Senator ENGLE. Our next witness is the Honorable Lee Loevinger, Assistant Attorney General, Antitrust Division, Department of Justice.

Mr. Loevinger?

STATEMENT OF HON. LEE LOEVINGER, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

Mr. LOEVINGER. I appear before this subcommittee of the Senate Commerce Committee in response to the committee's request for a summary of the position of the Department of Justice on H.R. 6775, which has been placed by the House of Representatives and is under consideration by this committee. The general terms of this bill are now undoubtedly well known to you.

H.R. 6775, as enacted by the House of Representatives, specifically provides that to secure Maritime Board approval both dual-rate contract systems and conference agreements must not be designed, nor reasonably likely to cause the exclusion from the trade of any carrier not a party to the dual rate or conference agreement.

The House report on the bill (Rept. 498, June 8, 1961) stresses the congressional intent that dual-rate systems be authorized only where they are surrounded with effective safeguards for all elements of the shipping industry as well as the shipping public.

Thus the report declares the purpose to assure greater observance of law for the benefit of both shipper, carrier, and the public" (p. 12) and "to protect the status of nonconference carriers" (p. 7).

We are wholly in accord with these purposes and are opposed to any enactment which seeks to frustrate these objectives. The printed record of this committee's June 16, 1961, hearings contains, at page 11, the letter of the Attorney General to Chairman Bonner of the House Merchant Marine and Fisheries Committee indicating the importance we attach to the provisions designed to guarantee that conference or dual-rate systems not become predatory devices to stifle the competition of nonconference carriers.

As the Attorney General said, with respect to these assurances of freedom of the seas, "these provisions are indispensable to a reasonable enactment on this subject and the public interest would be disregarded were these provisions to be omitted.”

It is evident that there is considerable pressure on this committee to delete these important provisions. We urge the committee in the strongest possible terms not to yield on this point. We are convinced that the public interest will be ill served if the work of years, which has been spent studying the steamship industry, results in an enactment which does not safeguard the rights of all carriers, including those who choose to operate independently of the conferences, as well as the right of the shipping public.

Those who would seek to delete the safeguards incorporated by the House of Representatives often speak in terms of the need for "stability of rates" and refer opprobriously to the nonconference operator or "rate-cutting independent." The impression is conveyed that there is something reprehensible about a carrier's decision to do business outside of a conference, or that the furnishing of transportation by a

carrier at a lower rate than is charged by another carrier or by a conference of carriers is somehow unfair per se.

But those carriers who desire to operate independently of conferences and who are willing to offer lower rates are surely entitled to do so. Some consideration must be given to their rights, as well as to the desires of the conference carriers.

In this connection it should be noted that one of the greatest protections of the rights of American carriers in the typical foreignline-dominated conference is the right to withdraw. Our investigation has produced convincing evidence that American carriers have reversed conference actions adverse to them and potentially adverse to the commerce of the United States by threatening to withdraw and in some instances by actually submitting their resignations.

One of the trans-Pacific conferences was persuaded by such action to give more consideration to the wishes of its American members.1 Under the conference system, carriers are free to join together to set the level of rates they choose, and to obtain that stability of rates amongst themselves which they deem desirable. Carriers that do not desire to join the conference should be free to engage in business independently. Furthermore, no check on unconscionable rate charges will remain if conference members can, by use of dual-rate contracts or other means, eliminate the nonconference competitor which may serve as the only check upon extortionate rate practices.

That it is in the public interest to preserve some rate competition and to preserve the independent who may provide it is illustrated by just one example which our investigation has produced. In a certain trade covered by a Federal Maritime Board-approved agreement, the entry of an independent carrier and the rate competition to which that entry gave rise caused the gradual reduction of the rate on an important commodity from more than $80 per ton to about $40 per

ton.

There are those who would say that the rate cutting of the independent has caused instability or even a rate war. Yet, documents showed-and incidentally these were documents of an American carrier, so that it will be clear that foreign operating costs were not used as the yardstick-that the $40-per-ton rate still afforded a reasonable profit on that commodity.

This is what concerns us about the attempts to delete the safeguards from H.R. 6775. The steamship lines understandably favor conditions more conducive to an $80 rate than a $40 rate. Shippers who have testified in favor of a so-called effective tying device, are more interested in so-called stability of rates than in rate levels.

