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Mobile, Ala., May 13, 1958. Senator WARREN MAGNUSON, Chairman, Interstate and Foreign Commerce Committee,

Washington, D. C. DEAR SENATOR MAGNUSON: We have been advised that a new transportation bill, s. 3778, has been introduced by Senator Smathers and this bill has been referred to your committee. We understand that Senator Smathers' bill is designed to carry out the recommendations made by the Surface Transportation Subcommittee after numerous hearings had been held concerning the “deteriorating railroad situation."

We wish to urge that public hearings be held in connection with this bill, due to the fact that the public in general, now understands what is being proposed in the way of legislation, whereas, at the hearing before Senator Smathers' committee, suggestions were being made in order to cure certain situations. We feel that the public is now entitled to express its views regarding the specific proposals. There are several features in this bill which we feel are very detrimental to this gulf coast area and the opportunity should be given for an expression of these views.

We therefore hope that public hearings will be held and that we are notified of the time and place of such hearings. Yours very truly,

E. C. ASH, Traffic Manager.


Washington, D.O., May 22, 1958. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate. DEAR SENATOR MAGNUSON: Reference is made to your letter of May 13, 1958, transmitting a copy of S. 3778, introduced by Senator Smathers, and inviting our comments with respect thereto.

The Department is particularly concerned with section 8 of the proposed bill. It would amend section 203 (b) (6) of the Interstate Commerce Act. We would like to comment thereon. The effect of this amendment would be to eliminate fresh frozen fruits, berries, and vegetables and imported commodities from the exemption provisions and otherwise limit the exemption to only those items specifically listed as exempt commodities in ruling No. 107, March 19, 1958, Bureau of Motor Carriers, Interstate Commission.

Studies conducted by the Department indicate that considerable benefit accrues to the agricultural community from the exemption of fresh frozen fruits, berries, and vegetables. Our studies indicate that the exemption has made possible the broadening of the market for these commodities, thus creating outlets for additional marketings by agricultural producers. It is our view, too, that the broadened market tends to strengthen prices received by producers. We believe the flexibility provided by exempt transportation of these commodities should not be eliminated.

Insofar as imported agricultural commodities are concerned, we would foresee a substantial administrative problem in differentiating between imported and domestically produced products in many instances. It is our understanding that imported and domestically produced products are frequently intermingled in the marketing process. Moreover, the removal of imported commodities from the exemption may create problems in the relations between this country and its neighbors. We believe, therefore, that it would be unwise to change the status of these commodities.

We should also like to call attention to a serious problem of interpretation which this amendment raises. Ruling 107 by the Interstate Commerce Commission's Bureau of Motor Carriers is not intended to reflect a complete list of items which have been determined to be exempt. This point is made clear in an explanatory statement preceding the listing of commodities. The pertinent explanation reads as follows:

"The absence of a commodity from the list below should not be taken to mean that it is either within or not within the exemption. Only those commodities are listed as to which inquiries have been received in the past by the Bureau or which have been the subject of Commission or court proceedings.” [Emphasis supplied.]

Because S. 3778 would exempt only those commodities listed as exempt in ruling 107, it appears that technical questions may arise as to exemption of some items on which no controversy has ever arisen. One item which we have noted in particular is soybeans. This commodity does not appear on the list, although it is generally recognized as exempt. Technical questions may also arise concerning the status of fresh fruits, berries, and vegetables. Although the list includes such items as fruits and berries, bagged; fruits and berries, graded ; fruits and berries, color added; vegetables, bagged ; vegetables, cut up, fresh, in cellophane bags; and vegetables, washed, fresh, in cellophane bags, it does not actually list fresh fruits and berries and fresh vegetables as exempt commodities. We believe there could arise a technical problem of interpretation under the language of the bill. Thus, we believe questions might be raised concerning the status of such products as oranges, apples, pears, peaches, cabbage, tomatoes, potatoes, okra, and perhaps others in their fresh state.

