and the overriding statutory purpose cannot be accomplished in substantial part by alternative means having lesser anticompetitive effects.

The standards proposed here are neither novel nor burdensome. They are found in several existing statutes-the Atomic Energy Commission Act and the Bank Merger Act-and, to various degrees, in the judicial or administrative construction of the "public interest" standard found in most agency statutes.

What is new about this standard is that it replaces these uneven legislative, judicial, and administrative formulations with a uniform standard to be applied across the board by all Federal agencies.

At the same time, the broad language of the bill will provide ample flexibility for each agency to adapt this competitive standard to the individual industries and statutory goals.

However, the Competition Improvements Act is not simply an exercise in idle analysis for the Federal agencies. It is a directive to make a reasoned search for and selection of the least anticompetitive means for achieving their statutory goals. And it is enforceable.

Today's witnesses are Assistant Attorney General John Shenefield of the Antitrust Division of the Department of Justice; and Ms. Joan Bernstein, General Counsel of the Environmental Protection Agency and assistant to Chairman Doug Costle of the President's Regulatory Council.

The need to increase competition in regulated industries is a need that both the Antitrust Division and Mr. Shenefield know well.

In 1975, then-Assistant Attorney General Thomas Kauper of the Antitrust Division testified strongly in support of provisions that have been introduced in this Congress as S. 382.

Mr. Shenefield has recently finished serving as the Chairman of the National Commission for Review of the Antitrust Laws, which studied S. 382's predecessor legislation at length and unanimously endorsed that bill's principles.

We look forward today to the testimony of Mr. Shenefield and Ms. Bernstein, for their recommendations as to how we can increase competition and reduce unnecessary regulation in regulated industries.

If you would come forward, please, your statements will appear in the record, in full. If you would highlight them for us, please proceed. STATEMENT OF JOHN H. SHENEFIELD, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

Mr. SHENEFIELD. Thank you, Mr. Chairman, members of the committee. I will summarize my statement, if that is agreeable with the committee.

[See appendix for Shenefield letter to Senator Kennedy.]

Mr. SHENEFIELD [continuing]. I do appreciate the opportunity to appear before the committee today to testify on this subject because I believe that S. 382 reflects an idea that is important and timely. It would in essence establish a uniform standard to guide consideration by Federal agencies of the effects of regulation on competition. Its goal is to require agencies to accurately assess such effects, to opt for the least anticompetitive alternatives that would accomplish regulatory goals, and to defend their decisions where challenged.

The administration is committed to implement these goals in appropriate legislation; however, the views I express today on S. 382 are solely those of the Department of Justice.

The Department believes that legislation along the lines of S. 382 is in fact overdue. The long and the short of it is that competition is the fundamental policy on which our economy is based, and Federal Government agencies should be the first to say so.

When Federal agencies undertake direct, economic intervention in markets, they should recognize potential competitive dangers and avoid as many of these as is practicable.

In my statement, I place this legislation in proper historical perspective, outline the rationale underlying its essential features, and submit our recommendations to the committee as to its appropriate


We propose that a bill along the lines of S. 382 require specific consideration of competitive effects and the least anticompetitive alternative whenever a Federal agency:

(1) Regulates entry under a scheme in which the level of entry is limited; (2) sets or reviews prices; (3) sets, limits, or allocates economic output; and (4) reviews agreements among competitors.

We also recommend that agency attention to competition in such circumstances be subject to judicial review under existing procedures and standards. We believe that these recommendations will enhance the ability of the bill to achieve its objective, as well as minimize the possibility of inadvertent derogation of important, legitimate regulatory goals.

My statement then expands on our view for the need for such legislation. It describes two major types of regulation that have been assessed in recent years under the schemes of regulatory reform.

The first scheme reflects congressional decisions to replace competition in free markets with regulatory controls. My statement gives the example, in that context, of motor carrier regulation. It highlights the point that today's perception of the appropriate role of economic regulation differs markedly from that of times gone by.

