growth. The cartel was dominated in Europe by the so-called DEN group,
composed of Imperial Chemical Industries, Ltd. for the British,
Stickstoff-Syndikat, controlled by I. G. Farbenindustrie for the
Germans, and Norsk Hydro for the Norwegians. The European end of
the cartel formed an international company in Switzerland to handle
the cartel affairs, and thus to represent the thirty-five principal
European producers. By special agreements the cartel was extended
to cover the Chilean producers of natural nitrate, and I am sorry
to say, the important American producers as well. The cartel was an
international combination to restrict production, maintain prices and
to allocate territories. The world was divided up into special zones of
influence; quotas were assigned, and sales in forbidden areas or above
the allowed quota resulted in the assessment of penalties. Mexico, for
instance, was allocated to the German producers. The American producers
were required to refrain from exporting to certain areas. The Barrett
Company could not sell substantial quantities of nitrate of soda into
foreign markets reserved for the Chilean producers. Du Pont was kept
from selling a nitrogenous product in the Philippine Islands. This
was not an international trade agreement; as is true with all cartel
agreements, this was an agreement to restrict trade.
The cartel agreements covered the American market. Imports by a foreign
company to this country had to be included in determining whether
that company had exceeded its quota of the world market. American
companies were restricted in their exports and to some extent in their
production. And sales in the American market, whether for Chilean,
European or American producers were at agreed upon prices. An elaborate
system of distribution was worked out and adhered to so that these
agreed upon prices could be maintained down through the wholesalers and
retailers. The cartel thus reached down and touched the American farmer
buying in the country store.
Now nitrate of soda is important to the American farmer as are the
other fertilizer nitrogen products which were covered by this cartel.
In 1937, approximately 700,000 tons of nitrate of soda were imported
from Chile for distribution to the American farmer. If there is a
cartel in fertilizer nitrogen, it is the American farmer who pays. And
he has paid in millions of dollars--a hidden tax to the foreign and
domestic producers.
Production was restricted and prices were fixed by this cartel. Some of
the higher prices went to Chile; some of them went to our own producers
and abroad. The consumer, who in this country happened to be the
American farmer, paid a tax in the form of higher prices to keep this
cartel going. He did not know he was paying this tax. He did not have
the opportunity to elect a representative who might have been for or
against this tax. And yet, out of every dollar the farmer paid, a part
of it was an involuntary offering to the cartel.
And what was the good from all of this? A hidden tax was collected;
purchasing power was destroyed. And all of this was done so that
productive capacity could go unused. Out of the hidden tax paid by the
American farmer, only a part of it went to the Chilean companies; a
good deal of it went to American and European producers.
Whenever the argument is made that a cartel supports a distress
industry, the complete answer is that it would be cheaper and better
to make an outright gift, raised, if necessary, by lawful general
taxation through the Congress. It would be cheaper because consumers
would not be required to pay an additional amount to those who are not
distressed as they have to do when the cartel keeps the general price
up. It would be better because if it were a gift, it would not be
raised from only one group of consumers, as in this case, the farmers.
It would be better because the contributors to the gift fund would
have some chance to know what they were doing and to decide whether
they wanted to do it. Nor would the gift be as likely to disappear
under the burden of an inefficient method of production as is the case
with the hidden tax which is collected every year and which imposes no
incentive upon the monopolist to change his ways. You cannot expect
the monopolist to change his ways when he can collect a hidden tax
every year. No doubt after this war, it will be argued that synthetic
nitrogen capacity should go unused by agreement between the large
companies. We should remember that if this is done, as with all cartel
agreements, there is a hidden and unlawful tax; in this case it would
be the American farmers who would pay.
I do not revive this synthetic nitrogen story in order to make charges,
but merely as a specific illustration of the way cartels operate. The
actual cases are the best answers to the argument that cartels promote
trade. The synthetic nitrogen cartel was typical in many ways. The
particular occasion for the birth of this cartel was the development of
a synthetic process which threatened to destroy the capital value of a
natural product. After this war, there will be many new processes whose
existence will destroy old capital values and which can be looked upon
either as keys to open the doors of new opportunities or as occasions
for restrictive agreements. The synthetic nitrogen cartel brought
together producers fearful of each other’s productive capacity. As
is true in almost every important cartel, the restrictive agreements
might have had important military consequences, even though many of the
private producers were only thinking in terms of a peace-time market.
And finally, this foreign cartel, as is so frequently the case, bred a
domestic cartel.
The effect is far-reaching both politically and economically. You
can never deal with just one cartel separate from the others because
the cartel world is an intricate and interrelated maze. Thus the
foreign participants in the nitrogen cartel include the German I. G.
