concluded that if the costs of transportion and shipment per ton at which the order was filled, namely $42.00, the difference, namely $28.44, will represent the costs per metric ton of production and manufacture; and that if these costs of $28.44 per metric ton be subtracted from the prevailing price of $43.00, the difference, namely $14.66, will represent the profit to the manufacturer. This figure varies only 34 cents from that estimated by Mr. Eaton, which difference is presumably explained by the slight difference between a metric ton and a gross ton; (7) statements of officials of the Boston and Maine Railroad, evidencing a sale of steel rails made by the Krupp Company of Germany to the Boston and Maine Railroad in the year 1926 at $28.75 per gross ton including transportation costs.

Proof has been obtained that United States Steel Corporation and Bethlehem Steel Corporation have from time to time since the year 1926, entered into understandings and agreements among themselves and with foreign manufacturers relating to so-called export trade in steel rails; and more particularly that the said corporations on or about April 1, 1929, acting through their respective subsidiary companies, United States Steel Products Company and Bethlehem Steel Export Corporation and through the Steel Export Association of America entered into a written agreement with certain groups of companies including the principal manufacturers of steel rails in Belgium, France, Germany, Great Britain, Luxemburg, Central Europe (Austria, Hungary and Czecho-Slovakia) and SocoBelge, whereby it was mutually agreed among other things:

1. That the several groups of rail manufacturers should for successive periods of eighteen (18) months each, until March 31, 1935, collectively combine and pool all orders received by each member of every group for the exportation of steel rails from their respective countries and thereafter divide and allot all of said orders among themselves on a specified percentage basis; each of said groups being ultimately entitled to receive the following fixed proportions of the profits of the total business transacted by all of the said groups:

2. That the general administration of the pool be entrusted to a so-called "London Committee" composed of one representative from each of the said groups; or in case of any disagreement among the members of the said London Committee, to a so-called "Management Committee" composed of a specified number of representatives from each of the said groups.

3. That for the purposes of the agreement, certain portions of the world territory should be allotted to each of the said groups and known as "reserved areas"; and that the remaining portions of the world territory should be known as "unreserved areas."

4. That the areas reserved to the American group should include Cuba and Panama.

5. That the areas reserved to the British group should include The British Indies, Self-Governing Dominions, Dependencies, Protectorates, and Territories administered by Charter; English Autonomous Colonies, Egyptian War Office, Anglo-Egyptian Sudan, and Countries under British Mandate.

6. That the areas reserved to the French group and the French Works of the Soco-Belge group should include The New Hebrides (jointly with the British group) and certain specified countries under French Mandate.

7. That the areas reserved to the Belgian group, and the Luxemburg group, should include certain specified countries under Belgian Mandate.

8. That each group of manufacturers should have the sole and exclusive right to fill all orders for the exportation of steel rails destined for shipment to any of its reserved areas; and that the group so entitled to fill orders should arbitrarily fix the prices, terms, and conditions of all sales made by members of that group pursuant to such orders.

9. That all orders received by each member of every group for the exportation of steel rails destined for shipments to unreserved areas, should be immediately reported to the Management Committee and by that Committee allotted to the particular group entitled to fill the same on the percentage basis hereinbefore described; and that the said Management Committee should arbitrarily fix the prices, terms, and conditions of all sales made by each group in such unreserved areas.

10. That each group of manufacturers should protect the prices at any time quoted by every other group by refusing to quote prices at more than a fixed minimum amount per ton less than the prices quoted by the group entitled to fill the order; that the amount of this protection in reserved areas should be arbitrarily fixed and determined by the particular group to whom the area is reserved; that the amount of this protection in unreserved areas should be a minimum of five (5) shillings per ton; and that the amount of this protection in either reserved or unreserved areas might at any time be varied by the Management Committee.

11. That each group which at the expiration of any particular pool has not attained the full specified percentage of business allotted to it, should be entitled to receive in completion of its full percentage, the cash proceeds of all orders filled by other groups in excess of the respective percentages of business allotted to them. The fact is that at no time during the effective period of the said agreement has the American group attained the full 17.79 percentage of world business allotted to it and accordingly has in fact received or is entitled to receive through the London Committee in completion of its said full percentage without consideration therefor substantial sums of money being the cash proceeds of orders filled by certain foreign groups in excess of the respective percentages of world business allotted to them.