I believe it is fair to say that we have learned that direct Government intervention is an inadequate substitute for the marketplace in determining the mix of goods and services most suitable to the desires and well-being of the consuming public

We have also learned an unfortunately expensive lesson-direct Government intervention in markets is likely to have unintended effects, such as increased costs, decreased innovation, and poorer quality of service.

The second type of regulation is not intended to substitute economic controls for competition, but rather to achieve social goals as to which the market process is basically irrelevant, for example, in the areas of environmental protection or safety legislation.

Such regulatory schemes are intended neither to enhance nor suppress competition; their intended effect on the market process is neutral.

Nonetheless, regulation of this type can take economic form and where it does should be scrutinized to determine the effects that it may have on competition, and, consequently, on the price and the quality of goods and services.

My statement then gives examples of four or five areas in which Congress in recent years has conducted a detailed review of several regulatory schemes and has consistently decided to enhance the role of competition.

I simply enumerate them: The Airline Deregulation Act of 1978, the Securities Act Amendments of 1975, mandated competitive review of Federal Energy Leases, licensing of crucial energy facilities and the Atomic Energy Act come to mind.

Thus, our case-by-case regulatory reform experience to date leads to a straightforward conclusion: We can make real progress in improving all types of regulation by allowing competition to play its fullest practicable role, and we can do so without sacrificing any of the improvements we are making in the quality of the lives of our citizens. My statement then deals with the essential features of the legislation.

A statute of broad applicability such as S. 382 must be carefully drafted if it is to apply in appropriate fashion to economic and noneconomic regulatory decisions.

The Department believes that, with improvements, S. 382 can reach those agency actions with the greatest potential for competitive injury and, at the same time, avoid jeopardizing legitimate social goals of regulation.

We believe that there are three key objectives of the bill: (1) To identify the agency decisions having anticompetitive potential, (2) to set a uniform competitive standard applicable to those decisions; and (3) to require that agency decisions that implement the competitive standard be subject to judicial review. These objectives can be achieved in a way that will enhance the ability of the statute to meet its essential goals.

Let me say a brief word about each of those points.

First, the regulatory decisions to be covered.

The plain intent of S. 382 and its predecessor legislation is to apply only to those regulatory decisions that threaten serious anticompetitive effects.

As presently written, S. 382 defines covered decisions in terms of their effects, that is, whether they may substantially lessen competition, tend to create a monopoly, or create or maintain a situation involving a significant burden on competition.

These standards have considerable merit when applied to purely economic regulation, for example, ICC regulation.

However, we are uncertain as to how such standards would affect agency decisions whose goals are social, not economic. If, for example, the setting of health or safety standards should become entangled in the procedural requirements of S. 382, as currently drafted, important social regulation could be exposed to significant delays.

This result is clearly unintended and can be easily avoided without interfering with the effectiveness of S. 382. The history of prior regulatory reforms provides the key to the changes in language we suggest.

A review of those efforts reveals that Congress prime concern has been with agency decisionmaking that effectively substitutes direct. economic regulation for the free operation of the marketplace, and not with Federal regulation that sets standards to protect health, safety, and the environment.

Primary attention has been directed toward regulatory actions that limit entry, control prices, set output, or permit groups of competing businesses to engage in collective activity.

Of course, such actions can be undertaken by agencies whose basic mandates are social as well as those with economic orientation. The competitive concerns would be the same in either case, regardless of the agency's ultimate goal.

We believe that the jurisdictional language of S. 382 should be refined to subject four specific types of direct economic interventionentry, pricing, output allocation, and agreements among competitors or prospective competitors-to a uniform competitive review standard. Section 3(a) of the bill requires that each covered regulatory decision be justified as necessary to accomplish an overriding statutory purpose, that the benefits to the general public of such purpose be shown to outweigh the anticompetitive effects of the action, and that such purpose cannot be served in substantial part by less anticompetitive alternatives.

