The defendants emphasize that the cost of rails has greatly increased, specifications are more exacting, research more intensive and expensive, also that carriers customarily allot their orders among mills which give them traffic, etc. There is some weight to each of these assertions; but it is my view that the law officers of the Government cannot take the responsibility of accepting an expla nation of these prices which attributes them to either mere coincidence or the interplay of economic forces.

But the above facts cannot be considered isolated and apart from the evidence as to the terms of the foreign agreements, their effect, and the purpose with which they were made.

III. THE FOREIGN AGREEMENTS

A Paris dispatch printed in the financial section of the New York Times with the date of May 8, 1926, read in part as follows:

"The International Rail Makers Association organized a month ago to control prices in the export markets throughout the world has changed its name to the European Rail Makers Association in order to 'shield American susceptibilities.' "The World Syndicate established headquarters in London soon after it was formed and, it is understood, will not move, since the critical industrial situation in England has changed for the worse.

"The change in name, it is learned, does not indicate that the American steel interests are unrepresented in the organization. Likewise, it is understood that the American Railroad Co.'s test order of 100,000 tons of rails from a French firm, to be delivered in two lots at a price of $32 a ton, c. i. f. New York, was closed a few days after the International Rail Makers Association was formed because of an agreement which prevented firms adhering to the compact from selling their products in other countries.

This dispatch refers to a written agreement entered into in Paris March 12, 1926, by the foreign rail makers, those of each separate nation acting and signing as a separate group. The salient terms of this agreement are these: The world markets for steel rails were classified into reserved and unreserved areas; the steel rail business was divided and allotted to each of the national groups by a specified percentage, the share allotted to the British being 43.25 percent. Under the first subdivision "Objects of agreement" the first enumerated object was to reserve exclusively to each of the groups all orders in its own home market and the agreement expressly provided (subd. 9) under the heading "Home Markets" that each group retained the exclusive right to sell for delivery in its own home market free from competition by the other groups, and that no quotation should be made by the other groups without the consent of the group entitled to the order, the group entitled to the order being entitled to prescribe the form, terms, and conditions of such quotation. Certain markets or areas were defined and specifically reserved and allotted to the various national groups. All other foreign markets were known as unreserved areas. The group to which a reserved area was assigned was required by specific provision to fix the price for steel rails within that area, and this price when so fixed was to be respected and protected by the other groups. If a purchaser within a reserved area asked a quotation from any member of an outside group, that member had the choice either of refusing to quote or notifying the London management committee and later bidding upon the terms and conditions fixed by the London committee after it had consulted the group to whom the reserved area had been assigned. Bids made in this manner were on the basis of the price fixed in the area, plus an additional sum known as protection. The prices binding upon all of the groups in making quotations for orders from an unreserved area were in all cases to be fixed by the London management committee and this committee in its discretion also divided and allotted the orders from unreserved areas to such of the national groups as it deemed advisable. If, at the expiration of certain fixed periods, any national group had filled orders in excess of the percentage of world business allotted to it, it was required to pay over to the London management committee the proceeds of such excess business. Similarly at such times there was paid over to any group which had failed to receive the percentage quota allotted to it by the agreement cash to indemnify it for the amount of business which it was entitled to but did not receive.

A special and separate reserve fund was set up, out of which members were indemnified for the cost to them for any losses incurred by these members in meeting unexpected competition for foreign trade from domestic competitors within their own home market territory.

On the face of the 1926 agreement there was no mention of United States business and no Americans signed it.

As a result of our inquiries, in the fall of 1932 we asserted that the Steel Corp. under cover of taking a share of the business of the British group had participated in the operation of this agreement from the date at which it was made. This was at first denied by representatives of the Steel Corp. but, as disclosed by our files, Governor Miller later discovered that such a participation had been made by the oral agreement of Mr. Gurney, the foreign representative at London of the United States Steel Corp., and that this arrangement had been known to Mr. Farrell, president of the Steel Corp., who did not disclose it to his fellow directors.

On October 14, 1929, the London management committee paid to the United States Steel Corp. the sum of £30,089 6s. 2d. being the cash proceeds of business filled by foreign groups in excess of the quotations assigned to them by the terms of the agreement.

It is of some corroborative significance that the Steel Corp. admits that it had also entered into similar arrangements with the foreign cartels to control the business and the prices of tin in certain markets throughout the world and of certain types of steel sheets in Japan.

There is other documentary evidence taken from the files of the Steel Export Association establishing the participation of the Steel Corp. in this agreement of 1926 and its attorneys do not now deny that participation in this particular agreement.

