When Republic bought Gulf State Steel Corp. in 1938 it had to decide whether to operate Shannon Mine, one of Gulf's subsidiaries, or whether to purchase brown ore from independent producers. The latter course was taken, partly because it gave work to many people in the South with the consequent increase in purchasing power of the people around Birmingham, where Republic operates. Republic could stop relying on brown ore at any time merely by starting up its Shannon Mine and stepping up production in its Spaulding Mine (207-208).

Republic ceased purchasing brown ore after the coal strike when it started to reline one of its blast furnaces. When the job is completed it will resume taking ore. Republic usually has to help small operators negotiate loans at banks so that they can keep in production. When Republic does buy ore it does not want to purchase bad ore and have good ore skimmed off and sold to a competitor. The pig-iron market is very competitive in the South, and when Republic receives low-grade ore their costs go up tremendously (208-209).

Contrary to Mr. Smith's contention, Republic is an independent company, much more independent than Gulf State Steel ever was prior to its merger with the corporation (210). Exclusive contract system is a custom that has grown up among all ore purchasers in the South, not alone with Republic. However, under questioning by the chairman, Mr. Patton admitted that Republic does not have such a clause in its northern contracts (211). Witness contends that if Smith was supplying Republic with low-grade ore at the same time he was attempting to sell high-grade ore to a competitor, he was in an indefensible position. However, if Smith was not supplying Republic at the time, he should have made some arrangement with the corporation for supplying the competitor (213).

Questioning of the witness in this preliminary phase of the hearing focused on the validity of Republic's exclusive contract. The chairman and Mr. Keating doubted that such a contract would be legal in New York State. Mr. Wilson agreed that a unilateral contract is not enforceable in law (211-213).

In the second phase of the hearing, which was concerned with the over-all problems of steel and iron-ore production, Mr. White stated that Republic was not hampered in its operations by not being bigger. Among the contributions his company had made to the industry are the electric-weld process for pipes, the direct-casting process, and development of alloy steel. If his company had been smaller, it could not have afforded to concentrate on research as it has done, or installed equipment on its present scale. As a small company, its selling program through advertising would have been curtailed (229-230). The witness was extensively questioned about interlocking directorates and their possible effect on the Cleveland Cliffs Co., an ore-producing organization, and medium-sized steel companies (235-239).

In a prepared statement (214-223), Mr. White said an understanding of the iron-ore situation requires a differentiation between commercial iron ore and potential iron ore. The ores that have been used for years from the Lake Superior ranges are a good example of commercial iron ore. By potential iron ore is meant ore which cannot be used in competition with the material now supplying the market. What is potential iron ore today may become commercial ore tomorrow or in the future. A good example of potential ore are the Lake Superior taconites which exist in vast quantities but which require expensive concentrating operations to make them usable commercially (214–215).

Major ore-producing districts.-Lake Superior district, southeastern district, and northeastern district. There are relatively small deposits of iron ore in Texas, Missouri, Utah, Wyoming, and southern California. Up to 1947, approximately 85 percent of the ore came from Lake Superior; 8 percent from southeastern; 4 percent from northeastern; approximately 3 percent from West and Southwestern States (215).

Major reserves.-Also concentrated in Lake Superior, southeastern and northeastern districts, with total of approximately 1,000,000,000 tons. Lake Superior district by far the most important. Northeastern district has draw-backs of underground mining and rail transportation difficulties. Republic is prime user of New York ores. In the southeastern district, the problem of cost of transportation is even more pronounced. In addition, the ores are of so low grade that at present they are commercially usable only by steel producers in that area. There are many billions of tons of magnetic and nonmagnetic taconite reserves in the Lake Superior district. But they contain less than 35 percent iron and are hard to extract. Also they must be put through an extremely expensive process of beneficiation (215-217).