This section would require that injury to competition be balanced against the benefits of the regulatory objective-a task that would be quite burdensome if the goals sought were noneconomic.

Perhaps a uniform competitive standard can be fashioned to apply to economic and social regulation without imposing an unwarranted burden, and thus insure that competition is not needlessly sacrificed without subordinating social goals to competition.

We strongly agree that a uniform competitive review standard is necessary. Federal agencies, at the present time, are subject to potentially confusing guidelines as to the role that competitive considerations are to play in their actions.

While courts have required agencies that are subject to a broad "public interest" mandate to take competition into account in their decisionmaking, the precise manner in which anticompetitive consequences are to be dealt with once such consequences have been "considered" is unclear.

In one case, the Supreme Court indicated that where private activities subject to agency approval may give rise to a violation of the antitrust laws, they are to be presumed not in the public interest unless other benefits are shown.

In another case, however, a court ruled that under the Federal Aviation Act, prior to its recent amendment, the CAB was not required to explore less anticompetitive alternatives before approving a capacity limitation arrangement, a per se violation of the Sherman Act.

The U.S. Court of Appeals for the District of Columbia has ruled that the Federal Communications Commission was not required to adopt the least anticompetitive alternative in approving a regulatory framework for cable television having potentially anticompetitive effects; the same court held that a standard analogous to the no-lessanticompetitive-alternative test was required before the FCC could license a satellite communications joint venture raising competitive


In this situation, it would be not surprising to find that regulatory agencies would be uncertain of the appropriate tests they should use in making their decisions.


Moreover, for those agencies uninterested in the competitive impact of their decisions, the current absence of a uniform competitive standard makes it easy to avoid meaningful consideration of competition.

For these reasons, we support a statutory requirement that each agency weigh the competitive consequences of its actions falling within the categories I have previously described, and that it choose the least anticompetitive alternative practicably and legally available to effectively achieve the agency's regulatory objective.

Such an approach would not threaten the agency's ability to carry out the congressional mandate to achieve objectives in, say, the health or environmental areas, nor would it detract from the ability of a regulatory agency to establish, within a broad legislative mandate, appropriate goals for its regulatory activities. This result is at the heart of S. 382.

Finally, S. 382 establishes the principle that a competitive review standard should be enforceable through judicial review. We agree that such a requirement is essential if adoption of a uniform competition standard is to have a meaningful impact on an agency's decisionmaking process.

It is the Justice Department's experience that legislative or administrative exhortations to consider a particular factor remain simply exhortations if agency decisionmakers recognize that they are not accountable to the judiciary.

We agree with the observation that a statutory standard that accords weight to a specific policy objective constrains perceived agency biases, facilitates judicial review by narrowing the relevant issues, and provides further guidance for the agency, in the words of the District of Columbia circuit, in a recent case. Such an impact upon regulatory consideration of competition would be beneficial.

Mr. Chairman, in my letter to you of March 5, 1979, I pledged the active support of the administration in your effort to eliminate unnecessary regulatory burdens on the competitive market processes of our economy.

In so doing, I stated my commitment to cooperate with this committee in the development of legislation that will insure that Federal regulatory programs preserve and enhance competition to the maximum feasible extent, and also insure that vital public purposes served by such regulation will not be made subject to unnecessary procedural complexities.

My testimony today represents the Department of Justice's efforts to set out clarifications to the language of S. 382 that will enable this committee, and those who may have had initial concerns about the impact of S. 382 on particular regulatory decisions, to agree on specific statutory language.

I believe that there is not a more important task facing this Congress than the adoption of legislation that will, at long last, insure that all regulation directly supplanting competition in the marketplace will be adopted only if it is the least anticompetitive way available to effectively achieve an agency's regulatory objectives.

I look forward to working with the committee to fulfill our shared commitment to this end.

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