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a somewhat ambivalent position. I have submitted a prepared statement, so I will merely comment here on a couple of items.
On the one hand, the concept of bringing competitive factors to the fore before the agencies has considerable appeal to me even on the generic industrywide basis. Senate bill 382 builds on the findings and reasons requirements of the Administrative Procedures Act. These, in turn, rely on the presumption that reasoned elaboration for agency decisions will result in better decisions and in checking arbitrariness. It also builds on the NEPA "impact statement" approach. That statute applied an action-forcing mechanism requiring agencies to consider a new and different factor. In fact, S. 382 would be an inferential step beyond the cost-benefit analysis suggested first by the Ford Executive order applicable to the executive department agencies in 1974 and President Carter's cost-benefit order, Executive Order 12044, of March of 1978.
So S. 382 is a tool, perhaps, for a more alert, careful, and responsible agency analysis to take account of competitive factors. Yet, because of the way the bill is now drafted and limited, focusing solely on economic regulatory agencies, I wonder whether it is really going to have any effect. Certainly those of us who have looked at the Ford Executive order on inflation impact and the Carter order during this past year, have been unable to discern any significant or even perceptible change in agency considerations. If one stops for a moment and asks why, I think the reason is apparent. For example, look at the Interstate Commerce Commission. Since 1936 it has articulated competitive factors as a basis for consideration in its decisions, in addition to impairment of service and viability of the competitive entry or competitive components.
What would happen here if S. 382 were adopted and the ICC were now specifically directed to take a look at competitive factors? Would its decisions be changed? I would suggest the Commissioners would say we have already considered that as part of our mandate under the public convenience and necessity standard. Certainly by S. 382 the Congress is not telling the ICC that competitive factors shall now override and eliminate from consideration factors such as quality of service, ability of firms to compete within the regulated market. So I don't see S. 382 as changing the basic interpretation and understanding of the Commissioners of the Interstate Commerce Commission or any of the other economic regulatory agencies.
The next question is what would be the effect of S. 382. Does this mean that instead of focusing solely on the regulated trucking firms, for example, the ICC should now look at what is the impact of a licensed application on nonregulated trucking. If it is obliged to look at nonregulated trucking, what you have adopted is a bill which, in essence, overtakes the hearing which Senator Cannon is planning to hold on truck deregulation. I frankly do not read this legislation so broadly and I do not think a fair reading permits that understanding. That also raises one additional consideration and question for me.
If by competitive factors, does S. 382 mean that the ICC should also consider the impact of licensing restrictions on airline freight? On barge freight? On railroad freight? In other words, as the legislation is written, it does not identify the meaning of the competitive effects standard.
This suggests a troublesome question of law raised by S. 382. That is, it relies on a presumption that most economic regulatory agencies do not consider competitive effects today. But if you look at their statutory purpose, at the public interest, convenience, and necessity standard written into their organic acts, and how they have applied it, they say that they are taking into account competitive factors. I might not agree with how they make their choices, but the statutory standards, as interpreted, already recognize the competition aspect of their responsibility.
There is, I believe, a more direct solution to the problems that S. 382 addresses and that is to reexamine agency authority. On the one hand, the Congress should cut back that authority where it seems unnecessary, as it has in the case of airline regulation and as it should with much of trucking regulation or, alternatively, Congress should redefine agency authority in specific instances where regulatory authority is to be continued. Finally, I would urge that, where possible, regulatory responsibility be consolidated. One of the serious problems which S. 382 might create if the competition standard is read broadly is confusion, because we have four agencies regulating transportation.
The reason that I am skeptical about the potential benefits of S. 382 is because it has now been narrowed solely to the economic regulatory agency. I would, perhaps, have different questions and different assessment if it were to cover the health and safety regulatory arena. Thank you very much.
Senator KENNEDY. Mr. Rein.
Mr. REIN. Thank you, Senator.
Living very close to this red light, I will try to keep this brief. As you have noted, I am chairman of the Committee on Antitrust and the Environment section on antitrust of the American Bar Association, but once again my testimony today is entirely my own and is not intended to present the position of the committee or any of its other members.
I would like to focus briefly on three issues which I believe are common to the original and revised versions of the bill and which may not have been fully evaluated in the past.
