WORLD TRADE
ORGANIZATIONWT/WGTCP/W/83
14 August 1998
(98-3180)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM THE UNITED STATES
The following communication, dated 23 July 1998, has been received from the Permanent
Mission of the United States with the request that it be circulated to Members.
_______________
The Impact of Regulatory Practices, State Monopolies, and
Exclusive Rights on Competition and International Trade
I. INTRODUCTION
This submission describes US experience with regard to regulatory practices and competition,
as well as state trading enterprises (including state monopolies and entities with exclusive rights orspecial privileges) and competition.  This submission also provides US views on the relationships
between those matters and international trade.
The United States has in recent decades opted for competitive markets rather than regulatory
intervention.  This orientation has proved beneficial, and the United States offers this experience here
in the belief that other Members will find it useful.  Part II of this submission elaborates on these
points.
State trading enterprises have historically not figured prominently in the US economy.  The
United States has experience in dealing with state trading enterprises in international trade, however,
and with the competition- and trade-related problems that state trading enterprises may cause.  Part III
of this submission describes those experiences.
II. RELATIONSHIPS BETWEEN REGULATORY POLICIES AND ANTITRUST LAW
AND POLICY IN THE UNITED STATES
Over the past several decades, the United States has developed a steadily increasing and
broadly-based national commitment toward competitive markets, moving away from a regulatoryapproach to market issues.  Whether it is in the airline, surface transportation, energy, or
telecommunications sectors, the United States has replaced regulation in favour of market-based
competition to bring about optimal economic results.  To the same effect, we have repeatedly opened
our markets to foreign firms, often leading to renewed competitive vigour in industries that had
previously been characterized by monopolistic or oligopolistic lethargy.WT/WGTCP/W/83
Page 2
These policy choices have produced excellent results for US consumers (including both
individuals and businesses).  According to a recent economic study of the effects of deregulation, "the
economic benefits from deregulation or regulatory reform have exceeded economists’ predictions.
The record shows that deregulation has generally led to lower prices, expanded output, and improved
choices of service quality.1  More particularly, this study estimates that during the first ten years of
deregulation, real prices decreased 27-57 per cent in the natural gas industry, 40-47 per cent in
long-distance telephone service, 29 per cent in domestic airline transportation, 28-58 per cent in
trucking, and 44 per cent in railroad freight transportation.2  These results generally have been
replicated in other economies where significant deregulation has occurred.  As a recent OECD study
explains, "[r]egulatory reform that enhances competition and reduces costs can boost efficiency, bring
down prices, stimulate innovation, and help improve the ability of economies to adapt to change and
remain competitive."3
And drops in real prices are only a part of th e story of the successes of economic deregulation
in US markets.  For example:
• At one time, railroads were among the most heavily regulated of US economic sectors,
with the Interstate Commerce Commission (ICC) determining minimum and maximum
rates, ordering certain kinds of price disc rimination and forbidding others.  Railroads
were not permitted to compete with other transport modes by lowering prices or by
improving service quality and raising prices, with the result that rail’s share of freight
transport was cut in half between 1929 and 1975, and the railroad sector was unable to
earn returns sufficient to cover its cost of capital.  Deregulation removed most of therestrictions on pricing and in particular permitted long-term contracting with rate
discounts, with the result that rail tonnage continues to grow and profitability has
improved dramatically.
• Formerly, the motor freight sector was also heavily regulated, with interstate carriers
forced to apply to the ICC for permission to serve particular markets, travel particular
routes, and charge particular rates, and with the burden on carriers seeking to enter
particular markets to show that current serv ice to the market was inadequate.  The result
was an inefficient motor freight industry, with high rates and suboptimum service (though
still enough advantages to take market share away from the railroads).  Now that the
United States has implemented essentially complete deregulation regarding entry andmuch more flexibility regarding pricing, this sector also has seen a dramatic improvement
in service quality and profitability even as its real prices have fallen.
• Like trucking markets, US airline markets were subject to strict entry controls and pricing
regulations.  The result here was wasteful competition in service quality - simply a form
of "rent seeking" - as airlines earning profits on the supracompetitive, regulated prices
competed them away by offering amenities to prospective travellers.  Economic
deregulation allowed for fare discounting and entry by smaller competitors, though theDepartment of Justice (DOJ) and the Depart ment of Transportation (DOT) continue to
guard against both anti-competitive mergers and predatory behaviour by entrenched
incumbents.  Competition now takes the form of both price and service competition,
depending upon customer preferences.
                                                     
1 R. Crandall & J. Ellig, Economic Deregulation and Customer Choice:  Lessons for the Electric
Industry at 6 (1997).
2 Id. at 2.
3 I OECD, Report on Regulatory Reform at 3 (1997) (OECD Regulatory Reform Report).WT/WGTCP/W/83
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• The US telecommunications sector was at one time a giant near-monopoly, with AT&T
providing most local service, most equipment, including household telephones (throughits Western Union subsidiary), and all long-distance service.  In this case it was
principally antitrust litigation rather than legislation that took account of evolving
technological realities and created competitio n in equipment, long-distance service, and
the provision of internal telecommunications systems for large enterprises.  With furthertechnological development and the enactment of the Telecommunications Act of 1996,
there is reason to expect even more competition in the telecommunications sector in the
future.
A. O
VERVIEW OF US P OLICIES
Few sectors of the US economy have ever been extensively regulated, and many key
regulated sectors have been largely or entirely deregulated over the past 25 years.  Regulatory reformhas brought both substantial benefits to US consumers, and has opened markets to foreign
competition.  Unlike competition-based frameworks, domestic regulatory regimes sometimes raise
barriers to entry by domestic and foreign firms, and in the latter case may impinge on market access
opportunities.  Thus, the relative lack of economic regulation in the US economy has enhanced trade
flows.
