TABLE 5.-Quebracho extract: Exports from Argentina to principal markets in specified years, 1929 to 1941 Includes 13,283,000 pounds valued at 1,342,000 pesos exported to Sweden and 11,049,000 pounds valued at 1,094,000 pesos exported to Netherlands. 2 Includes 9,460,000 pounds valued at 1,165,000 pesos exported to Chile. Source: Compiled from official annual and monthly trade statistics of Argentina. Converted to United States weight and currency by applying the following factors: 1 metric ton-2201.6 pounds. Exchange rate: 1929, $0.9513; 1932, $3.5844; 1936, $0.2918; 1937, $0.3086; 1938, $0.2973; 1939, $0.2500; 1940, $0.3030; 1941, $0.2681 (official A selling rate). TABLE 6.-Quebracho extract: Erports from Paraguay to principal markets in specified years, 1929-41 Not available. Exchange rates: 1929, $0.9513;1932, $0.5844; 1936, $0.6649; 1937, $0.7036; 1938, $0.6866; 1939, $0.5196; 1940, $0.5145; 1941, $0.5145. Source Official trade statistics of Paraguay, for 1929, 1932, 1936-38; 1939, Consular Reports Nos. 18095, July 25, 1940, and Boletin 7, Ministerio de Agricultura Comercio y Industrie de Paraguay; Pan American Union, Washington, D. C., 1942 for 1940 and 1941. Of the total quantity of extract exported from Argentina, 16 percent went to the United States in 1929, about 21 percent in 1937, and about 28 percent in 1939. With the outbreak of war and the subsequent loss of European and Asiatic markets, this trend has been accelerated. Of the total quantity of extract exported from Argentina in 1941, about 62 percent went to the United States. The percentage exported to the United States in 1942 was somewhat greater. No information is available as to what part of the exports to the United States originated in Paraguay. Brazil exported 227,000 and 577,000 pounds of quebracho extract, valued at $9,7301 and $23,024,1 respectively, in 1938 and 1940, the only years for which statistics are available. Exports of quebracho products are not shown in the official trade statistics of Uruguay. 3 The present Paraguayan export taxes, effective March 25, 1910, established by a decree of March 15, 1940, are 15 gold centavos per 100 kilos plus 1 percent ad valorem on exports of quebracho extract, and 4 gold centavos per 100 kilos plus 1 percent ad valorem on exports of quebracho logs. The total tax on extract, based on data for 1941 is equivalent to about 0.053 cent per pound of solid extract: the tax on logs is equivalent to about 0.023 cent per pound of quebracho wood, or 0.075 cent per pound of solid extract obtainable. While the Federal Government of Brazil does not levy duties on exports, the individual State Governments do impose such duties. The State of Matto Grosso, the principal producer of quebracho, has an export tax of 10 percent ad valorem for all items not specifically provided for; since quebracho is not specified, the 10-percent ad valorem export duty is believed to be applicable to it. Argentina and Uruguay do not levy export duties on either extract or logs. ORGANIZATION OF THE INDUSTRY IN SOUTH AMERICA La Forestal.-The most important corporation engaged in the quebracho industry is the Forestal Land, Timber & Railways Co., Ltd., known as La Forestal. Since its inauguration in 1906 La Forestal, through the acquisition of various properties, has grown enormously. This British-controlled company has acquired, in addition to extract plants, certain light railways, cattle, and other assets, all more or less essential to the economic operation of the quebracho extract industry. In 1928, La Forestal owned 2900,000 acres, some of which had been converted to cattle ranches. La Forestal's quebracho-extract capacity is given as 165,000 tons annually or about one-third of the total. It controls the Tannin Corporation of New York through a subsidiary, the St. Helen's Holdings, Ltd., and also distributing companies and extract factories in Europe, and has heavy investments in the South African wattle extract industry. International Products Co.-This firm is the only American-owned company operating in the South American quebracho industry. It is engaged in acquiring and developing quebracho and other forest lands and in preparing, dealing in, and marketing wood and extract; the company is also interested in cattle. It owns about 1,800,000 acres in Paraguay, of which about one-half is quebracho and the rest, pasture. Annual capacity of its quebracho extract plant is 36,000 tons. Agreements between producers.-Until 1931, production and sale of quebracho extract in South America were controlled by a pool which was dominated by La Forestal. The American-owned International Products Corporation was not a member. The agreement between the several producers of quebracho extract was in effect from 1926 through 1931 and was liquidated because at least one large maker did not conform to its terms. This liquidation resulted in ruinous competition and very low prices for the extract in foreign markets. A new marketing agreement between all producers in Argentine (16 firms) and Paraguay (4 firms) went into effect on November 8, 1934. This agreement was reached under the chairmanship of the Argentine Subsecretary of Agriculture and while it was not a Government measure, it had official approval and support. Production quotas and prices were established and markets allo 1 Converted from 167,760 and 433,603 paper milreis, respectively at exchange rates: 1938. $0.0580; and 1940, $0.0531. 