Segment 1 Of 2     Next Hearing Segment(2)

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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at []. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.


House of Representatives,

Subcommittee on Railroads,

Committee on Transportation and Infrastructure,

Washington, DC.

    The subcommittee met, pursuant to call, at 10:05 a.m., in Room 2167, Rayburn House Office Building, Hon. Susan Molinari (chairwoman of the subcommittee) presiding.

    Ms. MOLINARI. Thank you and good morning.

    I want to first welcome all the Members and participants to this hearing of the newly established Subcommittee on Railroads. I am Congresswoman Susan Molinari and am very pleased to have Mr. Lipinski, the distinguished Member from Illinois, as our Ranking Minority Member on the subcommittee. Based on our discussions thus far, I am confident that the subcommittee will be able to conduct its businesslike manner with a maximum amount of bipartisan cooperation.
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    As to procedure, in discussions with our Ranking Minority Member, the gentleman from Illinois, it was mutually agreeable that to expedite the subcommittee's hearings, opening statements will be normally delivered only by the Chair and the Ranking Minority Member and the Chair and Ranking Member of the full committee absent special circumstances dictating otherwise. All Members of the subcommittee, however, are still encouraged to submit written statements for the hearing record, if they wish.

    Before I make my few opening statements and introduce the panel, I would like to yield to the Chairman of our full committee, the gentleman from Pennsylvania, Mr. Shuster.

    Mr. SHUSTER. Thank you very much, Madam Chair. I am just thrilled to be here and to proceed. I have described what we have doing up to now as the equivalent of a Barnum & Bailey Circus going into winter quarters in Florida and getting ready for the big show. Right now we have come North and this is the first ring of what is going to be a six-ring circus with our six subcommittees moving expeditiously, hearings this month and in February, marking up important legislation in subcommittee in March, marking up that legislation in full committee in April so we can tell the Speaker on the hundred first day that we are ready with nine major pieces of transportation and infrastructure legislation to come to the Floor. This is the very beginning and you are the first ring master. Congratulations.

    Ms. MOLINARI. You know you are going to be called a lot of things when you run for Congress, Mr. Schuster, but first ring master wasn't one of them.

    Thank you very much, and I thank the Chairman for the attention and interest he has shown in the work of this subcommittee and putting together this hearing and our future schedule.
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    I would also like to welcome my Vice–Chair, Congresswoman Susan Kelly. We have a whole New York panel here today, Congressman Sherry Boehlert, Congressman Jack Quinn.

    We have an ambitious schedule for the subcommittee over the next 2 or 3 months, including development of legislation to sunset the Interstate Commerce Commission and to transfer those ICC functions worth retaining to another appropriate agency.

    I want to commend the ICC and its commissioners for all the cooperation and assistance they have given us thus far in the process, notably by preparing a comprehensive report on ICC functions that was submitted last November.

    Today, we are going to look at one important function of the ICC, its authority and duties to review and approve mergers and other consolidations involving more than one rail carrier. This is very much on the news today, as many of our participants here are all too familiar, with at least one set of competing merger proposals pending and others being talked about. But we don't intend to focus on pending transactions at this hearing, nor should we. That is best left to the private sector to sort out. Instead, we are going to look at the long-term issue of how the Federal Government should treat railroad mergers for the future.

    There are important policy issues here. Some argue for the application of standard antitrust principles to the rail industry. Others believe that a more transportation oriented analysis is perhaps more appropriate. We are interested in the views of all the interested parties.
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    What the Congress does this year with the ICC's regulatory responsibilities will, in fact, shape the future of the railroad industry far into the future. It is, therefore, extremely important that we provide for an orderly and rational ICC transition from the current ICC jurisdiction to whatever future configuration the Congress should choose.

    With that, I would like to thank and recognize our Ranking Minority Member, Mr. Lipinski of Illinois, for any opening remarks that he may have and to introduce the Members of the Democratic side.

    Mr. LIPINSKI. I thank the Chairwoman.

    I am very happy to be the Ranking Member on this subcommittee. With the permission of the subcommittee, I want to waive my opening statement and have it included in the record and I hope that will be a precedent for all the Members of the subcommittee, that we get down to business as quick as possible.

    I would like to introduce two of the Members that are on the Democrat side here today, my good friend from Tennessee, a man who follows in the footsteps of Davey Crockett, Sam Houston and his father, Frank Clement, my good friend, Bob Clement, from Tennessee.

    I don't know who Borski followed in. I do know that unfortunately when he and I arrived here back in January 1983, I know that I followed him somehow in seniority, so I have been plagued all these years being right behind him in seniority. My good friend, Bob Borski.

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    Madam Chairwoman, it is all yours.

    [Mr. Lipinski's prepared statement follows:]

    [Insert here.]

    Ms. MOLINARI. Thank you.

    Before we begin, let me also remind our witnesses that presentations should be limited to five minutes but you can submit your detailed material and your written statement. The Chair will also direct, absent any objection, that the record of this hearing will remain open for 30 days for the submission of additional material.

    Our first panel—let me also recognize Mr. Jay Kim from California and thank him for being with us this morning.

    Our first panel will be Steve Sunshine, Deputy Assistant Attorney General from the Department of Justice and Mr. Frank Kruesi, Assistant Secretary of Transportation for Policy.

    I want to note that this committee will have to consider a variety of factors before it decides which agency should inherit the ICC responsibility. We have to consider, for example, other modes of transport already subject to the ICC as well as the likely restructuring or abolition of the Federal Maritime Commission.

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    Now we will proceed to the first panel. Mr. Sunshine.

    Mr. KRUESI. Madam Chair, with your indulgence, if I may go first.


    Mr. KRUESI. Thank you. Good morning, Madam Chair, gentlemen and Members of the subcommittee. Joining me is Joseph Canny, Deputy Assistant Secretary for Transportation Policy.

    I am pleased to be here to discuss the issue of who should evaluate mergers between railroads, and under what standards: The current public interest standards laid out in the Interstate Commerce Act, or the Clayton Act.

    This issue is part of a larger debate over the proper role of government and how to make government work better and cost less. The President has said we have to change yesterday's government and make it work for the America of today and tomorrow. We all share that same goal. The question is how best to achieve this.

    Last year, Congress considered proposals to summarily zero out funding for the ICC in advance of a determination of what ultimately should be done with its functions. On behalf of the Administration, I urged that before Congress took such budgetary action a review of the ICC's functions and activities was needed. Congress responded, we believe appropriately, by enacting partial deregulation of the ICC's trucking functions and providing for a study of its remaining activities. This legislation, which was reported by the Public Works Committee on a bipartisan basis and eventually signed into law last August by President Clinton, will save consumers up to $8 billion per year. This legislation also required DOT to study how the ICC could be further streamlined by elimination of unnecessary functions, and whether the remaining functions could best be performed at the ICC or elsewhere.
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    Following the themes of the National Performance Review that began in early 1993 and the statement by the President in his State of the Union address earlier this week, the Administration's 1996 budget will propose the elimination of the ICC. That Commission is a relic of 19th Century government created to address 19th Century problems. It is not equipped for the opportunities open to us in the 21st Century.

    The mid-to-late 1880s was a period where lack of transportation alternatives gave railroads a power and an arrogance that earned their owners the label of ''robber barons.'' The creation of the ICC was the result. This was long before the age of superhighways, trucks, pipelines, modern barges, and air travel. For many areas of the country, it was rail or nothing. Railroads held the preeminent position and literally held the power of life and death over communities. In 1885, railroads had twice the level of revenues as the Federal Government. Now the Federal Government takes in almost 30 times more revenue than the Nation's railroads. To put that in perspective, if this relationship still held true, either railroads would now have revenues in excess of $2 trillion or the Federal Government would have revenues of about $17 billion.

    Clearly, circumstances have dramatically changed. The most significant changes occurred 15 years ago with enactment of deregulatory legislation, specifically the Motor Carrier Act of 1980 and the Staggers Rail Act of 1980. It is now time to write the final chapter on deregulation.

    The focus of today's hearing is on rail mergers. The administration will propose that evaluation of rail mergers be transferred to the Department of Justice under the antitrust laws. Before I discuss rail mergers in detail, let me note that deregulation is not a partisan issue. The Staggers and Motor Carrier Act and the deregulation of the airline industry took place under President Carter with great bipartisan support. In this context, the administration and Congress are not only seeking to eliminate burdensome and counterproductive regulations, following in those footsteps, we are seeking to repeal unnecessary functions and sunset unnecessary agencies as well.
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    Rail mergers are currently reviewed by the ICC under the regulatory standards of the Interstate Commerce Act. These standards provide for a five-part public interest decision process. The alternative to continuing the status quo is to repeal the standards, make railroad mergers subject to the same antitrust laws applicable to other industries, and assign responsibility for reviewing such mergers to the Department of Justice. Under this option, mergers would not be challenged unless the government finds the transaction is likely to substantially lessen competition.

    We have concluded that rail mergers would best be reviewed in the future by the Department of Justice under the same Clayton Act standards used to review mergers in nearly all other industries of the United States.

    Let me tell you how we came to that conclusion. As I see it, there are two ways of looking at the railroad merger issue. On the one hand, there is business as usual; on the other, there is the approach that challenges the status quo and asks whether the old way of doing things is still valid in today's economy, much less tomorrow's.

    I will be happy to discuss what those specific recommendations are and how those standards differ, as will the Department of Justice witness.

    Let me close with one brief comment. As I was preparing for this testimony, I looked through the January 1887 debate on the Interstate Commerce Act and I believe it is relevant to look back on that to see the original purposes of the act. Congressman Christ from Georgia, a leading champion of the creation of the Interstate Commerce Commission said on the Floor of the House: I maintain, sir, that the railroad business or the business of transportation is no exception in one respect from any other business and that is that it is to the interest of the public to have competition.
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    That principle I believe still applies no less forcefully today than it did 108 years ago.

    Madam Chair, that concludes my testimony. I would be happy to answer any questions you or other Members of this subcommittee may have.

    Ms. MOLINARI. Thank you, Mr. Kruesi.

    Mr. Sunshine.

    Mr. SUNSHINE. Madam Chairwoman and Members of the subcommittee, I would like to introduce Roger Fones, chief of our Transportation, Energy, and Agriculture section.

    Thank you for the opportunity to address why the administration believes that the Department of Justice should evaluate railroad mergers under the Clayton Act.

    I want to make two basic points this morning. First, the best way to protect the public interest in good services at low prices is to review mergers under the Clayton Act. Second, the Clayton Act procedure involves the use of less government resources, imposes less burden and cost upon private parties, and is faster. We have a bipartisan consensus now that we ought to be moving away from unnecessary regulation. This is premised on the belief that competition best protects and promotes the interest of consumers, and to keep markets open, antitrust enforcement is an appropriate and effective way to accomplish this goal.
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    The administration believes that railroad mergers should be subject to the same laws that virtually every other merger in every other industry is subject to. The Department has extensive experience in reviewing complex mergers, mergers involving networks with high fixed costs and barriers to entry, such as the railroad industry, including telecommunications, pipelines, natural gas, electric utilities, and banking. The Department has the experience and expertise to handle those mergers and to handle railroad mergers as well. In fact, for over 20 years the Department has been evaluating railroad mergers under a competition standard, not to enforce under section seven of the Clayton Act but to appear as the competition advocate in ICC proceedings.

    If somebody asked me to boil down what the competition standard is to one sentence, it is very simple. We ask whether a merger is likely to result in higher prices and reduced services to consumers or is it going to result in more efficient service at lower prices. That is the question.

    To do this, we use our 1992 Merger Guidelines, widely recognized as the best articulation of how to determine the economic effects of a merger. The guidelines at the core have two parts. They ask on the one hand what is the effect of the reduction of competition, what is the effect of having one less supplier in the market. But on the other hand, and equally important, the guidelines ask what efficiencies will be achieved, what improved service will be provided, what will happen to costs, and what will happen to prices. Then the guidelines command that those interests be balanced. In fact, if we look at what the Department has done regarding railroad mergers over the last 15 years, the Department has opposed in total one railroad merger. That is Santa Fe and Southern Pacific and the ICC eventually later disapproved that merger.
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    Let me turn to procedure quickly.

    Review under the Interstate Commerce Act takes 2 to 3 years or longer. It requires a litigated case, in essence, in front of an administrative law judge. There are public filings. There is voluminous evidence. It gives a seat at this proceeding to all interested parties. This, of course, slows the process down. It also allows all of these private parties to inject their private interests into what is a public interest proceeding.

    On the other hand, the Clayton Act process is much faster and cleaner. We do it under the Hart–Scott–Rodino Act. I won't go into details of how that works, but if a merger presents limited or no competitive concerns, the Department reviews it in 30 days or less. For mergers that involve the most sophisticated and difficult competitive issues, our investigation takes typically 6 months, although it can run to 12 months.

    At the end of that time we have great flexibility in how we approach the competitive problems. We can enter into a settlement where we fix the parts of the transaction that present harm to competition, but we allow the transaction to go through allowing most of the efficiency benefits to be captured. In the very unlikely event we have to challenge the merger in court, those mergers have proceeded usually in less than a year's time.

    With Clayton Act review, we will save government resources because, as I mentioned before, the Department currently evaluates the competitive effects of the mergers in its role as an ICC participant and we have the expertise, the staff available to continue to do that, and would use the same staff to do the Clayton Act review.
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    In conclusion, I want to reiterate the point that the Clayton Act review is faster, and less costly to the government and to private parties. The standard under the Clayton Act focuses on protection of consumers and competition, not on protection of competitors. It is our firm view that competition is the best way to promote low cost and efficient railroads over the long haul.

    Thank you. I would be pleased to answer any questions that you may have.

    Ms. MOLINARI. Thank you.

    I would like to also recognize Congressman Nick Joe Rahall, Congressman Jerry Nadler. We have also been joined by the distinguished Ranking Member from California, Congressman Norm Mineta.

    Would you like to make an opening statement at this time?

    Mr. MINETA. I ask unanimous consent to put in the record my opening statement.

    Ms. MOLINARI. Without objection.

    [Mr. Mineta's prepared statement follows:]

    [Insert here.]
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    Ms. MOLINARI. We have been joined by Congressman John Mica of Florida and Congressman Bob Franks of New Jersey. I would like to yield to the Chairman of the full committee, Mr. Shuster.

    Mr. SHUSTER. Thank you very much.

    I have simply one question that in my judgment pervades this whole hearing. That is what is different about the railroad industry from other industries that would cause us to say we should put this in the Department of Transportation in a separate operation, a FERC-type operation as opposed to DOJ? What is the difference? Are there differences?

    Mr. SUNSHINE. Mr. Chairman, I don't believe that there are any differences that would justify putting railroad merger authority into the Department of Transportation. We at the Department handle virtually the rest of the U.S. economy. The economy has diverse interests, diverse characteristics, but the analysis that we have developed is flexible enough and sophisticated enough to take all of those details into account. It would be ironic, I would also like to note, to put railroad merger authority into the Department of Transportation when airline merger authority is reviewed under the Clayton Act.

    Mr. KRUESI. I would add that when the Congress sunsetted the Civil Aeronautics Board in the mid 1980s it did initially transfer the merger authority to the Department of Transportation and it was later transferred out of the Department of Transportation to the Department of Justice. So I have to say that this Department has had experience in the argument that there is a fundamental distinction between certain types of transportation industries. I must say that was a wise decision by this Congress then, and I think it would be a wise decision now to have review of rail mergers performed in the Department of Justice.
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    The fact of the matter is, the Department of Transportation, when there are mergers of airlines, works very closely with Justice in their evaluation, analytically and legally, so I think ultimately there is no distinction that would justify that separation.