Regulatory mechanisms exist in a relatively small number of US economic sectors. The
relationships between US regulatory policies in these sectors, on the one hand, and US antitrust law
and policy, on the other, are varied and complex.  There is a large body of literature that explains the
legal, economic, and other policy aspects of these relationships.
4  In the United States, as in most
other countries, the antitrust laws apply to private firm conduct unless a particular economic sector or
particular type of business conduct has been specifically or implicitly exempted.  As the deregulatory
process has advanced in the United States, the scope of application of the antitrust laws has increased.
A variety of antitrust treatment exists in those sectors that continue to be regulated.  This is so because
regulatory regimes and attendant antitrust exemptions have been created at different times over the108-year history of the US antitrust laws, because some of these regulatory exemptions are explicit
and some implicit, and because -- given the strong US commitment to competition -- the scope of
such exemptions ordinarily covers only some of the conduct of firms subject to the exemptions.
Regulatory schemes in the United States, as elsewhere, traditionally have had objectives
beyond (or other than) protecting competition.  Curr ent US regulatory initiatives, however, place far
more emphasis on promoting competition and the free  play of market forces, and interfering with
those forces only to the extent necessary to ach ieve valid regulatory goals, than in the past.
Industry-specific regulation is the responsibility of separate specialized agencies, such as the Federal
Communications Commission or the Federal Energy Regulatory Commission.  While private firms
are generally subject to antitrust law, they may also be subject to industry-specific regulatory
requirements.  Firms are not exempted from the antitrust laws merely because they are regulated, andcompliance with both the antitrust laws and applicable regulatory requirements is often both possible
and required.  Indeed, there are very few, if any, commercial sectors of the US economy from which
antitrust disciplines are completely excluded.
In a few situations, Congress has determined that antitrust law should be displaced by
regulation, and thus has provided an explicit antitrust immunity.  Even where there is no explicit
                                                     
4 See, e.g. , IA P. Areeda & H. Hovenkamp, Antitrust Law ¶¶ 242-251 (1997);  I American Bar Ass’n,
Antitrust Law Developments (Fourth) 1135-1365 (1997);  OECD Regulatory Reform Report, passim ;  OECD,
Antitrust and Market Access:  The Scope and Coverage of Competition Laws and Implications for Trade169-179 (1996).  The first two of these works cover US law;  the two OECD reports provide a comprehensiveview of the deregulatory process, and of the relationships between regulation and competition, in all OECDcountries.WT/WGTCP/W/83
Page 4
exclusion of antitrust disciplines, there may be an  implied exemption where necessary to preserve the
integrity of a regulatory scheme.  US courts draw implied immunities narrowly, however, and find
them only where required to avoid disruption of a comprehensive scheme of regulation enacted by
Congress.5  In certain cases, courts may also determine that a regulatory agency has "primary
jurisdiction" over a particular issue and should be given an opportunity to deal with the issue beforethe court does so.  This doctrine postpones, but does not supplant, court review of the antitrust claim.
Finally, possible conflicts between antitrust enforcement at the federal level and regulation at the
subfederal level are addressed by the "state action" doctrine, which provides that the federal antitrust
laws do not apply to situations where a state government clearly articulates an affirmative policy to
displace competition in a particular sector, and actively supervises the implementation of its policy.
6
The "clear articulation" factor insures that a political choice has been made which voters can laterreject.  The "active supervision" factor insures fairness in operation and an actual state commitment toits choice of displacing market forces.  This doctrine does not displace the antitrust laws where a
subfederal agency merely tolerates, but does not actually authorize and supervise, conduct
inconsistent with the federal antitrust laws.
Subsection B provides several examples of statutory and administrative relationships between
the US antitrust laws and regulatory regimes.  These examples cover a wide range of relationships,
from sectors (or parts of sectors) where regulation completely displaces antitrust law to sectors (or
parts of sectors) where regulators and antitrust agencies each have significant enforcement authority.
In those areas where antitrust exemptions exist, it follows that the US antitrust agencies - the
Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) - do
not have a law enforcement role to play.  They may, however, have statutorily-provided roles in
advising the relevant regulatory agencies on competition policy issues.  As discussed below, even in
the absence of an explicit statutory role, DOJ and FTC have long devoted substantial resources to
competition advocacy, seeking to persuade regulatory bodies to seek procompetitive outcomes inregulatory proceedings.  The US Government has also sought to convince its trading partners to adopt
more pro-competitive economic policies in a variety of sectors.  These matters are discussed in
subsection C.
B. E
XAMPLES OF RELATIONSHIPS BETWEEN US A NTITRUST LAWS AND REGULATORY REGIMES
The following discussion illustrates the variety of ways in which antitrust law, competition
policy, and regulatory policy interrelate in the United States.
1. Railroads
Substantial responsibility for deciding questions of competition policy relating to the railroad
industry lies with the Surface Transportation Board (STB), the successor agency to the Interstate
Commerce Commission (ICC), which the US Congress abolished as of January 1996.  The STB hascomplete authority over railroad mergers and acquisitions, and transactions approved by the STB
receive antitrust immunity.
7  As is often the case where regulatory agencies review mergers, the STB
uses a statutory "public interest" review standard  that takes into account such factors as public
                                                     
5 See, e.g. , Gordon v. New York Stock Exchange , 422 US 659 (1975).  In that case, the Supreme Court
ruled that federal securities laws implicitly immunized price-fixing agreements, reflected in New York StockExchange rules, by which stockbrokers fixed their commission charges.  Congress subsequently disagreed withthe Court’s result on policy grounds and enacted legislation making clear that there was no such immunity.
