The Comptoirs formed under the aegis of the International Steel Cartel together with those special agreements already existing or concluded subsequently, for rails (I. R. M. A.) wire rods, broad-flanged beams, sheet-piling and tinplate, together constitute a system of international alliances which cover almost all the raw steel exported by the member-countries, with the exception of tubes, for which it is hoped to revive an international agreement, and certain products such as axles, wheels, and types. Further, it is not unlikely that international agreements may be concluded for export of light-railway material cold-rolled strip and bright steel bars, which are at present not subject to control.

SUMMARY

As already stated, the first E. I. A. founded in 1926 which attempted to control only the steel output of the member countries had to give place to a more comprehensive organisation.

The difficulties arising through the divergent trends of the home markets, which could be overcome only by successive compromises would have been aggravated by the accession of additional countries to the Agreement and the incorporation of their output in the general framework. It was therefore impossible for the Agreement to work smoothly, in view of the wide range of problems affecting output in the various countries.

Good progress was made from the moment it was decided to confine international control to the export market. In this field all countries had a common interest, namely to control and attenuate both increases and decreases in prices.

PRICE MOVEMENTS

In view of the structure of the iron and steel industry and its vast productive capacity, price competition today inevitably leads to price quotations so low that even the best equipped works are unable to cover costs of production and must work at a loss. The closing down of works must follow, with all its consequences such as loss of capital, dismissal of workers, damage to the country's economic sytem and costly government intervention.

The consumers themselves gain nothing from such a state of affairs: it is not to their interest that a section of the producing works should be ruined and that their trade connections should be severed. Their chief need is to be able to calculate their costs of production on a stable and sound basis: if sudden changes are possible, the consumers must buy at random. Price cutting causes speculation and consequently aggravates competition between consumers: thus losses are incurred in a widening field. Moreover, competition of this kind leads governments to take protective measures, such as increases in import duties, quotas, import bans, etc., which in their turn provoke reprisals from other directions. Such a state of affairs causes a series of losses, unemployment and social unrest, by maintaining a state of economic war from which the world has suffered enough. A remedy must be sought in some other direction.

In this context, reference may be made to the change in Great Britain's tariff policy with regard to steel products during recent years. The ridiculously low prices at which consumers in that country were supplied naturally provoked a protest on the part of the home industry, which demanded and secured protection from the Government. Import duties on iron and steel products were therefore increased to 10 percent, then to 33% percent, and finally to about 50 percent ad valorem. Whatever the consequences of this change for the continental countries, it is quite understandable that a country could not indefinitely allow its home market to be inundated with low-priced foreign products. Similar considerations contributed to the conclusion of the Ottawa agreements, by which the British producers aimed at safeguarding the outlet for their products in the Dominions.

The frequent accusation against International Agreements that they raise prices artificially cannot be levelled against the E. I. A. Comptoirs. These were established at a time when prices were so low that the economic operation of plant had become impossible. The price of merchant bars, after reaching its lowest point-£2.2.0 gold f. o. b. towards the middle of 1932 was at about £2.10.0 gold f. o. b. at the beginning of 1933. The E. I. A. was established in February and the Comptoirs in May 1933. Their sole aim was gradually to reestablish normal conditions. From the summer of 1933 to the summer of 1936, the average price of merchant bars rose from £3.0.0 gold to £3.5.0 gold.

(See the attached diagrams.)

The same moderate policy has been followed in regard to semis, joists and channels, heavy plates and strip. The prices obtained for the various products from the date of establishment until September 1936 show little variation. These are of course the average prices secured: Prices actually quoted would naturally show greater fluctuations owing to the constant adaption of prices to market conditions. But in any case there variations no longer reach the limits, either upward or downward, which had become usual in the period of free competition. The International Comptoirs have therefore not failed in their task, which was not to keep prices stationary but to limit the extent of their variations so that the inevitable modifications in the profits and costs of production of producers and consumers should follow a steady course instead of being subject to unrestricted fluctuations.