12. That a reserve fund should be maintained by a contribution from each member or every group of six (6) pence per ton on all export deliveries, and utilized to indemnify the members of each group against any and all losses which they may at any time sustain by reason of reducing their prices below prevailing quotations in order to meet or eliminate unexpected domestic competition. The fact is that during the effective period of the said agreement the American group has in fact received or is entitled to receive substantial sums of money from said reserve fund by way of indemnity against losses occasioned by unexpected domestic competition as aforesaid.

A question as yet unsolved is whether steel rails manufactured by the members of one group and sold for export by that group to the country in which another group is located come within the operation of the agreement; in other words, whether the area comprising the country in which a particular group is located is to be included in the areas reserved to that particular group. Subdivision d of paragraph I of the agreement states that "material sold in the United States other than for export and sold for export to the United States, shall not be covered by this agreement" etc. If the phrase "other than for export" alone is to be treated as parenthetical, it would appear that steel rails sold for export from foreign countries to the United States would not be covered by the agreement. If on the other hand, the entire phrase "other than for export and sold for export to the United States" is to be considered parenthetical, steel rails sold for export from foreign countries to the United States would be expressly covered by the agreement. That the latter interpretation is the one intended by the parties is indicated by the fact that at the time the agreement was being drawn, the British group requested that the words "and sold for export to the United States" be omitted from the agreement and the American group insisted that the words remain in the agreement presumably on the theory that these words benefited the American group in some way. The only way in which these words could possible be construed as benefiting the American group would be on the theory that they brought steel rails sold for export to the United States within the operation of the agreement. Further proof that the parties have interpreted the agreement as preventing the exportation of steel rails by the members of any group to the country in which any other group is located appears from the correspondence bearing upon a dispute which arose in March 1931 between the American group and the British group over an inquiry for girder ralls for the Montreal Tramways. The British group claimed that it was entitled to the order under the terms of the agreement by reason of the fact that Canada was its territory. The American group contended it was entitled to the order because it had supplied the Montreal Tramways for thirty years; because it had possession of the rolls necessary to make these particular rails; because it had vessels available for quick delivery and because it could meet any foreign prices by reason of the fact that girder rails were not subject to dump tax. After prolonged argument pro and con, United States Steel Products Company in New York cabled its London office as follows:

"Montreal our refraining from competition in England contingent upon protecting our position Canada stop Unless protected must reopen ques

tion of competition in England stop Under no circumstances can we consider protecting B".

This threat was effective and the British group finally agreed to protect the prices quoted by the American group. Furthermore, if this reciprocal interpretation is not given to the agreement, the American group would be free to export steel rails into the areas comprising the countries in which the foreign groups are located and vice versa. This freedom is rebutted both by statistics showing the exportation of steel rails by members of the foreign groups to the United States prior to the effective date of the agreement and by statistics from the Department of Commerce showing that there have been no substantial shipments of steel rails from any members of the foreign groups to the United States, or vice versa, during the effective period of the agreement. Assuming that steel rails manufactured by the members of one group for export to the country in which any other group is located come within the terms of the agreement, each country in which a particular group is located must be for purposes of the agreement, either a reserved area or an unreserved area. If each such country were to be treated as an unreserved area, this would mean that under the terms of the agreement orders from consumers in the United States would from time to time be allotted to the American group. The correspondence and statistics show that this has never happened. This leads us to the conclusion that the area comprising the country in which a particular group is located is to be included in the area reserved to that group. This conclusion is evidenced by the fact that the procedure outlined in the agreement as being applicable to orders from reserved areas, has been applied to an inquiry made by the Southern Railroad Company for the purchase of steel rails from a member of the Belgian group which stated that it had no interest in the inquiry for steel rails although it might be interested in inquiries for any other steel products. While it is true that if the procedure outlined in the agreement had been strictly followed, the Belgian concern would have quoted a protective price instead of flatly rejecting the order, this is explained by other correspondence in which the American group criticizes the members of foreign groups for flatly turning down such orders, instead of quoting protective prices. For example, the United States Steel Products Company in London, on October 18, 1930, wrote the Steel Export Association as follows:

"At a previous Meeting we drew attention to the Minute passed by the Management Committee Meeting in Paris on December 10th, 1926, regarding protective prices, and proposed it should be decided definitely that where an allotment is made the other Groups receiving the enquiry must submit tenders and quote not less than the agreed protective price. We again reminded the Committee that Basic Bessemer makers expected us to protect them 12/6 per ton, but that when we received an allotment the Basic Bessemer makers declined to quote. We consider this grossly unfair, and not playing the game."

