a genetic sub-type.

52 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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Again, depends how it's marketed, depends on all the facts. I think as regards to that South African example, I was quite in a way reassured that the minister is such a good negotiator but quite depressed that the private sector should be comparatively much worse. Which again, does strike me a bit odd. There's some kind of market failure there that if the minister is getting a 100 and the private sector is paying 500, there's something odd there. It feels unusual. How can you fix that? By some kind of regulation? I don't know. As you said, it's an unusual situation from a competition perspective that the government's so efficient compared to the private sector.

I think when it comes to benchmarking how you do cases, there has been a recent judgement of the European court in the [Aca/La?] case where what the European court said was and the African general in particular said, if there's various different benchmarks, you should look at as many as you can to make sure you're sure that this is abusive. You shouldn't just look at one, you should look at a range and really to be sure since it's effectively, you're fining somebody for pricing too much, you want to make sure you've got it right. No false positives.

I think that's when you enforcing, if you are enforcing this area, you had some good guidance. Not just look at one measurement but look at a number [of them] as a crosscheck to make sure you've got it right. As regards dual pricing, I think if you're a developing country, you should be very much in favor of dual pricing. The idea being, "The price inside my country will be low but it has to actually go to the patients in my country."

What we have in Europe is, in some countries where the price is low, people then ship the drug to another country where the price is higher and the arbitragers take all the difference. If you're a developing country, you want the price to be low in your country. If you have to accept that it won't be re-exported, so much the better if those drugs stay in your country. I think for dual-pricing, there's a very good reason why developing countries should be in favor of it. Just to get it, to be able to negotiate a lower price and make sure in stays for the patients in that country,

Harry:

Any final comments? We're only five minutes over our time. [laughs] That's relatively on time. If we have final comments from the panelists, between that and now is some lunch and then we'll start up with our speaker at about 12:50. Go and enjoy lunch and talk. Then, we'll reconvene or I will reconvene.

[applause]

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Lunch Keynote Speech: Martha Martinez Licetti

Harry First:

One of the things we've tried to do with this conference is to be sure that it's not just antitrust lawyers speaking to antitrust lawyers, as interesting as we all are, but that we also have a little more diversity in our speakers. Particularly to get someone from the World Bank is a real plus. We're delighted to have Martha Licetti here to speak to us.

I asked her for her bio, and it goes on way too long. She's done way too many things. I can't read it all to you, but to give a flavor, she leads what's called the markets competition policy cluster of the World Bank Group, which sounds very impressive, and is. She's a global lead economist and has a portfolio of 60 countries. Hey. It's a global world. That's, again, really important. Does policy analytics and technical assistance on pro-competition sectoral regulation and implementation of antitrust and state aid. Right in the wheelhouse of the things that we talk about here at our conference each year.

Martha's background is in industrial organization economics and applied microeconomics. She's been both in the private and the public sector and has a PhD and Master's degrees in economics from Northeastern and University of Texas at Austin. She's going to speak to us in her best Texas accent.

[laughter]

Over to you, Martha.

Martha Martinez Licetti:

Texas accent with Peruvian accent; that will be something too. First of all, good afternoon, and thank you for inviting me to be part of this event that actually brings together the experience of competition enforcers, private practitioners and academics, to actually discuss competition policy in developing country context. First, I know now I have to compete with lunch, with the fact that many of you probably are going to feel a little bit sleepy, and on top of that, I'm an economist.

[laughter]

Actually, to tell you the truth, I was in law school until the middle of law school. Then I decided to transfer to economics to actually interact with lawyers my whole life afterwards. This is something that is very important because it has influenced the way I think. The way I think also in the field of competition, policy, and development, is this interconnection between law and economics that becomes very evident, but more importantly, how this is implemented in practice, what's the rationale of the application of laws in some of our countries.

I'm here today as the global lead on markets and competition policy at the World Bank Group. This is my current position, but I am also a former practitioner at an antitrust agency, a sector regulator, and private consulting in my native Peru. Positions I held a long time ago, but really instilling for my vision of effective competition policy in an development country context.

It's in this capacity that I want to highlight the role and importance of competition policy, not only antitrust or enforcement or competition law, on economic growth, but more importantly, on inclusive and equitable growth. I want to discuss in particular how competition policy fulfills its role and what 54 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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practitioners can actually do.

The number and diversity of practitioner here today, it speaks to the widespread relevance of competition policy as a crucial policy area. One that has a great potential and I do believe it, to boost economic opportunities and improve welfares of people in every country. With your permission, I will like to show you a very brief video on the case of purple tea in Kenya that actually highlights this point. I don't know how to press for the video.

[crosstalk to make the video work]

[music]

TV Speaker:

Kenya has been growing tea for more than a century in the volcanic soils, east and west of the Great Rift Valley. Today, Kenya is by far Africa's largest tea producer, accounting for a quarter of the world's tea, and yet when entrepreneurs try to enter and contest this market, there is a seemingly impenetrable regulative barrier. The law says that the license for a new tea factory requires approval from the existing tea producers. Yes, tea producers can exclusively block a new competitor from entering the market. We will meet [Anthony Njagi Mwangi?]. He wanted to serve, not any new tea factory. He was going to bring innovation. Purple tea, a beverage, fertile, even richer health benefits than green tea.

[Anthony Njagi Mwangi?]:

All doors were shut, the guys told me to do this together [unintelligible 00:05:55] because any competitior would [unintelligible 00:06:00].

TV Speaker:

These kinds of barriers to market entry or competition exist all over the world and in markets from manufacturing, to farming, to services. Put together, they can cost countries at least 1% of GDP and they affect the poor most significantly. In Kenya, the competition authority proactively addresses such barriers to competition. In this case, as in many others, the approach has succeeded. Through smarter policy, the competition authority convinced the Kenya Tea Board to override the objections of competing tea producers and grant the license. This created the way for production of a new product, purple tea. [Anthony Njagi Mwangi?] started with just one employee. Now he already has a team of about 25. An estimated three million Kenyan families rely on tea for their livelihood. [Anthony Njagi Mwangi?] grows purple tea for General Industries.

[Anthony Njagi Mwangi?]:

[foreign language]

TV Speaker:

The World Bank moves competition policy team works in over 60 countries, to open and create markets through competition in a variety of sectors at national and sub-national level, yielding millions in consumer savings and private investment generated. This kind of innovation does not

55 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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require incubators or training. It comes that the markets are open to competition. The result is shared prosperity, not in costly programs, that when opening and creating markets. This same approach is working to unlock other industries in Kenya.

TV Speaker 2:

We hope that this has created a momentum, formula for a team to progress and dismantle all other obstacles, and we appreciate the support we have received from the World Bank and we expect that this support will continue has really helped in dismantling [unintelligible 00:07:56] in this country.

TV Speaker :

Something here is brewing, and it's not just the tea in Kenya.

Martha:

Okay, now we actually have to update this video because more investor have actually entered in this market. Then you will actually have more farmers access into it. Thinking about Kenya competition policy areas is more relevant now ever today precisely, because of the global and politicized context that we're living in. Where some countries are really questioning the benefits of deepening global and regional integration and the related effects on trade, cross border investment and economic opportunities. We talk about trade agreements, but really the reality is a purple Kenya.

The fact is that citizens of some economies have not benefited as expected from strong macro-fiscal environment, trade policies, and investment. In a recent Econometrica paper for instance, [unintelligible 00:08:59], and colleagues have shown that during industrialization, reduction in import tariffs specifically, were offset by firms embracing mark ups, like 11%, on average. This suggests that the tariff reductions were not passed through to consumers of final products and services. Rather, firms exercise market power, in product markets that use this input. Several studies have pointed out that market power at immediate stages of the value chain including in transport services, think about just the line of confidence cartels in shipping can hinder the gains from trade from being fully realized.

Another paper shows that concentration in the distribution sector acts as an import barrier, by increasing trading cost, thus reducing the benefits of market access for the poor, from tariff reductions. Just a recent study by Atkin and Donaldson, suggests that the gains from international trade in remote areas of Ethiopia and Nigeria tend to be captured by intermediaries. That's highlighting importance of the distribution sector in influencing the extent to which the rural poor actually benefit from trade. Of course let's be clear, concentration on market power are not an issue per se, but we see in practice that this is related to the continued existence of distortive government intervention, some favoritism and anti-competitive behavior in domestic markets.

Examples abound from what we have seen across the world. Governments strive for integrating into global economy, but protect their industries particularly industrial inputs with non-tariff measures and anti-dumping ones. Governments set up prices stabilization funds that are then rigged by domestic producers to coordinate quantity and prices of their supply. Governments wants poor people to access cheaper commodities but at the same time ban exports and control prices and thereby dampen supply, leaving poor people without access at all.

Governments also set up special economic chance to reduce the cost of doing business but they fail

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tackle the trucking cartel that raise actually prices by 35%. Governments also seek regional integration but don’t deal effectively with potentially anti-competitive mergers and cartels with cross border effects. Governments also exempt agricultural markets from trade agreements to protect vulnerable farmers and at the same time facilitate cartels in fertilizers and other inputs to the market.

Some of our estimations show that this has actually increased prices by 29%. Lately, also governments encourage the industry to capture more of the value added in the global value chains, but in some of the largest global value chains the value out there is just a reflection of distorted prices. Raises artificially so particularly cartels and collusive agreements; just think about all the cartels in the auto parts and how this has affected global value chains in automotive.

These are international markets where players have multi-market conduct and in some cases highly homogeneous products where collusion is more stable and profitable. The same five insurance have been prosecuted for collusion in at last 14 countries, and this is only the cases that we see being prosecuted. One of the key points coming out of today’s discussion is the need to ensure that economic and social ways for integration are precisely not undermined by anti-competitive business practices or distortive government interventions.

As economies become more interconnected it becomes even more important to allow all businesses to compete on a level playing field so as to also generate opportunities for entrepreneurial activities for all. And really here for the lawyers, I’m not talking only about anti-competitive laws policy and regulations on the books, anybody that comes from a developing country knows what is on the books is totally different to what’s implemented in practice, and also totally different what I call de facto barriers that you face in each market, so let’s think about that. Let's think beyond what is in the law but actually what's in reality and implemented in practice.

Today, I would like to highlight to you two things, share what we know about the links between competition policy and inclusive growth and discuss what to do about those links in a politicized world. I will argue that we need to prevent antitrust from becoming politicized but recognize that antitrust and more broadly competition policy operate in a political environment. In doing all this, I will continue referencing to actual facts, not alternative facts.

The areas and the links between competition and productivity growth is strong. There is a wealth of academic literature in advanced economies that establishes a positive causal relationship between increased competition and productivity growth. What is perhaps less known is the growing literature on these links in developing countries. Let me give you a few examples. First a number of careful analyses by Patrick Yeong and others show a strong and positive effect of competition on productivity growth in South Africa, leading to actual increases of 3% to 2.5% to per year. Similarly, our Bank study in Turkey found that a 10% increase in the average price point margin will increase labor productivity growth by 4.5 % per year. In Tunisia our research also found that even a modest increase in competition will boost labor productivity by additional 5% per year. New results that we are working right now from Argentina Brazil that are about to be published show similar effects. A stronger inter-sectoral competition can have possible spillover effects in other sectors or markets beyond those in which higher competition is promoted. Also intense competition in upstream sectors can cascade down to improve productivity and employment in downstream sectors and more widely throughout the economy.

In the last one of our discussions we have also heard how competition enforcement can be made more effective in specific sectors such as pharmaceuticals. The same applies for having efficient

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transportation systems, reliable energy supplies, more competitive and faster telecommunication and professional services. But in all of these of course effective competition policy does not only include the enforcement of a competition law, but the entire suite of market rules that actively encourage competition or minimize the distortive effect of government policies that might be hampering competition. It also stands to your competitive neutrality and the issues related to state owned enterprises, we don’t talk about it but the reality is they concentrate 40% of their output globally. We need to think about competing on a level playing field with private businesses without undue advantage in either domestic or international markets. To increase the focus of policy makers and competition policy as part of the national development agenda at the World Bank group we have worked to quantify the impact of pro-competition reforms, our simulations show that in South Africa, Peru and Argentina just reducing restrictions in services regulations will spur growth in the industry that feed the small and medium enterprises by up to 0.4% of GDP growth annually, additional growth.

All of these are average effects and we have to talk about social inclusion too. In recent years in addition to looking at the better known impacts of effective competition policy on broad economic outcomes, such as productivity growth or investment, policy makers have to started focus on the importance of competition policy for social inclusion and equity. In general the models find that a greater pro-market competition directly affects household, workers welfare through several channels, at the client consumer prices, increases in employment, changes in wages which actually depend whether labor regulations are pro-workers or employer and may vary between the short term and the long term.

Siri will also predict that the poor will be most affected by either a lack of competition and/or strategic collusive behavior since they usually consume more homogeneous goods, show lower price elasticity and live at the margins of network coverages. Although economic theory is very clear on the negative impacts of lack of competition on welfare, the empirical literature on these effects is still relatively thin. Nevertheless, the empirical work typically finds that consistent with theory, increased market competition in the pro-market is associated with lower consumer prices, less unemployment and increase real wages mostly in developed countries.

Recently a number of empirical studies have looked at the impact of greater competition on welfare in developing countries setting. One study in Mexico presents evidence that welfare losses due to the extra size of monopoly power are not only significant but are also larger in relative terms for the poor, as much as 20% higher than those imposed on the highest income deciles of households. In Kenya we at the Bank found that the market reforms to increase competition in only sugar and maize markets will lead to gains for all income deciles, but those for the poorest decile will be four times larger in relative terms as a fraction of income. These reforms in sugar and maize, only two sector and two markets, will reduce poverty by 1.5% and 1.9% respectively. Similar studies were conducted in other countries.