    Mr. SHUSTER. Could one not make the case that we should have a transitional period where for example some of the commissioners from the ICC and staff were moved into the Department of Transportation or someplace else to handle the docket as it now exists and anything new that comes in goes to the Department of Justice; is that another alternative that is reasonable?

    Mr. KRUESI. Obviously, there are all kinds of options that could be considered. I would go back to the Airline experience, and I think that a look at the record shows that DOT never saw a merger it didn't like, and probably was not sufficiently rigorous in its analysis of the effect of mergers and their impact on the economy.

    I think that one thing that the Department of Justice brings to bear here that is critically important is the experience of evaluating of competition issues rather than a concern about the impact on individual competitors. I think that distinction needs to be maintained. So for that reason we would urge that there not be a transition period but rather that it go directly to the Department of Justice under the standards that Justice is accustomed to and that have served this country so well.

    Mr. SHUSTER. Thank you.

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    Ms. MOLINARI. Thank you, Mr. Chairman.

    I have two quick questions. Basically, in your discussions, understanding the decisions that you have reached, some a little earlier than others, that the ICC merger authority should got to DOJ, is there a possibility would either of you recommend or accept the notion if Congress is concerned that by transferring solely to DOJ that the public interest statute components of the current ICC and DOT is being eliminated, is it possible that we could redefine the DOJ statute to include public interest?

    Mr. SUNSHINE. It is the position I think of the administration that the public interest—let me start again. It is the position of the administration that the public interest is best served by competition. We can go through each element the Interstate Commerce Act and look at things contained in the statute, adequacy of transportation, effect on fixed charges, interests of the other rail carriers. All those issues I think are best served by evaluating what the effect on competition is going to be. That is what the Department is expert in and we believe that is what the focus ought to be limited to.

    Having said that, I did leave out the interest of labor and that I believe is something that I can defer to Mr. Kruesi to address.

    Mr. KRUESI. I can do that in response to a specific question or generally at the wish of the committee.

    Ms. MOLINARI. If you would like to address it now, that would be appropriate.
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    Mr. KRUESI. Let me say a couple of things. One is that labor issues are and continue to be issues of importance. They are matters that the DOT deals with now in airline mergers. They are issues that the Department has worked closely, and sometimes contentiously, with the Department of Labor on issues related to transit. Therefore, I think it is clear that there is probably as much contention on the basic question of dealing with the labor issues in mergers, as there is on whether it is appropriate to have that authority rest in Transportation or in the Department of Labor. That is an issue that we have not yet reached an administration position on, but I would be happy to discuss the specific issues on that, if you would like.

    Ms. MOLINARI. Thank you.

    [The information follows:]

The Administrator has decided to recommend that the rail labor protection function of this ICC should be transferred to the Department of Labor.

    Ms. MOLINARI. Mr. Kruesi, I am a little confused over the role that the public comment process in formulating DOT's final recommendations. I understand those recommendations—I am going to read from the Public Law 103–311, is to be submitted by Congress at the end of the month.

    What confuses me is the description of your upcoming recommendations. On page three of your statement, you called them initial findings, subject to public comment. Then on page 4 you say, the administration will propose that evaluation of rail mergers be transferred to the Department of Justice under antitrust laws. On page five you say that you have concluded that rail mergers would best be reviewed in the future by the Department of Justice under the Clayton Act standards. To me, your categorical statement that the administration will recommend a particular course of action before public comment seems to have come in—would indicate a strong predisposition or, more troubling to me, a prejudgment to your conclusions.
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    Mr. KRUESI. I will be happy to address that. The report to which you refer, which Congress directed us to undertake, is about to be published in the Federal Register for comment so that the final report on the disposition of the ICC powers and responsibilities can be looked at in a very comprehensive way, following the initial report prepared by the ICC. Most of those issues remain open and subject to public comment.

    The two questions which the Administration has taken a position on which I am recounting today are the issue of rail mergers and standards and the location of that power. Those two are clear and that is where the Administration is. As to the others, those are open questions. We will have initial recommendations and suggestions and will continue to seek advice on them.

    Ms. MOLINARI. Thank you. Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Madam Chairwoman. I will pass my opening five minutes to Mr. Clement.

    Mr. CLEMENT. I will start with Mr. Kruesi.

    You state in your testimony that the competitive structure of the railroad industry is not different in any material way than that of airline markets. Do you really believe that and are you saying it is as easy to establish railroad service between Los Angeles and Chicago as it is to establish airline service?

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    Mr. KRUESI. No, it certainly is not as easy, and there are obvious differences between rail and other industries. In the same way there are also important similarities and differences pertaining to telecommunications, banking, pipelines, et cetera, all of whose merger activities are reviewed now by the Department of Justice. So the question is, is there ultimately in the case of railroads a distinctive characteristic that is decisive, or is it ultimately a distinction with regard to the competitiveness of the railroad industry relative to other industries. That is ultimately without the sufficient justification for different standards or for a different locus of review. Our judgment as the Administration, is those differences do not to a different handling of railroad cases.

    Mr. CLEMENT. Mr. Kruesi, one of the questions that will be coming up next year when the contract between the freight railroads and Amtrak expires is what is fair competition for Amtrak to pay for the use of the fright railroad's right-of-way. If the ICC is abolished, who will make those decisions? If DOT makes those decisions, won't your interest in preserving Amtrak and reducing Federal subsidies adversely affect the interest of the freight railroads?

    Mr. KRUESI. Yes, sir. That is an important issue which will need to be addressed. An element of that will be questions that relate to what issues will have to be ''walled off'' in a substantive way as DOT evaluate them.

    We will recommend the way in which we do that to this Congress next month in report, but that is a very key question. We want to make sure that there is no appearance or conflict of interest that would taint our decision-making process.

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    Mr. CLEMENT. Mr. Sunshine, in your testimony you mention that even by using the Clayton antitrust standards you would be able to protect the public interest. If the merger authority was transferred to DOJ, would the interest of the railroad employees be adequately protected?

    Mr. SUNSHINE. Congressman, under the proposal put forward by the administration, the labor protection issues would be transferred to DOT or DOL. The Justice Department would do what it does best and only what it does best, which is to review the economic effects of the transaction. In that way I think we do promote the public interest. It has clearly been the policy of Congress that competition is the best way to promote public interest in the long term in any industry.

    Mr. CLEMENT. Also, the ICC is able to make some post merger adjustments to ensure competition and to prevent abuse of market power. Does the Department of Justice have the ability to make similar adjustments?

    Mr. SUNSHINE. We do have some ability to make adjustments and there also are going to be some powers that will be resident in DOT. Let me explain. I think there has been a misperception that when the Department of Justice looks at a merger, it is an all or nothing question. If you look at what we actually do and have done, what we most typically do is look at a merger and we fix the parts of the transaction that injure consumers while the rest of the transaction proceeds.

    We do that in two ways. We can enter into a settlement with the parties where they agree to handle the problem by spinning off assets. In the context of railroads, we would say sell certain tracks or trackage rights and allow the transaction to proceed. We can also enter into a consent decree, which is a negotiated settlement which then gets entered by a court and the court retains continuing jurisdiction to enforce the decree.
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    In terms of conduct, that would happen after we have entered into a settlement. For instance, if we have looked at a situation where there are two railroads that serve a particular community that are merging to one and we make the judgment on efficiency grounds that that merger ought to be allowed, we would allow the merger but then DOT procedures would be available to protect captive shippers from abuse. So I think we can adequately—we can give the same protections that the ICC would.

    Mr. CLEMENT. This question is for both of you. The GAO has concluded that there is continuing value in having an independent agency to resolve disputes within the railroad industry and that little would be saved by moving this function to DOT or DOJ.

    Have you estimated what savings would result from shifting these functions to DOT and DOJ?

    Mr. KRUESI. I would be happy to give our perspective in DOT. I think that there clearly will be some savings by virtue of the fact that the administration will be recommending a series of current activities conducted by the ICC that would cease. There are other activities that would be transferred to the Department of Transportation, and some of the personnel now doing them would be transferred to the Department of Transportation to perform those activities.

    Some activities which would be abolished under our proposal include activities that both ICC and DOT currently undertake well in overlapping ways. Furthermore—I think that the major savings here are not savings to government so much as they are savings to carriers, savings to shippers, and savings to the American consumer. Mergers will be able to be evaluated in a quicker fashion following standards that apply more generally. I think that is great benefit to the economy as well as to the government, although there are clearly government efficiencies that result from this.
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    Mr. SUNSHINE. From our perspective, since we are going to limit ourselves to the competition analysis, we believe that we have the resources capable to handle the competition analysis at the Department. No additional resources would be needed. That also I think implies that there are substantial savings by eliminating those resources at the ICC.

    At the same time, we need to look at costs of the proceedings. I think that it is important to keep our eye on the big picture, which is these decisions have tremendous effects on the economy, and regulation versus competition. Regulation can impose significant costs when it distorts market forces. Those are costs that are borne typically by consumers and that is what we are trying to eliminate here by allowing the mergers in this industry to be governed by the same standards that they are governed by throughout the rest of the U.S. economy.

    Ms. MOLINARI. Next round, Mr. Clement.

    Mrs. Kelly.

    Mrs. KELLY. Madam Chairman, I have no questions.

    Ms. MOLINARI. Thank you.

    Mr. Nadler.

    Mr. NADLER. Thank you. Either one of you, the merger authority, that would encompass within it or not under your proposal the power to approve abandonment of lines?
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    Mr. KRUESI. The power to approve abandonment of lines would go to the Department of Transportation.

    Mr. NADLER. And it would be subject to the same standards——

    Mr. KRUESI. Yes, it would, sir.

    Mr. NADLER. ——as at present.

    Now, you stated, Mr. Kruesi, in your written statement, that rail labor favors continued review at the ICC or, in alternative, at the Department of Labor, presumably under current ICA standards. This no doubt reflects in part on labor's view that the current labor protection standards for employees affected by a merger should continue. There are always labor issues arising from any merger transaction. However, these mergers can still be addressed regardless of whether the Clayton Act or the ICA standards are applied. There is no reason why rail mergers could not be reviewed under the antitrust laws and labor protection continued to be provided before mergers are approved.

    Now, do you have a position on whether ICA standards should continue; regardless of where the authority is located. Do you have a position on whether the standards of judgment of labor questions should change or remain the same?

    Mr. KRUESI. We do not yet, sir.
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    Mr. NADLER. That will be in your report?

    Mr. KRUESI. Yes, sir.

    Mr. NADLER. Do you have a position on whether those questions should be addressed by the Department of Transportation, of Justice or of Labor?

    Mr. KRUESI. That is still being discussed.

    Mr. NADLER. So it is still open at the moment?

    Mr. KRUESI. That is correct.

    Mr. NADLER. Let me ask one further question on an issue which neither of you really spoke about. One factor in competition sometimes is that one railroad may have trackage rights perhaps over a short length of track which is necessary for a different line to gain access to a community or a city in order to provide competition there.

    Under current law, is there any obligation or standard under which the first railroad can deny the second railroad access to that right of way? Do they have to give it use under fair market standards? What is the current law on that and how would it be affected, if at all, by what we are talking about?

    Mr. CANNY. Mr. Nadler, I can't tell you in detail what the current law is, but basically the trackage rights are provided through ICC proceedings when they are deemed necessary to protect the interest of competition. The most common situation that I am aware of currently is to protect short line railroads.
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    When there are abandonments of track by the major carriers, frequently short line carriers are formed to take over some of the service and, as part of those transactions, access to the national system and to the tracks of the major carriers is guaranteed.

    Mr. NADLER. How would the proposals to abolish the ICC and to move the authority to another agency affect that standard if at all?

    Mr. CANNY. Our current thinking, again, subject to putting our report out for comment, is that that standard would be retained and would be administered at DOT.

    Mr. NADLER. One further question. You mention that this is primarily with regard to short lines where existing service to a community and you are going to abandon the line or sell it to a new short line and you have to make sure there is access to the system.

    Would the same standards apply to a situation where you have two different railroads and nobody is planning to sell anything but one railroad has access to a community and that community would like to have two railroads have access to it so it can have competition? And the second railroad says, if you give us trackage rights, then we will serve the community and provide the competition.

    Mr. CANNY. I am not sure I understand——

    Mr. NADLER. The scenario is simple. Railroad one serves the community of Wichita. Railroad number two comes nearby but can't get to Wichita except over railroad number one's tracks. Wichita would like some competition and goes to railroad number two and says, why don't you serve us and provide railroad one with some competition so that we are in a position to get better rates, service. Railroad number two says, great idea; would you give us trackage rights of railroad one at whatever rate so we could provide you with competition in serving Wichita.
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    What is the law and how would that affect this, if at all?

    Mr. CANNY. I understand that the ICC can order access under certain conditions and that they do that on a very limited basis. They retain the authority.

    Mr. SHUSTER. Would the gentleman yield? It is my understanding that the ICC has no such authority. It is only limited to situations where there is a merger. That is what staff informs me.

    Mr. NADLER. And you think differently?

    Mr. CANNY. I think differently, but I don't want to dispute the chairman.

    Ms. MOLINARI. Our next panel is ICC.

    Mr. NADLER. Unfortunately, I can't stay for that panel. One question and I will be finished. Whatever that authority is, would it be changed under these proposals?

    Mr. CANNY. Not under our current thinking.

    Mr. NADLER. We will ask for clarification. Thank you.

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    [Information requested follows:]

Section 11103(a) of the Interstate Commerce Act provides that, ''The Interstate Commerce Commission may require terminal facilities, including mainline tracks for a reasonable distance outside of a be used by another carrier....'' under certain conditions. The Administrator propose no change to that provision.

    Ms. MOLINARI. Thank you.

    Mr. Kim.

    Mr. KIM. Thank you. I do have one serious concern on this then. I am afraid that this merging authority goes to DOJ, may send wrong signal to people. Right away, how can you go to DOJ without bringing my attorney with me right away so each party would have an attorney sitting down starting off in the wrong direction already and then going to interrogation.

    What is wrong with going to the DOT? Is it better to go to DOT, sit down with a practical person who has experience and deal with this without having an attorney present? How do ordinary people know that when talk about a railroad merger, I got to go to DOJ instead of DOT? It is common to go to the Department of Transportation.

    Mr. Sunshine, your statement on page 6 says a very small percentage of the merger will go to court. Then why only such a small portion would go to court? In my opinion, being handled by DOJ may increase that. Everybody will go to court. That is the reason why we have a common sense format, to avoid this kind of litigation. What is wrong with going to DOT, sit down without having an attorney present and talk this over?
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    Mr. KRUESI. Let me answer that first if I may. The reason I would like to speak first is because I am not an attorney and I am more than happy to sit down with non-attorneys at any time and discuss matters. Often a lot of things get done that way.

    The reality is that merger issues are in part an important part of legal issues which was true when the Department of Transportation was responsible for assessing, evaluating proposed mergers in airlines. The fact of the matter is, attorneys are involved in that.

    The question is, to what extent is simply attorneys involved, and the answer has been clearly that in transportation matters, that we have dealt with the Department of Justice, the appropriate legal issues have been dealt with with great skill and integrity by the Department of Justice and the transportation issues related to those have been dealt with very well, I believe, by the Department of Transportation. That should continue. There is a bifurcation of responsibilities, and that will continue.

