Mr. BERGE. That certainly follows, and the result is that with all these cumulative difficulties in the way of the purchaser in this country trying to get quebracho from an independent source, 95 out of 100 times they give up and simply buy this extract from Tannin or International under the terms dictated by the pool.

From 1934 to 1939 International Products Corporation was a member of the quebracho pool, and by reason of its designation as an official pool agent for the United States gave up its business of selling extract in England and in Asia.

The CHAIRMAN. I gather from this that I. P. C. discontinued its membership in the pool in 1939, and at the same time refused to continue its cooperation with the pool. What is its present status?

Mr. BERGE. I think it can be said that for most purposes International Products operated after 1939 as if it were a member of the pool, and particularly with respect to its sales policy. I do not think its actual formal withdrawal made any substantial difference in its policy. As far as we know, its only deviation from cooperation with the pool was its production in 1940 and 1941, which was somewhat in excess of its quota during those 2 years.

The CHAIRMAN. Does it still continued to cooperate although it does not operate as a part of the pool? Does it cooperate with the pool so far as you know?

Mr. BERGE. We are confident it does from the information we have, The CHAIRMAN. In other words, it becomes really a silent partner, as far as the public is concerned.

Mr. BERGE. That is right.

The CHAIRMAN. Go ahead, please, Mr. Berge.

Mr. BERGE. American purchasers of quebracho might well wonder whether this American company was more concerned with giving them a good deal or with favoring certain foreign concerns, from the concluding paragraph of a letter from one of its officials to its president dated November 16, 1939.

You undoubtedly know that Mr. Seldes was successful in substituting casado extract to fill the order we had for Forestal for 535 tons of Supremo for delivery in Buenos Aires for shipment to Japan. We paid for the casado extract with a dollar draft and have since received from Forestal the sterling representing the sale. The net result of the whole transaction represents a loss of a little more than $1 per ton, which, as explained in a previous letter, is really not a loss at all, as we will use this extract to fill orders for North America which will net us a nice profit.

When I first read that extract I had to analyze it a little to understand it. It uses some terms that one who is not familiar with this field does not readily respond to, but I think you could colloquially summarize it as meaning that on this transaction to make available to Japan this 535 tons, I. P. C. lost $1 a ton, which really didn't worry them because they knew that on their American exports they could readily make it up.

The CHAIRMAN. In other words, we were paying $1 a ton on shoe. leather for the Japanese Army. Isn't that what it amounts to?

Mr. BERGE. Yes. The production of Samuhi was so small, being about 1 percent of the entire industry, that it could hardly contain any competitive threat to La Forestal. Nevertheless, our records show that for many years Forestal harassed this company by every means and sought to buy up its assets and its stock.

It is interesting to observe in what manner the quebracho extract pool operated to carry out Forestal's policy of restricted output and high prices. Before the formation of the pool the price per pound of quebracho extract was 21⁄2 cents.

I am now coming, Senator, to the question you raised a little while

ago.

By the terms of the pool agreement a directive committee, dominated by Forestal, was empowered to fix the prices of all its members. The directive committee between November 1934 and January 1941 decreed six price rises, raising the basic price of quebracho extract for the whole world market from 221⁄2 cents up to 4% certs, an increase of nearly 100 percent. Sullivan admitted in July 1942 that at the then existing price, which prevails at present, Forestal was making a net profit of 33 percent on every ton of quebracho it sold.

The exorbitant profits of the quebracho manufacturers were severely criticized by the famous leading Argentine newspaper, La Prensa. The following excerpt was taken from a letter of May 20, 1936, written by the manager of the Buenos Aires office of the International Products Corporation to its president.

Another matter, which has caused a lot of excitement amongst the manufacturers has been the inopportune declaration, made by the chairman of the Forestal during the annual meeting of the shareholders, viz, that the understanding of the manufacturers was performed under the auspices of the Argentine Government; in other words, that the Argentine Government was really responsible for the agreement and that it was protecting the same. This news was reproduced all over the world and the La Prensa, the most important paper in the Southern Hemisphere, has seized the opportunity to denounce the huge profits made by the quebracho manufacturers, profits which in their opinion mean a loss for the Argentine Republic on account of the decrease in the export of both quebracho extract and logs. I am enclosing herewith the article, as appeared in the La Prensa of Monday the 18th instant, and we would add that this paper has on more than one occasion criticized the so-called "gentlemen's agreement." Mr. Marti told me that he is at a loss to understand how the baron made these declarations as Mr. Sullivan has always stressed the necessity of not mentioning the Argentine Government in connection with the manufacturers' agreement, a fact which can be noted in the balance sheets of the other companies, who, referring to the higher prices, explain that they are due to a better understanding in the sales policy abroad. Anyway I hope that his faux pas will have no serious consequences.

