While the large carriers may buy out small ones, and drop small town service, the small carrier providing LTL service to small towns faces major obstacles to growing. The small carrier is less able than the large one to cover the costs of hearings to get a certificate, and has no large cash flow with which to buy out neighbors.

If you can figure out how the small shipper, small community, and small carrier comes out ahead in that game, I wish you'd let me know.

We've spent the last 30 years in a bottle. We have been in the role of the small carrier-limited in hopes of expansion by the ICC certification system. We would like to find our way out of this bottle. We believe that if we could get an interstate authority for LTL service, we could provide more service at lower rates than existing certificated ICC carriers.

I am told there is a lot of talk about "deregulation" harming LTL service to small towns. I have a message for you and the Nation at large. There are some small LTL companies around the country who would be perfectly capable of expanding their services, if all they had to do was prove their ability, and attract the capital to undertake the service. The Interstate Commerce Commission ought to be given that message. If Yellow Freight or PIE says it isn't so, I, Arnold Pevna, say: open the door and we'll show you.

If Congress enacts S. 382, I hope it will make clear to the regulatory agencies what it means when it is talking about lessening or promoting competition. If you mean to say that things like price-fixing, dividing up markets, limiting new business enterprises, and allowing big firms to buy up little firms fall in the anticompetitive category, you'd better say that. That may seem elementary even to a small businessman like myself, and even more so to you. But these agencies face hordes of people with a vested interest in their license telling them the opposite. If you mean Licenses should be easy to get for the small but willing and able firm, you'd better say that. If you mean that regulators better learn the antitrust laws, why not say that? We must find some way to get away from a system which doles out the opportunity to serve the public as if it were toxic in large doses.

I hope my brief testimony has been of some value to this committee.

PREPARED STATEMENT OF ALFRED RAPPEPORT

I am here to speak in favor of S. 382, but also more broadly for the entire range of initiatives to "reform" the Interstate Commerce Commission.

I am President of General American Auto Shippers, an automobile freight forwarder in New York. The auto driveaway business is integral to our import-export business. My son, Jeffrey Rappeport, is President of Auto Delivery U.S.A., a local auto driveaway business, which works with the export business. Auto Delivery, U.S.A. is a partner in American Auto Shippers, a partnership having a form of temporary interstate auto driveaway operating authority.

I have been familiar with the auto driveaway business since its beginning. As an individual citizen, related to my son, of course, and vitally concerned with the operation which he heads, I would like to reflect to you the effects of Interstate Commerce Act regulation of the auto driveaway business, as I have observed it.

Briefly, my position is that most ICC type regulation has limited service to the public, and led to public abuse which would not exist in an "unregulated" regime. If any regulation is needed, it would be rules requiring sellers to be financially responsible and truthful in dealing with consumers.

If S. 382 were enacted, and if its reasoning were followed through thoroughly by the Commission, in the spirit intended, the Commission could do little harm. The Commission would have little left to do other than prevent consumer abuse. But I fear that the Commission would not understand clearly what a competitive market requires. Probably Congress must just tell the ICC not to impose barriers to entry into interstate transportation other than fitness tests, and not to allow carriers price-fixing.

In my opinion, ICC regulation has been a curse on the auto driveaway business. I know most people at the Commission never have intended that. When the auto driveaway business was unregulated, there were many people spread all over the country, working with each other for interstate moves when necessary. When ICC regulation came into effect, a few people got national authority, a few more got limited interstate authority, and most of the remainder became subservient to the principal firms. Though I cannot prove it, I believe and fear that there may have been collusion on the part of the few licensed companies concerning their prices to

the public and their priorities as to "agents". With entry at the national level limited, the licensed companies squeezed more and more out of the local companies which do most of the work involved in moving cars, leaving those companies barely enough to survive. The insurance claims policies of at least one company came to be of serious concern.

If the people at the Commission-and there are good people at the Commission-had had a different set of directives, this need not have happened.

Let me tell you about the auto driveaway business. The local auto driveaway company matches the people who want to go somewhere without paying common carrier fare with a car owner who wants the car moved but doesn't want to drive it. The local auto driveaway businesses are usually small, locally owned businesses of a "mom and pop" sort. Such a local business could, but for ICC regulation, just move cars from its city to various distant points. But there are advantages to the various local companies working together. One can call on another to pick up a car owned by a customer located in a distant city. This is especially useful in dealing with corporate customers-auto dealerships, car leasing companies, companies with salesmen needing cars, and so forth.

There is no trucking involved in the auto driveaway business. It could hardly have been in the mind of Congress when the 1935 Motor Carrier Act was passed. For over 20 years, it wasn't regulated by the ICC. Then, in the sixties, the ICC decided it wanted to regulate auto driveaway services. Appeals to the courts didn't work. Regulation descended.

Every local company had to get an ICC certificate or become an "agent" for someone who had a certificate. Well, you can imagine that very few of these local "mom and pop" companies could take on the burden of showing a public need for their service over a large area. They could provide the service. But launching a Federal case to prove it was just beyond their means.