On this state of facts, it is clear that the Steel Corp. was a party to an agreement which, in effect, prevented foreign competitors from selling any steel rails in the United States, restrained the Steel Corp. from selling American rails abroad except in unreserved areas and with the permission of the London management committee and upon prices fixed by it, and, in addition, made provision for indemnifying the Steel Corp. against any loss suffered by it in selling rails abroad, resulting from the competition of any other American competitor. The Department up to the present has no proof that Bethlehem was a party to the agreement of 1926, although it must have profited from the fact that this agreement put an end to competition within the United States from shipments of foreign rails.

(The earliest foreign agreement of which we have definite information is this one of 1926. It should be noted, however, that in the course of inquiries made by Assistant Attorney General Rugg at London in August 1932, several English railway officials named 1923 (not 1926) as the first year in which the British rail makers became members of a European rail makers cartel. It is possible that there has been another agreement affecting Americans earlier than 1926; but we have no other evidence of this than the statements made to Mr. Rugg.)

The 1926 agreement by its own terms expired March 1, 1929. Shortly prior to that date the Steel Export Association of America was organized under the Webb-Pomerene Act by the representatives of the Steel Corp. and Bethlehem, which still control its management. Although this association has other members, only Bethlehem and the Steel Corp. manufacture steel rails.

The execution of the new (1929) agreement was preceded by negotiations and at least three conferences-two at Paris and one at Ascot. The American Steel Export Association was represented in these conferences by Gurney, who had represented the Steel Corp. in its participation in the earlier agreement of 1926, then still in force. There is evidence tending to show that Bethlehem was also separately represented by its general sales manager, Mr. Stewart, although this is denied by its counsel.

The agreement of 1929 is practically identical with that of 1926 except that the subdivisions of the 1926 agreement relating to the reservation and protection of home markets against outside competition is omitted and the new agreement expressly designates "the American group" (i. e., the Steel Export Association) as a participant to which 17.79 percent of the world business is allotted. In addition, it contains a specific clause declaring that material sold in the United States for export and sold for export to the United States shall not be covered by the agreement and that the agrement shall not be construed as in any way referring to trade in material so sold. Governor Miller states that when this agreement was drawn he had no knowledge of the 1926 or any other previous agreement and he wrote this clause into the new agreement for the specific purpose of confining the agreement to lawful bounds. Mr. Moore, of Bethlehem, makes substantially the same statement, adding that he was not aware that any

Americans had hitherto been party to any foreign agreement. (See New York Times dispatch of March 1926, above referred to.)

When the agreement as thus approved by General Miller was received at London, the foreign groups at once objected to certain portions of the above-noted clause which had been inserted by Governor Miller and asked that they be stricken out. Accordingly, Mr. Gurney cabled from London stating that objection was made and asking that this clause be stricken out, but counsel for the Steel Corp. refused.

As below stated, the foreigners evidently accepted an oral assurance from the representatives of the American group that this new agreement would have exactly the same force and effect in operation which the previous agreement of 1926 had had, thus, in effect, by oral agreement or gentleman's understanding incorporating into the 1929 agreement the specific provisions of the 1926 agreements relating to the reservation and protection of the home markets of the various groups which signed the agreement. That this agreement, standing alone and without proof of oral understanding, may have had at least one unlawful result is shown by the fact that the Colorado Fuel & Iron Co., in 1929 obtained and filed an order from the Chilean Government for a substantial shipment of rails at a delivered price of $42, which netted the manufacturer about $28. On the next bid made by it a few months later for a new order the Steel Corp underbid the Colorado Fuel by quoting $40 as a delivered price, obtained the order and thereby became entitled to indemnity under the terms of the agreement for any loss suffered by it.

On May 22, 1931, the London committee paid to the American group (i. e., the export association) the sum of £32,137 7s. 7d. being the proceeds of orders filed by foreign groups in excess of the percentages allotted to them by the terms of the agreement.

Messrs. Miller and Moore state that they knew nothing of any concomitant oral understanding, that they took precautions to draft an agreement lawful in form and have assumed that it was carried out according to its lawful terms. It is assumed that these statements are true, but the statements made to Mr. Amen by the English witnesses leave no reasonable doubt as to the existence of this understanding. One of these witnesses was the partner of Dorman who signed the agreement of 1929 as the representative of the English group; another witness, a representative of the Bethlehem sales organization abroad at the time that the agreement was signed, was told by Mr. Stewart, general sales manager of Bethlehem, what the understanding was. Several of them state that the American representatives explained that the understanding would not be put in writing because it might constitute a violation of the American antitrust laws. In Mr. Amen's presence Sir William Larke, one of those interviewed, called up a British rail maker (member of the London management committee) and asked quotations for an alleged order from America and was informed that no bid could be made because of the 1929 agreement.

