precise standards can be given for defining FCC standards on broadcaster renewals, for cable entry, and so forth, rather than leaving the matter for FCC. Finally, and again related, is a third step. I would urge that Congress restructure and consolidate that regulatory authority which is to remain. Historical accident and interest group pressures rather than reason explain the division of transportation responsibilities among at least four agencies and departments, consumer protection among a like number, and antitrust between two.

If anticompetitive agency action is a concern, the proper focus is in Congress which is the source of this authority.

PREPARED STATEMENT OF RICHARD W. POGUE

My name is Richard W. Pogue. I practice law with the firm of Jones, Day, Reavis & Pogue in Cleveland, Ohio and for the past 22 years a substantial part of my practice has been in the antitrust field. Of relevance to my appearance here today are the facts that since 1974 I have served as a public member of the Administrative Conference of the United States, and since 1977 I have served as a member of the council of the antitrust section of the American Bar Association.

In 1976 the house of delegates of the American Bar Association adopted a resolution relating to S. 2028, 94th Congress, which was the predecessor of the bill you are considering today, S. 382, 96th Congress. I must emphasize that I am here today solely in my individual capacity, and my testimony should not be construed in any way as stating the policy of the ABA or, indeed, of the antitrust section of the ABA. Nonetheless I am very familiar with the ABA resolution and supporting report adopted in 1976 and I would like to give my personal views on how S. 382, as proposed to be modified, represents a substantial improvement over the old S. 2028 and how I personally believe it meets some of the objections which the ABA found with S. 2028.

The 1976 ABA resolution specifically endorsed the proposition "that additional means should be found to increase the role of competitive considerations in Federal regulatory agency proceedings where consistent with statutory mandates to the agency involved, and that the agencies should be directed to develop recommendations toward that end." But ABA took serious issue with some of the means to achieve these desirable ends which were proposed in S. 2028. I think it is fair to state that there were two fundamental concerns which the ABA had-and both seem to me to be relevant to your consideration of any bill such as S. 382 as proposed to be modified.

First: While we would all agree that competition is an important national policy, the fact is that there are other important national policies as well, and the agencies which have been directed, often by statute, to carry out these other policies could be placed in a paralyzing dilemma if they felt constrained from carrying out their mandated responsibilities if a broad meat-ax competition standard were indiscriminately superimposed on all their decisionmaking. For example, suppose in the fight against inflation the Council on Wage and Price Stability were intimidated by reason of an S. 2028 type statute from issuing guidelines because of a concern that it was in effect inducing industry-wide implied agreements on price-I think we all agree that that would be a bad result.

Second: The ABA was deeply concerned about the regulatory overkill which S. 2028 seemed to reflect. The procedural nightmares which seemed inevitable under S. 2028 would have led, in the judgment of many, to more litigation and more substantial delays in agency decisionmaking, two commodities which none of us desire.

To a significant extent, both these problems of the old S. 2028 have been ameliorated significantly in S. 382 as proposed to be modified. With regard to the first problem, the new substantive section 3(a) is a great improvement, in two respects: first, it drastically limits application of the statute to four categories of action which involve traditional issues of competition and antitrust concern-limitations on market entry, fixing of prices or rates, limitations on production or distribution and private agreements. Second, the obligation it imposes on the agency is only to consider the competitive effects of agency action and to conclude that the agency action actually taken is "the least anticompetitive alternative legally and practicably available to achieve statutory goals." With regard to the second problem, S. 382 as proposed to be modified is also a welcome aftermath to S. 2028: perhaps the worst procedural feature of old S. 2028 has been deleted in the proposed

limitations on S. 382—that is, the provision which would have permitted the Attorney General to force hearings to be held whenever he believed that the standards of the act were not being met. Another bad feature of S. 2028-providing for independent judicial review of section 3(a) actions, with the burden on the agency or other proponent of the action to prove that the section 3(a) standard has been met has also been deleted in S. 382 as proposed to be modified. This deletion should reduce one major potential source of proliferation of collateral litigation.

So, in these major respects, I think that we should commend those who are responsible for revising this proposed legislation to deal with some of the major flaws of the initial S. 2028 proposal which were recognized and pointed out in the 1976 ABA resolution and report.

There are three other points I would like to mention briefly.

