Chapter I: G. Farben’s objections having been met and other difficulties (3)

However, anyone who has been under the impression that the Webb Act provides an easy backdoor entrance for American firms to join forces with cartels seeking domination and control of world markets is in for sad disillusionment. The Webb Act was intended to strengthen American competition against foreign cartels. It was enacted by Congress in the belief that it would provide a means of assistance to American business in combatting the power of foreign cartels dominating world markets. The Act was not passed to permit American firms to take part in cartel restrictions on American trade--such restrictions are directly contrary to Congressional purpose.

It should be emphasized that associations organized under the Webb Act cannot legally enter into international agreements which restrict production and distribution, divide territories and fields of operation, fix prices or other wise regiment industry throughout the world. Neither can they legally enter into agreements which restrain trade within the United States, restrain the export trade of any domestic competitor or association, or which enhance or depress prices or substantially lessen competition within the United States.

We have instituted a suit against the United States Alkali Export Association, the California Alkali Export Association and others, charging them with maintaining international cartel agreements to restrain trade in the manufacture and distribution of alkalis in violation of the Sherman Act. In this case we have charged that activities by the defendants were not authorized by the Webb Act. I shall refer later to this case in more detail. It is sufficient to say at this point that other associations are under investigation for similar activity, and that new antitrust suits will be instituted whenever evidence discloses illegal activity by export associations or others.

The alkali suit may very well have prompted the resolution of the Board of Directors of the Commerce and Industry Association of New York to declare that Congress should restudy the Webb Act and by proper amendments bring it up to date so that there can be achieved under it all of the objectives that President Wilson sought to attain when he procured the enactment of this Act in 1918. The resolution recited that the Department of Justice program for enforcement of the Sherman Act seemed to be seeking to impose the competitive system and the antitrust philosophy, as interpreted by the United States Supreme Court, on other countries, and implied that antitrust enforcement was frustrating the purposes of the Webb Act. And in other quarters it has been suggested that perhaps the Webb Act provides a vehicle for attaining cartel objectives without incurring the penalties of the Sherman Act.

These suggestions that the enforcement of the Sherman Act in the field of foreign trade somehow constitutes a betrayal of the Congressional policy embodied in the Webb Act, and that the Webb Act legalizes restrictive cartel practices, are based upon a misconception of the meaning and purpose of the Act. The Webb Act was enacted to help American business compete with foreign cartels. It was not passed to provide a conduit for joining them. It was designed to stimulate the position of American concerns as competitors for world trade and to stimulate the growth of our export trade. The Act created only a very limited exemption from the Sherman Act which I shall presently discuss.

But, before taking up the Act itself, let us look at the conditions which brought about its enactment. The background of the Act is set forth extensively in a report by the Federal Trade Commission, dated June 30, 1916, on cooperation in American export trade. This report set forth that other nations had certain advantages in foreign trade because of superior facilities and more effective organizations; it pointed out that doubt and fear as to legal restrictions prevented Americans from developing effective organizations for engaging in international trade, and that as a result the smaller concerns suffered because of their lack of organization and facilities. It emphasized that in seeking business abroad, American manufacturers and producers had to meet aggressive competition from powerful foreign combinations often international in character. It recited that in some industries the smaller manufacturers had to compete abroad with great American companies having much more efficient worldwide selling organizations. In order to assist these smaller businesses to acquire proper facilities for doing an international business, and to enable them to meet the competition in prices and services of major American concerns and all foreign competitors, the report recommended that small American producers and manufacturers should be permitted to unite their efforts for purposes of conducting foreign trade. By combining their efforts it was thought that these small firms would be better able to advertise, maintain an adequate selling force, and create markets abroad.

But, while recognizing the desirability of a certain degree of cooperation in seeking international markets, the Federal Trade Commission in its 1916 report was fully cognizant of the possibility of misuse of export associations and of the necessity to prevent their misuse by legislative safeguards and antitrust enforcement. Thus the Commission said:

“Two chief dangers from cooperation export organizations of American manufacturers and producers are apparent. They may be used to exploit the home market and they may be used unfairly against individual American exporters in foreign trade. The dangers in cooperative action must be faced frankly and provided against fully.

“The Commission is confident that this can be done without sacrificing the essential advantages of joint action and without altering the policy of the antitrust laws or interfering with their enforcement.”

And the Commission further declared that “This recommendation is made subject to the condition that the legislation shall be carefully safeguarded and shall make absolutely clear that the combinations for export business are subject to all of the rigors of the Sherman law if they are used to restrain trade in the United States.”

Bills were then introduced in Congress by Senator Pomerene and Congressman Webb, and were considered by Congressional committees and debated from 1916 to 1918, when the law was enacted. The Webb Act as finally passed provides that nothing in the Sherman Act shall be construed as declaring to be illegal an export association or any agreement made or act done in the course of export trade by such association, provided that such association, agreement or act does not: (a) restrain trade within the United States; or (b) restrain the export trade of any domestic competitor or association; or (c) enhance or depress prices within the United States, substantially lessen competition within the United States, or otherwise restrain trade therein.

Since the Webb Act is a statute creating an exception to the Sherman Act’s general application, the principle of interpretation governing all statutes which create such exceptions must be applied here; that is, the Webb Act must be strictly construed. It must not be taken to cover any more ground than appears to have been intended by the language of the Act itself read in the light of the legislative history.