Another of those interviewed, Mr. J. Milne, general manager of the Great Western Ry., who undertook to obtain a similar quotation for the United States, advised Mr. Brooks of the American Consular Service that he had been informed, November 30, 1932, by Mr. James Whitby, chairman of the London Iron & Steel Exchange, that there was no posibility of any English firm entering into a contract for the supplying of steel rails for the United States.

The 16 men interviewed at London, exclusive of Mr. Gurney, were men of the highest busines standing, executives of English railways, representatives of steel manufacturers, etc. On the statement made by them there can be no doubt that the English rail makers and steel men generally clearly understand that because of the 1929 agreement the British and Americans are bound not to invade each others home markets. The American duty was only of - cent per pound or $2.24 per gross ton. It would seem strange that with British currency greatly depreciated for a period of several years back there should be no quotation by the British, unless there were an agreement in force affecting this result.

Other reasonable inferences also point to the existence of an oral understanding accompanying the 1929 agreement. When the executives of the export association were dealing with Governor Miller they did not disclose to him the existence of the agreement of 1926 which at the time was still in force. One of the chief objects, if not the most important object, of the agreement for all parties was to preserve to each national group its home market free from competition. They also asserted that must have been the chief object of the American group, because the entire American export trade had never been substantial in amount. There

is also the fact that no substantial amount of rails have been shipped into America during the term of the 1929 agreement.

Although no express concession was made in this regard, Governor Miller and Mr. Moore in the recent negotiations and in their proffer of a consent decree did not seriously dispute the facts and inferences about outlined relating to the foreign agreements. They said that, regardless of the stories told them by their subordinates to the contrary, they would assume for the purpose of this negotiation that the oral understanding existed as claimed by the Government and that within the scope of the agreement that understanding might have had some indirect effect upon the price of rails in America.

We have this situation: The maintenance of a fixed price for steel rails from 1923 to 1926, and thereafter until October 1932; the illegal participation by the Steel Corp. in the foreign agreement of 1926 under which the price in America was effectually protected against foreign competition from 1926 to 1929. In 1929 we find the two competitors acting, not severally but jointly cooperating in the negotiation and execution of the 1929 agreement. Assuming, upon the evidence before the Department, that the 1929 agreement carried with it the oral understanding protecting home markets, these two competitors by entering into this agreement were acting jointly to protect a price which they had successfully maintained as a fixed price from October 1923 to the date of the new agreement, March 1, 1929. The two sets of circumstances, namely, the existence of a uniform price for the six earlier years and the joint action in securing foreign protection in 1929 cannot fairly be isolated or dissociated from their mutual relationship.

It seems that proof of the uncontroverted facts and the reasonable inferences therefrom would require a court to enter a decree enjoining broadly all agreements and understandings to fix prices whether made abroad or in this country. I cannot believe that denials, even if made by responsible officers of the defendants, would outweigh in the minds of the court or a jury the inferences above recited. To accept a consent decree limited to the foreign agreement would be to assume that the Department believes that it has no evidence that the price in this country has been fixed pursuant to some understanding or arrangement. Certainly such a limited decree, if entered, would have no appreciable effect upon the present uniform price of steel rails.

While it is a serious thing in the existing state of business demoralization to bring a suit of this character against responsible business interests, it is my view that the facts require review by a court. If the defendants are willing to be enjoined from the operation of an illegal foreign agreement, there is, in my judgment, no sound reason why they should not be restrained broadly from maintaining any and all price-fixing arrangements.

The draft of a proposed bill prepared by Mr. Amen is here annexed. Subject to modification and refinement, it correctly outlines the theory upon which it would be necessary for the Government to present its proof. The allegations of this draft should be carefully scrutinized with special reference to the reports made by Mr. Rugg as well as those by Mr. Amen, both of which recite in detail the facts obtained in England (copies filed herewith).

There is also annexed the draft of a proposed consent decree as drawn by the Department showing the emendations proposed by the attorneys for the defendants in order to narrow its scope. Numerous memoranda describing the progress of the investigation and the gradual elucidation of the facts above cited are scattered throughout the files relating to this matter. These files will be found in the custody of the Antitrust Division, and are readily available.

JOHN LORD O'BRIAN.

