[Congressional Record Volume 141, Number 189 (Wednesday, November 29, 1995)]
[Senate]
[Pages S17819-S17822]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                  NOTE

  The Record of November 28 inadvertently reflects an error in the 
statement of Mr. Pressler that begins on page S17587. The permanent 
Record will be corrected to reflect the following statement.
  Mr. PRESSLER. Mr. President, I rise in opposition to the Dorgan 
amendment. Let me make some general remarks on the issues surrounding 
antitrust and some of the standards that are used. 

[[Page S 17820]]

  First, let me point out that this amendment is an attempt to change 
the way the ICC looks at the competition among rail carriers.
  Changing the standards by which rail mergers are judged is very 
complicated. The current public interest standard is well established 
and has been in place for 75 years. Changing them now, particularly 
while two class one railroads are in a merger proceeding, without fully 
understanding how these changes affect railroads, shippers, States and 
even the financial markets, is not the approach we should take without 
fully understanding what we are doing. Unintended consequences could 
easily result.
  We have one of the most efficient, if not the most efficient, 
transportation system in the world. A large part of the system is the 
level of competition that exists between the transportation modes and 
within the modes. Merely trying to guarantee competition in the rail 
industry by changing how the ICC looks at competition could easily 
backfire.
  In the last 15 years, there have been roughly a dozen rail mergers, a 
tremendous increase in concentration when just measured by the number 
of railroads. However, at the same time, real rates have fallen up to 
50 percent with the decreases occurring every year across all major 
commodity groups and in all major geographic areas.
  This cannot just be attributed to deregulation, because without 
ongoing effective competition, the productivity gains that deregulation 
made possible for the railroads would not have been passed through to 
the shippers.
  Without fully understanding what we are doing in this area, we could 
easily turn back this trend, even though we have the best intentions. 
As a result, I urge that this amendment be defeated. I urge my 
colleagues to vote against it as well.
  Now specifically, the ICC does not apply or follow antitrust law, 
though it pays very close attention to competitive issues. The rail 
system is the underpinning of our entire economy, and many rail 
efficiencies can be achieved only through mergers. The ICC applies a 
public interest standard, under which the public benefits, competitive 
or otherwise, of a merger, are balanced against any detriments, again 
competitive or otherwise, of a merger. This process allows the 
Commission to approve consolidations, even if they otherwise would 
violate antitrust laws.
  Rather than applying a narrow DOJ-type antitrust analysis, the 
Commission has consistently looked at all factors in deciding the 
competitive impact of rail mergers and has found pure concentration 
measures, such as the number of railroads serving a point, to be too 
simplistic a standard.
  The UP/MKT merger is a good example. In that case, a number of 
markets went from three railroads to two. Various parties, including 
the Justice Department, argued that there would be a reduction in 
competition in those markets and that conditions should be imposed to 
introduce additional rail competition in them. The Commission rejected 
these arguments, finding that the continued competition from a strong 
second railroad, the increase in competition from the merged system's 
introductions of new single-line routes and other service improvements 
and other competitive constraints, such as modal and source 
competition, would keep competition vigorous.
  In fact, the Commission was right. Union Pacific, at the request of 
an agency in California, had studied the rates in these 3-to-2 markets 
before and after the UP/MKT merger which was consummated in 1988.
  What they found was that in all cases, rates had decreased 
significantly, confirming the Commission's conclusion that competition 
would be intensified by moving from three railroads, one of which, MKT, 
was a weak third, to two strong rail competitors.
  The evidence is overwhelming that a mere reduction in the number of 
railroads does not stifle competition and, in fact, can enhance it 