The legislative history leaves no doubt whatever as to what Congress intended. In its report of May 11, 1917, the House Judiciary Committee stated:

“The bill is drawn so as to leave in full force our antitrust laws as applied to our own markets and as affecting different American exporters in their dealings with each other.... The bill does not authorize any violation of the present antitrust laws.... The bill prohibits the slightest violation of our antitrust laws within the United States.”

The Senate Committee report contained a similar declaration.

The House and Senate debates abound with declarations by the sponsors of the bill that it did not in any way interfere with the application of the Sherman Act to the domestic commerce of the United States and to agreements to restrain the export trade of competitors of the associations. In referring to antitrust jurisdiction over proposed export associations, Representative Webb stated: “If the combination for export trade affects unduly or artificially the prices in the United States then they come within the Sherman Antitrust Law.”

Senator Pomerene made the following significant arguments during debate on the bill:

“The position was taken in substance that this bill was a repeal of the Sherman Antitrust Law, and if it became the law of the land and these associations were authorized they would at once seek to control the foreign market and probably enter into a combination with foreign companies and cartels engaged in the same line of business and thus reenforced and worldwide in their control of products they would reduce the prices of food animals, of grain, and of other products and raise the prices to the consumer when it suited their purposes.”

“If the Senator when making this argument had recited facts instead of fancies, there might have been some force in his utterances but he was giving free reign to his imagination. The Senator overlooked the fact that this bill does not repeal the Sherman Law. He had in mind one paragraph only and lost sight of all the restrictions and qualifications it contains. I submit that when this bill is construed judicially it will be analyzed as a whole and not one part separate from the other.

“The Senator forgets that neither the associations, nor their agreements, nor their actions can be in restraint of trade within the United States, nor in restraint of the foreign trade of any domestic competitor and they cannot by any agreement, conspiracy, or act artificially or intentionally and unduly either enhance prices or reduce prices domestically, and if they do they violate the law of the land.”

During the debates some members of Congress, foreseeing the possibility that export associations might join in a combination with foreign companies, questioned the sponsors of the bill as to the effect of the bill upon such practices. In the House debates, Mr. Moore of Pennsylvania asked: “Suppose a combination in which Americans join with foreigners had been formed?” To this query Congressman Webb replied: “Then you violate the antitrust law and it has been so held by the court.” Later, in the Senate debates, Senator Pomerene stated: “There is nothing in this bill authorizing the division of territory abroad.”

Attempts to amend the Act between 1921 and 1928 failed. Amendments proposed in 1928 would have extended the Act to include combinations for importation of crude rubber, potash, sisal and other raw materials not made, produced, or grown in substantial quantities within the United States. The bill proposed that year was stated by the House Judiciary Committee to be designed “to meet an acute situation affecting the import trade of the country” by reason of the fact that certain foreign governments controlled and operated monopolies dealing in rubber, potash and sisal for which this country depended materially upon importations. Because of the operation of these foreign monopolies the price to American importers had been greatly increased. The Committee thought that the best way of meeting “these alien government combinations” was to allow American buyers of the monopolized products to combine for the purpose of importing them. During debates on the bill it was attacked, among other things, on the ground that if it were passed, import associations would be permitted to join with foreign producers in worldwide agreements arranging world markets and fixing world prices. The bill failed to pass, Congress thus indicating its unwillingness to extend further the application of the Webb Act.

Thus it is clear that from the very beginning of the agitation for the Act it was understood that the activities of export associations would have to be strictly limited to the promotion of foreign export trade, and that any agreements or activities which restrain domestic competitors either in domestic or foreign commerce would still be illegal under the Sherman Act. This, it seems to me, is what has been overlooked by those who now question the application of the Sherman Act to activities of export associations which restrain domestic competition and the export trade of competitors.

The Department of Justice is not seeking any novel interpretation of the Sherman Act or of the Webb Act. We have thus far instituted one suit involving associations formed under the Webb Act and it requires no novel interpretation of the Act to sustain the allegations involved.

In that suit, filed on March 16, 1944, we charged two American export associations, 13 American manufacturers, and a British corporation and its American agent, with maintaining international cartel agreements to restrain trade in the manufacture and marketing of _alkalis_, in violation of the Sherman Antitrust Act. Our complaint asserted that the 17 defendants and four co-conspirators--two American corporations, one German, and one Belgian--had conspired to allocate and maintain exclusive marketing areas and export quotas throughout the world, eliminating competition and restraining exports in alkalis by means of illegal contracts, agreements and understandings still in effect!