6 See, e.g., Southern Motor Carriers Rate Conf., Inc. v. United States, 471 US 48 (1985).
7 49 U.S.C. 11321.WT/WGTCP/W/83
Page 5
benefits, labour conditions, and environmental issues, as well as effects on competition.  In addition,
if the STB determines that particular railroads possess "market dominance" over transportation of a
particular type of shipment, it possesses authority to regulate rates for such shipments.  In contrast, the
antitrust laws do apply to anti-competitive behaviour by railroads, e.g., price-fixing, that is not within
the STB’s jurisdiction.
The differences between the STB’s approach to competition issues and that of US antitrust
agencies are illustrated by the 1996 Union Pacific/Southern Pacific  merger, which involved the
combination of two of the three major railroads in the western United States. In its statutory role of
advising the STB on competition issues, DOJ concl uded that the merger would significantly reduce
competition in many markets where the number of car riers dropped from three to two or two to one,
and that the remedy proposed by the merging railroads (granting trackage rights to a third railroad)would not address the competitive harm.  DOJ thus recommended that the STB prohibit the merger.
8
In exercising its statutory decision-making authority, the STB gave great weight to the efficiencybenefits claimed by the merging railroads and perm itted the parties to merge.  The STB currently is
considering what action, if any, to take to address service problems and loss of competition problems
associated with the trackage rights remedy that have arisen subsequent to its approval of the merger.
In another matter, DOJ urged the STB earlier this year to condition any approval of another
large railroad merger, the proposed acquisition of Conrail by CSX Corporation and Norfolk Southern
Railway, on the grant of certain trackage rights to protect competition in the coal transportation
market.  The STB recently decided to deal with two outstanding competition concerns related to thetransaction by imposing the competition-preserving conditions proposed by DOJ;  a final decision on
the transaction as a whole is expected soon.
2. Bus Transportation
For many years, intercity bus transportation was heavily regulated by the ICC.  The FTC,
among others, strongly urged Congress to deregulate the industry, and in 1982 Congress did so to a
significant degree.
9  However, the STB, the ICC’s successor, retains some regulatory oversight over
the industry.  Although entry into the bus industry can now be characterized as open, the STB
conditions authority to operate on a showing of fitn ess.  Applications for operating authority are
seldom challenged, and since 1982 the bus industry has experienced substantial growth in the number
of carriers, primarily in the areas of charter and tour or special operations. Regular route bus service,
in contrast, has experienced a decline in service as a result of competition from other modes of publictransportation.
Bus carriers are also required to file tariffs with the STB establishing rates and classifications,
and the rules related to them;  however, the STB may not suspend a rate before it takes effect, unless
the rate has been collectively established and shown to be predatory or discriminatory.  Finally, as inthe case of railroads, the STB retains authority to approve, disapprove, or approve with conditions
mergers of bus companies, based on a public interest standard.  In cases where the antitrust agencies
believe a bus merger may be anti-competitive, they are authorized to file comments or
recommendations with the STB, but only the STB has authority to decide whether to approve the
transaction.
                                                     
8 The Mexican Federal Competition Commission wrote a letter to the STB expressing its concerns
about the merger’s possible competitive effects on US-Mexican trade.
9 See 49 U.S.C. 14303.WT/WGTCP/W/83
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3. Telecommunications Mergers
The statutory scheme for review of telecommunications mergers is quite different from those
for rail and bus mergers. Both DOJ and the Federal Communications Commission (FCC) have
separate, formal roles in reviewing the competitive impact of proposed mergers in this sector. The
Telecommunications Act of 1996 expanded the coverage of the antitrust laws by removing theauthority of the FCC to exempt mergers of loca l telephone companies from antitrust review, thus
furthering the US policy of promoting local telecommunications competition.
10  The potential for
conflict raised by overlapping jurisdiction over proposed mergers has been reduced by the
longstanding and close working relationship between  the two agencies, which cooperatively analyse
the issues, consistent with applicable confidentiality requirements.  DOJ provides the FCC with its
competitive analysis, and the FCC may, if it chooses, condition its grant of approval on the relief
obtained by DOJ through court order.
The two agencies have distinct statutory re sponsibilities in reviewing proposed telecom
mergers that result in substantive and procedural differences in their respective reviews.  The FCC
applies a "public interest" test under the Communications Act,11 which includes, but is not limited to,
competition concerns.  DOJ applies the "may substantially lessen competition" test of section 7 of theClayton Act -- a future-oriented inquiry into the likely effect the merger will have on competition
(prices and output).  Consistent with common regulatory practice, parties seeking FCC approval of a
merger have the burden of proving that the merger is in the public interest, which the FCC has
interpreted to require proof that the merger will enhance  competition.  In contrast, DOJ, as the
plaintiff in an antitrust lawsuit, has the burden of proving that the merger would substantially lessen
competition.  As a result of these and other differences, there are a small number of proposed mergers
that are not challenged by DOJ but that are prohibited or conditioned by the FCC.  Given the
agencies’ somewhat different responsibilities, DOJ and the FCC have worked hard to ensure
predictable results in merger transactions.
12
4. Electrical Power Mergers
The US federal antitrust agencies and the Federal Energy Regulatory Commission (FERC)
also have overlapping jurisdiction with respect to mergers between electric utilities.13  The antitrust
agencies can sue to block an electrical power me rger approved by FERC, and FERC can refuse to
approve a merger that DOJ and FTC have not challenged.14
                                                     
10 See, e.g. , the discussion of promoting competition in the telecommunications industry in the 1996
Economic Report of the President 155-189 (February 1996).
11 47 U.S.C. 151, et seq .
12 The relationship between the FCC and the antitrust agencies has operated without any formal
designation of  "lead agency" or development of common guidelines on competition issues.  The FCC, however,often refers in its decisions to the DOJ/FTC Horizontal Merger Guidelines for accepted principles on such issues
as market definition and measurement of market concentration.