To maintain high prices it was necessary to limit the production and the sale of quebracho in the world market. The method used to limit production under the pool agreement was to allocate a quota to each producer in accordance with his respective productive capacity. These quotas limited the amount of quebracho extract which any manufacturer could sell during a given period. Each member of the pool was compelled to make substantial contributions at regular periods to a so-called "Battle Fund" of the pool. These contributions were retained by the pool unless the producers adhered to the pool's regulations relating to prices and quotas in which case a portion of each producer's contribution was refunded.

The CHAIRMAN. I wonder if that battle fund had any reference to the Battle of the Gran Chaco?

Mr. BERGE. I do not know, Senator, as to that.

The CHAIRMAN. There were a lot of lives lost in that battle, though. Mr. BERGE. This seems to have operated as a policeman's club over the members. They were required to chip in to this fund, and they would not get it back unless they adhered to the directions of the pool.

So restrictive were these quota limitations that producers who desired to sell above their quotas often paid enormous prices to acquire the quota rights of other producers.

This rigid control of the market so severely limited the production of many companies that in 1941 several deserted the pool. These companies were La Chaquena S. A. and Cotan S. A. These two companies, together with International Products Corporation, Samuhi, and Weisburd & Cia., Ltda., a new concern, have been the only producers outside of the pool since 1941. Although the total productive capacity of these five companies did not exceed 12 percent of the total industry, their threat of full production and decreased prices jeopardized its whole structure. To meet this threat, Forestal succeeded in persuading the Ministry of Agriculture in February 1942 to impose export restrictions upon each producer which prevented exportation of more than approximately one-third of their total capacity.

The CHAIRMAN. What, exactly, was the role of the Argentine Government in formalizing the control of the cartel over the industry? Have you any specific information as to how the cartel was able to influence the Government to get Government sanction of the pool by means of export control decrees? Do you have anything on the political background of that?

Mr. BERGE. I have a little information about that which I shall be glad to give. I think that the Argentine Government issued decrees in March of 1942, which said, in effect, to each producer, "You may export only a certain percentage of all quebracho exported by Argentina, which will be determined in proportion to your capacity against the capacity of the whole industry, so if your capacity is 3 percent of the entire industry, you may export only 3 percent of all the quebracho exported during the year." I might add that these decrees were harmful to the independent producers, like Samuhi, Weisburd, and La Chaquena who, prior to that time, had operated close to capacity, and small concerns like those would naturally be harder hit by any decree which required production at less than capacity.

The CHAIRMAN. In other words, Forestal could, by holding their own exports down, through the Ministry of Agriculture force the withholding of exports from the smaller companies in a commensurate degree?

Mr. BERGE. That is right.

The CHAIRMAN. If they chose to hold down, they could force the other fellows down until the market was right?

Mr. BERGE. Correct. I can give you specific information on how the cartel was able to influence governmental policy to support the pool by its export control decrees. I have two letters which are directly in point. The first is a letter dated May 20, 1942, from E. Hope Norton, president of International, to John B. Sullivan of La Forestal. In this letter Norton congratulates Sullivan and I will quote it:

Just a few lines to express my personal thanks for your cooperation and assistance in securing for us the Las Palmas agency. I can quite understand this company's hesitation in agreeing to this in view of their former experience, but I can assure you everything possible will be done to avoid, in future, any just cause for complaint on their part. I have given very definite instructions in this connection which I am confident will be carried out.

I realize you have had many worrying problems to contend with, and wish to congratulate you on the arrangements which have been effected with the Argentine and Paraguayan Governments.

With kindest regards and all best wishes for you and yours, believe me as ever. Mr. BERGE. The second letter, dated June 3, 1942, is from Walter D. Little, of Tanners Trading Co. Mr. Little had been in Buenos Aires for the last 20 years and probably knew more about the quebracho industry than any other citizen of the United States. The letter is long, but I will read a page or two from it, and I will offer the whole letter for the record. He says:

Now to try and paint a picture so that you will get the full understanding, I think it is well to start from a position which occurred at the beginning of December. At that particular time, according to information that we have, here was the position: The pool found that the International Products Co., through fear or prosecution in the United States under the antitrust law, could no longer play with Forestal and that they were shipping far more extract than their quota. Second, that the two new factories were in production, or at least claimed that they were. Chaquena had definitely broken relations with the pool and had 18,000 tons of extract which they were trying to unload in the market and then there was our operation, and even though our operation had no real effect on the position, it was utilized as another stepping stone to present a dismal picture to the Government here. At this particular moment in December, the Government here required the funds from exportation, they were nervous, and this opportunity was seized upon to present the following picture:

The quebracho industry cannot be held by a gentlemen's agreement, the so-called agreement is about to break, it will cause disaster, prices will fall, export values will be denied to the Argentine Government, and on top of this Forestal informed the Government that they would sell 150,000 tons of extract if the pool broke, at half the market value, to the British and American Governments. Presented in the proper way, with the proper sympathetic Government officials, it is not difficult to understand the situation created and the Government immediately took action and just here I would like to indicate that the quebracho business had passed out of the realms of commerce, into politics, diplomacy, and international influences. It is well to bear this particular point in mind, because our friend, without a doubt, has a large circle of international connections, all of whom, have self-interests, and through which he can pull many strings, irrespective of the correctness of the question in point.

Now, reverting back to the subject, the Government, ignorant of the complete picture of quebracho, decided to take action and they issued the quota system of which you have been fully posted and out of that quota system arose protests, denouncements, political influences, and wire pulling, to such an extent that it would appear that certain elements in the Government are disturbed and wonder whether they have not made a mistake.

That is all I will read of that letter. I will offer the complete letter for the record.

Mr. BERGE. In addition, Forestal attempted to prevent companies outside the pool from shipping their extract to the United States.

One instance is the experience of Hammond & Carpenter Corporation, an independent importer which has sought to compete with the Tannin Corporation and International Products Corporation in the importation of quebracho. In February or March 1942, J. A. Barkey, its vice president, attempted to import some extracts produced by Weisburd, an Argentine extract manufacturer, who entered the industry in 1941. Barkey called at the offices of the Sprague Steamship Co. and spoke to Mr. Bodermann of that company. Mr. Barkey later described the conference as follows:

* Mr. Bodeman retorted that it was very unlikely that our firm would be given any space for the reason that we were newcomers in the import of quebracho extract and for the further reason that the "pool" had supported his line 84949-44-pt. 9– -3

during the lean years before the war and by reason of such support his line would be obliged to support the "pool" during the present emergency.

Similar sentiments were voiced by Mr. Horgan of the Stockard Steamship Corporation.

The aid of the Buenos Aires Agency of Moore-McCormack was also previously enlisted. In October 1941 the Moore-McCormack line stated that, and I quote:

* * *

At the request of the Forestal Co. they had promised their cooperation for the purpose of keeping out any of the new brands. The understanding was that whenever they were offered outside extract and they had space they were to reject it and advise the other manufacturers, who would try to offer replacement. Forestal's tactics are well illustrated by the case of Mr. T. Valentine, exporter and concessionaire of a projected new company. International Products Corporation was informed in September 1941 that: * * * it has proved impossible so far to reach a satisfactory agreement with the new factory at Santiago del Estero. For this reason, the Forestal Co., in an endeavor to impede the exportation of the extract, has seen all the steamship companies requesting them not to give space to any outsiders, but to advise the Forestal who would immediately offer replacement cargo. The steamship companies promised to act accordingly.

The Basal agency had obtained shipping space for Valentine in the past-the exporter I have just referred to. "The Basal agency," an official of International Products Corporation, wrote to Feeney a week later, "has informed us that Valentine wants to book a further 200 tons on the next steamer but that they would refuse to take it if we or the Forestal would offer them replacement cargo."

The CHAIRMAN. These are American shipping companies, are they not, which are bringing in war material?

Mr. BERGE. Oh, yes; companies like Moore-McCormack and Sprague.

The CHAIRMAN. Sprague, of Boston?

Mr. LEWIS. I believe it is. They have an office in Boston, I know. Mr. BERGE. Those companies are substantial American companies engaged in bringing into the United States many important war materials and actively engaged, I believe, at the present time, in the shipping program.

The CHAIRMAN. And quebracho extract was an important war material?

Mr. BERGE. That is right.

The CHAIRMAN. Do you have any additional evidence as to the cartel's attempts to prevent shipping of this extract into the United States, or are these you have merely isolated instances?

Mr. BERGE. These are not isolated instances, by any means. I would say they are part of the plan of the pool to harass independent producers. We have additional evidence showing that harassment of outsiders, which we will introduce along with the letters which we have cited.

Mr. LEWIS. We have these in a group of letters which we will introduce in evidence after the conclusion of the statement.

The CHAIRMAN. All right.

Mr. BERGE. The effect of the restrictive government decrees and other measures taken by Forestal has been to force one independent, Cotan, S. A., back into the pool, while another, Samuhi, S. A., is contemplating rejoining the pool. It appears inevitable that within a short period of time the remaining independents will be forced into