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Digitized from Box 29 of the James M. Cannon Files at the Gerald R. Ford Presidential
Library
THE WHITE HOUSE
WASHINGTON
September 9, 1976
MEMORANDUM FOR:
ALLEN MOORE
FROM:
PAUL LEACH
Paul
SUBJECT:
Attached Letter
Here are my proposed revisions in this letter, if we
want to send it.
Do you know who drafted the letter?
This is a politically sensitive subject and should be
treated with care.
Please call me.
THE WHITE HOUSE
ACTION MEMORANDUM
WASHIN
LOG NO.:
Date:
September 9, 1976
Time:
FOR ACTION:
CC (for information):
Jim Cannon
Jim Lynn
Dave Gergen
Bob Hartmann
FROM THE STAFF SECRETARY
DUE: Date:
Friday, Sept. 10
Time:
2 P.M.
SUBJECT:
Proposed Letter to Michael Parkhurst
President of Independent Truckers Association
ACTION REQUESTED:
For Necessary Action
X For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Am told inquiry was made by telephone.
Changes noted w text. lether
FORD
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
Jim Connor
telephone the Staff Secretary immediately.
For the President
To ELIMINATE RESULATORY
THE WHITE HOUSE
WASHINGTON
TRUCKING
OF
September 7, 1976
INDUSTATORY
ReFORM
PROPOSED
Dear Mr. Parkhurst:
In response to your incuiry concerning regulatory reform
in the trucking industry) I would like to outline my
UNDER eACH
Administration's policy goals and comment on the legislation
intended to help achieve these goals.
bill
AS you know, there are three bills pending in the Congress
which address the issue These include S.2271, co-
and
sponsored by Senator Buckley; H. .R.12386, co-sponsored
by Congressman Kemp, and the Motor Carrier Reform Act
(H.R. 10909
5,2929
which was introduced at my request. While the bills
differ somewhat in content, HH support the concept of THey eACH
ATTEMPT
permitting more competition in the industry) HH believe
To encourage
that a strong and prosperous trucking industry is vital
to our Nation Truckers should be able to offer consumers
MORE
a wider choice of prices and services than AND WOUL!
what transportation services can be
Be SUBJECT
offered, what routes can be served and what rates can
be charged.
To FeweR
IN eACH
DICTATES
efforts to increase competition in the trucking industry
INSTANCE
would include removal of restrictions that would allow
FROM
the independent trucker, as a small businessman, to compete
WASHINGTON
more effectively with the larger trucking concerns.
New TT
INTERSTATE COMMERCE COMMISSION
AS To
At the same time, I am encouraged bykefforts
to allow for more competition in the industry by changing THose
archaic or restrictive rules and regulations which are
anticompetitive. As you I there are items pending
on the ICC docket which would make the trucking industry
ARe
more competitive, thereby the small, independent
AWARe,
truckerna more even footing
which to compete.
WITH
UPON
PROVIDING
I FULLY SUPPORT THe goAL OF MORE competition AND
TY
Less government REGULATION IN THe TRUCKING
INDUSTRY AND BeLieve THAT THIS KIND OF
ReguLATORY ReFORM LegisLATION WILL HeLD To keep
OUR VITAL TRUCKING PROSPEROUS. INDUSTRY STRONg AND FORD
1817
I hope this effectively answers the important questions
you paided concerning FY Administration's regulatory
reform policy iN THe TRUCKING INDUSTRY.
Sincerely,
Mr. Michael Parkhurst
President of Independent Truckers Association
Post Office Box 54078
Los Angeles, California 90054
FORD & LIBRARY GERALD
THE WHITE HOUSE
WASHINGTON
September 7, 1976
Dear Mr. Parkhurst:
In response to your incuiry concerning regulatory reform
in the trucking industry, I would like to outline my
Administration's policy goals and comment on the legislation
intended to help achieve these goals.
AS you know, there are three bills pending in the Congress
which address these issues. These include S.2271, co-
sponsored by Senator Buckley; H.R. 12386, co-sponsored
by Congressman Kemp, and the Motor Carrier Reform Act,
which was introduced at my request. While the bills
.
differ somewhat in content, I support the concept of
permitting more competition in the industry. I believe
that a strong and prosperous trucking industry is vital
to our Nation. Truckers should be able to offer consumers
a wider choice of prices and services, rather than having
Washington dictate what transportation services can be
offered, what routes can be served and what rates can
be charged.
Efforts to increase competition in the trucking industry
would include removal of restrictions that would allow
the independent trucker, as a small businessman, to compete
more effectively with the larger trucking concerns.
At the same time, I am encouraged by efforts by the ICC
to allow for more letition in the industry by changing
archaic or restrictive rules and regulations which are
anticompetitive. As you know, there are items pending
on the ICC docket which would make the trucking industry
more competitive, thereby giving the small, independent
trucker a more even footing from which to compete.
GERALD FORD LIBRARY
I hope this effectively answers the important questions
you raised concerning my Administration's regulatory
reform policy.
Sincerely,
Mr. Michael Parkhurst
President of Independent Truckers Association
Post Office Box 54078
Los Angeles, California 90054
FORD & LIGRARY GERALD
THE WHITE HOUSE
K -
WASHINGTON
September 16, 1976
Talk wr
Ed Schulto
MEMORANDUM TO:
PAUL LEACH
FROM:
JIM CANNON
Regulator Jun
SUBJECT:
At the 8:00 Staff Meeting this morning, Bill Seidman
reported that EPA is objecting to our regulatory reform
efforts.
Why was I not informed about this?
Please give me a report on this situation today.
CC: Art Quern
Jim-
Not having heard Bill's comment, J cannot be sure of
precisely what objections were raised. However,
Paul MacAvoy has been talking with EPA about setting
up one of Paul's "Presidential Task Forces" to work
on improving the Inflation Impact Statement analysis
process at EPA and Train has apparently objected that
this is "discriminatory". Bill Seidman and Paul have
had some discussions with Train on this matter and these
may be continuing. I have had no involvement in this
EPA matter.
Reul
81 9 Rd
91
dES
9L6
file
THE WHITE HOUSE
WASHINGTON
September 16, 1976
MEMORANDUM TO:
PAUL LEACH
FROM:
JIM CANNON
SUBJECT:
Regulator Jun
At the 8:00 Staff Meeting this morning, Bill Seidman
reported that EPA is objecting to our regulatory reform
efforts.
Why was I not informed about this?
Please give me a report on this situation today.
CC: Art Quern
[oct.
chron
ACTION
By
DOMESTIC COUNCIL
FROM:
ED SCHMULTS
SUBJECT:
Memo to the President re:
Independent Regulatory Commission
circulated for senior staff comment
Date:
COMMENTS:
Schmults suggests a general letter of
acknowledgment be sent to chairmen of
Independent Regulatory Commission thanking
them for progress reports.
He also suggests a meeting during the budget
process to discuss continuing regulatory re-
form efforts.
The memo includes brief summaries of progress
reports of ten Regulatory Commissions. You
may be interested in looking them over.
Also, you should indicate a preference on the
recommendation at p.2.
Leach recommends "agree."
Pull Ms Schults can the about
ACTION:
w
Date:
, mmL
ACTION
DOMESTIC COUNCIL
file
FROM:
ED SCHMULTS
SUBJECT:
Memo to the President re:
Independent Regulatory Commission
S
circulated for senior staff comment
Date:
COMMENTS:
Schmults suggests a general letter of
acknowledgment be sent to chairmen of
Independent Regulatory Commission thanking
them for progress reports.
He also suggests a meeting during the budget
process to discuss continuing regulatory re-
form efforts.
The memo includes brief summaries of progress
reports of ten Regulatory Commissions. You
may be interested in looking them over.
Also, you should indicate a preference on the
recommendation
at
p.2.
Pull Leach recommends Ms "agree." Schults can the about
ACTION:
Date:
FORD & LIBRARY GERALD
w your you
The
you
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date: October 29, 1976
Time:
FOR ACTION:
cc (for information):
Douglas Bennett
Jim Lynn
Jim Cannon
Jack Marsh
Allan Greenspan
Brent Scowcroft
976 OUT 29 FY I 30
Bob Hartman
Bill Seidman
FROM THE STAFF SECRETARY
DUE: Date:
Time:
Wednesday, November 3, 1976
10:00 A.M.
SUBJECT:
Edward C. Schmults memo, 10/28/76 re
Summary of Progress Reports from Independent
Regulatory Commissions.
ACTION REQUESTED:
For Necessary Action
X For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
Jim Connor
telephone the Staff Secretary immediately.
For the President
101909
THE WHITE HOUSE
WASHINGTON
October 28, 1976
MEMORANDUM FOR:
THE PRESIDENT
FROM:
EDWARD C. SCHMULTS II
SUBJECT:
Summary of Progress Reports from
Independent Regulatory Commissions
Issue
What should be the Administration's next steps in dealing
with the ten independent regulatory commissions?
Background
As you recall, on April 8, 1976 you met with the Chairmen
of the ten independent commissions to discuss the steps
which each agency was taking toward your regulatory reform
goals. At the conclusion of that session you asked each of
the commissions to prepare a second progress report by
September 15, which would concentrate particularly on their
accomplishments and identify specific savings to consumers
and taxpayers.
We have reviewed the reports of these ten agencies and
have prepared brief highlights for each agency, indicating
what appear to be their major successes and pointing out
the largest persisting problems. (See attachment at Tab A.)
The full reports are included at Tab B.
Discussion
The agencies are concentrating primarily on reducing
procedural delays and have achieved some progress in
eliminating unnecessary paperwork. However, few have
reported any major gains in reducing federal regulation
and relying more on competition and less on direct federal
controls. For example, although the ICC is trying to reduce
its backlog of cases, the Commission has opposed most of
your fundamental reform proposals. Likewise, the FPC is
concentrating on eliminating costly time delays, but it has
not proposed any major changes in the legislation which
requires the large volume of cases.
2
In addition, I understand that these agencies have requested
major resource increases for the coming year. I believe
that much of your commitment to reducing unnecessary govern-
ment involvement will be measured against changes in the
size of the federal bureaucracy, and that concentrated
efforts must be made to accelerate reform efforts in
regulatory agencies without adding more people. I know
that Jim Lynn and his people are looking carefully at all
regulatory agencies in light of your concerns, and at some
point it may make sense for us to discuss with him his
recommendations for the FY '78 budget. It is my view that
this budget is an important opportunity for you to emphasize
your overall regulatory policies and your commitment to
insuring that federal regulations are used only when other
options are clearly inadequate.
Recommendation
In the interim, I recommend that you acknowledge the reports
from the ten independent commissions without committing
these agencies at this time to additional meetings or reports.
A draft for your approval is included in this book at Tab C.
Agree
Disagree
See Me
Attachments
THE WHITE HOUSE
WASHINGTON
DATE: 10/29
TO: Paul L.
FROM:
ALLEN MOORE
SUBJECT:
ACTION:
FYI: /
for your recommendation
OK-PCL-
TAB A
Summary of Reports from
Independent Regulatory Commissions
1. Interstate Commerce Commission
The Railroad Revitalization Act which you proposed (and
an amended version of which was signed into law) calls
for increased pricing flexibility in the industry and
new market opportunities for carriers. Although the
ICC indicates some procedural improvements, the Com-
mission's report does not evidence an understanding
that fundamental reform may mean less regulation, or
new forms of regulation. While the Commission has
proposed that some of the procedural improvements
enacted in the Rail Bill be extended to other modes,
the Chairman has opposed most of the provisions in your
program of reforms for the industries under ICC
jurisdiction.
2. Civil Aeronautics Board
Chairman Robson has exhibited strong leadership in
proposing ways to reduce the CAB's control over
domestic airlines. He has supported an air bill similar
to yours, has succeeded in getting the Board to
substantially liberalize its rules governing charter
airlines, and has been sensitive to the need for
alternatives to the current system of government
subsidies to rural air carriers. The Board's report
however, does not clearly identify a desirable time-
table for changes. The Board also rejected some
innovative ideas that would have helped expedite
internal procedures and we continue to believe that
the CAB can, with more effort, accomplish significant
paperwork reductions.
3. Federal Maritime Commission
This agency has been involved in a jurisdictional
struggle with the ICC over regulation of containerized
shipping for more than a dozen years. Little progress
has been achieved in working out a sensible system
which will promote, rather than restrict, this important
technological development which could lead to major
savings for shippers. The FMC continues to believe
that the way to carry out its mandate is to preserve
stability in the merchant shipping industry, at the
expense of greater price competition. The Commission
does recognize the need for major internal improvements
but does not appear to share your view that regulatory
reform should include opportunities for a reduced federal
role.
2
4. Federal Power Commission
The Power Commission is faced with a problem of major
administrative delays, a point which Chairman Dunham
recognizes as a priority for needed improvements.
Although his report discusses a number of hoped for
remedies, the essential problem still remains--namely
that the government established price of natural gas
differs significantly from a more realistic market
determined price. In large part, the Commission's
paperwork problems stem from a flood of applications
from those regulated industries seeking to operate
profitably in a market which has been artificially
controlled. The Commission has adopted a new nationwide
ceiling rate for interstate gas sales which is designed
to compensate for this problem, but legislative relief
remains the only real long term answer. Congressional
opposition to de-regulation is still well organized
and effective.
5. Nuclear Regulatory Commission
The Commission appears acutely aware of the extreme
cost of delays in approving license applications for
nuclear generating stations. The Commission is using
value-impact analyses extensively to weigh the merits
of proposed regulations and has reached your initial
goal of a 10 percent reduction in paperwork. It is
also trying to implement performance standards for
physical security safeguards. There is a very complex
tangle of federal, State, and local laws and regulations
which govern these projects, but the Chairman has
devoted substantial effort to rationalizing this maze.
Results will be a long time coming, though, and actual
progress to date has been only minimal.
6. Federal Trade Commission"
The Commission has put a lot of effort into reducing
delays and has achieved some impressive results. It
still requires a substantial volume of information from
American businesses, much of which is time consuming
and expensive to furnish, and the need for which is
still quite controversial. The FTC has identified a
number of State practices (e.g., restrictions on
advertising prices for eyeglasses and prescription drugs)
which it believes are anti-competitive. There is a
great need for the Commission to cooperate more with
other federal and State agencies in defining its
appropriate consumer protection responsibilities, but
the Commission's report does not identify any ways in
which greater reliance can be placed on self-regulation
within industries.
3
7. Securities and Exchange Commission
The Chairman's report is most responsive to your
desire to see reduced paperwork burdens. The
Commission appears to be working to strengthen the
securities industry's self-regulatory bodies and to
promote more competition between participants in the
capital markets. However, the SEC continues to expand
its staff and operations, at obvious increased costs
to the taxpayer. It is also important to note that
some of its disclosure proposals and requested additional
authorities have not been supported by well analyzed
and clearly articulated documentation. Several
controversial proposals, particularly in the area of
accounting practices and reporting requirements, have
been withdrawn or modified due to pressure from
regulated companies. Objective analyses of these
proposals beforehand could have helped weigh their
costs and benefits.
8. Federal Communications Commission
The FCC has taken several steps to introduce competition
within the telecommunications industry, however, it
believes that these changes will require a larger number
of personnel and more vigilant enforcement of existing
laws. The Chairman is keenly aware of your concerns
for reductions in paperwork and administrative backlog,
but we continue to believe that the cable television
industry, boradcasting, and a number of specialized
communications areas (e.g., citizens band radio) could
benefit from less, rather than more, federal intervention.
Like many agencies, the FCC is requesting large increases
in personnel for purposes of enforcing existing statutes,
but it has not identified in its report areas where
legislative reforms could. accelerate reliance on a
different mix of public-private enforcement techniques.
9. Commodity Futures Trading Commission
The CFTC report is largely prospective, but the Chairman
appears to be conscious of your desire to see self-
regulation used wherever possible. Although it has not
yet become an issue, paperwork requirements laid on by
this agency represent perhaps the most significant
potential problem. The CFTC report indicates that the
Chairman hopes to eliminate some 350,000 individual
4
trader reports every year, but no timetable is cited.