Iron ore situation today.-Since 1947, there has been taken out of the Minnesota ranges nearly 190,000,000 tons of iron ore. Most of this was open-pit ore. The estimate of an annual postwar requirement of 100,000,000 tons has to date proved to be a fair one (217).

New foreign sources of iron ore.-United States Steel Corp. has been a pioneer in this field. Its Cerro Bolivar strike in Venezuela has proven deposits of over half a billion tons, and there is reason to believe that much more will be proved up later by it and other steel and iron companies interested in this area. Bethlehem Steel, also, has found large deposits in Venezuela, and will have some ore ready for shipment to the United States this year. Other American companies are investigating this area. It has been estimated that the Venezuela discoveries may run more than a billion tons. The Minnesota ranges, which have served the country for over half a century, have given up about 13 billion tons of iron ore during that time (217-218).

Republic recently purchased a substantial interest in the Liberia Mining Co., which owns one of the richest new ore bodies in the world and which is located in Liberia, close to the west coast of Africa. It is expected that this deposit will be capable of producing 2,000,000 tons annually for many years to come. Beginning in 1952, Republic has joined with the M. A. Hanna Co., the Hollinger interests of Canada, and four other steel companies, Armco, National, Youngstown Sheet & Tube, and Wheeling, in further exploration of Labrador and Quebec where drilling had proved reserves of more than 350,000,000 tons of open-pit ore of a quality substantially higher than that now being mined in the Minnesota ranges. It is hoped that at least twice this amount of open-pit ore will be found to exist within the next year or two. The development of this mining venture would be accelerated by the development of the St. Lawrence seaway project (218).

New developments in United States iron ore.-Research has reached the point where the solution has been found in the problem of transferring the magnetic taconites of the Lake Superior district from the category of potential reserves to that of commercial reserves, and research on nonmagnetic taconite continues (218-219).

Tax relief. The problem of tax relief to encourage the discovery, development, and production of mineral deposits is important in view of the precarious state of world affairs today, and the need for expediting the replenishment of our iron-ore reserves. The following changes in the existing tax laws should be made without further delay to improve the iron-ore situation: (1) Development and preliminary mining expense should be recognized as operating expenses or costs of mining rather than capital investments, either in the year in which the expenditure is made or in subsequent years as the ore is mined; (2) percentage depletion should be adequate and freed from continuing threats of its elimination from the tax structure; (3) provision should be made for depreciating ore-mining facilities and equipment on an accelerated basis (219-220).

Transportation problem.-Steel was the deciding factor in both wars. The life line between iron ore and steel-producing facilities was not and could not be cut. This proven fact and its attendant effect upon our future national security must be foremost in future thinking and planning. In time of peace, the ores of Venezuela, Liberia, and Labrador can be brought to seacoast ports with comparative ease and probably at competitive costs. But in the event of war this portion of our future iron-ore life would be endangered. The solution to this problem lies in the development of the St. Lawrence seaway, which is impervious to all but air attack. The Great Lakes ore carriers can transport the Labrador ore to the furnaces located in the Midwest whenever necessity requires (220–221).

Interrelation of the iron-ore and steel industries.—Mining of any kind is a hazardous undertaking. Development of a mining property requires large expenditures for development. The market is extremely limited. No really important discoveries of iron ore have been made in this country since the turn of the century. The steel-making industry is particulary sensitive to fluctuations in the Nation's economy. Its indispensable element is a continuous flow of iron ore. These two important segments of industry are heavily integrated with each other. An iron-ore company, whose basic capital asset is iron ore in place in the ground, would be foolish not to seek some long-term arrangement with steel producers, who are the only market for their product. The integration of iron ore and steel is an inevitable evolution. Any attempt to divorce the two industries would be disastrous to the economy of the country. The steel industry will play a major part in developing and financing 1

iron-ore reserves for the country. The interrelation of iron ore and steel will continue to exist and will result in an assured supply of both for the welfare of all (221-223).