    Mr. KIM. Mr. Kruesi, if you are an attorney, I don't know why you are working for the Department of Transportation anyway. But if you go to DOJ, you got to send a bunch of DOT people anyway to explain what this railroad is all about. If you don't have such an expert in your department, I am surprised. You have lots of attorneys there, too, including yourself.

    So I object that this is sending such a wrong message to people that right away there is a potential danger. Going to DOJ is totally different. Right away we are talking about potential litigation, and that is what we are trying to avoid.
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    Mr. SUNSHINE. I am an attorney and I too prefer to meet with non-attorneys rather than attorneys as well. But you raise a very good point and I couldn't agree with you more, that the agency that should handle railroad mergers, is the one with the experience and expertise.

    The fact of the matter is that the Department of Justice have been evaluating railroad mergers for over 20 years. The DOT does not and has not evaluated railroad mergers. In terms of merger experience, we evaluate mergers in virtually every other industry. We have a staff of both lawyers and of economists who are specially trained and skilled in the evaluation of mergers.

    The reason why so few transactions go to court is that we firmly believe that mergers can lead to important improvements in efficiencies and, because of that, it is our strong preference not to take mergers to court when they present little competitive problems or competitive problems that can be handled in a discrete, narrow, and limited way.

    Mr. KIM. Is there any way you can transfer those people to DOT——

    Mr. SUNSHINE. They would be——

    Mr. KIM. ——that would be easier?

    Mr. SUNSHINE. I think they would be misused there. They are more efficient where they are in that they can handle a number of transportation merger issues. There is considerable synergy in having all the merger authority in one place. It is not unusual. In fact, it is common practice.
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    We do banking mergers yet there are banking regulatory agencies. We do pipeline mergers, yet there is FERC. We do airline mergers, yet there is DOT. We do electric utility mergers, yet they are regulated in other places in other ways. We are the agency with the most merger experience, and that is why the administration believes we should eliminate this exception for railroads.

    Mr. KIM. I think airline mergers should be transferred also, because we have an FAA under DOT.

    Ms. MOLINARI. That is for another hearing, Mr. Kim. We will make you one promise, though; whether we merge to DOT or DOJ, we will put a statutory requirement that no lawyers can handle it.

    Mr. Rahall, who I hope is not a lawyer after that.

    Mr. RAHALL. Thank you. First, Madam Chair, I would ask unanimous consent that a letter from my Secretary of Transportation in West Virginia be made a part of the record in support of keeping the merger jurisdiction of the ICC with the Department of Transportation.

    Ms. MOLINARI. Without objection, so ordered.

    [The information follows:]

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    [Insert here.]

    Mr. RAHALL. Madam Chairwoman, I would note further from his letter that he states that keeping the merger authority within the DOT will permit more involvement by the State of West Virginia and an opportunity to participate with full standing in merger proceedings. From his perspective, DOJ proceedings are private with no public hearing.

    I would ask Mr. Kruesi or Mr. Sunshine if this criticism was taken into account in adopting your position and how you would respond to concerns of other states that there is no forum for their participation or no involvement in the policy-making procedure?

    Mr. SUNSHINE. Yes, sir. In conducting our evaluation of transactions of mergers, we solicit, obtain and seek comments, participation by every interested party. That would include customers, competitors, employees, other knowledgeable parties, and State authorities. We do this in virtually every industry. They sit down and meet with us, explain their concerns, it becomes part of the process, not to participation by public entities but it is this participation by private entities in the formal proceedings at the ICC that we think eliminates efficiencies.

    The Department can take all these considerations into effect, dialogue with relevant parties, it can talk to the merging parties, something that we do all the time to reach what we think is in the best public interest.

    Mr. RAHALL. But do the States have an opportunity to participate in that process?
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    Mr. SUNSHINE. Yes, sir, they do.

    Mr. RAHALL. But not with full standing like they do before DOT.

    Mr. SUNSHINE. We propose not to give anybody full standing other than the mergering parties and the Department, but they would be able to participate. We have frequent contact with the States, we have very close relationships with State Attorneys General who have been the central contact point for us.

    We have worked closely in particular with the States of Florida, Maryland, Maine, Minnesota, Washington and I could name others, and we get important input from the States. We have also on matters often talked to other parts of the State including Governors and other Cabinet level people in each of the States. So I think those concerns are adequately aired and accounted for in the analysis.

    Mr. RAHALL. So I guess the bottom line is the Sunshine Act does not apply to your proceedings, is that correct, Mr. Sunshine?

    Mr. SUNSHINE. I am glad you referenced my prior life. At bottom, antitrust enforcement is a law enforcement issue and we believe that law enforcement issues ought to be done in a non-politicized fashion with promoting what the law requires. In fact, it has been our experience when we have handled both railroad mergers and mergers in other contexts, that the confidentiality encourages the customers to be more honest and open with us.

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    We have looked at railroad mergers where shippers, where the people we are trying to protect here have been reluctant to go public in ICC proceedings because they know they will have to deal with these railroads after the merger. If they can proceed in confidentiality, we can get their true views.

    Once we have the views, we will say to the merging parties, we understand from a number of your customers that the following concerns are raised. How do you address those? And we get a dialogue going.

    It is not a process that works in secrecy from the merging parties. The parties understand what the issues are, what concerns us, and they understand what kind of proof is really at issue. This is a process that works, I think, well for the rest of the economy, and again, there seems to be no good reason to keep railroads separate.

    Mr. RAHALL. As you know, in any merger, there is also the question of abandonments and new rail lines are going to come up when mergers occur. Are you equipped and can you make decisions on those related issues?

    Mr. SUNSHINE. Yes, sir. I think the way it would work is if you look at a merger, you have a particular community and two or more rail lines going through that community. There may be other kinds of transportation that competes and needs to be evaluated, whether it is water transportation or trucking transportation, but we will have the question of, is that community going to be better served by having those two rail lines or having one rail line? That is the merger issue.

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    There is a separate issue about whether it just becomes economically infeasible for a railroad to continue to maintain service. That authority under the current proposal is going right to DOT under the same standards. So on the abandonment issue, I think standards haven't changed. We are just eliminating and reducing resources in how we handle those problems.

    Mr. RAHALL. Are you proposing, then, to make decisions and have authority over competitive issues and rate reasonableness, et cetera, as well?

    Mr. SUNSHINE. Not at Justice. Justice review would be limited just to mergers.

    Mr. RAHALL. Thank you.

    Ms. MOLINARI. Thank you, Mr. Rahall.

    Mr. Mica.

    Mr. MICA. Mr. Kruesi, dealing with personnel, how many folks are currently involved in this process in the Department of—well, how many people are involved in ICC and how many people do you think would be involved—is there any reduction in force? Is this part of this overall plan of downsizing?

    Mr. KRUESI. Yes, that is an element of it. There are, as I recall, 428 employees remaining in the ICC and it is substantially smaller than the 2,000 plus of a decade or so ago. Last year, as a result of the intrastate trucking regulation——
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    Mr. MICA. How many are going to go where?

    Mr. KRUESI. We anticipate that on the order of about 100 of those employees would end up in the Department of Transportation in the entire reorganization and elimination of the ICC.

    Mr. MICA. Any in DOJ?

    Mr. SUNSHINE. No, sir.

    Mr. MICA. It took ICC, I read in some of this testimony, up to 31 months to handle some of those merger cases. Mr. Sunshine, can you handle that with the folks you have?

    Mr. SUNSHINE. Yes, we can.

    Mr. MICA. So you are not taking any of these folks. So we are going to toss overboard 328 people we can save?

    Mr. KRUESI. Yes, sir.

    Mr. MICA. I am interested in some of the personal aspects.

    Mr. KRUESI. Those numbers are close.
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    Mr. MICA. What kinds of savings? Do you have a dollar amount?

    Mr. KRUESI. Not off the top of my head, but I can provide that.

    Mr. MICA. If you could, and also what obligations we incur. If you could let the committee know, I would be interested in that. We are trying to look at downsizing and are we just moving bodies away.

    Mr. KRUESI. What we will provide in our draft report will be an FTE count of each function of the ICC, where it goes, and what it is eliminated so we will have a very clear picture of that.

    [The information follows:]

    [Insert here.]

    Mr. MICA. Mr. Sunshine, one of the witnesses, Governor Florio, argues in his statement that the current statutory mandate for ICC to impose so-called labor protective conditions, that is mandatory severance and wage continuation benefits up to 6 full years, full pay to employees displaced by rail mergers should be retained and transferred to the Department of Labor.

    Has the administration taken a position or do you want to comment on what you think should be done?
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    Mr. KRUESI. That is one of the issues which is discussed in some length, will be discussed in our report. That is obviously one of the most difficult questions that we face. We do not, as an Administration, yet have a final decision on that.

    Let me give a little bit of context. This is obviously going to be a subject for another hearing for this committee because it is a very important and difficult question. If we look at labor issues, we need to recall that those kinds of provisions, the New York Dock standards, originally grew out of an agreement between labor and rail that goes back to 1936. As a practical matter, merging carriers generally seek to reach agreements with labor before their mergers go forward now. The question of what those standards ought to be, and who ought to be exercising them are ones that we will be addressing. We are not prepared yet to indicate——

    Mr. MICA. Do you have an idea when you will have those to the committee?

    Mr. KRUESI. Our final report with public comment will be back to this committee and to Congress at the end of next month. We will have a draft report issued as soon as we are able to have it cleared through OMB.

    Mr. MICA. I have additional questions and ask unanimous consent that the record be left open and that I be able to submit in writing questions to the witnesses.

    Ms. MOLINARI. Without objection. If you could also submit the answers to the record.
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    [The information follows:]

    [Insert here.]

    Ms. MOLINARI. Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Madam Chairwoman.

    Mr. Kruesi, Mr. Sunshine. Mr. Kruesi and I go back a long way in Chicago. Mr. Kruesi, you say that the ICC is not equipped for the opportunities open to us in the 21st century. What exactly is broken at the ICC that needs fixing aside from removing some of their obsolete regulatory authorities.

    I would like Mr. Sunshine to comment also.

    Mr. KRUESI. I would like to say a few things, put this in the context of the tremendous work that this Congress has done over the last 15 years in eliminating many unnecessary counterproductive economic regulatory functions. Given that and where is it is now, and what function remain, the question is, is it appropriate for those remaining powers to be exercised by an independent agency, or are they better performed, more quickly performed, and performed with a perspective of what is best for the Nation's economy, consumers, and the people of the United States as a whole, within the executive branch of Government?

    That gets into a very broad discussion of the appropriateness of having these powers exercised independently or as part of the executive branch of Government. Where we are, ultimately, is that the independent regulatory framework which has served railroads and trucking in this country for over 100 years, is fundamentally outdated and, therefore, should be abolished. Moreover, the relatively small number of functions which would be left under our proposal, and even the increasingly small number which are left now, does not justify the continuation of an independent agency.
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    Mr. LIPINSKI. Mr. Sunshine.

    Mr. SUNSHINE. I of course am limiting my comments to the merger review authority, but in keeping merger review authority at the ICC, I have two problems with that. One is procedural and one has to do with the substance. On the procedure point, I think that keeping merger authority at the ICC will cost the Federal Government more money, will cost private parties more money and it will take longer.

    Under the substantive standards, the bottom line is that mergers may end up costing consumers more money and the reason why that happens is that, to the extent you depart from strict competition standards, you are imposing additional costs on the consuming public. The public will have to pay for those through rail rates.

    The application of the standard by the Commission involves a procedure where competitors come and advance their own private interests and are sometimes accommodated as private interests. It is well understood under the antitrust laws that competitors have every incentive to block mergers that create more efficient competitors, and the reason for that is obvious. Why would a competitor want to see one of their competitors become stronger and more effective?

    So we are very suspicious when competitors say this merger is going to be bad. When competitors can cause other conditions to be imposed on a merger, they act to lessen competition, they can act to impede efficiency and the procedure that is now in place at the Commission gives these people a seat at the table.
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    Mr. LIPINSKI. You are telling me that, in your opinion, then, you don't think that the ICC has acted in behalf of the general economy of the United States?

    Mr. SUNSHINE. No, sir, I am not saying that. The Commission has a standard that it has to apply, it has a procedure that it has to follow and I think the Commission has done a good job of following what it has been mandated to do. My problem really is with the standard and the procedure and I think that the Clayton Act standard and review by the Justice Department is a better way to accomplish the public interest.

    Mr. LIPINSKI. Obviously, there is an enormous amount of interest in this entire situation. The big room here is packed this morning. It just seems to me that other than the fact that deregulation has occurred at a number of industries that the ICC was involved in, which has caused the push to do away with the ICC, the ICC still has a very, very significant role to play, I believe, in the railroad industry.

    And it has been my judgment that they have done a pretty good job dealing with the railroad industry. I believe that we are going to be making a mistake if we wind up bifurcating the authority of what was the ICC between the Justice Department and the Department of Transportation. I also think that approach would be much more streamlined, much more efficient—if you want to do away with the ICC, and I can see some good arguments to that.

    I don't know if I would choose to do that if I could make the decision or not but, nevertheless, it would seem to me it would be more efficient if you would take these duties and responsibilities of the ICC, put them into the Department of Transportation almost as an independent commission.
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    What are your feelings with regard to that? What are your opinions or don't you have any opinions with regard to that suggestion?

    Mr. KRUESI. As you know, I certainly have opinions about a lot of things and this happens to be one of those. There has been a great deal of discussion within the Administration, of looking at that model, which would basically be a FERC-like model. It would embed, within the Department of Transportation, the ICC or an ICC successor that is truly independent, so in practice it would be nothing more than a tenant within the Department of Transportation.

    Although it would appear to be a part of the Department of Transportation, in fact and in terms of its reporting authority it would be outside of the Department.

    That is, in our judgment, the worst of both worlds because, although it appears to be an executive responsibility, the decision-making authority lies outside the executive branch of government. That in our judgement would amount to a muddle of the functions and a muddle of the responsibilities. That is the concern we have with that model.

    Mr. LIPINSKI. Mr. Sunshine, do you have any opinion on that?

    Mr. SUNSHINE. Yes, I do. I believe that the merger review authority appropriately belongs in the Department of Justice. The reason is this is the agency that has the experience in doing not only general mergers——

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    Mr. LIPINSKI. Let me cut you off, Mr. Sunshine. I have heard that answer several times from you already this morning. My time is up and we have to move on. I don't mean to be rude. I will be back to you, hopefully, shortly.

    Ms. MOLINARI. Mr. Borski.

    Mr. BORSKI. No questions.

    Ms. MOLINARI. Mr. Franks.

    Mr. FRANKS. No questions at this time.

    Ms. MOLINARI. Mr. Clement.

    Mr. CLEMENT. I have other questions, but I will submit them for the record if I could get them to respond.

    Ms. MOLINARI. I appreciate that.

    [The information follows:]

    [Insert here.]


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    Ms. MOLINARI. I would like to thank this panel for their time and their participation. Thank you very much. We will be looking forward to working with you.

    Let me add, relative to the discussion of ICC's other responsibility separate and apart from mergers, this committee will be having additional hearings within the next few weeks on those other duties. We thought it would be more productive to have one hearing on mergers.

    Mr. KRUESI. We look forward to continuing that discussion.

    Ms. MOLINARI. Our next witness will be Ms. Gail McDonald, Chairman of the Interstate Commerce Commission. We have just been called for a vote, so we will run and vote. And rather than break up your testimony, Ms. McDonald, we will vote and come back.

    We ask the members to get back as quickly as possible.


    Ms. MOLINARI. We are ready to resume.

    Ms. McDonald, please begin your testimony.