While it is current consensus that the competition policy fosters social inclusion, there is also more and more evidence about political elites, favoritism and cronyism, and these are then so very real and relevant determinants for competition in the market. Concentration and political connection exacerbate the lack of competition and distort the level playing field, for instance one of the results in one of the countries that we have worked in Haiti. In Haiti there is no competition law in case you don’t know it, but first links to elite families through around 45 links compared to the average of 24 connections that firms have, benefit from lower custom duties, and therefore are also privileged from some other non- fiscal incentives. In one country that I won't mention the name, firms that donate to winning political candidates are more likely to receive funding in the form of loans from the state owned development

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bank. The realm of concentration of market shares, assets, and connections does not seem to be restricted to growth on the merit. In Latin America an unusually high percentage of millionaires almost half, having their wealth from destruction of natural resources from political connections or from financial transactions involving limited government regulation or even corruption. I suppose to create productive and industrial companies. One third of these millionaires' wealth sits in non-tradable sectors. So it's not about economic power, but how you get it. Is it based on privilege or is it based on merit? These effects on competition also dampen firm performance. For instance, we at the bank use level data in Tunisia to identify that entry restrictions enshrined in the investment incentive code favor politically connected firms to the detriment of productivity and consumers. Politically connected firms were larger than the non-connected competitors, more profitable, but also less productive.

We also map advantages enjoyed by politically connected firms in Egypt, as a result of explicit government decisions to grant them policy privileges not received by other firms. We found that connected firms are larger and more profitable, again solely but we were able to isolate that it was solely as a result of this privilege. Importantly, we also show that the interconnected firms into previously unconnected sectors not only slows aggregate employment growth, but those skew the distribution of employment towards less productive firms. We are talking here about efficiency. Given these insights from the empirical literature, what can we do?

Should competition policy actively seek to promote social inclusion and tackle elites and favoritism? Based on my experience in precisely in those 60 countries, I believe that the competition authorities' role in such broader public policies as inclusion should not be as a protagonist. Competition policy should not actively seek to decide cases, impose remedies or drive reforms so that they benefit the poor. Rather, what we're finding is that the sound obligation of competition policy itself is likely to benefit the poor. Competition policies are also compatible with different national development agendas whether it's about seeking economic empowerment, economic diversification, ensuring more decentralized growth for mending democratic institutions, or even in some cases implementing a peace process.

Competition policy tools can guide rules and regulations designed under such policies so that they achieve the objective with the minimum possible distortion and inefficiency. State on enterprises versus private sector. FDI or foreign investment versus domestic investment. Large players versus SMEs, privatization or non-privatization. Many of these debates have been politicized and are politicized immediately go into analogy, but competition policy, those can actually abstract from ownership in size and assess the competitive neutrality conditions in a specific market.

At the same time, I think that competition policy should not shy away from informing public policies and national policy agendas. Yes. When countries undergo structural reforms, open up key sectors, integrating to a normal economy, there are winners and losers in the short term. A new IMF World Bank Group WTO joint report on adjustment costs and mitigation measures highlights a number of passive and active labor market policies that are effective to actually address the short term effects of opening up new markets. But it also shows that the adjustment frictions can be higher if markets such as housing, transport, and trade do not provide efficient solutions.

Here again, competition policy can play a role. Who else in the whole economy, in the whole government can actually better understand what are the different effects of rules, government policies, strategically favoring a market than a competition authority? There is nobody else, so you can do that and inform other policies. Traditionally, competition policy tools can also help address increasingly politicized debate on digital transformation of our economies, with sound and effective solutions.

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Competition agencies can inform and help set down the right rules for new actors in the markets that worth the platforms such as Uber and AirBnB.

Agencies have already helped ensure the new business models can develop in the financial service markets, but ensuring that wholesale messaging services for e-money transactions are adequately regulated and incumbent actors have access to essential facilities. These can promote the financial inclusion through market mechanisms. Competition policy can also help and their tools make broader public policies become more effective. In China, a paper by [unintelligible 00:25:43] and others, shows that industrial policies are effective in promoting total factor productivity only when allocated to competitive sectors with numerous firms.

Actually that, if you do it in sector where you have one or two for a while, this sector become even less productive. Market based competitive voucher schemes into subsidy programs for fertilizer has proven to have positive effects too. The cartel enforcement can complement traditional poverty reduction measures such as the Red Cross transfers to the poor from the States. Since a large proportion of cash transfers tend to be spent on food and other basic goods. Damping, anti-competitive behavior and cartels in these sectors and in these markets is important to prevent these strong from the conditional costume. For the only thing that happens is from the poor they go to cartels in local markets. Thanks to the World Bank ICN Advocacy Contents we have numerous examples of cases in which competition authorities, including some of you here, have precisely embedded competition principles in government interventions with tangible results especially also in non-tradable sectors, and even sometimes in sub-national and local markets. As we saw in the video with Kenya, behind the aggregate numbers of success there are countless of individual success stories and citizens will have more opportunities as a result of some competition reform.

I can name several ones, but for instance, in Rwanda, we advised the government on the design of the competitive bidding process for Greenleaf Tea by two state factories. As a result of this initiative, the country 60,000 tea farmers saw their income increased by an average of 35%. In Honduras, farmers also benefited from up to 9% lower price for fertilizer since the reforms that promoted a level playing field in the registration process. You can see from registration process the actual effects of market outcomes.

Unfortunately, despite these success stories pro-competition reforms as we all know can be notoriously difficult to implement. It's because at the end competition policy in developing countries does not operate in a vacuum. Authorities need to be aware of the political and economic constraints. Learn how to navigate them and ensure that their general work remains untainted by political influence. That's nice to be said, but how then to shield the authority for becoming politicized? Formal autonomy can help prevent political influence, but the legal frameworks where political considerations are enshrined, the minister reviews your merger decisions or your exemptions that potentially started regulations of such frameworks can be minimized with clear goals and definitions.

The first step can also be a little bit more humble and understand that you need to be aware of the political autonomy itself. In some projects, we have health agencies map ownership and political structures to understand the actors under interests. This can inform how agencies sequence productive market studies and advocacy strategies too. To build on the merits of the competition reforms and to provide a voice to beneficiaries of greater competition. Policymakers and practitioners need to leverage and communicate the existing knowledge on the size and nature of the affected case.

Again, be humble that there's need to understand more and there is need to be besides the build all this

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evidence base that will lead to effective policy making. Despite a growing body of research, competition remains an underscore area. There's ample scope for the research in particularly, we need more research on the distributional impacts of competition policy and regulatory reform. This is therefore a call for a collective effort to create momentum built on this evidence and expanded to a greater reach of countries, reforms and beneficiaries.

Many of the issues and trends we have been hearing about today are at the frontier of new knowledge on this topic. I believe we will have much to learn from the participants in our next panel, many of whom have been on the frontline of efforts to elevate competition policies and economic policy agendas of the respective countries. At the World Bank Group, we're actually generating new evidence on how competition, not only leave average income levels, but welfare in favor of the poorest. We also continue to work with our client countries to achieve clear results on the ground in the near term such as the case of purple tea, this can actually generate a whole effects in terms of credibility of the role of an agency, such a competition agency that can be relatively small with low budgets and new to combat the political economy. At the end, in the midst of all these politics, it's still about those real changes on the ground and it's also to research in one market at a time. That's how I see it. Otherwise after 20 years working on this in developing countries as a whole, we'd have given up a long time ago, but I think it's about these marginal changes in one market at a time.

Do not forget that at the end of the day it's also about the sum of all these changes that matters and could matter for good or for bad in an overall economy and these changes are the actual changes, actual changes not only legal, not only regulations but also changing the factor and changing mindsets. So let's think about competition policy more holistically and not get discouraged but on the contrary, be resilient and persist and build new areas. Thank you very much for your attention.

[applause]

Harry:

Thank you Martha, appreciate that and there are questions from the audience. At least Eleanor will ask one question.

Eleanor Fox:

Thank you very much. Eleanor Fox. Martha thank you very much for that, and as you know I'm a great supporter and admirer of what you're doing in the World Bank for competition. I'm going to underscore what I think was one of your messages and ask if you would reflect on that and that is this, that for developing country competition, even for goals such as inclusiveness, there is so much to be done that actually fits within a very traditional model. If you only look at it through the context of exactly what the markets are, what the barriers are so that you encompass almost all of the work you do, the work you do in Kenya and many countries, South America, you do it straight on as a competition problem to make the markets work better including to lower the barriers to entry, including when you lower the barriers to bring in people who were left out, but within basically a very traditional model. Is that correct?

Martha:

I don't know if I will call it traditional. I'm not a very traditional person I would say. [laughs]

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Eleanor:

No. I would say you're doing a lot of anti cartel work and that you're doing antitrust enforcement, it's number one a cartel and if you're doing policy that's not enforcement, you're doing cutting down the barriers.

Martha:

One part that is important as mentioned, at the Bank we understand competition policy in the broader sense and more holistically. In the sense that at the end of the day, for me in particular, we have a role as people working in the competition field to actually understand why a market is not functioning. This can come from the fact that strategic interactions and cartel behavior, or from the fact that the market, the functioning can come from the fact that you have non-tariff measures from trade policies, or come from the fact also that you have industrial policies that are giving specific advantages to only one firm and not to others and it's only us that could actually understand that means saying as practitioners that this is happening and it's actually having the effects or potentially distorting how the market is actually functioning and by distorting how the market is functioning, it's actually diminishing, I will say the believers of the market functions or not, or the markets are actually something that we should perceive or have a market view.

I actually think that in the case of cartels, at the end of the day, cartels and traditional antitrust is complementary to other policies. If you actually as have mentioned in the case of conditional cash transfers to actually as a government you want to pursue that poor have access to services or to goods, you have conditional cash transfers but if those conditional cash transfers and that money is given to the poor and the poor transfer it, to a local cartel because the cartels are still present in the market, then what you're doing is a transfer to a cartel. You're not helping the poor. You actually need to tackle the cartel, to compliment that that conditional cash transfer policy is actually effective.

In other cases, it's not only about cartels, it's about market and market barriers and many of our client countries it's about market barriers at the end of the day. All of these government policies that are actually de facto blocking others to enter or not allowing efficient firms to actually foster a better market development.

Audience Member 1:

Thank you Martha. This was an interesting talk, just wanted to follow up a little bit in Eleanor's point and obviously as you raised quite important issues with regards to the price effects or effects of quality of opportunities of different smaller players in the market, I wanted to ask you if the World Bank is also thinking of other social costs that might come out of anti-competitive practices and that could be for instance, things like inequalities or it could be things like protection of the environment, could be biodiversity, so broader perspective. The question is there's a lot of discussion now in economics profession and I just followed the last weekend there was iNET meeting in Edinburgh where basically a number of quite famous economists discussed about broadening up a little bit the canvas of economics to discuss all social costs so is this something that the World Bank is thinking as well or I'm missing something? I just want to find out.

Martha:

On the first part, we have the concept of shared prosperity, that's how we call it but at the end of the

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day it's issues of inequalities and definitely we're looking into ways in which we can understand better why lack of competition that can come from anti-competitive behavior or also from government interventions or market barriers that are not allowing competition to take place is actually related to the level of inequality or particularly the bottom 40% which is the shared prosperity concept, so we are working on that and presenting some of the work that we do in some countries is related to actually understanding if there is an effect or not and to which extent this can actually come, because if that's the case, then you go the source of the problem so maybe this particular one intervention or for instance these incentive cause that only benefiting the firms that are connected to the current government, but discussing the problems of market access of a farmer sitting 300 miles away from that.

Definitely we're looking into that. With relationship to the protected environment, there is a whole discussion on climate change. But in some of our client countries, sometimes it's in some ways easier. I have seen many countries when they say, "I am concerned about congestion issues," or "I am concerned about environment," and the way of tackling that is to actually block any new competitors to enter the market and you only have one monopoly and one guide and that on top of that has all the incentives and privileges right? The way that we try to do it is try to understand if there is this public policy objective and they always try to see if the way that they're tackling or achieving this public policy objective is the least destructive or not to the development or competition.

Harry:

We have time for one last question.

Audience Member 2:

Hi there [unintelligible 00:39:17] I'm just wondering to know because after all the Bank will probably have an idea of what constitutes sound competition policy, and I was just wondering in the technical advice that you gave, how much room is there for differentiation to the extent that certain-- One problem might be dealt with in one way in one country and in another country another solution might come to the fore. How do you deal with the dichotomy?

Martha:

What I found fascinating at the Bank is we see different markets in different countries, different historical legacies et cetera. I will give you an example to share with you why I think you need to really have a tailored made approach in your country. I arrived to this country in the South Caucasus. I am not going to tell you which one. Then all the multilaterals including the Bank were really working on the competition law. We have to change the law and the law needs to be like this model law and this is to include all these principles et cetera, et cetera, et cetera.

During this discussion first and this, of course, is a country that was coming from the communism for a while, very focused on prices. But prices because most of the members of the authority were price regulators the day before, so very much on that focus. Then this person from another multilateral was talking about, that they really need to include issues of vertical restraints, resale price maintenance et cetera and I was listening. I was like, "Don't say it. Don't say it." Because basically the way this person said it and the authorities merely say, "Oh. That's another way to regulate margins. Excellent. Let's include it."

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So I think you need to be a little bit aware of where is your listen and know what's the political context. At the same time, while all donors, we call donors from multilateral were focused on the competition law, I was trying to actually meet the private sector. People told me, "You are crazy. Are you going to be meeting the private sector? There are only oligarchs here. We never talk to them. The people from the Bank, at the country office! We never talk to them. You can only talk to the government.”