It was only recently, after substantial increases in production costs caused by increased social charges in certain member countries and the rise in prices of raw materials that the Comptoirs decided to increase prices to any marked extent. The increase was also justified by the general improvement of world markets. Export and home demand expanded so much that the works, whose activities were restricted by the shortage of ore, coke and scrap and by labour difficulties, were unable to meet all requirements. In these new circumstances the Comptoirs followed the same moderate policy, attempting to coordinate the heavy demand, to prevent speculation among agents and merchants, to give precedence to the real needs of consumers and to keep sales proportionate to the productive capacity of the works (control of delivery periods) while still restricting prices. The average improvement in prices charged up to the end of December was in the neighbourhood of 12/- gold. The tonnages sold in the last months of 1936 were double those of the preceding months. Under a system of free competition the increase in prices would undoubtedly have been much greater. Demand and sales would have expanded to an exaggerated degree, each merchant speculating by expanding his requirements against a rise, and harassing the suppliers. The latter would then have demanded higher and higher prices out of proportion to the real state of the market. Thus consumers and works would have been again involved in this fever of speculation. Delivery periods, abnormally extended, would no longer have been observed, and plant would have been operated at a frenzied rate. It is well known how after such a boom a vertical decline sets in as soon as demand has been satisfied and the tide turns.

REGULAR OPERATION OF PLANT

Regular activity of plant is essential for the satisfactory operation of the would have been again involved in this fever of speculation. Delivery periods, of the total orders received: As a sales programme is fixed manufacturing on a stable basis with a minimum risk.

The existence of the Comptoirs assures each works of its proportionate share of the total orders received: As a sales programm is fixed, manufacturing programmes can safely be drawn up. Forecasts of costs of production can be made on a stable basis with a minimum risk.

An illustration of this point is offered by the course of total raw steel exports by the E. I. A. groups since 1927 (see table 3). This shows clearly the fluctuations which occurred throughout the period before 1933, when there was no control of export sales and deliveries. From the general point of view and leaving out of account any temporary gains, such fluctuations damage all the interests concerned.

In 1930 these truths were not recognised. The provisional Comptoirs formed at that time were not sufficiently organised. Moreover, from the beginning their very existence was threatened by the high quota demands of certain works and concerns. These demands were presented at a time when demand was falling and paid no attention to the various conditions under which each party was able to fight. At that time no one realised that prices of merchant bars, which had exceeded £6.0.0 could fall in a relatively short time to the neighbourhood of £2.0.0.

It was only at the end of the competitive phase, which lasted two years and involved huge losses, that it was generally realised that only co-operation could prevent ruin and maintain the standing of the European groups vis à vis their important foreign competitors.

INTERNATIONAL TRADE

It has been shown that unrestricted competition between producers inevitably leads to competition in other fields, causing increased protectionism and trade restrictions. The formation of International Comptoirs for steel products and the establishment of freely accepted discipline between the Groups not only overcame this danger but, as experience has shown, facilitated an improvement in commercial relations between countries and a reduction of tariff barriers.

(a) The formation of the E. I. A. facilitated the conclusion in 1926 of the Franco-German Trade Treaty, the first since the War. It might even be said that it was partly due to the Cartel that this Treaty was able to be concluded. The negotiations opened between the Governments concerned, regarding iron and steel imports into Germany on expiry of the period laid down by the Treaty of Versailles for free entry of Lorraine and Luxemburg steels, reached no settlement. At the beginning of 1925 French and German industrialists sought by direct negotiations some means of regulating these imports for the future. These negotiations resulted in the agreement of the 4th November 1926, known as the "Contingent lorrainluxembourgeois" attached to the E. I. A. agreement and constituting an integral part of it. The substitution of industrialists for Government representatives thus proved a deciding factor in the conclusion of the general Franco-German Trade Treaty.

(b) A similar problem arose in 1935 on the return of the Saar to Germany. Hitherto the Saar territory had been included in the French home market, although the German Government allowed free imports of Saar steels. Further, under an agreement between French and German producers the Saar works had been given a quota for deliveries in France (known as the *500.000 ton Quota"). In these circumstances the change of frontiers was to involve important modifications of existing commercial releations. The question of the Lorraine quota in Germany was naturally raised as well. Undoubtedly, if there had been no Cartel at that time, grave difficulties would have been encountered, owing to the very heavy output of the Saar works. It was possible to avoid these difficulties owing to the existence of a framework within which transfers could be made. A new order was established without involving any protective measures on the part of the Govern

ments.

