Senator BAUCUs. I think in your prepared statement you mentioned that the Department spent 2,500 hours and $40,000 on the 1980 BN antitrust investigation. Is that correct?

Mr. BAXTER. I believe those are the correct numbers for investigating the possible violation of these protective conditions.

Senator BAUCUS. Do you feel that was sufficient to review several hundred thousand documents that were handled in this investigation?

Mr. BAXTER. Well, again all I can tell you is that I did not hear Mr. Seiden complaining. If he had felt that he needed to do more, I suspect he would have done more.

Senator BAUCUs. Are you complaining, Mr. Seiden? Or did you complain?

Mr. SEIDEN. No, Senator. I am quite confident that the investigation conducted in my section was quite thorough and that all of the relevant documents were read. They were all carefully and thoroughly reviewed and digested. The final recommendation was based on a careful analysis of all the information.

Senator BAUCUS. Who closed the investigation? As you mentioned, it was closed in December of 1981.

Who makes that decision? Who basically closes it?

Mr. BAXTER. I'm sorry?

Senator BAUCUs. I am curious. Who--.

Mr. BAXTER. As a formal matter, the instructions to close an investigation come out of the Office of Operations. The extent to which I or one of my deputies would be involved in an investigation before it was actually closed would vary from case to case depending on the significance of the matter.

Senator BAUCUS. Your testimony this morning gave us the Department's conclusion of that study. I appreciate that very much. I am wondering if for the record you could provide us with a somewhat more complete statement of the Department's findings with respect to that investigation. Could you do that please? 1

Mr. BAXTER. I am sure we can give you a description of some

sort.

Senator BAUCUS. I appreciate that very much. I really would.

I also agree with your conclusion, if I correctly understand your conclusion that it is unfortunate that the northern tier no longer has competitive rail service. Do you see any possible solution of that predicament. Or, in your judgment, are we simply compelled to live with what you describe as the adverse effects of ICC approving that 1970 BN merger?

Mr. BAXTER. Once a merger has been consummated and the two operating plants have been integrated, it is not atypically quite difficult, expensive, and sometimes counterproductive to try to take them apart even if they ought not to have been originally merged. I certainly do not have the information that would enable me to say whether that is a reversible transaction as of this point in time.

I also think that the law is not crystal clear on whether the ICC would have jurisdiction to revisit that question. That, too, would require further research.

1 See page 602 in the appendix for letter from Mr. Baxter to Senator Baucus.

Senator BAUCus. In your prepared testimony you also stated that you see great dangers in granting regulatory agencies the authority to immunize mergers from the antitrust laws.

I am wondering whether you have any proposed changes in the law at this time in order to address that problem.

Mr. BAXTER. No, I have no proposal that I am prepared to advance this morning, Mr. Chairman. I would point out that at prior points in time the Antitrust Division has suggested removing rail mergers from the jurisdiction of the Commission and treating them like other industrial mergers. But, as I indicated earlier, I have not currently reviewed that proposition. I point to it, but at this time I am not prepared personally to endorse it.

Senator BAUCus. I do not know if you were here, but earlier Senator Melcher indicated that the ICC has no control over contract rates. Does the department have sufficient authority and staff to insure that contract rates are not made available to BN's affiliates in a discriminatory manner?

Mr. BAXTER. Because contract rates have been deregulated—I am going to ask Mr. Seiden to deal with that. The precise timing on the deregulation effected by the Staggers Act and the removal of antitrust immunity I do not have in the top of my head, and I suspect he does.

Mr. SEIDEN. Senator, if I understand your precise question, the question is whether we think the Department of Justice has sufficient staff to look into a possible anticompetitive effect resulting from contract rates.

Senator BAUCUS. And authority.

Mr. SEIDEN [continuing]. And authority.

Yes, I think that contract rates presently are not subject to any outstanding order or provision by the ICC conferring antitrust immunity over them so that they are presently exposed to the full force and effect of the antitrust laws. Whether we have sufficient staff to enforce the antitrust laws, I think the answer is yes, we do. If certain conduct came to our attention suggesting antitrust

Senator BAUCUs. I asked in part with respect to staff because, as I understand it, there are thousands of contract rates. There are not a few but there are many. I am wondering whether that might cause some staff problems down the line.

