Part 16

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.