How am I going to be? I'm doing all these [unintelligible 00:41:49] competition if I don’t talk to the private sectors? I will go there. Before that, they told me. I was also very curious because, in this particular country, there were a lot of monopolies. The monopoly of the banana, but you don’t have-- Of course the textbook case, but there no import restrictions? There are no monopoly. How you have the monopolies in the banana?

"Oh, well. The issues, ideas. There was this guy that tried to import from our country, but in the middle of the highway, they stopped the trucks and they say, "You driver either go to the cliff, or the banana will go to the cliff." Of course, the banana went to the cliff. Basically, nobody decided to import out. It was full of all these anecdotes and the stories. Then, of course, I still wanted to meet the guys, right? The Oligarchs. I arrived and the issues after telling me all these stories.

They said like, "Okay. Go to this highway and there are going to be two SUVs. They are going to waiting for the car of the Bank. Just follow the SUVs and you will get to our factory. Then you will meet the famous oligarch." The rest of the story I cannot tell you publicly. [laughs] I met the oligarch and I think it was one of the most fascinating meetings I have had after I went through other aspects that I won't talk about, but that’s the reality that we need to think of.

This is one oligarch in one market through different markets and connections through a history of price legacies et cetera. That's very different if you're talking about Latin America. In some countries, if you're going into Africa, if you are talking about payment systems, you're talking about telecom, if you're talking about rice, if you're in Egypt and actually need to talk about military, you need to be aware of that. If you're not aware of that, and you go with one size fits all solution, then you're not going to do any changes on the ground. I think that's the mission that we have at the Bank.

Harry:

Well, thank you. I always tell my students that barriers to entry are just an analytical concept,--

[laughter]

-but now we know that they're real. Next time you meet an oligarch-- Well anyway. We'll take up the next panel immediately. How's that?

[applause]

Thank you. Martha. Good job.

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Panel 3: Mergers: Impact on Development

Daniel Rubinfeld:

This is the post-lunch exciting discussion of mergers in economic development. I am Daniel Rubinfeld. I teach antitrust law and economics here at NYU and perhaps fittingly, we have two lawyers and two economists on the panel. We shall have a good mix of discussion. I will do my best to provoke them into keeping you all awake.

Let me briefly introduce Anthony Woolich who is in London and Anthony is with Holman [Fenwick Willan]. He has a very long distinguished record of activities in many countries around the world. I noticed in the many laudable things said about him that he was described as affable and approachable.

[laughter]

Anthony, we wanted to put you to that test as we go ahead this afternoon.

Next to Anthony is Rosie Lipscomb, Rosie is attorney at Google as a Competition Council and prior to being at Google, Rosie was at Davis Polk. Way back, she went to that law school up the street a little bit. I can't remember the name. Starts with a C. We're very happy to have you even though you have Columbia ties.

[laughter]

Next to Rosie is Simon Roberts. Simon is an economist at the University of Johannesburg in South Africa. Simon got his PhD, I think, at the University of London. Simon, very nice to have you here.

Finally, at the other end of the table from me is Jason Wu. Jason is an economist also, with the consulting company of Compass Lexecon. Jason got his PhD from Northwestern University, the Business School.

We're happy to have each of you here. A basic issue for our panel is to look at mergers around the world and see what kinds of issues they raise, particularly issues that go beyond the traditional competition subjects. As we know, there has been a tendency in some countries to raise privacy issues, security issues, to be concerned about income distribution, labor markets. I could go on and on.

A lot of policy issues that seem to go beyond what some of us think in the US think of as traditional competition analysis. Although, I have to say that I shouldn't be pushing that position so hard because depending on your interpretation of Section 5 of the FTC Act, it could be that the US may at some point consider all of the issues that I just mentioned. That remains to be seen. With that background, we're going to start with Anthony. I'll give each of the panelists five minutes or so or more to give some introductory comments.

Then we're going to look at, depending on our time, we're going to look at three or four large mergers. We're going to look at Syngenta/ChemChina, Bayer/Monsanto and go look back briefly at ABI/SABMiller, and if we have time, we'll come back to look at Google, sorry, the Microsoft/LinkedIn merger. Anthony, you are up first.

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Anthony:

Good afternoon ladies and gentlemen. When you are looking at a merger clearance process for an international merger, obviously, the first thing to think about is where you might need to file.

[cross talk]

Obviously, the first thing you need think about is where you might need to file. In an acquisition, probably the key things to think about is if it's a share deal where is the target located initially and if it's an assets deal, where are the assets located? If it's a formation of a new joint venture, where is the joint venture going to have operations? Then you need to think well, is this transaction actually going to trigger a notification? If there's a change of control, then it's likely to be at least a triggering point for a notification if the thresholds are exceeded.

That could be acquisition of sole control or a move from sole control to joint control or a change of identity of joint controllers or even in some jurisdictions, a reduction in the number of joint controllers. The key thing is then to look at whether the thresholds for notification are exceeded. Thresholds are based on turnover typically but they can also be based on assets or market share. As we'll see shortly, there are peculiarities in different jurisdictions which means that you need to be very careful and review the laws and thresholds in each jurisdiction one by one.

[cross talk]

A really key point is the distinction between where you have to notify and where there may be substantive competition difficulties because there's a real difference between those two things. Plenty of times you have to notify in a jurisdiction because the thresholds are exceeded but there's no actual substantive competition or difficulty but it's still important to notify because if you don't, then you could risk being fined for having influenced the transaction without having got clearance. The legal validity of the transaction in that jurisdiction may be questionable and therefore, just because you don't foresee a competitional difficulty with the transaction, certainly doesn't mean that you shouldn't file.

As I said, there are many peculiarities about the rules in particular jurisdictions. I've put a few on these slides. I'm not going to go through all of them. A full set of my slides is available outside if you'd be interested in seeing a more detailed list of the peculiarities in different jurisdictions.

Different countries have very different policies on how to assess whether they want to look at mergers. For example, some jurisdictions require you to look at the turnover of the selling entity as well as that of the purchaser and the target. There may be rules around counting exports from a jurisdiction within revenue thresholds as well as sales and imports into that jurisdiction. Sometimes jurisdictions look at global turnover and not nearly local turnover. There is not necessarily a need for a local presence in a jurisdiction in order to be caught. Also, there a jurisdictions where market share thresholds can be satisfied by just one party reaching that threshold even if there's no actual accretion though as there's no acquisition of a competitor. So it is important to be very careful.

There are some jurisdictions where if there's no actual local establishments, then it's outside the jurisdiction of that particular country but that's not the case in every jurisdiction. Some countries have different thresholds, different turnover calculation rules for specific sectors as I have listed on that slide. In some jurisdictions, authorities reserve the right to review transactions even if they're not notifiable. Other transactions require notifications but only post closing.

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Really, when you're doing an international deal, you do have to look at the individual requirements in each relevant country. I think a key point is that the merger control process needs to be carefully considered at an early stage and the timetable for preparing notifications and getting clearances needs to be built into the timetable for the transaction.

Even when you are doing due diligence, you must have regard to competition law. There is this concept of clean teams whereby operational people in the purchaser who are reviewing the target, they need to be kept away from the actual due diligence process. So the people who are actually doing the due diligence need to be separate from the people who are operational in the purchaser because if the deal doesn't go ahead, then the operational people will have had access to commercially sensitive information about a competitor which can be a serious infringement of competition law.

Pre-notification discussions with regulators can be very important to smooth the way for the actual notification to make sure that the notification is in a form that the regulator wants to accept. It's quite common for pre-notification discussions to be very lengthy, lasting several months at least so that the regulator can get comfortable. It's much better to invest that time before you notify than to deal with those problems after you have notified when you're up against a statutory timetable.

Relevant points are who he needs to notify. Is it just the purchaser, or is it both parties, or all parties? How much detail is required for the notification? I do think that if a transaction raises significant issues, it's best to get economies involved on issues like market definition especially if there hasn't been a precedence in that market and to get them involved at an early stage so you get all your arguments coherent from the very beginning.

Suspensory effect in gun jumping is a very important consideration in many jurisdictions where the clearance is required. You won't be able to complete the transaction without that clearance. Essentially, the agreement is suspended before you have that clearance. If you gun jump, if you actually implement beforehand, that can be a serious infringement liable to fines. If it looks as if you do-- you are going to have a divestment requirement. It maybe that an upfront buyer will need to be found. Again, it will save a lot of time if you can identify that buyer at an early stage.

Deadlines for filing notification need to be watched, some jurisdictions have time limits after the signing of the deal or other trigger that you need to actually file within. Waiting periods vary by jurisdiction. Also, of course, as we've discussed already today, the basis on which regulators will make a decision will depend on the jurisdiction.

Generally, competition law issues would be the main focus: does the transaction lead to the creational strengthening of the dominant position or the substantial lessening of competition? Other jurisdictions as we'll here much more about in this panel again will have wider public interest issues. The effect of employments in a particular jurisdiction for example. One mustn't assume that the criteria that apply in the EU or in the States will necessarily be the end of a story in a particular jurisdiction.

Right. I think I'll now hand over.

Dan (Rubinfeld):

Thank you very much, Anthony. Rosie, you are up next.

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Rosie Lipscomb:

Thanks Dan. I'd like to focus my opening remarks on how competition authorities in developing countries factor in non-economic or so called public interest factors into a few recent mergers. Now in many ways, this issue isn't new. Going back to at least 2009, the OECD has held roundtables on this issue annually and it's been around for a long time, but I think in this new era of rising nationalism and an increased tendency towards protection of local players, it's become a very timely and important issue.

I'll walk you through how these public interest factors have played out in mergers in the beer, agriculture, and social networking industries. Then I'll give you an overview of how these issues are treated both been in the US, in Europe and then leave you with some concluding remarks about the challenges of incorporating these factors more broadly without taking a position on whether it's a good or a bad thing to incorporate them.

Before we get into the mergers themselves, I thought it would be useful to walk through what the goals of competition law as stated by the OECD in 1994 were. The OECD says that there's a general consensus that the basic objective of competition law is to protect and preserve competition as the appropriate means of ensuring the efficient allocation of resources in free market economies, and if that concept is manifested by lower consumer prices, higher quality products and better product choice. Then in 2016, the OECD also acknowledges that although efficiency is really the central factor in competition law and policy, there are other jurisdictions that also include objectives that go beyond those core economic goals and these are these so-called public interest considerations.

Let's start with a merger in the beer industry. This industry is near and dear to my heart not just because I like to drink beer but because my mother actually, who lives in south Texas in a small town called Laredo has been a beer distributor for the last 35 years. That's my family business.

The ABI/SABMiller deal was a 64 billion dollar transaction involving two of the largest brewers in the world. It was notifiable in around 25 jurisdictions including a number of countries in Africa and in Latin America and in Asia. As I go through these mergers, I'm going to talk about how the South African Competition Authority has factored in public interest factors. It's not because I want to focus you in on that jurisdiction, it's actually because I think they do the best job of really segregating the competition analysis on the one hand and the public interest analysis on the other. It's just easier to talk about because they do a good job of spelling out exactly what they're doing.

In South Africa, the Commission did identify some public interest issues with the deal and to remedy them, they required that the merged entity form a $67 million fund for investments in agriculture promoting local manufacturing and also curbing the harmful effects of alcohol use in the country. They also prohibited the combined entity from firing employees for a period of time and also required them to report on black empowerment plans that are part of the country's legislation.

Ecuador is another example of a jurisdiction that imposed remedies of a public interest variety. There they took steps to ensure that the combined entity maintain an e-commerce platform for craft beer. They ensured that they didn't lay off any employees for a period of time and they also required the combined entity to provide training and access to refrigerators for small producers. All very interesting remedies that you probably wouldn't see in either the US or Europe.

The next deal I want to talk about just at a high level is the Bayer/Monsanto deal.

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This deal would create the world's largest integrated seed and pesticide company which is obviously very important to farmers around the world. Some interest groups have argued for intervention in the deal because it poses risks to things like potentially human health, food safety and the environment. Again, about 30 jurisdictions were notified in this deal, including some in Africa and Latin America and in the developing world. Here too, the South African Competition Authority identified some public interest harms that needed to be remedied in order for the deal to proceed.

One was prohibiting the elimination of more than 20 jobs as a result of the merger. Another was maintaining employment levels where they were for a period of three years and also ensuring a 25% discount for Poncho seeds to small farmers for three years. Overall, the transaction is still pending in a number of jurisdictions.

Last but not least is Microsoft/LinkedIn which is an area that I am more familiar with just because of where I work. There was a very big push by third parties in this deal to block the deal or impose remedies based on concerns about privacy and data protection. The jurisdictions that were notified included the US, the EU, South Africa, and Brazil. In South Africa, the Commission didn't identify any public interest harms with the merger or any employment concerns. So, they allowed the transaction to proceed without any remedies. Interestingly, Europe was the only jurisdiction to impose any conditions but those conditions were really as a result of traditional, vertical, foreclosure concerns.

The Commission spoke directly to this idea about whether data privacy and data protection concerns should inform their merger review and I think they were clear about the fact that those concerns standing alone don't constitute a reason to block the merger but to the extent, they form elements of how companies compete that they could factor them in. As far as data itself and the role the data played in the merger, the Commission defined a market for online advertising and it analyzed whether Microsoft's accumulation of LinkedIn user data might pose some competitive harm in that market and they concluded that it would not because of the proliferation of data that's available in the market so they didn't impose any remedies on that basis.

Just to contrast that approach with the approach in the U.S. If you look at section seven of the Clayton Act, it says expressly that really, the intervention requires that the acquisition substantially lessen competition. That's the statutory basis for intervention. Then the Supreme Court going back to Philadelphia National Bank in 1963, has said in the context of mergers that really the effect on competition is the sole criterion to determine whether a merger violates Section 7.