The Department is extremely conscious of the controversial nature of section 203 (b) (6) of the Interstate Commerce Act. It appears that a part of the concern which exists in some quarters stems from the possibility that the exemption may be still further broadened by judicial interpretation or otherwise. While we would strongly recommend against any narrowing of the exemption, we would not object to legislation which would have the effect of preventing its further substantial broadening. If it is the desire of the committee, Department representatives would be glad to cooperate in the development of legislation which would accomplish that objective.

We have not had opportunity to fully assess the effects upon the agricultural community of other provisions of S. 3778. We shall continue to study the bill and will communicate further with you if it appears that agricultural interest makes such further comment desirable. Sincerely yours,

TRUE D. MORSE, Acting Secretary.


Washington, D. C., June 4, 1958. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate, Washington, D. C. DEAR MR. CHAIRMAN : This letter is in reply to your request of May 13, 1958, for the views of this Department with respect to S. 3778, a bill to amend the Interstate Commerce Act, as amended, so as to strengthen and improve the national transportation system, and for other purposes.

Since receipt of your letter, s. 3778 has been ordered reported by your committee with certain amendments. The views expressed herein will, therefore, relate to the provisions of S. 3778 as ordered reported.

S. 3778 differs in several respects from the recommendations of the administration as embodied in my letter dated April 22, 1958, to the chairman of the Surface Transportation Subcommittee. However, we will comment only on those differences which are of importance to the administration.

Section 5 of the bill would prohibit the Interstate Commerce Commission from holding the rates of a carier up to a particular level to protect the traffic of another mode of transportation, but would require the Commission at the same time to give due consideration to the objectives of the national transportation policy declared in the act.

If the section would be construed to permit carriers of one mode fully to exploit their inherent cost advantages in ratemaking, it would be of great public benefit. Shippers should benefit from lower rates and carriers of a mode possessing inherent cost advantages should be strengthened through increased traffic carried at profitable, though lower, rates.

The language of the section, however, does not seem sufficiently clear to assure such a construction. The Commission may still hold the rates of one mode of transportation up for any reason or purpose other than protection of the traffic of another mode. The Commission has in the past looked to the national transportation policy to justify holding up the rates of carriers of one mode. That policy is not only left unchanged, its objectives are expressly made a part of the new section. The extent to which it would continue to be used by the Commission in proceedings involving competition between carriers of different modes of transportation cannot be predicted. Certainly it would not be used to make

section 5 completely inoperative, and whatever effect the section had toward permitting carriers of any mode to realize on their inherent cost advantages would be of public benefit.

The administration, however, does not believe that the section would go far enough, even if construed to permit full exploitation of the inherent cost advantages of carriers of each mode. It would permit a rate reduction only if there were an existing or reasonably probable cost advantage: rate reductions would merely reflect and follow cost savings. But rate reductions also serve another useful economic function-they encourage and stimulate cost reductions. Such rate reductions are brought about by rate competition. One of the great values of competition is that it encourages those who compete to reduce costs and lower prices or rates and pass the saving on to the public. There is nothing in section 5 to indicate any intention to promote such rate competition even between carriers of different modes.

The administration believes that such competition should be allowed between all carriers whether or not of different modes. It has, therefore, recommended that the national transportation policy be amended to call for the encouragement by the Commission of more vigorous competition between carriers in respect to rates as well as service and that, in the case of minimum rates, competing carriers shall be accorded complete freedom of ratemaking subject only to limitations similar to those imposed on other businesses by the Sherman Act. Suggested statutory language to achieve these objectives is attached.

These provisions would require the Interstate Commerce Commission, in a proceeding involving competition between carriers, to use the same standard in determining whether a rate is unreasonably low as the courts use under the Sherman Act in determining whether or not price reductions by other businesses are in restraint of trade or constitute a monopolization or attempt to monopolize. The use of the word "unreasonably" would import into such proceedings the same rule of reason appiled by the courts in Sherman Act cases. Application of such a standard would prohibit price reductions only when they constituted predatory practices which threatened the existence of the competitive system iteslf. Vigorous price and service competition would thus be encouraged under suitable limitations which are applicable outside the transportation industry.

S. 3778 would authorize the Interstate Commerce Commission to guarantee loans by private lenders to rail carriers for financing or refinancing the acquisition or construction of equipment or additions and betterments for use in transportation service, and in obtaining funds needed for operating expenses, working capital, and interest on existing obligations.

