1. Distribution of 76 cases among 3 groups and 13 types of price policies. 1. Estimate of Foreign investments in the United States, end of 1937___ 2. Foreign direct investments in the United States, by industries, 1937. 3. Foreign direct investments in United States, by principal countries and 4. Foreign direct investments in the United States, by countries, 1937. 5. Study of international affiliations of American industry based on census 6. Financial structure of foreign direct investments in the United States, by industrial groups and by geographic areas, end of 1937--- 31 LETTER OF TRANSMITTAL AUGUST 23, 1940. The Honorable Senator JOSEPH C. O’MAHONEY, Chairman, Temporary National Economic Committee, Washington, D. Č. MY DEAR SENATOR: I have the honor to transmit herewith a study on some phases of Export Prices and Export Cartels (Webb-Pomerene Associations). In this volume there are gathered together three reports, two by the Department of Commerce and one by the Federal Trade Commission. When these were submitted to the Subcommittee on Printing and Review of the Temporary National Economic Committee, it approved them for printing with the stipulation that they be combined into one volume, prefaced by an explanatory introductory statement, which I submit herewith. The field of foreign trade has traditionally been beset with controversies and arguments about tariffs, reciprocal trade agreements, international prices, monopolistic exchange controls, exchange dumping, quotas, barter arrangements, long-term and short-term loans, international combines, and cartels. Businesses on occasion do abroad what they would not or could not do at home. Foreign trade is regarded by some as the happy hunting ground of gigantic international understandings, political controls, economic imperialism, and ruthless competitive warfare with success a matter of national prestige. These studies make intensive probings into but one or two corners of the area ordinarily encompassed by foreign trade. But in those corners they show interesting action patterns of concentration of economic power at work. Part I is a study written by Dr. Milton Gilbert of the Department of Commerce entitled "A Sample Study of Differences Between Domestic and Export Pricing Policy of the United States Corporations." It explores a most difficult problem for it seeks not only to distinguish domestic prices from export prices but to determine whether such differences as exist reveal the presence or absence in one form or other of economic control. This task is the most difficult in most instances because there is no single domestic price. There are hosts of domestic prices. The New York price, for example, even of such an article as butter or flour differs considerably from the price in Kansas City or San Francisco. There are many reasons for divergences of prices at home and abroad, differences in no way related to the presence of monopoly or of concentration of economic power, for all prices are local prices subject to local variations in demand, supply, control, taxes, and governmental regulation. It is only in the peculiar instance when the domestic price is high, completely inflexible and completely under control and the foreign price low, highly flexible, and uncontrolled that one can infer the presence of monopoly solely from a study of differences in price behavior. When, however, there is incompletely monopolistic control in some markets at home with a great deal of competition in others coupled with partial control in foreign markets, some being exclusively dominated while in others a considerable amount of competition exists, the relationship between any given domestic price and the price in those few foreign markets to which a corporation may have obtained access, is likely not to show any substantial regularity.1 The converse of the proposition stated above is likewise true. One cannot infer, for example, that competition is present when the price in a foreign market is as high or even higher than in the domestic market. In certain small countries a domestic corporation may readily have a monopoly while suffering competition in the particular domestic market selected by the sample study for price comparison. In short, to come to any conclusion merely on the basis of differences in price is unwarranted. Most of the ready inferences that monopolistic control does not exist because of variability in price pattern are unjustified. The last two studies constituting parts II and III of this volume deal with the groups that carry on foreign trade, and in particular the form of their organization. Part II, entitled "Direct Foreign Investments in American Industry, 1937," represents a study made by Mr. Paul D. Dickens, of the Department of Commerce, analyzing the extent to which foreign-owned corporations control production in the United States. Part III, entitled "Operation of Export Trade Act (WebbPomerene law), 1918-1940," is a study of the Federal Trade Commission indicating how American corporations have united to penetrate the foreign market. Both studies give a limited insight into the operation of combines and cartels in our export and import trade. The vicissitudes of Webb-Pomerene associations, particularly as illustrated in the copper industry, were studied in detail by the Temporary National Economic Committee in its hearings on Cartels at Home and Abroad. Organized originally as The Copper Export Association, later called Copper Exporters, Inc., these associations, according to Dr. Rudolph Callman, well-known expert on cartels and author of a volume on German cartel law 2 represent types of cartels well known in national and international industry. The Copper Export Association was simply a joint selling agency. It would be called a syndikat in the German cartel law. The same is true of Copper Exporters, Inc., although the situation is not quite so clear as in the Copper Export Association, particularly insofar as its purpose, instead of being that of mitigating or eliminating competition among its members, seemed to be that of common defense against speculators, who, while neither producing nor consuming copper, were believed to be responsible for artificial and harmful fluctuations in copper prices, particularly in the London metal exchange. But the evidence showing that the major effect was the mitigation of competition among each other was so convincing that I feel no hesitancy in calling Copper Exporters, Inc., a cartel. And may I add that it was thus regarded 1 On the theoretical difficulties of interpreting differences between export prices and domestic prices, see Theodore J. Kreps, "Export, Import, Domestic Prices in the United States, 1926-1930." The Quarterly Journal of Economics, Vol. 46, p. 195 ff. 2 Das Deutsche Kartellrecht, Philo Verlag, Berlin, 1934. 720 pp. by all of the writers on cartel problems in Europe. Dr. Robert Liefmann, the famous German expert, in his book entitled "Cartels, Combines, and Trusts" (London, 1928) goes so far as to say (p. 60) that Copper Exporters, Inc., was "a clear case of export cartels deliberately fostered by the Government of the U. S. A. to the detriment of the European consumer." The American public may be surprised, if not annoyed, by such a statement. But in European opinion and experience cartels that engage in international trade are generally assumed to be fostered by their governments because cartels are frequently merely another means of international trade policy. Moreover, Copper Exporters, Inc., is an association authorized by the Government under the Webb-Pomerene Act, which according to the evidence presented in these hearings, was strongly urged upon Congress and the Wilson administration by influential members of the copper industry. I hasten to add that in European cartel literature and discussions all associations formed under the Webb-Pomerene Act are regarded as export cartels.3 As is brought out in part III of this volume such associations often control 100 percent of the export of their members. Many of them no longer rely on agents abroad, but have substituted well-qualified association agents. Sales in many instances are no longer made on a c. i. f. basis plus letters of credit set up at home, but are made from warehouse stocks carried abroad, thus enabling export sales to be allocated quarterly. Moreover, such associations often amount to price cartels, the establishment of prices being regarded as a distinct function of the association, prices depending upon economic conditions in each market. compared with maximum consuming power of that market under normal conditions. In other words, purchasing power or "what the traffic will bear" is an important factor to be considered with respect to maximum sales. Another factor is competition. Still another is quality and the study of the needs of important consumers in accordance with their processes of manufacturing. Thus prices necessarily fluctuate in different parts of the world, being controlled by innumerable conditions both political and economic. In some instances the return exceeds domestic levels. In others it is about the same and in others it will occasionally be lower. Consequently, many associations work on a final average annual price on behalf of the industry which return is distributed equitably in proportion to each factory shipment. To some extent such associations become sales and market cartels. Business in many of them is divided among the members on a quarterly basis which is adjusted yearly as provided for in membership agreements. Individual brands may be shipped in the same size packages. Individual trade-marks and names are utilized in conjunction with the standardized association trade-mark. Consolidation of different brands in a single shipment is a common occurrence and is utilized by the association in accordance with its own discretion Investigation of Concentration of Economic Power, hearings before the Temporary National Economic Committee, Congress of the United States, 76th Cong., 1st sess., Cartels at Home and Abroad. |