it a very wide reading. Fortunately, in the 1975 decision involving the Virginia State Bar, the Supreme Court cut back on that exemption, clarified it, and made clear that in order to be exempt from the antitrust laws, the private activity at issue has to be truly commended by the State sovereign. Mere State approval of private conduct is not adequate.

The Court reemphasized that point in a 1976 decision, Cantor v. Detroit Edison Co. The Department has a number of cases, one par ticularly against the Texas State Board of Public Accountancy, which deal with this area.

Let me turn now to the third part of my testimony, which begins on page 16, and deals with the main areas in which we recommended changes in law.

The first of these is the milk marketing exemption, which is a broader part of the agricultural exemption. I might explain that the reason we focused on milk marketing cooperatives was that this seemed to be the area in which the agricultural exemption was being widely used for monopolistic purposes. We found that the Secretary of Agriculture had not used his authority to prevent cooperatives from monopolizing or enhancing price levels in this field.

Essentially, the situation in milk marketing is that it is an attempt to raise the price for fluid milk and to avoid the serious distress con ditions that arise in a field where the seasonal swings are really quite large. The study essentially tried to discover just what went on under. this complicated system of milk marketing orders, which were really designed, in some ways, to keep milk from the more efficient regions from flowing out.

I think the most interesting conclusion, and it's a recurring con clusion in a lot of the areas of exemption, is that by putting-by rais ing-milk prices, what the Congress really did was just raise the cost of production. In particular, dairy land was made more valuable as a result of the monopoly rents in the system, just as stock exchange seats were made more valuable by the Carlisle system of ratemaking Someone who wants to get in just has to borrow more and pay back more over a period of time.

We tried hard in the milk-marketing area to make some estimate as to what the effect of schemes were, and we concluded, in the re port, that deadweight losses to society ran in the nature of $50 millior a year; an additional $70 million, also, from other aspects of the system, making a total of almost $125 million.

My testimony then turns to the question of transportation, which has been touched on in comments by the ranking member earlier The task force report did not go extensively into some of these fields because there was major administration effort underway already and it was clear that the present exemptions for air transportation and for the Interstate Commerce Commission-approved actions wer not justified.

The Ford administration made proposals to cut way back on thos exemptions, and the Carter administration, of course, is currently working and supporting proposals to increase competition and cu back antitrust exemptions.

The Ocean Shipping Act

Mr. McCLORY. Would you repeat that for me? Would you pleas repeat the Ford administration

Mr. BAKER. The Ford administration offered proposals, the air and trucking proposals, that would have cut back on the antitrust exemptions in those fields. The Carter administration has announced its support in general for legislation currently on the Hill which would also have a similar effect. I'm due to testify on Friday on that, and the administration's witnesses have already testified in favor of many provisions in the same bill.

The Shipping Act of 1916, and the conferences which were looked at, was found, again, to be an area in which there was significant monopolistic abuses. The act had been amended extensively in 1961 on the grounds that the monopolies inherent in the conference system could, if fully and adequately regulated, avoid abuses.

The Task Group concluded that this had not been done, that FMC regulation had essentially strengthened the cartelized system in the conferences, and that rate agreements approved by the Commission had tended to injure non-conference competitors.

Accordingly, the group made a series of recommendations which are summarized on page 26 of my testimony: elimination of dual rate contracts; the public interest test in the Svenska decision could be embodied in the statute; prohibition of pooling agreements; prohibition of interconference agreements; preservation of the right of individual members of conference to opt out; and the exclusion of port promotion as a factor in determining the legality of intermodal freight carriage.

Let me turn now to the last of the exemptions which we looked at, the one for insurance, in the McCarran-Ferguson Act. This exemption came about in the wake of the Southeastern Underwriters decision in 1944, and, essentially, the exemption provides that there is no antitrust liability if the activities of insurers, subject to some exceptions, are regulated by the States. The States have done a variety of different things, ranging from utility-type rate regulation to the open-competition laws which exist in California and New York.

We found that, in fact, the property-casualty insurance industry— the liability insurance industry-was favorably structured and could operate under competition. Indeed, we found that in those lines, detailed rate regulation isn't necessary.

It's interesting, Mr. McClory, that Illinois has operated for several Jears without any State rate regulation in most lines of householders and automobile insurance, and as far as I know-you may hear differently-it works well.

We heard from a lot of insurance companies about how burdensome A lot of regulation was and how it was preventing the development of Dew ways of marketing, and, to some extent, preventing the offering of insurance.

So we

developed a proposal for an alternative insurance regulatory cheme under Federal auspices under which there would be no antirust immunity. In essence, this scheme would broadly parallel the ational banking approach that we have with respect to the financial stitutions. Under our proposal, insurance companies could choose to cept a national charter and be subject to antitrust laws, or, as an alternative, they could remain subject to State law and have immunity. The workability of this type of proposal depends to a considerable tent on how interested the industry is in it, and how many innovafive companies would be willing to come forward.