The administration is opposed to vesting this program in the Commission. It is a well-established principle that an agency having responsibility for regulating an industry should not also be given the responsibility for extension of financial assistance to such industry. Vesting responsibility for extension of financial assistance in the Commission could very easily result in the charge that such agency was attempting, by regulation, to protect carriers to which financial assistance had been extended. For these reasons, the administration urges that the loan-guaranty program be vested in the Secretary of Commerce, with the Secretary of the Treasury being delegated certain functions in connection with approval of the guaranties. The Secretary of Commerce is presently administering similar programs, such as the ship-mortgage-insurance program under the Merchant Marine Act, 1936, and his experience would be of material assistance in getting the loan-guaranty program started.

The administration is also opposed at this time to legislation which would authorize Federal loans or Federal guaranty of private loans for operating expenses, working capital, or interest on existing obligations.

Extension of aid for these purposes is primarily for the benefit of securityholders, whose holdings might be adjusted in the event of bankruptcy or reorganization. Such aid is not needed at this time to keep the railroads running ; nor is such unrestricted aid necessary or desirable to prevent loss of jobs. For the latter purpose, restrictions should be imposed, not contemplated under S. 3778, which would prevent the proceeds of the loans from being diverted from payroll to securityholders.

While extension of aid for the benefit of securityholders might under some circumstances be necessary, the administration does not believe that those circumstances currently exist nor does it anticipate that they are likely to occur. Federal aid for these purposes was previously made available when the railroads were adjusting from a period of public operation and also during the

thirties when similar aid was extended to other businesses. Protection of one particular class of private securityholders at this time would be discriminatory and would set a dangerous precedent.

Instead, the administration has proposed a program of federally guaranteed private loans which was not geared primarily to the present general decline in business activity. Its object was to encourage railroads, not otherwise currently able to do so, to enter immediately into cost-saving or revenue-increasing programs which otherwise would not be possible for several years. Draft provisions reflecting the views of the administration are attached.

Section 7 of S. 3778 would amend the Interstate Commerce Act so as to authorize common carriers subject to the act to establish and use a construction reserve fund for construction, reconstruction, reconditioning, or acquisition of equipment or other property used for transportation, and for retirement of debt incurred for such purposes after enactment of the provision. In the computation of its Federal income tax, a carrier would be allowed a deduction equal to the amount deposited in the fund subject to the limitation that the amount allowed could not exceed depreciation includable under the uniform system of accounts prescribed by the Interstate Commerce Commission. The basis for determining gain or loss and for depreciation, for Federal taxes, of any property acquired with deposits in the fund would be reduced by an amount equal to the deposits used for such purposes.

The administration did not recommend the establishment of a construction reserve fund in its recommendations of April 22, 1958, and it is opposed to the establishment of such a fund. Section 7 would in effect permit a carrier to offset depreciation against taxable income before it buys the depreciable property. This is obviously more far reaching than any proposal to shorten the depreciable life of property for tax purposes. It goes much further than the provision for rapid tax amortization allowed during emergencies to encourage industrial expansion. While a similar provision is applicable to operators of American-flag vessels receiving operating subsidies, it has never been extended to nonsubsidized operators or to other industries. The program for rapid tax amortization has recently been narrowed in scope. It would seem unwise at this time to enlarge the number of taxpayers entitled to avail themselves of a tax advantage as far reaching as this.

The Bureau of the Budget advises that it interposes no objection to the submission of this letter to your committee. Sincerely yours,

SINCLAIR WEEKS, Secretary of Commerce.