2 On latest year for which data on both quantity and value are available. Computed on basis of 4 gold centavos per 100 kilos only, as data on exports from Paraguay, required for computation of the ad valorem tax, are not available: 1941-1 peso $0.5145. cated. The total output, under the agreement, was said to be 521,000 metric tons although the actual production in 1935 was only 380,000–390.000 tons. The English firm (La Forestal) controlled 40 percent of the output, the French firm (Pregil) 7 percent, the Italian firm (Ledoga) 3% percent, and the American firm (International Products Corporation) 7 percent. This agreement operated until recently. Late in 1941 two new producers of quebracho extract made their appearance in the market and one of the former members of the "agreement" retired from it and declared his intention to sell his product independently. Unsuccessful endeavors were made to bring the new producers into an "agreement" or to induce the former member to remain or return. This threatened ruinous competition. Through a joint governmental agreement in March 1942 between Argentina and Paraguay, production is restricted and exports closely supervised. Of the present output about 40 percent is by La Forestal and about 7 percent by the American-owned company, International Products Corporation. Of the total exports from Argentine and Paraguay, 20 percent has been reserved for Paraguayan exporters. The agreement apparently presumed that all foreign sales would be arranged and controlled in Buenos Aires and that shipping space would be controlled in that port. However, Paraguayan extract for a period of months continued to be forwarded to Buenos Aires, where stocks rapidly reached an excessive quantity due to the lack of cargo space. COMPETITIVE CONDITIONS The United States is one of the world's largest producers of leather and probably the largest consumer of quebracho extract, for which it is entirely dependent on Argentina. Paraguay, Brazil, and Uruguay. Argentina and Paraguay account for approximately £8 percent of the world output of quebracho wood and extract. The industry is largely controlled by one firm, La Forestal, through a pool combination which regulates production prices. Formerly there was a relatively small domestic production from imported wood to meet the demand of domestic tanners who prefer the more expensive "fresh" extract. In recent years there has been a tendency in Argentina to discourage exports of quebracho logs in order to promote the business of the local extract plants. The principal cost factors favoring manufacture in South America are: (1) Freight on wood to the United States (2 tons of wood per ton of domestic liquid extract produced); (2) lower labor costs. Solid quebracho extract is packed in double jute bags, 100 pounds net weight and approximately 40 to 45 cubic feet are required to stow 1 long ton. Several times as much stowage space is needed for the equivalent amount of quebracho logs necessary for the production of 1 long ton of extract. The substitution of one tanning extract for another depends on (1) their chemical characteristics; (2) prices ; and (3) the type and qualities of leather to be produced. Most authorities claim that quebracho does not compete to any great extent with domestic tans, such as chestnut, hemlock, and oak, but supplements them, especially in the production of heavy leathers, which use accounts for about 90 percent of the consumption of quebracho extract for tanning. Practically every tanning material is used in combination with other materials. Chestnut and quebracho, the predominant materials in the production of heavy leathers, are commonly used together; the range of substitution of one for the other probably is limited to about 10 percent so long as both are available in normal quantities. Combinations of quebracho and certain domestic tans, especially chestnut, give the best results, both in economy of tanning and in weighting properties. Although leather can be produced without quebracho, costs probably would be somewhat higher and the resulting product would be of less desirable quality. Therefore, any marked change in the established blends of quebracho and domestic tans, owing to excessive shortage of quebracho, would seriously affect the domestic tanning industry. EXHIBIT No. 166 MAY 20, 1942. Mr. JOHN B. SULLIVAN, La Forestal, Buenos Aires, Argentina, South America. DEAR JACK: Just a few lines to express my personal thanks for your cooperation and assistance in securing for us the Las Palmas agency. quite understand this company's hesitation in agreeing to this in view of their I can 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 your, believe me DEAR TOM: Many thanks for your letters of May 12 and 18 which I have read with much interest and as we both know, things change so rapidly that it is really difficult to know how to write a letter which will be intelligible when the other man gets it. You remember, some time ago I wrote to you about a certain amount of molestation that was taking place and you remember that Mr. Brown also wrote to you about the same subject, well, we find now that the same game is again about to be played, but this time on this side of the Atlantic, instead of the other. The reason for all this back-biting disagreeableness at the present time is a long story and I will try to give you a picture as near as possible, because this time we have arrived at a cross road in which a definite decision must be taken. 