In cases that came after Philadelphia National Bank, from Professional Engineers to Indiana Federation of Dentists to more recently North Carolina Dental, none of which are merger cases but the Supreme Court has reiterated that the goals of antitrust laws are really to protect competition and not to protect other values however important they may be, whether they be environmental concerns, health-related concerns or other things.

In Europe, you have a similar structure where merger regulation says that really the focus is about whether transactions impede effective competition. On this question about factoring in public interest harm or maybe other factors into the analysis, in the Asnef/Equifax case, the European Court of Justice said that, "Any possible issues related to the sensitivity of personal data are not as such a matter for competition law, and they may be resolved on the basis of relevant provisions governing data protection."

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Then in the Facebook/WhatsApp transaction in 2004 in DG COMP's decision in that merger, they said, "Any privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the transaction do not fall within the scope of EU Competition Law rules but within the scope of data protection."

You see that the agency designating issues that are related to competition within their area of expertise and then stating that other concerns like data protection are really for the Data Protection Authority.

[ringtone in the background]

It's a beautiful ring, isn't it? I wanted to start at six.

Dan:

There may be a copyright right violation here.

Rosie:

This happens to me all the time. I hope I didn't embarrass anyone.

Dan:

Have you finished Rosie?

Rosie:

Just one more thing there. Just to sum up. I think that you see different regimes around the world incorporating public interest factors in different ways. I think there are lots of challenges with incorporating public interest factors into competition law, including in merger review. The biggest and most important one is it can create a lot of uncertainty for the parties. It's also prone to not be transparent. It's difficult for the parties to know whether something will or will not violate the law. You also have this institutional competency problem.

Our competition regulator is really the people we want policing things like environmental regulation or health and safety standards or labor markets. There are other agencies that are really better equipped to deal with those issues. Then, of course, is the issue of divergence. If every country around the world defines public interest differently, then you end up with a patchwork of remedies and that could deter innovation and investment in a way that doesn't grow the pie for everyone which is the goal of this whole process.

With those thoughts--

Dan:

Thank you very much, Rosette. That was a great layout of some of the issues. We're going to come back and talk about Bayer-Monsanto and ABI-Miller and hopefully, we'll get to LinkedIn as well but we got to hear from the economist first. Simon, you are up next.

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Simon:

Thanks very much. I am going to come back to beer, but it's also close to my heart. I am excited with it. I thought I'll make a couple of observations because I think it illustrates some points I want to touch on at the outset, which is this public interest basket is a basket into which lots of different things get thrown. As you mentioned about- I learnt about Ecuador for the first time in terms of its remedy, e- commerce platform for craft beer. This is a public interest condition but it's also a competition type of condition. You talked about the fridges, again, that's competition type of issue. Alongside that gets thrown things like local procurement, a development fund for farmers, employment conditions. We have a really big problem I think, when we're talking about public interest in being more specific about the issues that are coming up.

You also said that you don't see these things in USA or in Europe, but in Europe, you wouldn't see the fridges condition because there have been agreements to open up for space already. In US, I might be corrected on this but when I read the U.S. decision, there was a condition obliging AB InBev's distributors to carry craft beer on their trucks. That's your grammy, your mother.

[laughter]

This I think is important because the US is imposing a condition related explicitly to craft beer and distribution, but Europe has dealt with these issues through abuse of dominance or restrictive practices types of cases. I want to highlight what the view looks like from a small developing economy, from South Africa. I want to say that some of the issues that are coming in about local small businesses participating are things that have been dealt with through a quasi-competition or competition lens in other jurisdictions.

Then you've got a whole set of other things which are about ameliorating the impact on vulnerable groups. These are the employment types of conditions which I think talk to what Fred Jenny was mentioning this morning which is we have been bad at dealing with the impacts of globalization, of liberalization of different groups. This is now coming in as an adaptive issue in antitrust but these are different types of considerations.

When you're looking at it from the position of a small developing economy, and South Africa is a small economy compared to Brazil, China, India, then the leverage that those countries have is potentially more limited. Mergers are getting used as ways, I think, of bringing these types of considerations into play.

I'm going to highlight some of the issues in South Africa because South Africa is also getting used as an example to follow and I'm going to-- I worked at the authority for six years, so I was very close to these issues but I'm also going to try to raise some questions as to why it may not be an example which is evolving. We need to understand better as the dynamic process of engagement rather than maybe a bit too simplistically picking up some of the things that have happened and saying these are good without necessarily interrogating them.

The South African test though-- There's four grounds in the South African Competition Act in terms of mergers. I think one of the very positive things is it says there are these four grounds, it says that the Minister has a right to participate but cannot decide. It says that you've got to bring evidence and you've got to show in terms of the guidelines that the Commission's brought out the decisions, the tribunal. You've got to show that their facts are merger specific and that they're substantial; that they

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are meaningful. So you have a lot of things in the public domain which may actually be there in the background or in some foreign investment devaluation in other countries, but they are still happening.

The four areas that are relevant in the public interest in South Africa is the effect on a particular industrial sector or region from an industrial policy type of consideration. The second one is the effect on employment and it's very much being used not to block mergers but essentially, it's being used to create some protection for employees. As you know, this is a social policy if you like. Again, this is because in South Africa, we have very, very high levels of unemployment, extremely high levels of unemployment. So it's an argument for using it as a very second best type of measure. The third one is also very specific to South Africa and it's about the ability of small businesses or firms controlled or owned by historically disadvantaged persons to become competitive. That's about black businesses, black-owned- South African, black-owned businesses and so very much particular to the history of exclusion in South Africa. The fourth one is about the ability of national industries to be internationally competitive. This is about, again, an industrial policy. I think it's important to highlight that these are very different.

Now in the first decade or so, the competition enforcement in South Africa was mainly about employment. It was about questioning the assumption that mergers are efficient. We all know that a lot of the economic research on merger says that mergers can be driven by management of companies. It can actually be bad for shareholders, destroy shareholder value. That managers can be empire building and in actual fact, as part of that process where shareholders might end up losing but so do employees because employees might get cut.

There's some good reasons for having some protection for employees. In the South African context, there's some particular reasons because of high levels of unemployment but I want to put the employment thing to one side, so I don't think that's the more interesting one.

What's been happening in more recent mergers, now I am talking about in the past five years, or so is more attention is being placed on the industrial policy type considerations which I think is much more interesting and I know also more important and pretty sure much wider impact and implication.

I think because other countries are potentially looking at following this, I think that it's also important in terms of international development of antitrust jurisprudence. This is about how does a merger impact on local industries, local suppliers and why should we care about it in merges? The case that's really kicked this off was Walmart and it's been the subject of discussions at the-- the Walmart acquisition of a supermarket chain in South Africa and it's been a subject of discussions here before.

I'm going to go, not really going to go into it in detail except to say that there was a starting premise that Walmart may actually distort local procurement decisions because Walmart would have such a big global sourcing strategy. Then in actual fact, you might have a small local supplier or a local supplier in South Africa which is smaller relative to Walmart which may be a low cost producer but will still not get purchase- Walmart will still not purchase from it because their economies of scale and the transactions cost that they're-- And the systems that they set up means that you don't buy from that supplier.

So there's an argument as to why a change of ownership may actually have a distortionary effect. That's an argument that you can have. How far that argument goes is what we should be considering. There are also arguments which are not necessarily so much specific around why big multinational enterprises would not invest in the kind of relationships and learning and capabilities development for

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local suppliers, international sub-contracting; why you might need the interventions to encourage that greater investment in local clusters and local development.

These have come into it in the more recent mergers and I think are using the merger as a way of solving an industrial policy problem. Know that there may be a genuine industrial policy question around under investment with local R&D, local training, a lot of market failures, information asymmetries, but the merger is not really making the difference. The merger is being used as a way to bring those things onto the table and to implement. I think this is more of concern.

For lots of the beer mergers, you see very granular analysis of the things that are happening to support local producers. Good to support them, it would be better to have a coherent policy framework around- an industrial policy framework around this but I really think that there's a problem in terms of the way that mergers are being used to do this.

So why is the bargaining power of the state so strong and in the private sector so weak in this context? Why is it happening through mergers and not happening otherwise, which was a question that was raised in a different setting, different context in one of the earlier sessions? I think this goes to the procedure in mergers in that there's an ability to delay the process. This is a criticism that David Lewis and others have levied that there's ability to delay the merger process and so companies are willing to give concessions in order to just get this big glow merger through. If the glow merger is being held up by South Africa, then the bargaining power of South Africa becomes greater but only so far as its extracting concessions which will smooth the process of the merger. So this is a bargaining game going on and I think we should be thinking about what that means in practice in terms of the international dynamics of these mergers.

I want to come back to some of these questions in terms of picking up the particular issues of the cases. I think the South African record is that there are these different types of considerations, some of them are quasi-competition considerations but the mergers are being used to open up these opportunities so to address them of those barriers to entry but others are being used for very much industrial policy type. Maybe it's where in actual fact it would be good to have a better, a stronger and a more effective industrial policy. I do think we should be asking questions about whether this should be happening in terms of the merger regime. Let me finish off there and come back when we talk about the cases.

Daniel:

Thanks Simon. Jason Wu, you're up.

Jason:

Thank you, Dan. Rosie, Anthony and Simon has talked a lot about public interest and around the globe. I will focus on China based on my experience dealing with them. China is still a developing country but it's a big one. MOFCOM is playing much bigger roles these days and becoming after US and EU. MOFCOM usually would be the last one, that major one, that approving or blocking a deal but MOFCOM hasn't blocked a lot of deals. Susan mentioned in the morning that all the past, almost nine years, [MOFCOM] only blocked two deals. Every year there will be some approvals with remedies coming out but it's always in the single digit. We haven't seen double digit remedies.

One thing, the topic of this panel is about the public interest issues or any issue going beyond the

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competition. Now first, let me start with some comments on MOFCOM's practices.

MOFCOM internally, they conduct their review primarily focus on competition issues. One thing I've noticed in the past few years is that MOFCOM is more and more willing to entertain rigorous economic analysis and they ask good questions and, of course, we have to give them good answers. But it doesn't mean that merger in China doesn't involve any issues other than competition issues. MOFCOM is the lead agency in China handling merger but they have to coordinate with other agencies in merger review and Article 1 of the Anti-Monopoly Law says that the law is enacted to safeguard both consumer interest and social-public interest. There is a law there and then they have to- - and MOFCOM usually, those issues beyond competition would come up from the MOFCOM's collaboration with other agencies.

Next, we're going to talk about some big mergers like Syngenta. I will give you more details about that. Now it has been, whether you like it or not, industry policy has been very successful in China in developing its economy in the past 30 years. One thing when it comes to industrial policy, state owned enterprises play a big role in China and in pushing the industry policy. MOFCOM actually knows that there are no problems with state owned enterprises and there's efficiency problems and then there are a whole bunch of rent seeking problems and they actually support somewhat the reform of state owned enterprises. One possible way to reform them is to introduce foreign investment or privatizations and then there is the issue of merger. When the state owned enterprise merge with a foreign entity, how does MOFCOM review that?

Officially, they said they basically view state-owned enterprises as a market participant just like everybody else, applying the same rules, and to be fair they have imposed conditions on mergers involving state-owned enterprises and they also have penalties on those state-owned enterprises not notifying MOFCOM.

The complications usually comes from the fact that the China state-owned enterprises have a lot of regulating bodies, agencies. One is to end the NDRC and then another is state-owned as a supervision committee [which] also has a say. When a firm wants to go overseas, then you have to think about if you have capital going outside and then the SAFE, the State Administration of Foreign Exchange would have a say.

Not every agency would interfere with the merger but usually MOFCOM would have to at least get those agencies to agree to clear those issues before the final approval. Public interest issues is very difficult to define. Anything that would say national interest, national security, and even employment, or even economic growth, anything can be related to public interest. From China, it has been said that the goal is to try to build a harmonious social economy. How do you do that? It's not clear.

One thing that I noticed that Susan in the morning mentioned that at the latest Party Congress, there's a good message coming out of it is that now China is trying to implement a competition policy and we have sufficient legal support. There are scholars trying to argue that the best industry policy is competition policy. How far can China go? I have no idea. We'll just have to wait and see. I will just start my comment here and since then I know Dan has plans on talking about three mega mergers.

Daniel:

Thank you Jason. Actually, I'm going to leave you in the hot seat because I want to talk about Sygenta/ChemChina but it seems to me and I'm going to ask everyone on the panel to comment as

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well. There are two broad policy issues that I'm hoping will come out in the time we have left. One is of these policy concerns, which do you think are most appropriately handled by the competition authority and which do you think should be delegated outside the authority to another, to a regulatory authority or perhaps just a political process?

Then there's a broader question which I think comes out of what we've heard so far, which is: given the diversity across jurisdictions of the kinds of policy issues that have been raised, should we look to some broader international solution, none of which I find too compelling but maybe others will feel differently, maybe we could get Fred Jenny to get the Competition Authority that he's involved with working through one mechanism and there may be other possible mechanisms none of which strike me is that exciting but hoping others will have other ideas because I think we do have incredible diversity of concerns which makes it very difficult for parties that are doing mega deals.

Let's start with Syngenta/ChemChina and I'm interested from Jason's point of view about the particular concerns that China has, and most particularly interested in whether, to what extent he can tell us that the Syngenta/ChemChina deal was handled differently because because ChemChina was a state- owned enterprise. Then for the rest of the panel, I'm interested in -- to the extent that you are aware of -- how the issues surrounding Sygenta/ChemChina have been handled outside of China, Issues that you've noticed or heard about, and how they've been treated. Let's let's hear first from Jason.

Jason:

Thanks Dan. The Syngenta/ChemChina merger was filed within numerous jurisdictions, so I won't talk about them or I will just focus in China. Of course then, the first question is are there any security reasons, issues outside China. Well think about SAFE first. I won't talk about the SAFE first and -- but everybody was waiting for SAFE first to approve that deal before filing the merger notifications. At least with the major jurisdictions; the European notification wasn't filed.