First: I continue to believe that the best approach to the problem dealt with in S. 2028 and S. 382-that is, the insensitivity of some regulatory agencies to competitive and antitrust type issues-is quite different from that proposed in this legislation. The best approach is that which was proposed in the ABA resolutionthat is, examination of each substantive statute under which the regulatory agencies currently operate and then amendment of each such statute in such a way as to infuse competitive considerations into the decisionmaking process. This tailoring of competitive analysis to other statutory goals would help to avoid silly arguments about whether the broad requirements of S. 382 should or should not be applied in particular agency deliberations. Examples of this approach which I believe have been generally successful include the Bank Merger Act of 1966 (Pub. L. 89-356), the Securities Reform Act of 1975 (Pub. L. 94-29) and the Airline Deregulation Act of 1978 (Pub. L. 95–504). The only argument I have ever heard against this tailoring approach is that it will take too long, and there is an impatience on the part of some to compel as soon as possible greater recognition of competitive factors by a large number of regulatory agencies.

Second: A minor suggestion is that the annual report to the President and Congress provided for in section 6(b) be required of the Attorney General rather than the Federal Trade Commission. Section 4(a) of S. 382 would obligate the agencies to consult with the Attorney General on their procedures, and would require them to advise the Attorney General of agency proceedings which would be subject to the act. Therefore the Attorney General would seem to be in the best position to prepare the annual report. Injection of the FTC into the reporting function as now proposed would mean more duplication of effort and possible double interference with agency deliberations, many of which are already notoriously slow.

Third: Another minor point is that the bill might better state the objectives of the legislation if some word such as "competitive" were substituted for the word "antitrust" in both section 2(b) and the heading of section 4. It seems to me that the use of the term "antitrust" in those places could be interpreted as limiting the agencies' obligations to purely antitrust concepts, whereas I believe that the real thrust of S. 382 is intended to be broader and to require attention to competitive factors whether or not conduct violative of the antitrust la vs is involved. If you agree with this point, you might also wish to delete the word "antitrust" in the heading of section 4 of the bill.

In conclusion, I would like to thank you for the opportunity to make these comments. I believe that the proposed modifications of S. 382 are very much in the public interest and I personally believe that they go a long way to meeting some of the objections to S. 2028 which were raised in the 1976 ABA report.

PREPARED STATEMENT OF BERT W. REIN

My name is Bert W. Rein and I am a partner in the firm of Kirkland & Ellis in Washington, D.C. I serve as chairman of the Committee on Antitrust and the Environment of the section of antitrust, American Bar Association and participated actively in the preparation of its published report on antitrust and environmental policy relationships (45 Antitrust Law Journal 355). My testimony today, however, is entirely my own and is not intended to present the position of the Committee or of any other of its members.

I recognize that S. 382 already has been the subject of lengthy scrutiny and debate. I understand that this committee is now considering proposed revisions to narrow the scope of the bill to certain defined classes of Federal action and to give affected agencies increased flexibility in ascertaining a least anticompetitive

course of action. In these remarks, I would like to focus attention on three issues which are common to the original and revised versions of the bill and which may not have been fully evaluated in the past.

First: Looking exclusively at the impact of S. 382 on what is commonly understood to be economic regulation of domestic economic activities, I question whether a least anticompetitive alternative standard, however, drafted, would effect a sufficiently useful change in substantive regulatory law to run the risks of procedural complexity and administrative stagnation which S. 382 would create. 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 question 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 of domestic economic activities, I fear that the effort in the revised draft to exclude these activities from least anticompetive analysis would eliminate the most beneficial aspect of S. 382. Let me elaborate briefly on each of these points.

A. IMPACT ON DOMESTIC ECONOMIC REGULATION

The findings of S. 382 and its statement of policy, particularly in the revised version, indicate that the sponsors' principal concern is domestic "economic regulation" which is "more anticompetitive than necessary to achieve statutory goals." This deficiency is to be remedied by the formal imposition of a least anticompetitive alternative/antitrust standard accompanied by specified-original version or agency-initiated-revised version-implementing procedures and additional incentives for contested and close judicial scrutiny.