Questioning by Committee Counsel Levi brought out these points in the Republic is not sure that it wants to buy from Oliver beyond this date. By a United States Steel subsidiary, assures Republic of a million tons a year of Lake Superior ore through 1958, with an option for renewal for a 15-year period. Republic is not sure that it wants to buy from Oliver beyond this date. By that time their participation in magnetic taconites and development of the Labrador deposits may have changed the supply picture. Complete protection of its source of supply is assured from its Liberia property, with an annual production of 1,000,000 tons, through 1958. Additional tonnage is available in the Mesabi Range and in Venezuela (224–225).

Ten million dollars a year is being spent by the Iron Ore Co. of Canada (a partnership of Hanna Ore Co., Republic Steel, American Rolling Mill, Youngstown Sheet & Tube, National Steel, and Wheeling Steel) in exploratory surveys to determine the total amount of ore in the Labrador area, and to prepare for construction of railways and docks. If the project is finally undertaken it wili involve $200,000,000. The Oliver Mining Co. has offered Republic concessions in Venezuela but it may take on a concession there itself, or in conjunction with other companies (225-226).

The days of easy open-pit digging are gone. Developing future sources of supply involves enormous expenditures of money for transportation and for plant. In the case of taconites it is necessary to crush this ore into the consistency of talcum powder. (Two-thirds of the processed ore is refuse.) A method has been developed of mixing the fine powder with water and rotating it in a drum. The resultant product comes out in the form of hard, porous marbles, which are an ideal blast-furnace material. Forty thousand tons of this material will soon be put into an American Rolling Mill furnace to determine its workability (226). There are fewer large ore companies, and more small ones, in the Lake Superior area today than there were formerly. During the war years, when the price of ore went up, many small companies reopened old mines which had been worked out for open-pit operation, but which still had a lot of underground ore left. If you have to take off more than 70 feet of dirt to get ore it is considered underground. However, with increased price for ore and also with modern earthmoving equipment, it is possible to take off 150 feet of burden. Therefore much ore that had been considered underground became open-pit. The smaller companies produce from 5 to 10 thousand tons a month (227).

The witness believes that the situation revealed by testimony before TNEC that two-thirds of the stock of Oglebay-Norton was held by Cleveland Cliffs was a temporary one, lasting only about 2 weeks. Butler Bros. was purchased by the M. A. Hanna Co. There may be some other companies associated with Hanna. The Evergreen Co. was bought by American Rolling Mill, Wheeling, and Hanna (228).

There is no open market for ore in the United States. It must be secured on long-term contracts or under ownership arrangement. Henry Kaiser went into the merchant iron business a few years ago. He obtained a 5-year supply of ore by making deals with smaller companies and with the Oliver Iron Mining Co. (228-229).

The Cleveland Cliffs Co. owns 6 percent of Republic Steel's stock. Republic, in turn, owns over 100,000 shares in Cleveland Cliffs. The latter also has substantial holdings of shares on Inland Steel, Jones & Laughlin, Wheeling Steel Corp., and Youngstown Sheet & Tube. The witness denied emphatically that' Cleveland Cliffs had anything to say about the management of Republic Steel. The former has a director on Republic's board, but he takes no different position than any other director of the board. When matters concerning an ore situation arise the board member either retires from the room or does not vote. Negotiation by Republic with Cleveland Cliffs for purchase of ores is done at arm's length. There is active competition between Youngstown Sheet & Tube and Republic in spite of the fact that Cleveland Cliffs owns substantial stock of both corporations (231-232). Cleveland Cliffs owns the stock of steel companies from which they receive substantial dividends. However, they do not manufacture steel or sell it in competition with Republic (245).

The president and honorary chairman of Cleveland Cliffs are both directors of Republic. William G. Mather is honorary chairman of Cleveland Cliffs; Philip Mather is a director; Samuel L. Mather is a director of Lake Superior & Ishpeming Railroad, a subsidiary of Cleveland Cliffs, and a director of

Youngstown Sheet & Tube Co. George Brainard is a director of Youngstown Sheet & Tube; Morgan Brainard is a director of Cleveland Cliffs. W. R. Burwell is a director of Cleveland Cliffs and of the Wheeling Steel Corp. Edward B. Greene, chairman of the board of Cleveland Cliffs, is a member of the board of Jones & Laughlin. Witness insists there is active competition between Republic and Cleveland Cliffs (232-234).

Included among the 30 to 40 law firms employed by Republic is Jones, Day, Cockley & Reavis, one of the leading law firms of Cleveland. Cleveland Cliffs employ the same firm. Mr. Reavis is a member of the board of directors of Jones & Laughlin. Republic and Cleveland Cliffs employed the same firm of accountants for the year 1948-Ernst & Ernst (234–235).

The chairman discussed interlocking directorates as they affected Republic Steel from February 7, 1935, down to the present time. He asked the witness whether Republic, by interlocking again in a similar pattern which the Government 15 years ago sought to enjoin, had disregarded the decision and the opinion of the court. General Counsel Patton, of Republic, contended that the Department of Justice was satisfied it had been mistaken in believing that interlocking directorates of competing companies were involved, and that the matter was wound up on a friendly basis. Mr. Celler cited the findings of the judge in the case to the effect that any resumption of the directorate relationship would amount to a fraud on the court (236–239).

Prior to the war, Republic had a fixed policy that it did not want to be committed for the purchase of more than one-half of its ore. This policy enabled them to buy distress ore that frequently came on the market at a better price than they could produce it or purchase it on long-term contracts. When the tremendous ore reserves had been exhausted in the war and postwar periods, Republic changed its policy to one of ownership or long-time contract buying. The necessity of having a secure supply of ore brought on these policies of contractual obligations, partnership, and ownership (240).

The witness stated that although there is no industry-wide bargaining in steel, there is monopoly on the labor side. He cited the case of Inland Steel which recently offered its workers a pension plan which the union would not allow the local to accept. After a long strike, the men went back to work but insisted on having the plan the company offered them in the first place, rather than the pension plan that the union secured. Labor monopoly, with the connivance of Government, through wage rates, portal-to-portal pay, and pensions has driven up the price of coal. More than half of the heating load of the Nation is by gas or oil instead of by coal. Coal mines have been priced out of their market. In Cleveland it is much cheaper to burn natural gas-which used to be considered a luxury fuel-than it is coal (241).

The witness stated that there is no relationship between the growth of the steel industry and the growth of Nation-wide unions. Union movement developed in 1934-36 period, with tremendous help from local police authorities, sheriffs, the administration in Washington, the Supreme Court, and Congress. The unions came to power through force and violence. When Congress passed the Wagner Act, it did not have the slightest intention that it would be interpreted as it was by the administration and the courts (243).

America is big in all phases of its life. The high standard of living in this country is the result of mass production techniques. Mass production is big business. When big business is hurt, small business suffers, and the welfare of the Nation is threatened. It is necessary to proceed with caution in tampering with big business (244–245).

The average grade of Mesabi ore for the industry last year was 48 percent. The Liberian ores which will run about 68 percent in iron, and the Venezuelan ores, which will run about 59 percent, will offset their transportation costs by their metallurgical benefits-it will take much less coke to produce a ton of iron (245-246).

TESTIMONY OF ARNE C. WIPRUD (247-282)

In a prepared statement, the witness presented his personal views on the commodities clause in the Interstate Commerce Act, with special emphasis on the South Buffalo case. He was in charge of the case when he was chief of the Transportation Section of the Antitrust Division, Department of Justice. The South Buffalo case was a civil suit instituted by the Government at the instance of the ICC against the South Buffalo Railway Co., the Bethlehem Steel Co., and the Bethlehem Steel Corp., the latter being a holding company owning all of the stock of the fist two named companies (247).

