PROMOTION OF EXPORT TRADE.

SATURDAY, JANUARY 6, 1917.

UNITED STATES SENATE,

COMMITTEE ON INTERSTATE COMMERCE,

Washington, D. C. The committee met, pursuant to adjournment, at 10 o'clock a. m., in room 326, Senate Office Building, Senator Francis G. Newlands presiding.

Present: Senators Newlands (chairman), Robinson, Cummins, Poindexter, Brandegee, Townsend, Thompson, and Lippitt.

The CHAIRMAN. Is Mr. Mallory present?

Mr. MALLORY. Yes.

The CHAIRMAN. Do you desire to make a statement, Mr. Mallory? Mr. MALLOR. Yes, sir; I would like to speak for a few moments in connection with the Webb bill.

The CHAIRMAN. Very well; proceed.

STATEMENT OF MR. W. S. MALLORY, PRESIDENT THE EDISONPORTLAND CEMENT CO., EDISON LABORATORY, ORANGE, N. J.

Mr. MALLORY. Just a year ago I had the privilege of appearing before the Federal Trade Commission, representing the smaller cement manufacturers located adjacent to the Atlantic coast, and at that time put up to them a problem of our cooperating for export business. They were unable to give us any decision, but said they would make certain recommendations. As my time is very brief, I will not go into the reasons why we need cooperation, but simply tell you what has happened since our meeting of a year ago.

Of the cement manufacturers there are 22 in this district. Three of them are large enough to go after the export business themselves. That leaves 19 smaller companies, that are too small to go after the cement business as it ought to be handled. We have had several meetings, and we found among some of the manufacturers a disinclination to go ahead on account of the legal situation. Finally 11 of the 19 companies decided that they would go ahead and form an export company. We have gotten out our articles of incorporation, and 9 of the 11 have signed. I have the signed statement in my pocket. Two of the 11 finally have decided that it is unwise for them to go ahead until some action is taken on the Webb bill or some similar bill. So at the present time we are all ready to go ahead. We have our manager selected; we have some of our salesmen selected; and we are simply waiting for some action on this bill; and I am here representing the 11 companies, hoping that favorable action will be taken by this committee and also by the Senate.

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It is our full expectation that if favorable action is taken we will be able to get some of the other companies to join us, and then we will get actively to work, and that is very necessary, because we are losing very valuable time. We realize that there is a very great deal of missionary work to be done, and we are most anxious to get at the work as soon as possible.

Senator CUMMINS. What is your plan?

Mr. MALLORY. Forming the Portland Cement Export Co., which is a selling company, selling only for export purposes. Our plan is to have a small cash capital. We propose to finance the company by giving the export company whatever time for its payments that may be necessary.

Senator CUMMINS. What is the relation of the export company to the manufacturing company?

Mr. MALLORY. Each one of the member companies will subscribe for a pro rata amount of stock, based on its shipments for the three previous years, and whatever sales are made will be prorated among the companies in proportion to their subscriptions.

Senator ROBINSON. What are the principal things that you want authority to do that the law now forbids?

Mr. MALLORY. There is quite a difference of opinion among our members as to whether we have the right to proceed or not. Some of our members feel that we have; others do not; and those who feel that we do not have the right are afraid to go ahead.

Senator ROBINSON. That is, whether you have the right to effect that organization?

Mr. MALLORY. Yes; that is it. We are at a standstill now.

The CHAIRMAN. What is your view, Mr. Mallory, of this matter? You understand there is a fear lest the sanction of combination for the purpose of export may result in the creation of an organization of dealers or manufacturers who are competitive at home?

Mr. MALLORY. Yes, sir.

The CHAIRMAN (continuing). And that the creation of such a union, designed apparently for export, may furnish the machinery for the union of these different competing enterprises without any external indication of it, to fix prices or maintain prices at home.

Mr. MALLORY. This company, of course, would be organized and would handle export business. It would have no relation whatever to domestic business.

