1091 Material submitted by the Honorable Wendell Berge-Con. Letter dated Sept. 18, 1941, from International Products Corporation, Buenos Aires, to William F. Feeney, vice president, International Products Corporation, Letter dated Sept. 12, 1941, from International Prod- ucts Corporation, Buenos Aires, to William F. Feeney, vice president, International Products Cor- Letter dated Mar. 7, 1942, from E. Hope Norton, International Products Corporation, Buenos Aires, to Mr. P. W. Sterns, vice president, International Products Corporation, New York, N. Y..... Letter dated Dec. 16, 1938, from the Tannin Corpora- tion, New York, N. Y., to Baron Emile B. D'Erlanger, Erlangers, Ltd., London, S. C. 2, England... Letter dated Feb. 7, 1935, from Walter D. Little, Tanners Trading Company, Buenos Aires, American Tanners, Ltd., Boston, Mass___. Letter dated May 20, 1936, from International Prod- Letter dated Nov. 16, 1939, from William F. Feeney, vice president, International Products Corporation, New York, to E. Hope Norton, Puerto Pinasco, Letter dated Feb. 26, 1935, from the Tannin Corpora- General agreement between producers of extract of Western hemlock bark, an important potential tanning material, excerpt from Technical Bulletin No. 566, April 1937, U. S. Department of Agriculture, prepared by Charles C. Smoot and Ralph W. Frey.. Possibilities of obtaining an adequate supply of vegetable tanning material from the barks of the Douglas fir and hemlock trees in the Northwestern States, statement prepared by Frederick A. Cross___. Data regarding quebracho, submitted by Bureau of Foreign and Domestic Commerce, Department of Commerce... Table 1. United States Imports, 1937-40_- Letter dated Nov. 26, 1943, from H. G. Turley, Rohm & 187 Letter dated Dec. 23, 1943, from H. G. Turley, Rohm & Statement by Frank C. Erkel, Nov. 18, 1943, in regard to preparing shark and other hides for tanning. Letter dated Dec. 29, 1943, from W. W. Skinner, Chief, Bureau of Agricultural and Industrial Chemistry, Agri- cultural Research Administration, U. S. Department of SCIENTIFIC AND TECHNICAL MOBILIZATION WEDNESDAY, NOVEMBER 24, 1943 UNITED STATES SENATE, COMMITTEE ON MILITARY AFFAIRS, SUBCOMMITTEE ON WAR MOBILIZATION, Washington, D. C. The subcommittee met at 10:15 a. m., pursuant to adjournment on Thursday, November 4, 1943, in room 104, Senate Office Building, Senator Harley M. Kilgore, West Virginia (chairman), presiding. Present: Senator Harley M. Kilgore, West Virginia (chairman). Also present: Herbert Schimmel, chief investigator; John M. Jacobsen, consultant; Dr. Robert M. Hunter, Department of Justice; Seymour D. Lewis, Antitrust Division, Department of Justice. The CHAIRMAN. Mr. Berge will be the first witness. Please go ahead, Mr. Berge, and take up the matter of leather-tanning monopolies. STATEMENT BY THE HONORABLE WENDELL BERGE, ASSISTANT ATTORNEY GENERAL OF THE UNITED STATES Mr. BERGE. Mr. Chairman, this statement has to do with quebracho extract, a material which is of great use to the Nation in the war effort. It is a material which has been found most desirable for tanning the leather which goes into the shoes, harness, straps, and other leather articles of the armed forces. It is of some interest to every man, woman, and child whose ration stamps are used to buy a pair of shoes. Practically all heavy leather tanned in this country has been tanned by use of a blend in which this material is an important ingredient. It comes from the southern part of South America, and there have been times when it was difficult, and others when it appeared it might be impossible, to ship the material to this country. The production and sale of the material is controlled by a monopoly pool, or cartel, and this country is at the mercy of the pool in procuring the material in adequate quantities and at reasonable prices. The pool has exercised its power to curtail the quantity shipped to this country, to prevent any adequate stock pile in this country, and to raise prices out of proportion to any increase in costs. The CHAIRMAN. Formerly we tanned our leather with oak bark. Is quebracho used with the oak bark, or does it replace oak bark, which is getting scarce now? Mr. LEWIS. Quebracho is used in a blend of which oak bark is also a part. The CHAIRMAN. Go ahead, please, Mr. Berge. Mr. BERGE. A year ago the Department of Justice submitted the facts of this monopoly pool to a Federal grand jury in New York, and it promptly returned an indictment against five American corporations, one Canadian, and one British corporation, and five individuals, officials of four of the American corporations. Pleas of nolo contendere were subsequently entered by three of the American corporations and four of their officials. Fines were