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PREPARED STATEMENT OF Kathleen F. O'REILLY
Consumer Federation of America is a federation of 240 national, State and local nonprofit organizations that have joined together to espouse the consumer viewpoint. CFA and its member organizations represent over 30 million consumers throughout the United States. Among our members are: 60 State and local consumer organizations, 83 consumer cooperatives, 16 national labor organizations, and 27 national and regional organizations.
For the fourth consecutive year, CFA's membership has recently approved a resolution in support of the basic principles of S. 382, "The Competition Improvement Act." That resolution reads as follows:
Many Federal agency actions have significant adverse impacts on the extent of competition in the American economy. While changed economic, social and technological conditions in the 1960's and 1970's have expanded opportunities for competition, unnecessary regulation of some segments of the economy has bred inefficiency, poor service, unsatisfactory business practices and high prices to the detriment of the consumer. We urge the passage of legislation which would require Federal agencies to make certain findings before taking actions which would significant affect competition. gencies would have to determine that: (a) The action is necessary to accomplish a statutory purpose of the agency; (b) Any anticompetitive effects of the action are clearly outweighed by significant and demonstrable benefits to the general public, and (c) the objectives of the action and the overriding statutory purpose cannot be accomplished in substantial part by alternative means having lesser anticompetitive effects.
That resolution evidences our membership's longstanding conviction that Goveinment regulation, particularly economic regulation, has all too often adversely affected the very competition which should be the consumer's best tool against inflation. It is essential that Government agencies take actions consistent with the advancement of competition. All too often, however, agencies have acted as the witting or unwitting accomplice to those who share the late cosmetic magnate's philosophy: "I don't meet competition, I crush it."
To cite but a few examples of the diverse spectrum of agency activities which highlight the need for legislation:
(1) The Department of Interior's longstanding leasing policies (coal and other minerals) have allowed the major oil companies to acquire an increasing share of the Nation's coal and mineral reserves.
(2) Similarly, Outer Continental Shelf leasing could and should be conducted in such a manner as to promote rather than retard competition.
(3) In the area of utilities, there is widespread conviction that when it issues licenses and oversees the sales of power from investor-owned utilities to publiclyowned utilities, the Federal Energy Regulatory Commission must conduct such activities in a much more procompetitive fashion.
(4) Traditionally the Federal Communications Commission has prohibited the cable television industry from effectively competing with broadcasters in promoting diverse channel selection.
(5) The Department of Commerce recently drafted a comprehensive Model Products Liability statute. Yet in preparing that draft, the Commerce Department gave no consideration to whether voluntary compliance would impose a significant competitive disadvantage on small manufacturers because of their inability to secure the discounted comprehensive product liability policies typically made available to multiproduct large conglomerates.
Essentially, S. 382 codifies a policy which should already be standard procedure for Government agencies. Competitive impact analysis is hardly new. In its June 30, 1977 Final Report on the Impact Assessment of Automotive Fuel Economy Standards for Model Years 1981-1984 for passenger cars, the National Highway Traffic Safety Administration specifically addressed the competitive impact of the proposed fuel economy standards. Unsurprisingly (as current sales figures graphically demonstrate), compliance with those fuel economy standards has actually improved the competitive posture of domestic auto manufacturers in the international market.
To cite another example, in the past those companies which have sought to negotiate food procurement contracts with the Government have had to deal with frustration of varying specification standards depending on which agency they
were dealing with (USDA, Pentagon, et cetera). This placed smaller comparies at a competitive disadvantage because they typically did not have the resources to analyze such multiple specifications standards. Now through a cooperative interagency effort, a single set of specification standards will be developed to enhance the competitive posture of small companies.
Wisely, this legislation is framed so as to recognize the important distinction between economic regulation and noneconomic regulation directed at health, safety, environmental protection and equality of opportunity (equal credit laws, civil rights, redlining, et cetera). As a matter of public policy, the goals of these noneconomic regulations override competitive implications. This is not to deny, however, that even these noneconomic regulations should be developed in the most efficient, least anticompetitive fashion consistent with the need to assure consumers health, safety and environmental protections, together with equality of opportunity.
The language of section 3(a) (1) and the specific enumeration of those exclusively economic regulatory agencies in section 8(c) evidence a sensitivity to this distinction. We urge that the bill be molded even more tightly so that as a practical matter, this legislation could not be used as a strategic tool for judicial delay tactics by persistent opponents of sound and much needed health, safety, environmental and equality of opportunity. Although the bill confers no new standing rights, it would provide yet another potential cause of action for that growing number of affected industries which are willing to pay the acknowledged high cost of attempting to apply judicial brakes when all else fails. The July 1977 Senate Governmental Affairs Study on Federal Regulation (Vol. IV), persuasively documents the increasing reliance on such delay tactics by those affected industries which have an inherent incentive to stall health, safety, and other regulations.
We also urge that the definition of "action" in section 8(b) be expanded so as to specifically include Government procurement and contract activities.
Two specific, yet representative examples, highlight the broad competitive implications of Government procurement/contract authority. When HUD's Federal Insurance Administration decides which architectural and engineering firms shall be awarded a contract to assess the impact to a particular community of proposed flood insurance regulations, the initial Evaluation Board does not and cannot consider the cost of the bid. Based on such noncost (albeit valid) factors as experience, the Evaluation Board ranks the submitted bids, forwarding the top three ranked bids to the Procurement Section which then begins a price negotiation process exclusively with the number-one ranked bidder. Only at this point does the cost of the bid finally enter the picture, and even then it is in a narrow noncompetitive manner. If the cost of the number-one ranked bid is "fair and reasonable" it is accepted without comparisons to the costs of competing bidders.