The CHAIRMAN. I understand; but the stock would be held by cement enterprises in this country that are now engaged in competítion with each other; is not that so?

Mr. MALLORY. That is true; yes.

The CHAIRMAN. Then, with the representatives of all of those companies unionized in a corporation organized for export, what do you say about the danger of their coming to gentlemen's understandings, etc., regarding domestic commerce?

Mr. MALLORY. I think that there would be no danger from that, Mr. Chairman, for the reason that the companies that I represent would have about 12 to 15 per cent of the total manufacturing capacity of the United States. They would have about 40 per cent of the total manufacturing capacity in the district where our plants are located; and with those small percentages we would only be a small factor in controlling the total markets.

The CHAIRMAN. That is all.

Senator BRANDEGEE. I want to ask you this question: You say in this particular instance that what you designate as the proposed member companies of your new corporation for foreign trade, those present member companies are competitors of this company?

Mr. MALLORY. That is right; yes, sir.

Senator BRANDEGEE. Now, if they joined in forming an association engaged exclusively in foreign business, that would in no way affect their competition in this country, would it?

Mr. MALLORY. Absolutely no.

Senator BRANDEGEE. The object of your combination in the foreign business is to increase your export trade, I assume?

Mr. MALLORY. That is true; yes, sir.

Senator BRANDEGEE. And you think that you would get more foreign business by your new combination than you would now as individuals, do you not?

Mr. MALLORY. We have no doubt of it.

Senator BRANDEGEE. Then, on what possible theory could anybody claim that you were restraining foreign trade? Why should there be any doubt whatever in the instance that you cite, that you are a perfectly legal company and not liable in the inhibitions of the Sherman law?

Mr. MALLORY. It is due largely to the different opinions that are held by the different attorneys of the various companies.

Senator BRANDEGEE. I would like to see one of those attorneys who hold that the association that you propose to organize would be in restraint of foreign commerce, and have him give his reasons for it; for to me it seems to be a perfectly clear case of a perfectly innocent combination. I can not conceive how you could be attacked under the Sherman law.

Mr. MALLORY. That is what the attorney of our company thinks; that is the position he has taken. But unfortunately for the progress that we had hoped to make, there are other attorneys that tell their clients, "We think you had better wait until the matter is cleared up"; and so we are held up pending the decision.

Senator CUMMINS. There is just one point I would like to inquire about with regard to the form of this combination. Your companies take the stock of the export company in proportion to your sales for the last year?

Mr. MALLORY. Yes, sir.

Senator CUMMINS. Your domestic sales?

Mr. MALLORY. Yes, sir.

Senator CUMMINS. Then you furnish this export company with the product in the same proportion?

Mr. MALLORY. That is right; yes, sir. We sell it to the export

company.

Senator CUMMINS. But at what price do you sell it?

Mr. MALLORY. The price is to be agreed upon between the member companies and the export company, at a margin sufficient to enable the export company to pay its own expenses.

Senator CUMMINS. What is the object of selling it? Why do you not simply furnish it in these proportions, and then, of course, when you know what price you get for it abroad, pay your manufacturing companies according to that price, less your expenses?

Mr. MALLORY. That is what the effect will be, because we will name a price with reference to the export market price which will permit the export company to pay its expenses, and then any profits that may be left will come back to the individual companies in the form of dividends. We realize the fact that for a year at least, and prob ably longer, the export company will be doing missionary work.

Senator CUMMINS. Yes; I understand that. Do you intend to have any written contract between the manufacturing companies and the export company?

Mr. MALLORY. Oh, yes; there will be a contract.

Senator CUMMINS. Have you the form of that contract?

Mr. MALLORY. I have in my pocket the subscription which has been signed, as I say, by nine companies, and I also have the form of incorporation, which we hope to put through.

Senator CUMMINS. That would be simply a subscription of the capital stock?

Mr. MALLORY. That is true.

Senator CUMMINS. But you intend in addition to that to have a definite contract?

Mr. MALLORY. Yes, sir.

