should be eliminated. Finally, we would recommend termination of immunity for discussion or voting on joint-line rates after January 1, 1985.*

EXIT

A balanced regulatory reform proposal must consider the interaction of entry, rates, and exit regulation. The economic check on greater price flexibility is eased entry regulation. However, exit regulation is also an extremely important element of current restrictions of intercity bus regulation and should be a key element in any regulatory reform proposal.

ICC restrictions on exit from the industry have had a minimal effect in the past. As detailed in the report on H.R. 3663,5 the restraint on exit comes from individual state regulatory authorities. Federal reform proposals for exit have to deal with the potential problems that could result from divergent Federal and State policies. For example, a bus carrier that seeks to abandon an unprofitable interstate route may still be forced to serve the similarly unprofitable intrastate portion of the route if the state denies the carrier the abandonment of the route. Faced with this situation, a carrier might be forced to maintain the interstate route to minimize overall losses, even though this will place a burden on the carrier's interstate service as a whole. The exit provisions of H.R. 3663 set up a procedure that would allow interstate carriers to exit from unprofitable routes, or substantially reduce the service level, on the intrastate portion of a route for which they have both interstate and intrastate authority. Criteria are set forth under which the Commission must consider granting relief. Once the criteria are met, the Commission is required to grant the discontinuance or reduction in service unless a protestant can show that such action would not be consistent with public interest or that continuance of service would not constitute an unreasonable burden on interstate or foreign commerce. The proposed procedures give regulatory authorities and affected communities notice of the proposed service discontinuance and an opportunity to protest. At the same time, the exit provisions provide a mechanism to remedy situations where State actions are creating an unreasonable burden on interstate commerce. Communities have the right to protest a discontinuance; time is allowed for information regarding traffic characteristics and financial assistance levels to flow from the carrier to the ICC, the states, and other interested persons. This procedure provides an opportunity for states and other persons to seek a subsidy for the service or encourage alternative service. Deadlines are established to ensure that there is no undue delay in the ultimate decision.

The value of this procedure is that it gives passengers and communities notice of the discontinuance and gives carriers greater assurance about being able to exit or be compensated for serving unprofitable routes. With flexible entry, rates, and exit, it is likely that new carriers will be willing to provide service over routes in instances where service has been discontinued. Failure to liberalize regulation of exit could effectively preclude new companies from entering the field. Thus, we consider the exit provisions central to this legislaton.

While we strongly favor adoption of exit provisions similar to those in H.R. 3663, we have two additional suggestions. First, the time frames could be shortened. With regard to continuance of service, the 180-day period could be changed to 150 days. Also, we believe the Commission could complete action on petitions in 75 rather than 90 days. And, second, we question the need for inclusion of a "public interest" test. It would appear that the "unreasonable burden," standard, already included in the House exit provision, should suffice.

FEDERAL-STATE RELATIONSHIP

H.R. 3663 would add a new paragraph to section 10101(a) of title 49. This addition to the National Transportation Policy directs the Commission to cooperate with the States whole ensuring that the initiatives of the legislation are not nullified by State regulatory actions. Other sections of the bill provide for Federal preemption of certain state actions.

In our view, the legislation strikes an appropriate balance, providing relief against discrimination and unreasonable burdens on interstate commerce, while recognizing the need for the states to continue to play an important role in decisionmaking.

4 Commissioner Gresham notes that today's suggestions on collective ratemaking reform appear to be inconsistent in some respects with the position expressed in the Commission's December 1980 bus legislative proposal (as to continued joint-line immunity) and with the Commission's decision not to comment in opposition to Section 10 of H.R. 3663 in its November 13, 1981, letter to Congressman Glenn M. Anderson.

5 H.R. Rep. No. 334, supra, Appendix B.

The bill mandates a Federal/State study to establish standards and procedures for rates, rules and practices applicable to transportation provided by motor common carriers of passengers subject to ICC jurisdiction. We believe the mechanisms in the bill and the cooperative Federal/State study should ultimately result in greater uniformity and less need for use of the preemptive provisions.

ADDITIONAL REMARKS

Before concluding my remarks, I would like to comment briefly on several other important provisions of the bill.