In China, I think this is a good way to look at this merger from three perspectives. One is the competition policy perspective and apparently that wasn't a big issue. MOFCOM, ultimately, they approved but with no condition imposed based on the announcement from the Sygenta. They only have three to four percent of market share. I don't know on what basis, on what of element of the market they calculate. They just calculate everything that included the seed and pesticide sales in China. We know that that's different from the EU. EU actually looked at more than 450 markets. We don't know but that is not a big issue.

As I commented earlier, usually the non-competition issues is coming from what the MOFCOM's collaboration's with other state agencies. In this case, the deal is considered an agricultural chemical deal, which is a sensitive industry, so Ministry of Agriculture [got] involved. They do not issue any approval or announcement, but they have to. They work with MOFCOM and there are other agencies for example, NDRC, National Development of Reform Commission. Usually they don't look at a deal in detail because they just most likely register without objection. The same with the SAFE which is State Administration of Foreign Exchange. It became a hot issue last year because China's foreign exchange reserve was decreasing rapidly. Then the SAFE has to go in to control the outflow, but since this is a state-owned enterprises, there was no problem with them getting SAFE to approve their outbound investment.

The biggest issue actually the agency raising more eyebrows in China was the SASC, a State-Owned Asset Supervision Committee. That was because there was an open letter signed by a bunch of, 460

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citizens, led by a former minister of the once very powerful Ministry of Chemical Industry in China, essentially describing this acquisition as a suicide acquisition for the Chinese people, and basically saying that this is going to be bad for the Chinese farmer, bad for the Chinese consumer. That actually raised lots of eyebrows.

The issue here is the food security issue. Food is still very important for Chinese people. If you live Beijing, most old Chinese when they greet you they are not going to say, "How are you?' or "nĭ hăo," they're going to say "have you eaten yet?"

China has a long history of famine and food scandals. In the past few years, the biggest scandal was the tainted milk scandal that killed six babies and lots of people. There was a huge scandal. After that there was a frenzy for those milk powders and milk manufacturers oversees and then causing problems. Hong Kong, they have to limit the export of formula milk to China. Based on this background, Chinese people are generally scared of adding chemicals to their food. Which is why that letter raised a lot of concern.

On the other hand, the government is actually at a crossroad because the reality is that China only has only 7% of the arable land but they have to feed 20% of the world population. Chinese government is always trying to find a way to improve production. A lot of scholars and then officials believe that GMO may be the future and if that works very well then they could improve production and secure food security to solve that problem or mitigate that problem.

The third thing is the industry policy and in these deals, the industry policy actually is playing a big role in the sense that China realized that in the past 30 years, China has always been the country trying to export more, it's export-oriented. It was playing a follower role and now they realize that for the economy to be sustainable, you have to be the leader in some technology. They're trying to figure out a way. GMO comes in and this is a new technology, maybe other countries are not willing to experiment and if China can take the lead in this innovation, they may actually generate some potential growth for the economy. You can see that beyond the competition, all these issues in Syngenta/ChemChina they are actually lining up pretty well and which is why I wasn't surprised that it was a pretty smooth approval although it takes a long time.

Daniel:

Thanks Jason. I want to give the other panelists chance to comment. One of the questions I have is does the fact that this deal may lead to the expanded use of genetically modified products; does that raise issues for some of the other countries that may have been active here? I just want to give any of the rest of you a chance to comment. I'll start with you, Rosie, if you want to chat, now go on.

Rosie:

Sure, Dan. Before I get to that specific question, I just wanted to pick up on a point that James raised about CFIUS. When this merger was first announced, I think commentators expected that CFIS process to be pretty long and arduous because it was sort of the largest ever outbound acquisition by a Chinese company in the agricultural space.

There were concerns potentially about how that would impact food safety in the US. I think people were surprised at how quick and relatively painless that CFIUS process ended up being and CFIUS isn't allowed to look at the impact on U.S. commerce of the deal. One might re-enter to the quick

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review process that they didn't do that. The other thing that it could signal is that the scope of national security concerns may not be as broad as one might expect given that it was cleared relatively quickly.

Daniel:

Anthony, do you have any comments?

Anthony:

Yes, sure. I think as I understand it, a national security issue did arise in the ChemChina/Syngenta case. For example, I think that there was some land that Syngenta held in Hawaii as I understand it, which was very close to a U.S. Army base or military base and I think it was a condition as I understand it, of the clearance that ChemChina through Syngenta was required to dispose of that land. It seems to me that that is a classic issue, a classic national security issue, it's quite right for CFIUS to consider. As Rosie said, it was it was resolved satisfactorily. I also understand food safety was raised and there's an issue as to whether that is actually a national security issue or not. I think, as I understand it, CFIUS takes the view that it is a national security issue although I think there are good arguments that actually, it's not.

From my perspective as an English qualified lawyer having public interest as a test does raise issues. During my career, the UK statute, the UK test for mergers has actually changed from a public interest test to a substantial lessening of competition test. The reason for that change was to remove all the political lobbying and political aspect that used to go on with mergers.

We still have public interest aspects for media transactions, and for defense transactions, and now for financial stability. Having a public interest test does introduce not only an element of unpredictability but also introduces a process of political lobbying. We certainly had a whole series of cases where decisions were made which seem to be very much politically driven rather than on predictable established criteria mainly based around competition. I definitely agree that public interest having that as a test and introducing those considerations definitely causes potential obstacles and unsatisfactorily elements to a merger control process.

That said, it seems to me that what's happening in the world at the moment, witness the Brexit referendum results, witness maybe what's happening a bit in the U.S., and what I've been hearing on my travels this week in the U.S., there is a lot of dissatisfaction around. We may be a moving away from the post-war consensus around economic policy, around international institutions and we do have to listen. We may think that public interest creates all sorts of problems but the fact is people are unhappy about the way in which wealth has been distributed and we have to listen to how that can be accommodated.

Now, on your point, Dan, about international solutions, I think what's very interesting about ChemChina/Syngenta case, of course, it has happened before is that the decision of the EU, the conditional clearance, that was announced the day before the US issued its conditional clearance. Clearly, there was a lot of coordination between them which I think is a great thing. I don't think we're anywhere near the time where we can have a global antitrust authority or even where we're at the point where there could be rules by which it was agreed which antitrust authority was going to take the lead in a particular case. I just don't think politically we're anywhere near that, but I do think we're definitely at a point where the cooperation between competition authorities can continue to increase. That doesn't necessarily mean that you're going to end up with a satisfactory result. In the P3 shipping

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container mine case which was mentioned this morning, there was a lot of discussion between the US authorities, between the European Commission, and between MOFCOM, the Chinese authorities.

Now, it turns out that that transaction which was a proposed joint venture between the three major European container shipping lines that was not actually regarded as a merger by the US or by the EU, despite all the conversations and consultations, MOFCOM did consider it a merger and blocked it. It doesn't need to say that if you are going to have these consultations, you are going to get the same results. But I do think it's a really important way forward. I think the ICN and further initiatives are the way to go.

Daniel:

Thank you very much, Anthony. Let's see, Simon, anything? Fine? Okay, well actually, I want to get back to seeds but we may run out of time and I want to give a chance to keep you awake by talking about beer again.

[laughter]

I want to ask—Or maybe make you thirsty.

[laughter]

I want to give Simon a chance to first but one of my questions about the AB/SabMiller deal, for me it relates to the labor market considerations that were put in place in South Africa and apparently to some extent in Ecuador which I wasn't aware of. Labor market concerns and distribution concerns which flow from it have a reason in the US and many other places around the world.

Simon, I'll give you a chance to talk a little more about how that merger is handled and then I'd like to hear from anyone else who wants to comment about how we ought to treat these concerns for unemployment, for income distribution. There are clearly important concerns, the question is, should they be treated within our current purview of competition or should we delegate it to other regulatory authorities or to the political process more broadly. Let me give you a chance Simon to talk a bit more about beer and you can tell us which craft beers you consume if you like as well.

Simon:

[laughs] Thanks very much, Dan. I think, the first thing I want to do is I want to just quickly reinforce at this point that I think there's employment issues, there are quasi-industrial policy-type issues for supplier development and there are quasi-competition issues which may relate to competition policy questions around barriers to entry and participation of smaller businesses, etc. I think those three things are very, very different but they’re still getting lumped together.

As I said before, I think the employment questions are not so interesting in the sense that the rationale for some protection of vulnerable groups, high levels of unemployment, and I think that there's a good reason for that but in terms of the intellectual exercise of understanding the merger it's not as much to discuss, I think, around that. There’s a cost that the merging parties essentially are committing to around providing some retraining and some commitments around retention, some retraining funds for employees to find other work. This is for low skilled employees and typically there's a distinction between employees who have got high levels of skills able to find other work readily and employees

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who have low-level skill and not able to.

Then there's all these things which sometimes are characterized as related to employment but they're really broader industrial development or development of region type initiatives. This is where it's quite interesting to see the sense of things that were put into place in this merger. It went through to supporting farmers, farmers of barley. It looked at supporting manufacturers of input crops. It went into the existing farmers to say the existing farmers there shouldn't be a change in sourcing from those farmers, so if a new owner comes in and hence it's a different procurement system and they move away from it.

Then there was additional investment of a 1 billion Rands. The Rand lost a bit of value recently but around about $70 million in agricultural development and in enterprise development which is over and above the investment commitments that the existing business had made. The existing business will continue to make the investments we're going to make, here's a list of them. Then the government said, "That’s fine. We want another new set of investments because you said this merger's good for the country." Companies often play into hands because they come into this marketing spiel with a kind of management consulting team and say, "There's going to be always really cool things they’re going to happen and we're going to have access to international capital markets."

It's difficult to AB/InBev to see why they don't have access to all of these things. When they come and say all of these things which strikes me as not a very sensible thing to do because then the government says, "Well, that's great. Let’s have those commitments." Then they say, "We won't trust you about your implementation. We're going to have an implementation board. On that implementation board we're going to have these different representatives." You create a whole -- a little industrial policy around this.

There may be good reasons for development of small-scale farmers getting into supply chains but those are good reasons without the merger, if there were good reasons. If they weren't good reasons, they weren't good reasons without the merger as well.

I think the whole set of concerning developments which is not about -- They're not specific to the merger change of ownership but it smooth’s the way. Then there are a set of things which I think are the competition questions or what I call quasi-competition questions. They’re competition policy questions which I think are potentially reflecting a weakness in our competition enforcement or a competition policy regime. If you are a weak competition enforcement regime or weak competition policy regime, for example we had the Liquor Act which was going to manage the distribution chain, and the lobbying by large incumbents changed the Liquor Act so that they could continue to retain control over that, so if you like, a competition policy failure. If you do that and then the merger comes along then the government or the Competition Authority uses the merger to -- Then you're trying to achieve a better outcome through the merger.

That’s related to a whole set of things around distribution free space, craft beer participants. It went to about access to bottle tops. The main SMB business owns the big bottle top manufacturer. It was a condition that said they must continue supplying bottle tops to their rivals. There's a whole list of these kinds of things which I think are potentially important although they do point, as I said, to perhaps a failure in other areas which it would be better to spend time considering as well.

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Daniel:

Thanks. I realized when I was listening to you that I've been remiss the chair panel. I feel I should let about the various conflicts of interest I have in these deals. The conflict is that I spent two weeks in South Africa last year touring wine country and sampling various craft beers. I have very strong views about that but I will try to keep those in the background. Anyway, anyone else on the panel want to comment on this particular deal or the treatment of the employment issues?

Rosie:

I'll just make one comment because I think Simon what you said is interesting and in the contrast with what Makan's keynote remarks focused on with respect to US antitrust enforcement priorities that I think he said something like we want to be enforcers and not regulators. There's a decision, I guess, every competition authority has to make as to whether or not they want to engage in more regulatory style behavior where there is more of an industrial policy component and there is more sort of managing how the market works as a result of the merger versus just looking really directly at whether it does or does not harm competition. If it does there's a structural remedy. If it doesn't you let it go. There may not be a one-size-fits-all solution and I can imagine that different companies at different -- Sorry, different countries in different states of their development might make conscious choices about that balance in different ways.

Then the other point that you made was about employment considerations and I think you said Simon that it's not a very interesting issue. I think from up from a private sector perspective if you're just talking about dealing with employment in one jurisdiction then you're right.

I think if every jurisdiction around the world had different conceptions of what that meant then it would significantly increase the complexity of doing the deal. If you had to incorporate employment considerations in every jurisdiction and you did that in a different way, it would increase the complexity. If I take my private sector head off and I think about is that better for the world, we should talk about that because maybe it is.

There’s definitely a problem that we're having now just thinking about what's happening in Europe, in the US and people are -- There's a growing anxiety about inequality that's important for us to think about and consider. There may not be easy answers but it just struck me that the employment concerns that they're just confined in South Africa may not be that interesting. If you think about other countries following in South Africa's lead then the efficiencies from mergers may change as a result of that.

Daniel:

Thanks, Rosie. It is striking that we traditionally consider as an efficiency the savings in costs because we are able to avoid duplicative jobs and now we have labor concerns and suddenly the story goes the other way. How that's going to be treated going forward will be interesting.

We just have a maybe 5-10 minutes at most but I wanted to just touch briefly on Bayer/Monsanto. As I look at the deals we talked about, what interests me is Syngenta/ChemChina's primarily a vertical deal which under normal conditions you think would have not been a big problem but it raised a lot of other issues, policy issues we talked about.

ABI/Miller is largely a horizontal deal that needed the big fix in the US for obvious reasons, but you

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would have thought it would be other than the volume of the deal that it would not raise a huge number of issues but it clearly did in South Africa and a few other places.