The following were named as defendants in the complaint: United States Alkali Export Association, Inc. (“Alkasso”), a Delaware corporation with principal offices in New York City; California Alkali Export Association (“Calkex”), a California corporation with principal offices in Los Angeles; Imperial Chemical Industries Ltd. (“ICI”), a British corporation with principal offices in London, England; Imperial Chemical Industries (New York) Ltd., a New York corporation wholly owned and controlled by ICI, London; Pittsburgh Plate Glass Company, Inc., a Pennsylvania corporation with principal offices in New York City; Church & Dwight Company, Inc., a Delaware corporation with principal offices in New York City; Diamond Alkali Company, Inc., a Delaware corporation with principal offices in Pittsburgh, Pa.; Dow Chemical Company, Inc., a Michigan corporation with principal offices in Midland, Mich.; Hooker Electrochemical Company, Inc., a New York corporation with principal offices in Niagara Falls, N. Y.; The Mathieson Alkali Works, Inc., a Virginia corporation with principal offices in New York City; Niagara Alkali Company, a New York corporation with principal offices in New York City; Pennsylvania Salt Manufacturing Company, a Pennsylvania corporation with principal offices in Philadelphia; Southern Alkali Corporation, a Delaware corporation with principal offices in New York City; Westvaco Chlorine Products Corporation, a Delaware corporation with principal offices in New York City; Wyandotte Chemicals Corporation, a Michigan corporation with principal offices in Detroit; West End Chemical Company, Inc., a California corporation with principal offices in Oakland; and Pacific Alkali Company, Inc., a limited partnership organized and registered in California with principal offices in Los Angeles. Named as co-conspirators were: American Potash & Chemical Corporation, a Delaware corporation with principal offices in New York City, substantially all of whose capital stock beneficially owned by the German potash trust, was seized by the Alien Property Custodian in 1942; Solvay Process Company, a New York corporation with principal offices in New York City; Solvay et Cie. (“Belgian Solvay”), a Belgian corporation with principal offices formerly in Brussels but now in London, England; and I. G. Farbenindustrie Aktiengesellschaft, a German corporation with headquarters in Frankfort-am-Main, Germany.

This suit is of major importance in the drive to eliminate the effect of cartels on American commerce. It is the first suit which the Antitrust Division has filed involving the activities of associations organized under the Webb Export Trade Act. It should serve as a warning of our determination to prevent cartel groups from carrying out their illegal plans by use of the Webb Act.

“Alkalis,” it should be explained, include soda ash (sodium carbonate), caustic soda (sodium hydroxide) and bicarbonate of soda. Soda ash is used in the manufacture of glass, textiles and chemicals. Caustic soda is used in the manufacture of soap, textiles, rayon and paper and in the refining of petroleum products. Sodium bicarbonate is used for many industrial, chemical and drug purposes and, purified, as baking soda. In 1939, there were produced in the United States approximately 2,900,000 tons of soda ash, worth more than $50,000,000; approximately 1,000,000 tons of caustic soda, worth more than $40,000,000; and approximately 140,000 tons of refined bicarbonate of soda, worth more than $5,000,000.

All the domestic defendants in the suit, with the exception of Alkasso, Calkex and ICI (N. Y.), were engaged in the manufacture and sale of alkalis in the United States and conduct substantially all of their export trade in alkalis through Alkasso and Calkex. Alkasso was organized in 1919 and filed a verified statement with the Federal Trade Commission to obtain benefits and immunities provided by the Webb Export Trade Act. Alkasso’s members, who control and manage all its activities, include defendants Pennsylvania Salt, Pittsburgh Plate Glass, Hooker Electrochemical, Diamond, Mathieson, Westvaco, Church & Dwight, Dow, Niagara and Southern. Alkasso obtains alkalis from its members, transporting from warehouses maintained at Hoboken, N. J., and New Orleans, La., to markets throughout the world. Calkex was organized similarly in 1936 by American Potash & Chemical, West End Chemical and Pacific Alkali, who control and manage its activities. It obtains alkalis from member companies and ships from Pacific Coast ports to various world markets. Prior to 1940, Alkasso and Calkex together exported 95% of the alkalis exported from the United States. Since then, because of war conditions and the resignation of Solvay from Alkasso in 1941, the alkalis exported by the two associations have amounted to 75% of the total alkali exports from the U. S.

It is charged that beginning in 1924 and continuing to the present day the defendants have engaged in an unlawful combination and conspiracy in restraint of trade and commerce in alkalis and that they have been and are parties to contracts, agreements and understandings in violation of the Sherman Act. This continuing agreement, it is alleged, provides:

(1) That Alkasso, Calkex, their respective members, ICI, I. G. Farben, and Belgian Solvay not compete with each other in the sale of alkalis in any market of the world outside of the United States, and that ICI, I. G. Farben and Belgian Solvay refrain from importing alkalis into the United States;

(2) That Alkasso, Calkex and their respective members be assigned certain marketing areas as their exclusive territory (including the U. S.) and that ICI, I. G. Farben and Belgian Solvay refrain from exporting alkalis to such territory and prevent other European manufacturers from doing so;

(3) That exclusive market areas be assigned to ICI (the British Empire exclusive of Canada), I. G. Farben (Scandinavia), and Belgian Solvay (Continental Europe exclusive of the Scandinavian countries), and that Alkasso and Calkex and their respective members refrain from exporting alkalis to such territories and prevent other American manufacturers from doing so.

(4) That the rest of the world markets be shared jointly by Alkasso, Calkex, their respective members, and ICI, with competition therein eliminated by allocating quotas to British and American companies and limiting their exports to certain fixed percentages of the total sold in such areas and by agreeing among themselves on the prices at which alkalis are sold in such markets;

(5) That Alkasso, Calkex and their respective members prevent other American manufacturers and dealers from exporting to joint territory except in compliance with quota and price agreements fixed for such markets.

(6) That Alkasso, Calkex, and their respective members conduct their export trade and utilize the aforesaid arrangements and their practices thereunder in such manner as to enhance, stabilize and maintain at uniform and non-competitive levels the prices at which caustic soda is sold in the United States.

It is alleged that the results of this conspiracy have been:

(1) To eliminate competition by Alkasso, Calkex and their members with ICI and European producers of alkalis in the manufacture and marketing of alkalis throughout the world;

(2) To eliminate exports of alkalis by ICI, Belgian Solvay and I. G. Farben to the United States;

(3) To eliminate exports of alkalis by Alkasso, Calkex and other American manufacturers to many markets of the world; and to restrict and curtail by quota arrangements the export of alkalis from the United States to many world markets;

(4) To eliminate competition by Alkasso and its members with Calkex and its members in exports of alkalis from the United States;

(5) To curtail and limit the production of alkalis within the United States;

(6) To prevent competition between manufacturers of alkalis in the United States (who are not members of Alkasso and Calkex) and Alkasso, Calkex, ICI, Belgian Solvay and I. G. Farben in world markets;

(7) To prevent independent exporters of alkalis in the United States from engaging in the export of such commodities; and

(8) To enhance, stabilize and maintain at arbitrary price levels the prices at which caustic soda is sold in the United States.

The Department of Justice sought the abrogation of the illegal contracts and agreements and a permanent injunction against the defendants restraining them from violating the Sherman Act. The Government also asked that the defendants be enjoined from entering into any future contract, agreement or understanding with any foreign company in any manner restricting their exports of alkalis from the United States by division of export markets, allocation of territories, fixing of prices in export sales, or fixing or observing any export quotas. The Government further asked that the domestic defendants be enjoined from selling alkalis exported from the United States in any foreign markets through ICI (N. Y.) or through any agent or dealer selling alkalis for or on behalf of ICI or ICI (N. Y.).

Thus, in this case, we allege a conspiracy to restrain the exports of American competitors; to restrict imports to the United States and thereby restrain trade within the United States; to curtail and limit production in the United States, and to enhance, stabilize and maintain price levels within the United States. These allegations clearly charge a violation of the Sherman Act. The Webb Act, I am confident, does not protect activities of this type.

The allegations in this single instance against a Webb Export Association raise serious questions of law violation which cannot be ignored. The suggestion that we are stretching the Sherman Act by novel interpretation simply does not stand up. Associations organized under the Webb Act should take warning that the Alkali case represents the view of the Department of Justice as to the application of the Sherman Act to the activities of such associations. The position of the Department is in accord with the purpose, history and language of the Webb Act.

It is the policy of the Department of Justice to enforce the Sherman Act as vigorously as possible whenever evidence establishes probable violation. The Sherman Act represents a Congressional policy of more than fifty years’ standing. The Department of Justice did not create the Act although it has the responsibility of making it effective. The Department of Justice does not interpret the Act. That is the task of the courts. It is true, however, that the attitude of the Department of Justice toward antitrust law enforcement is predicated, frankly, not on a passive interest in the matter--a grudging willingness to perform an unwelcome duty--but on a deep conviction that Congress is right, and that the public economic policy embodied in the Sherman Act is basically sound.

So long as the conditions which gave rise to the Webb Act still exist, the Act, if properly employed, may be useful in promoting trade within the special and limited domain to which the Act applies. To meet centralized buying by centralized selling, and to stand up against the exclusionary tactics and monopolistic practices of well-established foreign cartels is sometimes necessary. Joint action by American exporters may serve to secure an equal footing in foreign trade in markets where combination is permitted or even encouraged. No doubt such retaliatory measures are wasteful as ways of organizing world trade, and no doubt we and other nations would be better advised to join hands in getting rid of international trade restraints, theirs and our alike. Meanwhile, however, the Webb Act has a use in defending American interests in markets which are too often cartelized.

If export associations are to be economically useful in the postwar world, approved by public policy and serving the purpose for which they were created, they must be the spearhead of American industry as it enters into competition with foreign industry for a fair share of world markets, rather than the tool of international monopolists to draw American industries into restrictive cartel agreements which contain provisions in conflict with the Sherman Act.

I have given some thought to the question whether the Webb Act should be tightened--whether additional legislation should be enacted to assure that possible abuses shall be eradicated. Some of those who have suggested such legislation apparently feel that export associations, operating under the cloak of the Webb Act, may be used to carry American industries into private international cartels which operate contrary to our public policy, and that serious consideration should be given now to legislation that would make such abuses impossible.

But at present, I am not ready to believe that additional legislation is necessary. Vigilant enforcement of the Sherman Act against those who misuse the Webb Act together with the understanding and cooperation of industry will make additional legislation unnecessary and prove adequate to prevent export associations from becoming screens for illegal cartel activity. The appreciation by industry itself of the advantage of avoiding restrictive agreements is an important factor in our future policy. But if antitrust enforcement should prove ineffectual, and if the postwar period should be characterized by widespread misuse of export associations operating under the cloak of the Webb Act, then, of course, serious consideration will have to be given to legislation which will end the abuses.

13

_Private Governments_

One of the foremost problems facing our government today is the formulation of an economic policy for the future. The development of this policy is the concern of every American and will affect vitally (1) the domestic prosperity of this country, (2) our role in world affairs, (3) our national security. I should like to point out in this connection certain important considerations which must be taken into account if errors of the past are to be avoided and progress in the future guaranteed.

No economic policy adopted by the government can be effective if the industrial policies of the country in the international field are determined, controlled, and executed by private agreements of which the government has no knowledge. The formulation and conduct of the foreign policy of the United States is provided for in the Constitution: “[The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur.”

Past history demonstrates clearly that our economic foreign policy has in many instances been rendered ineffectual by the operation of secret agreements conceived and ratified by cartels. These agreements admit of no sovereignty other than their own, and serve no interests other than the shortsighted aims of monopoly. This has only too often resulted in situations which have endangered our national security, injured our position in the world economy, and denied us opportunity for the fullest use of our resources and labor. Domestically, businessmen have had to yield to the dictates of large aggregates of power vested in international cartels. What and how much they might produce, and to whom and at what price they might sell, have been decided for them. If they did not yield, they risked elimination.

Internationally, our foreign policy has in many respects been frustrated. The Good Neighbor policy governing our relations with Latin America, the reciprocal trade treaties, our alien property policy, and other basic principles of America’s conduct of foreign affairs have in many instances been seriously weakened by the interference of cartel activities. Indeed, it is difficult to see how our future policies--for example the Atlantic Charter--can be executed successfully, if the dispositions made by cartels continue into the postwar world.

Cartels will find it difficult to operate if the agreements upon which they are based are open to public scrutiny and examination. Any law requiring the filing of international agreements should operate like the Foreign Agents’ Registration Act. It should not give immunity to cartels, but should let the government and the public know of their existence, their identity, and their scope.

The cost of secrecy is illustrated by the following examples. Two very basic raw materials necessary to any industrial community are petroleum and rubber. The crucial nature of these materials to our industrial economy and military operations is clearly apparent. Without them, practically all industrial activity would cease. Yet our oil and rubber supplies have been dependent upon policies arrived at secretly, operated clandestinely, and run in a manner contrary to the fundamental foreign policy of our country. The public had no voice in making these private policies, yet today it bears the burden of their effects.

The very nature of modern warfare and industrial life is such that both petroleum and rubber have political and military, as well as economic, aspects. Not all countries have petroleum within their borders and, prior to the present war, only Britain, for practical purposes, had rubber. Access to these raw materials is a prime military requisite to any nation desirous of maintaining a strong international position. Without them, no nation could hope to wage a war, maintain a healthy industrial economy, or impose a treaty of Munich.

Among Germany’s raw material deficiencies, oil and rubber have been the two greatest. Within her own borders there is little, if any, oil, and no rubber. This fact has certainly been a consideration in the basis of our own as well as the French and British foreign policy. Hence, the discovery in 1926 that petroleum could be made from Germany’s plentiful coal was a political event of the first magnitude. That synthetic rubber became a reality in Germany shortly afterward served to magnify the shock.

The petroleum industry, dominated in this country by Standard Oil Co. (New Jersey), was shaken at its very foundation. A Standard Oil official, Frank Howard, wrote at the time from Mannheim, Germany, on March 28, 1926, to Walter Teagle, president of Standard Oil, the following:

“Based upon my observations and discussion today, I think that this matter is the most important which has ever faced the company since the dissolution.

“The Badische can make high grade motor fuel from lignite and other low quality coals in amounts up to half the weight of the coal. This means absolutely the independence of Europe on the matter of gasoline supply. Straight price competition is all that is left....

“They can make up to 100% by weight from any liquid hydrocarbon, tar, fuel oil, or crude oil. This means that refining of oil will have as a competitive industry in America and elsewhere, catalytic conversion of the crude into motor fuel.

* * * * *

“I shall not attempt to cover any details, but I think this will be evidence of my state of mind.”

Standard Oil was worried about its monopoly position. The discovery threatened competition and Standard Oil met the threat.

The process of making oil from coal was controlled by I. G. Farbenindustrie, the German chemical trust. In 1926 a meeting between Standard Oil and I. G. Farben was arranged. The result was a series of treaties. The agreements preserved the position of the parties in the fields which they respectively dominated. As stated by a Standard Oil official: “The I. G. are going to stay out of the oil business proposition and we are going to stay out of the chemical business insofar as that has no bearing on the oil business.”

Competition between I. G. Farben and Standard Oil was eliminated, and the technology of chemistry and petroleum was made part of their feudal preserve. The economic effect was the maintenance of monopoly.

Stated in a more detailed way, Standard Oil was given the world right on the oil process and I. G. Farben was given the chemical business of the world. But there was one exception. While I. G. was given the right to engage in the oil business in Germany, Standard Oil was permitted to engage in the chemical business in the United States only as a junior partner to I. G. The staggering implications of this are clear. Germany could not afford, considering her aims, to permit any outsider to control within her own borders as important a development to her national life as the production of oil from coal.

But when Standard Oil gave up its rights in the chemical field, including those in the United States, the repercussions were to seriously affect our wartime efforts.

Included in the chemical field was the synthetic rubber, buna. Under the agreements, therefore, it was a German-controlled monopoly. When the war broke out in September 1939, the Germans had not permitted buna to be manufactured in the United States. We had no experience, information, or know-how, and we had not obtained permission from Germany to produce synthetic rubber. Of equal importance is the fact that the United States Government had no knowledge of these facts. The terms of the Standard Oil-I. G. Farben treaty were secret.

When corporations outside the I. G.-Standard Oil orbit attempted to manufacture buna rubber, they were confronted with the combined strength, wealth and power of the private coalition. Goodrich and Goodyear attempted such production, but the former was sued for patent infringement and the latter formally threatened with suit by the Standard Oil Company under the I. G. patents. This took place in October 1941, a few weeks before Pearl Harbor. Thus, not only did Standard Oil agree with I. G. Farben that the latter should control the exploitation of synthetic rubber, but cooperated in preventing anyone else from producing. In fact, on April 20, 1938, a Standard Oil official wrote as follows:

“Until we have this permission, however, there is absolutely nothing we can do and we must be especially careful not to make any move whatever even on a purely informal, personal or friendly basis, without the consent of our friends. We know some of the difficulties they have, both from business complications and interrelations with the rubber and chemical trades in the United States, and from a national standpoint in Germany, but we do not know the whole situation--and since under the agreement they have full control over the exploitation of this process, the only thing we can do is to continue to press for authority to act, but in the meantime loyally preserve the restrictions they have put on us.”

On its own, Standard Oil received little, if any, information on synthetic rubber from I. G. The following quotations from Standard Oil letters and documents are clear:

“Our people have never made buna ... the I. G. has not furnished anyone technical information.”

“The only information our people have is derived from published patents.”

“Information ... about the technical aspects of this development has not been forthcoming as a result of the German Government’s refusal because of military expediency to permit I. G. to reveal such information to anyone outside Germany.”

The ambiguous position in which Standard found itself arises from the fact that Standard never considered that it was making foreign policy, or took into account the political implications of its acts. We neither expect nor require this of our businessmen. After all, they are not supposed to have such responsibility. Nevertheless, neither Standard Oil nor the country could escape the consequences of these agreements. It would seem, in the light of this experience, that the least the Government can do is to provide a mechanism for acquainting itself with the existence and terms of such agreements. The Government, on the other hand, is unable to make proper judgments if it does not have complete information.

The Monroe Doctrine and the Good Neighbor policy are both pillars of our foreign relations. Nevertheless, many cartel agreements ran directly counter to these policies. The causes of conflict are not difficult to understand. In a large number of cartel agreements, world territory is divided into exclusive, non-competitive domains. In the drug, magnesium, optical glass, dyestuffs, plastics and a host of fields, the United States was the exclusive territory of American cartel members. The rest of the world was allocated to Germany. This included Latin America. As a result, the Germans were able to set up economic colonies in Latin America and elsewhere free from American competition. The large members of Nazis in South America were a partial consequence of the character of these agreements.

When the Nazis came to power in Germany, they immediately utilized the cartel system as a device for political, as well as economic, infiltration in countries outside of Germany, particularly in the Western Hemisphere. A bold assertion of this policy is set forth in a communication, written in 1933, from a director of Robert Bosch, A. G., of Germany, to the president of the United American Bosch Corporation, which states:

“With regard to the political situation ... only one thing is very evident, namely, that all forces of administrative and economic endeavour such as the different cartels, etc., are to be brought into one definite line of endeavour coinciding, of course, with the policy of the ruling [Nazi] party and that individual opinions and utterances will be submitted to a similar rule.”

When the present war broke out, Germany, because of the sea blockade, was unable to supply goods to Latin America. Cartels made full provision for the contingency of war. The South American market was preserved for the German firms by cartel members of other countries, notably the United States. Not only did American cartel members supply products to the German agents in South America, in many cases they used German labels. What is most important, they agreed to withdraw at the end of the war and once again give Germany a free hand in Latin America. In some cases, realizing that the blacklist might make this kind of arrangement difficult, dummy firms in South America stood ready to replace those blacklisted. Many instances of efforts by cartels to maintain their usual relations, and to preserve the restrictions by which German dominance in South American markets was achieved, are available. A characteristic attitude is indicated in the statement made by the head of the Chemical Marketing Co., an American firm, which had relations with the Deutsche Gold-und-Silber Scheideanstalt of Germany. In the early period of the war, this officer of the American company wrote:

“We insure thereby that the German trade up to the present with our South and Central American friends can be held firmly in our hands and, should export from Germany become impossible--as you yourself can well visualize--the loss would be much less if for the duration of the war American chemicals can be delivered, rather than complete loss of business for many, many years, if we place our clients in such a position that they can continue to serve their customers.”

The dyestuffs industry ranks among the most strategic branches of production. During the first World War, the United States and the Allies experienced severe and crippling shortages of dyestuffs, medicines and related products which were controlled by the German dyestuffs cartel. In the years between the Armistice in 1919 and the outbreak of the present war in 1939, the United States endeavored to build up a strong dyestuffs industry because of its peacetime as well as its wartime importance. The German dye trust, however, succeeded in re-establishing a substantial and significant degree of control in this industry through a series of cartel agreements. In addition, I. G. Farben, through its American subsidiary, General Aniline & Film, was able to exert direct influence on the dyestuffs market in the United States. In the many agreements made between American, British and German dyestuffs producers, the American companies were generally restricted to the domestic markets.

Upon the outbreak of war, when the British blockade threatened to cut off the exports of I. G., it nevertheless attempted to insure the maintenance of its control over various markets. The boldness of I. G.’s tactics is indicated in a cable addressed to General Aniline & Film on September 19, 1939, which released that firm from export restrictions for the purpose of supplying I. G.’s customers and agents in the British Empire. This communication stated:

“In addition to Canada we release you from export restriction in regard to the following countries: Great Britain, British India, Australia, New Zealand but only for duration of present state of war and as far as supplies to following firms are concerned.” [A list of distributing agents within the British Empire is included.]

This cable was modified on September 21, 1939, when I. G. communicated further with General Aniline & Film, stating: “Replace in first telegram ‘for duration of present state of war’ by ‘until further notice’ and act accordingly.” Similar arrangements were made regarding I. G.’s distributing agencies in South America. This effort on I. G.’s part to circumvent the British blockade is further illustration of the implications which inhere in such cartel arrangements.

The same type of practice was no less significant in other parts of the world. In the winter of 1941, while Congress was debating the Lend-Lease Act, cartel agreements had already decreed that certain critical types of products could not be sold to Great Britain. For example, when Great Britain attempted to place an order for tetrazene-primed ammunition, a cartel agreement between du Pont and I. G. Farben forbade their sale, and it was not made.

In this case the patent attorney for the Remington Arms Company, a subsidiary of du Pont, wrote a memorandum dated January 23, 1941, stating:

“The further sale of Tetrazene Primed Ammunition to the British Purchasing Commission or to the Government of the Union of South Africa or to the Government of Canada is most undesirable by reason of our Tetrazene contract with R. W. S. [Rheinische Westfalische Sprengstoff, a wholly-owned subsidiary of I. G. Farben].

“Article III, Paragraph D of the original contract of November 14, 1929, reads as follows: ‘Remington shall not sell military ammunition containing any Tetrazene in Germany and in any or all of the countries in the British Empire.’

* * * * *

“There can be little if any question that pistol and revolver ammunition sold at this time to his Majesty’s Government in the United Kingdom is military ammunition ... or that such sale is a sale in a country of the British Empire within the intent of Article III D of the contract.

“We understand that the Process Division have recommended the use of Tetrazene priming in certain ammunition to be sold to the British Purchasing Commission. It appears obvious that this should not be done.”

Similar situations existed in aviation precision equipment, drugs, and chemicals. Thus, I. G. Farben sought to obtain assurances from du Pont that information on certain industrial processes would not be transmitted to the British. On October 4, 1939, I. G. wrote to du Pont, stating:

“You advise us that for the duration of the war, you will not pass the experiences and applications which you receive from one licensee on to another. We thank you for having quickly taken the necessary steps for meeting the altered conditions.”

A significant and clear-cut example of the way in which cartel agreements enabled the German Government to influence the policies of American cartel partners of German industry is provided in the case of aviation instruments. In this instance Siemens-Halske, the great German electrical equipment producer, wrote to Bendix Aviation Company on October 25, 1939, as follows:

“Under our agreement your geographical contract territory includes the United States, its territories and Canada. A state of war exists at the present time between Canada and ourselves.

“Notwithstanding the war we are of course willing to live up to the agreement as far as possible. However, we would appreciate receiving your assurance that the records which you will receive from us within the scope of our agreement will not be given to Canada for the duration of the war and that you will supply no instruments, built under a license, if you know that they are destined for our enemies.”

An official of Bendix answered:

“As regards the drawings sent over you may rest assured. As regards fabrication ... we will arrange to the best of our ability to keep within the orbit of domestic use.”

One of the most necessary economic measures of war is the seizure of enemy property. Although we have a policy concerning enemy property, the Antitrust Division of the Department of Justice has come across frequent attempts to nullify this policy by private agreement.

In one case, I. G. Farben transferred over 2,000 patents to the Standard Oil Company. While there may be some dispute as to the purpose of the assignment, the fact is clear. The Alien Property Custodian, even though he has vested this property, found himself in litigation as to whether the patents were in fact transferred in a bona fide manner. Taken together with the provision in the Standard Oil-I. G. Farben contract, this instance presents the result of a carefully-conceived and well-developed policy of not only considering the war as an unfortunate interlude, but as a method of defeating public policy. The clause in question provides that even if the agreement should be interfered with by the government of the United States or if, in effect, war should take place between the countries of the respective parties, then at the conclusion of such interruption the parties shall come to a new agreement “in the spirit of the old.”

Another phase of the relationships between Standard Oil and I. G. Farben with respect to the eventuality of war between the United States and Germany is indicated in a letter written by the Assistant Comptroller of Standard Oil to one of the directors of the company, on September 8, 1939. The body of this letter deals with the Standard-I. G. Corporation, a joint subsidiary in which Standard Oil owned 80% and I. G. 20%, which had been formed to carry out the purposes of the Standard Oil-I. G. agreements. Standard Oil was considering the purchase of I. G.’s holdings in this subsidiary company. One paragraph in the letter indicates clearly the objective which Standard Oil sought. This paragraph states:

“Of course what we have in mind is protecting this minority interest in the event of war between ourselves and Germany as it would certainly be very undesirable to have this 20% interest in Standard-I. G. passed to an Alien Property Custodian who might sell to an unfriendly interest.”

Another case shows how devious and complex cartel schemes can be. Briefly, the Siemens-Halske Company of Germany and the Beryllium Corporation of America entered into an agreement concerning the production and distribution of beryllium alloys which had all the usual characteristics of a cartel, such as the division of world territory, etc.

Before this highly interesting agreement was entered into, however, Siemens-Halske attempted to protect its position by assigning its patents in this field to the Metal & Thermit Company of New York. Actually these patents were held by Metal & Thermit in escrow for the Siemens-Halske Company. For this service, the Metal & Thermit Company received $10,000.