(c) The agreements concluded between the British and Continental industries may also, in view of the tariff reductions secured, be quoted as an example of the favourable effect of international agreements on the factors controlling international trade.

It was realised in Great Britain, the chief importer of continental products, that an agreement with the Comptoirs was of great importance to the British industry, not only because it facilitated organisation of the home market, but also from the point of view of export markets, where the elimination of unnecessary competition could not fail to be an advantage. After the satisfactory conclusion of negotiations, United Kingdom import duties which had been raised successively to 10%, 33%%, and about 50%, were able to be considerably reduced, as the division of home and export markets between the British and Continental industries was definitely fixed.

(d) Reference may also be made to the agreement with the works in the Union of South Africa which had previously required protection by antidumping duties.

Finally, the arrangements made with the Swiss, Finnish, Norwegian and Dutch works have averted the danger that import duties may be raised or that any other protective measures may be taken, such as quotas or the institution of import-Boards.

In short, it may be said that in this respect the E. I. A.'s action has been in every way constructive.

Other aspects of the matter deserve attention. Today various obstacles and difficulties complicate and paralyse international trade. This is particularly true of barter and clearing agreements which have unfortunately become general. The inconvenience resulting from these restrictions may be alleviated by Cartels, which assure each group of its share in the total markets. All the efforts of the Comptoirs are aimed at extending the total sales, while giving the bestplaced Groups freedom to make use of all their advantages.

The effects which the currency devaluation effected by certain member countries would have had in the absence of the Cartel may be imagined. The in

dustries of these countries would have concentrated on exports so as to take full advantage of the devaluation. The less profitable home markets and therefore, the re-rollers, would have been neglected. The other countries would have taken defensive measures and increased competition and further protection would probably have aggravated the general situation. These disturbances have been avoided. Difficulties have of course arisen but they have been settled in a friendly spirit and within the framework of statutory regulations.

CONCLUSION

We have followed the history of the E. I. A. and its subsidiary agreements and shown how they have maintained control in spite of ever increasing difficulties. Such maintenance of discipline is not only welcome but essential. The world needs economic peace as well as political peace and if in the future the struggle between steel producers should be renewed it would have much graver consequences than that of 1930/1931. General economic conditions have changed completely since that time. To-day trade is less and less subject to the laws of offer and demand: the circulation of capital is no longer free: government intervention is exercised almost from day to day and currency manipulation has become a common occurrence.

In the same way, the iron and steel market itself has been profoundly or completely modified in recent years. Certain markets are closed, partially or completely either that home industries may have developed or are better protected, or for other reasons. Such is the case in Great Britain, Japan, Manchuria, Canada, India and Russia. Some countries, such as Japan and Canada which formerly exported little or no steel are now exporters to be reckoned with. The normal volume of exports is therefore limited: there may for various reasons be a shortage of steel at a given time but this will not constitute a permanent expansion in normal demand.

The necessity for maintaining the existence of the Comptoirs does not mean that the present organisation cannot be modified. There must be no rigid system and constant adaptation to circumstances is essential, as conditions of competition, the terms of import on to the chief markets, and the particular circumstances and capacity of each Group are always changing.

Membership on appropriate terms of other countries is eminently desirable. This would be a further step in the rationalisation of world markets and in the development of economic cooperation, which is gradually taking the place of the old theory of free competition and struggle.

SUPPLEMENTARY NOTE DATED APRIL 1937

Since this memorandum was prepared market conditions have changed substantially. The improvement, noted towards the end of 1936, has continued, accompanied by an improvement in prices. On home as well as export markets, demand has expanded to an extraordinary degree. Production has been unable to keep pace, particularly in view of the difficulties encountered by certain Groups with regard to raw materials and labour (including strikes and the introduction of the forty-hour week). A severe shortage of steel therefore developed.