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    Ms. MCDONALD. Thank you, Madam Chairman. Joining me in submitting the Commission's testimony are my colleagues Vice Chairman Linda Morgan and Commissioner J.J. Simmons. Our newest member, Commissioner Owen, had a previous commitment but was with us until a few moments ago.

    Following my brief statement, we will all be pleased to answer your questions.

    We appreciate the opportunity to discuss rail mergers, specifically what standard of review should apply and where that review should be administered. We believe that any governmental oversight of railroads, and specifically of rail mergers, affects carrier efficiency and the cost and quality of rail service.

    The current standard for reviewing proposed rail mergers must be considered in the context of rail transportation policy. It was adopted in the Staggers Rail Act of 1980. In Staggers, by streamlining regulation, the legislation fostered a restructuring that has led to a rail industry today characterized by economic growth, financial stability, and competitiveness.

    We believe that the goals of the Staggers Act continue to be very important. They also allow the Interstate Commerce Commission the ability to meet changing economic and business conditions. In recent weeks, there have been concerns raised about the time it takes for the Commission to deal with a merger.

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    After careful consideration, the Commission has voted to notice for public comment a proposal to reduce the time for reviewing mergers to 180 days or 6 months. We believe this modified time frame would continue to allow for the full public interest standard of review and preserve the open process provided under the ICA.

    Openness is an important component of the ICA procedure because it allows participation by all affected parties. The Commission's decisions are based on a public record developed through participation by all and open to review by all.

    There are other benefits to the current process. It is comprehensive and complete. It provides for one-stop shopping resolving many important matters that are part of the railroad's consolidation process. These include: line abandonments, line sales, trackage rights, new line construction, environmental review, and preemption of State and local claims. The statutorily required labor protective conditions have enabled the rail industry to implement structural changes.

    In addition, the ICA provides continuing oversight once a merger is approved. Under current law, if a merger results in unanticipated market concentration, the Commission may respond by imposing trackage rights, reviewing rates, or assuring competitive access. This oversight allows for post-merger adjustment necessary to ensure competition and to prevent any abuse of market power.

    The current approach to rail mergers has worked well. Railroads are more efficient, costs have been reduced, service has improved and rates to all shippers are down. Shippers and communities are well served by the open process. It is, therefore, our view that rail mergers should continue to be reviewed under the Interstate Commerce Act by the agency that conducts the balance of Federal rail regulation. Fragmented and splintered administration of rail economic regulation among two or more agencies would only foster inefficiency. Moreover, many of the significant advantages of the current process would be lost. In contrast, coordinated economic rail policy administered in an open process by a single independent body is reasonable and efficient government and what we believe taxpayers expect, indeed will demand.
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    Thank you, Madam Chairman, and members of the subcommittee. My colleagues and I are available to answer your questions. Also, with us is our General Counsel Henri Rush and our Director of Proceedings, David Konschnik.

    Ms. MOLINARI. Thank you.

    Mr. Shuster.

    Mr. SHUSTER. We appreciate your testimony. I am pleased to hear your announcement that you are going to apparently put in place a regulation that will require you to make a decision on mergers within 180 days and, as I understand, there is only one merger before you at this time.

    I also understand this rulemaking will take perhaps a couple of months——

    Ms. MCDONALD. It will take 30 days for us to gather the public comments, and we could supply for the record a review of those comments.

    Mr. SHUSTER. Does that mean that this new regulation will be in effect 31 days from now?

    Ms. MCDONALD. No. We would take the recommendations and do the deliberations, so I would say it would probably take us 60 days to get it into effect.
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    Mr. SHUSTER. So the outside will be 8 months that you will have made a decision on the merger which is now before you, in no longer than 8 months from now?

    Ms. MCDONALD. I was just speaking about our substituting a new regulation. The merger before us, in our order, the parties will have the choice to come in and ask for an expedited schedule under our new guidelines or they might choose to maintain the schedule which has been previously noticed and in which they both made suggestions about the lengths of time.

    Mr. SHUSTER. When would you expect your decision on the merger to be completed?

    Ms. MCDONALD. Whenever they have a full application before us we will use whichever guidelines the parties accept. At this point, though, our record is open on this question. We have indeed in the past reviewed a merger that had a competing application and other complications to it under a 185-day schedule, so using that as our model rather than a long complicated merger that has—only one in the last 14 years has taken the full 31 months—rather than using that, we have gone to one that we believe had a more realistic schedule. So we are noticing that and want the parties to tell us whether there are dangers which should make us——

    Mr. SHUSTER. Regardless of what decision we make on whether mergers should go to DOT or DOJ, I worry about the problem of a merger that is before you now and if you start over somewhere else is this further delay?
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    Ms. MCDONALD. I think it would be. To be succinct about your concern, if we adopted expedited guidelines such as we have suggested we could finish a merger by year's end.

    Mr. SHUSTER. Thank you very much.

    Ms. MOLINARI. Thank you.

    Mr. Lipinski, do you want to waive your time to Mr. Mineta?

    Mr. LIPINSKI. Yes.

    Mr. MINETA. Let me thank the Chair and Members of the Commission.

    One of the criticisms that have been leveled at the ICC in the past is the issue of taking too long during the deliberations for mergers, and I guess now the whole question is, well, should that go to the Department of Transportation in some kind of a transportation board or should this go to DOJ. My personal prejudice is that it ought to go to the DOT, because to me the Department of Transportation would be in a position to look at a lot of the transportation-relevant issues rather than just to take a look at it from a purely legal antitrust anticompetitive perspective. But one of the criticisms on the basis as to why it ought to go to DOJ is it takes too long at the ICC.

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    Is there anything that you might be able to say to shed some light on, first of all, how long has been the average length of time for a merger case; and, second, are there any actions that the ICC can take to streamline the merger review process so that it wouldn't take as much time?

    Ms. MCDONALD. Well, we will provide you a notice which gives our suggestions for streamlining.

    Essentially, they involve reducing the time for record building and reducing the time for the Commission to rule once the record is closed. So we would use more of a team management approach than we have used in the past and we have indeed—as the Commission has become a smaller place, we have adopted that for all our work.

    Clearly, merger work is our priority work at the Commission. So we would develop those in-house efficiencies. The time mergers have taken in the past, a schedule has been agreed on by the parties and noticed to the public, and so other parties have said they needed more time and we have cooperated with all the parties. So it has not been our slowness which has dragged this out. In a recent merger of the Kansas City Southern and Mid–South, we took 1 year. That is more like what we have been able to do in the last 12 years.

    Dave or Henri might have fuller stats on exactly how many have been filed and average times.

    Mr. KONSCHNIK. I would add to what the Chairman said in terms of our processing of the last three merger proposals, since the denial of the SF–SP transaction in 1986 and 1987, the average for the UP acquisition of the MKT, the Rio Grande acquisition of SP and Rio Grande Soo, which was a matter that we processed, the transaction wasn't ultimately consummated, the average of these three was 355 days, so that is just under a year.
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    Mr. MINETA. Do I also understand that even if you were to look at the process that you go through and what DOJ would go through, that the end result is still different; because if you do it there is preemption over the State's ability to bring further action at some later time, whereas with DOJ that would still be subject to State and local action?

    Now is there any way to be able to—if it does go to DOJ—to be able to have it sealed so that it won't be subject to the merger review being challenged by State or local governments?

    Ms. MORGAN. First of all, with respect to the current process under the IC Act, because it is a complete process, that is, we resolve many issues and it has a preemptive effect and obviously that completeness relates to why there is an open process because clearly if you are going to resolve a lot of matters and preempt laws, then it is important to have an open process by which all can come in and speak their mind.

    With respect to whether you could superimpose that completeness at the Justice Department, that is not how the Justice Department process works now. As a matter of fact, that lack of completeness and openness seems to be the advantage discussed now with the Justice Department process, which is not a full-blown process and it does not involve preemption of other actions or other laws. So right now you are talking about two different processes that do end up with different results, and I think the process needs to be looked at in terms of what benefits it gets you in the end.

    Mr. MINETA. So this shorter time period doesn't get us the complete record or the complete action on a given merger case, so that the time element should not be the fulcrum on which a decision ought to be made.
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    Ms. MORGAN. The way I would assess this issue is to look at the policy and then to look at whether the process is working to implement that policy. That is why rather than starting with a comparison of the processes, you should start with the underlying policy.

    Mr. MINETA. Thank you.

    Mr. SIMMONS. May I make a comment here? I would like to emphasize the fact that the 30 months is an outside figure, and the Vice Chairman was absolutely correct. I am a relic of the past. And I was there in 1985 and 1986 when we recognized during the Rio Grand acquisition of the Southern Pacific that we could get it done quicker, and that is when the 185 days came into being. We would like you to think about the 30 months as an outside thing, but we have this proposal right now before everybody for the 180 days to almost put it in concrete.

    Ms. MOLINARI. Thank you. Let me begin by thanking you for the work that you have done on behalf of the ICC. You have been Chairman of this Commission under difficult and challenging times and we thank you for the service that you have lent to this process.

    I have one question. I would ask you both if you can comment on the testimony of the administration where the basic conclusion was that moving mergers to DOJ, that by its very mission of determining anticompetitiveness or competiveness would in fact take care of all the other public good of the ICC statute, that there would be no need to move it to DOT or to redefine the statute for DOJ; yet in your testimony, Ms. McDonald, you say in your summary, an important component of the procedures for reviewing which allows participation by railroads, shippers, States, and communities.
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    Miss Morgan, your testimony that you gave in response to Mr. Mineta seems to belie what the administration was proposing relative to the effectiveness of DOJ's decision-making ability to get to your bottom line.

    Ms. MCDONALD. I would just say, and also addressing a little bit Chairman Shuster's question, by nature railroads exercise concentrated market power and the Interstate Commerce Act procedure is designed to regulate the use of that power. The Department of Justice's role, it seems to me, is to prevent concentration of market power. So what we have is a specialized standard for this industry that is tried and true and works, and it seems to me that the openness of the process is justified because so many State and local interests are involved and I certainly would not advise preemption at DOJ, because they have a closed process. It seems to me that our process works and is effective for this industry. It isn't broken. I don't know why you would fix it.

    Ms. MORGAN. I would just add that, with respect to the public interest, I think it is a question of how you define that in the law. If you look at the different laws, the law under which the Justice Department operates as compared with the Interstate Commerce Act, you are looking at different definitions in the law of public interest. The Justice Department focuses on a lessening of competition. I think the ICA talks about a balancing of efficiencies and competitive harm. That balance in the CIA stems from a policy decision that has been made with respect to the rail industry: While there is a natural market in the CIA concentration in the industry, there may be occasions when in order for growth and efficiency to occur, you may want more consolidation and concentration but then you might want to make sure that any resulting competitive harm is resolved in some way. The Interstate Commerce Act's public interest definition represents that balance.
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    Mr. SIMMONS. Chairman Molinari, Congress Mineta mentioned something about our interaction, would we be challenged in court by the States. It is evidenced by our record that not one major merger or control decision, not one, that the Commission has rendered has been reversed by the Supreme Court or the U.S. Court of Appeals since the act and I guess that is about 1975 or 1976.

    Ms. MOLINARI. Thank you. Mr. Rahall.

    Mr. RAHALL. Thank you, Madam Chairman.

    Let me express a few words of compliment to follow up on Chairwoman Molinari's comments complimenting each of you, particularly you, Chairwoman McDonald. I got a little twitch the other night when the ICC was mentioned in the State of the Union speech. I was not sure it was in the right paragraph at that particular time.

    Ms. MORGAN. Not to be confused with the Helium Reserve Program.

    Mr. SIMMONS. Or the $200 billion.

    Mr. RAHALL. I want to compliment you as a body and each in particular and your staffs for the work that you have done over the decades. I know we have had our ups and downs particularly during the Staggers deregulation a decade or so ago, but I do feel that you have served a valuable public service. You have protected the public interest in your considerations as a body, and as you crawl off into the sunset, maybe this will be near the end of your official appearance before Congress, I want to express compliments to the ICC and the work that you have done.
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    It has been alleged, although I cannot prove it, that the words ''New York Dock'' were inscribed on those stone tablets handed to Moses. It has also been alleged, although I cannot prove it, that the original draft of the Declaration of Independence read, we hold these truths to be self-evident: life, liberty, and the pursuit of New York Dock benefits.

    In the view of yourself, Chairwoman McDonald, has the New York Dock decision worked well in merger proceedings in the past and should it be retained as a labor protection standard wherever merger authority may end up in the future?

    Ms. MCDONALD. The New York Dock protections grew out of or were a further refinement of the Washington job protection agreement which labor and carriers and management agreed to voluntarily. It did not include some 10 percent of the industry and so then when Congress structured New York Dock they wanted to bring in everyone. But they based it on that private agreement that had worked. Their purpose was to allow these transactions which cause severe dislocations sometimes to take place smoothly so that management and labor could work things out. And I would say that it has done that. We have not had significant labor unrest. It is as I say—Henri may have a better history sense of it for some of the more contested ones.

    Mr. RUSH. It is easy to say that it has worked well. And it has worked well. The question you asked about the future, as a lawyer I would defer to the policy officers of the Commission.

    Mr. SIMMONS. That is hardly any good way out of this to defend the New York Dock but actually unless your an employee yourself and if you were an employee yourself where you would have severe dislocations and in the craft that you had followed, you would certainly want it. But we—this is a part of the act, and we are bound and sworn to protect it, and we do the best we can to balance the effects of New York Dock against any other labor protection we might have.
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    Ms. MORGAN. I would add that clearly labor protection is part of the policy that was arrived at when the rail industry was in financial decline, and it needed to restructure and rationalize. As part of that restructuring, it was clear that there would be employee dislocations, and it was felt that some sort of labor protective arrangement would ensure that the rationalization could occur and that the benefits of that rationalization would indeed be realized. So labor protection has a historical policy connection.

    Mr. RAHALL. Thank you. I think I heard each of you without you saying it no further questions.

    Mrs. KELLY [presiding]. Thank you. If there are no further questions—there is?

    Mr. LIPINSKI. I do. It gets a little confusing because I waived everybody else.

    To answer Mr. Rahall's question, I am not sure Moses had it on his tablets but I know some place in the Constitution I remember reading it, I think it takes four-fifths to get it out of there.

    I belatedly welcome all of you to our hearing this morning. I think all of you have done a superb job in the past and I personally wish you were going to be able to continue to do that superb job in the future, but as the Chairman of the full committee has said, he is opposed to the liquidation of the ICC but he doesn't feel like standing in front of the train getting run over this year so he is considering switching his position. Nevertheless, I would like any of you that wish to do so to comment on the benefits of the open process that the ICC uses versus the confidential process that the Justice Department uses.
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    Ms. MORGAN. I would be happy to comment on that. I think really it is a question of the interested parties and how much they know about what is going on in a particular proceeding. The Justice Department has testified that it talks to interested parties, but in the open process that we have at our agency, parties know when something is filed and then they proceed from there to file their comments. Our process is different from the process that goes on at Justice, which gets an application that is not really public and then talks to the parties. In addition, I think it is a question of how you feel about due process. These are two different processes, and the open process, I think, should make parties in many cases feel better about knowing what is going on and about being able to participate.

    Clearly, as I said before, our process ends with a very complete decision, and so the open process allows everyone who will be affected by that complete decision to come in. It is a question of which process you feel better about in terms of what the ultimate decision is.

    One other point made earlier about our process was that we get bogged down in protecting competitors—that our open process allows competitors to come in and try to slow the process down. In response, I would say that we are not in the business of protecting competitors. The Interstate Commerce Act do not direct us to protect competitors. We are to protect competition, as does the Justice Department. We also get into more of a balancing act with respect to other interests.