And on March 9, 1931, United States Steel Products Company in New York wrote its London office as follows:

"They (prospective purchasers) were informed by the Belgians that they could not accept the business as under the IRMA, the tonnage had been allocated to Americans. This is another case of indiscreet information emanating from European participants."

It further appears from the correspondence bearing upon the operation of the agreement that order filled by members of all groups in both reserved and unreserved areas are reported to the London Committee, and that the figures reported by the American group for its reserved areas are apparently higher than would be the case if they merely reflected sales in Cuba and Panama.

Proof in support of the foregoing includes correspondence between United States Steel Products Company in New York and its London office, establishing that at the expiration of the first eighteen months pool under the agreement of 1929, the American group received the sum of 32,137 pounds, 7 shillings, 7 pence in completion of its allotted percentage, being the cash proceeds of orders filled by the British, French, German, Luxemburg and Soco-Belge groups in excess of the respective percentages of world business allotted to them. During the period of the first pool, the American group was in default 49,390 tons of its full allotment whereas, each of the foreign groups referred to above substantially exceeded their respective allotments. This correspondence also shows that the American group received the sum of 30,089 pounds, 6 shillings, 2 pence in completion of the full percentage allotted to it under the terms of the agreement in operation prior to the date of the agreement of 1929. No copy of this prior agreement has been obtained.

Proof has been obtained that the said agreement of 1929 and the acts of the parties thereunder in fact have prevented the exportation of steel rails by each of the foreign groups into the United States, Cuba and Panama and by the American group into the areas reserved to the foreign groups; (available proof includes the agreement itself, the Montreal letter hereinbefore quoted, and the statistics from the Department of Commerce hereinbefore described) have prevented the exportation of steel rails by the American group into unreserved areas except at prices fixed and determined by the Management Committee; (available proof includes subdivision (a) of paragraph X of the agreement which provides "the Management Committee shall fix from time to time the minimum prices to apply to all export orders for unreserved areas except for any particular inquiry the prices for which shall be specifically fixed by the London Committee to meet competition from makers not parties to this agreement or for other reasons"; and correspondence between United States Steel Products Company in New York and its London office containing prices and protection quotations on all orders received by the American group from unreserved areas); have caused the American group to fix and maintain excessive, uniform and non-competitive prices for steel rails within the United States, Panama and Cuba (see subdivision f of paragraph VIII of the agreement which reads: "The group entitled to the orders from reserved areas shall fix the prices and conditions for such orders and the protection necessary * * *"); have caused the American group whenever necessary to meet unexpected domestic competition, to quote prices and make sales of steel rails within the districts of Panama and Cuba at prices far less than those currently quoted by domestic competitors and at prices less than the cost of production; and at the same time to receive from the foreign groups full indemnity for any and all losses occasioned thereby (available proof includes entire correspondence establishing transaction whereby the Colorado Fuel and Iron Company underbid the United States Steel Corporation on part of an order for the shipment of steel rails to the Chilean State Railways in South America. The Colorado Fuel and Iron Company originally underbid the Steel Corporation and thereby received the first part of the order but was subsequently underbid by the Steel Corporation for the remaining part of the order which the Steel Corporation filled, and accordingly was entitled to receive from the reserve fund the difference between the prices at which they were obliged to sell in order to take the business away from the Colorado Fuel and Iron Company and the price originally fixed by the Management Committee. Furthermore, under the terms of the agreement, the American group was charged in its percentage quota with that part of the order which was in fact filled by the Colorado Fuel and Iron Company. The pertinent provisions of the agreement are subdivision (e) of paragraph X and subdivision (a) of paragraph XIV which reads as follows: "(e) The London Committee shall be empowered to reduce prices previously fixed when such said competition appears after allotment

**

"(a) A reserve fund shall be established by a contribution of six d per ton on all export deliveries which shall be available for the general charges and expenses appertaining to this agreement and also to supplement prices of orders taken at specially low prices to meet competition."