13 The 1996 Economic Report of the President, supra , discusses ways of promoting competition in the
electric power industry.  The states also have important  regulatory powers with respect to electrical power.
14 Some electrical power mergers involve public utility holding companies;  such mergers are also
reviewed by the Securities and Exchange Commission (SEC) pursuant to the Public Utility Holding Company
Act, 15 U.S.C. 79-79z-6.  That statute requires the SEC to determine that the merger is in the public interest, andthat determination must include a consideration of the co mpetitive impact of the merger.  In appropriate cases,
however , the SEC may "watchfully defer" to FERC’s analysis of competitive effects.  City of Holyoke Gas &
Elec. Dept. v. SEC , 972 F.2d 358, 363 (D.C.Cir. 1992).WT/WGTCP/W/83
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FERC reviews mergers under a broad "public interest" standard.15  As in the case of the FCC
statutory standard, this differs in principle from the "may substantially lessen competition" antitrust
standard of the Clayton Act.  While FERC must take into account competition considerations among
other factors when considering a merger, it has leeway not "to use antitrust principles when they may
be inconsistent with [FERC’s] regulatory goals . . . [FERC’s] analysis must sensitively recognize andreflect the distinct economic and legal setting of the regulated industry to which it applies.
16  In
practice, however, FERC analyses competition issues much as the antitrust agencies do.  Reflecting
increased attention to competitive concerns, in 1996, FERC issued a policy statement intended to
ensure that mergers do not impede the development of fully competitive wholesale electrical
generation markets.  At that time, it announced that it would, consistent with its statutory mandate,
analyse mergers under the DOJ/FTC Horizontal Merger Guidelines.17
5. Airline Transportation
The Department of Transportation (DOT) is the economic regulator in the air transport
sector, applying varying degrees of economic regulation depending on whether the service is domestic
or international.  The US domestic airline industry is largely deregulated - and thus subject to the
antitrust laws - although DOT retains authority to regulate some aspects of domestic airline operations(including fitness, ownership, and advertising).  DOT's regulatory authority over international aviation
is more extensive.  As a general matter, competition at home has forced US airlines to become more
efficient, prices have decreased in real terms, and most consumers have more airline service available
to them.  Increasingly, as the United States and other countries negotiate "open skies" agreements,
airline deregulation is becoming international in scope.
Responsibility for dealing with competitive concerns in the air passenger sector is divided
between DOJ and DOT.  DOT has explicit authority to prohibit unfair and deceptive practices and
unfair methods of competition - statutory language identical to that in section 5 of the FTC Act.
18
DOT has exercised this authority to promulgate regulations governing the operation of computer
reservation systems, and has recently proposed action to deal with unfair exclusionary conduct by
airlines.  Concurrently, DOJ has statutory authority to enforce US antitrust laws with respect to the
airline industry, including (since 1989) mergers and acquisitions between US airlines, and DOJ has
taken enforcement action on several occasions.19  DOT, however, has the statutory responsibility for
approving joint venture and code-sharing agreements among airlines that affect international air
transportation, using a public interest standard, and to confer antitrust immunity upon such
                                                     
15 16 U.S.C. 824b.
16 Northeast Utilities Service Co. v. FERC , 993 F.2d 937, 947 (1st Cir. 1993) (internal citations and
quotations omitted).  Thus, FERC might also consider the impact of the merger on the overall integrity and
efficiency of the electric system.
17 FERC’s rules about when natural gas pipeline ra tes will be set by the market rather than by
regulation also track the analysis used in the Horizontal Merger Guidelines.
The antitrust agencies’ relationships with FCC and FERC  are not, of course, limited to merger reviews.
Both agencies frequently file comments with the two regulatory agencies on a wide range of issues involving
deregulation and industry restructuring, encouraging the regulatory agencies to open up the areas under theirrespective jurisdictions to competition to the greatest possible extent.  In addition, the two agencies often testifybefore Congress on competition issues facing FCC and FERC.
18 Compare  49 U.S.C. 41712 and 15 U.S.C. 45(a)(1).
19 Earlier this month, for example, DOJ announced that it had cleared American Airlines’ proposed
acquisition of a minority interest in Argentina’s major airline, after American agreed to  restructure thetransaction in response to DOJ’s concerns about possible anti-competitive effects on the US-Argentina market.WT/WGTCP/W/83
Page 8
agreements.  In such cases -- the proposed American Airlines/British Airways  transaction is a good
example -- DOJ often brings its antitrust expertise to bear in comments and recommendations to
DOT.  DOT has accepted and implemented many of DOJ’s recommended competition-related
limitations on such arrangements.  Indeed, in this context of mixed regulatory and antitrust
jurisdiction, DOJ and DOT have developed a strong, ongoing relationship at both formal and informallevels.
6. Bank Mergers
The interplay between the antitrust laws and fede ral bank regulatory statutes with respect to
review of bank mergers also merits discussion.  The four bank regulatory agencies
20 have authority to
approve or deny applications for mergers made by financial institutions under their respective
jurisdictions.21  Under the Bank Merger Act, DOJ is required to provide a competitive factors
advisory report on the proposed merger to the relevant banking agency, which that agency must take
into consideration in its decision;  if the agency approves the merger, it must notify DOJ of that fact.
In mergers covered by the Bank Holding Company Act, the Federal Reserve must also advise DOJ if
it approves a merger.  In both bank and bank holding company mergers, however, DOJ has 30 days
after regulatory approval to challenge the merger in court;22  if it does not do so, the transaction
receives antitrust immunity.
While, as noted, the bank agencies consider competitive concerns in their merger decisions,
they must also consider the public interest in meeting the "convenience and needs" of the community
to be served.  With respect to competition concerns, the bank statutes require that the bank agenciesand DOJ apply the same standards, and DOJ and two of the agencies have published a joint document
that outlines the bank merger review process.  In a particular case, however, the bank regulatory
agencies and DOJ may not necessarily use the same product or geographic markets, which may lead
to different results at DOJ and the bank agencies.