This, essentially, concludes my discussion of the existing immunitie I would like to finish with one important reminder: and that is, thi this committee, this Congress, and future Congresses will have a comme tinuous streams of proposals for new antitrust immunities. And would hope that you would bear in mind, in scrutinizing these, whr you will learn out of these hearings; namely, that many antitru immunities get put on the books on the basis of more short-time di tress, short-time political pressure, and special circumstances, tha they do out of a broad concern for the public interest. I think some the same things can be said for some of the bills today-for exampl the so-called bottler's bills-which Congress continues to oppose. I'm extremely grateful for the opportunity to appear before th committee, and I look forward to a chance to answer questions. [The prepared statement of Mr. Baker follows:]

STATEMENT OF DONALD I. BAKER, ASSISTANT ATTORNEY GENERAL, ANTITRU DIVISION, DEPARTMENT OF JUSTICE

I am pleased to be here this morning to discuss the work of the Task Gropeg on Antitrust Immunities. While many assume that free enterprise and compel tive markets are the basis of this country's economy, regulation and concomm✨. tant restraints on the competitive process, protected by antitrust immunity, a legion.

Immunity, or exemption-the characterization is largely a matter of circu stantial semantics-is thus a pervasive issue in antitrust. A surprisingly lar proportion of our investigations begin with the existence and scope of applicab antitrust immunities. Indeed, many ultimate enforcement decisions turn on th issue alone. Thus, I am particularly glad to see this Subcommittee's interest! antitrust immunity.

Many of the currently existing exemptions have been inherited virtually inta from times of quite different economic and political conditions and needs. I belie that a number of these exemptions should be closely examined by Congress determine whether their intended benefits are currently relevant and are in fa being realized. We must also ask whether any such benefits are outweighed the costs to society which can be generated by noncompetitive markets. Our e perience indicates that such inquiries bear fruit: the Task Group itself conduct reasonably comprehensive studies of three exemption areas-insurance, oces shipping, and milk marketing orders and concluded in each instance that t present scheme of things is highly questionable when the public interest considered.

Not surprisingly, many antitrust exemptions with far-reaching effect a found in regulated industries. In the past 50 years, there appears to have d veloped the idea that regulation is fundamentally inconsistent with competitio and that competition should be relegated to the scrap heap whenever governme feels compelled to become directly involved in the functioning of an industr Just how things went this far is difficult to understand, at least in retrospect, bi I suppose that expediency and special interest pressures are basically respons ble. In any event, such an attitude has no place in America today. Competitic should be the norm, regulation the exception, and then only when clearly nece sary. The work and findings of the Task Group thus coincided with the contin ing efforts, supported by the Administration and finding an increasing constit ency in Congress, to pursue fundamental regulatory reform.

Before discussing the work done by the Task Group and the recommendatio made in its Report, allow me to briefly provide a little background on antitru immunity in general. As those of us in this room so well know, the antitrust law represent a fundamental commitment to competition based on innovation, ef ciency, and fair, if hard, play. The antitrust laws are designed to preserve an promote competition by prohibiting collusive agreements among competitors, pr venting mergers which may substantially lessen competition, and providing means of dealing with incipient or full-blown monopolists.

Over the years, the Supreme Court has broadened the interstate commerce co erage and substantive interpretation of the antitrust laws. As a result, many i1

dastries, including service industries, have been found to be within the scope of aws originally designed to cover mainly the manufacturing sector of the econmy. In response to this gradual expansion of the overall scope of antitrust, ongress and the courts have seen fit at various times to create exemptions for particular industries or activities in economic or political environments in which restrained competition was deemed inappropriate. Some exemptions were set the context of market regulation by federal or state government agencies. thers were just exceptions to the general application of antitrust law. The Supreme Court has inferred still more exemptions or immunities from the inerent nature of the antitrust laws and our federal system.

Many of these exemptions, particularly in the regulated industry area, were products of the depression years when the concern for solvency-for just keeping hings going-was much greater than the concern for innovation and efficiency. Bet in the last twenty-five years, Congress has been much more reluctant to grant exemptions, and has even provided special rules and procedures for injecting competitive considerations into the process of federal regulation. The Supreme Court has also taken what some would call the initiative in bringing a Bamber of regulated industries within the scope of antitrust scrutiny, and has begun to apply antitrust principles to areas of economic activity previously thought by some to enjoy immunity from the antitrust laws.

It was in light of this background that the interagency Task Group on AntiFrust Immunities was assembled at the request of President Ford in the Fall of 1974. The Task Group was chaired by the Assistant Attorney General in charge the Antitrust Division and included representatives of the Office of ManageLent and Budget, the Council of Economic Advisors, the Council on Wage and Price Stability, the Council of International Economic Policy, and the Domestic Council. Many other agencies added their expert knowledge and advice.

The Task Group's initial decisions involved identifying the antitrust exempons existing under current law and determining which of these were most itable for intensive scrutiny.

Two possible areas of study were soon eliminated by judicial or legislative decision: In June of 1975, the Supreme Court declared in the Goldfarb1 case that there is no exemption from antitrust for the so-called "learned professions." And in December of 1975, Congress repealed the McGuire and Miller-Tydings Arts, thereby eliminating the "fair trade" exemption for resale price maintetance agreements. Of course, substantial efforts had been made by many, including the Department of Justice, in attempting to have fair trade repealed. Thus, the effects of this exemption were already well documented.