I. The national transportation policy preceding section 1 of the Interstate Commerce Act, as amended, should be amended to read as follows:

“It is hereby declared to be the national transportation policy of the Congress

“(1) to provide for and develor, under the free enterprise system of dynamic competition, a strong, efficient, and financially sound national transportation industry by water, highway, and rail, as well as other means, which is and will at all times remain fully adequate for national defense, the postal service, and commerce;

“(2) to encourage and promote among carriers vigorous competition in rates, service, and all its other aspects, so as to encourage technical innovations, the development of new rate and service techniques, and the increase of operating and managerial efficiency, full use of facilities and equipment, and the highest standards of service, safety, economy, efficiency, and benefit to the transportation user and the ultimate consumer, at reasonable charges, and without unjust discrimination or undue or unreasonable preference, advantage, prejudice, or disadvantage;

“(3) to cooperate with the several States and the duly authorized officials thereof;

"(4) to encourage fair wages and equitable working conditions ;

“(5) to reduce economic regulation of the transportation industry to the minimum consistent with the public interest and to the end that the inherent economic advantages, including cost and service advantages, of each

mode of transportation may be fully realized in such a manner as to reflect its full competitive economic capabilities; and

“(6) to require that such minimum economic regulation be fair and impartial, without special restrictions, conditions, or limitations on individual

modes of transport. "All the provisions of this Act shall be construed, administered, and enforced with a view to carrying out the above declaration of policy.”

II. Paragraph (7) of section 15 of the Interstate Commerce Act, as amended, should be amended by changing the period at the end of the last sentence to a colon, and adding the following: "Provided, houlever, That where the hearing is in a proceeding involving competition between carriers to which paragraph (3) of section 15a is applicable, the carrier proposing the changed rate may meet the burden of proof by showing that the proposed changed rate covers the additional expenses incurred in handling the traffic to which it applies, and in such event the burden of proof shall be upon the complainant to show that the proposed changed rate is lower than a just and reasonable minimum rate.”

[NOTE.—Similar amendments should be made to secs. 216 (g), 218 (c), 307 (g), 307 (i), and 406 (e) relating to common carriers by motor vehicle, contract carriers by motor vehicle, common carriers by water, contract carriers by water, and freight forwarders, respectively. ]

III. The following section should be substituted for section 5 of S. 3778:

“SEC. Section 15a of the Interstate Commerce Act, as amended, is amended by inserting after paragraph (2) thereof a paragraph reading as follows:

***(3) In a proceeding involving competition between carriers, the Commission, in determining whether rail rates are lower than just and reasonable minimum rates, shall consider only whether such rates will unreasonably restrain trade or commerce in transportation, or whether the carrier or carriers charging such rates shall be thereby unreasonably monopolizing, or attempting to monopolize, any part of such trade or commerce: Provided, That such rates shall not be found to unreasonably restrain trade or commerce in transportation nor shall the carrier or carriers charging such rates be found to be thereby unreasonably monopolizing or attempting to monopolize any part of such trade or commerce because such rates are concertedly established by more than one carrier pursuant to section 5a of this Act. The phrase "a proceeding involving competition between carriers" means a proceeding with respect to rates charged by a rail carrier or carriers for the transportation of persons or property between two points where such rates would affect the movement of traffic between such points by another carrier or other carriers, whether or not subject to this part.''

[NOTE.—Similar amendments should be made to secs. 216 (i), 218 (b), 307 (f), 307 (h), and 406 (d) relating to common carriers by motor vehicle, contract carriers by motor vehicle, common carriers by water, contract carriers by water, and freight forwarders, respectively.]

IV. The following section should be substituted for section 6 of S. 3778:

"SEC. (a) It is the purpose of this section to provide for assistance to common carriers by railroad to aid them in making additions and betterments to road property used for transportation service and in acquiring freight train cars so as to foster and develop a national system of transportation by railroad adequate to meet the needs of the commerce of the United States. “(b) For the purposes of this section

“(A) The term 'Secretary' means the Secretary of Commerce of the United States.

"(B) The term 'Commission' means the Interstate Commerce Commission.

"(C) The term 'carrier' means a common carrier by railroad subject to part I of the Interstate Commerce Act, as amended.

"(D) The term 'additions and betterments to road property' means additions and betterments to property used in transportation service the costs of which are chargeable to investment in road property accounts in the Uniform System of Accounts prescribed by the Commission for railroad companies.

“(E) The term 'freight train cars' means freight train cars the costs of the acquisition of which are chargeable to the freight train car equipment property account in the Uniform System of Accounts prescribed by the commission for railroad companies.

"(F) The term 'equipment obligation' means any obligation of a carrier or group of carriers under any equipment trust agreement, conditional sale

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