23  In addition - reflecting the regulatory standard of
review - there is a special defense in bank merger cases brought by DOJ under the antitrust laws thatallows an anti-competitive merger if the banks can show that the merger’s anti-competitive effects
will be clearly outweighed by the merged entity’s ability to meet the "convenience and needs" of the
community to be served.
24  This defense has been successful in only one case.  Once again, as a matter
of law and practicality, this mixed regulatory and antitrust jurisdiction requires the banking agencies
and DOJ to work closely together.
                                                     
20 The four agencies are the Federal Reserve Board, the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, and the Office of Thrift Supervision.  See 12 U.S.C. 1828(c).
21 See the Bank Merger Acts of 1960 and 1966, 12 U.S.C. 1828(c) and the Bank Holding Company
Act, 12 U.S.C. 1841-1850, 1971-1978.
22 If DOJ does challenge a bank or bank holding company merger, the merger is automatically stayed
pending resolution of the lawsuit.
23 For example, in the recent Bay Banks/Bank  of Boston  case, the Federal Reserve, using a "cluster of
banking services" product market, approved the transaction without requiring any divestiture of bank branchesin the Boston market;  in contrast, DOJ required divestiture in Boston after concluding that the transaction
would have anti-competitive effects within the product market of "small and lower middle market business
banking services."
24 See United States v. Third National Bank , 390 US 171, 182-192 (1968).WT/WGTCP/W/83
Page 9
C. ADVOCACY IN FAVOUR OF COMPETITION AND DEREGULATION
1. Experience in the United States
During the past 25 years DOJ and FTC have played important roles in promoting competition
and assisting deregulatory efforts through competition advocacy in many different regulatory
contexts.  In its program of competition advocacy, DOJ has sought to further four goals:  1) toeliminate unnecessary and costly existing regulation;  2) to inhibit the growth of unnecessary new
regulation;  3) to minimize the competitive distortions caused where regulation is necessary by
advocating the least anti-competitive form of regulation consistent with valid regulatory objectives;
and 4) to ensure that regulation is properly designed to accomplish legitimate regulatory objectives.
25
Similarly, the goal of the FTC’s advocacy program is to prevent or lessen injury to consumers and
competition that may be caused by government activities that interfere with the proper functioning of
the marketplace, and by advising appropriate government and self-regulatory bodies about thepotential effects, both positive and negative, of proposed legislation, rules, or industry guides or
codes.
26
DOJ and FTC engage in competition advocacy as members of task forces or interagency
committees that formulate the Administration’s policy on a number of economic issues.  For example,both DOJ and FTC have participated in an interagency working group on electricity issues.   FTC also
is empowered to gather information and issues reports.
27  Studies of regulatory issues by FTC staff
have applied staff expertise about the operation of competitive markets to examine the economic
consequences of regulation (and deregulation).
Some statutes provide avenues for competition advocacy by authorizing DOJ or FTC to
participate in industry-specific regulatory proceedings or by requiring regulatory agencies to seek
advice from the antitrust agencies on competition matters.  (For example, section 271 of the
Telecommunications Act of 1996 requires the FCC to consult with DOJ regarding proposed entry by
Bell Operating Companies into long distance services, and to accord "substantial weight" to DOJ’scompetitive evaluation.)  Even where there is no explicit authorization, regulatory agencies regularly
request DOJ and FTC views on competition issues in regulatory matters.
Finally, US antitrust agencies, like other federal and state agencies and private persons, may
file comments in regulatory proceedings before federal and state regulatory agencies, offering their
expert advice and views.
28  These comments are filed with a wide variety of agencies on a wide range
of regulatory issues. For example, in recent years DOJ and FTC have frequently filed comments withthe FCC on such issues as the deregulation of AT&T’s long distance telephone service and the extent
of  "effective competition" in cable television markets.  Other comments have discussed issues
pertaining to price and rate regulations affecting markets as diverse as liquor distribution and marine
pilotage, and have opposed continued antitrust immunity for motor carrier rate bureau agreements.
                                                     
25 DOJ, Antitrust Division Manual at  V-1 (Feb. 1998).  The Division Manual contains a
comprehensive statement of the Division’s major policies and practices in competition advocacy activities.  Id.
at V-1 through V-6.
26 The OECD Regulatory Reform Report notes that the "appropriate role for [a competition] agency --
enforcement, analysis, advice, publicity, or other advocacy -- depends on the stage of the reform process."  Id. at
261.  The Report contains examples of competition advocacy by competition agencies in many OECD countries.Id. at 263-269.
27 15 U.S.C. 46.
28 Foreign governments and private persons are free to file their own comments in federal rulemaking
proceedings.  For example, last year several foreign governments and foreign firms filed comments with the
FCC on proposed rules governing participation by foreign-owned firms in the US telecommunications market.WT/WGTCP/W/83
Page 10
Entry questions have been addressed in such contexts as the allocation of airport landing and take-off
privileges, rules for securities rating agencies, real estate closings, certified public accounting, local
multipoint telephone and video distribution services, and automobile sales.  The antitrust agencies’
comments have evaluated the regulation of output through prime time access rules for television,
"must carry" rules for certain satellite and open video system television retransmissions, andrestriction of collision damage waivers for automobile rentals.  Limitations on forms of professional
practice have been topics of comments pertaining  to optometrists’ and veterinarians’ commercial
relationships with non-professionals, and to linkages between cemeteries and funeral establishments.
As this non-exhaustive list demonstrates, such competition advocacy constitutes an important part of
the antitrust agencies’ goal of facilitating competi tive environments in all aspects of the US economy.