First: I question whether a least anticompetitive alternative standard, however drafted, would effect a sufficiently useful change in substantive regulatory law to run the inevitable risks of procedural complexity and administrative stagnation which S. 382 would create as to interpretation and litigation.
Second: Looking at the impact of both versions of S. 382 on what is commonly understood to be economic regulation of international economic activities, I wonder whether a least anticompetitive alternative standard, drawing exclusively on U.S. antitrust concepts, would provide the flexibility necessary to reach an intelligent accommodation with foreign governments in areas where sovereign interests overlap. Third: Looking at the impact of S. 382 on what is commonly understood to be noneconomic-health, safety, welfare-regulation domestic activities, I am concerned that the effort in the revised draft to exclude these activities from least anticompetitive analysis would eliminate the most beneficial aspect of S. 382.
Now, to elaborate briefly on each of these points, I think the testimony you have heard indicates that however you draft the procedures
to implement S. 382 and however you phrase the standard, lawyers will find something to fight about. There will be controversy as to which precise agency's actions fall within the mandate, what is least anticompetitive in particular situations. For example, if a price increase is denied and is necessary for the survival of less efficient firms, is that procedure competitive or is that anticompetitive, and how useful would S. 382 be in giving the answer? Thus, unless S. 382 is going to make an important change in how agencies do business, I think we would have to ask a question as to whether we should be cautious in imposing a broad standard.
It seems to me that recent efforts to achieve deregulation by administrative order or legislative action involve largely an attack on the basic economic justification for detailed regulation. Increasing numbers of economists have shown that regulated industries are naturally competitive; that competition will not result in predation and movement toward monopoly by destruction and that forces most effectively protect the consumer against economic inefficiency and distorted prices. As the regulatory agencies, or the Congress, become persuaded that the objective of providing goods or services at reasonable prices can best be served by competition, the scope of regulation is inevitably narrowed.
It is important to note, however, that regulatory reform comes not from a restatement of the question, whether particular regulatory actions are required to meet defined objectives, but from a reconsideration of the answer.
Under the economic thinking which guided most agencies until quite recently, I doubt very much whether any standard would have changed substantive results. Indeed, agencies employed a standard that sounded a lot like S. 382 and came to a number of results which, I think, would curl your hair. My concern, though, about applying S. 382 even to domestic regulation is also based on the fact that domestic economic regulation also includes important social objectives. Decisions that all small communities ought to have jet air service, that all telephone rate payers ought to pay the same thing for long distance calls regardless of density, that small independent refiners ought to stay in business regardless of their efficiency, or that crude oil prices ought to be limited to restrict inflation are not necessarily decisions that the free market needs to be regulated. They are, rather, endorsements of social or macroeconomic goals which may well be inconsistent with maximizing efficiency and permitting an optimum allocation of resources. This social thrust in economic regulation is, for example, clearly in evidence when the Federal Communications Commission gives preference in licensing choices to community involvement or minority participation. How S. 382 would impact on a policy of that kind I think is a difficult question.
A similar difficult question is how S. 382 would operate when conflicting views of foreign sovereigns become involved in a regulatory problem.
Quite recently, for example, the Civil Aeronautics Board, which is hardly an antideregulation agency, approved what in effect involved a pooling agreement between the United States and Saudi Arabia. Its stated purpose for that approval was representations by the Department of State and strong interest of the Saudi Government in that kind of an economic arrangement.
I might submit to you that the CAB's decision in that particular case was probably correct and if S. 382 were to block decisions of that kind because questions would arise as to what is a statutory goal, it would not serve a useful purpose. Indeed, I believe the original S. 382 would have forced disapproval of that agreement and it would have some grave foreign relations consequences. Therefore, I suggest to you that following the model of airline deregulation, any version of S. 382 should be limited to actions primarily affecting domestic commerce of the United States and not try to solve international problems at this time.