    Mr. RUSH. If I may add a footnote to that as the commissioner's lawyer, Commissioner Simmons indicated that since 1976 none of the consolidations approved by the Commission has been overturned in court. I have had the honor of defending many of them and the open process where everybody has an opportunity to say their piece and has a record made plainly is a very significant element of the fact that these decisions once they are made are sustainable and are sustained.
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    Mr. LIPINSKI. Anyone else?

    Ms. MCDONALD. I would say, too, that all of the interested petitioners have access to what is being asked for, to what the transaction is. As I understand the Justice Department situation, they can't even acknowledge that something is in the works. So you would have to wait and have them go out and seek out parties.

    Our record is totally open. All parties can come. There are very few unilateral groups that speak for all shippers or for all regions, and it is just important that there be notice and then there is indeed a full report at the end, that if the Commission did something malicious and not supported by precedent and a full record we could be overturned. It is there. And these decisions are just too important it seems to me not to have that full participation and that full final record.

    Mr. LIPINSKI. Thank you. Representations have been made to me about understandings or agreements that exist between labor and management that the ICC is privy to, understands, and has sort of seen to it that both parties remember these agreements and understandings that don't exist really in any particular contract. Are those representations that have been made to me true representations? Are there agreements that the labor, management, and the ICC understand and accommodate one another on?

    Mr. RUSH. We have over the past decade developed a role of overseeing the implementation of merger conditions, labor protective conditions imposed on various transactions. That typically is a process where the disagreement goes to an arbitrator and the Commission reviews the arbitrator's decision in the matter. We have developed I think a pretty good record and pretty good touch as to when to become involved in reviewing the arbitrator and when to let the arbitrator's decision stand.
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    I think the best that can be said is that these transactions have been accomplished over the past 15 years without major disruptions, and a good bit of that is the oversight of the downstream implementation of the changes necessary to accomplish the transaction. I think if that were lost it would be a major disservice.

    Mr. LIPINSKI. I agree on that. Perhaps I am not making myself totally clear. I realize my time has expired but I would like to pursue this.

    There have been representations made to me that say there are agreements between labor and management that the ICC knows about, supports, and is the broker of, and let's say the overseer that people agree with and go along and that if the ICC is done away with, there would be no one any longer to have the institutional memory of these agreements that have been made but have not been committed to paper anyplace. Are there such arrangements?

    Ms. MCDONALD. Not as I understand your question. Certainly, there are standards in the statute; there are ICC precedents, the way we have voted in court and we always encourage parties to work out disputes between them. I think our standards and our precedents encourage them to do that but it is only when it breaks down and they come to us. All of that is on the record and that is when we become personally involved as an agency.

    Mr. LIPINSKI. Thank you, and I appreciate your answering that question.

    Let me conclude by asking you, though, if there is no ICC similar to what we have now, if it goes partly to the Justice Department, partly to DOT, and there are very few employees that go along, this very valuable role that you have served between management and labor and for the good of the entire economy—can you foresee anyone in the Department of Transportation or in the Justice Department filling this vital role that you had?
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    Ms. MCDONALD. Congressman, our recommendation is that our functions, our core functions involving rail regulation and intermodal regulation need to be in an independent body and so that the strengths of our structure should be continued in some independent entity fashioned to serve whatever goals Congress wants and whatever statutory protections they wish to continue. We believe that structure is essential to wise resolution of complicated disputes.

    Ms. MORGAN. And clearly, as the statute currently stands, there would have to be some sort of imposition of labor protective agreements with respect to certain transactions. Someone would have to perform that function.

    I heard earlier, I believe, that the Justice Department didnot want to get into this area of labor protection, so I presume it would have to be taken over within the Department of Transportation in some form or another.

    Mr. LIPINSKI. Mr. Kruesi said they had not addressed that yet as far as the Department of Transportation.

    Ms. MORGAN. Yes.

    Mr. LIPINSKI. Thank you very much. Thank you, Madam Chairwoman.

    Ms. MOLINARI. Thank you for your participation in this hearing and for the work that you are doing. We look forward to working with you over the next few weeks.
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    Our next panel is Mr. Robert Krebs, Chairman and CEO of Santa Fe Pacific; Mr. James Hagen, Chairman and CEO, Consolidated Rail; Mr. John Shannon, Vice President, Norfolk Southern; the Honorable Drew Lewis, Chairman and CEO, Union Pacific.

    I would like to thank the panelists for being here with us. I would like to share with the Chairman that I think perhaps if it is all right with you for future hearings that perhaps we reverse order from time to time so that when we have people from business that we put them on straight up when participation of the committee is at a maximum, and that we ask the administration to be the wrap-up hitters. Mr. Krebs.


    Mr. KREBS. Good afternoon, Chairman Shuster, Chairwoman, I am Robert D. Krebs, Chairman of Santa Fe Railroad Company. I would like to depart from my prepared remarks.

    The Chairwoman said at the beginning of the hearing that we are not here to talk about specific mergers, and I agree with that. I think the issue is a far broader one and will affect the rail industry for decades to come. But Santa Fe does have a merger in front of the Interstate Commerce Commission, and this is a little bit awkward. I don't want to be in dutch with the Commission, plus I am afraid Commissioner Simmons might reach out and grab me here. I don't want my remarks misinterpreted. I am here to talk about the antiquated rules, laws, regulations and procedures; not the job that the Commission has done, because I think they have done a fine job.
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    Ms. MOLINARI. We will put a hold harmless clause in your testimony.

    Mr. KREBS. Thank you. I am also heartened to hear the Chairwoman of the Commission say the ICC is considering a 180 schedule. We have had our case on file since October 13. It was accepted as complete in early November and we are ready to start the first day of that 180 days tomorrow.

    I would like to say that my testimony will focus on rail mergers but I can't help but say first that the passage of the Staggers Act in 1980 really started a renaissance in the rail industry and deregulation brought about by Staggers has served shippers and the public in general very well.

    For example, over the last 10 years freight revenue per ton mile on the Nation's railroads has declined 30 percent in real terms. Rail service is improving and the reliability and speed of rail intermodal service now approaches that of the trucking industry.

    Now, everyone in the rail industry believes that it must be governed by some body when it comes to mergers who must review the anticompetitive aspects of those mergers. Santa Fe believes that the Department of Justice is the most logical candidate to review railroad mergers, even if other economic regulatory functions reside within the DOT or another agency.

    DOJ reviews mergers substantially faster than the ICC. It can often complete merger review in just a few weeks or a small number of months, and it would consider 1 year an extremely long time to spend on review of a merger, in contrast to existing ICC procedure in which months is considered an expedited—18 months is considered an expedited process. DOJ's speedier review is possible because DOJ does not conduct an adjudicative process and does not get bogged down in disputes over procedures, as the ICC does. DOJ, nevertheless, provides opportunities for all interested parties to be heard simply by meeting with the staff, not through formal proceedings. The DOJ process lends itself to focused discussion on the merits rather than lawyerly discussion of irrelevant procedures.
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    One objection that has been raised to the transfer of railroad merger review from the ICC to the DOJ is that certain economic regulatory functions of the ICC will remain necessary even if the agency itself is abolished and those functions will almost certainly reside somewhere else besides DOJ.

    But it is typical for antitrust review of regulated industries to take place at DOJ even though other agencies have responsibility for other forms of economic oversight.

    Although airline mergers were once subject to the jurisdiction of the Civil Aeronautics Board and then DOT, they are now routinely reviewed by DOJ. In the telecommunications field, rate regulation has always been the responsibility of the FCC and State public utilities commissions; yet antitrust laws enforced by the DOJ are fully applicable. Natural gas, ocean shipping, securities trading, commodities trading, and nuclear power are all subject to DOJ oversight under the antitrust laws even while the FERC, FMC, SEC, CFTC, and NRC exercise other forms of economic oversight.

    It is also rational policy to divide oversight in this manner. The DOJ has experience and expertise in merger review that is second to none. It would be far less efficient to maintain a staff at DOT experienced in dealing with rail mergers that might be on standby between transactions or inadequate when a flurry of activity occurred.

    In our view, experience has taught that a specialized agency and specialized standards are neither necessary nor desirable. The railroad industry should be treated like other industries. I am not here to quarrel with the results that the ICC has reached in prior merger cases. Rather, my concern is with the process under the Interstate Commerce Act to evaluate mergers and the devastating effects that process has on business planning. That process may have been appropriate in 1920 but times have changed, and the railroads and shippers no longer need a specialized merger process to look out for their interests. Today competition and the antitrust laws can safeguard shippers interests.
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    The ICC by law can take up to 31 months to decide a merger case. The ICC is capable of deciding cases faster than that, but even an expedited decision from the ICC takes a long time. A typical expedited ICC schedule might take 18 months or more. The process takes so long because the ICC has a formal on the record judicial-like proceeding for every merger. These type of proceedings get bogged down in procedural niceties and are bad for business and for the public we serve.

    For railroads, as for every other industry, efficiency can be achieved only if there is some predictability and only if the capital markets are allowed to function. Yet even the best of all possible railroad mergers is likely to have to run the gauntlet measured in years, not months, before the ICC will permit it to proceed. The process by which the antitrust division of the Department of Justice reviews mergers is far superior.

    In summary, the rail industry should be treated like other industries. DOJ has both the proven expertise and resources to review mergers. We at Santa Fe are willing to be held to the procompetitive standards of antitrust laws, and transferring rail merger review to DOJ will allow Congress to further reduce costs and to reduce unnecessary regulatory burdens on the rail industry. Thank you.

    Ms. MOLINARI. Thank you, Mr. Krebs.

    Mr. Hagen.

    Mr. HAGEN. Thank you, Madam Chairman. Conrail basically has one point to make. We basically would urge the repeal of the rail provisions of the Interstate Commerce Act. I think we need to rely on competition. There remains price competition in every market for every commodity and that is there to protect the shipper and the consumer. If we rely on competition for these items, the rail merger should be judged accordingly.
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    Let me show you a couple of charts that may be of interest. To the extent that the railroads were deregulated in 1980, there was a concern, of course, when the lessening of regulation came about that there would be a run up in price and therefore the competition wouldn't work.

    Here is the average U.S. rail rate. It has declined in real terms of 30 percent. These charts show, this is the rail revenue per ton in the farm commodities. These are from ICC records. We have taken all this from a public source. There it is for coal, declining sharply. You might read the bottom number—it started out at a high excess of $17 and in 1991 to 12 and a third. Food and kindred products, the same process. And lumber and wood continue to decline as well. I bring these along not to—pulp and paper, the same item. Chemicals, always a concern because of the size of the shipments, decline as well. Transportation equipment, intermodal, down sharply. And all other commodities. So when you cover the gamut, since 1980 what you have had is a rapid reduction in price. Basically that came about because of a lessening of regulation in the marketplace. So the concern that the lessening of ICC regulation is harmful, I think it is properly demonstrated here that it is not.

    There has been a rapid improvement at the same time in the rails' fortunes because now they can deal with the contracts, with customers when they need to. They can operate as any other business would in this business.

    Now, I think that the size of the marketplace is another item. The trucks carry three-fourths of the Nation's freight. We carry some portion of the remaining quarter, along with the barges. Rail revenues are 7 percent of the total U.S. transportation expenditures. An interesting statistic is the revenues of the Fortune top 10 companies exceed those of the entire rail industry. So you could pick any one of the top 10 Fortune 500s and they are bigger than our whole industry.
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    Our competitors basically are deregulated. Rates, abandonments, contracts, labor protection, separate sets of books—those rules don't apply to the people we compete with on a day-to-day basis.

    So from a merger perspective, the answer comes down to again that we probably should be judged on the same standards as everybody else, and that is competition. If we rely on competition to restrain rail rates, then competition should be the test on which rail mergers are measured.

    The antitrust laws are a primary guarantee of competition in our economy. Under the ICC merger standards, competition is just one issue that is considered and it often gets outweighed by a lot of other considerations. So I think the Justice Department is probably the place that they should exist.

    They do take into account efficiencies. They do take into account competition. It is not just a mechanical application of a formula. And they do seek out information from other parties to see how they are going to be affected.

    Plus, the time issue I think is important. Nobody wants to subject his company to a 3-year time frame or 2-year time frame. If you could decide whether it is right or it is wrong within 3 to 6 months and I think that is proper.

    So I think what we are talking about here is the repeal of rate regulation and rate merger policy are two sides of the same competitive story. So we would urge repeal of both regulation and enforcement of the antitrust laws to assure that repeal will serve the public interest. Thank you.
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    Ms. MOLINARI. Thank you, Mr. Hagen.

    Mr. Shannon.

    Mr. SHANNON. Thank you, Madam Chairman, and Members of the subcommittee. I am Jack Shannon, Executive Vice President of Norfolk Southern Corporation.

    Unlike the other very distinguished members of this panel, I am not a railroad chief executive officer. I am a lawyer, virtually all of whose career has been spent in the railroad industry, extending now over more years than I would like to remember, almost 40. A large part of that time has been devoted to working on rail mergers which have substantially impacted the eastern rail network. In the views that I express in my prepared statement, I am reflecting that perspective.

    Norfolk Southern believes the jurisdiction over rail mergers and coordinations should remain in a transportation agency rather than being transferred to the Department of Justice where the antitrust laws would govern exclusively. We have no objection to the relocation of the existing merger process in DOT, nor with shortening the timetable for handling such transactions. What must be retained, in our view, is a mechanism for approval by a transportation agency applying a broad public interest standard. This will permit continuation of the balancing of efficiency gains to shippers and to railroads against any loss to rail competition.

    We are opposed to the mechanical application of the antitrust laws to rail consolidations. If the Department of Justice had been applying normal antitrust standards to rail consolidations over the past 40 years, the American rail network we enjoy today could not have come into existence. Major mergers such as that creating today's Burlington Northern would have stopped. So would have dozens of minor consolidations. Even if DOJ did not oppose a particular coordination, the transaction could face other obstacles which are avoided by the present system of public interest review and approval.
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    The affirmative approval of the ICC or any successor is different from DOJ's passive review. Affirmative approval overrides State laws which might interfere with the evolution of a national rail network. It also is essential to assure that necessary implementing agreements are reached with labor, while at the same time protecting the interest of railroad employees.

    As a practical matter, we believe that the process of rationalization would be impaired in the absence of the legislative override permitting the accomplishment of implementing agreements through arbitration.

    Mr. SHANNON. In short, broad public interest merger jurisdiction by an agency with transportation expertise has permitted the successful evolution of today's rail structure, its continuation will permit future evolution. The process has worked. It is not broken. It does not need to be fixed. It needs to be preserved in any restructuring of the functions of the Interstate Commerce Commission.

    Thank you.

    Ms. MOLINARI. Thank you very much, Mr. Shannon.

    Mr. Lewis.

    Mr. LEWIS. Thank you. My name is Drew Lewis. I am Chairman of Union Pacific.
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    First, I have to say it is great to see a committee on railroads. It is long overdue.

    Before beginning, I would like to comment on what is going on in the railroad industry today. As you know, Burlington Northern and the Union Pacific are vying for the Santa Fe. As you consider the question before us today, I ask that you set this issue aside. How we view mergers in the future is far more important than this current issue. That happens to be the only item that I will concur with Mr. Krebs on today.

    Ms. MOLINARI. It is why we seated you on opposite ends of the table.

