Caldwell Harrop
Antitrust Division
U.S. Department of Justice

The paper of our Canadian colleague outlines with admirable clarity the economic arguments, now universally accepted, for competition policies which ensure that domestic markets are free from private and governmental restraints interfering with the competitive process.

From a domestic welfare standpoint, the benefits of competition are well-established. The static costs of monopoly power are well-documented in economics texts. Historical experience in the APEC region and elsewhere, and recent advances in economic theory, have made us more conscious of the dynamic importance of maintaining competition. Although the debate continues over whether industrial policy contributed to rapid growth in the East Asian economies, it is clear that the economies that were most successful were those that encouraged strong competition among domestic firms. The World Bank, in it's the East Asian Miracle study, gives much credit to "market contests" that were created, either for the right to foreign exchange or technology licenses, or to undertake further capacity expansion. Those countries that failed to maintain vigorous competition were often saddled with inefficient firms that never outgrew their need for protection.

In broad terms, a government implements competition policy through policies intended to affect the environment for economic competition among firms within an economy �� both market structure and behavior of firms in a market. Competition or antitrust laws �� one critically important aspect of national competition policy 嚗� prohibit anticompetitive behavior by private firms and, often, by state enterprises as well. Economies with a history of commitment to vigorous enforcement of their antitrust laws and to pro-competitive regulatory policies demonstrate that sound competition law enforcement and minimally intrusive regulation do in fact protect the competitive process, which in turn stimulates innovation, promotes prosperity, and contributes to the international success of firms that operate in competitive domestic markets. Viewed from another important perspective, sound competition law enforcement helps to ensure that consumers enjoy access to the highest quality goods at the lowest prices, and with the most choices.

As is noted in the Canadian paper, competition policy promotes public confidence in the competitive market system by providing a set of basic "rules of the game," thereby helping to avoid other, more intrusive, forms of government intervention. Establishing a "culture of competition" is critical to maintaining healthy and competitive domestic markets and to producing goods and services which are competitive internationally.

Although we cannot claim to have the earliest antitrust law �� the Sherman Act dates from 1890, and as you heard earlier, Canada's first antitrust law was enacted in 1889 �� out commitment to the spirit of the law and the culture of competition for which it stands runs very deep. Senator John Sherman had a broad vision of political and economic freedom in proposing the law which bears his name : "If we will not endure a king as a political power, we should not endure a king over the production, transportation and sales of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade, with power to prevent competition and to fix the price of any commodity."

Our Supreme Court has emphasized the fundamental importance to the US economy of this commitment : "the Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions." When we work with countries which are developing their competition laws, we emphasize the need for sound economic analysis directed to preserving the competitive process and an environment free of anticompetitive regulatory or private restraints. The key is to establish this culture of competition, along with the appropriate legal and enforcement regime.

Among the benefits it provides to a nation's economy and to the welfare of its citizens, a well-managed competition policy will have positive effects on trade and investment. Scarcely a month passes without a conference in some part of the world to discuss the relationship between trade and competition. The conferences always open by repeating the urgent need for competition policies to complement the growing achievements of trade liberalization. The development and enforcement of effective competition policies �� both competition laws and regulatory reform �� help ensure that the gains of trade liberalization are fully realized, and that competition-inhibiting private conduct, regulation, or market structures do not take the place of other more obvious governmental policies in restraining foreign (and often domestic) entry into markets. It is this linkage to trade which explains the importance of competition policy discussions at APEC today, as well as within many other regional trade groupings around the world.

Depending on the circumstances, various types of private conduct can lead to anticompetitive and trade-distorting outcomes. Examples would include cartels in which the participants agree to segment markets, raise prices, or boycott products or services of outside competitors, and anticompetitive uses of market power to deter competition from new sources. Properly enforced competition laws, applied in a transparent and non-discriminatory manner, should help to eliminate any barriers to trade resulting from such unlawful practices.

We must keep in mind, however, that enforcement of even that best antitrust laws will not of itself succeed in creating the competitive environment in which a domestic economy flourishes and trade and investment flow according to true comparative advantage. Our experience over the last twenty years with reevaluating regulation to minimize its unnecessary burden on competition shows that in some cases government regulatory schemes can equally undermine the competitive process. This can happen when regulatory policy promotes monopolies and oligopolies, favors some domestic competitors over others, fails to keep up with new technologies and becomes an inflexible restraint on change, creating entry barriers and removing the need for companies to innovate and be efficient, and often concerning itself more with the health of incumbent firms than with possible competition in the industry.

In this context we commend the decision of our convener to address the competition policy and deregulation topics together. Both sets of policies in fact strive to achieve the same goals : to allow the maximum efficient operation of participants, consistent with appropriate overarching regulatory and social objectives. Judicious implementation of each of these policies leads to the same positive effects : a more efficient domestic economy, greater consumer welfare, and a healthy openness to competition from both national and foreign firms.

With these principles in mind, and remembering also the widely varying degrees to which APEC economies have adopted and implemented competition policies and laws to date, the U.S. recommends the following focus for the activities to be pursued by APEC economies in the near future :

1. The U.S. fully supports efforts in the APEC region to ensure that economies adopt and enforce sound antitrust laws addressing anticompetitive behavior by state enterprises and private firms.

2. At the same time, it is important to remember that APEC's goal of open and competitive market environments requires much more than just a commitment to enforce a set of antitrust laws. Therefore, the U.S. also fully supports efforts in the APEC region to ensure that economies implement pro-competitive regulatory policies.

3. The U.S. recognizes the need for and advocates the use of technical assistance resources in the APEC region. Although a few APEC economies have longstanding, sound and effective antitrust laws, most APEC economies either have antitrust laws at an early stage of development and enforcement or have no antitrust laws at all. Therefore, within reasonably available means, technical assistance should focus on the principles and practice of sound antitrusts enforcement and pro-competitive regulation.

4. It also will be necessary, at some point, for APEC economies to address specific linkages between competition policies and APEC's goals of free and open international trade. The development of effective competition policies to deal with particular market access problems that exist throughout the APEC region, such as certain types of competition-inhibiting private conduct, regulation or market structures, more obvious government policies which restrain foreign (and often domestic) entry into markets, and state-sponsored cartels or trading arrangements, will benefit all economies.