might harm the competitors of the fabricator and harm the customers of Carnegie-Illinois?

Mr. FAIRLESS. You completely overlook-and I am sure not intentionally-at least, I hope so-you completely overlook that we want to keep those so-called independent fabricators-and God knows they are independent, and I hope they remain so-it is our desire to keep them in business.

As I said in my opening statement, selfishly so, because they are our customers and they use our material. Our own fabricating companies combined, you know, do not produce more than about 20 percent of all fabricated structures in the country. The other 80 percent is developed by either our competitors or our customers, and certainly we are interested in seeing that our customers remain in business and hope they continue to buy their steel from us.

Mr. LEVI. But the corporation was advised-was it not?-to adopt a policy calculated to encourage the sale to the trade of finished and converted products which yield relatively higher profits, and to discourage the sale particularly to nonintegrated producers of semifinished products which yield little or no profit?

Mr. FAIRLESS. Yes, and that was a recommendation; and proof, as I stated earlier in my testimony, that that recommendation was not carried through is the fact that the steel corportion's subsidiary companies today are selling more semifinished than ever in their history. The CHAIRMAN. Company officials participated in writing that report; did they not?

Mr. FAIRLESS. They were consulted, Mr. Chairman. The recommendations in this report are definitely the recommendations of the engineers.

The CHAIRMAN. I thought you said the other day that the company officials did participate in that report.

Mr. FAIRLESS. As to the part that the officers of the various subsidiaries played in these final recommendations, in many instances― and I was one of the officers-these recommendations or the proposed recommendations were discussed with myself and others. As to our reaction, sometimes we agreed and many times we disagreed. In the final analysis, however, the engineer made his own recommendation. That is why he was engaged.

Mr. LEVI. Was it not said also, Mr. Fairless, that this policy which was urged-namely, the policy of encouraging sales to the trade of finished and converted products and discouraging the sale of semifinished products-was it not said that this was to provide a situation whereby the price structure could be better managed and improved and that one of the first tests could be for Carnegie-Illinois, in order to better manage and improve the price structure, by much larger-scale consumption of finished products?

Mr. FAIRLESS. That is right.

Mr. LEVI. As a matter of fact, the corporation did raise the prices of semifinished material substantially in March of 1937-did it not?at the time these recommendations were being discussed?

Mr. FAIRLESS. And also finished prices, as I recall. It was not just semifinished.

May we go on and come back to this while we check it?

The CHAIRMAN. Yes; that would be perfectly all right.

Mr. LEVI. And was is not also said that it would be wise to discourage the sale of semifinished products to nonintegrated producers, even if prices could not be adequately raised?

Mr. FAIRLESS. It may have been. You are reading from the report, I take it. I accept the accuracy of it.

But again I want to point out that was a recommendation that was not carried through, and the proof that it was not is the facts as they exist today and have existed ever since. In other words, I can save you a lot of time, if you are attempting to establish the fact that we have gone or are going out of the sale of semifinished and, as a result, will put a great many people out of business; that just is not true and is not the policy of the United States Steel Corp.

Mr. LEVI. And it was urged that Carnegie-Illinois should get closer to ultimate consumption by means of a larger production of finished products because that would provide a situation whereby the price structure could be better controlled?

Mr. FAIRLESS. Our price structure-yes, absolutely. We have the information at March 1937 it was a general increase in prices, not just applied to semifinished steel.

Mr. LEVI. Will you supply for the record the amount of the increases for both?

Mr. FAIRLESS. We will.1

Mr. LEVI. And the corporation was also advised-was it not?that the nonintegrated producer, while he provided a sales load for steel-making facilities in times of low rate of operation in the industry, also provided particularly harmful competition in the finishedproduct market, and that, if the nonintegrated manufacturer or producer prospered, he might grow at the expense of the seller until eventually he might become strong enough to make steel himself?

Mr. FAIRLESS. I might add that has happened over the years and in a great many instances. Many of the large steel companies today in existence began by being converters of semifinished steel purchased from the United States Steel Corp. That is how they started in busi

ness.