Despite the Chairman's stated belief that all federal
regulators should be forced to justify themselves
every ten years, the CFTC is requesting substantial
budget increases and has indicated that previously
unregulated areas of the industry require new federal
vigilance.
10. Consumer Product Safety Commission
The Commission's report does not identify specific
intentions or results in paperwork reduction, or
savings to consumers or taxpayers. There is a major
question as to how long such a federal agency should
exist, particularly in view of the fact that many
State and local governments have established their
own programs, and your directives to Executive branch
agencies have helped to sensitize them to the need
for more concern over consumer representation and
safety. Individual product liability standards and
private damage suits could have substantially more
impact on manufacturers' products than any federal
standards, but the Commission's report does not
indicate what options to the current system of federal
preemptive safety standards are being analyzed.
TAB
C
THE WHITE HOUSE
WASHINGTON
DRAFT
Dear Mr. Chairman:
Thank you for your recent progress report on steps being
taken to improve your commission's regulatory programs.
I was pleased to see that you and the other Chairmen
have succeeded in focusing your commissions on the problems
of procedural delay. I am hopeful that these first results
will be just a beginning toward eliminating unnecessary
paperwork and streamlining the agency's operations. I am
encouraged by your interest in applying more rigorous
economic analysis to existing and proposed regulations,
in an effort to determine whether the benefits of federal
controls clearly outweigh their costs.
However, I ask that you develop and implement imaginative
and effective alternatives to existing federal regulations.
Procedural improvements, while very important, should be
augmented with changes which place a greater reliance on
the private sector or state and local governments to solve
important problems.
Your report raises a number of important issues and problems,
and I hope that you will devote increasing efforts to
finding ways to accomplish a better regulatory program
with a minimum of federal resources. I look forward to
continuing our discussions and wish you great success in
your current program of reforms.
Sincerely,
Gerald R. Ford
Copies to Chairmen of:
ICC
FTC
CAB
SEC
FMC
FCC
FPC
CFTC
NRC
CPSC
Reg Refon Ry
THE WHITE HOUSE
WASHINGTON
November 12, 1976
MEMORANDUM FOR THE PRESIDENT
THROUGH:
JAMES CANNON
FROM:
EDWARD SCHMULTS SCS
SUBJECT:
Request for Guidance on
Regulatory Reform Program
We would like your guidance on steps that should be taken in
the next two months concerning your regulatory reform program.
Based on your guidance we will develop specific proposals for
your consideration in the near future.
Regulatory reform has been a major initiative of your Admin-
istration and I believe we need to consider ways to assure
the continuity of this effort. Your guidance is needed on:
I)
Whether to resubmit current or modified legislative
proposals when Congress reconvenes;
II)
What actions are to be taken on studies and
evaluations already underway;
III)
Whether to publish what we have learned about
other regulatory areas; and
IV)
Whether to make public a report currently being
written on the regulatory reform program and, if
so, how?
Your decisions on certain of these issues would be reflected
in your State of the Union address.
I. LEGISLATION
A. Agenda for Government Reform
The Agenda for Government Reform Act was submitted
to the Congress on May 13, 1976. This legislation
has been the center piece of your regulatory reform
program and it has received widespread press and
public attention. The bill was introduced in the
Senate by Senator Scott and in the House by Congress-
man Rhodes. Hearings on the Agenda and
2
a similar bill introduced by Senator Percy and
Senator Byrd were held in the Senate. Fourteen
members of the House Government Operations Committee
wrote to Chairman Brooks urging him to hold hearings
on these bills. However, none were held. With
Senator Byrd's and Congressman Rhodes' support
of the concept of the bill, consideration in the
95th Congress is quite probable. We believe that
the sector approach embodied in the Agenda is still
the best way to achieve comprehensive reform. Our
efforts during the last session to reach a
compromise with the agency-by-agency approach
taken by the Percy-Byrd supporters were not success-
ful. However, in the process, we developed improve-
ments to the Agenda which would increase citizen
participation in identifying problems and allow a
"sunset" provision on those laws to which the Congress
and the President agreed. Should we:
1. submit the revised version of the Agenda which was
developed following discussions with Senator Percy;
or
2. provide background materials for the new
Administration?
Recommendation:
We recommend option 1. This legislation would be ready
when Congress convenes.
Agree
Disagree
B. Aviation Act of 1975
On October 8, 1975 the Aviation Act of 1975 was
submitted to the Congress. Extensive hearings
have been held in both the House and the
Senate. Senator Kennedy, Senator Cannon, and
Representatives Anderson and Snyder have all
submitted their own reform bills. Senator Pearson
has also indicated he will be submitting a bill
in the 95th Congress. Early consideration by the
Congress is considered a certainty. In your speech
GERALD
3
at Kennedy Airport you said that the aviation
regulatory reform legislation would be sent to
Congress when they convene. On the Aviation
Act, should we:
1. resubmit the Aviation Act as it is currently
written when the Congress reconvenes, or
2. modify the Act in light of the other airline
reform proposals and the hearing record and
resubmit to the 95th Congress; or
3. provide background materials for the new
Administration?
Recommendation:
We recommend option 2. This legislation would be ready
when Congress convenes.
Agree
Disagree
C. Motor Carrier Reform Act
The Motor Carrier Reform Act was sent to the Congress
on November 13, 1975. The House held hearings on
the bill in September 1976 and the Senate has
asked for written comments on the bill in lieu of
hearings. In addition, a pamphlet was developed,
but not printed, which explains the rationale for
the legislation and outlines and rebuts many of
the major objections to the legislation. One of
the major opponents of the bill, Senator Hartke,
was defeated but congressional interest in the bill
will require considerable executive attention. At
the recent convention of the American Trucking
Association, a group which has been particularly
vocal in its opposition to the bill, Secretary Coleman
indicated that the Administration was willing to
consider modifications to the original bill before
it would be resubmitted. Should we:
1. resubmit the Motor Carrier Reform Act in its
present form; or
2. modify the current provisions to take into
consideration arguments that have been raised
and resubmit the bill; or
4
3. publish the pamphlet and provide background
materials for the new Administration; or
4. do not publish pamphlet but provide background
materials for the new Administration?
Recommendation:
We recommend option 3. The printing and distribution
of the pamphlet could be done immediately and it
would provide a useful addition to the debate on the
future of ICC regulation.
Agree
Disagree
D. Financial Institutions Act
The Financial Institutions Act passed the Senate 79-14
on December 11, 1975, but the Senate Finance Committee
did not consider the tax provisions necessary to carry
out the bill. In the House, the bill was divided into
three separate bills and the main provisions of the FIA
were incorporated into the Financial Reform Act. Due
to strong opposition from labor and the smaller state
banks, that bill was never passed by the House Committee.
Instead, Congress extended interest rate regulation
(Regulation Q) until March 1977. During the debate
on FIA, the structure of the banking regulatory
agencies was the subject of congressional criticism.
The EPB asked agencies to develop proposals for
possible changes to the present structure of those
regulatory agencies. Should we:
1. resubmit the Financial Institutions Act to the
95th Congress in the Senate-passed form; or
2. modify the bill so that it might be more acceptable
to the House, and resubmit the bill; or
3. provide background materials on the FIA, the
extension of Regulation Q and the structure of
the banking regulatory agencies for review by
the new Administration?
5
Recommendation:
We recommend option 3. Several provisions of the bill
and the tax changes needed to carry out the bill should
receive further study.
Agree
Disagree
E. Patent Reform Bill
An Administration bill to modernize and reform the
patent system was submitted to the Senate in March
1975. A compromise bill was passed by the Senate
on February 25, 1976. Hearings on patent reform
were not held in the House and there was continuing
disagreement among executive branch agencies as to
the best strategy to pursue patent reform. Should
we:
1. resubmit the Administration bill to the 95th
Congress; or
2. provide background materials on patent reform for
consideration by the new Administration?
Recommendation:
We recommend option 2. There probably is not sufficient
time to accommodate the varying positions in a compromise
bill.
Agree
Disagree
F. Deregulation of New Natural Gas
Administration legislation proposing deregulation of
new natural gas was sent to the Congress as a part of
the Energy Independence Act in January 1975. In
October 1975 the Senate passed a five-year phase-out
of controls on new natural gas. In February 1976,
the House passed a bill which would remove price
controls from smaller producers of natural gas,
continue price controls on large producers, and
extend controls to the intrastate as well as the
interstate market. The congressional impasse was
6
never resolved during the 94th Congress. In the
meantime, the Federal Power Commission announced
that it would allow the price of new natural gas
to increase to more than double its current price
and the courts have given preliminary approval of the
increase. The controversy will likely continue into
the 95th Congress. Should we:
1. resubmit a new natural gas deregulation bill
to the 95th Congress; or
2. provide background materials for the new
Administration?
Recommendation:
We recommend option 1. The legislation would be
available when the Congress convenes.
Agree
Disagree
II. STUDIES AND EVALUATIONS
A. Inflation Impact Statements
The Executive Order 11821, which requires executive
branch agencies to prepare Inflation Impact Statements
analyzing the economic effects of their major regulatory
and legislative proposals, expires December 13, 1976.
OMB and the Council on Wage and Price Stability have
underway an evaluation of the IIS program. The
evaluation will be completed later in the fall in
preparation for a decision on future directions in
this area (i.e., to permit the executive order to
expire, modify it to ensure that agencies consider
the economic impacts of their decisionmaking, or
expand it to include other administrative reforms).
During the 94th Congress various congressional bills,
including the proposal creating a consumer protection
agency, have included provisions requiring an economic
impact statement. Although none of the bills became
law, legislation mandating an economic impact
statement is very likely in the 95th Congress. OMB
and CWPS will complete the evaluation by December 15, 1976.
Should we:
7
1. modify and issue the executive order based on the
evaluation; or
2. issue a three month extension of the current
executive order and present evaluation and options
to the new Administration; or
3. take no action and present evaluation to the new
Administration?
Recommendation:
We recommend option 2.
Agree
Disagree
B. Progress Reports from the Independent Regulatory Agencies
The second progress reports from the ten independent
regulatory commissions have been received and analyzed.
A separate memorandum is being forwarded to you.
complete
C. Short-Term Task Forces
On May 13, 1976 short-term task forces were set up to
streamline and simplify the regulations of the Federal
Energy Administration, the Occupational Safety and
Health Administration in the Department of Labor, and
the Export Control Administration in the Commerce
Department. Reports from these task forces are being
developed and will be completed by early December.
Should we:
1. issue the reports, as they are finished, with a
Presidential statement on the benefits of regulatory
reform to the American people; or
2. hold the reports for inclusion in the State of the
Union with distribution to follow immediately after
the SOTU; or
3. hold the reports for the new Administration to decide
whether or not to issue them?
Recommendation:
We recommend option 1. The reports will be completed
in the next several weeks and will demonstrate the
potential for reform in the Executive Branch agencies.
Agree
Disagree
8
III. PUBLICATION OF REPORTS
Over the first two years, several areas of possible
reform have been carefully studied and preliminary
reports prepared on the anti-competitive effects of
much government regulation. Final reports could be
issued in the next two months on the Robinson-Patman
Act and on studies completed in conjunction with an
Antitrust Immunities Task Force.
A. Report on the Robinson-Patman Act
The Department of Justice, under the aegis of the
Domestic Council, has held hearings on the Robinson-
Patman Act and written a preliminary report on its
anti-competitive effects. The final report could
summarize the present findings and present options
for the repeal or modification of the present Act.
Should we:
1. authorize the Department of Justice to complete
the final report for review by the White House
before release; or
2. publish no report but present report recommen-
dations to the new Administration?
Recommendation:
Recommend Option 1.
Agree
Disagree
B. Antitrust Immunities Task Force
The Antitrust Immunities Task Force which was chaired
by the Assistant Attorney General for Antitrust was
established in February, 1975. The Task Force has
completed extensive analysis on the anti-competitive
effects of maritime shipping conferences, the insurance
industry, and communications. A final report by the
Task Force could present the considerable information
and analysis that have been accumulated and outline
what further analysis is required. Should we:
1. authorize the Department of Justice to prepare
a final report for review by the White House
before release; or
2. publish no report; prepare only a summary of the
work of the Antitrust Immunities Task Force for
the new Administration?
Recommendation:
Recommend Option 1.
Agree
Disagree
9
IV. REPORT ON THE REGULATORY REFORM PROGRAM
For more than two years government-wide efforts have been
undertaken to achieve both legislative and administrative
reforms of government regulations. Special meetings have
been held, new studies of the impact of government regulations
have been initiated, independent agencies have taken
important steps to reform their policies, and the general
awareness of the hidden costs of regulations has been
significantly increased. With the diversity of the efforts
and the wide variety of agencies and departments involved,
some documentation of the program as a history of this
Administration and as a challenge to the new Administration
will be beneficial.
As we have worked on individual proposals and initiatives
over the past two years we have learned how little basic
information and understanding there is of government
regulations and their effect on the economy. We have
spent much of our time in recent months developing a
common definition of government regulatory activity.
We have applied this definition to all the various
bureaus and agencies of government to arrive at an
inventory of 86 organizations of the government that
have regulatory responsibilities. Using this inventory
we have been looking at regulatory enforcement techniques
and federal pre-emption of state responsibilities. Much
of this work has only begun and many of our legislative
and administrative reforms are far from complete. I
believe that a report on all of our efforts could provide
a complete catalog for the new Administration of what we
have done, what we have learned, and what needs to be
done. I would hope that this report will assure that this
bipartisan effort continues to focus on fundamental,
substantive issues of government regulation rather than
being diverted to short-term, administrative changes
that avoid the basic problems. Should we:
1. forward the report to the Congress in tandem with
the State of the Union Address; or
2. publish the material in a report to the American people; or
3. present the report to the new Administration?
Recommendation:
We recommend option 1.
Agree
Disagree
10
Obviously your guidance on these issues will reflect your
views on how best to assist the incoming Administration in
the transition and assure some continuity of the program of
regulatory reform. I would be happy to discuss this
further with you or Dick Cheney, if you wish.
THE WHITE HOUSE
WASHINGTON
November 12, 1976
MEMORANDUM FOR THE PRESIDENT
THROUGH:
JAMES CANNON
FROM:
EDWARD SCHMULTS SS
SUBJECT:
Request for Guidance on
Regulatory Reform Program
We would like your guidance on steps that should be taken in
the next two months concerning your regulatory reform program.
Based on your guidance we will develop specific proposals for
your consideration in the near future.
Regulatory reform has been a major initiative of your Admin-
istration and I believe we need to consider ways to assure
the continuity of this effort. Your guidance is needed on:
I)
Whether to resubmit current or modified legislative
proposals when Congress reconvenes;
II)
What actions are to be taken on studies and
evaluations already underway;
III)
Whether to publish what we have learned about
other regulatory areas; and
IV)
Whether to make public a report currently being
written on the regulatory reform program and, if
so, how?
Your decisions on certain of these issues would be reflected
in your State of the Union address.
I. LEGISLATION
A. Agenda for Government Reform
The Agenda for Government Reform Act was submitted
to the Congress on May 13, 1976. This legislation
has been the center piece of your regulatory reform
program and it has received widespread press and
public attention. The bill was introduced in the
Senate by Senator Scott and in the House by Congress-
man Rhodes. Hearings on the Agenda and
2
a similar bill introduced by Senator Percy and
Senator Byrd were held in the Senate. Fourteen
members of the House Government Operations Committee
wrote to Chairman Brooks urging him to hold hearings
on these bills. However, none were held. With
Senator Byrd's and Congressman Rhodes' support
of the concept of the bill, consideration in the
95th Congress is quite probable. We believe that
the sector approach embodied in the Agenda is still
the best way to achieve comprehensive reform. Our
efforts during the last session to reach a
compromise with the agency-by-agency approach
taken by the Percy-Byrd supporters were not success-
ful. However, in the process, we developed improve-
ments to the Agenda which would increase citizen
participation in identifying problems and allow a
"sunset" provision on those laws to which the Congress
and the President agreed. Should we:
1. submit the revised version of the Agenda which was
developed following discussions with Senator Percy;
or
2. provide background materials for the new
Administration?