    Mr. LEWIS. I believe the merger policies should be retained at the Department of Transportation. I reach that conclusion by just basically looking at the industry in terms of its present context. Most industries grow through plant and product expansion. The railroad industry fundamentally grows through acquisitions. There will be no more railroads built, spurs, short lines; doubling up a track, yes; Union Pacific's and Conrail's, no.

    For example, the Union Pacific presently has a book value of about $5 billion. To duplicate our 17,500 miles of system would cost $40 billion today. Obviously, with current profit margins, railroads cannot be built.

    If we accept that mergers are the mode of growth, there must be a way to recognize shipper needs, the public needs, our national economic needs, and labor needs. None of these are considered at the Department of Transportation. The sole criteria is lack of competition. None of the basic public interest criteria are served in the Department of Justice, and, therefore, I recommend we retain this responsibility at the Department of Transportation.
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    If national transportation policy rests presently in the Department of Transportation, I believe also should mergers.

    Second, I think we have to have preemption. We have not really discussed that much here today. But without Federal preemption, we could and would be subject with a myriad of State laws. Anyone could sue us objecting to competition; States could create financial and other obstacles. We would have to negotiate virtually hundreds of contracts with our 13 labor unions throughout the railroad industry, and that would be negotiated under the Railroad Labor Act. This is drawn out, it is highly difficult, both for the managements and for the unions.

    Without preemption, the benefits of a merger might never occur even with Justice Department approval. Further, no appeal can be made at the Justice Department where in the ICC you can appeal to the Court of Appeals.

    The Department of Transportation and the ICC have worked this track and logically are better prepared to deal with it. The bottom line is if it is broke, fix it; reduce budgets, tighten the time span as recommended by the ICC. But let those familiar with transportation policy set transportation policy. A merger of railroads requires policy considerations, not just the normal merger criteria.

    If you determine to leave preemption and public interest with the Department of Transportation, why confuse the decision-making the process through split responsibilities. I have spent some time in Washington and I know it is difficult even operating one department. When you deal with three, it is virtually impossible.
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    And, furthermore, why transfer labor to even another agency? Split responsibility leads to chaos.

    Thank you.

    Ms. MOLINARI. Thank you, Mr. Lewis.

    Mr. Shuster.

    Mr. SHUSTER. Thank you very much. We certainly appreciate all your testimony.

    I am very much interested in this question of preemption, and I would very much like to hear what Mr. Krebs and Mr. Hagen have to say, what their response is to the preemption problem that presumably would exist if this goes over to DOJ.

    Mr. HAGEN. I think wherever you go, you probably ought to have preemption. Because, for example, most of the rail hauls are relatively long and involve interstate commerce, just as a matter of course.

    So virtually all the traffic that we handle basically goes in an interstate commerce. So I think you are really talking about the needs for preemption whichever way you go.

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    Mr. KREBS. I would agree with that. It is, in fact, the second thing Mr. Lewis and I agree upon; and I don't think it is inconsistent with sending our mergers over to DOJ.

    Mr. SHUSTER. What then about the fact that at the ICC you have a more open process, whereas you have a less public process at the Department of Justice?

    Mr. KREBS. Well, if I may respond to that first, Mr. Chairman.

    The ICC process is both opened and closed. After having participated in it several times, the biggest problem I have with it is there is no way to know what is going on in the minds of the people who are going to make the decision until that fateful day when you walk into hearing room A or B and sit in the front row and get a vote.

    That is why I think—and that is because of the judicial nature of the process. I think that the DOJ process is much better because everybody, including the participants themselves in the proposed merger, get to go in, say what their views are, hear what the people who are going to make the decision are thinking, listen to concerns that they have and address those concerns as part of the process, not hear about them at the end of the process.

    The DOJ process, to me, is the ideal way of deciding whether or not a merger should be approved.

    Mr. LEWIS. I would like to comment that there is no reason you cannot have the process open to the ICC ex parte and things of that type can be eliminated. If we are really trying to just save money and reduce the regulation, which I agree with Jim Hagen on, we can certainly take the present system we have and make it work. It is really a matter of timing and preemption, I believe, and it should remain with the Department of Transportation.
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    I was amazed when the Justice Department testified and said it would require no more people in the Justice Department if they had to handle mergers. If that is the case, you should tell your colleagues on the Judiciary Committee there must be some overstaffing presently at the Justice Department.

    Mr. SHUSTER. I mentioned earlier today that there are really three alternatives here. One is keep it at the Department of Transportation; two, put it with the Department of Justice; or, three, is if this committee were to decide it should go to the Department of Justice, would it make any sense to that that the existing docket goes on a temporary—goes to the Department of Transportation with members, some members of the ICC or indeed we keep the ICC until the question before us is resolved and all future mergers then go to DOJ.

    Mr. KREBS. If I may respond to that, too, since I am involved. I am comfortable with whatever you feel is the right thing to do. Any merger that I would bring to a regulatory agency, whether it be the ICC, DOT or DOJ, I will write it there and I will be comfortable that it can be approved because it is competitive and the right thing to do.

    All I do not want to do is be put on hold in the middle of whatever transition goes on. I want the mergering process to be sped up not slowed down while we wait to figure what is happening.

    That is the biggest concern I have.

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    Mr. SHUSTER. Thank you very much. Thank you.

    Ms. MOLINARI. I am going to yield my question time because, as you can hear, we are going to have a quorum call and then have at least one vote, so I do want to, before I relinquish my time to the minority side, thank the gentlemen before us for their time, for their experience, and just like to let you know that we will be in contact with you with some follow-up questions and follow-up recommendations, but rather than keep you here at a certain point when I dissolve this—but let me yield to—you are yielding to Mr. Clement.

    Mr. CLEMENT. Thank you, Madam Chairman. It is a pleasure having all of you here and I for one, like Mr. Lewis said, am pleased you are all in the Transportation Committee now rather than Energy and Commerce. I, for one, have been working on it for 7 long years. I didn't know we had to change party majorities in order for that to be accomplished, but I am sure pleased it happened.

    But I know Chairman Shuster and Mr. Lipinski and my other colleagues here who have worked on it even longer than I have and I am pleased it has happened.

    This is a question for all of you. What would be the effect on labor relations if ICC-mandated labor protection provisions were abolished?

    Mr. HAGEN. Not working on any mergers right now, perhaps I should answer that. In my view, it would be a negotiation. We negotiate everything else that we do and we would sit down and come to an agreement with our people.

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    As Drew said, that is not an easy thing to do because we are talking about a significant number of labor unions, but I think it could be done.

    Mr. LEWIS. I concur with that.

    Mr. CLEMENT. Mr. Hagen, and Mr. Krebs, you are quite familiar with the process of labor bargaining in the railroad industry. If the ICC were not able to mandate labor protection provisions when mergers take place, how long do you think it would take to work out the needed changes and contracts with all the unions involved in a merger.

    Mr. HAGEN. As you allude to there, the Railroad Labor Act does have numerous steps, but I think that oftentimes, in local arrangements on our railroads, we work out a myriad of proposals and oftentimes we carry them to arbitration. So that if we would both agree, then we could take some arbitration and get it done in some reasonable time.

    Mr. LEWIS. Excuse me. I must have misunderstood your question. I do not agree with Mr. Hagen. I think if they do not mandate, we will end up with 6 months, a year-and-a-half of negotiations and the whole mess will be bottled up.

    Mr. CLEMENT. Okay.

    Mr. LEWIS. I misinterpreted what you had asked.

    Mr. CLEMENT. Thank you.

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    Mr. KREBS. The first thing I would say is the decision to move merger responsibility to another agency, whatever that agency is, does not really have to be made in the same way a decision regarding labor protection or labor conditions go. That could still be in the Department of Transportation or could go to the Department of Transportation. I think there is a lot that needs to be considered there.

    I will say this, that when there are procedures or laws that allow things to drag on, they usually drag on. When things have to be done in a hurry, they get done in a hurry, and sometimes that is the most effective way for things to happen.

    Mr. CLEMENT. My last question.

    Mr. Lewis, Mr. Shannon, you advocate an independent board at DOT. What is the practical difference between that and just keeping the ICC the way it is or stripping away some of its unneeded functions?

    Mr. LEWIS. First of all, a lot of the function in the ICC, I assume, will be eliminated as Mr. Hagen proposed in his testimony.

    Second, I think by shortening the time span and eliminating staff and perhaps reducing the number of commissioners from five to three, you will get considerable savings. And I believe it could not be in the Department of Transportation with a wall around it at considerably reduced cost and still protect the shippers and the public.

    Mr. SHANNON. We basically concur in that. These functions could be continued at the ICC under greatly reduced regulation, much shortened timetables, but we would be quite comfortable with the transfer of those functions over to DOT, to an independent agency.
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    Mr. CLEMENT. Thank you, panel.

    Thank you, Madam Chairman.

    Ms. MOLINARI. Mr. Rahall, very quickly because I would like to dismiss this panel.

    Mr. RAHALL. I will be quick, Madam Chair. I do not have a specific question, but I want to commend each of you for your testimony and realizing the situation out in the real world, the perspective from which you come on the merger question is understood.

    I would like to make an observation and I do want to commend the distinguished panel with respect to the major issue of importance to my district. It was touched upon by a couple of you and that is the issue of coal rates. I have received very few complaints of late from either producers or utilities and I think as you have shown, Mr. Shannon, in your testimony and graphically illustrated, coal rates are going down and I certainly appreciate that.

    I want to especially commend you also, Mr. Shannon, for being so effective to date in helping us keep western coal out of our eastern markets, as well. And although Conrail does not have a big presence in southern West Virginia, I do want to say the same for you as well, Mr. Hagen.

    Mr. HAGEN. Thank you.
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    Mr. RAHALL. While coal rates are at a competitive level today, I observe they would not be that way if not for the ICC's coal rate guidelines being in place as well as the Staggers Rail Act protections for captive coal shippers. These, in my view, are items which must be preserved in any transfer of ICC jurisdiction or responsibilities to any other federal agency. I commend the panel.

    Thank you, Madam Chair.

    Ms. MOLINARI. Thank you, Mr. Rahall.

    To the panel, I want to thank you again for your patience and inputs.

    To our Members, this is a very serious question that we are contemplating that affects a regulation and the Nation, and if the Members so desire, we would like to have the gentlemen before us back as perhaps our only panel if we feel that there are other issues we would like to explore with them at a time that would be more efficient for them and for us. So I do want to thank you for all the inputs you have given us.

    I want to also remind our industry, labor and shipper witnesses, we truly do welcome the submission of additional written materials for the record including the views of the rail carriers and shippers who were unable to appear here today.

    Thank you, and to our two remaining witnesses we do apologize, although I am sure Chairman Florio has a greater appreciation for the lack of control that we have over the votes that are being called.
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    Thank you.


    Ms. MOLINARI. Convene the committee back to order and see if we can move this process along.

    Like to introduce the Chairman of the Safe Transit in Rail Transportation, the Honorable James Florio, who, as I understand it, used to chair this similar committee in Energy and Commerce.

    Mr. FLORIO. Down the hall, Madam Chairwoman, yes, that is true.

    Ms. MOLINARI. So, my goodness, we will have to make sure any advice you have you please submit for the record for the chairwoman. We would like to welcome you and thank you again for your patience and for your participation this afternoon now and would you please introduce the gentlemen that are with you and proceed.


    Mr. FLORIO. Well, thank you very much Madam Chairman, Members of the subcommittee. I am pleased to be here to be able to discuss rail mergers, a subject that is important to the future of transportation, rail transportation, particularly in this Nation. As you indicated, I am representing an organization, START, Safe Transit and Rail Transportation, a coalition that has come together to try to preserve effective rail and transit service in this Nation.
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    With me, to my left, is Ed Wytkind, who is Executive Director of the AFL–CIO Transportation Trades Department; and someone who I know the committee knows, Bill Mahoney, counsel to START.

    Madam Chairperson, I am really extremely enthusiastic about what it is that we are all doing here; trying to make sure that we have a good transportation system, and certainly a very important rail transportation system. And as we face the future for rail transportation, it is important to understand what it is we have gone through to get the point we are currently at, of having a very good rail transportation system. It has taken an awful lot of hard work and an awful lot of sacrifice by all who are involved in this issue, and the employees, of course, are deserving as well as some of the recognition in this success that we have had.

    Just a few decades ago we had a rail system that was literally falling apart. There was an new bankruptcy every year. It was crisis after crisis. I can remember reading about standing derailments; trains falling off the track from a position of not moving. That was an indication of how dilapidated the rail system had become. Management, labor and many others have worked very hard to overcome the problems facing the industry.

    What I want to do is talk to you about the subject you have asked us to speak about, eliminating the ICC and shifting its functions elsewhere. If there is to be change, which appears to be the way, it is important for us to evaluate the functions that the agency performs and then make sure those functions are strategically placed so as to be able to be fulfilled so we can determine what type of rail and transportation system we want to have in this Nation.
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    We have to make sure that there is someone, some agency, some body, that is going to make sure that we have a transportation system that makes sense, that is a very important, dynamic part of our economy, and, most importantly, one that is safe and that is secure for the future.

    Currently the major responsibility of the commission is in the area of railroad consolidation through mergers and stock control. We have proceeded, as you know, from a period in the 1950s with over 40 large and medium-sized railroads to effectively seven mega railroads today. As we heard from the previous panel, there are discussions going on to try to merge some of these seven railroads. That, inevitably, I believe, will trigger additional defensive merger discussions, perhaps further concentrating economic power in this industry.

    Decisions made about the transportation system, including rail mergers, seriously affect the public interest. And I was pleased to see the chairwoman talk about preserving the concept of the public interest is extremely important and goes to the heart of this whole concept of where it is we are putting this responsibility.

    The public interest entails the potential for communities losing service, destroying economies, causing great hardships to our citizens in the form of lost jobs. Customers who have made substantial capital investments based on rail service can suddenly find themselves disadvantaged as a result of these activities; and competitors providing vital service can find themselves threatened.

    As an aside, I just want to observe that I heard someone this morning say they were not concerned about preserving competitors, they were concerned about preserving competition. I have never heard of competition without competitors. So it is something that one has to focus upon.
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    Another element of the public interest to be considered is the fate of railroad employees. In the mid–1950s, as you know, there were over a million employees. By 1980, it has been reduced to 480,000 employees. Today it stands at approximately 250,000. Yet the railroads have carried more freight to greater profits than at any other time in its history, since the latter part of the last century.

    The loss of jobs in the rail industry has resulted primarily from several large railroad mergers that have occurred since 1957. Each merger has permitted the elimination of duplicate facilities, offices, lines, shops. In other words, major savings were realized, in some respects at the expense of workers.

    Early on, the commission saw the justice of requiring the railroads to share temporarily some of their permanent savings in those mergers with those who had provided them with the opportunity to affect those savings: the employees. The commission concluded that it had the authority from the Congress under the Interstate Commerce Act, to protect employee interests and adopt a formula for protecting those interests under the provisions of an industry agreement that that had previously been agreed to as well.

    With the support of the rail industry, the Congress reaffirmed the importance of protecting employees in the 4 ''R'' Act of 1976 and the Staggers Act of 1980. The purpose of the protection is threefold: it provides a partial temporary sharing of permanent savings of railroads, authorized to achieve by the Congress, that it made at the expense, in part, of the employees; it promotes efficiency and promotes employee morale, which lessens the possibility of interruptions to rail operations, as recognized by the Supreme Court; and, most significantly, in some respects, from the interest of the rail industry, it is designed to preserve for the railroads a force of skilled personnel who will return to the railroads as attrition occurs, as it does. And this is something that is very important to the well-being of the industry.
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    I am sure, as you have heard, as I have heard over the years, there are interesting anecdotes about people who sit around for years and years and years, not doing anything, earning payments. Madam Chairperson, I would just indicate to you this is largely mythology. In reality, the protections are based upon employee attrition in the industry. When averaged, over 10 percent of railroad jobs turn over each year.