where the effect is to add to the efficiency of the merged carriers and 
to their ability to offer new services.
  Furthermore, there is ample proof all across the country that where 
markets are served by two railroads with broad, equivalent networks, 
rail competition is intense. Perhaps the best example is a precipitous 
drop in Powder River Basin, WY, coal rates following the entry of CNW 
into the basin as a competitor, in partnership with UP against 
Burlington Northern.
  This experience of huge declines in the rates for the transportation 
of Powder River Basin coal is flatly incompatible with any theory that 
two railroads in a market will collude to keep prices at or near the 
level where other constraints, such as truck or product competition 
would cause a loss of traffic. Other examples are the intense two-
railroad competition throughout the Southeast, between Norfolk Southern 
and CSX, and for Seattle/Tacoma and other Washington and Idaho traffic 
between BN and UP.
  The number of railroads alone is not what matters, it is the effect 
of the merger on competition. Absent some compelling reason for change, 
which has yet to appear, the current process should stand.
  Mr. President, let me make a few more remarks, and if other Senators 
come to the floor, I will certainly yield to them, but I want to 
continue to state my opposition to the Dorgan amendment.
  Since 1920, due to the unique place railroads hold in our economy, 
Congress has consistently found that applying a pure antitrust standard 
to rail mergers is inappropriate.
  Railroads carry roughly 40 percent of the freight in this country. 
These include 67 percent of new autos, 60 percent of coal, 68 percent 
of pulp and paper, 55 percent of household appliances, 53 percent of 
lumber, and 45 percent of all food products. Much of this material is 
delivered on a just-in-time basis.
  What is impressive about these numbers is that, unlike the trucking, 
ship, barge, and aviation industries, which operate over national 
systems and which are built and/or maintained by Government and open to 
all operators, the goods that move by rail are transported over fixed, 
regional systems. Due to the regional nature of railroads, much more 
interchange occurs than in other modes of transportation. That is, 
railroads hand off cargo to one another while other modes of 
transportation have very little of this type of interchange--truck to 
truck, barge to barge.
  As a consequence, there are natural efficiencies in these other modes 
that do not readily occur in the rail industry. To achieve these types 
of efficiencies in the rail industry, there must be consolidations. 
Mergers and consolidations allow the rail industry to maximize the use 
of its tracks, cut down on interchange points, get the most out of 
switching yards, consolidate terminals and, in short, provide better 
service to its customers at the lower cost.
  In the past, Congress has recognized that rail consolidations cannot 
occur if rails are subject to the normal antitrust tests imposed on 
other businesses. What makes the ICC test different? There are three 
major components.
  The first is the use of the public interest standard. When looking at 
a merger, the Department of Justice focuses almost exclusively on 
possible reductions in competition. Under a pure antitrust review, the 
Justice Department could deny all rail mergers, which is what happened 
before the public interest standard was adopted. The ICC, on the other 
hand, takes into account both the public benefits of a merger, in terms 
of increased efficiencies, better service and enhanced competition, and 
any harms, in terms of reduced competition and loss of service.
  The ICC also has the power to condition mergers to take care of 
anticompetitive concerns. While the Department of Justice could try to 
negotiate conditions, it does not have the same power and discretion as 
the ICC. As a result, the ICC can condition and approve mergers that 
are in the public interest but might normally fail a review by the 
Department of Justice.
  The second is the open and well-developed process the ICC has for 
reviewing rail mergers. The process includes discovery, the development 
of a detailed record and a full and fair opportunity for all affected 
parties, including Federal agencies, States, localities, shippers, and 
labor to be heard.
  The DOJ process, on the other hand, is a closed informal ex parte 
process in which DOJ speaks with only those persons it chooses to and 
hears only the 

