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.