    Employees who lose their jobs have seniority to come back and take the job when it is open. If they fail to do that, they have no protection whatsoever. The formulas imposed by the commission place very stringent obligations upon the employees. No one can just sit back and receive annual or monthly allowances for protracted periods of time.

    The commission has also imposed a whole series of conditions that the employees are required to adhere to if they are to remain eligible for the benefits and the protections that they have. These provisions have been part of the working conditions of every railroad employee in this country for over 60 years. First by contract and then by law and contract. They have been found to be fair and equitable by both management and labor and have repeatedly been enacted into law by the Congress. The commission has adopted them and the courts have upheld them as well.

    Let me conclude by saying that whatever the decision about where the authority to review railroad mergers should rest ultimately is determined to be, there is a need for this committee and for the Congress to remember the concept of the public interest, and that it should not be forgotten, and that interest includes the well-being of the employees, as the Supreme Court has said on more than one occasion.
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    The authority for determining the protections to be afforded employees in mergers, control cases and other cases, now within the jurisdiction of the commission, we believe, should reside with the Secretary of Labor when that allocation of responsibility is finally determined. The Secretary of Labor, and the Labor Department of course, has over 30 years of experience in considering the interests of employees in these kinds of issues. In addition, the Secretary of Labor also has in his department an experienced staff, similarly very familiar with the applications of these types of considerations.

    I would just, in final conclusion, say that we have had great success in this Nation with the railroad industry over the last number of years. I was involved in the Staggers Act when it was enacted into law. As I think you all know, the railroad industry is at a peak at this point. There is great prosperity, and that has come in large measure as a result of some of the employee sacrifices they have made. They have given up, in some instances, salary increases that were due in coming to them.

    Even in Amtrak. Amtrak has gone from a point in 1983 of getting 53 percent of its operating cost out of the fare box to a point now where it gets 80 percent of its operating costs out of the fare box. Great productivity.

    So I would just ask that when this subcommittee and the committee in the Congress make their determinations as to how this whole issue will, in fact, finalize itself, that there be appropriate sensitivity given to the sacrifices and the contributions to productivity that rail labor has made.

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    Ms. MOLINARI. Thank you very much, Governor, for your historical background and your insights today. We do appreciate that. I will yield my initial questioning to Congressman Franks, who is on a tighter schedule than I.

    Mr. FRANKS. Madam Chair, thank you very much.

    Governor, welcome.

    Mr. FLORIO. Thank you very much.

    Mr. FRANKS. Governor, maybe you can help me understand some of these issues a bit better. I agree with the chair that your testimony spoke very effectively to the legislative and judicial history concerning the regulation of railway employment.

    My question, I guess, is a broader one. It seeks to find out more about why this type of congressional action to affect the marketplace as it relates to the employment within the railway system is sufficiently unique to justify congressional intervention. You and I have witnessed our home State of New Jersey go through some important structural changes over the course of the last 20 years in terms of its economic outlook and its employment profile, and we have seen a great deal of dislocation inflicted on a variety of aspects of our economy at home. We have seen factory workers, and in some cases schoolteachers and a host of professions adversely impacted. We have also seen other sectors of the economy grow.

    But there has been unquestioned dislocation. The Congress has not seen fit to intervene to offer statutory protection for other elements of the employment component that have been adversely affected, and I do know that there are golden parachutes made available in the private sector, but that is really not at the direct initiative of the Congress.
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    I am just wondering, as schoolteachers and factory workers are listening to us today, are they less entitled to statutory protection from the Congress than railway workers?

    Mr. FLORIO. In some respects one cannot separate the historic background as to how we have gotten to where we have gotten in this area. It seems to me the burden rests on those who would change what is a process that has resulted in us having the most productive rail industry, probably in the history of this Nation at this point in time.

    I would also offer to you perhaps a somewhat unusual perspective: the fact that the rail industry benefits dramatically from this type of a process that we have, not only in terms of the points that I made earlier, about having a reservoir of skilled workers who would not be available when called back, because there are not a lot of ability for some specialized rail workers to go off and preserve the same skills they have in other areas.

    The previous panel made a little reference to the fact that—and I am not sure they put it quite this way—but there was the implication that if this whole system was changed in order to facilitate mergers, as some would like to do in the future, you are going to have to undo the system that you have now. You would start with a whole series of new contracts having to be negotiated to deal with the questions that are fairly well understood and have been finalized in the past. So there would be disruption in an area when there is no need for disruption, particularly when we see productivity being enhanced, when we see people negotiating outside the context of the system that is in place.

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    Private companies negotiate with the unions. We are seeing Amtrak—I will be testifying in a little while over in the other body talking about Amtrak, saying, fine, if we want Amtrak to work like a business, let us have it with negotiations going on. Everyone is pleased to do that.

    So in some respects we have a system that is one that is working and what we want to do is to make sure that we treat the workers with some fairness.

    Mr. FRANKS. I think that is an interesting answer, Governor. I guess my concern is that what seems to be most unique about this particular element of our economy receiving the treatment that it does is historic. It has historically received this unique form of treatment. But I am not sure that in and of itself answers the question as to why that type of statutory scheme is most appropriate today.

    I concur that collective bargaining here needs to be a key component of any change. Certainly when major industries across this country are downsizing, there are oftentimes attendant agreements made between union and management about any number of issues that affect the reduction in force that take place. But, again, this is the most remarkable set of what are called protections I have ever seen coming from the Congress.

    Mr. FLORIO. I see the red light is on, but if I might respond. This is not ancient history. In 1980, all the things that everyone raved about as providing to the industry the ability to go out there and be productive and flexible and do well were incorporated into the same law; part of the same effort that will provide for this treatment for employees.

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    It is a little difficult to say that the agreements that have allowed the industry to do so well are now going to, in a sense, unilaterally be changed, with one component being pulled out and the other component, which no one is advocating be undone, the rate flexibility and all the other benefits that the industry benefitted from. It seems to me that this was an agreement and this was something that was thought through in great detail as to how to strike the appropriate public interest balance.

    Mr. FRANKS. Madam Chair, I see the red light is on.

    All I would like to do, through the rest of this hearing, is to perhaps ascertain whether or not the industry has done so well because of the actions that are the subject of our discussion here today.

    Thank you very much.

    Ms. MOLINARI. Thank you, Mr. Franks. And I guess I would follow up, too, with an equal concern that says—well, let me turn that around to say because the industry has done so well, and there is true competitiveness in the industry, is the government-defined benefit package, as defined now, still necessary?

    Mr. FLORIO. In some respect, Madam Chair, the answer has to be yes. In large measure because the stability that has been preserved in the industry all came as a result of the package. We are also talking about the fact that what we want to do is to make sure—interestingly enough, the industry is hiring now.

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    The industry is capable of hiring now in large measure because there has been the preservation of employees with, in some instances, skilled trades, skilled talents that would not have been there in the past if there had just been people being turned loose with the obvious need to go do things to keep their lives together.

    So I think you can say that now that the industry is doing very well, they are having brought home to them the awareness and the significance of being able to have preserved this base of workers.

    Ms. MOLINARI. And I understand that. I guess I follow up with some of the concerns that Mr. Franks had that would say that I think, clearly, we should not do that for the airline industry and for the bus industry and for the teaching industry, and that the government should not get involved in all contract negotiations so that any time there is a change in the economic conditions of a certain business upon which the livelihood of America depends, that government should intervene and declare a benefits package.

    Mr. FLORIO. Let me, if I could, defer to Mr. Mahoney for a moment on the history.

    Mr. MAHONEY. Madam Chair and Members, the protections do not go into effect any time there is a change. There are very specifically limited instances in which these protections become effective, and they have worked well for many years. And it seems if you, as the Governor was saying a moment ago, if you withdraw them, all of the contracts that are now in place will remain in place, and under the Railway Labor Act they cannot be changed, and employees cannot be shifted from one railroad to another or even from one seniority district to another, so they will have to negotiate and renegotiate all of these agreements.
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    If it comes down to protection, that is the actual compensation that the employees get if they are laid off, if that is just wiped out, and we say that is the end and we say go negotiate, well, the problem is we did used to negotiate these agreements all the time. We had, from 1957 to 1972, we had about eight or nine major mergers, all with agreements. They were still negotiating up until 1983. And in late 1983 the commission said we can supersede the Railway Labor Act; you do not have to negotiate anymore with these unions. So there has been very little negotiation.

    But if it was wiped out, and we could negotiate—and we had the right to strike, which is the only weapon you have, otherwise, you have no bargaining power at the table. Fine, we could now strike; we could negotiate. The employees would get nothing if this is taken away.

    But, at the same time, the management, if it was all taken away—if you are going to take away some of it, take away all of it. If it was all taken away, including the commission's position that they can supersede the Railway Labor Act, then this would go on for quite a while under negotiating the changes in the collective bargaining agreement to allow these mergers to go forward.

    Ms. MOLINARI. Thank you very much, Mr. Mahoney.

    Mr. Mineta.

    Mr. MINETA. Thank you very, very much.
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    Governor, I appreciate your testimony. Your experience here was—you were Mr. Railroads after Mr. Staggers left. Let me ask you—in your testimony, say that the labor protection portion of it should go to the Department of Labor. If you look at ICC and what they have done—let's take something like the Burlington Northern–Santa Fe merger that is taking place right now—is there any way to say how much longer or how long it would take, in terms of looking at the labor piece of that merger, at the ICC versus the Department of Labor?

    Mr. FLORIO. Well, I think in some respects we are addressing the labor piece. The subject today is largely mergers, and the discussion, up to this point of this panel, has been the Department of Transportation versus Justice Department. Now, again, all of this is very confusing. There are no definitive answers.

    The only thing I would throw into the mix, and you mentioned two particular railroads that are competing now, you would have to, if you got rid of this whole concept of labor protection, you would probably have to start negotiating—the suitor railroad, and the two railroads that would be coming together in any merger, would have to start all over negotiating how the employees on one would interact with the other line.

    Anyone who is interested in facilitating mergers, it seems to me, is not going to open that whole can of worms because it is just going to have the process that protracted. What I meant when we were talking about the labor protection piece of this, that is the only place where there is some expertise. So separate and apart on the actual merger itself, it seems that the discussion is going to be between DOT and the Justice Department.

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    But wherever it falls between those two overall, the labor component of labor protection, all the other concerns that labor is involved with, in some respects, as well as how it impacts upon the merger, ought to be under the jurisdiction of somebody who understands a little bit about this whole thing. That ought to be the Department of Labor.

    Mr. MINETA. There is also an assumption that what exists in present law would be incorporated into what might come about.

    Mr. FLORIO. That is an assumption, but some of the witnesses today, and I have read some of the testimony, that there are some who are advocating that that not be the case. There are some who are advocating that the Justice Department not even pay attention to the history; that they use their normal merger guidelines.

    I would find that very unfortunate. We ought to incorporate—I have no difficulty with modernizing, periodically looking at and reviewing and upgrading, but you do not throw out the whole history. The history has gotten us to a point, and, therefore, there is some rationale behind it. So I would hope the ICC's body of law, in most of these areas if not all of them, ought to be incorporated into the implementing agency, whatever the implementing agency is.

    Mr. MINETA. One of my greatest regrets was that I helped author the labor protection provision in the Aviation Deregulation Act and that we never got the rules and regulations to implement that. I personally have agonized over that over a long period of time when I look at what has happened to the airline industry. And sitting to your right is one of the great giants in that whole field, Mr. Mahoney.

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    Mr. FLORIO. This is not the place, obviously, to take on the whole debate that the chairperson raised as to whether we should go the other way in this instance, but I am sure there are folks who will make that argument.

    Mr. MINETA. My point is it is going to be opened up. And I think there is going to have to be a lot of work done to educate this committee as well as this Congress about why, even though it is historical, it is important. Because as I look at the aviation industry, and having been one of the prime pushers of the Aviation Deregulation Act, and having never seen that LPP put into place, it is one of the biggest things I have regretted about aviation deregulation.

    Thank you very much, Governor.

    Thank you very much, Madam Chairwoman.

    Ms. MOLINARI. Thank you Mr. Mineta.

    Mr. Shuster.

    Mr. SHUSTER. I simply want to say hello to my old friend, Governor Florio. Good to see you, Jim. We have fought many battles together.

    Mr. FLORIO. Good to see you. Thank you.

    Ms. MOLINARI. Thank you. Mr. Mineta wanted a clarification as to whether you fought for or against each other.
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    Mr. SHUSTER. Let me clarify that. We stood shoulder to shoulder together on many, many rail issues, and if I live to be 100, I will never forget the coal slurry pipeline.

    Mr. FLORIO. We have previously also conducted some battles together to preserve Altoona.

    Ms. MOLINARI. The coal slurry pipeline sends shivers up my spine from my predecessor in Congress and the position he had on that issue.

    Mr. Rahall.

    Mr. RAHALL. Thank you, Madam Chairwoman.

    Governor, it is good to see you again today. I recall some of our battles together, as well. I recall the coal slurry battles and my twice-a-year amendment on labor protections to every coal slurry bill that was going through here. I also recall the Staggers Rail Act and our battles there, our differences, perhaps, on how best to protect captive shippers of bulk commodities—that is, coal. And while we ended up finally agreeing on a resolution of that issue, we never disagreed on labor protection provisions, and I commend you for your efforts on behalf of the working men and women, and I thank you for your testimony here today.

    Mr. FLORIO. I just cannot help but note parenthetically that one of the charts about the well-being of coal producers as they ship their products over, tends to vindicate what some argued on behalf of the Staggers Act with regard to the coal shipping industry. So I am pleased that it has all worked out reasonably well as far as the people that you always stood for very strongly.
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    Mr. RAHALL. I appreciate that. And as I said earlier, I don't believe it would have had happened if we had not had the rate guidelines set down in the ICC. Thank you.

    Mr. FLORIO. Thank you.

    Ms. MOLINARI. Thank you, Mr. Rahall.

    Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Madam Chairwoman. I cannot say I have engaged in any great battles with the Governor. The only thing I can really say is what I said to him this morning, that when I was a young freshman on this committee I, frankly, always got confused between the two Italians from over east there, your father and him. I could never keep it straight which was the Democrat and which was the Republican. And I could never really understand why a fellow with a name like Molinari ever wanted to be a Republican either. But that is another story for another day.

    It sounds to me like we were talking about, when we came up with all these agreements for the railroad industry back a decade or so ago, that we were really working on what a lot of people think of as a dirty world, an industrial policy. Some people today call it the economic strategy, where we have government and management and labor get together for everyone's benefit and for the benefit of the general economy.

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    It seems to me that what you put together at that time has worked out extremely well, because just today Conrail announced their profits for the last year are $324 million. That is a nice little profit for the shareholders. Obviously, that railroad is doing extremely well. I would assume that the other six are at least in the ballpark, along with Conrail, although I do not have those figures.

    So I like the idea of what I will call an economic strategy or an industrial policy that you put together a decade or so ago. It would be nice if we could have done that for the aviation industry and also for the trucking industry.

    There is a lot of talk here about the 6-year provision that labor has in regards to the railroad industry. I would like one of you to explain to this panel, and anyone else here that is interested, exactly what this 6-year salary protection really is, and also how it came about. I think it is important for this committee to know the exact history of that situation.