Farbenindustrie and the British Imperial Chemical Industries--each a
member of a variety of world dividing cartels. The American producers,
whether they knew it or not, were entering into an international game
to divide markets in which every market and every type of product was
involved if the full scope of the cartel agreements of their partners
were revealed. They were dealing in secret international diplomacy.
In many cases they were in reality dealing with foreign governments,
despite the fact that it has not been the policy of this country to
have the conduct of our foreign affairs in private hands. Since 1799
an Act of Congress has prohibited every citizen of the United States,
without the permission of the Government, from carrying on any written
or verbal correspondence or intercourse with any foreign government
with an intent to influence the measures or conduct of any foreign
government in relation to any disputes or controversies with the United
States. Quite apart from whether this criminal statute is applicable,
its spirit would deny to any citizen the right to barter away the trade
of the United States by agreement with a foreign government.
One need only think of the possible disastrous effects of permitting
Germany to build up a monopoly position in Latin America. The economic
effects grow like a snow-ball. Thus in the instance of the synthetic
nitrogen cartel, the American consumer lost purchasing power; that
meant that American producers could sell less and could therefore buy
less. The Chileans received only a portion of the amount of money
taken out of purchasing power, but the related cartels operate in
Chile, such as the chemical cartel of which both Imperial Chemical
Industries and du Pont’s are members. And these cartels do the same
thing to Chile that the synthetic nitrogen cartel did to us. Economic
life is so related today that you cannot restrict one part and not have
almost endless repercussions. For instance, if American movies should
be kept out of foreign areas, the effect is immediate on all kinds of
American products which are advertised continually through the medium
of the motion picture. If the motion picture producers enter into a
cartel agreement, they are restricting a good deal of American trade in
addition to their own.
What then is the solution? There is no solution if the problem is how
can you have American firms enter into foreign cartel agreements but
not restrict American trade and commerce. It is surely no solution to
say that in the future we will have the governments enter into cartel
agreements for us. As an economic matter, it makes no difference
whether an agreement to restrict trade is private or governmental. As
a political matter, I would agree that if we are going to have such
agreements, with their widespread economic diseases, they had better be
the responsibility of the government, if only because, the government
which makes such agreements can be changed by the voters. But I would
suggest that effective governmental control over such agreements would
require such a degree of interferences and surveillance over private
industry as to place in great jeopardy our own free enterprise-private
property system. The history of attempts to control cartels by
legalizing and controlling them is not particularly inspiring. Germany
is one example.
There is not any one solution because there is not just one problem.
There are many things which must and can be done if this country is to
encourage foreign trade.
_First_, we must encourage domestic research. Any country which wishes
to engage in trade and commerce in the future industrial era must
develop its own laboratories and encourage its own domestic research.
It has sometimes been suggested that the reason why some of our larger
American companies entered into agreements to stay out of important
markets such as Latin America was because such was the price they had
to pay to get the benefits of European research. It has sometimes even
been suggested that we have been dependent upon European research
acquired in this manner for many of the important developments which
have helped us in this war.
There will probably always be a certain amount of obscurity about
this claim that we are dependent upon European research. The files
of some of the Antitrust Division cases, however, indicate that even
though German firms may have been bound under their agreements to make
their research available to their American friends, in many important
instances they did not do so. In any event, I think we would agree that
it is of the utmost importance that American firms be able to stand on
their own feet, and that they should not be dependent upon research
from abroad. It has been quite natural, of course, for European
research to be in advance of our own in some fields. But failure to
develop our own laboratories and our own scientists would be criminal
negligence.
I suggest that we ought to have an impartial and searching survey
begun as soon as possible as to American research facilities and the
state of American research. This is not a matter which concerns only
our foreign trade. It goes to the very heart of our future domestic
well-being.
Of course, I do not mean to suggest that we should cut ourselves off
from European research. There is every reason to believe that research
in the future will be truly international in the sense that a partial
discovery in England will be supplemented by work done in France
or in this country. Possibly some inter-governmental agency can be
developed which will act as a kind of international clearing house
in order to speed the development of common research carried on in
separate areas. It is likely that private institutions in this country
and the government itself, as suggested by Senator Kilgore, could aid
in the performing of this function. If a study were made of our own
domestic research facilities, I would expect that out of that study a
recommendation might well come to set up some kind of an international
clearing house for research.
There is a further step we can take. The research which has been
developed in Germany during the last ten years under the Nazi regime is
research which in right belongs to the people of the United Nations. It
was Nazi government sponsored research used for the purpose of making
war upon us. It is research which should now be put to use for the
general good of mankind. It should not be considered as belonging to
private hands either in Germany or elsewhere. The United Nations should
make sure that steps are taken to make available this research so that
it can be used generally.
