notified-38 F.R. 8506. This rule purported to affect even minimal increases affecting tiny employee units. The rule, of course, was enormously burdensome to both the Council and to the food industry. Apparently realizing the problem it had created, the Council later amended the rule to delay its full impact until August 1-38 F.R. 9825, April 20, 1973. The deadline was further extended, this time to November 1, 1973-38 F.R. 19682, July 23, 1973.

Once again, let me emphasize that public participation in the promulgation of regulations and development of policy is not a luxury to be tolerated by Government only when the program is not important or when ample time is available. The suggestion that the economic stabilization program and the fight against inflation are too urgent to be hampered by orderly administrative procedures totally misses the point that public participation provides immeasurable benefits to the regulatory agencies.

I would like to add here, every aspect of our economy is regulatedas to health questions, economic questions, safety questions-by any number of the agencies that have been created by Congress and by the executive. In all of these, generally, orderly administrative procedures are followed. Just why it was thought that the fight against inflation was so much more important that it justified totally ignoring these procedures, I will never understand.

Senator MATHIAS. Since you have interrupted yourself, I will interrupt you further.

Mr. DUNKELBERGER. Go ahead, sir.

Senator MATHIAS. And I say that I couldn't agree with you more. At the time of the extension of the Economic Stabilization Act I offered an amendment providing for public hearings in the case of petroleum allocations. I think that this is a vital feature. I think we ought to write it into really all of the programs by which the Congress delegates extensive authority to the President. At this moment, specifically, I have in mind the Trade Act which is coming up which is a very similar operation in its effect on business, and on the public, the consuming public, and there ought to be an opportunity for public comment before the executive acts are taken which affect everybody's lives so intimately.

Mr. DUNKELBERGER. Senator, I couldn't agree with you more in that respect. I think both the regulated parties, who have obviously a great amount at stake in the area of regulation, and the public should have an opportunity to come in and participate in the development of these policies which are going to govern their activities and govern their pocketbooks so directly.

What I have said is not intended to minimize those instances in which public comment has been sought. In 1972 the Pay Board published in the Federal Register a proposed recodification of its regulations and gave ample opportunity for comment prior to the issuance of final revised regulations. Undoubtedly that procedure resulted in better regulations and better government.

The Cost of Living Council has published most of phase IV of its price regulations and executive and variable compensation pay regulations in proposed form and has given the public an opportunity to comment on them. Indeed, the efficient procedural manner in which the CLC has handled the phase IV regulations-with an opportunity

for public comment, and modification of the regulations in the light of the comments-underlines the absence of a reasonable justification for the agencies' failing to follow the APA in the past.

I would like to underline that point. Under Mr. William Walker, general counsel of the Cost of Living Council, there has been a far greater degree of adherence to the public participation procedures of the APA. As I have indicated in my prepared testimony, the very reliance and adherence of the CLC to those procedures emphasizes that the excuses that have been given to the public and to companies in the past 2 years as to why they could not be adhered to were meaningless and really had no basis whatever in fact, law, policy, or theory.

II. RETROACTIVITY OF RULES

I now turn to a related issue: The tendency of the economic stabilization agencies to make rules retroactive in effect. This is usually done on the grounds that there is good cause for making the regulations effective not less than 30 days after publication in the Federal Register. The Pay Board's regulations on executive and variable compensation, published in the Federal Register on February 15, 1972-37 Fed. Reg. 3357-were made effective as of November 14, 1971, on such grounds. Similarly, when the Cost of Living Council on March 6, 1973, extended the jurisdiction of the Construction Industry Stabilization Committee to encompass certain nonconstruction operations covered by construction collective bargaining agreements-38 Fed. Reg. 5995—the Council made its regulations effective as of January 11, 1973, 54 days prior to publication of the amendment in the Federal Register.

Other regulations have been made retroactive in effect, rather than in form. For example, in the Cost of Living Council Form CLC-2, published in the Federal Register on May 7, 1973, long-term interest expense for the fiscal year must be treated as an operating item. This change came about far into the fiscal year of many companies that were then operating under a contrary rule previously in effect with respect to that fiscal year. We know of at least one firm with a fiscal year ending on May 31, 1973, a mere 3 weeks after the CLC-2 was announced, whose entire year had been planned and carried out under the contrary prior rule.