This procedure is similarly followed in all Government procurement contracts with "professionals" (including lawyers, economists, et cetera). The rationale that it is unseemly for professionals to compete on a basis which includes cost is reminiscent of the medieval guild mentality which insulated professionals from advertising. Obviously, "cost" should not be the exclusive or overly weighted consideration, but logic and economic sense dictate that it be given far more than the current cavalier treatment by Government agencies.
Aggressive FTC action to permit advertising by lawyers, eye glass companies, et cetera is well received by consumers because it stimulates competition and lowers costs. For example, although a simple divorce in the District of Columbia cost between $350-500 5 years ago, now with vigorous advertising available, the cost has dropped to $125-150. Similarly, in Phoenix, Ariz., the rate plummeted from $350 to $125. There is neither evidence of decreased quality nor of the inability of standard remedies against fraud and misrepresentation to sufficiently protect consumers from abusive practices. As the largest procuring consumer, the Government has a significant stake in promoting cost competition when it negotiates contracts.
Another disturbing example of an increasing pattern is the distribution of the Department of Energy's Solar Energy Research funds. From 1977 to 1978 the percentage of that $15-18, 5 million budget allocated to big business increased by 17 percent. The small business share declined 18 percent and the nonprofit share decreased by 200 percent! The Competition Improvement Act, if expanded to include procurement/contract actions would serve as an effective wedge in establishing underdeveloped government sensitivity to the competitive impact of its actions.
CFA also urges that the list of independent regulatory agencies in section 8(c) be expanded to include GSA, the Commodity Futures Trading Commission, and financial institution regulatory agencies (the Federal Reserve Board, Federal Home Loan Bank Board, Comptroller, Federal Deposit Insurance Corporation and National Credit Union Administration).
Bank agency powers, for example. over merger and branching applications embrace substantial competitive implications. In assessing branching applications (unlike mergers), the agency is not even directed by statute to consider let alone be governed by competitive cnosiderations. Additionally, in light of recent passage of legislation establishing rights and responsibilities in the field of Electronic Funds Transfer Systems (EFTS) the competitive impact of financial institution regulatory agency decisions is critical.
Finally we urge that S. 382 include sufficient funding so that the agencies (particularly the FTC) will as a practical matter, be able to adequately comply. We have learned from experience (e.g. the Magnuson-Moss Warranty Act) that if an agency is given significant new responsibilities without any additional funding, the goals of the legislation cannot realistically be achieved.
We look forward to working with the committee and staff to provide strengthening amendments to this much-needed legislation. The time is long overdue for all agencies to be competition-sensitive. Hopefully, in the near future, all agencies will instinctively and routeinly assess the effect on competition of their actions and economic regulations will consistently be motivated and influenced in large part by just such a consideration.
Senator HEFLIN. Thank you.
Mr. BOIES. Let me thank you for coming. I know that you were not feeling well and we appreciate your making the effort.
Senator HEFLIN. With the assistance of laryngitis, this hearing is recessed until March 20, 1979.
[Whereupon, at 11:05 a.m., the hearing in the above-entitled matter recessed until March 20, 1979.]
COMPETITION IMPROVEMENTS ACT OF 1979, S. 382
TUESDAY, MARCH 20, 1979
COMMITTEE ON THE JUDICIARY,
The committee met, pursuant to notice, at 9:52 a.m. in room 2228, Dirksen Senate Office Building, Washington, D.C., Hon. Edward M. Kennedy (chairman of the committee) presiding.
Present: Senators Kennedy, DeConcini, Leahy, Baucus, Heflin, Thurmond, and Hatch.
Also present: David Boies, chief counsel and staff director; Ed Merlis, deputy staff director; and Susan McDermott, counsel.
OPENING STATEMENT OF SENATOR DeCONCINI
Senator DECONCINI. The committee will come to order.
We had hoped to have an executive session meeting here, and as soon as a quorum comes, then we would ask the Senators who are here if they could stay. As soon as we have a quorum, we will recess the hearing and go into the executive session to consider the bills.
We will now commence the hearing on the first bill, this morning, on regulatory reform.
The Committee on the Judiciary today resumes its hearings on regulatory reform in general and in particular on proposals to increase competition in the regulated industries.
Two weeks ago, the committee opened its hearings on regulatory reform with testimony endorsing S. 382, the Competition Improvements Act of 1979, from the Chairman of the Civil Aeronautics Board, the director of the American Enterprise Institute, two spokesmen for small business groups, and the head of the Consumer Federation of America
These witnesses testified that S. 382 would be an important step in insuring that competition and the principles embodied in our antitrust laws play a significant role in the regulated industries and in other areas of the economy supervised by Federal agencies. The bill would do this by requiring the agencies to take a fresh look at their statutory purposes and the methods they choose to accomplish them, and by directing them to regulate in the least anticompetitive manner consistent with their legislative mandates.
Before an agency takes any action that may substantially affect competition, S. 382 requires that it find: First, the action is necessary to accomplish an overriding purpose of the agency; second, the anticompetitive effects of such action are clearly outweighed by significant benefits to the general public; and third, the objectives of the action: