(Archived document, may contain errors)
12/12/85 103
NARROWING THE U.S. TRADE DEFICIT BY ANTITRUST REFORMS
A C abinet-level committee last week recommended to Ronald Reagan a
package of sweeping changes in the U.S. antitrust laws. These
overdue reforms would go a long way toward making U.S. industry
more competitive at home and abroad. The President should endorse
these recommendations and submit them to Congress. The Senate and
House should give then urgent consideration, for it is by relaxing
some of the anachronistic antitrust shackles on American business,
and not by protectionism, that the U.S. will narrow its trade
deficit.
The need for antitrust reform is clear. U.S. antitrust statutes
have not been seriously reviewed by Congress since the early 1950s.
At that time, the prevailing philosophy was simply that "big is
bad" and that .consumers best could be helpe d by strict laws
limiting the actions of large firms. Few economists today, however,
believe that big companies necessarily are bad. Large firms, for
instance, often can gain economies of scale, allowing them to
reduce costs and benefit consumers. Antitru s t laws, moreover,
often reduce competition rather than spur it because the laws allow
firms to file paralyzing antitrust lawsuits to frustrate the
activities of their rivals. For years, the damage these outmoded
laws inflicted on the economy went largely u nnoticed. Today,
however, U.S. firms are facing increasingly tough foreign
competition in almost every area. The Cabinet committee's reforms
would make U.S. firms more competitive by allowing them to-become
more efficient through restructuring and freeing them from the
threat of baseless, paralyzing litigation.
Among the specific reforms recommended: 1) Modification of section
7 of the-Clayton Act of 1914. This statute restricting mergers
between competitors has not been revised significantly since 1950.
F or many years it was used to ban large-scale mergers with little
consideration for the level of international . competition faced by
firms involved or the economic benefits of the
merger. The guidelines set by the Reagan Administration's
antitrust enfor cers already give more weight to such
considerations. Yet without a change in the law, this more sensible
approach could evaporate under another administration less familiar
with the challenge of the Japanese and other international
competitors. Even unde r the Reagan guidelines, merging firms face
the threat of private lawsuits. Only changing Section 7 could
prevent this. 2) Temporary relief from antitrust laws for certain
industries threatened hy foreign cgmRetition. Under current trade
law, if an industr y is found by the International Trade Commission
to have been injured by foreign competition, the President can help
it only by establishing tariffs or by imposing quotas to restrict
imports. Both measures hurt the consumer and give no incentive for
Americ a n firms to take steps to improve their competitiveness.
The Cabinet proposal gives the President a third option: exempting
the industry from the antitrust laws for a limited time. This would
enable that industry to restructure and increase its efficiency.
Competition would not be harmed by the antitrust exemption because
the industry would not qualify for the exemption unless it were
facing intense competition from abroad. 3) Elimination of treble
damages. A successful plaintiff in an antitrust case curren t ly
receives three times the amount of damages actually suffered. This
predictably encourages many frivolous antitrust claims in the hope
of a large award. Defendants often settle such lawsuits out of
court, regardless of the merits of the case, for they f e ar
potentially'enormous liability. The 'proposed reforms would limit
awards to- actual damages, except for such offenses as price
fixing. 4) Payment of defendant's attorney's fees by plaintiff in
frivolous suits. Under current law, if the plaintiff in an a
ntitrust suit wins, the defendant must pay the plaintiff's
attorney's fees. If the defendant wins, however,, he still must pay
his own fees. The proposed reforms would force the plaintiff to pay
the defendant's legal fees if the suit is found to be frivol ous,
unreasonable, without foundation, or in bad faith.
These reforms, of course, will not solve all U.S. trade
problems, or eliminate all the inefficiency in American industry.
The reforms do, however, move significantly in that direction. They
recognize that America's trade problems are not wholly due to the
actions of other countries, but often are caused by legal
restrictions on U.S. industry. If Congress wishes to improve the
competitiveness of U.S. industry, rather than embark on the costly
and destr uctive road to protectionism, it should give urgent
consideration to the Cabinet antitrust reform proposals.
James L. Gattuso Policy Analyst
For f urther inf ormation:
Catherine England, "Bringing Antitrust Laws into the Twentieth
Century," Heritage Foundation Backstrounder No. 344, April 18,
1984.
Malcolm Baldrige, "Rx for Export Woes," The Wall Street Journal,
October 15, 1985.
}}