Such efforts to make amendments effective retroactively are unfair and of highly dubious legality. Courts have regularly refused to give retroactive effect to rules and regulations in such circumstances.

III. ENFORCEMENT OF VAGUE STANDARDS

A third procedural issue relates to the fairness of promulgating vague so-called voluntary standards for conduct, such as we saw under phase III of the program, coupled with threats of retaliation should the standards be disobeyed. I believe that it is important to focus on this issue despite the fact that we are no longer in phase III, at least with respect to price, since a phaseout of controls might include something similar to phase III.

Phase III was presented as a voluntary program in which companies, according to Secretary George Shultz would be "clobbered" with a "club in the closet" if they did not obey the standards. The club in the closet threat was a deliberate one which was often repeated by

those in authority. At one point it escalated to being a "shotgun in the closet."

This concept of voluntary controls enforceable at will by the Goyernment is, in my view, intolerable as a legitimate means of economic control, and is made worse by the vagueness of the phase III standards. The general price standard, for example, merely provided that companies may raise their prices to reflect increased costs. The concept of cost was never clearly defined until May 7, 1973, the day the Cost of Living Council Form CLC-2 was issued. By this time, companies had already gone through 12 and one fiscal quarters. In the interim, the phase III standard merely provided that the phase II regulations were superseded but were "to serve as a guide in applying the phase III *** standards." Elsewhere it was stated that "the policies and principles contained in phase II regulations can be used in applying the standard." Did the word "can" mean "may," "must,' or something else? Furthermore, the rules went on to provide that increases in phase III must not be unreasonably inconsistent with the phase III standards or goals. Apparently, reasonably inconsistency might be allowed. But what if a company guessed wrong about what would pass muster? George Shultz might jump out of the closet and clobber it.

Typical of the confusion concerning standards is the issue of the viability of the 5.5-percent pay standard, which remains as a voluntary and self-administered guide for most segments of the economy. Earlier in the year, there were several contradictory statements from the Council in this matter and it has never been entirely clear whether the 5.5-percent standard is a standard, a guideline, a goal, a hope, or a fraud. The lack of certainty on the issue almost certainly tends to lessen respect for Federal regulation in general.

I would like to add here that it is difficult to comprehend the degree of uncertainty that surrounds this voluntary pay standard. Companies time and again ask. "Are we regulated or are we not regulated?" and really Mr. Hodges and I find it impossible to answer that with any degree of precision.

I sincerely doubt whether any Government program should be run on the basis of a company being "clobbered" for failing to comply with a vague, voluntary standard. Such a system is inherently unfair. And it is all too easy for such an approach to be abused. I am not suggesting that such abuse has occurred under the economic stabilization program. I am not aware of any "enemies list" or favoritism at the Cost of Living Council, and I believe that the phase III regulations were administered honestly and as fairly as the regulations allowed. But the regulatory scheme itself was susceptible to abuse, and led many businessmen to conclude, perhaps wrongly, that the Government did not really mean what it said.

IV. TRIPLE PENALTIES

Another aspect of the program which has caused concern is the practice of the Cost of Living Council, and the Price Commission before it, to impose triple penalties on companies which exceed their allowable profit margins for a fiscal year. (See 6 CFR sections 155.176, 155.177, 300.54.) That practice has no support whatever in the act itself, which specifically prescribes the sanctions for violations: A fine

of not more than $2,500 for each violation and $5,000 for each willful violation. (Economic Stabilization Act, as amended, section 208.) Section 210 of the act provides that an individual may bring an action for three times the amount of an overcharge, and the legislative history of the act establishes that such an action is reserved to private parties and is not available to the Government. The report of the Senate Committee on Banking, Housing and Urban Affairs, which reported out the 1971 amendments to the act, states that the treble damage action "is intended to be brought by private persons against other private persons. The Government will not bring such action nor be the subject of one." (S. Rept. No. 92-507, 92d Cong., 1st sess. at 9.) In light of the clear language and intent of the act, it is difficult to understand how the Council considers itself as having the power to impose the treble damage sanction. One can only speculate that companies have generally not been willing to disregard treble damage orders by the Council because of the fear that their ongoing relationships with the agencies might be severely damaged.