Sections 6 and 13 of H.R. 3663 add new subsections to sections 10922 and 10923 of title 49. The new provisions would give the Commission the discretion to deny applications of Mexican and Canadian motor carriers if the Commission determines that Mexico or Canada, or pertinent governmental subdivisions of those contiguous contries, do not treat U.S. carriers as favorably as persons form such political subdivision or country. The Commission would also be prohibited form issuing a permit or certificate to any person from a political subdivision of a foreign country if such political subdivison or country does not grant authority to U.S. carriers.

This an issue which is of great concern to the Commission. Several weeks ago, on February 11, 1982, the Commission instituted an investigation into Canadian law and policy regarding applications of American motor carriers for Canadian operating authority. The proceeding is set for oral hearing, with a prehearing conference scheduled for March 31, 1982. The proceeding will be handled expeditiously. In fact, we have directed the Administrative Law Judge to close the record no later than 90 days from the date of publication of the notice in the Federal Register. The Commission has also reopened the record in various pending cases to receive additional evidence on the reciprocity issue. We are of course aware of the bills which have been introduced in the House and Senate to address this issue, as well as Senator Cannon's Resolution 317 and also your concerns, Mr. Chairman.

With regard to the specific language in H.R. 3663, we have no objection to the proposed approach. However, we recognize that you may wish to study the reciprocity issue further, and we would like to reserve the right to submit a separate legislative recommendation, if warranted, after we complete our investigation.

Minimum levels of insurance are needed to protect the public from harm. At the same time, it is important that the liability requirements are established at levels which will not act as a barrier to entry. In our judgment, the levels set forth in section 18 are appropriate. It is our understanding, however, that the Department of Transportation would prefer that it be given greater flexibility in establishing minimum levels through rulemaking. We do not oppose a change of that nature.

With respect to securities regulation, we advocate transfer of jurisdiction over the issuance of securities for motor carriers of passengers to the Securities and Exchange Commission, as proposed in H.R. 3663. We further suggest that it would be appropriate to broaden this provision to apply to all motor carriers. Revised statutory language implementing this recommendation is attached as Appendix A.

Section 24, Administrative Assistance, which would permit the Commission to provide assistance to small carriers and local governments in preemption proceedings, is unnecessary. We do not see a problem in this area, since the Commission has and, unless it is legislatively directed otherwise, will continue to provide administrative assistance to all parties to a proceeding.

Section 12, Rates For Special and Charter Transportation, would prohibit the Commission from investigating or suspending a rate applicable to special or charter transportation on issues of reasonableness. While we have no objection to this provision, we would point out that the Commission virtually never suspends or investigates special or charter rate proposals.

Section 6(c)(4)(D), with regard to consideration of cumulative effects on any other motor common carrier of passengers if the Commission were to approve the application and any other pending applications, does not appear necessary and could prolong the administrative process. As a minimum, the language should be revised to indicate that consideration is limited to applications "by the same carrier, or any affiliate of such carrier."

Moreover, we urge deletion of the limitation to "three groups of charter passengers" which is contained in section 8, Mixing of Regular And Charter Passengers. The purpose of allowing carriers to transport charter passengers while providing regular-route service is to enable carriers to fill more seats. Since this section requires that the mixing of charter and regular-route passengers be permitted only when such action does not interfere with the carrier's obligation to provide the regular-route transportation, we see no reason to limit the number of charter groups that may be transported on the vehicle.

Section 26, Bus Terminal Study, requires the Department of Transportation and the Commission to investigate and study several aspects of bus terminals. We agree with the need for a bus terminal study but believe it would be helpful if the study also specifically addressed the issue of passenger safety in bus terminals.

With respect to merger procedures involving bus companies, section 21 of the bill would adopt the procedural reforms instituted for trucking companies by the Motor Carrier Act. In addition, the section specifies that the criteria for motor carrier consolidation, merger and acquisition of control are the criteria that existed for motor carriers prior to the Staggers Act.

We believe that it would be preferable to exempt bus companies and motor carriers generally from Commission jurisdiction with regard to mergers, consolidations and acquisitions of control. This change is suggested because we believe other governmental bodies have sufficient jurisdiction to protect the public interest.

In view of liberalized entry, the number of merger proposals has substantially declined and continued regulation by the Commission of control and acquisition transactions no longer appears necessary. Alternatively, Congress might wish to consider adoption of an exemption along the lines of the Staggers Act, which could be used to exempt those types of transaction.

