Senator LAUSCHE. Mr. E. D. White, commerce counsel, the association of Western Railways, Chicago, Ill.

Mr. White, you may proceed with the reading of your paper, or you may have it included in the record and give the core of what you want to say extemporaneously.

STATEMENT OF E. D. WHITE, COMMERCE COUNSEL, THE ASSOCIATION OF WESTERN RAILWAYS, CHICAGO, ILL.

it.

Mr. WHITE. Mr. Chairman, I would like very much to have the paper entered in the record, and I will try to hit the highlights of Some of the things that I have to say in my written statement have been touched upon already this morning, but there are a few things that have not.

First, I would like to give the position of our members on this entire ball of wax, and that is that they strongly urge that the exemption should be rewritten in plain and unmistakable terms to the end that the bona fide agriculture associations and federations may freely fulfill their former transportation needs but may not haul everything for everybody.

And they further urge that the Interstate Commerce Commission be given the clear power to speedily stop operations of the hundreds of highway transports running under the claim of the exemption of section 203 (b) (5) by bogus, self-styled cooperatives.

to call the bona fid

Now I point out in the paper that there are two types of competitors, the bona fide cooperatives and what we spurious or pseudo associations, and we point ou associations operate more than 33,000 trucks

thir

they have hauled appear in the various investigations and before the Commission and the courts, consist of such things as furnaces, air conditioners, machinery, water heaters, wire springs, roofing materials, hardware, yarn and door parts, steel, lumber, tires, rubber products, roofing, grocery store merchandise, paper products, beer, nails, clothes hangers, brick, tile, pipe, and bakers' supplies. Now those are things that were handled by the bona fide cooperatives for nonmembers to nonfarm related purposes, and all over the West.

Now, in the Cache Valley case we had origins, Denver, Pueblo and California points into several Utah and Idaho points. And throughout the paper, Mr. Chairman, I show the wide variety of commodities that are carried and the wide geographical areas in which these people serve. In other words, they are taking from the railroads and from the regulated common carrier industry the most attractive kind of traffic imaginable, and that is the whole spectrum of general commodities over long distances.

I would like to skip over now to the fact that while I did not know until this morning that the committee was going to present a substitute bill-and I will get back to this in just a moment-I did have occasion to see the American Transportation Association, Inc., draft which was explained by Mr. Pinkney this morning. And while we feel that the original S. 1729 is more or less nullified by the Northwestern case, we feel that we can support, in principle, the draft proposal of the ATA, and we can support it all the way with two reservations, which are referred to begining at about page 5 of my statement. And that is this, that the ATA proposal, No. 1 would confer automatic bona fides on anyone who could successfully have their name placed upon a list to be prepared by the Secretary of Agriculture.

Now there are no standards to guide the Secretary as to what organizations could or should go on that list, and we fear that without some kind of criteria that it might well be that, inasmuch as these spurious associations go to such great pains, as has been pointed out by the Commission and ATA case, and it is cited in my paper, go to such great pains to give an outward show of legality, that it may well be that the Secretary will feel compelled to list those people, and then we are back right where we started from, except worse, because they would be automatic bona fides if you can obtain a place on the list.

Now we think there should be some standards in the ATA draft proposal to prevent sham or spurious or pseudo associations to obtain a place on the list.

Senator LAUSCHE. That is, it is your fear under the language in the ATA proposal that discretionary power of such breadth will be granted to the Secretary of Agriculture that he will be able to certify whatever alleged co-ops he pleases as being bona fidely engaged in the cooperative enterprise?

Mr. WHITE. Yes, sir. And it is not just a matter of what he may please to do. We are not criticizing the Secretary of Agriculture, but inasmuch as these people incorporate themselves in the various States under the agricultural cooperative acts of the various States and go through every possible process of making an outward show of bona fideness, that what we fear is that the Secretary may feel compelled to put them on because they do have a cloak of legality, so to speak.

Senator LAUSCHE. In summary, you are of the belief that if the ATA-proposed amendment is accepted, there ought to be included in it certain standards that will have to be met before an organization can be certified prima facie as a cooperative?

Mr. WHITE. That is right.

Now there is one other reservation that I personally have, having had some little experience in these investigations as to the ATA proposal, and that is this, that proposal, of course, would permit the bona fide cooperative to haul anything for their members, and that is good. We don't oppose that at all. That is good. But for nonmembers they could haul

Senator LAUSCHE. Let's stop at this point. That is, you would give the bona fide cooperatives the full power to haul all goods for their own members?

Mr. WHITE. Yes, sir.

Senator LAUSCHE. But would you place any limitation dollarwise on what it may haul for its own members?