Now, we go to Bayer/Monsanto, the story is different. That’s a very complex deal we could spend hours just describing it but it does involve genetic traits, seeds, and herbicides and it raises a whole host of serious competition issues related to both pricing -- to pricing output and particularly to innovation. My question -- That's all in the background. My question for the panel is, are there other your policy issues that you've noticed or think important that go beyond the treatment of the traditional issues including innovation, ones that you've noticed in many of the jurisdictions, around the world that will be affected by Bayer/Monsanto if the deal is completed? Does anyone want to talk about it, Anthony?

Anthony:

I think that's an issue on biodiversity, as I understand it. The theory of harm is that these companies, if the deal goes through would focus on sales of the crop protection products which are vital for the production of their GM seeds, successful fertilization of those seeds, etc., and that that could have an adverse impact on the environment and general biodiversity.

Daniel:

Thanks. I think that's interesting. There's also an issue about the move to digital farming and how this will be implicated as well. Anyone else have any other comments about Bayer/Monsanto?

Jason:

I talked too much about Syngenta and ChemChina. Bayer/Monsanto is in similar situation but it hasn't been approved, it's ongoing with MOFCOM so there's very little news about it. Actually, it's the third of the most recent three mega mergers -- Dow Chemical/Dupont, Syngenta/ChemChina, and Bayer/Monsanto. The issue is still similar, it's GMO product, but since China has already approved Syngenta/ChemChina, it's going to be really difficult for the government to -- from issues other than competition to make an issue of GMO.

Still, unlike Syngenta, Bayer/Monsanto, they combined account for a large share of the current imported GMO seeds, GMO products approved by the Ministry of Agriculture, so I would expect that from the competition perspective they may have issues in that but it's not clear how they are going to deal with that. Other than that I'll just stop here.

Daniel:

Thanks. We are running out of time but I do want to give anyone in the audience a chance to ask a question if you have one. If it involves Peru that would be okay.

[laughter]

Go ahead. It's still okay. You should get a microphone.

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Audience Member 1:

Of course we are all in agreement that the issue of how well [inaudible 01:12:48] distributed in the past [inaudible 01:12:50]. For all the people that work in developing countries, we also know that there is this myriad of [unintelligible 01:12:57] reservations, regulations. Their design, their application [unintelligible 01:13:02] that affects how markets function or how competition actually happens in the market. It's not only about being competitive in the [unintelligible 01:13:09].

We talked about using antitrust laws for solving these issues though we need to separate first, [unintelligible 01:13:17] role for competition [unintelligible 01:13:19] just understand the effects of all these policies and honor the relations and interventions into how this is distorting [unintelligible 01:13:29] what is stocked in the market. The other role that we are discussing on this panel [unintelligible 01:13:36] to actually use these tools to actually solve issues related to employment, jobs, etc., that [unintelligible 01:13:44] the public interest through American [unintelligible 01:13:47].

I think in developing countries, there is nobody in the government like an antitrust agency that can actually help import the [unintelligible 01:13:56] understand what takes place in the market. For instance in the case of China, [unintelligible 01:14:04] industrial policies work but I think what was interesting to learn is how industrial policies work in the sense that they were given to sectors that were more competitive, that [unintelligible 01:14:15] than if you give it to only one or two.

The understanding of the how is also relevant. That's not a role that potentially some developing [unintelligible 01:14:23] they would be even more important than this one because even if you are having public interest in conservation, who is going to later on effectively assess the [unintelligible 01:14:36] of this merger on the market.

Daniel:

Thank you. Is there anyone on the panel that would like to respond?

Jason:

In China, I would say that there are always debates about whether competition policy and the relationship between competition and industry policy. They are basically -- competition policy trying to guarantee the competitions of people -- you don't pay higher prices for the product. Another way to deal with that is you push the industry policy and make people reach it so they have more money to pay, they don't care about higher prices. That's just a joke so --

[laughter]

That's basically the thinking that is going through the Chinese leadership on whether they should go to competition policy. I agree with you that there is a lack, a serious lack in terms of educating the competition regulators to understand the competition effect which is basically what we are. I am an economist and I may be biased but I think the first thing that we should always do is -- since economics is both in China and outside China and they pretty much speak the same language and most of them are marching overseas and using the same set of economic tools. That probably can be one thing that everybody could agree upon and that would be a good starting point, using the same language to analyze the competition effect.

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Beyond that, then every country would be different. They have their own national interests that they have only the preservation of public interest so there must be some kind of as Megan said earlier in the morning, there has to be some kind of international collaboration to resolve the issues beyond competition.

Daniel:

Thanks. There maybe time for one more question. Go ahead.

Audience Member 2:

Thanks. Michelle [unintelligible 01:16:43] I'm a lawyer at the Johannesburg bar and I suppose to credential myself I acted for the unions in Walmart, I acted for the unions in AB/InBev but then I actual merging parties and government and the commission and everybody else. To take on Simon's point that the employment issues in [unintelligible 01:17:03] weren't that interesting.

From our perspective, what we were very explicitly doing as organized labor in that deal, was pushing the boundaries of employment which is the only word that describes that public interest ground in our act and for those of you that aren't familiar with the legislative language. The South African Act is very explicit that its purpose is to undo the legacy of apartheid economically. To expand the spread of ownership, expand employment, change concentration patterns in the economy. All of these things are explicit in our Act.

What we did in the AB/InBev case as well, which is merger specific, was they were putting together four work places in that deal and there were different terms and conditions in all the different collective bargaining agreement. Things like a night shift allowance, or study leave, or maternity leave. The collective bargaining process had failed to harmonize those standards and the union that was the Union Federation that was my client, absolutely decided that the merger would be the moment that they would push for that harmonization.

They weren't going to get it in collective bargaining because the power dynamic wasn't right and when they were in that room with the merging parties who needed to get this deal done, harmonizing those kind of things and harmonizing them to the highest level in whichever one of the bargaining agreements we were looking at was piffling compared to the money that management made out of the deal.

So when I am teaching my students competition at the University of Cape Town, I always say to them you know we talk to them we talk about competition law where competition is being the intersection of law and economics, but to me the more important economic question when we are doing public interest in South Africa is political economy and the fact that there is that opportunity as much as it's exploiting the merging parties, it was a moment that needed to be grabbed as opportunistic and exploitative as that was.

Daniel:

Interesting comment. Thank you. I assume you don't need to respond. Did you want to say something?

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Simon:

Michelle missed out her most important role which is -- It's good to hear. I don't disagree with it at all, but it begs the question as to why the merger at the time when you get this. Although those things are undoing the legacy of the past are in objectives of the act. It's only in the merger provisions that they are given voice. Michelle's most important role is that she's chairing the panel to recommend amendments to the competition acts at the moment. I think a month or two behind delivering them, right?

[laughter]

[unintelligible 01:19:54] said in July they would be done in six weeks. We are all waiting [unintelligible 01:19:59].

Daniel:

I think we will have to have another meeting a year from now in order to see how this all resolves itself. Meanwhile, I encourage all of us to visit both Joburg and Cape Town to check it out. We've ran out of time. I want to thank my panelists, I appreciate all you coming a long distance in many cases and commenting here. Thank you very much. We'll take a break.

[applause]

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Panel 4: Mergers: Innovation and Technology: The Next Frontier on Antitrust for Developing Countries?

Frédéric Jenny:

Ladies and gentlemen, we are going to start right now, the next panel, which is devoted to a question which was -- As matter of fact, it's a panel which was requested by James this morning on innovation and technology. The question is, is this the next frontier on antitrust for developed countries? This raises a lot of questions. We are going to try to have an interactive panel, and we are going to try to talk about four or five sub-topics under this heading.

The first one being how to take into account dynamic efficiencies in mergers in dynamic industries. Second, do we have adequate instrument to take into consideration some of the technological developments like multi-sided in markets or disruptive innovations. Third, are there are specific challenges for competition or enforcement in developing countries when they come to technological industries and to mergers in such industries. Four, is there a question which we already talked about this morning, but is the complexity of merger in dynamic industry, does that lead to a strategic use of competition law. Finally, what to do or should we be concerned about the extra territorial remedies in IP related cases which seems to be an issue that is much talked about.

To deal with those issues, we have wonderful panelists. We have Elizabeth Kraus over there who is the Deputy Director for International Antitrust at The Federal Trade Commission. Joanna Tsai, next to Gönenç, who is Vice President of CRA, and was an economic adviser to Commissioner Joshua Wright at the FTC. Koren Wong-Ervin, who is next to her, who is the Director of IP and Competition Policy at Qualcomm. Gönenç Gurkaynak, next to me, who is the Founder of the ELIG law firm in Istanbul, and also a specialist on IP, as well as competition, as well as human rights and other topics.

Without further ado, let me try to start from the big picture and then we try to focus on the issues of developing countries. To start with the biggest issue, how can one take into account dynamic efficiencies in merger analysis in dynamic industries? Is this a challenge for competition authorities and what can be done or what help can we get? I would like to turn first of course to Joanna because she's an economist, and trying to see whether the economists can have views on how those dynamic efficiencies should be taken into consideration by competition authorities.

Joanna Tsai:

Thank you, Frédéric. It's a pleasure to be here. First of all, to answer the question, yes, it is a challenge for competition authorities, and I think it is a challenge for all competition authorities, because the exercise is very hard to take into account dynamic efficiencies in merger analysis in dynamic industries. It is hard for everyone. Here is why. Let me lay out why so that we appreciate why it's difficult and when we recognize that, then how we might proceed to resolve it.

It is hard because inherently, merger analysis is forward looking and it's predictive, and we're trying to make predictions of what would happen in the future based on what's happened currently and in the past. That's the first prong that makes it difficult inherently just with a merger analysis that you're dealing with.

Secondly, we're talking about a dynamic industry. Dynamic industries by definition evolve rapidly. By its nature, it's hard to predict to the extent that in a typical merger analysis, if we want to think about 85 Antitrust in Developing Countries: Competition Policy in a Politicized World 27 October 2017 – New York

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market definition or think about competitive effects, what are the substitutes of the different firms' products and services. How closely do the merging parties compete. All of that gets thrown into even a more uncertain world when we're in a dynamic industry world where things can change rapidly. That's the second prong why it's hard.

The third prong of why it is hard is trying to measure or predict dynamic efficiencies. Dynamic efficiencies is something that we want to know the extent to which firms introduce new products, the extent to which firms innovate. That in of itself again it's predictive in a merger analysis.

With all of these three prongs, I think of complexities gets compounded, and that's why this is a very difficult exercise I think not just for developing countries, for here in the US at the FTC. Certainly when I was at the FTC, I know this is a difficult issue that people wrestle with.

I must say hard doesn't mean that we should ignore it. Hard to account for dynamic efficiencies in dynamic industries doesn't mean we should ignore it. Merger analysis is flawed if only the negative effects are evaluated without the corresponding look at the positive effects from the merger. As an example, we can't just look at how would the merger affect the upward pricing pressure on prices without accounting for the kinds of efficiencies and the kinds of cost efficiencies and other benefits that the merger could bring.

Speaking of measuring net effects of mergers, I mentioned we've got to look at competitive effects and then we measure efficiencies. Efficiencies, everyone knows there are various types. Before we get into dynamic efficiencies, there are the more static efficiencies where we're looking at marginal cost savings. That's part of what we want to take into account in a merger analysis. What's wonderful about merger analysis and mergers in the sense that they could drive lower prices from those efficiencies, and better products and more innovation. Sorry, Fred, that was one minute?

Frédéric:

One minute.

Joanna:

Okay. After taking into account cost reduction, normally we want to think about R&D. What would be one of the benefits that a merger could bring and its efficiencies is the benefits from consolidating R&Ds. How do mergers really affect innovation and will the merger facilitate dynamic efficiency is something that a merger review agency would want to look at. There lies, I think, a lot of the issues that people wrestled with is, economic theory, market power and competition on innovation is a little ambiguous. There lies a lot of this sort of fact-- digging into the facts to understand.

For example, when you're looking at two firms merging and they both have an R&D agenda, are their agenda complementary or are you in some cases-- The FTC have looked at this in Nielsen Arbitron, for example. They actually concluded that the competing R&D agenda instead of sort of measuring dynamic efficiencies from that, they actually thought the merger could have eliminated one of the products that could be brought on in the future. Again, depending on R&D, is it-- does the merger facilitate more innovation or less innovation. This could go either way, and it's very fact specific inquiry.

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Frédéric:

Okay. Thank you. In a nutshell, very reassuring. The theory's ambiguous and the evidence is mixed on how much we can trust the results. Let me turn to a practitioner. Gönenç, you had experience from that point of view and do you feel that dynamic efficiencies are taken into consideration by competition authorities at the level that you would like?

Gönenç Gurkaynak:

No. The answer is no.

[laughter]

Dynamic efficiencies, I think, are being treated inconsistently in the sense that whenever there is a concern about innovation being stifled, then suddenly antitrust agencies all over the world remember about innovation, when there is a concern. Products in the pipeline, ooh, if you were to come together, are you really going to still produce these products that are in the pipeline and all. But for agencies that are so keen on guarding it as a statical matter, a static innovation, the same agencies aren't that eager to foster it through promotion of innovation as a policy goal.

Meaning, when it comes to parties defending that, say for example, short-term distribution efficiencies, losses, short-term price increases are going to be redeemed in mid-term or in the long- term through innovative games, suddenly, the same authorities that are so keen on using stochastic economical models and so keen on using hypotheticals, say well, this is all very hypothetical. You don't have evidence, you don't have any proof.

This has become, I think, very, very, inescapably clear in the very, very, recent Dow/DuPont file where the authority is so keen on talking about worries that have to do with, I'm talking about European Commission, the worries that have to do with their problems presented by two innovating competitors, and whether this would harm their zeal to innovate further as they proceed.