Recommendation:
We recommend option 1. This legislation would be ready
when Congress convenes.
Agree
Disagree
B. Aviation Act of 1975
On October 8, 1975 the Aviation Act of 1975 was
submitted to the Congress. Extensive hearings
have been held in both the House and the
Senate. Senator Kennedy, Senator Cannon, and
Representatives Anderson and Snyder have all
submitted their own reform bills. Senator Pearson
has also indicated he will be submitting a bill
in the 95th Congress. Early consideration by the
Congress is considered a certainty. In your speech
3
at Kennedy Airport you said that the aviation
regulatory reform legislation would be sent to
Congress when they convene. On the Aviation
Act, should we:
1. resubmit the Aviation Act as it is currently
written when the Congress reconvenes, or
2. modify the Act in light of the other airline
reform proposals and the hearing record and
resubmit to the 95th Congress; or
3. provide background materials for the new
Administration?
Recommendation:
We recommend option 2. This legislation would be ready
when Congress convenes.
Agree
Disagree
C. Motor Carrier Reform Act
The Motor Carrier Reform Act was sent to the Congress
on November 13, 1975. The House held hearings on
the bill in September 1976 and the Senate has
asked for written comments on the bill in lieu of
hearings. In addition, a pamphlet was developed,
but not printed, which explains the rationale for
the legislation and outlines and rebuts many of
the major objections to the legislation. One of
the major opponents of the bill, Senator Hartke,
was defeated but congressional interest in the bill
will require considerable executive attention. At
the recent convention of the American Trucking
Association, a group which has been particularly
vocal in its opposition to the bill, Secretary Coleman
indicated that the Administration was willing to
consider modifications to the original bill before
it would be resubmitted. Should we:
1. resubmit the Motor Carrier Reform Act in its
present form; or
2. modify the current provisions to take into
consideration arguments that have been raised
and resubmit the bill; or
4
3. publish the pamphlet and provide background
materials for the new Administration; or
4. do not publish pamphlet but provide background
materials for the new Administration?
Recommendation:
We recommend option 3. The printing and distribution
of the pamphlet could be done immediately and it
would provide a useful addition to the debate on the
future of ICC regulation.
Agree
Disagree
D. Financial Institutions Act
The Financial Institutions Act passed the Senate 79-14
on December 11, 1975, but the Senate Finance Committee
did not consider the tax provisions necessary to carry
out the bill. In the House, the bill was divided into
three separate bills and the main provisions of the FIA
were incorporated into the Financial Reform Act. Due
to strong opposition from labor and the smaller state
banks, that bill was never passed by the House Committee.
Instead, Congress extended interest rate regulation
(Regulation Q) until March 1977. During the debate
on FIA, the structure of the banking regulatory
agencies was the subject of congressional criticism.
The EPB asked agencies to develop proposals for
possible changes to the present structure of those
regulatory agencies. Should we:
1. resubmit the Financial Institutions Act to the
95th Congress in the Senate-passed form; or
2. modify the bill so that it might be more acceptable
to the House, and resubmit the bill; or
3. provide background materials on the FIA, the
extension of Regulation I and the structure of
the banking regulatory agencies for review by
the new Administration?
5
Recommendation:
We recommend option 3. Several provisions of the bill
and the tax changes needed to carry out the bill should
receive further study.
Agree
Disagree
E. Patent Reform Bill
An Administration bill to modernize and reform the
patent system was submitted to the Senate in March
1975. A compromise bill was passed by the Senate
on February 25, 1976. Hearings on patent reform
were not held in the House and there was continuing
disagreement among executive branch agencies as to
the best strategy to pursue patent reform. Should
we:
1. resubmit the Administration bill to the 95th
Congress; or
2. provide background materials on patent reform for
consideration by the new Administration?
Recommendation:
We recommend option 2. There probably is not sufficient
time to accommodate the varying positions in a compromise
bill.
Agree
Disagree
F. Deregulation of New Natural Gas
Administration legislation proposing deregulation of
new natural gas was sent to the Congress as a part of
the Energy Independence Act in January 1975. In
October 1975 the Senate passed a five-year phase-out
of controls on new natural gas. In February 1976,
the House passed a bill which would remove price
controls from smaller producers of natural gas,
continue price controls on large producers, and
extend controls to the intrastate as well as the
interstate market. The congressional impasse was
6
never resolved during the 94th Congress. In the
meantime, the Federal Power Commission announced
that it would allow the price of new natural gas
to increase to more than double its current price
and the courts have given preliminary approval of the
increase. The controversy will likely continue into
the 95th Congress. Should we:
1. resubmit a new natural gas deregulation bill
to the 95th Congress; or
2. provide background materials for the new
Administration?
Recommendation:
We recommend option 1. The legislation would be
available when the Congress convenes.
Agree
Disagree
II. STUDIES AND EVALUATIONS
A. Inflation Impact Statements
The Executive Order 11821, which requires executive
branch agencies to prepare Inflation Impact Statements
analyzing the economic effects of their major regulatory
and legislative proposals, expires December 13, 1976.
OMB and the Council on Wage and Price Stability have
underway an evaluation of the IIS program. The
evaluation will be completed later in the fall in
preparation for a decision on future directions in
this area (i.e., to permit the executive order to
expire, modify it to ensure that agencies consider
the economic impacts of their decisionmaking, or
expand it to include other administrative reforms).
During the 94th Congress various congressional bills,
including the proposal creating a consumer protection
agency, have included provisions requiring an economic
impact statement. Although none of the bills became
law, legislation mandating an economic impact
statement is very likely in the 95th Congress. OMB
and CWPS will complete the evaluation by December 15, 1976.
Should we:
7
1. modify and issue the executive order based on the
evaluation; or
2. issue a three month extension of the current
executive order and present evaluation and options
to the new Administration; or
3. take no action and present evaluation to the new
Administration?
Recommendation:
We recommend option 2.
Agree
Disagree
B. Progress Reports from the Independent Regulatory Agencies
The second progress reports from the ten independent
regulatory commissions have been received and analyzed.
A separate memorandum is being forwarded to you.
C. Short-Term Task Forces
On May 13, 1976 short-term task forces were set up to
streamline and simplify the regulations of the Federal
Energy Administration, the Occupational Safety and
Health Administration in the Department of Labor, and
the Export Control Administration in the Commerce
Department. Reports from these task forces are being
developed and will be completed by early December.
Should we:
1. issue the reports, as they are finished, with a
Presidential statement on the benefits of regulatory
reform to the American people; or
2. hold the reports for inclusion in the State of the
Union with distribution to follow immediately after
the SOTU; or
3. hold the reports for the new Administration to decide
whether or not to issue them?
Recommendation:
We recommend option 1. The reports will be completed
in the next several weeks and will demonstrate the
potential for reform in the Executive Branch agencies.
Agree
Disagree
8
III. PUBLICATION OF REPORTS
Over the first two years, several areas of possible
reform have been carefully studied and preliminary
reports prepared on the anti-competitive effects of
much government regulation. Final reports could be
issued in the next two months on the Robinson-Patman
Act and on studies completed in conjunction with an
Antitrust Immunities Task Force.
A. Report on the Robinson-Patman Act
The Department of Justice, under the aegis of the
Domestic Council, has held hearings on the Robinson-
Patman Act and written a preliminary report on its
anti-competitive effects. The final report could
summarize the present findings and present options
for the repeal or modification of the present Act.
Should we:
1. authorize the Department of Justice to complete
the final report for review by the White House
before release; or
2. publish no report but present report recommen-
dations to the new Administration?
Recommendation:
Recommend Option 1.
Agree
Disagree
B. Antitrust Immunities Task Force
The Antitrust Immunities Task Force which was chaired
by the Assistant Attorney General for Antitrust was
established in February, 1975. The Task Force has
completed extensive analysis on the anti-competitive
effects of maritime shipping conferences, the insurance
industry, and communications. A final report by the
Task Force could present the considerable information
and analysis that have been accumulated and outline
what further analysis is required. Should we:
1. authorize the Department of Justice to prepare
a final report for review by the White House
before release; or
2. publish no report; prepare only a summary of the
work of the Antitrust Immunities Task Force for
the new Administration?
Recommendation:
Recommend Option 1.
Agree
Disagree
9
IV. REPORT ON THE REGULATORY REFORM PROGRAM
For more than two years government-wide efforts have been
undertaken to achieve both legislative and administrative
reforms of government regulations. Special meetings have
been held, new studies of the impact of government regulations
have been initiated, independent agencies have taken
important steps to reform their policies, and the general
awareness of the hidden costs of regulations has been
significantly increased. With the diversity of the efforts
and the wide variety of agencies and departments involved,
some documentation of the program as a history of this
Administration and as a challenge to the new Administration
will be beneficial.
As we have worked on individual proposals and initiatives
over the past two years we have learned how little basic
information and understanding there is of government
regulations and their effect on the economy. We have
spent much of our time in recent months developing a
common definition of government regulatory activity.
We have applied this definition to all the various
bureaus and agencies of government to arrive at an
inventory of 86 organizations of the government that
have regulatory responsibilities. Using this inventory
we have been looking at regulatory enforcement techniques
and federal pre-emption of state responsibilities. Much
of this work has only begun and many of our legislative
and administrative reforms are far from complete. I
believe that a report on all of our efforts could provide
a complete catalog for the new Administration of what we
have done, what we have learned, and what needs to be
done. I would hope that this report will assure that this
bipartisan effort continues to focus on fundamental,
substantive issues of government regulation rather than
being diverted to short-term, administrative changes
that avoid the basic problems. Should we:
1. forward the report to the Congress in tandem with
the State of the Union Address; or
2. publish the material in a report to the American people; or
3. present the report to the new Administration?
Recommendation:
We recommend option 1.
Agree
Disagree
10
Obviously your guidance on these issues will reflect your
views on how best to assist the incoming Administration in
the transition and assure some continuity of the program of
regulatory reform. I would be happy to discuss this
further with you or Dick Cheney, if you wish.
information
DOMESTIC COUNCIL
FROM:
Schmults
SUBJECT:
Justice report on antitrust
Date:
12/7
COMMENTS:
Schmults asks if there is any reason not to
let Justice issue this report. It concludes
that the Robinson-Patman Act creates anti-
competition effects and should be repealed.
Leach says it is a good report and has already
been made available outside of government.
There appeas to be no reason not to permit its
release, but I thought you should be aware of
the issue.
No action necessary if you agree on release.
A.
ok.to
1
ACTION:
your
O.K.18/10
Date:
FORD is LIBRARY 0ERALD
THE WHITE HOUSE
regulations
WASHINGTON
1213
December 7, 1976
MEMORANDUM FOR:
PHILIP BUCHEN
JAMES CANNON
DICK CHENEY
JACK MARSH
BILL SEIDMAN
FROM:
ED SCHMULTS
of
The Department of Justice wishes to release a report
on the Robinson-Patman Act prepared by the Antitrust
Division. The report reflects the views of the
Antitrust Division and would not be expressing a
formal position of the Administration.
Attached is an executive summary of the Robinson-
Patman Act report. The report concludes that the
Act creates serious anti-competitive effects and
should, therefore, be repealed. In the alternative,
fundamental amendments are suggested. If you wish
to see a full copy of the report, which is about
two inches thick, please give me a call.
Attached also is a copy of a memorandum from the
Deputy Assistant Attorney General in the Antitrust
Division outlining the manner of the proposed release
of the report.
If you feel strongly that the Department of Justice
should not release the report at this time, please
give me a call before the close of business on
December 10.
Attachments
170706
EXECUTIVE SUMMARY OF DEPARTMENT OF JUSTICE
REPORT ON THE ROBINSON-PATMAN ACT
Background
Last year the President indicated in several speeches
his strong desire for consideration of reform or repeal of
the Robinson-Patman Act.
Following those Presidential statements, the Department
of Justice and other concerned agencies (including Commerce,
COWPS, SBA and OMB) under the direction of the Domestic Council
Review Group (DCRG) considered various approaches to reform of
the Robinson-Patman Act. An initial analytic paper was pro-
duced by the Antitrust Division on the Act together with two.
draft proposals for statutory reform. These were circulated:
within the Administration in July, 1975. These materials were
then made available to the House and Senate Judiciary:Com
mittees looking toward possible congressional consideration of
Robinson-Patman Act reform.
In addition, in August of 1975, a meeting of DCRG members
with representatives of various small business interests was
held at the White House to discuss possible reform proposals.
Discussions with the staffs of the Judiciary Committees
indicated that, because of the crowded legislative agenda of
both committees, hearings on any Administration proposals
for repeal or reform of the Robinson-Patman Act were unlikely
during the Second Session of the 94th Congress. It was further
suggested that additional public education as to the economic
impact of the Act would be helpful prior to congressional con-
sideration of any reform legislation
In the interim, an ad hoc committee of the House Committee
on Small Business held a series of hearings on the Robinson-
Patman Act. At these hearings a number of congressional and
small business supporters of the Act testified and opposed any
change in the Act. In addition, the FTC at the hearings was
urged to undertake more vigorous enforcement of the Act and to
devote increased resources to this effort. In this setting,
the DCRG decided that the wisest course was for it to hold a
series of public hearings on the economic impact of the
Robinson-Patman Act.
GERALD FORM
These hearings were held on December 8, 9 and 10.
Testimony was taken from over twenty witnesses including
members of the academic community, representatives of
small business associations and other businessmen, as
well as practicing attorneys. Testimony was also taken
from the Assistant Attorney General for Antitrust, Thomas
E. Kauper, and former Assistant Attorney General, Donald
F. Turner.
Following the conclusion of these hearings, the Antitrust
Division was asked to prepare a report on the Robinson-Patman
Act based on the record of the hearings and other available
evidence. The Report summarized here represents the culmina-
tion of those efforts. It should be noted that the Report
represents the views solely of the Antitrust Division and
does not express the position of the Administration.
Summary of the Report
The Report arrives at several important conclusions about
the impact of the Robinson-Patman Act. First, the Act creates
serious anticompetitive effects by deterring price flexibility,
and indeed fostering price rigidity if not price fixing;
second, the Act fosters major inefficiencies in distribution
at great cost to consumers; third, the Act fails to achieve
any significant antitrust or procompetitive objectives; finally,
the Act represents a false and illusory hope for small busi-
nesses because in the long run it fails to achieve the pro-
tectionist advantages which it promises.
On the basis of these conclusions, the Antitrust Division
recommends that the Robinson-Patman Act be repealed. In our
view, the costs of the Act far outweigh any discernible benefits:-
However, it is recognized that others believe that some price
discrimination statute is needed. Therefore, an alternative
reform recommendation has been advanced which in our judgment
would produce less adverse impact on the economy than the present
Act.
The reform proposal has basically four elements. First, it
is proposed that enforcement of the new price discrimination
statute be left solely to the FTC rather than private plaintiffs.
The FTC as a public agency would of course be concerned about
a proper application of the Act, The elimination of private
plaintiffs would remove the current ability of private business
firms to use the threat of suit and treble damage exposure to
2
GERALD FORD LIBRARY
blackmail competitors into withdrawing price reductions. A
less far reaching alternative would be to eliminate the
present treble damage provisions for private plaintiffs.
The punitive effects of these treble damage provisions clearly
deter legitimate price competition.
Second, the Report recommends that the offense of
price discrimination be narrowed to avoid the present whole-
sale interference in legitimate price competition. This
narrowing would be accomplished first by placing the burden
of proof on the plaintiff to show that a price discrimination
was not cost justified, and second, by limiting those circum-
stances in which adverse competitive injury may be inferred
to instances of systematic discrimination, or the charging of
prices below marginal costs. The current standard, which
permits a finding of liability for sporadic discrimination
or the charging of prices below fully-allocated costs
inherently inhibits a significant number of procompetitive
price reductions
Third, the report recommends that the defenses to a
charge of price discrimination reflect business realities.
Thus, businessmen should be able to justify discrimination
on the basis of reasonably anticipated future costs according
to flexible groupings of customers. Similarly, businessmen
should not be required to go through unrealistic and potentially
anticompetitive verification procedures to qualify for the
meeting competition defense.