Mr. WHITE. No, sir.

Senator LAUSCHE. You would not? Unlimited power?

Mr. WHITE. For their own members, farm-related products. I am not talking about furnaces and steel beams. I am just talking—you see the ATA proposal relates it to farm-related items.

Senator LAUSCHE. Yes, sir.

Mr. WHITE. Now, the difficulty that I see in that is that the nonmembers are limited, and properly so. But there is no provision in the ATA proposal to define who may become a member. Now this is important in that it might avoid years of litigation. I am going to talk about the time lag in a minute, if I may, but you see in so many of what I term the pseudo associations there are nationally known manufacturers and processors who are accepted as members, and they claim that business is member business. I won't name their names, but they are in the Commission reports. But now what is to prevent a bona fide association from taking in United States Steel as a member? And then, as a member, there is no restriction whatsoever as to the type of commodity that could be hauled.

Senator LAUSCHE. What would you propose as the remedy to seal off that loophole?

Mr. WHITE. Sir, the only remedy in my statement was that we would be extremely happy to meet with the committee or its staff and try to work out those things. It can be done.

Now in my statement I mention how some of these things drag on and on and on, and it suddenly occurred to me that it might be critical, a criticism of the Commission. But I would like to explain that we are not critical of the Commission because of the time lag in these cases, because they are bitterly fought at every step. It takes a long investigation, it takes field men, the hearings stretch out, and pleadings stretch out, and the records are voluminous. I am not criticizing the Commission at all on the time lag on these things. As a matter of fact, on some of the cases I think maybe they were too much concerned with time lag.

Senator LAUSCHE. Thank you very much, Mr. White. (Mr. White's prepared statement follows:)

STATEMENT OF ED WHITE, COMMERCE COUNSEL, THE ASSOCIATION OF Western RAILWAYS WITH RESPECT TO S. 1729

My name is Ed White. I am Commerce Counsel of The Association of Western Railways, with headquarters at Chicago, Illinois.

The Association of Western Railways is a non-profit association whose members comprise almost all of the major lines serving the Western District, which, generally speaking, consists of the Upper Peninsula of Michigan, the States of Illinois and Wisconsin, and all of the contiguous states west of the Mississippi River.

Our member lines are deeply concerned over the inroads that the bona fide agricultural co-operatives have made in the transportation of non-farm related traffic and over the diversion of all kinds of traffic handled by the pseudo agricultural co-operatives.

At the request of member lines, the Association's Law Department has kept in close contact with these developments the past several years, and has participated in several of the Interstate Commerce Commission investigative proceedings. That such traffic diversions from the nation's regulated transportation system are of alarming proportions is beyond question.

Our members do not believe that it was the true intention of the Congress, in enacting section 203(b) (5) of the Interstate Commerce Act, to give blanket authority to the bona fide co-operatives to handle every type of commodity, between all points, including urban centers, for every member of the shipping and receiving public, as long as the revenues derived therefrom do not constitute more than 50 percent of their total business. Further, they do not believe it should be so easy for spurious "co-operatives" to continue to operate year after year under color of right. Our members feel and strongly urge that the exemption should be rewritten in plain and unmistakable terms to the end that bona fide agricultural associations and federations may freely fulfill their farm-related transportation needs, but may not haul everything everywhere for everybody. And, they further urge that the Interstate Commerce Commission be given the clear power to speedily stop operations of the hundreds of highway transports running under the claim of the exemption of section 203(b) (5) by bogus, self-styled co-operatives. We are here concerned with two types of competitors.

First is the legitimate, bona fide co-operative, such as Northwest Agricultural Cooperative Association, Inc. [See 350 F. 2d 252, Cert. denied].

The other is the pseudo co-operative which engages in no business other than for-hire highway transportation, such as Agricultural Commodity Service [See 86 M.C.C. 5).

Both types pose real problems to the regulated transportation industry.

According to the March 7, 1966, issue of Transportation Business Report, there are more than 9,000 farm co-operatives which operate some 33,000 trucks. Under the Northwest Agricultural Cooperative decision, these vehicles may be used to backhaul any commodity for anyone, as long as the revenues do not exceed 50 percent of the total business. As stated in the March 7 report above referred to, the hauling of non-farm commodities for non-members "makes a real dent" in traffic which could be carried by regulated carriers.

The evidence in the Northwest Agricultural Cooperative case shows that articles transported for non-members include furnaces, air conditioners, machinery, water heaters, wire springs, roofing materials, hardware, yarn and door parts. Geographically, operations are carried on throughout the West, Midwest and Southwest.