[[Page S 17821]]
evidence it chooses to. There is no opportunity for discovery and no 
opportunity to learn and to respond to what others are saying.
  Taken together, these first two points are extremely important. 
Railroads cannot be duplicated. The lines that exist today are 
essentially it. While spur lines and short lines may be built, there 
will be no more railroads built from Chicago to LA or New York to St. 
Louis, not in the near future at least.
  A fair, impartial system bound by rules and precedent where all 
parties can be heard is important in deciding how these systems are 
rationalized. A DOJ review is far more subjective. All parties may not 
be heard and DOJ can decide which types of traffic patterns to look at, 
thereby making the process unpredictable from one case to another, from 
one administration to another.
  So I think, in looking at this, we have to look at what we are 
dealing with in the uniqueness of railroads. We will not have more 
railroad lines built in this country in terms of major routes from 
Chicago to LA or New York to St. Louis. We will have those remaining. 
But the question as a public interest standard allows some flexibility 
on the part of the rulemaking body which will now be in the Department 
of Transportation.
  The third component is the actual approval. The Department of Justice 
does not approve mergers, it merely indicates whether or not the 
Government will bring suit to stop it. I think now under the Hart-
Scott-Rodino standard, companies can get an opinion before they 
actually go to the expense of getting together.
  The ICC process brings with it a formal approval and preemption of 
other laws. This is important for a number of reasons. Without formal 
approval, abandonments or line sales contemplated by a merger will have 
to be approved by another agency. State laws designed to prevent or 
hinder mergers will not be preempted. This is particularly important to 
the free flow of interstate commerce. Further, private parties would 
not be prohibited from bringing suit to seek conditions or block the 
transaction.
  Finally, the Rail Labor Act would not be preempted. This is critical. 
Most railroads have 13 different unions with hundreds of different 
contracts. Absent the preemption of the Rail Labor Act and the 
imposition of labor protection conditions, the merging carriers would 
be forced to negotiate implementation agreements with each union under 
the Rail Labor Act. Because rail transportation is so vital to the 
economy, this act was created ``to avoid any interruption to 
commerce.'' The act achieves this goal by obligating management and 
labor to negotiate using a long, drawn-out process. Using this act to 
negotiate the implementation of a merger would take years. As a result, 
without a formal approval, even if a merger were approved by the 
Department of Justice it would more than likely be years, if ever, 
before it could be implemented.
  At the heart of this debate is, What is best for transportation 
policy? The more than 500 railroads that are in existence today are an 
integral part of our country's transportation system and are a linchpin 
in our economy. We have the best rail system in the world. The long-
established national railroad merger policy has served our country 
well. Absent some compelling reason, there is no basis for gambling 
with the future of an industry that is so important to our Nation.
  Finally, the private parties would not be prohibited from bringing 
suit to seek conditions or block the transaction.
  Finally, the Rail Labor Act would not be preempted. This is critical. 
Most railroads have 13 different unions with hundreds of different 
contracts. Absent the preemption of the Rail Labor Act and the 
imposition of labor protection conditions, the merging carriers would 
be forced to negotiate implementation agreements with each union under 
the Rail Labor Act.
  Because rail transportation is so vital to the economy, this act is 
created to avoid any interruption to commerce. This act achieves the 
goal by obligating management and labor to negotiate using a long, 
drawn-out process. Using this act to negotiate the implementation of a 
merger would take years. As a result, without a formal approval, even 
if a merger were approved by the Department of Justice, it would more 
than likely be years, if ever, before it would be implemented.
  So, Mr. President, at the heart of our debate is, what is best for 
transportation policy? The more than 500 railroads that are in 
existence today are an integral part of our country's transportation 
system and are a linchpin in our economy.
  We have the best rail system in the world, although it certainly 
needs improvements, and the real rail rates are 50 percent lower than 
when the Staggers Rail Act was passed in 1980, despite a reduction of 
about two-thirds in the number of major railroads. The long-established 
national railroad merger policy has served our country well.
  Absent some compelling reason, there is no basis for gambling with 
the future of an industry that is so important to our Nation.
  So let me say that I very much admire the intentions of my friend 
from North Dakota with this amendment. This piece of legislation has 
been many months in the negotiating stages. My friend from Nebraska 
first introduced the piece of legislation, and we decided to work as a 
team. We had in various shippers, railroads, the public, and consulted 
with State public commissions. We consulted with Governors. We 
consulted with experts. We developed this piece of legislation that is 
here on the floor. It is not perfect, but it has been crafted on a 
bipartisan basis. We also have the support of Senator Hollings, the 
ranking member, and several of the Republican Senators.
  We feel strongly that the public interest test that the ICC has said 
will go with it to the Department of Transportation, we feel it would 
be an additional layer of regulation to add to the Department of 
Justice and to add the antitrust standards which we feel exists anyway, 
but it would be an unnecessary additional regulatory burden. We are 
trying to deregulate as much as possible. This amendment would put us 
not only into a pre-Staggers position, but we never had this much 
regulation.
  Mr. President, we had a similar debate here. I stood in this very 
place during the consideration of the telecommunications bill, which is 
now in conference. We debated between the public interest, convenience 
and necessity standard used by the Federal Communications Commission 
regarding administrative law cases as opposed to adding an additional 
Department of Justice review of certain telecommunications, and it was 
the decision of this body on a rollcall vote not to have the Department 
of Justice review because it is another layer of regulation.
  We are trying to deregulate wherever possible. We are trying in this 
bill to have a review but not a lot of bureaucracy.
  With all due respect, I must strongly oppose the Dorgan amendment. I 
urge my colleagues to defeat it.
  Mr. DORGAN. Mr. President, I greatly respect the opinions of the 
Senator from South Dakota. I said before, and let me say it again, I 
think he and Senator Exon and Senator Hollings have done a great job of 
putting together a bill, and with the exception of my interest in 
improving it with this amendment, I think that the legislation that 
they have crafted has great merit.
  I want to just respond to two points the Senator from South Dakota 
made. First of all, my amendment does not actually take the authority 
for approval and move it from the board and DOT over to the Justice 
Department. That is not what the amendment does.
  The amendment, rather, gives the Justice Department the opportunity 
to apply the Clayton standard and then advise the Board at DOT of its 
conclusion with respect to whether this meets the Clayton standard, and 
requires the Board to give substantial deference to it. The decision 
will still be made by the Board. That is an important point.