Most of the language, if you have reviewed the Dow/DuPont decision, relies on very theoretical, hypothetical, economic theory. Which there's nothing wrong with that, but they themselves are not relying on fact-based models of economy either. Then when it comes to reviewing the defenses of the parties, suddenly you're seeing a lot of reservation and rejection from the Commission where the Commission starts saying, well this is all very theoretical, I want evidences.

This is, I think, part of the fallacy that you have in reviewing innovation-based arguments, which is that innovation is certainly the most significant driver of welfare. There can be no doubt about it. Generations follow each other and as generations follow each other, the increase in welfare is primarily owed to innovation and dynamic efficiencies. New products, new technology, new business models coming about is what innovation is all about.

Yet the idea that we have heard in the morning as well, I know it when I see it, does not really work in terms of treating innovation. Because I know it when I see it, is a jargon of problem detection normally. You're basically saying, I know it when I see it. I know it when I see it when I see a fault. I know it when I see it when I see an issue. If you wanted to promote innovation, as a deliberate policy preference, then you would have to look to see it. You would have to deliberately look to see it and you can't just say, I know it when I see it, because ultimately, you will have to come up with a policy

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preference of not saying, "this is your burden of proof," but as an agency, you would have to go the extra distance and fear that you might be leading to a result where innovation in the future is going to be stifled through your draconian enforcement.

You should hesitate and you should take baby steps and test the results of your baby steps because you're in a very dynamic and innovative field, which is not really what we're seeing today in the dynamic markets when it comes to merger control enforcement.

If I'm allowed a last sentence on this topic, our situation more looks like the story of the person who's looking for his car keys under the street lamp. Someone else comes and says why are you looking for it under the street lamp? Did you lose them there? The answer is well, no. Actually I lost them where it is dark. But because the street lamp is here, I'm looking for it here.

The innovation is something that is out there and we know it exists. Whenever it is more calculable, suddenly, we start talking about it. In the agriculture markets, in the farmer markets, whenever there is a true pipeline, a clinical test stage of things, and whenever it becomes a bit more evasive, we start pretending as if it doesn't exist, whereas we know full well that it exists. It's just our inability to touch it through the economic models that we have right now. Which means that the agencies should be equally eager to listen to all these arguments without pushing them aside as inconclusive because they're bound to be inconclusive as there is a degree of prediction and suspense in these analyses with the tools of today. Thank you.

Frédéric:

That was a long sentence. Thank you very much.

[laughter]

Very inclusive. On top of the fact that the theory is ambiguous and the evidence is unclear, the standard of proof is not the same when we talk about the anticompetitive effect and the-- Now, I had one question which is whether Joanna was actually working in the same FTC as Liz, because I've always thought that Liz felt fairly comfortable with the method of the FTC when it came to dynamic efficiencies, whereas Joanna has expressed the fact that the FTC was very difficult. We didn't know what we were doing.

Joanna:

No. I think it's a hard exercise. I wasn't saying anyone didn't know what they were doing. I would like to take another round at this.

Frédéric:

Yes. Let's hear Liz first and then you. Liz.

Joanna:

Liz first and then I'll elaborate.

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Elizabeth Kraus:

Hi. Since I am here with the FTC logo, I should give the disclaimer that I am speaking on my own behalf and not on behalf of the commission or any of the individual commissioners. I also wanted to just use this moment to thank everyone for providing some really provocative thoughts this morning. It's been a really interesting conference so far. I'm really delighted to have been able to join and hopefully, will offer some additional as well.

I actually wanted to take up everything that Joanna just identified. It's a hard, difficult, exercised, merger review, to begin with. In innovative markets with disruptive innovation, it's all very fact- specific. It's predictive. Then you get into the efficiencies of it all, and the tools are not always there with the precision that we would like. So I want to step back a moment and say dynamic efficiencies aren't the only way that we bring dynamism and looking at innovation and evolution of markets into our analysis.

It's very rare, actually, for us to do a deep dive into dynamic efficiencies in our merger review. We often look at dynamism in other parts of our merger review exercise, first when we're looking at whether or not there's even any competitive concern. We'll look at market entry, we'll look at market definition. We can, in very many instances, either overcome the issue of the competitive concern and therefore not have to go into the dynamic efficiencies, or we really do find issues and then we'll listen to the justifications that the parties would want to provide on the dynamic efficiencies because it's quite important to look at the legitimate rationales of the transaction and make sure we're not negatively impacting a market without reflection as to what those are.

How do we do this maybe would be helpful. I think many of you know that in the US, we have Horizontal Merger Guidelines, and in Chapter 10, we have approach to efficiencies. We're going to be looking to see whether the efficiencies that are identified by the parties are going to be merger- specific. Are they vague or speculative? Are they cognizable? By which we mean, can they be verified, that gets a little tricky with dynamic efficiencies, as Joanna identified, and that they are not arising from any competitive reduction or output. The challenge for us is really this latter point about vagueness and cognizability, I think.

You can see that in the research and development area, for example, there's a nice passage in the Guidelines that identifies that there can be really substantial cost savings and yet they might not be cognizable because they're really difficult to verify, or it might be resulting from anticompetitive reductions in innovative activities. You might be combining two potentially competitive approaches to research and development and then we'd be worried about that. If we do see though that there are cognizable efficiencies, then we'll look in and do a kind of a broad brush balance against the anticompetitive harm. If there's limited anticompetitive harm in the magnitude of efficiencies that we're seeing are substantial, we would let that transaction go through. Is that rare? Yes. [laughs]

In our litigated matters, parties have had a really hard time in court developing the efficiencies arguments and having those claims accepted. We note however in our commentary, I think it's in 2006 to the Horizontal Merger Guidelines, we give a couple of examples of where the magnitude and the efficiencies might prove meritorious.

Then there's one case from 2004 in a consummated merger Genzyme/Novozyme, that's it, where we really did do a look in the innovation market for drugs which the two competitors for the therapy that they were doing research and development into were merging. Indeed, the pipeline drug issue have

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considerable concerns about that. In a consummated merger, you actually have a little bit more evidence maybe. There were some pointing to the fact that post-merger Genzyme actually supported the Novozyme research and other benefits that were complementary such that the dynamism of the efficiencies actually overrode the competitive concerns. But again, I'd underscore that's where.

Frédéric:

Joanna, you wanted to come back?

Joanna:

Yes, just a brief intervention. I just want to reiterate that hard doesn't mean we should ignore it and because it's hard, just like Gönenç said, is probably why it's not taken into account enough because it's hard to document, it's hard to quantify and all the such. On the other hand, anything that whether it's competitive effects or efficiencies, we are-- they ought to be evidence based, as Liz said. Even in the cases of static efficiency, it's hard to document. Not to mention the dynamic efficiencies. A lot of times, parties have trouble because it's something that's hard to document and prove even for cost reductions.

You could prove potentially these types of cost reductions, but well, are they cognizable? Whether the parties, for example, have had similar types of mergers and can document that they were able to bring about those kinds of cost efficiencies. That doesn't happen in every scenario, and therefore it's difficult. But in terms of R&D and pipeline scenarios and merger analysis, I just want to say it's not that everything is up in the air and we just can't do anything about it, and there are questions that I would look into that I think could help too. It's not precise, it's not perfect, but it could help to give some indications as to how worried we should be about pipelines in the context of a merger and things like that.

First of all, just-- Maybe this is a longer intervention than I anticipated. Product in development, are there-- What are exactly the overlaps in terms of function and use? How closely would they compete if they were the products and pipeline would actually get brought on to the market? Then the probability of those products actually getting to market, because if we're expressing this as a concern of eliminating future competition, then we ought to understand what stages these products are at, and what are the probability of them getting into the market. Some types of industries like pharma, there are better statistics that we can use. For example, products that get to clinical trials that get to phase 1, 2 versus 3.

There will be something to that effect that either we could use to try to predict how likely these products are to get to the market and whether they will be real substitutes between the two merging parties products. On the other hand, it could be the case that by consolidating our entire operations, they are not substituting each other's innovations but they're actually then becoming a stronger research team being able to bring about more innovation.

Frédéric:

Thank you very much. It's a pragmatic approach. It would be fair to summarize all this by saying we do the best we can. We don't really have an analytical tool which are very sharp. We have some tools but we look at each case.

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Now, let me jump to the second topic, which is the fact that the high-tech industries, particularly in the digital world, we have new forms that emerge such as, for example, multi-sided markets. We also have partnered in the digital economy but not only in the digital economy, new forms of innovation such as disruptive innovation that take place. The question is whether the tools that we have even for the-- Let's leave aside the dynamic efficiency for a while, but whether the tools that we have just to study the competition implications of certain transactions, are adequate to deal with those new forms of competition.

Let me jump to Gönenç again to see whether you believe that competition authorities have adequate tools to deal with those new forms of markets and new forms of innovation.

Gönenç:

Not yet, I think, and I think the rule of the game will have to be while waiting to develop these tools, that we should follow the Hippocratic Oath, basically, primum non nocere – first, do no harm. Because we don't have these tools in the disruptive innovative markets, we shouldn't resort to the traditional tools that we have in enforcing as the perverse results of these would be far worse for these markets than lack of any enforcement, in my view.

If the SSNIP test is not working because it is designed to analyze single prices in one sided markets and what you have is a zero price market or a multi-sided market, then you should just abandon the SSNIP test that particular instance and maybe make peace with the fact that you should self-doubt as to what you're doing and how you're defining markets. It is not ideal. Clearly there will be a day where we have better analytical tools.

But in these transition periods of markets taking the lead and competition lawyers and competition economists trying to catch up with what the markets are coming up with, it is far worse to go at it with the traditional brick and mortar series of, or the tools or enforcement. An interesting example we're seeing in Turkey you might be interested to hear. I try to not give Turkey-specific examples too because it's not a leading competition law jurisdiction although the enforcement is pretty sophisticated now there. But this is truly interesting from a global perspective as well because to my knowledge, this is the only case of an excessive pricing allegation in an online market.

The Turkish Competition Authority is pursuing an excessive pricing case in the online ads market, and this is a perfect example of why you should abstain from the traditional tools. What the Turkish Competition Authority is doing is they're deploying the cost analysis that you would normally do, and then they're coming up with all their ideas about how the prices have increased in the last five years, and they're saying the price must be excessive because I'm looking at your costs and you don't have much of a cost, do you?

The defendant is trying to frantically explain that that's not the business model and that's not how it works and you're catching me at my moment of recruitment and actually, I'm going to convert this recruitment into something in this industry, if you were to allow me. You see, we're coming back to the “First, do no harm” kind of approach. Admittedly, this is an emerging marketing example. The more developed countries are not doing this type of enforcement, but still, I think it gives a good example as to how we should treat the question of what to do in a multi-sided markets of disruptive innovation or multi-sided markets per se, and that should be “First, do no harm”.

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Frédéric:

Okay, thank you very much. Well, let me turn to Joanna. As an economist, do you agree that traditionally, someone can fail, and as an economist, do you have a way to retool those tools to make them more relevant?

Joanna:

I must beg to differ somewhat from my fellow panelists.

Gönenç:

Happens to me a lot.

Joanna:

Huh?

Gönenç:

That happens to me a lot.

[laughter]

Joanna:

Just to make it more interesting, right?

Maybe, it's what we mean by tools, right? Because that can differ. I think that the tools are there, we might need to hone it in a little differently because of the industries that we're looking at. Also, we need to implement it and interpret it differently. The interpretation and the implementation is different, but I don't see it as necessarily needing different tools to evaluate multi-sided markets. Let me-- I'll give some examples.

I think, Gönenç mentioned the situation where you have a multi-sided market and what is very common that we see is on one side of the market, the price is zero or even negative, right? So antitrust agencies may be tempted to, or complainants, right, other complainants can be tempted to say, “Well, you have literally no cost or very low cost. Why is your price so low or so high?” Right? Antitrust agencies could be concerned about either direction, prices that are significantly higher than net cost or significantly lower. Significantly higher because it's indicative of potentially abuse of market power. Significantly lower could be a predatory pricing type of framework.

Now, with that, I would say one of the things that whoever is looking at this and reviewing this either realize that this is a multi-sided market. It's not the case that cost is as low as they are. One side is subsidizing another side. That ought to be taken into account almost as the system, right, as a platform, as opposed to just focusing on one side and cut out the rest of the sides.

You also mentioned the SSNIP test. To that, the SSNIP test doesn't work if you just focused on one side as opposed to looking at the prices at various sides or looking at it again, a SSNIP test as a whole

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system, as a whole platform.

Another thing to consider is to, and this is something that, it's not just me sitting here saying, I think the literature on this and the FTC actually has something on this as well, is that, you look at another way that one could examine effect, [which] would be to look at output, look at transaction volume as opposed to prices, because prices is hard to think about because they are being divided up on the different sides of this market.

Frédéric:

I understand that, just to come back to what you just said on the SSNIP test, for example, that you want to take the globality of the two siders, but how do you allocate exactly the hypothetical increase in price? Do you allocate it on each side, proportionately or-- In other words, when you say, “Well, we need a little twinkling of the tools." I want to know, is there an agreement among all economists on exactly how you should do that, or is that still a debate?

Joanna:

It's really hard to get all economists to agree-

[crosstalk]

Many things, just to begin, and I wouldn't dare say that all economists agree on how you would do that. What I can say is, at least, one other economist other than myself. How about that? At least say, you would look at a SSNIP test on one side of the price, on the other side of the price, on joining the prices on the various side and observe where you might have problems and taking them together as a whole, as opposed to ignoring the rest.

Frédéric:

Oh yes, Koren, you haven't spoken yet.