A few people did get certificates. The number with certificates narrowed down to three. After a few people got entrenched, trying to get a certificate became not just a logistical exercise, but a war. Any new application was greeted by an all-out attack by those who sat astride the business. Funds milked from over a hundred local driveaway businesses around the country were turned against the one or two. which wanted to venture into the interstate field.

The Commission had made some effort to protect consumers. It requires that certain disclosures be made, that a business not keep a car tied up indefinitely, and that insurance or some substitute therefor be carried.

But, overall, the deck has been stacked against the buyer. There really is no effective control over what kinds of drivers are used. We could leave this to competitive prices, if those forces were not suppressed. But they are. With only three national companies, there was little or no price competition. That has to hurt the consumer.

If a local driveaway business ran afoul of one licensed company, it just might not be accepted by another. A pending antitrust suit filed by one local company, one of American Auto Shippers' affiliates, alleges that the three certificated companies conspired to limit the ability of local companies to move between the certificated companies. This would, of course, limit the local companies' ability to seek a better deal for their customers.

The limited certificate system may have turned this market on its head. Instead of the interstate company being a servant of the local companies and their customers, they have tended to become masters, and hard ones.

Even though we believe there is a major need for a new, fourth national carrier, and maybe for other national firms as well, American Auto Shippers would not be in existence today but for an historical fluke.

A company called the Sober Co. started to operate a nationwide driveaway service in 1977, thus making a fourth company. Many local driveaway companies, dissatisfied with the other three companies affiliated with the new company, U.S. Driveaway. They relied on the Sober Co.'s assurance that it had ICC authority, and attorneys' reports that an apparently valid authority existed. These local companies had a significant business operating under the U.S. Driveaway name. Then in 1978, the ICC determined, upon complaint by the certificated three, that it had made a ministerial error and should have canceled Sober's authority in 1972 or thereabouts. The Sober Co. was told to stop operating. Well, they are basically a truck operation-auto driveaway was just a sideline for them--and they continued their trucking business. But over 20 local driveaway businesses around the country were stranded, without interstate authority. My son's company was among them. But his company and our import/export business were immediately jeopardized.

Many of these local companies felt they could not go back to the certificated three, or would rather quit the business than do so. (Just the fact that they felt this, alone, should tell you something about the sad state of the industry, with just three dominant companies.) The local companies which joined AAS served many customers who were very unhappy with the service of the three nationally certificated carriers or had never been served by them. They also believed that if they went out of business their customers would lose service for which there was a substantial, immediate, and continuing need.

Two companies, my son's and a firm owned by the Weiner family, Driveaway Service, Inc., in New York, formed a partnership and asked these local businesses and as many customers as could be reached on an emergency basis to file statements with the Commission. The Commission issued an emergency temporary authority. Then a single Commissioner revoked it, on grounds that the certificated three (primarily) could provide the service which the company provided. After an extraordinary appeal to the Commission as a whole, the full Commission reinstated the ETA. AAS has been operating under an ETA, with successive 30 day extensions, while awaiting a decision on a temporary authority. AAS has been operating on the most tenuous of leases, with life given it in 30 day doses. Even on this basis, I am advised, it has gotten many calls from local driveaway firms wanting to join it, in preference to others.

If AAS is given a temporary authority, it can live until there is a hearing on a permanent authority application. However, AAS and over 20 local businesses around the country could be cut off tomorrow if the ICC does not issue a "temporary authority" pending the hearing on permanent authority. We really do believe that this would do a great disservice to many car shippers around the United States. My son and Mrs. Weiner advise that in 6 months of operation people have called on AAS to move over 2,000 cars.

AAS has estimated that it will have to spend over $50,000 to get a permanent authority. Fortunately, its revenues are supporting it—even though it is taking less from its own affiliates than the other companies are taking from theirs. But our family and the Weiner family would never, never have undertaken the burden of establishing a new interstate carrier-a desperately needed new interstate carrier-except under threat of immediate extinction, or being forced to submit to people who have been sucking the life out of the local driveaway companies and their customers.

I have seen defenders of the existing system, in effect, suggest that you need only have a few hundred dollars to apply for an ICC authority. Insofar as the mechanical act of applying is concerned, this can be close to correct. But if you apply for any substantial operation, where you would offer substantial competition to people already in the field, you then need enough money to fight a war with the already-established industry.

I give you my own view. Something must be done about the ICC regulations. Minor and cosmetic changes are not enough. The whole certificate system must be drastically streamlined. I believe that all that need be shown is a fitness, willingness, and ability to serve, and people who want your services. In no way should people who now have certificates be allowed to make a Federal case out of the simple act of entering a business. When people get a lock on the business, they become monsters. It is as if they owned the business, the public exists to feed them, and a new entrant is an alien and subversive influence. Those backing AAS want it to operate, but it shouldn't have this power over other people any more than the ones now having ICC certificates. The system should be opened up for all qualified companies, by law.

How can S. 382 help? To be truthful, I would think it might help very little unless the Commission is directed, very clearly, in this bill or another, that fostering competition means opening the door to qualified entrants, and that this means a major change in the way the ICC does business. Otherwise, the best you can hope for is a very slow ebbing of restrictive policies, at best; and a return to old patterns of operation with lipservice to your bill, at worst.