V. SECRET RULES

Another area of concern relates to the existence of rules or criteria which affect the public but which are known only by the Council or the Internal Revenue Service. Under this "desk drawer" approach to government, a citizen may have his rights decided on the basis of criteria of which he is unaware and which he has no effective opportunity of refuting.

We do not know how widespread the use of such materials isbecause of their very nature they are secret-but we do know it exists. Only last week we represented a company that was called before the Internal Revenue Service to explain its conduct during the freeze. The company presented numerous arguments as to why it was in conformity with the regulations, supporting its views with citations of published rulings of the IRS during phase II. The IRS district conferee, however, read to us from what he referred to as an "internal Q&A" which seemed to go against the company. We understand that there may also be internal guides relating to the criteria which should be met in order to obtain an exception to the regulations.

There would seem to be nothing more basic to good government than a requirement that a citizen not be regulated by and subject to rules or interpretations that are not disclosed. The courts have begun to recognize the rights of citizens to this kind of material. See Long v. IRS, 339 F. Supp. 1266 (W.D. Wash. 1971); 349 F. Supp. 871 (W.D. Wash. 1972); Tax Analysts and Advocates v. IRS, U.S. Tax Cases p. 9481 (D.D.C. 1973).

The publication of these criteria would serve both the public and the economic stabilization program. It would inform companies of what they are expected to do to be in conformity with the requirements of the program. At the same time, it would enormously ease the administrative burden on the Council and the IRS caused by numerous inquiries concerning compliance.

I would like to add that we welcome the advances that this committee has already made in that regard and the assurance that at least some of these materials will be made publicly available by the Council.

VI. POWER TO IGNORE ITS OWN RULES

Another concern is the alleged power of the Council to ignore its own regulations and to deny or hold up increases which meet all the Council's criteria for approval, such as cost justification and profit margin compliance, but are deemed "unreasonably inconsistent with the goals of the economic stabilization program." (6 CFR sec. 150.154 (c). There was a similar provision in phase II. See 6 CFR sec. 300.60.)

I do not understand how a price increase which is otherwise in compliance with the Council's regulations could be deemed "inconsistent" in this manner. This broad reservation of power is apparently intended to permit the Council, when it sees fit, to disregard its own regulations. The exercise of such power totally undercuts the detailed framework of the regulations and published rulings, and leaves the affected company with no recourse against arbitrary action. Judicial review is obviously meaningless when an agency purports to operate under such a provision.

VII. ECONOMIC COERCION

A related problem relates to the great potential for economic coercion which can be wielded over companies through the use of procedural delays. In the announcement of these hearings the chairman noted that enormous power is granted to "a small group of men whose decision can make or break any business in America." We have seen this done in such a way that the decision of the authorities is practically unreviewable by a court. In 1972, for example, the Price Commission approved a request of a company for a price increase. It then changed its mind, and suspended the increase of the company in order to study the entire industry. The Commission raised a number of questions concerning the propriety of the price increase it had previously granted. The company refuted each point raised by the Government, but it was informed that it had two choices: It could withdraw its original request and consent to accepting a much smaller price increase, or the Price Commission would continue its study into the indefinite future, during which time the major part of the company's request would be suspended. In the light of the company's immediate and desperate need for price relief, it capitulated and accepted the smaller increase. The acceptance of the smaller amount probably effectively precluded judicial review of the Government's position with respect to the original request. Professor Kenneth Davis has commented on this kind of coerced consent:

"In all such cases the regulated party consents and cannot complain. But to argue that consent should bar further protest is not the same as concluding justice is necessarily done. On the contrary, the opportunity for arbitrary action is extraordinary * * *.” 1 K. Davis, Administrative Law, Sec. 4.06 (1958).

VIII. BURDEN OF COMPLIANCE

Finally, I should not conclude without emphasizing the obviousthe burdens of compliance with the economic stabilization programs have been enormous. The rules are complex and frequently require extensive computer analysis. Once a company has finally established