Finally, the report recommends that the Act's present
flat prohibition against discounts in lieu of brokerage and
"nonproportional" promotional allowances be eliminated
Since, at worst these practices can only be disguised price
discriminations, it is recommended that they be evaluated
under the Act's more general provisions, requiring a showing
-
of competitive injury and permitting the interposition of
basic defenses.
Of course, the basic proposal is for repeal, of the
Act, reflecting the report's finding that the implementation
of a price discrimination statute based on faulty economic
assumptions necessarily impedes the competitive process to
the great economic detriment of consumers.
3
GERALD FORD
Robinson-Patman Creates Serious
Anticompetitive Effects
The Robinson-Patman Act is a statute of broad applicability,
governing the prices which can be charged for most commodities
and sales among businesses, including nearly all products
which are to be resold by merchants. While the statute is
intended to prevent the abuse of purchasing power by large
buyers, the actual effect of the statute is to discourage
many procompetitive price reductions.
Under Robinson-Patman, the Federal Trade Commission in
an enforcement action, or a competing business firm in a
treble damage action, can quite easily establish a prima
facie case of violation. In most instances, the
complainant need only show that one of his competitors was
able to obtain a: lower price for a product, and that such a
discount was sufficient to affect the resale price for that
item. - Once such a showing is made, the firm granting the
discount must prove that the lower. price is justified by
some cost saving in supplying the product to the favored
customer, or that the lower price is necessary to meet-a
lower price of a competing supplier. These defenses are
difficult to use. The cost-justification defense requires
detailed accounting studies, utilizing procedures which are
not part of normal accounting practice, and excluding certain
cost savings which a prudent businessman would take into
consideration. Consequently, a businessman can never know
until his case is finally adjudicated whether his cost-
justification defense will be successful. Similarly, in
order to defend a price cut on the grounds of meeting competition,
the businessman cannot simply rely on a statement from his
customer that-a lower price has been offered Rather, he
must undertake affirmative action, such as checking invoices
or price quotes, or actually calling his competitor: to
verify the bid, before a "matching" discount can be given.
Other provisions of the Act are even more restrictive,
prohibiting certain payments in lieu of brokerage and promotional
allowances regardless of their effects on competition or
cost justification.
As a consequence of this overreach of the Robinson-
Patman Act, the prudent businessman wishing to lower a price
to a particular customer must assume that a competitor or
the Federal Trade Commission will be able to successfully
4
FORD
GERALD
LIBBARY
challenge that price cut and that his ability to defend such
a cut is highly uncertain. Rather than undergo the expense
of litigation, pre-trial discovery of a firm's proprietary
cost and price data, and the possibility of costly damages
or injunctive relief, the cautious businessman will simply
decide not to cut prices.
Robinson-Patman thus promotes pricing inflexibility.
Unfortunately, such a result serves to reinforce high prices
in oligopolistic manufacturing industries. In industries
where there are few sellers, list prices tend to remain
sticky and the only way high prices will come down is
through the granting of selective discounts. These discounts
over time erode the industry's high price structure leading
to the establishment of list prices at a lower level. By
requiring that price cuts be an all or nothing affair,
Robinson-Patman serves to ensure that prices will remain
high: oligopolists know it is not in their best interests
to cut list prices tacross-the-board, except in times-of very
weak demand
The anticompetitive effect of Robinson-Patman is
compounded by the fact that the meeting competition defense
serves to encourage discussions about prices among compet-
itors, and even price fixing agreements. While the defense
does not require that a firm check directly with a competitor
before meeting his price, courts have stated that if a
businessman does discuss prices for the purpose of satis-
fying Robinson-Patman, he can be exonerated of what would
otherwise be a violation of the Sherman Act. Once such
discussions begin, actual price fixing arrangements may
result.
Finally, restrictions on price cuts to particular
customers or geographic areas serve to inhibit businesses
from engaging in promotional pricing practices to gain new
customers. To the extent that such promotional prices are
necessary to enter a market, the Act serves to insulate the
entrenched business firms from new competition.
In addition to Robinson-Patman's protection of high
prices, the Act also leads to higher costs for doing
business. Various provisions of the Act serve to protect
the existence of brokers and middlemen because the Act makes
it difficult for businessmen to restructure their distribution
systems to meet the needs of their various customers on an
5
022899
individual basis. Other restrictions on promotional allowances
also may require businesses to engage in valueless promotional
programs, again because of the inability to tailor such efforts
to the realities of the marketplace. Lastly, Robinson-Patman
leads to added costs when businessmen engage in product differenti-
ation strategies to lawfully avoid the restrictions of the Act.
In light of the legislative history of Robinson-Patman,
Congressional passage of a statute having such effects becomes
understandable. The Robinson-Patman Act was a product of two
historical occurrences. The first was the Depression. During
the early 1930s, the severe deflation, high unemployment, and
increased volume of business bankruptcies led to the general
belief that competition was not necessarily in the public
interest because it led to prices which were destructively low.
Through the NRA Codes of Fair Competition, the minimum rate
provisions of the Motor Carrier. and Civil Aèronautics Acts,
and through Robinson-Patman Congress sought to stabilize or
actually enhance, price levels At about the same time
revolution was occurring in the distribution sector The
growth of chain stores in the 1920s led to much concern among
wholesalers that absorption of the wholesaling function by
chains would force them out of business Similarly, it was
feared that the growth of chains would also mean a decline
in the number of independent retailers with whom they did
business, a fear which the retailers soon adopted. Responding
to pressures from these businessmen, state legislatures passed
chain store taxes and fair trade laws, and the Congress passed
the fair trade enabling amendment to the Sherman Act--and in
1936 passed Robinson-Patman.
Because of the understandable congressional desire to
do something about the adverse economic effects of the
Depression, and to do something to allay the fears of inde-
pendent wholesalers and retailers, it passed the Robinson-
Patman Act thoroughly understanding the economic assump-
tions and long-run economic consequences implicit in such a
statute. Thus, we find upon examination that Robinson-Patman's
basic assumptions are invalid. Today, prices should be lower,
not higher. The granting of discounts is not inherently unfair;
it is a necessary part of the dynamics of bringing down high
oligopoly prices. Price differences do not normally reflect
only differences in costs; they result from the interaction
of both supply (cost) and demand. Lower prices to some do
not mean higher prices to others; high prices to certain
6
FORD
customers indicate the presence of market power on the seller's
side and lower prices may represent a transfer of oligopoly
profits from manufacturers to consumers,
The Robinson-Patman Act Fails to Achieve Any Significant
Antitrust Goals
Robinson-Patman is claimed to be an appropriate supplement
to the other antitrust laws as a means of catching potentially
anticompetitive situations in their "incipiency" by preventing
the use of a market advantage gained through price discrim-
ination to lessen the number of competitors and decrease
competition. Unlike Section 7 of the Clayton Act which covers
structural changes caused by mergers, the conclusion that
price-discrimination will have anticompetitive effects relies
upon; a. series speculative and untested inferences: It must
be assumed that if one manufacturer is permitted to discriminate
in price-to a retailer, the effect will necessarily be to force
a disfavored businessman from the marketplace; that such a
situation would affect many other similarly- situated business-
men; and that the number-of businessmen so eliminated would be
sufficient to seriously reduce competition in the market. The
evidence shows, however, that such a chain of events just is
not likely in the case of most price discriminations. Yet,
these inferences are permitted in order that the statute may
be efficiently applied to the billions of pricing transactions
in the economy. Thus, the Act virtually presumes that any
price discrimination will have an anticompetitive effect when
the more likely truth is that the discrimination is procompetitive.
Robinson-Patman is, in fact, a regulatory statute, not
an antitrust law. Those administering it seek: to protect
businesses regardless of their relative efficiencies, and
regardless of varying demand characteristics of the markets
they serve. As such, the effect of the Act is strikingly
similar to that of the other regulatory statutes which
empower agencies to set minimum prices. Also, the Act compels
businessmen to seek legal advice before making pricing decisions,
and may require businessmen to seek advice from the Federal Trade
Commission before changing a marketing practice.
For all of this, Robinson-Patman provides no demonstrable
antitrust benefits, Proponents argue that without Robinson-
Patman, any immediate increase in competition and lowering
7
FORD
070830
of prices would be outweighed by the likelihood that markets
would become increasingly concentrated and prices would
rise. In order for that eventuality to occur, though, it
would be necessary that a discrimination be so substantial
as to force a large number of businesses out of a market,
that prices thereafter would rise to a level higher than
that charged before and that these higher prices would be
maintained for a long enough time to outweigh the benefit of
the initial price reductions. No evidence of any such
instance has been demonstrated, while testimony to the
contrary was heard by the Review Group. Likewise, studies
conducted by the Federal Trade Commission of its own enforce-
ment orders have not demonstrated that its actions had any
appreciable effect in improving competition. Rather, one
study found such orders to have no effect, and its authors
doubted that price discrimination and increases in concentration
were related.
Genuinely predatory practices, like below -marginal-cost
pricing can be dealt with under the Sherman Act Likewise,
small businessmen can counteract the buying power of larger
firms through the formation of cooperative wholesaling
operations. Indeed, testimony was. heard from one Review
Group witness that his cooperative was so successful in
countering the buying power of the chains, that one national
food chain joined his group.
Robinson-Patman Provides a False Promise to Small Business
Perhaps the greatest irony of Robinson-Patman is that
it does not protect small businesses as a class, Distribution
is a dynamic sector of the economy. In order to remain
successful, businessmen must deal with changing population
and income characteristics, changing lifestyles, changing
products, changing ways of doing business, and competition
from new shopping locations. Moreover, businessmen must
contend with competition from those who, though doing
business in the same manner and in the same area, neverthe-
less do so in ways more responsive to the desires of the
buying public. In such an environment, it is simply not
the case that the ability of one competitor to get a
somewhat lower price-- on merchandise of like grade and
quality, which discount is not cost-justified and is not
8
FORD
given to meet competition--plays any significant role in
determining the success or failure of small business as a
class.
The fact is that large and small businesses frequently
do not engage in precisely the same selling function. Small
businesses tend to provide higher price and higher service
options, while larger businesses often utilize a lower
price, lower service, mass marketing approach. The
determinant of the success or failure of a given business in
such a situation is not the cost of goods purchased, it is
consumer preference for the price/quality/service mix of
the large or small business. If a business satisfies its
customers, it will survive, if it does not, it will exit
the market, and no statute can--or should--prevent this.
Not surprisingly, the evidence available to the Review
Group does not demonstrate any effect of: Robinson-Patman on
the viability of small businesses as a group. A comparison
between the position of small businesses--retailers having
only one location- in the United States with Robinson-Patman,
and in Canada without it, shows that the percentage of
stores attributable to small business is almost identical in
both countries. In Canada, without an effective price
discrimination law, small business actually has a higher
portion of sales than does the United States.
Fair Trade laws were more protective of small business
than is the Robinson-Patman Act. Yet, Congress recently
found in repealing the Fair Trade enabling statute that
Fair Trade simply did not protect small business.
Thus for all its cost, Robinson-Patman gives only
illusory protection to the small businessman. Most small
businessmen work, very hard, to survive, and will support
any statute which offers the promise of protection. But
Robinson-Patman only offers a false promise, at a great
cost to our society as a whole.
FORD
UNITED STATES DEPARTMENT OF JUSTICE
WASHINGTON, D.C. 20530
Address Reply to the
Division Indicated
and Refer to Initials and Number
November 30, 1976
MEMORANDUM FOR: EDWARD C. SCHMULTS
DEPUTY COUNSEL TO THE PRESIDENT
STANLEY MORRIS
DEPUTY ASSOCIATE DIRECTOR
FOR MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET
FROM:
DEPUTY ASSISTANT J ATTORNEY GENERAL
JONATHAN C. ROSE
ANTITRUST DIVISION
SUBJECT:
ROBINSON-PATMAN REPORT
Enclosed for your review is a copy of the Robinson-
Patman Report which you have indicated should be released
after you have had a chance to look at it. Upon reflection,
we are inclined to think that this document should be issued
as a Department of Justice Report. The reason for this
rests upon our expectation about its ultimate utility: we
see the Report having its primary impact on courts and the
FTC considering Robinson-Patman issues. In this regard,
we think it would have its greatest impact if it were
viewed like the 1955 Attorney General's Report on the
Antitrust Laws, i.e., as a non-political evaluation of an
antitrust law.
You will note the Report contains various typographical
errors which we estimate could be cleaned up in a matter of
hours.