2. International Experience
From time to time, the United States actively engages in competition advocacy on a bilateral
or multilateral government-to-government basis.  In the case of Japan, for example, beginning with
the Structural Impediments Initiative (SII) in 1989, the United States has strongly encouraged, on a
bilateral basis, a more robust competition policy in the Japanese market, especially in instances where
anti-competitive activity may impede foreign product competition.  Under SII, two intergovernmentalworking groups focused on exclusionary business practices and keiretsu  relationships.  After
extensive discussions, the Japanese government took a number of steps to strengthen Japanese
antitrust enforcement ( e.g., by providing increased penalties for antitrust violations).
In July 1993, the United States and Japan agreed to conduct negotiations under the US-Japan
Framework for a New Economic Partnership (Framewo rk).  Under the Framework, the United States
and Japan signed numerous bilateral trade agreements to remedy market access barriers.  Certain
agreements (for example, an agreement concerning flat glass) contained competition policy measures
that the Japanese government agreed to implement.   The primary vehicle, however, for discussions
between the United States and Japan on deregula tion and competition policy was the Framework’s
Deregulation and Competition Policy Working Group.
In the Framework context, since June 1997, the US and Japanese governments have engaged
in an extensive effort through the US-Japan Enhanced Initiative on Deregulation and Competition
Policy to increase deregulation and improve competition policy throughout the Japanese economy.
Under the Enhanced Initiative, the United States and Japan have created four working groups to
examine deregulation and competition policy in th e following sectors: telecommunications, housing,
medical devices/pharmaceuticals, and financial services.  Recognizing that competition policy issues
often cut across particular economic sectors, the two governments have also set up a structural issues
working group to address distribution, competition policy, and administrative practices.  In May 1998,
the United States and Japan issued the first joint report under the Enhanced Initiative, which detailed
numerous Japanese deregulatory measures and commitments to bolster competition policy.
The United States has also engaged in significant bilateral competition advocacy with the
Republic of Korea.  In 1993, the United States and Korea set up the US-Korea Dialogue for Economic
Cooperation (DEC) to address a number of market access issues.  Under the DEC, the Competition
Policy Working Group focused on a broad range of Korean antitrust enforcement and competitionpolicy issues.  As a result of the discussions, the Korean government took a number of steps to
strengthen Korea’s antitrust law and to apply competition policy principles in deregulation, e.g., by
improving access to television and radio advertising slots, and by addressing anti-competitive or
unfair practices by trade associations.
29
                                                     
29 The 1998 Economic Report of the President discusses (at 214) another type of competition advocacy
by DOJ and FTC:   their work, generally funded by the Agency for International Development, in cooperatingwith many developing countries and countries in trans ition to enact sound competition laws and build successful
antitrust enforcement programs in those countries.WT/WGTCP/W/83
Page 11
Through the US-China Joint Commission on Commerce and Trade, the United States has
promoted fundamental issues such as transparency and rule of law in China.  The Joint Economic
Commission, chaired by the US Secretary of Treas ury and China’s Minister of Finance, has also
promoted regulatory and structural financial refo rms in China.  By committing to the Intellectual
Property Rights Agreements of 1992, 1995 and 1996, China has made strides in revamping its
regulatory framework for the protection of intellectual property rights.
In addition to this bilateral work, the United States also advocates procompetitive approaches
in numerous multilateral fora.  At the Organization for Economic Cooperation and Development
(OECD), for example, the United States strongly supports cooperation among national competition
agencies of the OECD countries, and has worked with other OECD members to promote thedevelopment of sound, procompetitive policies, particularly within the OECD’s Committee on
Competition Law and Policy (CLP).  Likewise, the United States has been an active supporter of the
OECD project on regulatory reform, approved by  OECD Ministers in May of 1997.  The project
focuses on how governments can improve their regula tions and regulatory processes.  Under this work
program, the OECD will conduct reviews of regulato ry reform efforts in member countries beginning
in 1998, with the goal of contributing to the steady improvement of regulatory practices in member
countries.
30  Last year, the United States volunteered to be one of the first countries subject to the
OECD’s in-depth review of regulatory policy, which recognizes competition policy as a critical factor
in effective and appropriate regulation.
The United States is also a strong advocate of effective competition policy in the Asia Pacific
Economic Cooperation forum (APEC), where study groups responsible for competition policy and for
deregulation have been merged.  APEC has held workshops on competition policy and regulatory
reform, and will sponsor a symposium on regulatory reform in September.  APEC economies are also
responsible for producing annual Individual Action Plans describing current and future developmentsin competition policy and deregulation, for discussion within workshops of experts, that have been
held on an annual basis.  The United States also has participated extensively in the work of the
UNCTAD Intergovernmental Group of Experts (IGE) on Competition Law and Policy since its
inception in 1980.  Recent expert meetings at UNCTAD have discussed, inter  alia, the relationship
between regulation and competition, including competition advocacy, in developing countries.
31
Finally, in the WTO Negotiations on Basic Telecommunications that resulted in the Basic
Telecom Agreement that entered into force in Februa ry of this year, the United States initiated the
dialogue on competition-based regulatory objectives that culminated eventually in the adoption of the
WTO "Reference Paper" commitments.  These commitments were adopted by most of the 69 WTO
members in those negotiations and, subsequently, by some other members and by parties seeking to
accede to the WTO.  The Reference Paper formally is a set of additional commitments under ArticleXVIII of the General Agreement on Trade in Services (GATS), i.e., for adoption as part of a
member’s scheduled GATS commitments.  Adoption of the Paper reflected the recognition by the
negotiating parties that a grant of de jure  market access and national treatment was insufficient to
grant de facto  or effective market access, absent commitments by governments to regulate former
                                                     
30 In addition to the recent OECD Regulatory Reform Report, supra , the OECD has produced several
studies relating to competition policy and regulation ( e.g., Competition Policy and the Deregulation of Road
Transport (1990), Deregulation and Airline Competition (1988), and Competition Policy in Regulated Sectors(1979)).