Without such a bill as is now contemplated, no Alien Property Custodian could have known that the above patents were really property of an enemy national. They would have remained concealed in this instance if it had not been for the fortuitous action of an investigation by the Department of Justice.

The titanium and optical goods cases previously related are other examples of this practice.

The development of the magnesium industry in the United States provides further illustration of the political effects of cartels in addition to the corrosive effects of monopoly upon industrial expansion. From an international standpoint the cartelization of the magnesium industry prior to the outbreak of the present war had equally serious effects. As a consequence of both monopoly and international cartel arrangements in the industry, Germany obtained an initial lead in the production of magnesium while at the same time Germany’s potential opponents were restricting magnesium output. According to estimates made by the U. S. Bureau of Mines, Germany produced 61% of the world’s total output of magnesium in 1937. The United States produced 10%. In 1940 Germany was still producing one-half of the world’s output while the United States was producing about 14%.

The importance of magnesium is indicated by the uses for which it is employed. In general, its principal consumer is the aircraft industry. Magnesium is used in the construction of aircraft engines, the frames of airplanes, various interior parts, wheels, and other similar portions of aircraft. Magnesium is also employed in the manufacture of incendiary bombs, tracer bullets, and flares.

The two principal producers in this country during the years 1919 to 1927 were the Dow Chemical Company and the American Magnesium Company, a subsidiary of the Aluminum Company of America. In 1927, the American Magnesium Company ceased production, and the Dow Chemical Company thereafter enjoyed a monopoly in the production of magnesium in the United States. The American Magnesium Company by agreement purchased all of its requirements from Dow and constituted Dow’s largest customer. In tracing the relationship between Dow, the sole producer of magnesium, and Alcoa, the sole producer of aluminum, during the period in question, it is essential to bear in mind that magnesium is the principal technological rival to aluminum. Nearly all of the functions for which aluminum is employed can also be fulfilled by magnesium with greater efficiency, in many instances, because magnesium is not only one-third lighter than aluminum, but is more readily machined and, when properly alloyed, has greater tensile strength.

In the year 1931, I. G. Farbenindustrie, the principal producer of magnesium in Germany, entered into an agreement with the Aluminum Company of America known as the Alig Agreement. According to the terms of this contract, a joint corporation, the Magnesium Development Company, was formed in which Alcoa and I. G. each held 50% control. The Magnesium Development Company was primarily a patent-holding corporation to which I. G. transferred some patents for the fabrication of magnesium and to which Alcoa contributed process patents. In addition to participating in the Magnesium Development Company, I. G. also obtained a 50% interest in Alcoa’s own subsidiary, the American Magnesium Company.

The significance of the arrangements between Alcoa and I. G. was twofold: Alcoa was interested in obtaining a secure foothold in the magnesium industry in order to protect its primary interest in aluminum; I. G. was endeavoring by its usual tactics to extend the sphere of its influence. It is especially significant to note that in the Alig Agreement it was stipulated that any licenses issued by the jointly-owned Magnesium Development Company were to be restricted to the United States. It was also provided that:

“As long as magnesium is produced by any ... producing company under a license or licenses granted ... the holders of the I. G. shares in Alig ... shall have the right to limit the increases in production capacity of every such producing company after the initial contemplated production capacity shall have been reached. The initial contemplated production capacity shall in no case be more than 4,000 tons per annum.”

Dow Chemical Company was not a party to the 1931 agreement between Alcoa and I. G. During the period immediately following the Alig Agreement, every effort was made to bring Dow into the cartel picture, with the consequence that, on January 1, 1934, Dow entered into a patent-holding agreement with Magnesium Development Company. In 1933 also Dow and American Magnesium Company had entered into a five-year purchase contract by which the American Magnesium Company was guaranteed a position as a preferred customer of Dow. In return, Dow’s position as the sole producer of magnesium was protected.

In 1934 also Dow entered into a sales contract with I. G. Farben. This contract stated:

“Dow agrees to confine its sales in Europe solely to the I. G., with the exception that it reserves the right to sell the British Maxium or its successors not more than 300,000 pounds (150 tons) per annum at a price not lower than the price quoted to I. G. for the same quantities, plus an extra charge of not less than 4¢ per pound for I. G.’s larger consumption. Dow further promises to use its best endeavor to keep British Maxium or its successors from reselling magnesium in ingot form and will try to limit its purchases to its own use in fabricating.”

During 1934 and 1935 Dow delivered to I. G. (which was, of course, the principal producer of magnesium in the world) more than 3,800,000 pounds of magnesium out of Dow’s total production of little more than 4,000,000 pounds. This magnesium was sold to I. G. at a price approximately 30% below the price to Dow’s other customers, with the exception of American Magnesium Corporation, which also enjoyed a preferential position. It is interesting to note that, during this same period, the sales manager of Dow Chemical travelled to England and wrote to his home office as follows:

“They [British Maxium] are very much in need of additional magnesium for the balance of 1935, but they understand our position perfectly well and do not blame us at all because we are not in a position to furnish them the metal they want. They were at fault in not getting in touch with us sooner regarding their increased demands. They advised me that they had exported 20 tons of ingot to Europe but I later obtained definite proof from Mr. Ziegler of the I. G. that they had exported 60 tons in Europe. If they had kept this metal in England they would have had sufficient supplies for this year.”