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.
It is characteristic of many cartel agreements which are arrived at
secretly and maintained in silence that concealment of their provisions
is motivated by the desire to avoid scrutiny of their operations by
public authority. In some instances, the illegal nature of the terms
of cartel agreements explains the cloak of secrecy which is cast over
their provisions. Moreover, it is often stipulated in cartel agreements
that, in any eventuality of action taken by government, the parties to
the agreements shall cooperate in order to maintain their relationships
despite anything that government may do.
There are numerous examples among the many agreements which have been
investigated by the Department of Justice which clearly reveal the
intent as well as the necessity for secrecy from the point of view of
the cartels. Thus, in a letter from Canadian Industries, Limited, to
the du Pont Company, the writer states:
“In the course of recent meetings in connection with the new Patents
and Processes Agreement, I understand a suggestion has been made by
the du Pont legal representatives which will involve the new agreement
making specific reference to the respective territorial rights of
du Pont and ICI. I cannot help feeling that on broad grounds this
is undesirable both from the viewpoint of C-I-L and of the major
stockholders. For instance, should any investigation take place in
Canada which will require the production of this agreement, the clause
in question would automatically necessitate the production in its
term of the ICI and du Pont agreements: at least that is the way we
would read it, and this would be bound to lead to publicity of a very
undesirable nature in regard to the division of world territories. My
practical suggestion is that, as the detailed prior commitments are now
to be dealt with in the form of a letter separate from the agreement
(this at the suggestion of the du Pont legal representatives) it might
be possible to include the point in question in that separate letter
also.”
The attitude of cartels toward the relation between their own policies
and the policies of government are epitomized in the exchange of
correspondence between Sir Harry McGowan, Chairman of the Board of
Imperial Chemical Industries, and Lammot du Pont in May 1933. Sir Harry
wrote:
“With a large organization such as we have I find it is a good thing
to issue such warnings from time to time--one went out at the time of
the Ottawa Conference--so that everything possible is done to ensure
that no prospective political or legislative action on the part of
governments is permitted to influence relations between du Pont and
I.C.I.”
On June 17, 1933, Lammot du Pont replied as follows:
“I am much interested in what you say and have heartily approved your
attitude toward our Patents and Processes Agreement and the relations
between the two companies. I feel the same; namely that our relations
have been so happy and have produced such satisfactory results that we
should let nothing in the way of international agreements interfere in
any way with the progress we have made or may make in the future. If
any legislation or international agreements are brought about which
affect these I.C.I.-du Pont relations I am sure we will be able to
adjust ourselves so as to get the continued benefit of our agreement.”
A striking and instructive illustration of the role of secrecy
in cartel agreements is provided in the terms of an arrangement
concerning the pharmaceutical industry, between the Schering
Corporation of Bloomfield, New Jersey, and the Schering, A. G., of
Germany. One clause in this agreement, which was made in 1938, stated
that “the existence, the content, and the details of operation of this
agreement have to be kept secret by both parties notwithstanding the
possible obligation of disclosing it to public officials.”
In connection with an agreement concerning the plastics industry, the
consideration taken into account by the Rohm & Haas Company and du Pont
are indicated in a memorandum written by the latter company in 1936, in
which it is stated:
“We discussed the whole situation again. They repeated over and over
again that there is not the slightest possibility of the I.C.I.’s
coming into the American market, but du Ponts are afraid to write a
letter to this effect because in the case of an investigation of their
firm by politicians, the politicians might make capital of such a
statement, i.e., they might attempt to point out that the world was
divided up between I.C.I. and du Ponts.