ce: (mems & Report) -
Stanley marris (OMB)
REVOLUTION /
/
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"ocrText": "The original documents are located in Box 29, folder \"Regulatory Reform (15)\" of the James\nM. Cannon Files at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 29 of the James M. Cannon Files at the Gerald R. Ford Presidential\nLibrary\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 9, 1976\nMEMORANDUM FOR:\nALLEN MOORE\nFROM:\nPAUL LEACH\nPaul\nSUBJECT:\nAttached Letter\nHere are my proposed revisions in this letter, if we\nwant to send it.\nDo you know who drafted the letter?\nThis is a politically sensitive subject and should be\ntreated with care.\nPlease call me.\nTHE WHITE HOUSE\nACTION MEMORANDUM\nWASHIN\nLOG NO.:\nDate:\nSeptember 9, 1976\nTime:\nFOR ACTION:\nCC (for information):\nJim Cannon\nJim Lynn\nDave Gergen\nBob Hartmann\nFROM THE STAFF SECRETARY\nDUE: Date:\nFriday, Sept. 10\nTime:\n2 P.M.\nSUBJECT:\nProposed Letter to Michael Parkhurst\nPresident of Independent Truckers Association\nACTION REQUESTED:\nFor Necessary Action\nX For Your Recommendations\nPrepare Agenda and Brief\nDraft Reply\nX\nFor Your Comments\nDraft Remarks\nREMARKS:\nAm told inquiry was made by telephone.\nChanges noted w text. lether\nFORD\nPLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.\nIf you have any questions or if you anticipate a\ndelay in submitting the required material, please\nJim Connor\ntelephone the Staff Secretary immediately.\nFor the President\nTo ELIMINATE RESULATORY\nTHE WHITE HOUSE\nWASHINGTON\nTRUCKING\nOF\nSeptember 7, 1976\nINDUSTATORY\nReFORM\nPROPOSED\nDear Mr. Parkhurst:\nIn response to your incuiry concerning regulatory reform\nin the trucking industry) I would like to outline my\nUNDER eACH\nAdministration's policy goals and comment on the legislation\nintended to help achieve these goals.\nbill\nAS you know, there are three bills pending in the Congress\nwhich address the issue These include S.2271, co-\nand\nsponsored by Senator Buckley; H. .R.12386, co-sponsored\nby Congressman Kemp, and the Motor Carrier Reform Act\n(H.R. 10909\n5,2929\nwhich was introduced at my request. While the bills\ndiffer somewhat in content, HH support the concept of THey eACH\nATTEMPT\npermitting more competition in the industry) HH believe\nTo encourage\nthat a strong and prosperous trucking industry is vital\nto our Nation Truckers should be able to offer consumers\nMORE\na wider choice of prices and services than AND WOUL!\nwhat transportation services can be\nBe SUBJECT\noffered, what routes can be served and what rates can\nbe charged.\nTo FeweR\nIN eACH\nDICTATES\nefforts to increase competition in the trucking industry\nINSTANCE\nwould include removal of restrictions that would allow\nFROM\nthe independent trucker, as a small businessman, to compete\nWASHINGTON\nmore effectively with the larger trucking concerns.\nNew TT\nINTERSTATE COMMERCE COMMISSION\nAS To\nAt the same time, I am encouraged bykefforts\nto allow for more competition in the industry by changing THose\narchaic or restrictive rules and regulations which are\nanticompetitive. As you I there are items pending\non the ICC docket which would make the trucking industry\nARe\nmore competitive, thereby the small, independent\nAWARe,\ntruckerna more even footing\nwhich to compete.\nWITH\nUPON\nPROVIDING\nI FULLY SUPPORT THe goAL OF MORE competition AND\nTY\nLess government REGULATION IN THe TRUCKING\nINDUSTRY AND BeLieve THAT THIS KIND OF\nReguLATORY ReFORM LegisLATION WILL HeLD To keep\nOUR VITAL TRUCKING PROSPEROUS. INDUSTRY STRONg AND FORD\n1817\nI hope this effectively answers the important questions\nyou paided concerning FY Administration's regulatory\nreform policy iN THe TRUCKING INDUSTRY.\nSincerely,\nMr. Michael Parkhurst\nPresident of Independent Truckers Association\nPost Office Box 54078\nLos Angeles, California 90054\nFORD & LIBRARY GERALD\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 7, 1976\nDear Mr. Parkhurst:\nIn response to your incuiry concerning regulatory reform\nin the trucking industry, I would like to outline my\nAdministration's policy goals and comment on the legislation\nintended to help achieve these goals.\nAS you know, there are three bills pending in the Congress\nwhich address these issues. These include S.2271, co-\nsponsored by Senator Buckley; H.R. 12386, co-sponsored\nby Congressman Kemp, and the Motor Carrier Reform Act,\nwhich was introduced at my request. While the bills\n.\ndiffer somewhat in content, I support the concept of\npermitting more competition in the industry. I believe\nthat a strong and prosperous trucking industry is vital\nto our Nation. Truckers should be able to offer consumers\na wider choice of prices and services, rather than having\nWashington dictate what transportation services can be\noffered, what routes can be served and what rates can\nbe charged.\nEfforts to increase competition in the trucking industry\nwould include removal of restrictions that would allow\nthe independent trucker, as a small businessman, to compete\nmore effectively with the larger trucking concerns.\nAt the same time, I am encouraged by efforts by the ICC\nto allow for more letition in the industry by changing\narchaic or restrictive rules and regulations which are\nanticompetitive. As you know, there are items pending\non the ICC docket which would make the trucking industry\nmore competitive, thereby giving the small, independent\ntrucker a more even footing from which to compete.\nGERALD FORD LIBRARY\nI hope this effectively answers the important questions\nyou raised concerning my Administration's regulatory\nreform policy.\nSincerely,\nMr. Michael Parkhurst\nPresident of Independent Truckers Association\nPost Office Box 54078\nLos Angeles, California 90054\nFORD & LIGRARY GERALD\nTHE WHITE HOUSE\nK -\nWASHINGTON\nSeptember 16, 1976\nTalk wr\nEd Schulto\nMEMORANDUM TO:\nPAUL LEACH\nFROM:\nJIM CANNON\nRegulator Jun\nSUBJECT:\nAt the 8:00 Staff Meeting this morning, Bill Seidman\nreported that EPA is objecting to our regulatory reform\nefforts.\nWhy was I not informed about this?\nPlease give me a report on this situation today.\nCC: Art Quern\nJim-\nNot having heard Bill's comment, J cannot be sure of\nprecisely what objections were raised. However,\nPaul MacAvoy has been talking with EPA about setting\nup one of Paul's \"Presidential Task Forces\" to work\non improving the Inflation Impact Statement analysis\nprocess at EPA and Train has apparently objected that\nthis is \"discriminatory\". Bill Seidman and Paul have\nhad some discussions with Train on this matter and these\nmay be continuing. I have had no involvement in this\nEPA matter.\nReul\n81 9 Rd\n91\ndES\n9L6\nfile\nTHE WHITE HOUSE\nWASHINGTON\nSeptember 16, 1976\nMEMORANDUM TO:\nPAUL LEACH\nFROM:\nJIM CANNON\nSUBJECT:\nRegulator Jun\nAt the 8:00 Staff Meeting this morning, Bill Seidman\nreported that EPA is objecting to our regulatory reform\nefforts.\nWhy was I not informed about this?\nPlease give me a report on this situation today.\nCC: Art Quern\n[oct.\nchron\nACTION\nBy\nDOMESTIC COUNCIL\nFROM:\nED SCHMULTS\nSUBJECT:\nMemo to the President re:\nIndependent Regulatory Commission\ncirculated for senior staff comment\nDate:\nCOMMENTS:\nSchmults suggests a general letter of\nacknowledgment be sent to chairmen of\nIndependent Regulatory Commission thanking\nthem for progress reports.\nHe also suggests a meeting during the budget\nprocess to discuss continuing regulatory re-\nform efforts.\nThe memo includes brief summaries of progress\nreports of ten Regulatory Commissions. You\nmay be interested in looking them over.\nAlso, you should indicate a preference on the\nrecommendation at p.2.\nLeach recommends \"agree.\"\nPull Ms Schults can the about\nACTION:\nw\nDate:\n, mmL\nACTION\nDOMESTIC COUNCIL\nfile\nFROM:\nED SCHMULTS\nSUBJECT:\nMemo to the President re:\nIndependent Regulatory Commission\nS\ncirculated for senior staff comment\nDate:\nCOMMENTS:\nSchmults suggests a general letter of\nacknowledgment be sent to chairmen of\nIndependent Regulatory Commission thanking\nthem for progress reports.\nHe also suggests a meeting during the budget\nprocess to discuss continuing regulatory re-\nform efforts.\nThe memo includes brief summaries of progress\nreports of ten Regulatory Commissions. You\nmay be interested in looking them over.\nAlso, you should indicate a preference on the\nrecommendation\nat\np.2.\nPull Leach recommends Ms \"agree.\" Schults can the about\nACTION:\nDate:\nFORD & LIBRARY GERALD\nw your you\nThe\nyou\nTHE WHITE HOUSE\nACTION MEMORANDUM\nWASHINGTON\nLOG NO.:\nDate: October 29, 1976\nTime:\nFOR ACTION:\ncc (for information):\nDouglas Bennett\nJim Lynn\nJim Cannon\nJack Marsh\nAllan Greenspan\nBrent Scowcroft\n976 OUT 29 FY I 30\nBob Hartman\nBill Seidman\nFROM THE STAFF SECRETARY\nDUE: Date:\nTime:\nWednesday, November 3, 1976\n10:00 A.M.\nSUBJECT:\nEdward C. Schmults memo, 10/28/76 re\nSummary of Progress Reports from Independent\nRegulatory Commissions.\nACTION REQUESTED:\nFor Necessary Action\nX For Your Recommendations\nPrepare Agenda and Brief\nDraft Reply\nX For Your Comments\nDraft Remarks\nREMARKS:\nPLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.\nIf you have any questions or if you anticipate a\ndelay in submitting the required material, please\nJim Connor\ntelephone the Staff Secretary immediately.\nFor the President\n101909\nTHE WHITE HOUSE\nWASHINGTON\nOctober 28, 1976\nMEMORANDUM FOR:\nTHE PRESIDENT\nFROM:\nEDWARD C. SCHMULTS II\nSUBJECT:\nSummary of Progress Reports from\nIndependent Regulatory Commissions\nIssue\nWhat should be the Administration's next steps in dealing\nwith the ten independent regulatory commissions?\nBackground\nAs you recall, on April 8, 1976 you met with the Chairmen\nof the ten independent commissions to discuss the steps\nwhich each agency was taking toward your regulatory reform\ngoals. At the conclusion of that session you asked each of\nthe commissions to prepare a second progress report by\nSeptember 15, which would concentrate particularly on their\naccomplishments and identify specific savings to consumers\nand taxpayers.\nWe have reviewed the reports of these ten agencies and\nhave prepared brief highlights for each agency, indicating\nwhat appear to be their major successes and pointing out\nthe largest persisting problems. (See attachment at Tab A.)\nThe full reports are included at Tab B.\nDiscussion\nThe agencies are concentrating primarily on reducing\nprocedural delays and have achieved some progress in\neliminating unnecessary paperwork. However, few have\nreported any major gains in reducing federal regulation\nand relying more on competition and less on direct federal\ncontrols. For example, although the ICC is trying to reduce\nits backlog of cases, the Commission has opposed most of\nyour fundamental reform proposals. Likewise, the FPC is\nconcentrating on eliminating costly time delays, but it has\nnot proposed any major changes in the legislation which\nrequires the large volume of cases.\n2\nIn addition, I understand that these agencies have requested\nmajor resource increases for the coming year. I believe\nthat much of your commitment to reducing unnecessary govern-\nment involvement will be measured against changes in the\nsize of the federal bureaucracy, and that concentrated\nefforts must be made to accelerate reform efforts in\nregulatory agencies without adding more people. I know\nthat Jim Lynn and his people are looking carefully at all\nregulatory agencies in light of your concerns, and at some\npoint it may make sense for us to discuss with him his\nrecommendations for the FY '78 budget. It is my view that\nthis budget is an important opportunity for you to emphasize\nyour overall regulatory policies and your commitment to\ninsuring that federal regulations are used only when other\noptions are clearly inadequate.\nRecommendation\nIn the interim, I recommend that you acknowledge the reports\nfrom the ten independent commissions without committing\nthese agencies at this time to additional meetings or reports.\nA draft for your approval is included in this book at Tab C.\nAgree\nDisagree\nSee Me\nAttachments\nTHE WHITE HOUSE\nWASHINGTON\nDATE: 10/29\nTO: Paul L.\nFROM:\nALLEN MOORE\nSUBJECT:\nACTION:\nFYI: /\nfor your recommendation\nOK-PCL-\nTAB A\nSummary of Reports from\nIndependent Regulatory Commissions\n1. Interstate Commerce Commission\nThe Railroad Revitalization Act which you proposed (and\nan amended version of which was signed into law) calls\nfor increased pricing flexibility in the industry and\nnew market opportunities for carriers. Although the\nICC indicates some procedural improvements, the Com-\nmission's report does not evidence an understanding\nthat fundamental reform may mean less regulation, or\nnew forms of regulation. While the Commission has\nproposed that some of the procedural improvements\nenacted in the Rail Bill be extended to other modes,\nthe Chairman has opposed most of the provisions in your\nprogram of reforms for the industries under ICC\njurisdiction.\n2. Civil Aeronautics Board\nChairman Robson has exhibited strong leadership in\nproposing ways to reduce the CAB's control over\ndomestic airlines. He has supported an air bill similar\nto yours, has succeeded in getting the Board to\nsubstantially liberalize its rules governing charter\nairlines, and has been sensitive to the need for\nalternatives to the current system of government\nsubsidies to rural air carriers. The Board's report\nhowever, does not clearly identify a desirable time-\ntable for changes. The Board also rejected some\ninnovative ideas that would have helped expedite\ninternal procedures and we continue to believe that\nthe CAB can, with more effort, accomplish significant\npaperwork reductions.\n3. Federal Maritime Commission\nThis agency has been involved in a jurisdictional\nstruggle with the ICC over regulation of containerized\nshipping for more than a dozen years. Little progress\nhas been achieved in working out a sensible system\nwhich will promote, rather than restrict, this important\ntechnological development which could lead to major\nsavings for shippers. The FMC continues to believe\nthat the way to carry out its mandate is to preserve\nstability in the merchant shipping industry, at the\nexpense of greater price competition. The Commission\ndoes recognize the need for major internal improvements\nbut does not appear to share your view that regulatory\nreform should include opportunities for a reduced federal\nrole.\n2\n4. Federal Power Commission\nThe Power Commission is faced with a problem of major\nadministrative delays, a point which Chairman Dunham\nrecognizes as a priority for needed improvements.\nAlthough his report discusses a number of hoped for\nremedies, the essential problem still remains--namely\nthat the government established price of natural gas\ndiffers significantly from a more realistic market\ndetermined price. In large part, the Commission's\npaperwork problems stem from a flood of applications\nfrom those regulated industries seeking to operate\nprofitably in a market which has been artificially\ncontrolled. The Commission has adopted a new nationwide\nceiling rate for interstate gas sales which is designed\nto compensate for this problem, but legislative relief\nremains the only real long term answer. Congressional\nopposition to de-regulation is still well organized\nand effective.\n5. Nuclear Regulatory Commission\nThe Commission appears acutely aware of the extreme\ncost of delays in approving license applications for\nnuclear generating stations. The Commission is using\nvalue-impact analyses extensively to weigh the merits\nof proposed regulations and has reached your initial\ngoal of a 10 percent reduction in paperwork. It is\nalso trying to implement performance standards for\nphysical security safeguards. There is a very complex\ntangle of federal, State, and local laws and regulations\nwhich govern these projects, but the Chairman has\ndevoted substantial effort to rationalizing this maze.\nResults will be a long time coming, though, and actual\nprogress to date has been only minimal.\n6. Federal Trade Commission\"\nThe Commission has put a lot of effort into reducing\ndelays and has achieved some impressive results. It\nstill requires a substantial volume of information from\nAmerican businesses, much of which is time consuming\nand expensive to furnish, and the need for which is\nstill quite controversial. The FTC has identified a\nnumber of State practices (e.g., restrictions on\nadvertising prices for eyeglasses and prescription drugs)\nwhich it believes are anti-competitive. There is a\ngreat need for the Commission to cooperate more with\nother federal and State agencies in defining its\nappropriate consumer protection responsibilities, but\nthe Commission's report does not identify any ways in\nwhich greater reliance can be placed on self-regulation\nwithin industries.\n3\n7. Securities and Exchange Commission\nThe Chairman's report is most responsive to your\ndesire to see reduced paperwork burdens. The\nCommission appears to be working to strengthen the\nsecurities industry's self-regulatory bodies and to\npromote more competition between participants in the\ncapital markets. However, the SEC continues to expand\nits staff and operations, at obvious increased costs\nto the taxpayer. It is also important to note that\nsome of its disclosure proposals and requested additional\nauthorities have not been supported by well analyzed\nand clearly articulated documentation. Several\ncontroversial proposals, particularly in the area of\naccounting practices and reporting requirements, have\nbeen withdrawn or modified due to pressure from\nregulated companies. Objective analyses of these\nproposals beforehand could have helped weigh their\ncosts and benefits.\n8. Federal Communications Commission\nThe FCC has taken several steps to introduce competition\nwithin the telecommunications industry, however, it\nbelieves that these changes will require a larger number\nof personnel and more vigilant enforcement of existing\nlaws. The Chairman is keenly aware of your concerns\nfor reductions in paperwork and administrative backlog,\nbut we continue to believe that the cable television\nindustry, boradcasting, and a number of specialized\ncommunications areas (e.g., citizens band radio) could\nbenefit from less, rather than more, federal intervention.\nLike many agencies, the FCC is requesting large increases\nin personnel for purposes of enforcing existing statutes,\nbut it has not identified in its report areas where\nlegislative reforms could. accelerate reliance on a\ndifferent mix of public-private enforcement techniques.