While taking steps to facilitate deliveries and fulfil standing engagements (among the measures taken was the exceptional abolition of fines and compensation for excesses and deficits during the current agreement-year) the Comptoirs attempted to adapt releases on the various markets to the real needs of consumers, thus discouraging speculation. Delivery periods remained fairly normal considering the enforced limitation of production. Although official prices have been considerably increased-merchant bars are at present about £5.0.0 gold per ton--they are below the level that would have been reached without the limitation of the Comptoirs. Moreover, costs of production are much increased in consequence of heavier social charges and higher raw material and transport costs.

In order to assure supplies to the British home market the Government reduced to 10% ad valorem the duties chargeable on products covered by the arrangement between the British Group and the E. I. A. The E. I. A. decided for the time being to subsidise all sales of semis to the United Kingdom, to the extent of £1 gold per ton, as the prices obtainable on that market are below the general export rates. The difference is particularly marked in the case of semis.

In the same way Japan, being unable to increase home production sufficiently to cover the steel scarcity, has temporarily suspended import duties on iron and

steel products. It is not unlikely that other countries, in particular the United States, may take similar steps.

As regards the extension of the Agreements it must be noted that the negotiations opened in the later months of 1936 with the Czechoslovakian Group with a view to its full membership in the Comptoirs (merchant bars, joists and channels, hoops, thin sheets, galvanised sheets) came to a successful conclusion. It is now proposed to reopen negotiations with the Austrian and Hungarian works.

Conversations are also being held with the United States producers, and an agreement in principle has been concluded regarding exports, but the detailed application of that agreement has yet to be settled.

End of April 1937.

EXHIBIT S-94

STEEL UNION COMPANY,
New York, October 3, 1933.

Director ERNST POENSGEN,

Düsseldorf.

DEAR MR. POENSGEN: I have been waiting for some word from Mr. Bastian or from yourself in response to my letter to him under date of Sepembter 1st, but as yet nothing has been forthcoming.

Mr. Thomas came in to see me a few days ago and told me that he had been pursuing the matter of an international understanding a little farther and recently had a talk with Judge Miller, who is general counsel for the United States Steel Corporation, to get his views as to the feasibility and legality of some such understanding.

After giving the matter some study, Judge Miller reported to him that he felt that under present conditions and the attitude of the administration, it would be possible for them to go along with the development of the idea, and further stated that he thought it could be arranged that a committee from the Board of Directors of the Iron and Steel Institute could be appointed to work on the scheme.

Mr. Thomas seemed to feel that this was a very definite step forward, as it meant the acquiesence on the part of the Steel Corporation to negotiations, and asked me if I would not take the matter up with you immediately. He asked me if I would care to suggest to you the possibility of one or two representatives being sent over from your side to negotiate with the committee of the Iron & Steel Institute if the matter progressed to that stage.

I told him I would lay the subject before you, but that as far as I was concerned, I was unwilling to go along with the idea unless a decision was arrived at in regard to the control of selling in this country. It would be a pure waste of time for all concerned to initiate negotiations looking to quotas, price control, and other definite conditions which would have to be agreed upon, until the underlying question of control of distribution in this country was settled.

Unless the international syndicates abroad would agree to cut out selling through the irresponsible sources that virtually wrecked the business over here during the year past, nothing could be accomplished, for the simple reason that the American group would not pursue the matter until they had assurance that what was agreed upon would be lived up to to the letter. Selling directly by the Mills to any Tom, Dick, and Harry on this side, or through exporters such as Coutinho Caro, would absolutely preclude any chance of success in this direction. Judge Miller mentioned that if the suggestion of having a committee of the Iron & Steel Institute handle the negotiations were accepted, a way could be found by which the importers could be placed under a code under the National Recovery Act, but this in itself would necessitate an air-tight control both abroad and here, so that the agreements under the code would be adhered to and if necessary enforced by penalties the same as are provided for in the code of the iron and steel industry.

From the foregoing you can therefore see that the success of a plan such as we have been discussing rests on the recommendations made by Mr. Léon to Mr. Dieudonné and by me to Mr. Bastian. If it is impossible for you to bring this about, and continental steel makers do not recognize the seriousness of the situation as far as the future of imports is concerned, then we might as well close our files on this particular effort.

On the other hand, if you recognize the possibilities that are involved in this whole plan, both for the immediate future and for the long pull, the sooner we can get to work on it the better.