full cooperation with the pool and that the industry's policy of restrictive production and high prices will continue unless some completely satisfactory substitute may be found for quebracho extract. Apparently the tanners in this country find that wattle extract is the only tanning product interchangeable with quebracho extract, and it is therefore significant to observe that the wattle extract industry, which is located in South and East Africa, is also controlled by Forestal of England, and that the principal importers of wattle in the United States are the Tannin Corporation and International Products Corporation.

The CHAIRMAN. What, if anything, has been done in the United States to meet the problem of our complete dependency for these essential materials on this pool or cartel which is apparently backed, in this one instance, by the Government of Argentina, and which Government has been unfriendly to us? I do not say that the people have been unfriendly, but the Government has been.

Mr. LEWIS. Senator, so far as the Antitrust Division is concerned, it attempted early this year to cooperate with the F. E. A. (then the B. E. W.) in creating a stock pile of quebracho extract in this country. In the course of disposing of our criminal case in New York, Dr. Severgnini, who was the representative in this country of the Argentine pool, promised to facilitate the creation of a stock pile of quebracho in the United States. However, so far as we know, a stock pile has not been built up in this country.

THE CHAIRMAN. Let me ask you to reflect back a little bit. Do you remember the rubber difficulty just prior to Pearl Harbor, when for 3 years we had been trying to stock pile rubber and yet the operation of a pool prevented Mr. Jones and the Rubber Reserve from buying and stock piling that rubber, until war was so imminent in the East it was impossible to have that stock pile? That was brought out in the hearings on rubber. The same operation existed there.

Mr. LEWIS. We understand that there was a directive by the R. F. C. authorizing the B. E. W. to purchase 50,000 tons of quebracho and the B. E. W. conducted negotiations in Argentina with the pool for a year or so, but so far as we know, nothing came of it and we have quite definite information that there is no stock pile in the United States at the present time.

The CHAIRMAN. And that is on a parallel with the rubber situation. Jesse Jones was seriously criticized for not stock piling it, because the money had been appropriated, and the real facts developed were that he could not get deliveries; the shipping situation got so tense that he was not able to stock pile the 5 years' supply for which the money had been appropriated.

Mr. BERGE. The chief official of one of the companies which stood up against the bulldozing tactics of the pool wrote a letter to American Tanners Ltd., on February 7, 1935. After discussing in a critical manner the actions of the pool and referring to a conversation with an individual whom he said could be "interpreted as a stool pigeon for Forestal," he wrote, and I quote:

We also pointed out the fact that if the arbitrary methods of the gentlemen (the pool) were pursued, that they were throwing away their markets, they were encouraging the fields of research, and that they would wake up one day and find that the volume of consumption of quebracho extract had been greatly reduced due to the introduction of other materials which supplanted quebracho and I

cited the instance of what the tanners went through with substituted leather and how the volume of the market had never been regained and that the same thing would happen to quebracho.

In other words, he was sounding a warning that if they kept up with this, maybe someone could come along and develop a substitute and that they would encourage research which, of course, they did not want to do, and they would find themselves "out on a limb" because someone else would come in with a better product that would supplant theirs. They were afraid of the very thing, Senator, that we want to happen, and so it is our hope in the Antitrust Division that every cartel which misuses its monoply control over a product needed by our people will wake up to find that product supplanted by another and better product which is not so controlled.

The CHAIRMAN. Mr. Berge, I want to point out one thing. There has been a constant rain of blows, shall we say, on any proposed legislation that would encourage laboratories that could carry on all the research necessary in the United States, and yet clear back in 1924, a situation like this arose and not a single commercial laboratory has contributed a thing to it; is that not the fact?

Mr. BERGE. It certainly is.

The CHAIRMAN. Is it not plainly evident that you cannot always rely on commercial laboratories? The same thing occurred in the rubber situation. We saw what we were up against in that. What work was done was stultified in such a way that it could not have any effect.

Mr. BERGE. I think so. I think that here you have the companies that were the largest in the field and were controlled by the monoploy. They were controlled by Forestal, which also controlled the South American production, so there wasn't any incentive, certainly for them to find a product which would supplant the one on which they were making monopolistic profits. We have seen that the two independent competitors here, one was so small as to be ineffective and the other, for reasons of policy, decided it was better to go along with the pool-go along with its competitor, play ball with the Tannin Corporation. It seemed to be satisfied with its existence on that basis, so that competitor (I am referring of course to International) did not have any incentive to develop any new product, and the upshot of it was that there wasn't any independent business interest in this country which got strong enough to cut any figure in the picture, and none which saw fit to throw in its capital and develop a competing product. They felt it was hopeless, I suppose, because of the international domination of the field.

The CHAIRMAN. We really have what you might call a division of fields in scientific research, and as long as we are able, or one particular group is able, to go along in their field, there is no incentive for anyone else to invade that field with research, even though it might be necessary for the safety of the country and for the safety of the consumer. Isn't that a fact? In other words, you have a division of fields of endeavor in research, unquestionably.