\n9. Commodity Futures Trading Commission\nThe CFTC report is largely prospective, but the Chairman\nappears to be conscious of your desire to see self-\nregulation used wherever possible. Although it has not\nyet become an issue, paperwork requirements laid on by\nthis agency represent perhaps the most significant\npotential problem. The CFTC report indicates that the\nChairman hopes to eliminate some 350,000 individual\n4\ntrader reports every year, but no timetable is cited.\nDespite the Chairman's stated belief that all federal\nregulators should be forced to justify themselves\nevery ten years, the CFTC is requesting substantial\nbudget increases and has indicated that previously\nunregulated areas of the industry require new federal\nvigilance.\n10. Consumer Product Safety Commission\nThe Commission's report does not identify specific\nintentions or results in paperwork reduction, or\nsavings to consumers or taxpayers. There is a major\nquestion as to how long such a federal agency should\nexist, particularly in view of the fact that many\nState and local governments have established their\nown programs, and your directives to Executive branch\nagencies have helped to sensitize them to the need\nfor more concern over consumer representation and\nsafety. Individual product liability standards and\nprivate damage suits could have substantially more\nimpact on manufacturers' products than any federal\nstandards, but the Commission's report does not\nindicate what options to the current system of federal\npreemptive safety standards are being analyzed.\nTAB\nC\nTHE WHITE HOUSE\nWASHINGTON\nDRAFT\nDear Mr. Chairman:\nThank you for your recent progress report on steps being\ntaken to improve your commission's regulatory programs.\nI was pleased to see that you and the other Chairmen\nhave succeeded in focusing your commissions on the problems\nof procedural delay. I am hopeful that these first results\nwill be just a beginning toward eliminating unnecessary\npaperwork and streamlining the agency's operations. I am\nencouraged by your interest in applying more rigorous\neconomic analysis to existing and proposed regulations,\nin an effort to determine whether the benefits of federal\ncontrols clearly outweigh their costs.\nHowever, I ask that you develop and implement imaginative\nand effective alternatives to existing federal regulations.\nProcedural improvements, while very important, should be\naugmented with changes which place a greater reliance on\nthe private sector or state and local governments to solve\nimportant problems.\nYour report raises a number of important issues and problems,\nand I hope that you will devote increasing efforts to\nfinding ways to accomplish a better regulatory program\nwith a minimum of federal resources. I look forward to\ncontinuing our discussions and wish you great success in\nyour current program of reforms.\nSincerely,\nGerald R. Ford\nCopies to Chairmen of:\nICC\nFTC\nCAB\nSEC\nFMC\nFCC\nFPC\nCFTC\nNRC\nCPSC\nReg Refon Ry\nTHE WHITE HOUSE\nWASHINGTON\nNovember 12, 1976\nMEMORANDUM FOR THE PRESIDENT\nTHROUGH:\nJAMES CANNON\nFROM:\nEDWARD SCHMULTS SCS\nSUBJECT:\nRequest for Guidance on\nRegulatory Reform Program\nWe would like your guidance on steps that should be taken in\nthe next two months concerning your regulatory reform program.\nBased on your guidance we will develop specific proposals for\nyour consideration in the near future.\nRegulatory reform has been a major initiative of your Admin-\nistration and I believe we need to consider ways to assure\nthe continuity of this effort. Your guidance is needed on:\nI)\nWhether to resubmit current or modified legislative\nproposals when Congress reconvenes;\nII)\nWhat actions are to be taken on studies and\nevaluations already underway;\nIII)\nWhether to publish what we have learned about\nother regulatory areas; and\nIV)\nWhether to make public a report currently being\nwritten on the regulatory reform program and, if\nso, how?\nYour decisions on certain of these issues would be reflected\nin your State of the Union address.\nI. LEGISLATION\nA. Agenda for Government Reform\nThe Agenda for Government Reform Act was submitted\nto the Congress on May 13, 1976. This legislation\nhas been the center piece of your regulatory reform\nprogram and it has received widespread press and\npublic attention. The bill was introduced in the\nSenate by Senator Scott and in the House by Congress-\nman Rhodes. Hearings on the Agenda and\n2\na similar bill introduced by Senator Percy and\nSenator Byrd were held in the Senate. Fourteen\nmembers of the House Government Operations Committee\nwrote to Chairman Brooks urging him to hold hearings\non these bills. However, none were held. With\nSenator Byrd's and Congressman Rhodes' support\nof the concept of the bill, consideration in the\n95th Congress is quite probable. We believe that\nthe sector approach embodied in the Agenda is still\nthe best way to achieve comprehensive reform. Our\nefforts during the last session to reach a\ncompromise with the agency-by-agency approach\ntaken by the Percy-Byrd supporters were not success-\nful. However, in the process, we developed improve-\nments to the Agenda which would increase citizen\nparticipation in identifying problems and allow a\n\"sunset\" provision on those laws to which the Congress\nand the President agreed. Should we:\n1. submit the revised version of the Agenda which was\ndeveloped following discussions with Senator Percy;\nor\n2. provide background materials for the new\nAdministration?\nRecommendation:\nWe recommend option 1. This legislation would be ready\nwhen Congress convenes.\nAgree\nDisagree\nB. Aviation Act of 1975\nOn October 8, 1975 the Aviation Act of 1975 was\nsubmitted to the Congress. Extensive hearings\nhave been held in both the House and the\nSenate. Senator Kennedy, Senator Cannon, and\nRepresentatives Anderson and Snyder have all\nsubmitted their own reform bills. Senator Pearson\nhas also indicated he will be submitting a bill\nin the 95th Congress. Early consideration by the\nCongress is considered a certainty. In your speech\nGERALD\n3\nat Kennedy Airport you said that the aviation\nregulatory reform legislation would be sent to\nCongress when they convene. On the Aviation\nAct, should we:\n1. resubmit the Aviation Act as it is currently\nwritten when the Congress reconvenes, or\n2. modify the Act in light of the other airline\nreform proposals and the hearing record and\nresubmit to the 95th Congress; or\n3. provide background materials for the new\nAdministration?\nRecommendation:\nWe recommend option 2. This legislation would be ready\nwhen Congress convenes.\nAgree\nDisagree\nC. Motor Carrier Reform Act\nThe Motor Carrier Reform Act was sent to the Congress\non November 13, 1975. The House held hearings on\nthe bill in September 1976 and the Senate has\nasked for written comments on the bill in lieu of\nhearings. In addition, a pamphlet was developed,\nbut not printed, which explains the rationale for\nthe legislation and outlines and rebuts many of\nthe major objections to the legislation. One of\nthe major opponents of the bill, Senator Hartke,\nwas defeated but congressional interest in the bill\nwill require considerable executive attention. At\nthe recent convention of the American Trucking\nAssociation, a group which has been particularly\nvocal in its opposition to the bill, Secretary Coleman\nindicated that the Administration was willing to\nconsider modifications to the original bill before\nit would be resubmitted. Should we:\n1. resubmit the Motor Carrier Reform Act in its\npresent form; or\n2. modify the current provisions to take into\nconsideration arguments that have been raised\nand resubmit the bill; or\n4\n3. publish the pamphlet and provide background\nmaterials for the new Administration; or\n4. do not publish pamphlet but provide background\nmaterials for the new Administration?\nRecommendation:\nWe recommend option 3. The printing and distribution\nof the pamphlet could be done immediately and it\nwould provide a useful addition to the debate on the\nfuture of ICC regulation.\nAgree\nDisagree\nD. Financial Institutions Act\nThe Financial Institutions Act passed the Senate 79-14\non December 11, 1975, but the Senate Finance Committee\ndid not consider the tax provisions necessary to carry\nout the bill. In the House, the bill was divided into\nthree separate bills and the main provisions of the FIA\nwere incorporated into the Financial Reform Act. Due\nto strong opposition from labor and the smaller state\nbanks, that bill was never passed by the House Committee.\nInstead, Congress extended interest rate regulation\n(Regulation Q) until March 1977. During the debate\non FIA, the structure of the banking regulatory\nagencies was the subject of congressional criticism.\nThe EPB asked agencies to develop proposals for\npossible changes to the present structure of those\nregulatory agencies. Should we:\n1. resubmit the Financial Institutions Act to the\n95th Congress in the Senate-passed form; or\n2. modify the bill so that it might be more acceptable\nto the House, and resubmit the bill; or\n3. provide background materials on the FIA, the\nextension of Regulation Q and the structure of\nthe banking regulatory agencies for review by\nthe new Administration?\n5\nRecommendation:\nWe recommend option 3. Several provisions of the bill\nand the tax changes needed to carry out the bill should\nreceive further study.\nAgree\nDisagree\nE. Patent Reform Bill\nAn Administration bill to modernize and reform the\npatent system was submitted to the Senate in March\n1975. A compromise bill was passed by the Senate\non February 25, 1976. Hearings on patent reform\nwere not held in the House and there was continuing\ndisagreement among executive branch agencies as to\nthe best strategy to pursue patent reform. Should\nwe:\n1. resubmit the Administration bill to the 95th\nCongress; or\n2. provide background materials on patent reform for\nconsideration by the new Administration?\nRecommendation:\nWe recommend option 2. There probably is not sufficient\ntime to accommodate the varying positions in a compromise\nbill.\nAgree\nDisagree\nF. Deregulation of New Natural Gas\nAdministration legislation proposing deregulation of\nnew natural gas was sent to the Congress as a part of\nthe Energy Independence Act in January 1975. In\nOctober 1975 the Senate passed a five-year phase-out\nof controls on new natural gas. In February 1976,\nthe House passed a bill which would remove price\ncontrols from smaller producers of natural gas,\ncontinue price controls on large producers, and\nextend controls to the intrastate as well as the\ninterstate market. The congressional impasse was\n6\nnever resolved during the 94th Congress. In the\nmeantime, the Federal Power Commission announced\nthat it would allow the price of new natural gas\nto increase to more than double its current price\nand the courts have given preliminary approval of the\nincrease. The controversy will likely continue into\nthe 95th Congress. Should we:\n1. resubmit a new natural gas deregulation bill\nto the 95th Congress; or\n2. provide background materials for the new\nAdministration?\nRecommendation:\nWe recommend option 1. The legislation would be\navailable when the Congress convenes.\nAgree\nDisagree\nII. STUDIES AND EVALUATIONS\nA. Inflation Impact Statements\nThe Executive Order 11821, which requires executive\nbranch agencies to prepare Inflation Impact Statements\nanalyzing the economic effects of their major regulatory\nand legislative proposals, expires December 13, 1976.\nOMB and the Council on Wage and Price Stability have\nunderway an evaluation of the IIS program. The\nevaluation will be completed later in the fall in\npreparation for a decision on future directions in\nthis area (i.e., to permit the executive order to\nexpire, modify it to ensure that agencies consider\nthe economic impacts of their decisionmaking, or\nexpand it to include other administrative reforms).\nDuring the 94th Congress various congressional bills,\nincluding the proposal creating a consumer protection\nagency, have included provisions requiring an economic\nimpact statement. Although none of the bills became\nlaw, legislation mandating an economic impact\nstatement is very likely in the 95th Congress. OMB\nand CWPS will complete the evaluation by December 15, 1976.\nShould we:\n7\n1. modify and issue the executive order based on the\nevaluation; or\n2. issue a three month extension of the current\nexecutive order and present evaluation and options\nto the new Administration; or\n3. take no action and present evaluation to the new\nAdministration?\nRecommendation:\nWe recommend option 2.\nAgree\nDisagree\nB. Progress Reports from the Independent Regulatory Agencies\nThe second progress reports from the ten independent\nregulatory commissions have been received and analyzed.\nA separate memorandum is being forwarded to you.\ncomplete\nC. Short-Term Task Forces\nOn May 13, 1976 short-term task forces were set up to\nstreamline and simplify the regulations of the Federal\nEnergy Administration, the Occupational Safety and\nHealth Administration in the Department of Labor, and\nthe Export Control Administration in the Commerce\nDepartment. Reports from these task forces are being\ndeveloped and will be completed by early December.\nShould we:\n1. issue the reports, as they are finished, with a\nPresidential statement on the benefits of regulatory\nreform to the American people; or\n2. hold the reports for inclusion in the State of the\nUnion with distribution to follow immediately after\nthe SOTU; or\n3. hold the reports for the new Administration to decide\nwhether or not to issue them?\nRecommendation:\nWe recommend option 1. The reports will be completed\nin the next several weeks and will demonstrate the\npotential for reform in the Executive Branch agencies.\nAgree\nDisagree\n8\nIII. PUBLICATION OF REPORTS\nOver the first two years, several areas of possible\nreform have been carefully studied and preliminary\nreports prepared on the anti-competitive effects of\nmuch government regulation. Final reports could be\nissued in the next two months on the Robinson-Patman\nAct and on studies completed in conjunction with an\nAntitrust Immunities Task Force.\nA. Report on the Robinson-Patman Act\nThe Department of Justice, under the aegis of the\nDomestic Council, has held hearings on the Robinson-\nPatman Act and written a preliminary report on its\nanti-competitive effects. The final report could\nsummarize the present findings and present options\nfor the repeal or modification of the present Act.\nShould we:\n1. authorize the Department of Justice to complete\nthe final report for review by the White House\nbefore release; or\n2. publish no report but present report recommen-\ndations to the new Administration?\nRecommendation:\nRecommend Option 1.\nAgree\nDisagree\nB. Antitrust Immunities Task Force\nThe Antitrust Immunities Task Force which was chaired\nby the Assistant Attorney General for Antitrust was\nestablished in February, 1975. The Task Force has\ncompleted extensive analysis on the anti-competitive\neffects of maritime shipping conferences, the insurance\nindustry, and communications. A final report by the\nTask Force could present the considerable information\nand analysis that have been accumulated and outline\nwhat further analysis is required. Should we:\n1. authorize the Department of Justice to prepare\na final report for review by the White House\nbefore release; or\n2. publish no report; prepare only a summary of the\nwork of the Antitrust Immunities Task Force for\nthe new Administration?\nRecommendation:\nRecommend Option 1.\nAgree\nDisagree\n9\nIV. REPORT ON THE REGULATORY REFORM PROGRAM\nFor more than two years government-wide efforts have been\nundertaken to achieve both legislative and administrative\nreforms of government regulations. Special meetings have\nbeen held, new studies of the impact of government regulations\nhave been initiated, independent agencies have taken\nimportant steps to reform their policies, and the general\nawareness of the hidden costs of regulations has been\nsignificantly increased. With the diversity of the efforts\nand the wide variety of agencies and departments involved,\nsome documentation of the program as a history of this\nAdministration and as a challenge to the new Administration\nwill be beneficial.\nAs we have worked on individual proposals and initiatives\nover the past two years we have learned how little basic\ninformation and understanding there is of government\nregulations and their effect on the economy. We have\nspent much of our time in recent months developing a\ncommon definition of government regulatory activity.\nWe have applied this definition to all the various\nbureaus and agencies of government to arrive at an\ninventory of 86 organizations of the government that\nhave regulatory responsibilities. Using this inventory\nwe have been looking at regulatory enforcement techniques\nand federal pre-emption of state responsibilities. Much\nof this work has only begun and many of our legislative\nand administrative reforms are far from complete. I\nbelieve that a report on all of our efforts could provide\na complete catalog for the new Administration of what we\nhave done, what we have learned, and what needs to be\ndone. I would hope that this report will assure that this\nbipartisan effort continues to focus on fundamental,\nsubstantive issues of government regulation rather than\nbeing diverted to short-term, administrative changes\nthat avoid the basic problems. Should we:\n1. forward the report to the Congress in tandem with\nthe State of the Union Address; or\n2. publish the material in a report to the American people; or\n3. present the report to the new Administration?\nRecommendation:\nWe recommend option 1.\nAgree\nDisagree\n10\nObviously your guidance on these issues will reflect your\nviews on how best to assist the incoming Administration in\nthe transition and assure some continuity of the program of\nregulatory reform. I would be happy to discuss this\nfurther with you or Dick Cheney, if you wish.\nTHE WHITE HOUSE\nWASHINGTON\nNovember 12, 1976\nMEMORANDUM FOR THE PRESIDENT\nTHROUGH:\nJAMES CANNON\nFROM:\nEDWARD SCHMULTS SS\nSUBJECT:\nRequest for Guidance on\nRegulatory Reform Program\nWe would like your guidance on steps that should be taken in\nthe next two months concerning your regulatory reform program.\nBased on your guidance we will develop specific proposals for\nyour consideration in the near future.\nRegulatory reform has been a major initiative of your Admin-\nistration and I believe we need to consider ways to assure\nthe continuity of this effort. Your guidance is needed on:\nI)\nWhether to resubmit current or modified legislative\nproposals when Congress reconvenes;\nII)\nWhat actions are to be taken on studies and\nevaluations already underway;\nIII)\nWhether to publish what we have learned about\nother regulatory areas; and\nIV)\nWhether to make public a report currently being\nwritten on the regulatory reform program and, if\nso, how?