Finally, I would reiterate our support for prompt enactment of bus legislation. The House bill, with changes such as those we have outlined today, will provide the intercity bus industry with essential reforms.

This concludes my prepared remarks. At this time, I will try to answer any questions that you might have.

Commissioner Clapp, concurring:

While I am in general agreement with this testimony I feel there are several points which should be called to the subcommittee's attention. First, I think there is some merit to the entry provisions of H.R. 3663 because they provide more protection and opportunity for the small passenger carrier seeking to expand or to survive in its markets. Because of the dominance of two companies in the passenger field, the House provisions may result ultimately in more competition than completely open entry. At the same time, I don't believe it advisable to maintain a stricter test for passengers than for property. To that extent, I would urge Congress to consider carefully the effects of a fitness only entry policy on both the passenger and property carriers but to keep in mind the considerable differences in the two areas.

Secondly, I support section 26, Administrative Assistance. That section, which would permit the Commission to assist small operators and communities indicates Congressional concern for protecting smaller parties less able to help themselves. Further, it is a natural corollary and follow-up to section 217 of the Staggers Act, which authorizes assistance to Class III rail carriers and small businesses faced with a proposed surcharge or joint rate cancellation (49 U.S.C. § 10705a(o)). I believe that it is inappropriate for the Commission to oppose this permissive provision.

Lastly, I strongly agree that an exemption provision along the lines of the Staggers Act would enable the Commission to exempt many minor transactions. This provision has worked well in a number of railroad proceedings in which consideration by the Commission was deemed unnecessary and time consuming. But I believe that the other suggested alternative, the general exemption from Commission jurisdiction of all mergers, consolidations, etc., needs more study. It appears to be an unresearched suggestion for such a major change-especially now as more and more major motor carriers are seeking mergers and consolidations in response to the current economic situtation. I would point out, therefore, that while the suggestion deserves consideration, at this time it is totally unsupported by any Commission analysis, and may have anticompetitive results.

[APPENDIX A]

PROPOSAL TO ELIMINATE ICC JURISDICTION OVER ISSUANCE OF SECURITIES BY MOTOR CARRIERS

(a) Amend subchapter I of chapter 113 of title 49, United States Code, by repealing §11302.

(b) Amend section 11911(a) of title 49, United States Code, by striking out "or of a person to which that section is made applicable by section 11302(a) of this title." (c) Amend the analysis for subchapter I of chapter 113 of title 49, United States Code, by deleting "11302. Issuance of securities and assumption of obligations and liabilities by motor carriers."

MOTOR CARRIER SECURITIES

Commission jurisdiction over issuance of securities and assumption of obligations and liabilities by motor carriers under 49 U.S.C. 11302 has been used in the past to

assure that such carriers are able to perform their obligations under subtitle IV of title 49. Imprudent financing, often for non-carrier purposes, has in some instances caused the deterioration of equipment and service and led to higher tariffs or cessation of service.

Changes in regulation in the motor carrier area have eased the ability of other carriers or interested persons to acquire rights to fill the void created if financially troubled carriers go out of business or cannot provide service. Thus, a statutory requirement for analysis by the Commission of a carrier's ability to meet its debt obligations no longer appears necessary. Protection of debt or equity investors in public offerings is of course an area of concern that should continue to be regulated. However, this can be accomplished by transferring jurisdiction to the Securities and Exchange Commission. This will occur automatically upon the elimination of ICC jurisdiction. The cost of issuing securities by large publicly-held corporations was substantially reduced when the SEC authorized such companies to use an abbreviated registration statement, S-16. This form does not require full repetition of previously disclosed information. The new registration form has reduced regulatory lag. For example, an issue under the SEC regulations can be marketed in as little as 48 hours. Because the statute requires that the ICC serve a copy of the application on each state in which the carrier operates, the ICC cannot ordinarily issue a decision for at least 15 days from date of filing, absent waiver from the considered states.