However these procedures are drafted, and however the burden on the agency in the judicial review is stated, it is undeniable that the amount of effort required to produce and review final agency action will increase; that controversy will exist as to which precise agency actions fall within the mandate-e.g.-would merger agreements fall within the revised version-and what is least anticompetitive in particular situations-e.g.-would denying a price increase necessary to the survival of less efficient firms be anticompetitive-and that parties aggrieved by agency action will litigate S. 382 compliance. Thus, unless S. 382 has important foreseeable benefits to the public, the committee may properly regard it with

caution.

The congressional decisions which imposed economic regulation on particular sectors of our economy like transportation, energy and communications were, in my view, based on two separate premises. In some measure classic economic regulation represents a legislative determination that competition is unworkable either because the industry in question is a "natural monopoly" or because competition would be wasteful and destructive. Regulation is thus mandated to organize and limit competition by restricting entry to markets, allocating scarce raw materials among competitors and granting antitrust exemption to agreements among competitors designed to avoid predation or waste. As a concomitant protection to the public, regulatory agencies are granted price regulation powers to limit monopoly profits threatened by protected unilateral or shared monopolies. The recent efforts to achieve deregulation by legislative or administrative action have involved largely an attack on the economic justification for detailed regulation. Increasing numbers of economists have argued that regulated industries are naturally competitive, that competition will not result in predation and movement toward monopoly by destruction and that market 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 even the original version of S. 382 would have modified substantive results. In fact, the Civil Aeronautics Board-under its local cartage standard-and the Federal Maritime Commission-under the standard set forth in FMC v. Aktiebolaget Svenska Amerika Linien, 390 U.S. 238 (1968)-employed tests for restrictive agreements quite similar to those in S. 382 and reached re

sults which S. 382's sponsors would no doubt condemn. Thus, unless S. 382 is intended to endorse particular economic analyses of differing regulated sectors, I doubt that it will make a sufficient substantive change in regulatory agency action to justify its inevitable costs in delay and additional litigation.

My concern about the substantive application of S. 382 to economic regulatory agencies is increased by the fact that even classic economic regulation is partially based on attaining social objectives or macroeconomic objectives which cannot be attained through market forces. Decisions to provide jet air service to certain small communities, to equalize mileage rates for truck movements regardless of route densities, to standardize interstate long distance telephone rates, to preserve the businesses of small, independent refiners and distributors to limit crude oil are not efforts to avoid the economic malfunctions of the free market. 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. Macroeconomic interests predominate when petroleum prices are controlled to limit the overall inflation rate.

Applying the original S. 382 to conflicts between social policies and antitrust principles seems very difficult. Original section 3(a) demands a weighing of antitrust departures against “significant and reasonably certain benefits to the general public" as well as an investigation of "alternative means having lesser anticompetitive effects" and capable of achieving the "overriding statutory purpose.' Social and macroeconomic values do not readily lend themselves to quantification nor is it clear how beneficial particular policies such as minority broadcasting involvement are to the general public or exactly how one would frame the boundaries of "alternative means.

The revised language, which focuses on means "legally and practicably available" to achieve statutory goals would alleviate certain difficulties in the original version. Nevertheless, there would still seem to be substantial ambiguity in the phrase "statutory goals" with ample room for litigation whether a particular goal, such as minority ownership, is "statutory." Perhaps more important, my experience leads me to believe that economic regulatory agencies are almost always conscious of their departures from competitive norms so that the revised S. 382, if flexibly interpreted, would add little to the substantive deliberations of these agencies.

B. IMPACT ON INTERNATIONAL ECONOMIC REGULATION

The emphasis in the original S. 382 on quantitative balancing and the invocation of "statutory goals" in the revised version may prove particularly troublesome for agencies whose regulatory domain extends to international actions affecting the interests of other sovereigns. In these circumstances, an effort to place a superseding emphasis on U.S. antitrust principles-which do not have universal acceptance may prove both unpalatable and detrimental to broader U.S. interests which could be protected by a more flexible public interest standard. Quite recently, the Civil Aeronautics Board-an agency which is certainly not backward in its adherence to antitrust principles-was required to pass upon an agreement between a U.S. airline and the national carrier of Saudi Arabia. The agreement established a "blocked space" arrangement which, in effect, permitted the two carriers to pool revenues on the United States-Saudi route. The Board explicitly found the agreement anticompetitive and unnecessary to achieve statutory aviation goals. Nevertheless, recognizing that the Saudi Government did not share its economic philosophy and placed a higher value on Saudi participation on the route, and taking into account representations by the Department of State, the Board approved the arrangement under the general "public interest" standard still in effect for foreign air transportation.