\nYour decisions on certain of these issues would be reflected\nin your State of the Union address.\nI. LEGISLATION\nA. Agenda for Government Reform\nThe Agenda for Government Reform Act was submitted\nto the Congress on May 13, 1976. This legislation\nhas been the center piece of your regulatory reform\nprogram and it has received widespread press and\npublic attention. The bill was introduced in the\nSenate by Senator Scott and in the House by Congress-\nman Rhodes. Hearings on the Agenda and\n2\na similar bill introduced by Senator Percy and\nSenator Byrd were held in the Senate. Fourteen\nmembers of the House Government Operations Committee\nwrote to Chairman Brooks urging him to hold hearings\non these bills. However, none were held. With\nSenator Byrd's and Congressman Rhodes' support\nof the concept of the bill, consideration in the\n95th Congress is quite probable. We believe that\nthe sector approach embodied in the Agenda is still\nthe best way to achieve comprehensive reform. Our\nefforts during the last session to reach a\ncompromise with the agency-by-agency approach\ntaken by the Percy-Byrd supporters were not success-\nful. However, in the process, we developed improve-\nments to the Agenda which would increase citizen\nparticipation in identifying problems and allow a\n\"sunset\" provision on those laws to which the Congress\nand the President agreed. Should we:\n1. submit the revised version of the Agenda which was\ndeveloped following discussions with Senator Percy;\nor\n2. provide background materials for the new\nAdministration?\nRecommendation:\nWe recommend option 1. This legislation would be ready\nwhen Congress convenes.\nAgree\nDisagree\nB. Aviation Act of 1975\nOn October 8, 1975 the Aviation Act of 1975 was\nsubmitted to the Congress. Extensive hearings\nhave been held in both the House and the\nSenate. Senator Kennedy, Senator Cannon, and\nRepresentatives Anderson and Snyder have all\nsubmitted their own reform bills. Senator Pearson\nhas also indicated he will be submitting a bill\nin the 95th Congress. Early consideration by the\nCongress is considered a certainty. In your speech\n3\nat Kennedy Airport you said that the aviation\nregulatory reform legislation would be sent to\nCongress when they convene. On the Aviation\nAct, should we:\n1. resubmit the Aviation Act as it is currently\nwritten when the Congress reconvenes, or\n2. modify the Act in light of the other airline\nreform proposals and the hearing record and\nresubmit to the 95th Congress; or\n3. provide background materials for the new\nAdministration?\nRecommendation:\nWe recommend option 2. This legislation would be ready\nwhen Congress convenes.\nAgree\nDisagree\nC. Motor Carrier Reform Act\nThe Motor Carrier Reform Act was sent to the Congress\non November 13, 1975. The House held hearings on\nthe bill in September 1976 and the Senate has\nasked for written comments on the bill in lieu of\nhearings. In addition, a pamphlet was developed,\nbut not printed, which explains the rationale for\nthe legislation and outlines and rebuts many of\nthe major objections to the legislation. One of\nthe major opponents of the bill, Senator Hartke,\nwas defeated but congressional interest in the bill\nwill require considerable executive attention. At\nthe recent convention of the American Trucking\nAssociation, a group which has been particularly\nvocal in its opposition to the bill, Secretary Coleman\nindicated that the Administration was willing to\nconsider modifications to the original bill before\nit would be resubmitted. Should we:\n1. resubmit the Motor Carrier Reform Act in its\npresent form; or\n2. modify the current provisions to take into\nconsideration arguments that have been raised\nand resubmit the bill; or\n4\n3. publish the pamphlet and provide background\nmaterials for the new Administration; or\n4. do not publish pamphlet but provide background\nmaterials for the new Administration?\nRecommendation:\nWe recommend option 3. The printing and distribution\nof the pamphlet could be done immediately and it\nwould provide a useful addition to the debate on the\nfuture of ICC regulation.\nAgree\nDisagree\nD. Financial Institutions Act\nThe Financial Institutions Act passed the Senate 79-14\non December 11, 1975, but the Senate Finance Committee\ndid not consider the tax provisions necessary to carry\nout the bill. In the House, the bill was divided into\nthree separate bills and the main provisions of the FIA\nwere incorporated into the Financial Reform Act. Due\nto strong opposition from labor and the smaller state\nbanks, that bill was never passed by the House Committee.\nInstead, Congress extended interest rate regulation\n(Regulation Q) until March 1977. During the debate\non FIA, the structure of the banking regulatory\nagencies was the subject of congressional criticism.\nThe EPB asked agencies to develop proposals for\npossible changes to the present structure of those\nregulatory agencies. Should we:\n1. resubmit the Financial Institutions Act to the\n95th Congress in the Senate-passed form; or\n2. modify the bill so that it might be more acceptable\nto the House, and resubmit the bill; or\n3. provide background materials on the FIA, the\nextension of Regulation I and the structure of\nthe banking regulatory agencies for review by\nthe new Administration?\n5\nRecommendation:\nWe recommend option 3. Several provisions of the bill\nand the tax changes needed to carry out the bill should\nreceive further study.\nAgree\nDisagree\nE. Patent Reform Bill\nAn Administration bill to modernize and reform the\npatent system was submitted to the Senate in March\n1975. A compromise bill was passed by the Senate\non February 25, 1976. Hearings on patent reform\nwere not held in the House and there was continuing\ndisagreement among executive branch agencies as to\nthe best strategy to pursue patent reform. Should\nwe:\n1. resubmit the Administration bill to the 95th\nCongress; or\n2. provide background materials on patent reform for\nconsideration by the new Administration?\nRecommendation:\nWe recommend option 2. There probably is not sufficient\ntime to accommodate the varying positions in a compromise\nbill.\nAgree\nDisagree\nF. Deregulation of New Natural Gas\nAdministration legislation proposing deregulation of\nnew natural gas was sent to the Congress as a part of\nthe Energy Independence Act in January 1975. In\nOctober 1975 the Senate passed a five-year phase-out\nof controls on new natural gas. In February 1976,\nthe House passed a bill which would remove price\ncontrols from smaller producers of natural gas,\ncontinue price controls on large producers, and\nextend controls to the intrastate as well as the\ninterstate market. The congressional impasse was\n6\nnever resolved during the 94th Congress. In the\nmeantime, the Federal Power Commission announced\nthat it would allow the price of new natural gas\nto increase to more than double its current price\nand the courts have given preliminary approval of the\nincrease. The controversy will likely continue into\nthe 95th Congress. Should we:\n1. resubmit a new natural gas deregulation bill\nto the 95th Congress; or\n2. provide background materials for the new\nAdministration?\nRecommendation:\nWe recommend option 1. The legislation would be\navailable when the Congress convenes.\nAgree\nDisagree\nII. STUDIES AND EVALUATIONS\nA. Inflation Impact Statements\nThe Executive Order 11821, which requires executive\nbranch agencies to prepare Inflation Impact Statements\nanalyzing the economic effects of their major regulatory\nand legislative proposals, expires December 13, 1976.\nOMB and the Council on Wage and Price Stability have\nunderway an evaluation of the IIS program. The\nevaluation will be completed later in the fall in\npreparation for a decision on future directions in\nthis area (i.e., to permit the executive order to\nexpire, modify it to ensure that agencies consider\nthe economic impacts of their decisionmaking, or\nexpand it to include other administrative reforms).\nDuring the 94th Congress various congressional bills,\nincluding the proposal creating a consumer protection\nagency, have included provisions requiring an economic\nimpact statement. Although none of the bills became\nlaw, legislation mandating an economic impact\nstatement is very likely in the 95th Congress. OMB\nand CWPS will complete the evaluation by December 15, 1976.\nShould we:\n7\n1. modify and issue the executive order based on the\nevaluation; or\n2. issue a three month extension of the current\nexecutive order and present evaluation and options\nto the new Administration; or\n3. take no action and present evaluation to the new\nAdministration?\nRecommendation:\nWe recommend option 2.\nAgree\nDisagree\nB. Progress Reports from the Independent Regulatory Agencies\nThe second progress reports from the ten independent\nregulatory commissions have been received and analyzed.\nA separate memorandum is being forwarded to you.\nC. Short-Term Task Forces\nOn May 13, 1976 short-term task forces were set up to\nstreamline and simplify the regulations of the Federal\nEnergy Administration, the Occupational Safety and\nHealth Administration in the Department of Labor, and\nthe Export Control Administration in the Commerce\nDepartment. Reports from these task forces are being\ndeveloped and will be completed by early December.\nShould we:\n1. issue the reports, as they are finished, with a\nPresidential statement on the benefits of regulatory\nreform to the American people; or\n2. hold the reports for inclusion in the State of the\nUnion with distribution to follow immediately after\nthe SOTU; or\n3. hold the reports for the new Administration to decide\nwhether or not to issue them?\nRecommendation:\nWe recommend option 1. The reports will be completed\nin the next several weeks and will demonstrate the\npotential for reform in the Executive Branch agencies.\nAgree\nDisagree\n8\nIII. PUBLICATION OF REPORTS\nOver the first two years, several areas of possible\nreform have been carefully studied and preliminary\nreports prepared on the anti-competitive effects of\nmuch government regulation. Final reports could be\nissued in the next two months on the Robinson-Patman\nAct and on studies completed in conjunction with an\nAntitrust Immunities Task Force.\nA. Report on the Robinson-Patman Act\nThe Department of Justice, under the aegis of the\nDomestic Council, has held hearings on the Robinson-\nPatman Act and written a preliminary report on its\nanti-competitive effects. The final report could\nsummarize the present findings and present options\nfor the repeal or modification of the present Act.\nShould we:\n1. authorize the Department of Justice to complete\nthe final report for review by the White House\nbefore release; or\n2. publish no report but present report recommen-\ndations to the new Administration?\nRecommendation:\nRecommend Option 1.\nAgree\nDisagree\nB. Antitrust Immunities Task Force\nThe Antitrust Immunities Task Force which was chaired\nby the Assistant Attorney General for Antitrust was\nestablished in February, 1975. The Task Force has\ncompleted extensive analysis on the anti-competitive\neffects of maritime shipping conferences, the insurance\nindustry, and communications. A final report by the\nTask Force could present the considerable information\nand analysis that have been accumulated and outline\nwhat further analysis is required. Should we:\n1. authorize the Department of Justice to prepare\na final report for review by the White House\nbefore release; or\n2. publish no report; prepare only a summary of the\nwork of the Antitrust Immunities Task Force for\nthe new Administration?\nRecommendation:\nRecommend Option 1.\nAgree\nDisagree\n9\nIV. REPORT ON THE REGULATORY REFORM PROGRAM\nFor more than two years government-wide efforts have been\nundertaken to achieve both legislative and administrative\nreforms of government regulations. Special meetings have\nbeen held, new studies of the impact of government regulations\nhave been initiated, independent agencies have taken\nimportant steps to reform their policies, and the general\nawareness of the hidden costs of regulations has been\nsignificantly increased. With the diversity of the efforts\nand the wide variety of agencies and departments involved,\nsome documentation of the program as a history of this\nAdministration and as a challenge to the new Administration\nwill be beneficial.\nAs we have worked on individual proposals and initiatives\nover the past two years we have learned how little basic\ninformation and understanding there is of government\nregulations and their effect on the economy. We have\nspent much of our time in recent months developing a\ncommon definition of government regulatory activity.\nWe have applied this definition to all the various\nbureaus and agencies of government to arrive at an\ninventory of 86 organizations of the government that\nhave regulatory responsibilities. Using this inventory\nwe have been looking at regulatory enforcement techniques\nand federal pre-emption of state responsibilities. Much\nof this work has only begun and many of our legislative\nand administrative reforms are far from complete. I\nbelieve that a report on all of our efforts could provide\na complete catalog for the new Administration of what we\nhave done, what we have learned, and what needs to be\ndone. I would hope that this report will assure that this\nbipartisan effort continues to focus on fundamental,\nsubstantive issues of government regulation rather than\nbeing diverted to short-term, administrative changes\nthat avoid the basic problems. Should we:\n1. forward the report to the Congress in tandem with\nthe State of the Union Address; or\n2. publish the material in a report to the American people; or\n3. present the report to the new Administration?\nRecommendation:\nWe recommend option 1.\nAgree\nDisagree\n10\nObviously your guidance on these issues will reflect your\nviews on how best to assist the incoming Administration in\nthe transition and assure some continuity of the program of\nregulatory reform. I would be happy to discuss this\nfurther with you or Dick Cheney, if you wish.\ninformation\nDOMESTIC COUNCIL\nFROM:\nSchmults\nSUBJECT:\nJustice report on antitrust\nDate:\n12/7\nCOMMENTS:\nSchmults asks if there is any reason not to\nlet Justice issue this report. It concludes\nthat the Robinson-Patman Act creates anti-\ncompetition effects and should be repealed.\nLeach says it is a good report and has already\nbeen made available outside of government.\nThere appeas to be no reason not to permit its\nrelease, but I thought you should be aware of\nthe issue.\nNo action necessary if you agree on release.\nA.\nok.to\n1\nACTION:\nyour\nO.K.18/10\nDate:\nFORD is LIBRARY 0ERALD\nTHE WHITE HOUSE\nregulations\nWASHINGTON\n1213\nDecember 7, 1976\nMEMORANDUM FOR:\nPHILIP BUCHEN\nJAMES CANNON\nDICK CHENEY\nJACK MARSH\nBILL SEIDMAN\nFROM:\nED SCHMULTS\nof\nThe Department of Justice wishes to release a report\non the Robinson-Patman Act prepared by the Antitrust\nDivision. The report reflects the views of the\nAntitrust Division and would not be expressing a\nformal position of the Administration.\nAttached is an executive summary of the Robinson-\nPatman Act report. The report concludes that the\nAct creates serious anti-competitive effects and\nshould, therefore, be repealed. In the alternative,\nfundamental amendments are suggested. If you wish\nto see a full copy of the report, which is about\ntwo inches thick, please give me a call.\nAttached also is a copy of a memorandum from the\nDeputy Assistant Attorney General in the Antitrust\nDivision outlining the manner of the proposed release\nof the report.\nIf you feel strongly that the Department of Justice\nshould not release the report at this time, please\ngive me a call before the close of business on\nDecember 10.\nAttachments\n170706\nEXECUTIVE SUMMARY OF DEPARTMENT OF JUSTICE\nREPORT ON THE ROBINSON-PATMAN ACT\nBackground\nLast year the President indicated in several speeches\nhis strong desire for consideration of reform or repeal of\nthe Robinson-Patman Act.\nFollowing those Presidential statements, the Department\nof Justice and other concerned agencies (including Commerce,\nCOWPS, SBA and OMB) under the direction of the Domestic Council\nReview Group (DCRG) considered various approaches to reform of\nthe Robinson-Patman Act. An initial analytic paper was pro-\nduced by the Antitrust Division on the Act together with two.\ndraft proposals for statutory reform. These were circulated:\nwithin the Administration in July, 1975. These materials were\nthen made available to the House and Senate Judiciary:Com\nmittees looking toward possible congressional consideration of\nRobinson-Patman Act reform.\nIn addition, in August of 1975, a meeting of DCRG members\nwith representatives of various small business interests was\nheld at the White House to discuss possible reform proposals.\nDiscussions with the staffs of the Judiciary Committees\nindicated that, because of the crowded legislative agenda of\nboth committees, hearings on any Administration proposals\nfor repeal or reform of the Robinson-Patman Act were unlikely\nduring the Second Session of the 94th Congress. It was further\nsuggested that additional public education as to the economic\nimpact of the Act would be helpful prior to congressional con-\nsideration of any reform legislation\nIn the interim, an ad hoc committee of the House Committee\non Small Business held a series of hearings on the Robinson-\nPatman Act. At these hearings a number of congressional and\nsmall business supporters of the Act testified and opposed any\nchange in the Act. In addition, the FTC at the hearings was\nurged to undertake more vigorous enforcement of the Act and to\ndevote increased resources to this effort. In this setting,\nthe DCRG decided that the wisest course was for it to hold a\nseries of public hearings on the economic impact of the\nRobinson-Patman Act.\nGERALD FORM\nThese hearings were held on December 8, 9 and 10.\nTestimony was taken from over twenty witnesses including\nmembers of the academic community, representatives of\nsmall business associations and other businessmen, as\nwell as practicing attorneys. Testimony was also taken\nfrom the Assistant Attorney General for Antitrust, Thomas\nE. Kauper, and former Assistant Attorney General, Donald\nF. Turner.\nFollowing the conclusion of these hearings, the Antitrust\nDivision was asked to prepare a report on the Robinson-Patman\nAct based on the record of the hearings and other available\nevidence. The Report summarized here represents the culmina-\ntion of those efforts. It should be noted that the Report\nrepresents the views solely of the Antitrust Division and\ndoes not express the position of the Administration.