Part 17

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.”

It may be remarked that, in consequence of these arrangements between Dow and I. G., I. G.’s position in the European magnesium market was enormously strengthened. One particularly significant result of I. G.’s dominance was that Great Britain was rendered primarily dependent upon Germany for its magnesium imports. As late as 1938, 87.9% of the magnesium imported into Great Britain was obtained from Germany. When war broke out, Great Britain was at once cut off from a large part of its magnesium supply.

From the standpoint of the development of the industry in the United States, it is clear that the total effect of the arrangements among Alcoa, I. G., and Dow was to restrict magnesium production. The extent of the disparity in the magnesium output of Germany and the United States is clearly evident in the production figures for the years 1937 to 1940. In 1940, the year in which France fell, the United States produced 5,680 tons, while Germany produced more than 19,000 tons. Strenuous efforts on the part of the government and industry have been necessary to expand magnesium production sufficiently to meet our minimum wartime needs. The large plant construction undertaken by the government in cooperation with various magnesium producers has achieved initial success. It is clearly evident, however, that the magnesium program had to be inaugurated and carried out under the tremendous handicap of the monopoly situation which existed in the industry prior to the war.

It is equally clear that, from a political standpoint, the government began its operations completely in the dark. It is scarcely credible that, had the arrangements between Alcoa and I. G. and between Dow and I. G. been known to the government at the time at which they were made, the risks inherent in the private treating making of this type would have been permitted to stand.