Senator CUMMINS. Between each of the member companies and the export company?

Mr. MALLORY. Yes, sir.

Senator CUMMINS. Has that ever been reduced to writing?

Mr. MALLORY. Yes, sir.

Senator CUMMINS. Are you willing to furnish that?

Mr. MALLORY. I have no objection at all.

Senator CUMMINS. I would like to see it, so that we may have the entire matter before us.

Mr. MALLORY. Yes. I do not happen to have a copy of it with me, but I will be very glad to send it to you.

The CHAIRMAN. Čan you produce it in time for the reporter's notes?

Mr. MALLORY. No; unfortunately not. It is in New York. The CHAIRMAN. You may send it on, then, in a communication to the committee.

Mr. MALLORY. Yes, sir.

STATEMENT OF MR. GILBERT H. MONTAGUE, COUNSEL FOR SPECIAL COMMITTEE OF AMERICAN MANUFACTURERS' EXPORT ASSOCIATION-Resumed.

The CHAIRMAN. Now, then, Mr. Montague, the committee will listen to you. I will state to those who are interested in the legis lation regarding the labor question that we will proceed with that shortly. The committee wish to conclude the hearing on the Web bill, and we will close by hearing Mr. Montague this morning.

Mr. Montague, will you state your full name and residence? Mr. MONTAGUE. Gilbert H. Montague, 40 Wall Street, New York City. As I explained to you yesterday, I am counsel for the specia! committee of the American Manufacturers' Export Association that filed a statement with you yesterday.

I have no prepared remarks, and, as I explained yesterday, I was present with the committee of the American Manufacturers' Export

Association at the opening of the hearings yesterday, intending to be merely a spectator, and am yielding now to the very flattering insistence of the committee that I present some analysis from the legal point of view of this bill. I certainly did not expect to address you when I left New York.

Senator Robinson, I believe, suggested yesterday that an analysis of the general provisions of the bill might serve to clarify matters, and I will begin by attempting a very brief analysis. I should like to say at the outset that I very much prefer to be interrupted. It will very much assist my own mental processes if you will do so.

Taking up this bill, and viewing it merely as a lawyer might view a statute for the purpose of trying to discover what the draftsmen of the statute had in mind, I think we will be able to see the way in which they attacked the problem which we have heard so well stated by the business men, and which I do not need to repeat. We will take up the sections, one by one, with a view to seeing how they were attacking it.

Very briefly, the problem was to get some freer hand for our American exporters in foreign trade after that trade had left our shores and was strictly in foreign commerce. The first thing was to attempt some sort of territorial definition, as it were, of the trade in which that extra and additional freedom is to be granted; and the second step was to determine to whom that freedom should be granted. In other words, where are the acts and agreements in respect of which we are going to relax the antitrust law, and by whom may this greater freedom be enjoyed?

The first section would appear to be the attempt on the part of the draftsman of this act to define where this greater freedom is to be enjoyed; and that is why he begins, I take it, by a definition of export trade. The chief criticism which I have regarding that definition is in respect of the insertion of the words "trading in or marketing in line 8 of the first page, and that criticism was repeatedly stated yesterday, and the views then expressed are substantially similar to mine.

The first paragraph of the first section is the definition of the territory, or the geographical place, or the description of the trade in which the bill proposes to give greater freedom.

Then the question arose as to who might exercise this greater freedom; and there, apparently, the draftsmen of the act were impressed by the points which have been so clearly raised by the various Senators as to the possibility of danger of giving absolute freedom in any given territory or in any given class of trade. And so, apparently, they concluded that this freedom should be limited entirely to units, which they proceeded to define as "associations." The purpose of limiting it to those units was apparently to insure that those units would be so defined and that their duties would be so prescribed that they might always be under the peculiar and special supervision of some branch of the Government. And that I take to be the motive for this apparently complicated arrangement in respect of associations.

Senator CUMMINS. Mr. Montague, may I interrupt you at that point? Mr. MONTAGUE. Yes, sir.