levied against and paid by these defendants, totaling $59,002. A nolle prosse was entered as to the two remaining American corporations, and two British corporations, and one official. The reason for the nolle. prosse in the case of the two foreign corporations was that they were outside the jurisdiction of the court. The CHAIRMAN. What was the occasion of the nolle prosse against the two American corporations in this case? Mr. BERGE. The other two corporations were Proctor Ellison Co. and Tanners Trading Co., both of Massachusetts. They were nolle prossed after the other defendants had pleaded, as it was felt that no useful purpose could be served by prosecuting these minor defendants only. The CHAIRMAN. And of course, we couldn't do anything against the foreign corporations in this country very easily, unless we could get them into court. Mr. BERGE. That's right. There would be the jurisdictional difficulty. This actually occurred before I became head of the Division, but my understanding is that they felt that the relief obtained by the pleas against the major American companies was about all that could be obtained. The CHAIRMAN. I have been informed that one of the three companies that entered a plea of nolo contendere is planning to dissolve the corporation and reinstitute it as an Argentine corporation. What is going to be the effect of that? Does that place them outside again? Mr. BERGE. It might or it might not. It certainly would make it more difficult and would raise questions of jurisdiction as to whether by doing that they got themselves outside the antitrust laws. Whether or not a foreign corporation is subject to our laws depends on whether it is doing business in this country, whether its acts here are sufficient to bring it within our laws. Certainly, if they followed the course you suggest, it would raise new difficulties. The CHAIRMAN. Do you know whether, for a fact, this information I have is correct? Have you had any information as to that? Mr. LEWIS. We have been informed that this tanning corporation intended to liquidate itself, but we have no definite information that any steps have been taken toward liquidation. Dr. SCHIMMEL. One of our investigators, Mr. Jacobsen, had an interview with people from O. P. A. and discussed the effect this would have on prices. It was pointed out by the O. P. A. economist and counsel of the Export-Import Prices Branch that if they did reorganize, and particularly as an Argentine company, they would get themselves outside of the regulations of the O. P. A. Mr. BERGE. The national interest in such a situation plainly warranted a diligent effort long ago to find an adequate substitute which would relieve us from entire dependence upon the ability and willingness of a foreign cartel to supply us with a vital material. I suggest that the committee investigate and ascertain for itself the extent to which we, as a nation, have gone in providing a safeguard against the eventuality of our being cut off from the supply of this material. The CHAIRMAN. Mr. Berge, the committee staff has already made a preliminary study on this problem. Dr. Schimmel, do you have anything as a result of that preliminary study that could be introduced at this time? Dr. SCHIMMEL. Yes. I would like to present as the first document of interest a study made by the United States Department of Commerce in December 1924. (The document referred to, entitled "Tanning Materials Survey: Part III, Quebracho, supplement to Commerce Reports, December 1924," was marked "Exhibit No. 161" and filed with the committee.) Dr. SCHIMMEL. I would like to read two paragraphs into the record. At that time it was stated [reading]: That the United States has not suffered materially in the past from lack of specific tanning materials requisite for special leathers is merely fortuitous and should not result in the apathetic attitude of permitting the future to take care of itself. For, since the domestic leather market is the biggest in the world, and the United States is preeminently the foremost contributor to the leather requirements of civilized countries, abundant and unrestricted supplies of tanning should be a matter of national concern. Then the report later goes on to state that The quebracho industry, which within the last 20 years has assumed a monopolistic character, is controlled by powerful, highly organized concerns that conduct the business on prearranged lines. The forests of the Province of Santa Fe belong entirely to two such firms. The big tannic-acid factories in the eastern Chaco have been constructed with European capital and are operated under European administrative, scientific, and technical supervision. The committee addressed a letter to the Department of Agriculture