    So any one of you that wish to take it upon yourself to do so——

    Mr. FLORIO. I will ask Mr. Mahoney to briefly give you the history, because it would take the afternoon.

    Mr. LIPINSKI. We do not want it to take the afternoon.

    Mr. FLORIO. We will not do that.

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    Mr. LIPINSKI. Because we have one more panel and we have a vote coming up soon, so we want to get through this panel and the next panel before the next vote.

    Mr. MAHONEY. I will do this in a nutshell. Over-simplistically, but first of all, the idea of the protection was based on—the length of the protection was based on the attrition rates in the industry. And in 1971, when the protection period was extended to 6 years, it was done at the behest of—by design—by Secretary Hodgson, who was under President Ford. And he decided on this time because he had made a study of attrition in the industry and he told the Congress in those days, in the hearings in those days, that at that time it was about 8 percent, he found.

    And that seemed to be the proper time that when someone was hurt, by the time that period finished they should be back, through attrition, to the jobs that they used to have. Most of them probably before that, but that was the outside. And that was primarily why that time frame was put on it.

    It has been that way ever since the beginning. The whole idea of the protection is to keep the force in being somewhere, somehow, so that they can recall them when they need them. Because those skills are sometimes hard to learn and they are not salable anywhere else, many of them. Some of them are, laborers are, but not skilled signalmen and engineers and that sort of thing, they are not. And that is really why we have that period.

    Mr. LIPINSKI. Thank you, Mr. Mahoney.

    Mr. Mahoney, I would appreciate it if you would give us the long version of this in writing.
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    Mr. MAHONEY. Be happy to.

    Mr. LIPINSKI. And I would like to have it disseminated to all the members of this subcommittee and the full committee, because I think it is extremely important that every member of the Transportation and Infrastructure Committee is aware of exactly how this came to be.

    I have heard a lot of wild stories, a lot of wild accusations about it and I think people are being extremely unfair to the people who worked on the railroads by many of the charges that they have made about this. So I am saying to you, you are here on this issue, and I am really asking you to give us this information.

    Mr. MAHONEY. I will, because I have heard so much also; that it is 6-year rocking chair money that they get. And in 43 years in this field I have not known one—I have only heard of one who did that, and that according to the Congressman, was the uncle of Congressman Slattery, who he told me he had an uncle that did that. That is the only one I have ever even heard of, and I live in this field.

    Mr. LIPINSKI. Thank you very much, gentlemen, I appreciate seeing you here today.

    Mr. FLORIO. Thank you very much.

    Ms. MOLINARI. If there are no further questions, Governor, gentlemen, thank you very much for being with us and we look forward to working with you as we restructure this commission.
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    Good luck on the other side later, Governor.

    Our last most patient witness, if he has not turned gray, is Edward Emmett, President of the National Industrial Transportation League, and he is joined by James Keeney, Manager of Transportation Regulatory Affairs/Logistics Analysis——

    Mr. KEENEY. Easy for you to say.

    Ms. MOLINARI. IMC Global.

    Gentlemen, thank you for your patience and please proceed.


    Mr. EMMETT. Madam Chair, members of the subcommittee, my name is Ed Emmett. I appear today as President of the National Industrial Transportation League. You need to be aware that prior to joining the league I was a commissioner at the Interstate Commerce Commission.

    The league is the Nation's oldest and largest broad-based shippers organization. It represents shippers of all types, all sizes, using all modes of transportation. At the beginning, let me clarify my understanding or our understanding of today's hearing.
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    It is about the rail merger functions of the Interstate Commerce Commission, not about all of the tangential issues that might go with that, and we assume that there will be a subsequent hearing to talk about all of the other functions of the ICC.

    So with that in mind, yesterday the league's Board of Directors just happened to have a meeting, and we have 72 members of the board who represent a broad range of American industry. The chairman of our Railroad Committee is Mr. Jim Keeney, and so I thought it appropriate that the committee hear from someone other than a Beltway type and so we brought in a real live shipper for you to hear from today. And so, with that, let me turn it over to Mr. Jim Keeney.

    Mr. KEENEY. Thank you, Ed. I am Jim Keeney, and you heard my title. It is a long one, but I work for IMC Global now. We changed our name about 4 months ago, so I do not have the new cards. I apologize.

    Over the past 2 years there has been much debate about the future of the Interstate Commerce Commission and its functions. This debate has entered a heightened phase with even the President calling for elimination of the agency in the State of the Union address. When the House of Representatives voted to eliminate funding for the ICC last year, I and the rest of the league were surprised. Our position was and still is that it does not make sense to eliminate the agency and leave the underlying statutes unchanged.

    We applaud the Congress and the administration for addressing which functions should be eliminated, which should be saved, and how many remaining functions should be administered before sunsetting the agency. The league has had a long association with the commission.
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    In fact, the league was formed in Chicago in 1907 in response to the passage of the 1903 Elkins Act, which extended jurisdiction of the ICC to rail shippers as well as railroads, and the 1906 Heppron Act which strengthened the authority of the ICC.

    Over the past 87 years, the league and its members have had constant contact with the commission. When asked to evaluate the ICC and its responsibilities, I must say it is a matter of perspective. Much like the tale of the blind men who were asked to describe an elephant, each man touched a different part of the animal, one the leg, another the tail, and yet another a floppy ear. Their descriptions varied greatly. This animal called the ICC also produces a variety of descriptions, from dinosaur to sleek efficiency.

    The league's perspective is that of consumers of transportation services. It is twofold: in a simplistic sense, no transportation mode or system should exist without the support of shippers. If the consumers do not want or need to utilize a form of transportation, there is no reason for it to continue. Also, in circumstances where a shipper has no alternative but to use a particular mode or perhaps even a particular carrier, there needs to be a referee to ensure fairness.

    The league agrees that it is time to closely examine the functions of the Interstate Commerce Commission. Many should be eliminated, some should be retained, how and where those functions are retained remains the subject of much debate. The league looks forward to working with the Congress as it wrestles with these decisions.

    With regard to the matter at hand, the league strongly endorses moving the review of all rail mergers to the Department of Justice. In the review of rail mergers, the league strongly endorses the use of current antitrust laws and not the rail merger provisions of the Staggers Act.
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    The Staggers Act provisions were written some 15 years ago with an entirely different set of circumstance in mind than that which exists today. In 1980, there were 73 class one railroads. Today there are 12. And of those, there are seven major railroads and one of those is currently the subject of a merger.

    The Staggers Act merger provisions were intended to encourage an industry on the verge of bankruptcy to merge into economically viable companies that could compete with each other in and other modes of transportation. For the most part, the goals of the Staggers Act have been achieved.

    No one can argue that today's rail industry is on the verge of collapse. This has been called the golden era of the freight and railroads. Service is better than ever and still improving. The industry is innovative and is investing in the future. More and more freight is being moved by rail. Economic strength of today's railroads is evidenced by the bidding war between the BN and UP over the Santa Fe.

    At stake is $4 billion. This is not an industry near bankruptcy. This is a strong, vibrant industry. Rail mergers should now be judged by the same antitrust considerations as other U.S. companies seeking to merge. While rail mergers are similar to mergers in other industries, they are not exactly alike. Many shippers that must use rail service are served by only one railroad. These shippers are captive and must be protected from anticompetitive market conditions.

    If Exxon and Texaco were to merge, consumers would still be able to drive to another service station to buy gas. Rail shippers, however, can only use the railroad that comes to their plant. Shippers are the reason railroads exist and shippers need to be able to participate in the merger process wherever that process is judged. Rail-to-rail competition must be maintained and encouraged.
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    The Staggers Act has been very successful in redeveloping a profitable private freight railroad system. Its administration has failed, however, to promote rail-to-rail competition. Such competition should be encouraged in the merger process. Competition must be able to be imposed to protect captive shippers beyond the merger process as well.

    In the coming debate over the remaining ICC functions, shippers will bring forward specific, yet minimal, recommendations for the disposition of the remaining ICC rail functions.

    Thank you for the opportunity to present this.

    Ms. MOLINARI. Thank you very much. Mr. Shuster.

    Mr. SHUSTER. Thank you. If I understood you correctly, you are saying that your organization believes that the merger should be given to the Department of Justice rather than to the Department of Transportation—is that your testimony?

    Mr. KEENEY. Yes, sir.

    Mr. SHUSTER. Do you also say, if I understand you correctly, that we have to be very careful to protect competition in the industry so that a shipper has a choice of more than one railroad where possible?

    Mr. KEENEY. Absolutely.
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    Mr. SHUSTER. You think the Department of Justice is the best place to do that, then, I gather?

    Mr. KEENEY. Yes.

    Mr. SHUSTER. They will by definition I suppose only concern themselves with the question of competition as opposed to the broader issue of serving the public. Isn't that part of the fundamental argument that is going on here today between those who say send it to DOJ and those who say send it to the Department of Transportation; that at the Department of Transportation, public interest question will be vetted more thoroughly than it will be over at the Department of Justice?

    Mr. EMMETT. Mr. Chairman, if I may, the concern of shippers is, or the feeling of shippers represented by the league, is quite simply that the protection of competition is what protects shippers best and if that is the focus of the antitrust provisions, then that best protect shippers.

    We would also point out just a reality check needs to be done. How many mergers will there be? We are down to 12 or 13, depending on how you measure, Class 1 railroads. There are only seven major railroads left. Does it make sense to create a new structure in the DOT to handle what at most can be three mergers in the future? So since the Department of Justice is already geared to handle such things, it makes sense to our board that those be handled by Justice, who already handles them for all the other industries.

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    Mr. SHUSTER. Thank you very much.

    Ms. MOLINARI. Mr. Lipinski.

    Mr. LIPINSKI. I have no questions for this panel but thank the gentlemen for being here and apologize to them that they had to wait so long for their testimony, but it does get to be a cumbersome procedure when we have to go and vote on the House Floor.

    Ms. MOLINARI. Thank you.

    Let me ask a follow-up question to the question posed by Mr. Shuster. Clearly, the scenario that you describe relative to the limited amount of shippers that we have and the frequency for mergers not being an overwhelming caseload, nonetheless it seems to me that based on that scenario the conclusion that must be drawn is that in some cases if there is an economic recession that affects the industry that mergers as an opportunity to save one may be the wave of the future. Those clearly will be incidents that come up where the freight rail lines may, in fact, need to merge in order to save the ability for one to function in an economic recession. The Department of Justice couldn't rule on that based on its current statute. How do you suggest we deal with that so that a shipper is not left?

    Mr. EMMETT. If I may ask, why would the Department of Justice not be able to move on that?

    Ms. MOLINARI. It is my understanding that the Department of Justice statute just allows for consideration of competitiveness as opposed to the lifeblood of a line.
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    Mr. EMMETT. I think it would be a question, Madam Chairman, of would that merger diminish competition, and clearly if the merger preserved a line, it would be preserving competition, not diminishing it.

    Ms. MOLINARI. I guess the problem I am struggling with is that if you have a limited amount of freight railroads and we don't change the DOJ statute and we bring all the ICC ability to mergers to DOJ that there is a pretty good chance that DOJ would never approve a merger.

    Mr. EMMETT. I guess you could say there is that chance, but when you are down to seven major railroads in the United States, you are not looking at a situation where a lot of mergers are going to occur.

    I would give you the example of, let's take city A, served by two railroads. One of those railroads is about to go out of business. The other railroad serving city A offers to merge. The Justice Department under its procedures could say you can merge with that railroad but only if you sell off certain numbers of lines to a third railroad to provide service to city A. So the Department of Justice has the ability to handle those situations, and that is an ongoing expertise as opposed to creating some level of expertise in a vestige of the ICC at the Department of Transportation to handle what may be one case every 10 years.

    Ms. MOLINARI. Just even though that was not the main focus of the hearing today, but the fact that we have you here, I would like to ask you if the Transportation League has a position on what Congress should do with the mandatory labor practices that was discussed by the previous panel?
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    Mr. EMMETT. We don't have a position. I think anything that provides efficiency to the transportation industry we are in favor of; so at the appropriate time we will be commenting on whether or not labor protection provides efficiency.

    Ms. MOLINARI. Fair enough.

    Mr. Keeney, did you want to add to that?

    Mr. KEENEY. No.

    Ms. MOLINARI. I would like to conclude the hearing and thank everyone for being with us. I would particularly like to thank Chairman Shuster for staying with us throughout the day. I am not sure if it is because he has such an interest in this subject matter or because he is keeping an eye on me.

    Mr. Lipinski, I would also like to thank you. I would like to thank and introduce to the transportation players in this room Glenn Scammel, who we stole from the former Energy and Commerce Committee, and thank him for making this hearing a lot easier.

    With that, the hearing is adjourned. Thank you.

    [Whereupon, at 1:55 p.m., the subcommittee was adjourned.]

    [Insert here.]
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87–623 CC











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JANUARY 26, 1995

Printed for the use of the

Committee on Transportation and Infrastructure



BUD SHUSTER, Pennsylvania, Chairman

WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
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WILLIAM H. ZELIFF, Jr., New Hampshire
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
ZACH WAMP, Tennessee
RANDY TATE, Washington
RAY LaHOOD, Illinois

NORMAN Y. MINETA, California
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NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
JAMES A. HAYES, Louisiana
BOB CLEMENT, Tennessee
MIKE PARKER, Mississippi
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
JAMES E. CLYBURN, South Carolina
BOB FILNER, California
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SUSAN MOLINARI, New York, Chairwoman

SUE KELLY, New York, Vice Chairwoman
JAY KIM, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
BUD SHUSTER, Pennsylvania
(Ex Officio)

BOB CLEMENT, Tennessee
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
NORMAN Y. MINETA, California
(Ex Officio)
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Proceedings of:

    January 26, 1995

JANUARY 26, 1995


    Emmett, Edward M., President, National Industrial Transportation League, accompanied by James Keeney, Manager, Transportion Regulatory Affairs/Logistics Analysis, IMC Global

    Florio, Hon. James, Chairman, Safe Transit and Rail Transportation (START), accompanied by Edward Wytkind, Executive Director , AFL–CIO Transportation Trades Department, and William G. Mahoney, Counsel to START

    Hagen, James A., Chairman and CEO, Consolidated Rail Corporation

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    Krebs, Robert D., President, Chairman and CEO, Santa Fe Pacific Corporation, and the Atchison, Topeka and Santa Fe Railway Company

    Kruesi, Frank E., Assistant Secretary for Transportation Policy, U.S. Department of Transportation, accompanied by Joseph Canny, Deputy Assistant Secretary for Policy

    Lewis, Drew, Chairman and CEO, Union Pacific Corporation

    McDonald, Gail, Chairman, Interstate Commerce Commission, accompanied by Linda Morgan, Vice Chair, J.J. Simmons, Commissioner, Henri Rush, General Counsel, Dave Konschnik, Director of Proceedings

    Shannon, John S., Executive Vice President–Law, Norfolk Southern Corporation

    Sunshine, Steven C., Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice, accompanied by Roger Fones, Chief, Transportation, Energy, and Agriculture Section


    Mineta, Hon. Norman Y., of California


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    Florio, Hon. James

    Hagen, James A

    Krebs, Robert D

    Kruesi, Frank E

    Lewis, Drew

    McDonald, Gail

    Shannon, John S

    Sunshine, Steven C


    Rahall, Hon. Nick J. II, a Representative in Congress from West Virginia, letter from Charles L. Miller, P.E., Secretary, West Virginia Department of Transportation, January 26, 1995


Next Hearing Segment(2)