1 A current example of the leverage which a conference member may be able to exert by threatening to withdraw, in a situation where it need not fear retaliation by the conference in the form of an exclusionary dual-rate system, is afforded by the facts recited in the recommended decision of the hearing examiner in FMB docket No. 908, Japan-Atlantic and Gulf Freight Conference, Fidelity Commission System. There is no dual-rate system in this trade, the JAGFC system having been outlawed by the Supreme Court in the Isbrandtsen case.

Barber-Wilhelmsen Line, by tendering notice of withdrawal from the conference, was able to secure conference action which led to the proposed FCS. The recommended decision of June 27, 1961, states (p. 5): "The above notice of withdrawal from the conference was interpreted widely by those interested in the trade to mean that after its withdrawal became effective Barber-Wilhelmsen would quote rate lower than those of the conference." Barber-Wilhelmsen's threat was thus not an idle one because the conference could not use a dual-rate system to impair Barber-Wilhelmsen's nonconference operations.

This means they are less concerned about the actual rate than they are in making certain that no competitor obtains a lower rate than the one which they are paying.

In the final analysis, therefore, if the safeguards are stripped from H.R. 6775, with the result that conference and dual rate agreements may be approved by the FMB even where they are intended to, or are reasonably likely to exclude the carriers from the trade, the public interest will suffer and the consumer will suffer because in the end he will pay in the form of higher prices for the goods which will have been transported under monopoly conditions.

We do not conceive it to be in the public interest to give the conferences a blank check on the pocketbooks of American consumers without knowing what the ultimate costs in the form of high noncompetitive freight rates are likely to be. Moreover, foreign-flag carriers, rather than American lines, will receive the largest proportion of such monopoly profits.

For the foregoing reasons, the Department of Justice restates once more its conviction that the overall public interest of the United States will not be advanced by surrender of our traditional principles of freedom of opportunity.

The Department of Justice believes that H.R. 6775 can be improved in several respects in order to provide that degree of protection of carrier and shipper interests which must be regarded as desirable. As indicated in my previous testimony before this committee, we feel that the proviso of clause 5, section 1, of the bill, which deals with damages for breach of dual-rate contracts, should be revised.

It is our understanding that the House committee desired to eliminate the past practice of disguising oppressive penalties in the form of liquidated damages, but at the same time desired to adopt a formula for liquidated actual damages which would avoid possible future uncertainties and controversies in situations where actual damages were difficult to prove.

We do not believe that the present formula will achieve the objective of eliminating penalties. The proviso assumes that the actual damages for a shipper's breach of a dual-rate contract are the same as damages resulting from breach of a space reservation or booking

contract.

The present proviso, which in effect equates the two types of damage, can only result in damages for a shipper's dual-rate contract breach far in excess of actual damages. In its present form, therefore, the bill still leaves the way open for unduly harsh and punitive results.

While we recognize that any effort to specify liquidated damages may not in all cases result in an approximation of actual damage, we observe that no liquidated damage formula has been advanced which does not also constitute a severe penalty all out of proportion to the actual damages suffered by the conference or its members.2

What is needed is a measure which provides certainty, is just to the carrier, but at the same time is not oppressively punitive.

The amendment proposed by certain steamship industry interests what liquidated damages up to 50 percent of the freight otherwise applicable be authorized (reported by Congressional Information Bureau, July 28, 1961), is offensive for this reason.

We suggest that damages of 111⁄2 times the spread between contract. and noncontract rate fall within these guidelines and recommend that the bill be amended to provide this 11⁄2 measure as the maximum limit on liquidated damages.

This, we believe, is a fair and reasonable approach to the problem. It would deter a shipper from disregarding his dual-rate contractual obligations, but would not place him in jeopardy of being required, in the event of breach, to pay the conference an amount clearly having no logical or realistic relation to the loss which the conference or any particular conference member can be considered to have sustained. The Department also believes that a maximum spread of 10 percent between ordinary rates and rates charged to contract shippers should be specified. The House report indicated a problem in determining a maximum spread figure which would not penalize a shipper who does not choose to limit his shipments to conference vessels and which at the same time would provide an inducement to execute such agree

ments.