31 See the UNCTAD Secretariat Report on Empiri cal Evidence of the Benefits from Applying
Competition Law and Policy Principles to Economic Development in Order to Attain Greater Efficiency in
International Trade and Development, TD/B/COM.2/EM/10 (September 1997).WT/WGTCP/W/83
Page 12
monopolies in a pro-competitive manner, because such former monopolies have both the ability and
the incentive to dictate anti-competitive terms of market entry for new competitors.
The Reference Paper covers six fields for purposes of asymmetric regulation of "major
suppliers", as defined in the Paper.  A major supplier can generally be understood to mean a formermonopoly.  The six fields are:  1) measures to inhibit anti-competitive activity;  2) interconnection
rules (the largest section);  3) universal service;  4) public availability of licensing criteria;  5)
independent regulation;  and, 6) allocation and use of scarce resources.  Many governments have since
used the Reference Paper as a legislative blueprint for competitive telecommunications reform.
International organizations, including the International Telecommunication Union, APEC and CITEL
(the telecommunications sub-unit of the Organiza tion of the American States), have initiated
programs to assist members in carrying out regulatory reforms consistent with the Reference Paper.
D. S
UMMATION
As the foregoing discussion demonstrates, the relationship between regulation, regulators,
antitrust law, and antitrust enforcement agencies in the United States is varied and often complex. In
general, as regulations have been eliminated, as the least anti-competitive forms of regulation neededto accomplish legitimate regulatory goals have been implemented, and as antitrust agencies and
regulators have worked together more closely, there has been a positive impact on trade and
competition.  In the context of this Working Group, we suggest that the details of the US structure --
often the product of particular historical and economic circumstances -- should not obscure the most
important point:   in the United States over the past 25 years, there has been a consistent commitmentby Congress, the antitrust agencies, and the regulatory agencies themselves to build and preserve a
"competition culture," in which the operation of market forces are a key organizing theme of our
economy.
III. STATE MONOPOLIES AND EXCLUSIVE RIGHTS
The emphasis that the United States places on free markets and competition has meant that, as
a general matter, the US economy has not developed through state enterprises (whether engaged in
trade or otherwise).  Although state trading enterprises do exist in the United States, private firms
have historically been the dominant force in US economic development.  As a result, the
United States has not undergone a process of establishing and then dismantling state enterprises.
Instead, the US experience with state monopolies and exclusive rights has more often come in
its international trade relations, often but not exclusively in the context of agriculture.  This part of
this submission focuses on those aspects of state trading enterprises of greatest interest in a
competition context, such as barriers to market access created by state trading enterprises.
While this submission does not discuss the WTO disciplines already in place for state trading
enterprises,
32 it may nevertheless be useful to keep in mind certain aspects of the work within GATT
and the WTO in connection with the following discussion.  For example, the GATT recognizes that
state trading enterprises can, through a monopoly position or through special or exclusive rights,
distort trade.33  Such effects could lead to (unintentionally or otherwise) circumvention of GATT
obligations.34  It is also helpful to recall that Article XVII of the GATT 1994 recognizes that not only
                                                     
32 The United States also participates actively in the ongoing work of the Working Party on State
Trading Enterprises, where issues relating to those disciplines are being addressed.
33 Article XVII:3 of the GATT 1994.
34 E.g., Note Ad Articles XI, XII, XIII, XIV, and XVIII of the GATT 1994.WT/WGTCP/W/83
Page 13
state-owned and state-controlled entities, but in appropriate circumstances non-governmental entities,
can implement policies or take actions that have trade-distortive effects.35
The remainder of this part of this submission sketches out some of the practices by state
trading enterprises that, in the view of the United States, raise questions in a trade and competitioncontext.
A. S
INGLE DESK BUYERS
Single desk buyers36 may wield substantial market power by virtue of their position as sole
importers;  this market power may result in effects that distort trade and impair market access.  For
example, single desk buyers may reduce or restrict access for imported products on the basis of
government-determined or government-tolerated criteria, or in accordance with governmentaldirectives, rather than on commercial considerations.  In the absence of competition from other
importers, the single desk buyer can make final decisions on quantity, quality and timing of an entire
economy’s imports without regard to prevailing market conditions or domestic demand
considerations.
Single desk buyers’ control over import quantities and internal distribution allows them to
influence domestic pricing, including through their mark-ups, which may exceed the mark-ups that
would be available under normal competitive conditions.  Excessive mark-ups may reduce domestic
demand for the traded good.  In addition, such mark-ups put the government in the position to capture
rents that may be put to several uses, including to subsidize domestic producers or cross-subsidizeexports.
Furthermore, single desk buyers often provide insufficient transparency regarding their
purchases and sales.  Information on such matters as import pricing, grades and quality requested, and
purchase quantities may be unavailable.  This lack of transparency may distort trade by permitting thesingle desk buyer to disguise trade restrictions (including but not limited to those prohibited by
existing disciplines), or to manipulate an apparently WTO-consistent import regime. As an example,
non-transparent licensing and allocation schemes can be used to misapply a tariff rate quota system.
Through their control of, or privileged access to, domestic marketing and distribution
systems, single desk buyers can also interfere with purchasing decisions by end users.  By denying
direct contact between exporters and end users, the single desk buyer can limit end users’ awarenessof the exporters’ products;  this in turn can inhibit the development of the end users’ preferences (both
in absolute terms and in relation to the price at which the exporters’ products would be available in
the absence of the import monopsony).
B. S
INGLE DESK SELLERS
Single desk sellers37 also have the ability to distort trade by virtue of their effects on the
markets into which they sell.  Those effects may diminish the benefits of trade to other exporters into
                                                     
35 Article XVII:1(a), and the Understanding on the Interpretation of Article XVII of the GATT 1994,
paragraph 1.