Koren Wong-Ervin:

Sure. Going back to what you said on the last question about practical approach, right, for considering dynamic efficiency then and now, it reminds me. The last two years I spent, I had the privilege of traveling the world and training foreign enforcers and judges, with Judge Ginsburg and Joshua Wright. It really let me know how much I don't know and how much I don't know exactly, how much I rely and need the economists. We would go abroad and train folks, mostly in Asia, and they would ask, how do we consider dynamic efficiencies, or how do we consider-- Without having PhD economists or even a pool, like in India, they were saying, "We don't even have a pool of IO people to draw from, to recruit to the agency."

I don't know-- I was asked questions, like tell me like, they have a pen and paper, "Tell me how to do it. Give me a formula." There's a real desire to do, affects space analysis and the right client, across the world. But, I don't know how people do it without the-- I mean, you've heard that even at the FTC when they-- with, I don’t know, 70 PhD economists, it's very difficult. We're talking today about, what should be done, but sometimes, I really learned the practical what can be done.

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Frédéric:

Another partial answer for you because we did organize it with OECD last spring, a meeting with 10 or 15 economists to try to get them to tell us how to do it, how to improve, and we are about to publish a methodology.

The reason for doing this was that competition authorities, even though they always say that they have the tools and they don't need new tools, which everybody agrees, but they need to have better tools than the ones that they have. If you think about the payment in court system, for example, and if you look at the decisions throughout the world, for 10 to 15 years, there were decisions which were absolutely contradictory with each other. Nobody understood how those markets work and the analysis was exactly what Gönenç was warning about. Competition authorities went right ahead and made decisions, and those decisions didn't make a lot of sense. We try to avoid this, we've been trying to get the economist to agree. Now, maybe at the FTC, you already know everything there is to now.

Elizabeth:

I don’t think we know everything there is to know, but I know that we work hard to try to figure it out and we talked to parties and we listened to what we're missing and why and try to take that into our analysis. So that leaves me with the impression that our antitrust laws and the framework are sufficiently supple and flexible to be able to accommodate these types of issues. That's not the end of the story though, as you rightly point out. I think kind of work like the OECD was doing on getting economist together to see what tools there are is important. Our own work and developing the resources internally, not just with economists, but in understanding the market, how they're evolving and how we might interact with them and our enforcement is really important. What do I mean by that? It's not just lawyers, it's not just economists, it's having people who understand patent laws. It's having at least access to what we've developed as a chief technologist. We've added that to the ranks of the FTC. We also have an Office of Technology Research and Investigations. By developing that underlying understanding of how things are moving, I'm hopeful that we can help to move our tools and be better at predicting how the markets will work in our enforcement.

Frédéric:

Very good. No one wants to intervene on this. Let’s try to move to the third issue, which is, do those problems that we've been agitating; assessing dynamic efficiencies, assessing anti, or a competition in high technology markets, do they create specific challenges for competition authorities in developing countries?

Now, I'm going to turn to Gönenç. I'm sure that you are going to talk about Turkey or maybe some other country, developing countries that you've been familiar with to give us a sense of, well, what is your appreciation of the difficulties and all the level of sophistication of the analysis in this area in developing countries.

Gönenç:

In developing countries, yes, I am using the Turkish model, but also in the region you just came back from, Kazakhstan, so in the CIS region as well, in the Gulf, in, I'll call them aspiring competition authorities jurisdictions, and also in jurisdictions where the competition law is quite sophisticated. In Turkey, it has been around for 20 years. The Turkish Competition Authority has about 150 case

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handlers, and there's a quite a sophisticated competition law bar as well. But the authority doesn't have the same tools that some other more sophisticated agencies have. It doesn't have enough economists that can pull a sophisticated competition economics analysis, for example.

But to make a long story short, I think the biggest handicap that you see in the developing markets is that you see or hear a lot of lip service paid to innovation because they do follow the global trends. You hear innovation dynamic efficiencies, oh yes, this is very important, but actually, there is a bit of a despair in the sense that in the developing markets, the developing markets are never the originating jurisdiction of such innovation. They have never touched and felt the frontier innovation. Innovation is some obscure thing for these jurisdictions, generally. When it comes to explaining to the bureaucrats and the public policymakers that it doesn't have to be cutting edge frontier innovation, building capacities to mimic the innovation of others is also innovation.

For our purposes in the developing markets, it's equally important to make sure that we can adapt innovation of others into our own markets and transfer that. That also takes a policy preference, and that also requires the zeal of the authority. That's a different ball game. I think they get lost very easily in a lot of the authorities, in the gravitas of the term innovation and oh well, we are not doing the innovation. Clearly, the more sophisticated jurisdictions authorities will come up with policies and we will follow that. Whereas the developing countries, authorities will have to develop their own approach towards how they can build the capacities within their own spheres of influence in transferring these innovations that are happening elsewhere in adapting them so that there is the "catch up process" which will in the midterm hopefully lead to true innovation in these jurisdictions as well.

Of course, there's a vicious circle in most developing countries in the sense that there are poor business models. There isn't enough educated people. There's political instability. Governance conditions are not very good, and there's an underdeveloped infrastructure. The vicious circle is that part of it can be helped through innovation. But also, these are the very factors that are stifling innovation in the mimicking sense as well. So to attack that issue, obviously, there has to be a very sober policy about what the developing countries, public policy makers want from innovation. They will have to define their own animal of innovation. They will have to get rid of the giant ideas of, well, it's not like we're going to bring a new breath to protecting innovation from Turkey. It's the job of the forces in the US and the EU and the French authority and the Bundeskartellamt. We will only parrot what they're saying because it's not our innovation to protect that. It shouldn't be that easy, actually.

Frédéric:

Okay. Do you have any concrete example of cases that you want to-

Gönenç:

I do. A couple of Turkish examples would be, for example, that there are instances where very easily Turkish authorities have adopted the conditions that were provided by the Commission in merger control cases. Or they have not tailor-made some of the pieces of enforcement that they came up with. These are continuing cases right now as well, some of them, where you see that the authority is almost carbon copying what is happening in the EU, in Turkey. Whereas you can feel that if they were to have in mind their own idea of policy making and what they want to get out of this, they may steer it differently, they may mold some of the conditions differently. It's just too quick and easy a label to say, well, there's already the pre-made condition. I'll just heated and served as the dish that also satisfies our needs.

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Frédéric:

Take from the shelf and there's no client-

Gönenç:

No.

Frédéric:

Koren.

Koren:

Sure. I've been, like I said in a lot of different jurisdictions where-- recently there was reports that India is now the largest smartphone market. It's overtaking the US, and China's first. But yet China and India are still primarily implementers, not innovators. So I've been to a lot of conferences in India and elsewhere where there's a lot of talk about what can the government do to create new innovations.

For me, I'm puzzled by that because I think it's the promise or at least the promise of the possibility of monopoly profits, at least in the short run that incentivizes innovation. When I think about dynamic industries, at least, many of them, I think about the difference between competition for the market and competition on statics sort of price-output in the market. When you have leapfrog innovation, dynamic innovation, it's the winner-take-all.

Necessarily, you have to have some sort of short-run market power. That's something that's necessary for the consumer benefits that come. It's not a market failure. You also, as a natural feature of these dynamic leapfrog innovations, is that you have-- you'll have high rates of return, at least for a short period of time. Again, so getting certain jurisdictions to look at market power and high prices as okay for a period of time is something that might be necessary to incentivize the next best thing, I think is difficult.

But it's important for emerging jurisdictions just like all to really resist the temptation to apply some formalistic rules or truncated analysis when you have something that's new and you're not-- and high concentrate or large market shares, and really, stick to the basics and do the sound economic effects- based analysis.

Frédéric:

Okay. Well, let me turn to Liz again. In your capacity as the international arm of the FTC, you do cooperate with a lot of developed countries and developing countries. Do you see that they are-- What kind of specific problems do you see in the evaluation of mergers in high tech industries in developing countries?

Elizabeth:

Sure. Before I get there, I actually wanted to step back and speak just for a second on the advocacy role for the agencies because I think it's really important, and I was so appreciative that we had

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Makan's discussion as the keynote to focus on this. That there are considerable challenges with regard to government regulation that limits entry and incentives and innovations.

It's just a huge role for all of us to be able to participate and help to set the policies right to allow for more competitive markets before we even get into the enforcement. It's important for us. We have a lot of work going on at the FTC right now, but also it's really important in developing countries where the issues might not be well understood outside of the small competition community.

I'd start with that and then move into enforcement, which is where your question went, Fred. In addition to some of the factors that we've heard in doing some technical assistance and having bilateral relations just around the world, we see a number of different other factors.

One might be just limitations in the legal systems and tools that people who develop the laws initially might really not have understood to the same degree that we all do in this room, how competition enforcement might work. There might be a lack of a pre-merger review that agencies cannot get, like in Egypt and Indonesia. They might not have the ability to compel documents that effectively, or there might be, say, per se approaches and unilateral conduct which make it very difficult outside of the merger context, but for agencies to assess innovation and dynamism.

Other elements might be they might not have the legal tradition or necessary procedures to really sit down with parties and understand what pro-competitive justification and what the innovations and what the investments are in order to get there. Staff may not be steeped in market economics yet. A lot of folks, as we heard earlier, coming from pricing regulators, and there's a transition period.

Others, they might be besieged by complainants or politicians who are extraordinarily enthusiastic about using a new competition system and not really knowing what that competition system is supposed to be providing or really trying to use that new tool to address market dislocations like we've heard employment but maybe of incumbent competitors as well.

So we see all of this, and a new agency is really faced with just many different, and almost, overwhelming odds, and yet it's really impressive to see how many agencies are able to work within that system and refine their approaches and get changes to the laws and help to move up the antitrust curve. It's here where I would just identify, I think for all of us, that we can have a really important role there, particularly with dynamic industries, because given the timing of the issues in dynamic industries, they're dynamic, [laughs] and the fact that they often involve worldwide markets, we can really help to exchange information and learning.

That can happen through case cooperation. It can happen very much through the work of some of the international organizations like the Competition Committee that Fred leads in OECD, like the ICN in developing best practices essentially. They're kind of cheat sheets so that folks know what to look at. We can help with investigative process. We do a lot of that through our technical assistance program, working to have resident advisors on the ground to work in cases as the staff is working through them. It's really helpful to exchange views on what to take into account, what's your theory of harm, how are you going to address that?

It takes time, but hopefully we can move that along. I think it's also part and partial since there are so many private practitioners in the audience here. I would kind of put out a pitch to them as well, but they can effectively participate in that learning curve in that process, commenting on laws, even using your cases to help educate some of the elements that the antitrust agencies might not naturally focus

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on.

Frédéric:

Are we in a case where you're saying something which is in fact quite different and maybe slightly opposite to what Gönenç was saying? In other words, my understanding of what Gönenç was saying was that a developing country may have or maybe should have a slightly different focus when they look at innovation than developed countries because innovation, as he explained, comes largely from the developed countries, whereas the catch-up phase is really the dynamic part.

In that sense, the kind of exchange that you suggest isn't that going to steer them towards the traditional view of the developed country? I mean, lead the developing country's competition authorities to have the same view as the competition authorities in the developed countries rather than developing their own notion of what would be useful for the catch-up, which would be their ability to innovate, or the capacity to innovate? In other words, how did you react to Gönenç's intervention?

Elizabeth:

I reacted to Gönenç in the sense that you can use a number of the same tools and approaches and have different circumstances on the ground that might get you to different places. Your market structures might differ so you can-- I think there's a way of definitely uniting both elements and having a coherent, more universal approach at the basic level.

Frédéric:

When you said we should exchange what to take into account, isn't that slightly ambiguous in the sense that if we talk about market definition, that's very clear. If we talk about innovation or the innovating part, that might be seen differently from a developing country perspective as outlined by Gönenç than the developed countries perspective.

Elizabeth:

It might, but again, I think it goes back to the factual circumstances that you're going to experience. Is the innovation going to come to the other jurisdiction in 10 years versus one year? And how do we account for that within the model that I think we can both use?

Frédéric:

All right. Joanna, you wanted to intervene in this debate?

Joanna:

Yes, I just, in a sense, following up to what Liz was saying and also what you had asked for, is that I think they're in harmony in the sense that the way I do it because it is the tools that gets-- Again, everybody has a different notion of what tools mean and what they include, but I can see very well, I mean, I know when the FTC goes abroad, the economists go, as well as lawyers, sharing their experiences and the tools that are used. In my personal—That can be then applied to the different circumstances in each of the countries.

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Now in my own work, working on cases in emerging economies, my experience has typically been that a lot of times the theoretical framework or depending there's understanding there, but sometimes what it comes down to is quantification and how to do that, and therefore how to get to the final conclusions. This is particularly important when you, for example, have a merger, where there's horizontal elements, as well as vertical elements and so you might have effects on prices that are going in different directions and how to quantify it and try to get an estimate of what the net effect would be.

That's an example of something that I've worked on abroad in an emerging economy where I tried to demonstrate how I, as an economist, would do that, or separately in the issues of geographic markets, for example. We know what it is and enforcers know what it is, but exactly, when it comes down to when regional geographic markets are at issue or maybe even worldwide versus China, on IP cases, how do you go thinking about how to implement it, whether you're thinking about it in terms of geographic markets around the users or around the suppliers. These are some of the more practical issues that I think once the tools are in place, it will be the next step to implementing it in an appropriate way to each country.

Frédéric:

Joanna, as a firm believer in the usefulness of economic tools and transmissibility to old countries, and developing countries. Okay, yes, I think that you made your point. Given some of the uncertainties, which have been outlined so far in measurement for no other reason, can we go back on the discussion which took place this morning…

[End of audio recording.]

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Panel 5: Enforcers’ Roundtable: What’s Under the Radar?

[Panel 5 was not recorded.]

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