They bought semifinished steel up until such time as the quantities involved justified their going into the steel-making business, and so they went in.

Mr. LEVI. When this happens, Carnegie ends up without a semifinished customer and without the finished markets; is that right?

Mr. FAIRLESS. To the extent involved, except that off-setting that, however, has been the constant growth of the uses for steel in this great country.

Mr. LEVI. And the corporation was also told, was it not, Mr. Fairless, it should not hold an umbrella over the small nonintegrated producers in competition with their own output by selling them semifinished steel products at little or no profit?

Mr. FAIRLESS. Would it not be better for the record to say instead of saying that the corporation was told, that it was suggested to the corporation?

Mr. LEVI. I would be pleased to do that.

Mr. FAIRLESS. After all, the engineers did not tell us anything. They did not order us to do anything. They made suggestions as a result of their studies.

1 This information appears in exhibit S-228 in Steel Exhibits, pp. 554-555.

W&S

Mr. Levi. Would it be appropriate for me to say that one of servation of the engineers, because I do not think this is a suggest that Carlee-Ilinois has halle capacity in its f therefore, the output of finished prod

could be made without

ine reasing elarges for administrative of trei an i sottattle profits on the finished prod at wo Mr. FAIRLESS Yes: they stated that.

that. Obviously, if profits exist in the stre

Dey

de, and sometimes they do not-but if they exist, ocriconely there is

greater profit on the finished proint than there

probe that serves as raw material for the finished Mr. Levi. And did the engineers also offerte

the finished stage one got, the higher the gross prodt tevally! Mr. FAIRLESS. They did. and properly SO.

Mr. Levi. Did not they observe so that if Carege-Llinos haď been, by inself just a probeer of siel, it might be to the advantage of that corporation to sell seminnished products to other prodvers Rendiary of a vomyletely integrated company, sui as the corporation, why then the terest of the tural corporation was diferent from that of Carnese!

Roked at as a

Mr. FAIRLESS They may have.

Mr. Levi. Well. I think we should know whether they did or not. Mr. FAIRLESS. I agree that was their observative.

Mr. Lævi. And similarly they sized that Columbia study the reteral station so as to be ready to go into the fabrication of bars;

Mr. FAIRLESS. They perhaps bi... I do not recall the instante. It is a.medfg it for he to remember 15 years back, you know.

Mr. Levi. That was not quite 15

Mr. FAIRLESS. We are discussing, gentlenen, a report that hai ts invent a 15 years ago.

Mr. Levi. Mr. Fairless, maybe you should state when it was pub

Mr. FAIRLESS. Well, I am talking about the study. Obviously. I LESLA sarai in 185 tmale I cared with it.

Far!

HARMAN. That is curTE 1. When was it published. Mr.

Mr. MICHENER. Did you say 50 volumes or 250 volumes of that report?

Mr. OLDS. Over 200. I do not remember the exact number.
The CHAIRMAN. We are reading from a summary.

Mr. BRYSON. That is as big as the Congressional Record.

Mr. OLDS. I would like to make one little comment. It is not pertinent, but we referred yesterday to a registration statement, which I think was in 1938, and the SEC knew about these engineers' reports, which were then fairly current, and they said they would like to examine them in connection with their examination of the registration

statement.

So we brought down the 200 volumes and put them on a table, and when the SEC saw them, they said, "Take them back home.”

Mr. BRYSON. We have always been admonished as lawyers to beware of the man with one book.

Mr. LEVI. Would you say, Mr. Fairless, that one reason for the acquisition of the assets of Consolidated was that it was important to assure the Geneva Steel plant's being able to operate at the breakeven point or better, it was important that the corporation be in the fabricating business on the west coast?

Mr. FAIRLESS. That is right.

Mr. LEVI. Now, the corporation has been aware, has it not, of the difficulties of this problem of integrating forward, and it was observed by the engineers that this problem was sufficiently difficult so that the industry might even have to self-regulate to prevent cut-throat buying out of consuming industries, is that not right?