EXHIBIT S-68

SUMMARY OF EVIDENCE OBTAINED IN CONNECTION WITH THE INVESTIGATION OF THE PRICES OF STEEL RAILS

Proof has been obtained that a uniform price of $43.00 per gross ton for open hearth steel rails of first quality, and of $40.85 per gross ton for open hearth steel rails of second quality has been maintained from January 1922 to date, by United States Steel Corporation and its subsidiaries, including United States Steel Products Company, Carnegie Steel Company, Tennessee Coal, Iron & Railroad Company, National Tube Company, and Illinois Steel Company, and by Bethlehem Steel Corporation and its subsidiaries including Bethlehem Steel Export Association, Cambria Steel Company and Bethlehem Steel Company and

by the Inland Steel Company. This proof includes schedules listing the various purchases of steel rails made by leading carriers during the said period.

Proof has been obtained that United States Steel Corporation and Bethlehem Steel Corporation jointly caused the formation of The Steel Export Association of America for the alleged purpose of engaging in export trade, and that these two corporations have jointly managed and determined the policies of and dominated and controlled the said Export Association in the conduct of its affairs and business. This proof includes: (1) a copy of the original articles of association and (2) statements of representatives of United States Steel Corporation.

Proof has been obtained that United States Steel Corporation, Bethlehem Steel Corporation, their respective subsidiary companies above named, and Inland Steel Company are engaged in interstate and foreign commerce in the manufacture, transportation, and sale of steel rails. This proof includes statistical data obtained from (1) representatives of United States Steel Corporation during present investigation; (2) representatives of United States Steel Corporation during previous investigation of that company; (3) representatives of the major railroad companies; (4) sworn testimony of witnesses in recent litigation over proposed merger of Bethlehem Steel Corporation and Youngstown Sheet and Tube Corporations; and (5) trade publications.

Proof has been obtained that the corporations above named, have together manufactured and sold more than 2,000,000 tons of steel rails annually; that United States Steel Corporation and its subsidiaries have manufactured and sold approximately 51 percent of all steel rails manufactured and sold annually throughout the United States, and that Bethlehem Steel Corporation and its subsidiaries have manufactured and sold approximately 34 percent, and that Inland Steel Company has manufactured and sold approximately 5 percent; in other words, that these corporations have together manufactured and sold approximately 90 percent of the entire supply of steel rails purchased annually throughout the United States. This proof includes statistical data formulated by the American Iron and Steel Institute on the basis of figures submitted to it by carriers thoughout the United States.

Proof has been obtained that the uniform prices charged by the said corporations have been excessive and unreasonable, in that these prices have remained constant notwithstanding the fact that the prices of all ingredients of steel rails varied widely from 1922 to date; and that said corporations have refrained from quoting prices or making sales of steel rails at other than said uniform prices. This proof includes: (1) records compiled by the Interstate Commerce Commission showing that the prices of steel rails quoted by defendants to railroad companies throughout the United States have remained constant at said prices from January 1, 1922, to date; (2) statements of representatives of the major railroad companies throughout the United States to the effect that the said uniform prices have been quoted to them by each of the defendant companies throughout said period of time; that although they have frequently protested against these prices on the ground that they were unreasonable they have been unable to obtain any lower bids from the said companies; that the Southern Railroad Company having hearding heard a report of the abrogation of an existing agreement between the said companies and certain European manufacturers which prevented the importation of steel rails from abroad, placed a substantial order with a Belgian concern which replied that the European Rail Makers Association had not been dissolved and that it was not interested in the order; (3) quotations from "The Iron Age" a trade publication showing that from January 1923, to date the prices of pig iron (97-percent ingredient of steel rails) have fluctuated from $15.71 per gross ton to $30.86 per gross ton, the lowest prices prevailing at the present time; (4) that the prices of ferro-manganese the other principal ingredient of steel rails from January 1922 to date have fluctuated from $58.35 per gross ton to $115 per gross ton; (5) sworn testimony of Mr. Cyrus Eaton on cross-examination in the Bethlehem-Youngstown merger case, that a profit of $15.00 per ton is made by the steel companies on the manufacture and sale of steel rails at $43.00 per ton; (6) statements to Agent Melvin by Arthur Roeder, president of Colorado Fuel & Iron Company and Thomas Aurelius its manager of railroad sales that in order to keep its rail mill operating, the Colorado Fuel & Iron Company accepted and filled an order for the shipment of steel rails to the Chilean State Railways at $42.00 per metric ton; that the full costs of transportation and shipment on this order amounted to $13.56 per metric ton; that in filling this order at the said price, the company broke exactly even showing neither profit nor loss, from which statement it may be