It is the Department's considered view that the 15 percent maximum spread provided for in clause 7 of section 1 of the bill does not strike this balance. Rather, it weighs heavily on the side of coercing shippers to limit their cargoes to conference vessels. All fairminded observers would agree that shippers should be provided with a realistic choice in deciding whether to contract to ship exclusively on conference vessels or whether to retain their right to ship on both conference and nonconference vessels as they choose. There is good reason to believe that a spread of 15 percent would foreclose this choice.

While the difference between a 10 percent and a 15 percent spread may seem to be solely a matter of degree, the fact is that in the highly competitive and price-conscience world of international trade an additional handicap of 5 percentage points in freight rate markedly reduces a shipper's ability to determine whether he would prefer freedom to use both conference and nonconference vessels rather than being limited to the use of one type of service. We recommend that a 10-percent maximum spread be adopted by this committee.

We would next direct the committee's attention to the provision of section 2 of the bill which in effect would permit Board approval of agreements between conferences serving different trades which are competitive, providing each conference retains what the bill refers to as the "right of independent action."

We urge the committee to delete the language appearing on lines 18, 19, and 20 of page 5 of the bill. This change would result in a flat prohibition against interconference agreements. While the existing language of the bill gives a conference the right to take independent action on matters embraced within the agreement, it nevertheless permits all parties to an agreement to establish a uniform policy on rates and other competitive matters when it serves their purpose to do so.

The Department of Justice is convinced that it is not in the public interest to permit agreements which may create a virtual monopoly of ocean transportation to or from this country.

Congress should not sanction private rate-fixing schemes or supercartels which could embrace every port through which the foreign commerce of the United States is conducted. Such an arrangement

would deny shippers the cost savings resulting from their location on or in proximity to a particular coastal range.

The Department of Justice further recommends the deletion of section 6 of H.R. 6775. The section would permit serious inroads to be made upon the confidential relationship between shippers and carriers established by section 20 of the 1916 Shipping Act.

It must be appreciated that shippers are required to disclose certain of their private business affairs to carriers to permit the assessment of proper tariff charges. Under section 20 of the Shipping Act the carriers are put under the obligation of maintaining such data in secrecy so that the shippers' business transactions are not disclosed to competitors or information thereof is not used to their detriment. The proposed legislation would depart from the traditional concept of section 20 and would cause a substantial lessening of the protection which shippers are given. Under the instant bill not only could a common carrier furnish data on a shipper's transactions without the shipper's consent but a "conference or any person, firm, corporation or agency designated by the conference" could solicit information as to a shipper's transactions.

Presumably this data could be solicited from freight forwarders, terminal operators, warehousemen or any other persons subject to the Shipping Act who may have knowledge of the shipper's transactions.3

This would involve a radical change in public policy and, in our opinion, would open the way for widespread abuses and breaches of confidence in the shipping industry.

We have previously noted the paradox which would be created by the proposed amendment to section 20. While a conference or its agent would be permitted by the proposed legislation to solicit information without limitation, those other than a conference carrier who might be solicited would still be restrained by the language of section 20 from disclosing the solicited information.

Thus section 6 of the instant bill would authorize the solicitation of data from persons who, were they to divulge it, could be criminally prosecuted for doing so.

Any further attempt to deal with this anomalous situation would probably create more problems than it would solve. Even if all persons subject to the Shipping Act were to be authorized to release data for the purposes stated in the bill, a terminal operator or warehouseman would obviously act at his peril in relying on a representation that confidential data he was solicited to disclose was desired for one of such purposes permitted by the bill.

Also of concern to the Department of Justice is the provision of H.R. 6775 requiring dual rate systems to provide contract shippers with available space on reasonable notice. We believe this provision adds nothing to the common carrier's obligation to accept and carry cargo on a first come, first served basis, and is therefore an illusory guarantee. If it is intended to alter the common carrier's

This follows from the fact that in the case of a nonconference shipment, the foregoing persons would be most likely to have knowledge of the details of the shipment. The bill's sanctioning of the giving by a conference carrier of data would be of little practical effect in a dual rate contract breach inquiry since a conference carrier would seldom have received data as to a breach by virtue of its confidential relationship to the shipper involved.