Mr. FAIRLESS. They may have made that observation. If so, of course, we do not agree with it, did not then, nor do I now.

Mr. LEVI. I just want to make sure that is the observation.
Mr. FAIRLESS. We accept it.

Mr. LEVI. And it was suggested by the engineers, was it not, that a logical expansion for the corporation might be into steel barrels, kegs, drums, doors, shutters, window sash frames, molding and trim, steel lath, culverts, concrete reenforcing bars, fabrication, wood and machine screws, tin cans, stamped or formed products, boilers, and tanks? Mr. FAIRLESS. That was their suggestion.

Mr. LEVI. Did you expand forward into some of these items?

Mr. FAIRLESS. Yes, we did. Not as a result of those recommendations, but whenever you are ready to discuss the barrel and drum business, I want to discuss it.

Mr. LEVI. That is one of the industries in which you expanded?
Mr. FAIRLESS. Would you like to have it now?

The CHAIRMAN. We will go into that later.

Mr. LEVI. I think you did say that the corporation itself has lost customers by having them bought out by other steel companies; is that not right?

Mr. FAIRLESS. That has gone on, yes.

Mr. LEVI. And would it be accurate to say that the corporation bought the assets of Consolidated in order to have the assurance of the Consolidated's business?

Mr. FAIRLESS. Well, you can put it that way if you care to. Keep in mind that the purchase of Consolidated is not in any way tied in with the report you are reading from. At that time we did not have

any idea that there ever would be even in existence a Geneva steel plint and certainly no knowledge that we would own such a plant.

Now, the real cause for our wanting to purchase Consolidated Western in addition to their desire to sell is the fact that we wanted to have a continuing outlet for the products that the Geneva Steel Co. was built to province.

Mr. MILLER. May I make a pertinent observation, since it has come mjotor, about the a uisition of Consolidated!

The CHAIRMAN. Yes.

Mr. MILLER. I car. do it in a minute. I do it because of an observation made by you, Mr. Chairman, the other day, which implied that Mr. Justice Reed in delivering the judgment in that case had indicated that the Court was forced by the law regretfully to make the devision and thought that the Congress ought to do something about it.

Now, what Mr. Justice Reed actually said was, having decided this enestion of size and integration and having decided that in that case United States Steel was not too big to integrate toward the end proint, he concluded by making this observation, and I am quoting, i think, quite literally what he said.

He said that if producers were to be forbidden from entering upon different stages of production, that that order would have to come from the Congress and not the courts.

I suggest that his implication was precisely the contrary to that andreated by the statement of yourself, Mr. Chairman, the other day. Mr. WILSON. He just said merely the Supreme Court would decline to write any new law on the subject.

Mr. MILLER. That is right.

Mr. WILSON. Which they do not always do.

Mr. BRYSON. They have the last guess at what the law is.

The CHAIRMAN. I may, Governor Miller, refer to that in a moment. I am just checking on the decision. So you might proceed.

Mr. LEVI. Would it be correct to say that the Corporation informed the Department of Justice, as indicated by the records in the Columbia Steel case, that the acquisition involved getting the assurance of the Consolidated business and that such assurance was the objective of the proposed acquisition?

Mr. BLOUGH. Mr. Levi, will you state the document you are reading from and quoting from and we will agree with you.

Mr. Levi. It is page 49 of the trial record in the Columbia Steel

case.

Mr. BLOUGH. Were you quoting from it?

Mr. LEVI. I was quoting from it.

Mr. BLOUGH. We will agree that was said.

Mr. Lævi. If I have quoted incorrectly, Mr. Chairman, I am sure you will give them an opportunity to correct the record.

The CHAIRMAN. Yes.

Mr. Miller, I have the decision of the Court, the opinion rendered by Mr. Justice Reed.

Mr. MILLER. Didn't I quote it correctly?

The CHAIRMAN. Not quite. It depends on your interpretation. This is exactly what he said:

If businesses ought to be forbidden from entering into different stages of production, that order must come from Congress, not the courts.

96347-30-ser. 14, pt. 4a-41