Mr. BERGE. There is no doubt about it.

The CHAIRMAN. And none of them will transgress the other's field. We are over here in leather; nobody is transgressing the leather

group's field, and they are satisfied to go along with the pool. Then we suddenly find ourselves in this position and apparently that cartel and pool are very much alive, not only politically in Argentina, but commercially in the United States. Isn't that a fact?

Mr. BERGE. Yes; certainly. I think the reason for the lack of individual initiative in the matter of new research here is because of the hopelessness of the odds. The fact that it is a monopoly and cartel dominated field, I would personally think, if it were not for that factor, individual initiative might pull this situation out. I would feel, in other words, that the necessity for a program of governmental research in a field like this is created by the fact of cartel and monopoly control. I would suppose that if it were not for that domination the private competition might have developed new techniques and new extracts.

Dr. SCHIMMEL. Is it not true that you could not expect the leather interests to engage in a research program which might yield a synthetic which possibly would be no better than quebracho, although the national good requires that we be independent of the foreign sources of supply? The particular commercial interests would not think of that. The Nation as a whole has to think of it.

The CHAIRMAN. That is right. The leather industry in the United States wouldn't want openly to go out and seek a substitute because they might be handicapped in the oper tions of the pool during the seeking of the substitute.

Mr. BERGE. I have just been informed, and this is a matter of interest, that some of the shoes of Rommel's soldiers who were killed or captured have been examined in this country by scientists, for the purpose of trying to find out what is the secret of Germany's synthetic tanning processes, but so far we have not solved the mystery.

The CHAIRMAN. The shoes apparently stood up well.

Dr. SCHIMMEL. We have here a confidential statement on the supply of tanning materials in Axis Europe, which if it can be released, should be included in the record.

Mr. LEWIS. And we would like to introduce all the letters which Mr. Berge has read in the course of the statement. In addition we want to introduce the pooling agreement of the Argentine and Paraguayan manufacturers which was entered into in 1935.

The CHAIRMAN. Very well.

(The document entitled "Tanning Materials, Estimated Supply Position of Axis Europe," prepared for the Economic Potential Division, Board of Economic Warfare, by T. Allan Davis, United States Tariff Commission, was marked "Exhibit No. 165" and filed with the committee. The letters referred to above by Mr. Berge and the pooling agreement were marked "Exhibits Nos. 166 to 179" and appear on pp. 1078-1104.)

The CHAIRMAN. Thank you for coming. We will hold the record. open for additional exhibits on this subject.

We will recess until next Thursday, at which time we will have testimony concerning the Schering Co., a drug concern.

(Whereupon at 11:35 a. m. the committee adjourned.)

EXHIBIT No. 162

INFORMATION ON TANNING MATERIALS FOR THE SENATE SUBCOMMITTEE ON WAR MOBILIZATION

(Prepared by the Bureau of Agricultural and Industrial Chemistry, Agricultural Research Administration, U. S. Department of Agriculture)

I

(a) Use of quebracho as a tanning material.-The principal vegetable tanning materials normally used by the tanning industry of the United States include quebracho, chestnut, mangrove, myrobalans, wattle, valonia, oak bark, hemlock bark, gambier, sumac, divi divi, and tara. An extract made from waste sulfite cellulose pulp liquors is used in tanning but is not usually considered as a vegetable tanning extract. Of these materials, by far the most important to the industry is quebracho extract. Quebracho is almost universally used in the production of sole, harness, belting equipment, or other heavy leathers. These types of leather are vital to the war effort. Quebracho is used because of its low price, ease of penetration, firm combination with hide substance, and the fact that when properly blended with other tanning materials it will produce leather of the required firmness, fullness, appearance, and feel.

(b) Importance of quebracho in blending with other tanning materials.-The basic blend of American tanneries for heavy leather may be considered as consisting of 50 percent chestnut wood extract and 50 percent quebracho extract, figured on a tannin basis. This basic blend is usually modified by the introduction of other materials, such as myrobalans, chestnut oak, wattle, divi divi, hemlock, valonia, gambier, or sulfite cellulose. These additional materials are used to increase the acid-forming properties of the liquors or to modify the properties of the leather produced. The proportion of quebracho in the blend may be considered as averaging 40 percent or more.

(c) Proportionate volume of quebracho to total volume of all tanning materials used in the United States. The annual importation of tanning materials in terms of tanning during the last 6 years (1937 to 1942) has ranged between 46,355 tons and 103,090 tons. During this period the annual imports of quebracho tannin have represented between 64 and 74 percent of the total imports. The best data available indicate that in the same years the quebracho tanning represented from 39 to 50 percent of the total tanning consumed by the United States leather industry. A clearer picture of the relation that quebracho tanning bears to the domestic leather industry can be obtained by an examination of the accompanying table, entitled "Imports and domestic production of vegetable tanning materials for the United States leather industry."