A short recess was taken.]

Senator KENNEDY. We will come to order.

Our final panel consists of three attorneys from the American Bar Association: Mr. Ernest Gellhorn, professor of law and dean of the

University of Washington Law School, whose main areas of teaching and scholarship are administrative and antitrust law; Richard Pogue, who is a partner in the law firm of Jones, Day, Reavis & Pogue in Cleveland, Ohio, a substantial portion of whose practice for the past 22 years has been in antitrust law; and Mr. Bert Rein, who is a partner in the firm of Kirkland & Ellis, Washington, D.C., and chairman of the Antitrust and Environmental Committee of the American Bar Association.

We will start off with Mr. Pogue.

PANEL OF ATTORNEYS FROM THE AMERICAN BAR ASSOCIATION: STATEMENTS OF ERNEST GELLHORN, DEAN AND PROFESSOR OF LAW, UNIVERSITY OF WASHINGTON LAW SCHOOL; RICHARD W. POGUE, AND BERT W. REIN, ATTORNEY

Mr. POGUE. Thank you, Mr. Chairman.

As to the part of my background that is useful, I am 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.

As I believe you know, in 1976 the house of delegates of the American Bar Association adopted a resolution that related to S. 2028 which was the predecessor to S. 382. I was very deeply involved in the American Bar Association's consideration of that bill and I am familiar with it. However, I do want to emphasize that I am appearing today in my individual capacity and in no way should my testimony be regarded as stating American Bar Association policy.

I basically am here to say that I think the proposed modifications in S. 382 represent a very substantial improvement over the old S. 2028 nd I would like to explain briefly how I believe the proposed modifications in this bill meet a number of major objections that the American Bar Association found with the prior bill.

The 1976 American Bar Association resolution was affirmative on the proposition that additional means should be found to increase the role of competitive considerations in Federal regulatory agency proceedings where consistent to the statutory mandates of the agency involved. Then, further, that the agencies should be directed to develop recommendations toward that end. However, the American Bar Association took very serious issues with the means to achieve this desirable end of S. 2028 and basically I think there were two fundamental concerns that the American Bar Association had to S. 2028 which are relevant to our deliberations on S. 382.

First: Today almost all of us-at least those of us who are in the antitrust field-agree that competition is clearly a very important national policy, but the problem is that there are a number of other important national policies as well, and the agencies which have been directed, often by specific statute, to carry out these other policies, often could be put in a paralyzing situation if they were felt constrained from carrying out their responsibilities under their organic act because of a broad competition standard indiscriminately applied to them.

Second: Perhaps even more serious, is that the American Bar Association was deeply concerned with the regulatory overkill which it felt S. 2028 reflect. The American Bar Association saw some procedural nightmares which seemed inevitable under S. 2028, and it was concerned if this bill were enacted it would lead to much more litigation, and substantial delays in agency decisionmaking; so I believe personally that both these problems have been improved substantially in the proposed modifications of the S. 382.

With regard to the first problem, section 3 (a) of S. 382 is a great improvement in two respects. First, of course, it limits drastically the application of the statutes to the four categories that you mentioned at the start of the hearing this morning. Second, the obligation it imposes now on an agency is only to consider the competitive effects of the agency's action and then the agency must conclude that the action it is taking is the least anticompetitive alternative legally and practically available to achieve statutory goals, their recognition of these other national policies reflected in other legislation. So that with regard to this, the second problem, the procedural morass problem, I think the proposed modifications of S. 382 are also a very welcome follow-on or aftermath of S. 2028. The worst feature is the one which would have permitted the Attorney General to force hearings to be held whenever he felt the standards of the act were not being met. That is being deleted in the proposed modifications of S. 382.

Another bad feature of S. 2028 which would have provided for independent judicial review of agency actions, the burden would have been on the agency or someone supporting the agency's action to prove that it met the standards of the bill. That has also been deleted in these proposed modifications, and I think those changes should reduce a very severe major problem that the prior bill had.

So my basic view, having gone through the history of this legislation, is that the proposed modifications of S. 382 have solved some of the serious flaws in the original statute which the American Bar Association recognized in 1976.

I have some other minor suggestions which are in my prepared statement for the consideration of you and your staff. I would like to make one point: While I think that this legislation has been dramatically improved from a technical standpoint, you still have the question of whether the best approach to the problem that we are wrestling with here is not individual agency-by-agency legislation.

The Securities Reform Act of 1975, the Airline Deregulation Act of 1978 are examples, I think, of outstanding congressional attention to the specific problems that individual agencies have and I think that that is a superior way to approach this problem. On the other hand, obviously it recognizes the impatience that many of us feel in the desire to get more competition into agency decisionmaking.

I thank you for the opportunity to be here and I do urge that the proposed modifications in S. 382 remain part of the legislation.

Mr. KENNEDY. Thank you very much. Mr. Gellhorn.

Mr. GELLHORN. Thank you, Mr. Chairman. I also am appearing in an individual capacity, not as a representative of the American Bar Association. I endorse Mr. Pogue's comments on the specifics of S. 382. In terms of the basic thrust of the legislation, however, I take