In this instance, the Steel Corporation accepted the second part of the order from the Chilean State Railways at a lower figure than the price approved by the London Committee and thereby violated the agreement. Objection was made by the Committee on this ground and the Steel Corporation explained that if it had not accepted the offer, the probabilty was that the second part of the order would also have gone to the Colorado Fuel and Iron Company. On August 8, 1930, United States Steel Products Company at London wrote the New York office as follows:

"What concerned us most was straightening out the matter with the London Committee and we are pleased to report that we have been able to get away with it' insofar as they are concerned and the Minutes of yesterday read as follows: 'Committee agreed to the action taken by the Americans in the circumstances set out above.'

Proof has been obtained indicating that the intent of the said corporations in performing the acts, understandings, and agreements above referred to, has been to fix and maintain excessive, uniform and noncompetitive prices and to monop olize and to restrain interstate commerce in steel rails and to eliminate competition in the course of such interstate commerce. This proof includes correspondence passing between United States Steel Products Company at New York

and its London office at the time the agreement was being negotiated and thereafter, from which the following are typical excerpts:

"We drew attention to the fact that we were making a suggestion which might penalise ourselves instancing the recent order for continuous rail joints taken by the Colorado Fuel and Iron Company because we were so strongly of the opinion that elimination of the clause appears to be the only way to remove outside competition arising in countries which are parties to the agreement.

"We have no intention of suggesting a reduction in the current prices. Should this question be brought up by other groups we ask that you employ your best efforts to maintain existing prices. It would appear proper however, to specially consider the fixing of prices from time to time in view of competition received from the outside. * Due to the publicity given in Europe to rail prices we have for a long period recognized the necessity for concealing the actual basis *

*

"When this competition had been disposed of the American group were strongly of the opinion that the clause in question should be expunged and all groups be held responsible for their 'outsiders'.

Mr.

"The British were authorized by the London Committee to quote protective price of £9.13.0 per ton C. I. F. Diamante for 39,058 tons of 100-lb. Rails. Elliott (British) reported that the British Government were insisting upon the British Group accepting this order under the Trade Agreement at the same price as they recently booked other Argentine orders, viz. £7.17.6 per ton F. O. B. for Rails, and that he and Mr. Walmsley had had to attend very difficult meetings with Government Officials. If they accepted the order at a lower price, the British Group knew it would be an infraction of the Agreement, but on the other hand, the British Government state that they must take the order. Mr. Elliott said that there was such a thing as legislation in regard to restraint of trade, and that it had been hinted to them that new legislation might be necessary to deal with such cases. Dr. Poensgen (German) considered this was a question of principle, and expressed the opinion that no Government should be allowed to interfere with the terms of an Agreement such as ours, which all Groups were in honour bound to carry out. In this he was supported by all the other Groups. "Our dealings with the Anglo-Newfoundland Development Company extend back about 25 years, and we have always enjoyed very friendly relations, not only on rails, but on all other steel products which they buy. The quantity involved in this inquiry, while comparatively small, is much larger than this customer usually requires at one time and, as they are doubtless familiar with the present condition of the steel industry, we are placed in a very embarrassing position by refusing to quote and not offering any plausible excuse for our action. "Our first refusal to quote, using mill position as an excuse, brought forth a lengthy reply from our customer wherein they resented our action. Upon re ceipt of this wire, we cabled you again on June 3rd, but due to the inflexible attitude of the British, we have informed our customer that we were unable to offer due to conditions beyond our control. We have refrained from following the example of some of the European groups under somewhat similiar circumstances of divulging the real reason for our action.

"We appreciate that the British Group are well within their rights, but it seems to us that exceptions can be made and that they could have informed us of prices sufficiently protective that we could have used, thus avoiding embarrassment and jeopradizing our good relations with this customer.

"Referring to our RI-196 and cables exchanged under date of 11th December, we duly advised the British that we could not agree to their quoting on this business. (An order from the Montreal Railroad Company) the French group have reecived this inquiry but are not quoting.

"If the British do not approve of the prices named (the prices quoted by the American Group on an order from Jamaica) can you not induce them to indicate some protective prices that we may use?"

Respectfully submitted,

[s] JOHN HARLAN AMEN, Special Assistant to the Attorney General.

Source: Department of Justice Mail and Files Division, File No. 60-138. Sub. 47. 5/3/32-9/28/32.