I. EXEMPTIONS CONSIDERED ONLY BRIEFLY

We soon identified a number of antitrust exemptions which did not seem appropriate for any substantial expenditure of the Task Group's limited reBrees, either because of their recent Congressional origin, inherent competitive safeguards, or the small likelihood of their having substantial adverse effects. Let me just describe these briefly.

The Newspaper Preservation Act of 1970 was designed to enable newspapers which are in great financial difficulty to survive by entering joint operating agreements with other newspapers. It may have an adverse impact on advertisg costs in some areas, but because of the very recent legislative origin of the antitrust exemption for such agreements, the Task Group decided that it did not merit detailed examination at this time.

The Energy Policy and Conservation Act of 1975 created an antitrust defense for certain conduct by petroleum firms. The defense applies to actions taken to develop or carry out voluntary agreements which implement the allocation and Information provisions of the international energy program to which the United States is a signatory. Because of its recent origin and its provision for prior Justice Department and Federal Trade Commission approval of the agreement process, and because of current monitoring by the Antitrust Division, the Task Group did not undertake a detailed analysis of this exemption.

The Task Group also concluded that it was unnecessary to conduct a detailed analysis of the Defense Production Act's antitrust exemption for certain voluntary agreements among various industry groups made in the course of develop

1Goldfarb v. Virginia State Bar, 421 U.S. 773.

ing emergency preparedness programs. Shortly after the Task Group was formed, the Act was revised to incorporate specific safeguards against voluntary agree ments with unnecessary anticompetitive effects. Meetings to develop voluntary agreements must be attended by representatives of the President, the Attorney General, and the FTC, and all voluntary agreements must be approved by the President's representative and the Attorney General and monitored by the Attorney General and the FTC.

Some exemptions were viewed by the Task Group as having insufficient economic effects at the present time to warrant extensive scrutiny. One such exemp tion is that contained in the Export Trade Associations Act, more commonly known as the Webb-Pomerene Act. Under that Act, associations entered into for the purpose of engaging solely in export trade, and their agreements, are exempt from the provisions of the Sherman Act, so long as the associations register with the FTC and do not engage in activities which restrain domestic trade. artificially enhance or depress prices of United States goods, or restrain the export trade of the associations' domestic competitors. While there are inherent dangers in such an exemption-for example the danger of encouraging other countries to continue to favor export cartels-the Task Group decided that since the Webb-Pomerene exemption has been little used, and apparently has had no substantial economic effects, it would not review this exemption in detail Future study may, however, be warranted.

Similar considerations influenced our brief review of the Small Business Act That Act provides an antitrust exemption for small businesses which form cor porations to obtain material or engage in research which they need in order to be able to compete with larger firms for government contracts. Most such join ventures would not substantially restrain competition anyway, and in any event the exemption has been seldom used and does not appear to have had significant adverse economic effects.

The antitrust exemption for joint activities found in the Merchant Maring Act of 1920 was designed to permit American marine insurance companies to share the underwriting of risks which no single company could handle individ ually. This provision is quite old, and should probably be reevaluated, but wi did not think its study was as likely to be as productive as others the Task Gro wished to pursue.

Finally, the Task Group also decided not to examine in detail the antitrust exemption created by the Sports Broadcasting Act for joint agreements amon professional sports teams concerning the negotiation of television rights for thei games. This exemption has limited economic significance, and has been the sub ject of repeated Congressional examination. The Task Group did examine pro fessional baseball's unique antitrust status. Recent hearings were held by the House Select Committee on Professional Sports concerning the judicially create exemption for professional baseball, at which the Department of Justice test fied. We concluded that this exemption was not justifiable today, and endorse the recommendation of the House Select Committee that it be repealed Congress.

Let me turn now to those antitrust exemption areas which were examined D more detail by the Task Group. These included the labor, government enterprise and state action exemptions, and exemptions in the fields of insurance, agrica' ture, and transportation. The first three of these the labor, government enter prise, and state action exemptions-have been evolving in the courts over many years. As I will describe, the Task Group decided not to recommend legislative action in these areas at this time. The other three areas-insurance, agriculture, and transportation-involve statutory exemptions which the Task Group examined in depth. The Task Group concluded in these latter areas that the exen?" tions in question should either be repealed or substantially modified.

II. EXEMPTIONS WITH SUBSTANTIAL EFFECTS-NO LEGISLATIVE CONSIDERATION RECOMMENDED AT THIS TIME

Turning first to the exemptions which have been developing in the courts, me start with the complex, extremely important labor area. As you know, labor exemptions contained in the Clayton and Norris-La Guardia Acts

* See Testimony of Joe Sims, Deputy Assistant Attorney General, Antitrust Division Inquiry Into Professional Sports, Hearings before the House Select Committee on Pr slonal Sports (94th Cong., 2d sess., part 2) at p. 285.

$15 U.S.C. § 17, 29 U.S.C. § 29.

429 U.S.C. §§ 101-113.