_Second_, we must remove, through inter-governmental action, the waste
and misuse of resources which occur when industries cannot compete and
are artificially maintained. It will be much cheaper for this country
to offer transitional credit to be used to develop new industries than
to continue paying hidden taxes which don’t accomplish anything. We
should set up an international mechanism whereby substantial credit
can be made available to other countries upon such terms as will
encourage the readjustment of the use of their resources so that these
resources can be employed, without the crutch of a trade barrier, in
the free trade of the world. Consistent with this aim, we can urge
also the adoption of minimum wage and health standards so that labor
exploitation does not become the means of providing a hidden subsidy
for industry in countries having substandard labor conditions.
_Third_, it is, of course, imperative that this country make known its
determination to encourage foreign trade and to make it possible for
American firms, large and small, to bring their goods to the consumers
who will buy. Through vigorous antitrust action, we can break up the
activities of a great number of foreign cartels. And American firms
are perfectly capable of engaging in vigorous competition with the
old monopolistic companies of Europe. Where American industry is
competitive at home, such as the automobile industry, there is no
way a foreign company effectively can keep out American goods, and
foreign consumers would be the first to object if that were tried. It
is the industries which are monopolistically dominated at home which
seem to have the greatest difficulty. I suspect, however, that in
those industries there are smaller firms who will be glad to have the
opportunity of selling abroad.
_Fourth_, we should stand ready to help create an international
forum to which countries denied access to raw materials or allowed
to purchase them only on the basis of monopolistic prices can go to
present their case. This does not mean that we should take part in
any international control of business, but it does mean that for
those few areas where monopolies continue to persist, we must create
a world where there is a remedy within the structure of the peace.
Many of these raw materials no longer have their former importance.
Poetic justice may come to rubber, quinine and eventually to diamonds.
Persistence in monopoly prices usually stimulates the development
of a substitute. The international forum which I urge will probably
not have to hear too many cases. The power of competition has grown
more powerful during the war because of the development of myriads of
substitutes for the key raw materials.
The opportunities are tremendous. The tools needed for the job are the
productive facilities and materials which we will have in abundance.
We can play our part with energy and initiative; we would not have it
otherwise. We believe in competition, and we are ready to compete. We
are ready to engage wholeheartedly in rebuilding a world of peace in
which every man and every country can have a stake. We know that we
cannot maintain, let alone advance our standard of living save upon the
basis of an active and expanding international trade. Our expanding
trade will enlarge the area of the interests which we have in common
with other peoples, and for us, as well as for them, will narrow the
intensity of our differences. And we will have played our part in
foreign trade in such a way as to preserve the symbol of our political
and economic democracy.
APPENDIX I
_Recent Cases_
The most effective weapon presently available for combatting the
influence of monopoly and cartel-minded international groups is
vigorous enforcement of the antitrust laws. Congress has recognized
that the natural effect of competition is to increase commerce--to
extinguish or prevent the free play of competition is to hinder
commerce. As was stated by Mr. Chief Justice Stone in the _Trenton
Potteries_ case:
“Whatever difference of opinion there may be among economists as to the
social and economic desirability of an unrestrained competitive system,
it cannot be doubted that the Sherman Law and the judicial decisions
interpreting it are based upon the assumption that the public interest
is best protected from the evils of monopoly and price control by the
maintenance of competition.”
By passage of the antitrust laws, Congress has expressed the American
policy of free competition not only in interstate trade and commerce
but also in our foreign trade and commerce. The provisions of Section
73 of the Wilson Tariff Act further exemplify this doctrine with
specific reference to imports to this country. Section 11 of the Panama
Canal Act prohibits passage through the Panama Canal of ships owned
or operated by persons doing business in violation of the antitrust
laws. Thus, the practices of foreign cartels, involving elimination
of competition and collectivization of industry, are inconsonant
with the basic concepts of our antitrust laws and national economic
policy. The type of arrangements which are the cornerstone of European
cartelization, such as agreements dividing markets, allocating
customers, controlling production and prices, and apportioning business
have all been long declared to be in violation of our antitrust
statutes by the courts.
By and large, the antitrust laws can be effectively applied to combat
restraints upon the domestic and foreign commerce of the United States
whether the practices, agreements or conspiracies complained of have
their inception in this country or elsewhere.
It has become an accepted principle of law that acts done or agreements
entered into in a foreign jurisdiction, even though lawful there, may
be prosecuted or enjoined in this country where the effect or result
of such acts or agreements is a violation of our laws. This principle
has been applied in antitrust cases, and agreements which restrain our
trade with foreign nations have been uniformly declared illegal. Our
courts may control foreign citizens or corporations operating wholly in
foreign territory, where their operations extend into the domestic and
foreign commerce of this country, just as we may undoubtedly control
the activities of our own citizens and our own corporations which
impinge upon our domestic and foreign trade and commerce.