The Interstate Commerce Commission's investigation of the operations of Cache Valley Dairy Association [96 M.C.C. 616] disclosed that this bona fide Utah agricultural co-operative in a 14-month period handled 638 interstate backhaul truckloads, of which only 12 contained commodites for the association's own business. Of the 638 truckloads handled for non-members, 447 involved commodities not directly used by producers of milk and dairy products. Some of the commodites handled were steel, lumber, tires, rubber products, roofing, grocery store merchandise, paper products, beer, wire products, nails, clothes hangers, brick, tile, pipe, and bakers' supplies. These movements originated at Denver, Pueblo and Minnequa, Colo. and Los Angeles and San Francisco, Calif. and were destined to Salt Lake City, Ogden, Logan, Provo and Smithfield, Utah and Montpelier, Ida.

Iowa Cooperative Association was found by the District Court for the Southern District of Iowa [236 F. Supp. 873] not to be a bona fide co-operative but, instead

nothing more than "a fictitious sham". Operations were enjoined. During the fiscal year ending August 31, 1964, this carrier's revenues were $1,085,633 of which all but $19,200 were held to represent illegal transportation of fresh pork and butter from Iowa and Nebraska points to points in California.

In the Agricultural Commodity Service proceeding [86 M.C.C. 5], the Commission found that that pseudo co-operative and some of its agents had illegally transported a broad range of commodities for an imposing list of manufacturer and processor "members" including fresh meats, packinghouse products, canned goods, sugar, containers, dairy products, fertilizer, feed, seed, chemicals, farm machinery and steel. Collectively, operations were conducted in every section of the country. Some 38 months after initiation of the proceeding, the Commission compelled this outfit to cease operations on February 18, 1962.

The very next day, Agricultural Transportation Association of Texas, promoted by one who was an agent for Agricultural Commodity Service, commenced operations. This promoter advised a number of the shippers of Agricultural Commodity Service that he and all his staff and equipment would be associated with the newly-formed Agricultural Transportation Association of Texas. On January 25, 1963, the Commission instituted an investigation of the activities of this carrier. A Hearing Examiner and the Commission's Division 1 [96 M.C.C. 293] found that all but an inconsequential portion of the transportation conducted by it was beyond the pale of section 203(b) (5). The case is now pending before the entire Commission. The evidence shows that during the first 12 months of its operation-the start-up period-Agricultural Transportation Association of Texas realized revenues exceeding $1.7 million. The vast preponderance of this traffic consisted of fresh meats and packinghouse products and processed foods moving between points in about 20 states. Like Agricultural Commodity Service, Agricultural Transportation Association of Texas claims as "members" nationally known manufacturers and processors, some of whom were made respondents. As a final example of the traffic here involved, we call attention to the recent section 22 tenders of American Farm Lines Co-op, headquartered at Oklahoma City, Okla. This concern offered to handle for the United States Government freight, all kinds, between all points in Kansas and all points in California and Washington; between St. Louis and Kansas City, Mo. and all points in California; between all points in Nebraska and all points in California; between all points in Oklahoma and all points in California and Washington; between Rock Island, Ill. and all points in California; and from Lincoln, Nebr. to specified points in Washington and Oregon.

The above-mentioned decision in the Northwest Agricultural Co-operative case would seem to nullify the benefits intended by S. 1729. However, we are familiar with the draft proposal of the American Trucking Associations, Inc., and we support that proposal in principle. We believe that the solution to the entire problem including provisions making injunctive relief against sham associations possible is found therein, subject to the two reservations hereinafter noted.

The draft proposal would automatically confer the benefits of the exemption upon those named on a list of bona fide associations and federations to be prepared annually by the Secretary of Agriculture, but there are no standards for the determination by the Secretary of bona fides. Bogus cooperatives as a matter of course take great pains to follow closely the form of agricultural co-operatives, including incorporation as such [96 M.C.C. 293, 299]. Unless criteria are established, the Secretary may well feel compelled to include on his list illegitimate carriers, such as Agricultural Transportation Association of Texas, who make every outward pretense of bona fides.

The draft proposal restricts the commodities which a bona fide co-operative may handle for non-members and permits unrestricted transportation for members. Unless requirements for membership are clearly defined, important, nationallyknown manufacturers and processors may be admitted to membership, as they were by Agricultural Commodity Service and Agricultural Transportation Association of Texas and the primary purpose of the draft would be defeated.

Proper safeguards along these lines should be written into the enactment. They are needed to make unarguable any future claim that a manufacturer or processor is eligible for membership for the purposes of highway transportation-in a bona fide association, and to make certain that a "fictitious sham" cannot possibly obtain a place on the Secretary's list. The bogus associations could then be enjoined as fast as they change their names and their places of