(d) Available known reserves of quebracho trees still in existence.-Specific data concerning current stands of quebracho are not at hand and available reports concerning the amounts of reserves differ widely. In 1912 the Argentine Department of Agriculture estimated the total possible yield of quebracho wood from areas accessible to railroads as 168,000,000 tons and the yearly consumption as 1,000,000 tons (U. S. Forest Service Circular 202, May 28, 1912). In 1921 G. A. Kerr (Journal of the American Leather Chemists Association 16, 172 (1921)), from personal observations, estimated the available supply as 74,800,000 metric tons (1 metric ton equals 2,200 pounds) and that a total of about 16,000,000 metric tons had been used up to that date.

A report in 1943 (Leather Trades Review, July 21, 1943, p. 837) gave the total world consumption of quebracho extract from 1921 to 1942, inclusive, as 4,891,344 tons. In the same report, data are given to show that 419,254 tons of logs were used in 1941 to produce 127,006 tons of extract; that is, 3.3 tons of wood were needed to make 1 ton of extract. Using this ratio, it can be calculated that 16,146,327 tons of wood were used between 1921 and 1942 for producing the 4,891,344 tons of extract.

From 1936 to 1941, inclusive (Tanners Council of America Report on Quebracho Supplies, February 23, 1942), 1,229,145 tons of quebracho extract and 362,486 tons of quebracho wood were exported from Argentine. If the same ratio of wood

1064

to extract was maintained previous to 1936, about 21,000,000 tons of wood were cut between 1921 and 1942 for export as wood or for conversion into extract for export purposes. This was a consumption of almost 1,000,000 tons per year.

Based on the above figures, the maximum amount available at present would be, according to the Argentine Department of Agriculture estimate, about 147,000,000 tons, or according to Kerr's estimate, about 54,000,000 tons. In the above estimate no allowance has been made for wood used for purposes other than as a source of tannin.

The following statement is quoted from the January 9, 1941 issue of Domestic Commerce, Department of Commerce, regarding resources of quebracho:

"The exploitation of quebracho resources has gone so far as to cause some concern for the future of the industry. Differences of opinion exist regarding the period of growth required to mature the quebracho tree sufficiently for commercial exploitation. Some authorities regard 40 years as sufficient, while others estimate that a period of 75 to 100 years is necessary to reach proper maturity. In any case, no policy of reforestation has been undertaken, and it has been necessary to go even further afield for new supplies. Fears have therefore been expressed that quebracho resources are in danger of being exhausted and can last only about 30 years more; but other authorities believe it to be quite probable that there are ample supplies in extensive unexplored areas which can be exploited for a long time to come.'

At the annual meeting of the Forestal Land, Timber & Railways Co., Ltd., which owns 3,000,000 acres of land in Argentina, it was stated that "basing our conclusions on the most recent estimates made by the Argentine Co.'s forest experts, we may reasonably assume that the present scale of annual production can be maintained for many years to come" (The Leather World, July 1, 1943, p. 423).

It would appear from the above information that the available reserves of quebracho are sufficient to last at least 30 years.

A table and a diagram showing production figures as reported in an article in Leather Trades Review, July 22, 1943, pages 837 and 839, and a map showing the distribution of the quebracho tree are attached.

II

(a) Program of research on substitutes for quebracho by the Department of Agriculture. The program of research in which the Department of Agriculture is engaged was not specifically designed to study and develop replacements for quebracho, but rather had as its objective the production of greater quantities of various tanning materials, thus placing the country in a better position to meet any emergency shortage in tannin that might arise. Since the imports of quebracho are greater than those of any other tanning material, its replacement would demand first consideration. Late in 1939, following the outbreak of war in Europe, the Bureau of Agricultural and Industrial Chemistry gave consideration to steps desirable to safeguard the interests of the United States in the event that there was an interruption to imported supplies and in connection with tanning materials, particularly any interruption to hemispheric trade. As a result of this consideration by various groups, a statement was prepared to serve as the basis for a technological defense program to be undertaken by the Bureau. Results of such research it was anticipated would provide domestic supplies which might be developed and their introduction into commercial practice accomplished in a more orderly manner.

(b) (1) Western hemlock bark. Since Western hemlock bark represented the largest and most directly in sight available raw material, a comprehensive study was made of this bark as a potential domestic source of tannin. The results of this study demonstrated that woods-peeled Western hemlock bark could be successfully converted into powdered tanning extract and that this could be used by the tanning industry in suitable blends to produce high quality heavy leathers. The results obtained at that time, however, indicated that the production of such extract might be economically on the border line and successful utilization of the bark might depend upon a rather narrow margin of profit. The results of this study were reported in technical bulletin No. 566, entitled "Western Hemlock Bark and Important Potential Tanning Material" by Charles C. Smoot and R. W. Frey. A copy of this bulletin is attached.

(2) Fresh water-floated hemlock bark. This material presents an entirely different problem from that of the woods-peeled bark. While floating on the logs, this bark loses usually at least one-half of its natural tanning content and a large proportion of the readily soluble tannin. Some barking procedures cause