Before the enactment of the commodities clause, Congress had made unlawful every form of rebate to shippers and every form of discrimination in carrier rates, services and facilities injurious to the shippers or to the public. The Sherman Act had forbidden combinations in restraint of interstate commerce. But Congress had not specifically prohibited the production, transportation, and sale of commodities by a carrier, and some railroads were achieving a monopoly of the coal industry. To end this practice, Congress passed in 1906 the commodities clause, which divorced railroad transportation from production and manufacturing, and ended discriminations resulting from railroads being both carriers and shippers (247–248).

ICC and Justice Department promptly filed bills in equity against six railroads, some of which owned coal mines directly and others who had stock control of coal companies. The circuit court held the commodities clause unconstitutional. The Supreme Court reversed the lower court, but construed the clause narrowly: (1) The prohibition was applicable if the commodities were produced directly by a railroad company. (2) The prohibition was applicable when a railroad company owned the commodity to be transported at the time of transportation. (3) The prohibition was applicable when the railway company had an interest, in a legal sense, in the commodity to be transported at the time of shipment. (4) The court rejected the Government's contention that stock ownership per se was enough to violate the clause. The latter interpretation enabled a railroad to maintain control of a mining company. However, in two later decisions the court ruled that railroads could not use their stock ownership as a means of reducing coal companies to the status of mere departments of the parent company (248–249).

In 1920, the Supreme Court held that the Reading Co., which owned 100 percent stock of a railroad and a coal company, must be dissolved. Also decided in 1920 was the case of the Lehigh Valley Railroad Co., which owned all of the stock of a coal producer, and organized a sales company as a device to evade the commodities clause. The Court held that the sales company was neither an independent buyer nor a free agent. This was the state of the law when the E. J. & E. case was decided in 1936 (249-250).

United States Steel Corp. owned all of the stock of Elgin, Joliet & Eastern Railroad Co., a common carrier connecting various railroads in the Chicago area. United States Steel also owned 100 percent of the stock of Illinois Steel Co., American Bridge, American Steel & Wire Co., and others, whose products constituted 60 percent of the tonnage transported by E. J. & E. United States Steel officers and directors were directors of the railway, and there was constant and close supervision by the parent company. Supreme Court held that proof of the above facts were not sufficient to establish domination and control and added, "The mere power to control, the possibility of initiating unlawful conditions, is not enough to violate the commodities clause." Chief Justice Stone, in a dissenting opinion, stated, "If the commodities clause permits control such as is exhibited here, one is at a loss to say what scope remains for the operation of the statute." As a result of this decision subsequent investigations by the ICC became meaningless (250).

The Commission's attitude of complete frustration is shown in its report in 1938 on an investigation of the relationship of the Pittsburgh Coal Co. and the Montour, the Lisbon, and the Suburban Railroads, which operate in the coal mining areas of Pennsylvania and Ohio. "In the present state of the law, the conclusion reached here that those railroads are also subservient agencies of the coal company and had been dominated by it in the matters considered, would not apparently furnish sufficient ground for seeking remedial action in the courts upon the facts disclosed ***. In view of the doubt which exists as to the precise meaning of the commodities clause as applied to such corporate relations, we believe that the Congress should clarify it and we are prepared to submit drafts of appropriate bills to accomplish that purpose" (250-251).

The Commission recommended in 1936 that Congress determine the appropriate limit of the Commission's jurisdiction in such cases and decide whether further legislation to extend that jurisdiction is necessary. Congress did not respond to the Commission's recommendations (251).

South Buffalo case.-The Attorney General, at the instance of the ICC, instituted a civil suit against the South Buffalo Railway Co., the Bethlehem Steel Co., and the Bethlehem Steel Corp., for the purpose of securing a reexamination and reversal of interpretation in the E. J. & E. case. The facts in the suit, filed June 4, 1943, were as follows: Bethlehem Steel Corp. is a holding company. It controls an integrated industry, and owns 100 percent of the stock both of the