to find out whether any efforts had been made to make this country independent of these foreign sources of supply. Their reply should be made part of the record. (The document referred to, entitled "Information on Tanning Materials," was received and marked "Exhibit No. 162," and with the exception of a map and one chart appears on p. 1064.) The CHAIRMAN. May I ask you something there? I noticed you used the words "eastern Chaco." Is that, by any chance, part of the Grand Chaco? Dr. SCHIMMEL. I believe it is; part in Paraguay and part in Argentina. The CHAIRMAN. Do you think the monopoly of the forest in question might have had something to do with the boundary dispute that was settled just a few days ago? Dr. SCHIMMEL. We don't know that, but we do know, from rather an exhaustive reply given us by the Department of Agriculture, that the major research that has been done in this country has been done since the war and has been done by the Government, largely by the Department of Agriculture. It is very interesting. The reply points out that the Germans recognized the importance of becoming independent of Argentine sources of supply, and very early in Hitler's regime required the German leather manufacturers to use synthetic substances and also to use domestic barks. Here in this country_we have as yet found no adequate substitute for quebracho, but the Department of Agriculture has done some very fine research and have made western hemlock suitable as a substitute, although it is as yet not within the economic range of quebracho. The CHAIRMAN. Unfortunately, however, under our diversified forest-control system, you can never rely on a supply of hemlock or any other particular wood for continued supply. Isn't that right? Dr. SCHIMMEL. I should think so. It is very interesting that the supplies of quebracho in South America have been depleted, too, because the particular monopoly that controlled the forests there have been mowing out the timber instead of growing new timber as they cut the old, so that some estimates show that our present supply of quebracho, at the present rate of consumption, would last only another 30 years; whereas, it takes as much as 40 to 75 years to grow it. So the South Americans, when confronted by a monopoly, seem to have the same problem we have. Mr. BERGE. The extract is obtained from the quebracho tree. For commercial purposes, the growth of these trees is limited to Argentina and Paraguay. Although there are quebracho forests in southern Brazil, the extract manufactured from these trees is inferior to Argentine and Paraguayan extract, and cannot compete favorably with it in the market. Ninety-eight percent of the world production of quebracho wood and extract comes from Argentina and Paraguay. In 1942 the total production amounted to approximately 300,000 metric tons of extract and was valued at $25,000,000. The CHAIRMAN. Do you have any information on the capacity of this industry in Argentina, on the percentage of capacity that is utilized now and the proportion of total production that is exported; that is, how much are they utilizing and how much are they exporting? Mr. BERGE. My information on that, Senator, is that the annual capacity of the industry is about 500,000 tons, and that during its most active year the industry produced about 300,000 tons, or roughly 60 percent of capacity; substantially all quebracho extract made in Argentina and Paraguay is exported to other countries. The CHAIRMAN. We can't produce good-quality leather for shoes or harness or anything else without the use of this extract; is that right? Mr. BERGE. That's right. I think we have no adequate substitute for it. The CHAIRMAN. Then it is a control of the leather market and a control of leather prices. Dr. SCHIMMEL. We have this information: We have a table which shows the relation between prices and the existence of a pool, and it shows that every time that the pool went out of operation, because competitive forces began operating, prices went down and production went up. And there is also a table in the material furnished to us by the Department of Agriculture that shows that each time the pool went into operation-that is, this cartel went into operation-the production dropped very precipitously; and, when it went out of operation, it rose. You can almost tell from the chart just when the pool goes out of operation. It goes out of operation here, and the production begins to climb [indicating]. The table furnished by the United States Tariff Commission shows how the prices declined every time the pool went out of operation. The CHAIRMAN. Let's put this in as an exhibit at this point. (The table referred to was received, marked "Exhibit No. 163" and appears on p. 1071.) |