Mr. SEIDEN. I think implicit in your question, Senator, is some suggestion that perhaps there ought to be a review of each and every one of those thousands of contract rates. My feeling is there probably is no need for that. There are millions, billions I suppose, of pricing transactions throughout the economy every day. I do not think anyone suggests that we or any other agency should be reviewing those on a price-by-price basis.

Senator BAUCUS. I want to thank you both very much for coming, particularly you, Mr. Baxter. You have been very helpful. I want to thank you very much.

Mr. BAXTER. Thank you, Senator. [Prepared statement follows:]

STATEMENT

of

WILLIAM F. BAXTER

ASSISTANT ATTORNEY GENERAL

ANTITRUST DIVISION

Mr. Chairman and members of the Committee, I am pleased that you have invited me to participate in your inquiry into railroad merger policy. Since efficient and competitive rail transportation is vital to many basic industries, the topic of today's hearing well deserves your attention.

In my remarks today I would like to address two general topics: First, the Justice Department's policy and procedures regarding rail mergers, and, secondly, the Department's role in the so-called Northern Lines Merger--the railroad consolidation that created the Burlington Northern.

1.

Department of Justice Rail Merger Policy and Procedures

As you know, mergers between railroads are subject to the review of the Interstate Commerce Commission. The Interstate Commerce Act requires the Commission to approve and authorize a railroad consolidation, merger, or acquisition of control "when it finds that the transaction is consistent with the public interest."*/ As part of its public interest analysis, the Commission must, among other factors, consider the competitive effects of the proposed transaction.

**/ In order to help

*/ 49 U.S.C. §11344(c).

**/ 49 U.S.C.

$11344(b) (5).

Port of Portland V. United

States, 408 U.S. 811, 841 (1972); McLean Trucking Co. v. United States, 321 U.S. 67, 87 (1944).

the ICC make this determination, Congress explicitly gave the Department of Justice a statutory right of intervention in such proceedings and made special provision for the Attorney General to file preliminary comments with the ICC concerning proposed rail mergers. */ Pursuant to these provisions, the Department of Justice frequently intervenes in ICC rail merger proceedings. In preparing Our comments to the ICC concerning the competitive impact of a proposed railroad consolidation, the Department is essentially guided by the provisions of Section 7 of the Clayton Act. **/ Although, as statute does not directly apply provides a useful and appropriate analyzing the competitive effects

consolidation.

I have mentioned, this to railroad mergers, it frame of reference for

of a proposed railroad

In using this approach the Department examines two different competitive aspects of rail mergers: a "parallel" or "horizontal" aspect and an "end-to-end" or "vertical" aspect. A rail merger can be characterized as parallel insofar as the merger partners offer competing transportation services between the same origins and destinations. In contrast, a merger can

be regarded as end-to-end insofar as the merger partners

serve common points, but do not serve those points from the same origin or destination. Most rail mergers have both types

of competitive features, but usually it is possible to describe a proposed merger as being either primarily parallel or primarily end-to-end.

As a general rule, it is the policy of the Department of

Justice to oppose ICC approval of proposed

parallel rail

consolidations

since

such

consolidations

frequently

features of a

significantly reduce competition in transportation markets. It sometimes Occurs, however, that the parallel proposed rail merger are a relatively minor part of the transaction. In such cases we might not oppose approval of the merger if adequate conditions can be imposed by the Commission to reduce or eliminate the competitive problem. Such conditions, for example, might involve divestiture by the consolidating carriers of parallel rail facilities or requiring the merger partners to grant other railroads the right to provide service over the tracks of the merged carrier ("trackage rights").

In contrast, the Department does not generally oppose rail mergers insofar as they can be characterized as end-to-end. End-to-end mergers usually lead to efficiencies and do not have significant anticompetitive effects. It is conceivable, however, that in some circumstances the Department might oppose an end-to-end merger. For example, we would consider opposing an end-to-end merger if it would substantially lessen so-called