\nSummary of the Report\nThe Report arrives at several important conclusions about\nthe impact of the Robinson-Patman Act. First, the Act creates\nserious anticompetitive effects by deterring price flexibility,\nand indeed fostering price rigidity if not price fixing;\nsecond, the Act fosters major inefficiencies in distribution\nat great cost to consumers; third, the Act fails to achieve\nany significant antitrust or procompetitive objectives; finally,\nthe Act represents a false and illusory hope for small busi-\nnesses because in the long run it fails to achieve the pro-\ntectionist advantages which it promises.\nOn the basis of these conclusions, the Antitrust Division\nrecommends that the Robinson-Patman Act be repealed. In our\nview, the costs of the Act far outweigh any discernible benefits:-\nHowever, it is recognized that others believe that some price\ndiscrimination statute is needed. Therefore, an alternative\nreform recommendation has been advanced which in our judgment\nwould produce less adverse impact on the economy than the present\nAct.\nThe reform proposal has basically four elements. First, it\nis proposed that enforcement of the new price discrimination\nstatute be left solely to the FTC rather than private plaintiffs.\nThe FTC as a public agency would of course be concerned about\na proper application of the Act, The elimination of private\nplaintiffs would remove the current ability of private business\nfirms to use the threat of suit and treble damage exposure to\n2\nGERALD FORD LIBRARY\nblackmail competitors into withdrawing price reductions. A\nless far reaching alternative would be to eliminate the\npresent treble damage provisions for private plaintiffs.\nThe punitive effects of these treble damage provisions clearly\ndeter legitimate price competition.\nSecond, the Report recommends that the offense of\nprice discrimination be narrowed to avoid the present whole-\nsale interference in legitimate price competition. This\nnarrowing would be accomplished first by placing the burden\nof proof on the plaintiff to show that a price discrimination\nwas not cost justified, and second, by limiting those circum-\nstances in which adverse competitive injury may be inferred\nto instances of systematic discrimination, or the charging of\nprices below marginal costs. The current standard, which\npermits a finding of liability for sporadic discrimination\nor the charging of prices below fully-allocated costs\ninherently inhibits a significant number of procompetitive\nprice reductions\nThird, the report recommends that the defenses to a\ncharge of price discrimination reflect business realities.\nThus, businessmen should be able to justify discrimination\non the basis of reasonably anticipated future costs according\nto flexible groupings of customers. Similarly, businessmen\nshould not be required to go through unrealistic and potentially\nanticompetitive verification procedures to qualify for the\nmeeting competition defense.\nFinally, the report recommends that the Act's present\nflat prohibition against discounts in lieu of brokerage and\n\"nonproportional\" promotional allowances be eliminated\nSince, at worst these practices can only be disguised price\ndiscriminations, it is recommended that they be evaluated\nunder the Act's more general provisions, requiring a showing\n-\nof competitive injury and permitting the interposition of\nbasic defenses.\nOf course, the basic proposal is for repeal, of the\nAct, reflecting the report's finding that the implementation\nof a price discrimination statute based on faulty economic\nassumptions necessarily impedes the competitive process to\nthe great economic detriment of consumers.\n3\nGERALD FORD\nRobinson-Patman Creates Serious\nAnticompetitive Effects\nThe Robinson-Patman Act is a statute of broad applicability,\ngoverning the prices which can be charged for most commodities\nand sales among businesses, including nearly all products\nwhich are to be resold by merchants. While the statute is\nintended to prevent the abuse of purchasing power by large\nbuyers, the actual effect of the statute is to discourage\nmany procompetitive price reductions.\nUnder Robinson-Patman, the Federal Trade Commission in\nan enforcement action, or a competing business firm in a\ntreble damage action, can quite easily establish a prima\nfacie case of violation. In most instances, the\ncomplainant need only show that one of his competitors was\nable to obtain a: lower price for a product, and that such a\ndiscount was sufficient to affect the resale price for that\nitem. - Once such a showing is made, the firm granting the\ndiscount must prove that the lower. price is justified by\nsome cost saving in supplying the product to the favored\ncustomer, or that the lower price is necessary to meet-a\nlower price of a competing supplier. These defenses are\ndifficult to use. The cost-justification defense requires\ndetailed accounting studies, utilizing procedures which are\nnot part of normal accounting practice, and excluding certain\ncost savings which a prudent businessman would take into\nconsideration. Consequently, a businessman can never know\nuntil his case is finally adjudicated whether his cost-\njustification defense will be successful. Similarly, in\norder to defend a price cut on the grounds of meeting competition,\nthe businessman cannot simply rely on a statement from his\ncustomer that-a lower price has been offered Rather, he\nmust undertake affirmative action, such as checking invoices\nor price quotes, or actually calling his competitor: to\nverify the bid, before a \"matching\" discount can be given.\nOther provisions of the Act are even more restrictive,\nprohibiting certain payments in lieu of brokerage and promotional\nallowances regardless of their effects on competition or\ncost justification.\nAs a consequence of this overreach of the Robinson-\nPatman Act, the prudent businessman wishing to lower a price\nto a particular customer must assume that a competitor or\nthe Federal Trade Commission will be able to successfully\n4\nFORD\nGERALD\nLIBBARY\nchallenge that price cut and that his ability to defend such\na cut is highly uncertain. Rather than undergo the expense\nof litigation, pre-trial discovery of a firm's proprietary\ncost and price data, and the possibility of costly damages\nor injunctive relief, the cautious businessman will simply\ndecide not to cut prices.\nRobinson-Patman thus promotes pricing inflexibility.\nUnfortunately, such a result serves to reinforce high prices\nin oligopolistic manufacturing industries. In industries\nwhere there are few sellers, list prices tend to remain\nsticky and the only way high prices will come down is\nthrough the granting of selective discounts. These discounts\nover time erode the industry's high price structure leading\nto the establishment of list prices at a lower level. By\nrequiring that price cuts be an all or nothing affair,\nRobinson-Patman serves to ensure that prices will remain\nhigh: oligopolists know it is not in their best interests\nto cut list prices tacross-the-board, except in times-of very\nweak demand\nThe anticompetitive effect of Robinson-Patman is\ncompounded by the fact that the meeting competition defense\nserves to encourage discussions about prices among compet-\nitors, and even price fixing agreements. While the defense\ndoes not require that a firm check directly with a competitor\nbefore meeting his price, courts have stated that if a\nbusinessman does discuss prices for the purpose of satis-\nfying Robinson-Patman, he can be exonerated of what would\notherwise be a violation of the Sherman Act. Once such\ndiscussions begin, actual price fixing arrangements may\nresult.\nFinally, restrictions on price cuts to particular\ncustomers or geographic areas serve to inhibit businesses\nfrom engaging in promotional pricing practices to gain new\ncustomers. To the extent that such promotional prices are\nnecessary to enter a market, the Act serves to insulate the\nentrenched business firms from new competition.\nIn addition to Robinson-Patman's protection of high\nprices, the Act also leads to higher costs for doing\nbusiness. Various provisions of the Act serve to protect\nthe existence of brokers and middlemen because the Act makes\nit difficult for businessmen to restructure their distribution\nsystems to meet the needs of their various customers on an\n5\n022899\nindividual basis. Other restrictions on promotional allowances\nalso may require businesses to engage in valueless promotional\nprograms, again because of the inability to tailor such efforts\nto the realities of the marketplace. Lastly, Robinson-Patman\nleads to added costs when businessmen engage in product differenti-\nation strategies to lawfully avoid the restrictions of the Act.\nIn light of the legislative history of Robinson-Patman,\nCongressional passage of a statute having such effects becomes\nunderstandable. The Robinson-Patman Act was a product of two\nhistorical occurrences. The first was the Depression. During\nthe early 1930s, the severe deflation, high unemployment, and\nincreased volume of business bankruptcies led to the general\nbelief that competition was not necessarily in the public\ninterest because it led to prices which were destructively low.\nThrough the NRA Codes of Fair Competition, the minimum rate\nprovisions of the Motor Carrier. and Civil Aèronautics Acts,\nand through Robinson-Patman Congress sought to stabilize or\nactually enhance, price levels At about the same time\nrevolution was occurring in the distribution sector The\ngrowth of chain stores in the 1920s led to much concern among\nwholesalers that absorption of the wholesaling function by\nchains would force them out of business Similarly, it was\nfeared that the growth of chains would also mean a decline\nin the number of independent retailers with whom they did\nbusiness, a fear which the retailers soon adopted. Responding\nto pressures from these businessmen, state legislatures passed\nchain store taxes and fair trade laws, and the Congress passed\nthe fair trade enabling amendment to the Sherman Act--and in\n1936 passed Robinson-Patman.\nBecause of the understandable congressional desire to\ndo something about the adverse economic effects of the\nDepression, and to do something to allay the fears of inde-\npendent wholesalers and retailers, it passed the Robinson-\nPatman Act thoroughly understanding the economic assump-\ntions and long-run economic consequences implicit in such a\nstatute. Thus, we find upon examination that Robinson-Patman's\nbasic assumptions are invalid. Today, prices should be lower,\nnot higher. The granting of discounts is not inherently unfair;\nit is a necessary part of the dynamics of bringing down high\noligopoly prices. Price differences do not normally reflect\nonly differences in costs; they result from the interaction\nof both supply (cost) and demand. Lower prices to some do\nnot mean higher prices to others; high prices to certain\n6\nFORD\ncustomers indicate the presence of market power on the seller's\nside and lower prices may represent a transfer of oligopoly\nprofits from manufacturers to consumers,\nThe Robinson-Patman Act Fails to Achieve Any Significant\nAntitrust Goals\nRobinson-Patman is claimed to be an appropriate supplement\nto the other antitrust laws as a means of catching potentially\nanticompetitive situations in their \"incipiency\" by preventing\nthe use of a market advantage gained through price discrim-\nination to lessen the number of competitors and decrease\ncompetition. Unlike Section 7 of the Clayton Act which covers\nstructural changes caused by mergers, the conclusion that\nprice-discrimination will have anticompetitive effects relies\nupon; a. series speculative and untested inferences: It must\nbe assumed that if one manufacturer is permitted to discriminate\nin price-to a retailer, the effect will necessarily be to force\na disfavored businessman from the marketplace; that such a\nsituation would affect many other similarly- situated business-\nmen; and that the number-of businessmen so eliminated would be\nsufficient to seriously reduce competition in the market. The\nevidence shows, however, that such a chain of events just is\nnot likely in the case of most price discriminations. Yet,\nthese inferences are permitted in order that the statute may\nbe efficiently applied to the billions of pricing transactions\nin the economy. Thus, the Act virtually presumes that any\nprice discrimination will have an anticompetitive effect when\nthe more likely truth is that the discrimination is procompetitive.\nRobinson-Patman is, in fact, a regulatory statute, not\nan antitrust law. Those administering it seek: to protect\nbusinesses regardless of their relative efficiencies, and\nregardless of varying demand characteristics of the markets\nthey serve. As such, the effect of the Act is strikingly\nsimilar to that of the other regulatory statutes which\nempower agencies to set minimum prices. Also, the Act compels\nbusinessmen to seek legal advice before making pricing decisions,\nand may require businessmen to seek advice from the Federal Trade\nCommission before changing a marketing practice.\nFor all of this, Robinson-Patman provides no demonstrable\nantitrust benefits, Proponents argue that without Robinson-\nPatman, any immediate increase in competition and lowering\n7\nFORD\n070830\nof prices would be outweighed by the likelihood that markets\nwould become increasingly concentrated and prices would\nrise. In order for that eventuality to occur, though, it\nwould be necessary that a discrimination be so substantial\nas to force a large number of businesses out of a market,\nthat prices thereafter would rise to a level higher than\nthat charged before and that these higher prices would be\nmaintained for a long enough time to outweigh the benefit of\nthe initial price reductions. No evidence of any such\ninstance has been demonstrated, while testimony to the\ncontrary was heard by the Review Group. Likewise, studies\nconducted by the Federal Trade Commission of its own enforce-\nment orders have not demonstrated that its actions had any\nappreciable effect in improving competition. Rather, one\nstudy found such orders to have no effect, and its authors\ndoubted that price discrimination and increases in concentration\nwere related.\nGenuinely predatory practices, like below -marginal-cost\npricing can be dealt with under the Sherman Act Likewise,\nsmall businessmen can counteract the buying power of larger\nfirms through the formation of cooperative wholesaling\noperations. Indeed, testimony was. heard from one Review\nGroup witness that his cooperative was so successful in\ncountering the buying power of the chains, that one national\nfood chain joined his group.\nRobinson-Patman Provides a False Promise to Small Business\nPerhaps the greatest irony of Robinson-Patman is that\nit does not protect small businesses as a class, Distribution\nis a dynamic sector of the economy. In order to remain\nsuccessful, businessmen must deal with changing population\nand income characteristics, changing lifestyles, changing\nproducts, changing ways of doing business, and competition\nfrom new shopping locations. Moreover, businessmen must\ncontend with competition from those who, though doing\nbusiness in the same manner and in the same area, neverthe-\nless do so in ways more responsive to the desires of the\nbuying public. In such an environment, it is simply not\nthe case that the ability of one competitor to get a\nsomewhat lower price-- on merchandise of like grade and\nquality, which discount is not cost-justified and is not\n8\nFORD\ngiven to meet competition--plays any significant role in\ndetermining the success or failure of small business as a\nclass.\nThe fact is that large and small businesses frequently\ndo not engage in precisely the same selling function. Small\nbusinesses tend to provide higher price and higher service\noptions, while larger businesses often utilize a lower\nprice, lower service, mass marketing approach. The\ndeterminant of the success or failure of a given business in\nsuch a situation is not the cost of goods purchased, it is\nconsumer preference for the price/quality/service mix of\nthe large or small business. If a business satisfies its\ncustomers, it will survive, if it does not, it will exit\nthe market, and no statute can--or should--prevent this.\nNot surprisingly, the evidence available to the Review\nGroup does not demonstrate any effect of: Robinson-Patman on\nthe viability of small businesses as a group. A comparison\nbetween the position of small businesses--retailers having\nonly one location- in the United States with Robinson-Patman,\nand in Canada without it, shows that the percentage of\nstores attributable to small business is almost identical in\nboth countries. In Canada, without an effective price\ndiscrimination law, small business actually has a higher\nportion of sales than does the United States.\nFair Trade laws were more protective of small business\nthan is the Robinson-Patman Act. Yet, Congress recently\nfound in repealing the Fair Trade enabling statute that\nFair Trade simply did not protect small business.\nThus for all its cost, Robinson-Patman gives only\nillusory protection to the small businessman. Most small\nbusinessmen work, very hard, to survive, and will support\nany statute which offers the promise of protection. But\nRobinson-Patman only offers a false promise, at a great\ncost to our society as a whole.\nFORD\nUNITED STATES DEPARTMENT OF JUSTICE\nWASHINGTON, D.C. 20530\nAddress Reply to the\nDivision Indicated\nand Refer to Initials and Number\nNovember 30, 1976\nMEMORANDUM FOR: EDWARD C. SCHMULTS\nDEPUTY COUNSEL TO THE PRESIDENT\nSTANLEY MORRIS\nDEPUTY ASSOCIATE DIRECTOR\nFOR MANAGEMENT\nOFFICE OF MANAGEMENT AND BUDGET\nFROM:\nDEPUTY ASSISTANT J ATTORNEY GENERAL\nJONATHAN C. ROSE\nANTITRUST DIVISION\nSUBJECT:\nROBINSON-PATMAN REPORT\nEnclosed for your review is a copy of the Robinson-\nPatman Report which you have indicated should be released\nafter you have had a chance to look at it. Upon reflection,\nwe are inclined to think that this document should be issued\nas a Department of Justice Report. The reason for this\nrests upon our expectation about its ultimate utility: we\nsee the Report having its primary impact on courts and the\nFTC considering Robinson-Patman issues. In this regard,\nwe think it would have its greatest impact if it were\nviewed like the 1955 Attorney General's Report on the\nAntitrust Laws, i.e., as a non-political evaluation of an\nantitrust law.\nYou will note the Report contains various typographical\nerrors which we estimate could be cleaned up in a matter of\nhours.\nce: (mems & Report) -\nStanley marris (OMB)\nREVOLUTION /\n/"
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