  The second point is, the Senator from South Dakota spoke of 
deregulation. I am probably much less a fan of deregulation than he or 
some others in this Chamber. There are certain areas in our country 
where regulation, I think, is critical, where, without regulation, you 
get price gouging, you get pricing outside of a free market that 
disadvantages consumers. I will give some examples of that.
  While I say this, I am not opposed to all deregulation. Some of it 
has been 

[[Page S 17822]]
just fine. But the Senator from South Dakota and I come from States 
that are sparsely populated, and we often, especially in the area of 
transportation, suffer the consequences of a deregulated environment in 
which, without competition, they extract prices that are unreasonable.
  I used an example of the airline industry in the Commerce Committee 
that the Senator from South Dakota will recall. I held up a picture of 
a big Holstein milk cow, called Salem Sue. It is the world's largest 
cow. It happens to be metal, but it is the largest cow. It sits on a 
hill about 25 or 30 miles from the airport in Bismarck, ND, if you 
drive down Interstate 94. I pointed out, if you get on a plane here in 
Washington, DC--and I admit, there are probably not a lot of folks who 
have an urgent desire to go see the world's largest cow just for the 
sake of going to see the largest cow--but if your desire is to go from 
Washington, DC, to see the world's largest Holstein cow, 30 miles from 
the Bismarck airport, you will pay more money for that trip than if you 
get on an airplane in Washington, DC, and fly to London to see Big Ben.
  Or, let us decide you want to see Mickey Mouse and decide to fly to 
Disneyland in Los Angeles. You fly twice as far and pay half as much as 
getting on an airplane here and flying to Bismarck. Question: Why would 
that be? Answer: Because we do not have substantial competition. We do 
not have the kind of competition in the airline industry that you have 
if you are in Chicago or Los Angeles. There, if you show up at the 
airport you have dozens of choices, all competing against each other, 
and the result is attractive choices at lower prices. But, with 
deregulation in the airline industry, we have fewer carriers, fewer 
choices, and higher prices.
  Now, deregulation is not always a boon to areas of the country that 
are sparsely populated. When you talk about deregulation with respect 
to railroad carriers, you must find a way, it seems to me, to provide 
protections for consumers. My concern about all of this is that the 
consumers be afforded an opportunity to have a price in the open market 
system or the free market system that is a fair price. We can foresee 
circumstances, and we have already seen some in this country, where the 
prices charged in areas where there is not substantial competition are 
prices far above those that should be charged.
  I mentioned earlier that my amendment is not directed at any carrier 
or any company or any merger. I mentioned I was interested in the 
telecommunications legislation, and I rose to offer an amendment 
including the Department of Justice there. I also have been involved in 
similar issues.
  About 3 weeks ago, I asked the Banking Committee in the Senate to 
hold hearings on bank mergers. This is not a newfound interest of mine. 
I was on a program awhile back and they asked me about my interests in 
having hearings on bank mergers. We were talking about a specific 
merger where two very large banks were combining and merging to be a 
much, much larger bank. They said, ``Does that not make sense? Two 
banks become one and you are able to get rid of a lot of overhead and 
lay off 6,000 or 8,000 people. Does it not make sense to be more 
efficient?"
  I said, ``Following that logic, it makes sense to have only one bank 
in America, just one. That way you do not have any duplication. Of 
course, you do not have any competition either.''
  Following this to its extreme, this notion of efficiency without 
caring much about what it does to the free marketplace and without 
caring much about what violation occurs to the issue of competition, I 
suppose you could make a case that in every industry the fewer 
companies the better, because the fewer companies the more efficient 
you are going to become. You can lay off people. Of course, it would 
not be very efficient for consumers, because you can then engage in 
predatory pricing and no one can do very much about it.
  The point I am making is, I am not here because of a railroad or a 
merger. I have been involved in the issue of bank mergers, calling for 
hearings at the Senate Banking Committee in recent weeks on that. I 
have been on the floor on several other merger issues. I hope that the 
Senate will take a look at this and decide this makes sense. If it does 
not, at the next opportunity I will again raise this issue.
  Frankly, there are not many people in the Senate, or the House, for 
that matter, who care to talk much about antitrust issues. First of 
all, it puts most people to sleep. You know, it is better than medicine 
to put people to sleep. Nobody cares much about it. Nobody understands 
it much. It is, to some people, just plain theory. But, if you are a 
shipper and you are somewhere along the line someplace and the company 
that has captured the competition and is now the only opportunity for 
you to ship says to you, ``By the way, here is my price; if you do not 
like it, tough luck,'' all of a sudden, this has more meaning than 
theory.
  If you are a traveler on an airline and you have no competition when 
you used to, but now the only remaining carrier that bought its 
competition and became one says to you, ``By the way, here is my price; 
if you do not like it, do not travel,'' then this is more than theory.
  That is what persuades me to believe that in a free market system, if 
you preach competition but do not care very much about whether 
meaningful competition exists, or whether we have adequate enforcement 
of antitrust standards, then in my judgment you do no favor to the free 
market economy.
  I hope people will consider this on its merits and consider that it 
would be wise for our country and for public policy to ask that this 
legislation be amended with the amendment I have offered, along with 
Senator Bond.

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