The third point I make and one that I discuss in length in my testimony and appendix is the value of S. 382 as applied to a huge and ever-growing complex of regulatory actions which are stated to be health and welfare actions. Each of those actions involve substantial investments of capital resources and it has a major impact on operating costs. Whether or not the ostensible reason for regulating is social or economic, these regulations have an impact on individual firms and individual industry sectors which is undeniable. They have a particularly intensive impact on small business and I think that it is essential in that kind of regulation to take account of how competitive markets will be affected. Senate bill 382 can serve an extremely useful purpose of reminding all social regulatory agencies of the need to minimize intrusion on the market system, and to consider the cost which consumers can bear for regulations which unnecessarily burden the operation of the free market. I believe that sensitivity to competitive factors and adequate methodology is essential if the free market economy and a detailed set of social goals are to coexist.
I believe the original version of S. 382 might have overemphasized the antitrust goals at the expense of the social goals and I believe the revised version would be of great benefit if applied to those other regulatory agencies. I realize you could argue about some of the categories that we recommend, but I think S. 382 should invite them to the free market through the front and not the back.
Thank you very much.
Senator KENNEDY. Thanks very much.
Mr. Gellhorn, in your testimony you compare S. 382 to the Environmental Policy Act, and say:
Both rely on a primary assumption which I believe to be sound-that by forcing agency attention to the reasons for their actions and particular considerations such as environmental concerns, the decisions which follow are more likely to reflect a reasoned consideration of all arguments and alternatives.
Why would that not be true in areas of competition? Why isn't that same reasoning applicable to this?
Mr. GELLHORN. As I sought to indicate, it might, which is why I am only skeptical and not opposed to S. 382. NEPA was effective because many of the agencies did not believe that it was appropriate for them to consider environmental factors prior to the adoption of the act. As a result of NEPA the agencies are now taking new factors into account. However, in connection with an analysis of the economic regulatory agencies, Interstate Commerce Commission being the one that was discussed most frequently here this morning, competitive effects are already being considered by the agencies. In connection with the I.C.C., competitive effects is one of the primary considera
tions which it is to take into account for over 40 years. This ICC has done since 1936.
Senator KENNEDY. It might say that in the rules and regulations, but I am amazed to hear from a professor of law that that has actually, been the track record.
Mr. GELLHORN. I agree.
Senator KENNEDY. I don't plead to have profound knowledge and understanding, but I have sat through 18 days of hearings. To hear that they do that, from you, when we are hearing the most convincing kind of evidence from the people who are on the firing line and the people who are involved in the process, that this is not the case, is basically quite puzzling.
Mr. GELLHORN. Well, I am not suggesting that this may not affect
Senator KENNEDY. Let me say at the outset, that it is my position that we ought to proceed agency by agency. It took us 41⁄2 years to deregulate the airlines. I am hoping to beat that in trucking. If you look at the President's Commission on Antitrust, we are looking at 20 different areas of economic regulation. We are talking about the next 20 years of congressional action. With all due respect, it seems desirable and worthwhile, and it ought to be pursued by those interested in competition. None of us think this will be the magic wand that will resolve the problems of competition. I find, in looking through the statute itself in terms of the questions of either rate or entry, under rates, it says, "Approve only just and reasonable charges for any service rendered in the transportation of passengers or property." That is the ICC, and on the issue of entry:
Any qualified application, certificates of public convenience and necessity to motor carriers engaged in interstate commerce, providing that the carrier's service is or will be required by the present or future for public convenience or necessity.
Looking both at the language and track record, I find it very difficult to accept a statement to the effect that competition has been taken into consideration by the ICC.
Mr. GELLHORN. Let me be specific. Under the public interest, convenience and necessity standard in this statute, the ICC in 1936 articulated several factors that had to be taken into account in every decision, one of which was competition. As a standard practice, the ICC's administrative law judges and the commission itself makes findings in connection with entry, pricing and product decisions in terms of the impact of its decisions as it perceives it on competition. When it fails to do so adequately, the courts on review reverses and remands to the agency to reconsider its decision. In this connection I call your attention to the P. C. White* decision last term of the District of Columbia Court of Appeals.
What I am suggesting, in other words, is that in this particular circumstance, unless S. 382 is read very broadly-and I would even suggest in a way in which the language to me does not support-it will have no effect. I will take more than S. 382 to change ICC decisions. I don't think that this legislation has enough of a nail sticking outside its 2 by 4 to get the commission to change its approach.
Senator KENNEDY. I am willing to get the nail out.
•P. O. White Truck Line, Inc. v. IVV, 551 F. 2d 1326 (D.C. Cir. 1977).