I think that there can be little doubt that the Board acted properly in the Saudi case and that either version of S. 382 would have pushed strongly toward a different, and less advantageous result. Indeed, the original S. 382 would almost certainly have forced disapproval of the Saudi agreement.

The Saudi incident is not atypical for those agencies like the CAB, FMC and FCC which deal continuously with foreign sovereign interests. Foreign governments may have strong interests in licensing policies, rates on international routes allocation of resources to their national carriers in international service and agree

̧1 CAB Order No. 79-1-161, application of Pan American World Airways, Inc; and Saudi Arabian Airlines Corp.

ments involving their nationals. Foreign approaches to economic issues may differ from our own in a way that goes to the heart of foreign economic systems. If S. 382 is to apply to regulation of the foreign commerce of the United States, it must be amended to permit recognition of our own foreign policy and national security interests. A preferable solution, following the model of airline deregulation, would be to limit section 3(a) to actions primarily "affecting the domestic commerce of the United States."

C. IMPACT ON DOMESTIC NONECONOMIC REGULATION

While S. 382 finds that this Nation is committed to "a free market economy" to maximize consumer welfare, and while the "deregulation" movement has generated substantial recent publicity, the reality is that the economic activity of American industry is increasingly regulated for noneconomic reasons. The Congress has apparently concluded that "free markets" are incapable of satisfying certain basic health, safety and welfare goals without Government regulatory intervention. Thus, the last decade has witnessed an enormous regulatory intrusion into economic activities by an alphabet soup of agencies whose interest and expertise in antitrust concepts and goals is limited.

When the antitrust section's environmental law committee undertook its initial study of antitrust and the environment, we quickly recognized that social regulators were having an enormous impact on the cost patterns of different industries, the comparative advantages of the United States and other nations, and the fortunes of different companies. As set forth in the appendix to my written testimony, which contains a detailed assessment of the application of S. 382 to social welfare regulations, an ever-increasing share of industry capital projects and operating costs are controlled by Federal social regulation and these consequences are clearly here to stay.

Whether or not health, safety and welfare standards are considered economic, they can drive a firm out of business or increase its costs to the point where it becomes noncompetitive. Such regulation can deeply impact the behavior and structure of existing markets as well as create marked increases in capital and time barriers to entry when, for example, discharge permits are required. Small businesses, in particular, may be threatened by reporting and recordkeeping requirements which increase optimum scale beyond their capability or capital-intensive technological requirements which they cannot meet.

The committee's report, and the materials in the appendix, indicate that the various social regulatory agencies have encountered difficulty in coming to grips with antitrust and competitive goals. While most agencies have a mandate to consider "costs" or "feasibility," their assessments are limited to absolute cost levels and industry survival analyses. No systematic effort has been undertaken to determine whether barriers to entry are being erected, effective vertical monopolies created by specification of control technology, or anticompetitive activity encouraged or condoned by disclosure requirements.

Senate bill 382, in my judgment, could serve an extremely useful purpose in reminding all social regulatory agencies of the need to minimize intrusion on the market system and to consider the costs which consumers can bear from regulations which unnecessarily burden the operations of free markets. If applied to social regulatory agencies, S. 382 could lead to the development of sorely needed standardized methodology to measure the consumer costs of social regulatory inhibitions on competition. I believe that sensitivity to competitive factors and adequate methodology to assess them is essential if a free market economy and a detailed set of social goals are to coexist.

The original version of S. 382 clearly applied to social regulatory actions but might have been justly criticized for overemphasizing antitrust goals at the expense of the primary goals of social regulatory activity-a problem which is greatly alleviated by the revised version. Nevertheless, the revised version attempts to avoid the problem of balancing social and antitrust goals by limiting S. 382 to classical regulatory categories. While I would still be prepared to argue that a number of social regulatory activities constitute entry licensing or allocation of production, I think S. 382 should invite social agencies to the free market through the front rather than back door. Indeed, I submit to this committee that limiting the scope of S. 382 applies the bill where it is largely counterproductive and seeks to foreclose it where it could be most helpful.

[The meeting adjourned at 12:15 p.m., May 22, 1979, subject to the call of the Chair.]