The mere fact that a combination is formed in a foreign country does
not prevent the application of our laws where it affects the foreign
commerce of this country and is put into operation here. Conversely,
combinations or agreements entered into in the United States and
adversely affecting the foreign trade of this country are subject
to the antitrust laws even though the acts done to effectuate the
restraints are performed outside this country. It is recognized that
some cartel arrangements are instigated by or under cover of foreign
governmental authority, but unless the cartel arrangements complained
of are solely participated in by the foreign government, the situation
is not altered.
While a foreign sovereign may have immunity from suit, such immunity
does not apply to private individuals or organizations even though
they may be acting pursuant to the laws of their own country, or as
agents for their government or though a foreign government may have
a substantial financial interest in the challenged organization and
activities.
The practical difficulty of acquiring personal jurisdiction over
some of the foreign individual or corporate participants in a cartel
which affects our foreign or domestic commerce is often confused with
the question of whether or not a violation of our antitrust laws is
involved. This, however, is a technical problem depending upon an
aggregation of facts rather than a question of substantive law involved
in restraints upon commerce.
The following is a list of antitrust cartel cases instituted by the
Department of Justice since 1937:
_Aircraft Accessories_: Bendix Aviation Corporation, et al.; complaint
filed November 19, 1942; postponement of trial requested by War and
Navy Departments.
_Alkali_: United States Alkali Export Assn., Inc., et al.; complaint
filed March 16, 1944; argument had May 10, 1944 on motions to dismiss.
_Aluminum_: Aluminum Company of America, et al.; petition filed April
23, 1937; judgment denying Government relief filed July 23, 1942; on
appeal.
_Chemicals_: Imperial Chemical Industries, Ltd., et al.; complaint
filed January 6, 1944.
_Chemicals and Petroleum (Including Synthetic Rubber)_: Standard Oil
Company (N. J.), et al.; complaint filed March 25, 1942; consent decree
entered March 25, 1942; supplemental judgment filed April 7, 1943.
Information filed and pleas of nolo contendere on March 25, 1942; fines
levied totaled $50,000.
_Dyestuffs_: Allied Chemical & Dye Corp., et al.; indictment returned
May 14, 1942; Attorney General acquiesced to postponement of trial
until it will not interfere with defendant’s war production. General
Dyestuff Corp., et al.; indictment returned December 19, 1941; pending
on preliminary motions.
_Fertilizer_: American Potash & Chemical Corp., et al.; complaint filed
May 15, 1940; consent decree entered May 21, 1940. Chilean Nitrate
Sales Corp., et al.; indictment returned September 1, 1939; dismissed
as to 18 defendants June 3, 1941 to August 28, 1942; pleas of nolo
contendere by 6 defendants August 28, 1942; fines levied totalling
$35,000. Allied Chemical & Dye Corp., et al.; complaint and consent
decree entered May 29, 1941. Imperial Chemical Industries (N. Y.),
Ltd., et al.; complaint and consent decree February 17 and 18, 1942.
Mutual Chemical Company of America, et al.; indictment returned June
26, 1942; Attorney General acquiesced to requests by War and Navy
Departments for postponement of trial. Synthetic Nitrogen Products
Corp., et al.; complaint and consent decree, September 5, 1941.
_Fluorescent Lamps_: General Electric Company, et al.; complaint filed
December 9, 1942; Attorney General acquiesced to postponement of trial
requested by War and Navy Departments.
_Fuel Injection Equipment_: American Bosch Corp. and Donald P. Hess;
complaint and consent decree, December 29, 1942.
_Glass Bulbs_: Corning Glass Works, et al.; indictment returned
August 28, 1940; pleas of nolo contendere and fines totalling $47,000
September 9, 1941.
_Gyroscopic Instruments_: The Sperry Corporation, et al.; complaint and
consent decree entered September 1, 1942.
_Hormones_: Ciba Pharmaceutical Products, Inc., et al.; information
filed and pleas of nolo contendere, December 17, 1941; fines of
$18,000. Roche-Organon, Inc., and Elmer H. Bobst; information filed
and pleas of nolo contendere, December 17, 1941; fines of $6,000.
Schering Corporation, et al.; information filed and pleas of nolo
contendere, December 17, 1941; fines of $24,000; complaint and consent
decree entered same day. Swiss Bank Corporation; complaint and consent
decree, December 17, 1941. Julius Weltzien and Schering Corporation;
information filed and pleas of nolo contendere, December 17, 1941;
fines of $6,000.