In Ex Parte No. MC-118, Grant of Motor Carrier Operating Authority To An Applicant Who Intends To Use It Primarily As an Incident To the Carriage Of Its Own Goods And Its Own Nontransportation Business, the Commission liberalized its policies with respect to granting motor carrier authority to essentially private carriers. This change in policy reflected the ruling in Toto Purchasing & Supply Co., Inc., 128 M.C.C. 873 (1978) which was expected to provide for-hire private carrier service to shippers who do not have adequate service available and to increase the efficiency of private carriers (Toto companies) by reducing their empty backhaul mileage. However, many private carriers were reluctant to file for operating authority if the entire scope of their securities issuances, including that for non-carrier purposes, were subjected to the Commission's jurisdiction. Some Toto companies overcame this problem by establishing separate carrier subsidiaries, but elimination of the securities regulations would encourage more private carriers to enter the field of regulated transportation. The statute presently applies to all motor carriers, including Toto companies, whose securities exceed $5,000,000.

While it is recognized that the cost of administering securities regulation is relatively minimal for the Commission and carriers, termination of ICC regulation of the issuance of motor carrier securities would nonetheless result in some savings, and it would be consistent with our desire and that of Congress to eliminate unnecessary regulation. In view of eased entry for motor carriers, any benefit from securities regulation is more than offset by the additional cost which is eventually passed on to the public.

Senator DANFORTH. The next witness is Mr. James C. Miller, Chairman of the FTC.

STATEMENT OF HON. JAMES C. MILLER III, CHAIRMAN, FEDERAL TRADE COMMISSION

Mr. MILLER. Thank you, Mr. Chairman. I am glad to be here today to present the views of the Federal Trade Commission on the issue before you. I apologize for the lateness in the arrival of my testimony. I do have formal testimony and a lengthy appendix to that that was prepared by Dr. Denis Breen and Mr. Peter Metrinko that I would like to submit for the record, if I may.

Also, I would like to submit for your possible use some testimony I gave before the Ratemaking Study Commission a few months ago, as well as a report that was appended to that testimony.

As you know, Senator Danforth, the Federal Trade Commission has, for many years, advocated a more competitive role for surface transportation. The leadership of this committee-you, sir, Senator Cannon and others-have pushed forward very substantial reforms in the surface transportation area, and I think the economy and the country have benefited substantially.

Interestingly, though, while regulation of trucking has been changed, bus regulation has not. The bus industry, unfortunately, is typically viewed as sort of an ignored stepchild of trucking. But I think it is important for us to address the problems in the bus area: The problems not only from the standpoint of the industry itself, but from the standpoint of consumers.

Now, there are several arguments that have been raised to justify intercity bus regulation. By looking at them very closely, I do not think either in theory or in fact they are upheld.

The legislation that has passed the House, H.R. 3663, is a step in the right direction, but I do not believe it goes far enough. For that reason, I and my fellow Commissioners strongly support the kinds of changes in the bill that the Department of Transportation has advocated.

One thing I think we ought to be very careful about is to not lay burdens on smaller firms. And one concern I have about the legislation in the House bill is that it would differentially impact smaller firms versus larger firms. Fitness requirements, for example make it easier for the larger firms to pass muster than for the smaller firms. So I agree with the Department's proposal that entry requirements ought to be limited to safety and insurance.

Let me say that with respect to the DOT provisions, I would strongly urge that they be passed. I think the outcome would be a much more competitive environment. I think, as a result the beneficiaries would include consumers as well as the industry itself.

Finally, let me just say, Mr. Chairman, that here we are arguing about regulation in the bus industry. Like other industries that are regulated, it seems to me the burden of proof really ought to be on those who would have regulation rather than those who propose to deregulate.

And that is all I have, Mr. Chairman. I know you have quite a busy morning, but if you have any questions I will be glad to try to answer them.

Senator DANFORTH. Thank you very much, Mr. Miller. I understand and fully agree with the administration's philosophy of moving toward deregulation. I think that the question some of us have is: How does that philosophy, which is fine, square with the reality of the effect of carrying out that philosophy on people? People who use intercity buses are oftentimes not the most well-off, wealthy people in a society, but they have to travel. What is going to happen to them?

It would seem clear to me that the necessary effect of deregulation would be that some communities would have poorer bus service after the deregulation than they had before it.

Now, Chairman Taylor does not agree with that, I suppose, but it would seem to me to follow as the night follows the day, that two things can happen. One, that those bus companies that are now serving small communities will want to get out of those communities. And the other thing that is going to happen is that if they continue to serve them, then competitors are going to come in, pick off the more lucrative routes and not make those intermediate stops. Is not that a necessary result from either the House bill or the administration's proposals?