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 of 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. Chaqueña 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 gentleman'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 has 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 on 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. Firms like Cotan, and Weisburd in the Province of Santiago del Estero, were able to influence the Governor, senators and representatives of that Province, to intervene and bring pressure on the Minister of Agriculture for a larger quota, as they claimed that 1.4 percent would not allow them to live and that it was killing a new industry, etc. Your tannin operation also presented a protest, it was rather a lengthy one and in it, unfortunately, were certain elements which to my way of thinking would have been better left out. At the time that this protest was drawn up by a lawyer, the writer unfortunately was very busy and he did not read it possibly, as carefully as he might have, but he did observe to the people drawing it up, that it was out of order and needed rectifying and in it were attacks on individuals, which in a game of this nature are not good policy. The observation was made that they should be cut out, the report reduced, and to stick to the facts of the case, which was supposed to have been done. The writer did not nursemaid this operation, believing that it would be and as the writer is not an officer of the company and has found it good policy not to intervene too much. the writer did not ask to see the document before it was presented to the Minister of Agriculture. This is Now, at this point, Tanners Trading Co. having a strong case against the Government for interference in a legitimate business, on a decree which they were trying to interpret retroactive, or, to put it another way, effective against business done prior to the decree, were not very comfortable in their position and were trying to find a solution so as to allow the Tanners Trading Co. to export. This reacted against the pool interests, and through influence, certain individuals were able to read the protest presented by your company. out of order, but as we said before, the connections are far reaching. Now, the reaction to this was an immediate attack against your company, declarations were made, cables dispatched, all of which have not built up a nice position, bearing in mind however, that nothing that has been said or done, could, on a show-down, affect your company, but what could happen is that a future position might be very disagreeable through reprisals, because as I stated earlier, the thing has gone out of the realms of commerce. Now, the first intimation that we had that anything was wrong; and it was only a suspicion, was when, after being approached by Cotan and Weisburd, these gentlemen ceased suddenly to have any interest to do a business with us and then when we made an offer to Asociados del Norte on your behalf, we were turned down and we were given to understand that a state of war almost existed. Now, as a sidelight, we had approached the Government just prior to this last conversation with Asociados del Norte, pointing out our tonnage position and the position of your plant, and they informed us that the 1,500 tons that we required for June, was as good as granted. Now, later we will show you how this links in to the picture. We immediately took up the position of wanting to know what had happened and we were given an earful, so much so that the writer decided that it was wise to see the big chief and an appointment was fixed and the gentleman talked for 2 hours. He told the writer many very interesting things and as we recall some of the molestation that you had about a year ago, we find that he was the prime mover. He took advantage of Chaqueña's antagonism and he was the person who was largely responsible for the questions that arose at that time. Now, after telling the writer all his sad story, making many absurd statements, demonstrating cables, etc., he finally came out with the proposition that he had been asked by the Minister to find some solution to the small manufacturers' problem. He gave the impression, that he was not asked, but had been told to adjust this matter, or the Government would have to take some kind of measures and to meet this proposition he had suggested the following: That all these small manufacturers under 2 percent be raised to 2 percent as from March 1 and that your factory would have its capacity raised, so as to justify its 2 percent, from 600 tons to 750 tons, which he claimed that he had an engineer who had visited the p'ant, who claimed that it was easy for the plant to make 750 tons per month. He said that 750 tons per month would give your operation 2.08 percent and based on 170.000 tons Argentine production per year, would mean that your plant would be allowed to export 3,536 tons. In the conversation, he seemed to think that he was making a grand gesture to you and when we pointed out that the contract called for 6,600 tons, with compromises to the banks, etc., and that 3.526 tons left a balance of 3,064 tons, he offered to transfer from the Forestal quota, 1,000 tons, meaning, that your existing contract, |