36 The term "single desk buyer" in this paper refers generally to an entity that purchases (or directs the
purchase of) all of a country’s imports of a particular good.  Single desk buyers may or may not also have
control over domestic distribution of the good after importation.
37 The term "single desk seller" in this paper refers generally to an entity that has the exclusive right to
sell (or to direct the sale of) all of a country’s exports of a particular good.WT/WGTCP/W/83
Page 14
such markets, and may create inefficiencies by relying on non-market-based price signals to drive
production.
To begin with, many single desk sellers benefit from the financial backing of their national
government.  Subsidies or guarantees may be provided;  operating losses may be absorbed orreimbursed.
38
In addition, single desk sellers can extract lower prices, directly or through such methods as
delayed payment terms, from domestic producers simply by virtue of their monopsony position in the
domestic market.  Lower prices obtained in any of these ways permit the single desk seller extra
flexibility in export pricing, a flexibility not available to private exporters from other countries.  For
instance, because they can be fairly well assured of a consistent source of supply at a price that theycan control, single desk sellers can negotiate long-term bilateral sales agreements with foreign buyers.
Private exporters are more exposed to market pr ice fluctuations and supply variations, and they
therefore cannot readily enter into similar agreements.
Such pricing flexibility may also be combined with a lack of transparency (in which respect
the single desk seller resembles the single desk buyer) to permit price discrimination.  Price
discrimination may, in certain situations, lead to a higher level of imports into a particular country
than would otherwise be the case, to the detriment of more efficient firms located within that country
or elsewhere.  It also may allow, in certain situations, the single desk seller to employ predatory
pricing techniques in premium markets.
Finally, a single desk seller may operate price pooling arrangements that provide price
stability and minimize market risk to the individual producers in the single desk seller’s country.
Under a pooling system, at the end of the fiscal year the single desk seller tallies its total sales revenue
for the year, deducts operating costs, and then distributes the net revenue to the producers.  Eachproducer in effect receives a blended price.  This system has the effect of penalizing producers of
higher-quality products, or those who bring product to  market at times when prices are higher;  price
pooling therefore transfers wealth to producers who would perhaps not be in production if the system
were not in effect.  The resulting oversupply may depress the prices available to third-country
exporters of the same product.
It is worth noting that both price discrimination and price pooling may have economic effects
identical to export subsidization.  Thus, single desk sellers can circumvent export subsidy disciplines.
C. U
PSTREAM EFFECTS OF STATE MONOPOLIES AND ENTITIES WITH EXCLUSIVE RIGHTS
Even if they are not monopolies, enterprises with exclusive or special rights may, as a
consequence of those rights, have advantages over their competitors (whether domestic or foreign).Those upstream advantages can include the ability to take advantage of a multi-tiered network of
ownership and regulatory functions, which may be laced with conflicts of interest that prevent the
separation of business from government.  This in turn may result in inefficient direction of state assets
(such as energy and material inputs), which can play  an important role in distorting production costs.
Preferential access for state-owned enterprises to transportation, such as rail cars and port berths forboth raw materials and finished products also is both competition-distorting and trade-distorting.  The
lack of financial and fiscal discipline manifested in practices such as debt forgiveness to state-owned
enterprises (or enterprises with special rights) can also distort both competition and trade.
                                                     
38 Such subsidies may in some instances not be consistent with other WTO obligations.WT/WGTCP/W/83
Page 15
D. SUMMATION
To the extent that many of the countries now negotiating accession to the WTO have a history
of economic organization dominated by state monopolies, and because services are now subject to
multilateral disciplines, arguably the issue of state trading and special and exclusive rights is more
important now than in the past for the internatio nal trading community.  A government’s regulatory
choice to confer a special status on an enterprise whose sales or purchases can affect the interests of
other countries in trading their goods and services merits examination under the light of economic
efficiency, in order to limit, if not eliminate, trade distortions.  This subject relates to the discussion of
private anti-competitive practices which this Working Group is examining, because it is also possible
for governments to facilitate state trading-like behaviour on the part of private actors.39  A number of
approaches have been suggested from time-to-time for dealing with the trade distortions which can
arise.40  Greater market orientation in government choi ces should be the goal, whether state or private
activity is at the root of international trade and competition distortions.
IV. CONCLUSION
The experience of the United States regarding the relationships among regulatory issues
(including as they relate to state trading enterpri ses and private state trading-like activity), competition
law and policy and trade show that the relationships are complex.  The US notion of regulatory reform
is broad.  While it includes the goal of removing regulatory regimes in which governments directly or
indirectly control prices or limit the number of competitors, it also includes the reduction of
regulations as well as administrative requirements or guidance that make it difficult for new products
and competitors to enter and compete successfully in the marketplace.  In broad terms, a governmentimplements competition policy through policies intended to affect the environment for economic
competition among firms.  Economies with a history of commitment to vigorous antitrust enforcement
and pro-competitive regulatory policies demonstrate that sound competition policy enforcement and
minimally intrusive regulation do in fact protect the competitive process.   This in turn stimulates
innovation, promotes prosperity, increases efficiency, and contributes to advancements in furthertrade liberalization.
__________
                                                     
39 Such conduct, when engaged in by state tradin g enterprises, may not necessarily be reached by
domestic antitrust law in light of legal doctrines such as state action, act of state, and comity.
40 Other approaches to issues associated with stat e trading enterprises that have been suggested from
time to time include the creation of additional disciplines (or tightening of the existing GATT and GATSdisciplines) with respect to state trading enterprises, th e creation of additional procedural rules with respect to
state trading enterprises, and the negotiation of commitm ents with respect to specific state trading enterprises.