they are neither, we would recommend the adoption of such an administrative licensing procedure. Our reflection on this problem has led us to the conclusion, however, that the administrative device would be unworkable, in the premises. It would be exceedingly difficult, if not impossible, to devise legislative standards, which would be administratively and judicially applicable for determining the marketing conditions which would make the members of a particular industry eligible for a license to form an association. Export associations could, of course, be required to assume the burden of proving that their formation was necessary in order to equalize bargaining positions. But upon what standards could such a proof rest? What is involved is an evaluation of market relationships far more intricate than any on which proof of violation of antitrust laws now rests, and more nebulous even than the grounds on which certificates of public convenience and necessity are issued or withheld in certain fields of enterprise.

The impracticability of this expedient does not, in our judgment, preclude the possibility of revising the Webb-Pomerene Act in a manner that will at once enable export associations to perform a useful role in the development of foreign trade under conditions likely to be encountered in the proximate future and reduce their susceptibility to perversion.

Another way to adapt the means, voluntary association, to the end-facilitating an expansion of export trade-would be for Congress to establish standards for the organization and procedure of export associations which would provide internal checks against the abuse of the privilege of concerted action. Without subjecting them to arbitrary administrative discretion, Congress could lay down minimum requirements for their form of organization and method of operation. Such a program could expose their activities to the light of reasonable publicity. It could also provide internal safeguards calculated to keep at a minimum (a) subordination of the commercial independence and competitive interests of the members; and (b) interference with the opportunities and operations of outsiders. Our deliberations on the possible role of export associations in postwar trade have led us also to the conclusion that it would be a comparatively simple and easy task to devise legislative standards for the structural constitution and the functional procedure of these privileged groups, standards which would be administratively and judicially enforceable as well as practically expedient. At present, the law is silent on this vital subject. It provides no structural standards whatsoever for the associations it authorizes, and the only procedural standards it sets up, if they could be called that, have to do with the behavior of the members of the group in their relations with outsiders. Thus, they may not restrain the trade of a domestic competitor, and they may not "enter into any agreement * * * which artificially or intentionally enhances or depresses prices in the United States * * Presumably the latter limitation refers to agreements

(cartel arrangements) with foreign competitors.

Sound public policy seems to us to call for statutory specification of standards to govern the form of organization of these groups on which Congress has conferred a special privilege (partial exemption from the antitrust laws). For example, what, if any, limiting conditions on eligibility for membership, or on withdrawal from membership, may an association establish? What are the minimum (and maximum) obligations of membership in the group? How broad and how narrow may an association make the range of responsibilities, the rights and duties, of its officers and directors? These are questions which in our judgment cannot prudently be left to the discretion of private groups vouchsafed a special franchise for self-government in industry.

To illustrate, Congress might well consider the advisability of stipulating that export associations be incorporated under a Federal cooperative marketing act comparable to that of 1926 applicable to agricultural groups, but embodying the stricter standards of the Clayton Act, section 6. In addition, either the suggested Cooperative Marketing Act of the Webb-Pomerene Act amendment might establish the rule of one member-one vote for export associations. The statute might require the adherence of exporters of a minimum percentage of the class of products affected as a condition of eligibility for a charter. It might require chartered export associations to serve as joint sales agencies of the members without discrimination, to distribute the proceeds of sales according to a prescribed formula, to sell only by grade or under a common trade-mark in foreign markets. It might prescribe qualifications of association officers and directors, for example, providing for rotation of directorships among members and for independence (vis-à-vis particular members) of management officials. These are only suggestive of the possible range of standards which, after due deliberation, Congress might elect to set up for the governance of these enfranchised groups.

Similarly, statutory prescription of at least certain basic features of the rules of procedure of these export associations appears to be an appropriate means of minimizing the risk of their perversion. In particular, the law might expressly forbid any quota restriction on the supplies offered the association for export marketing, leaving the association free to accept tenders on the most advantageous terms. Again, such matters as the frequency and scope of periodical accounting (for the discharge of their functions) by officers to directors and by directors to members, as well as the extent of publicity required concerning the nature and outcome of association activities, are clearly within the recognized province of public regulation-the more so as regards organs of business confederation.

We do not conceive it to be necessary, in the present connection, to canvass all the various structural and procedural standards which Congress might set up to govern the organization and conduct of export associations. Much less do we regard it as incumbent on this committee to assess the advantages and disadvantages of the several possible standards and try to formulate a group of standards which would be most likely to insure the proper functioning of export associations, according to the apparent objectives of the Webb-Pomerene law. For our purposes, it suffices to indicate the direction in which amendment of the law might most effectively contribute to (a) its enforcement; and (b) the realization of its aims. This we have done.

In summary conclusion, if the committee's terms of reference were to be interpreted as calling for a judgment on the bare alternatives of repeal or preservation of the Webb-Pomerene law as it stands, we would be hard put to it to reach a decision. But we do not so interpret our assignment. We are of the opinion that the law can be amended to make it a more efficacious instrument of legislative policy. Our judgment is that the most expedient and feasible line of amendment would be to establish statutory standards for the organization and conduct of the export associations authorized. Given suitable amendments along this line, we believe that not only might Webb-Pomerene associations serve to strengthen the competitive position of American exporters in world markets and to equalize bargaining power between them and foreign purchasing organizations, but also to raise the plane of competition in international trade and thus to improve the prospects of a gradual reinvigoration of a free world economy.

VI. REPEALING THE WEBB-POMERENE LAW

Some members of the committee reject the contentions in the foregoing section that, without benefit of concerted action, domestic exporters in certain industries will be handicapped and that, to approximate their bargaining strength to that of foreign purchasers, permission should be granted to exporters to form voluntary associations limiting competition among their members. The principal reasons for this conclusion are:

1. Cost reductions from joint action in the promotion and conduct of foreign trade, while possible, have been shown earlier in this report (p. 852) not to have been an important benefit accruing from the Webb-Pomerene law. There is no evidence that the law will operate differently in this respect in the future.

2. Equalization of the bargaining power of groups of American exporters and their foreign buyers is not necessary to protect most American exporters from exploitation by foreign importers. Exports account for a relatively small proportion of the demand for most American products. Iu consequence, manufacturers are under little pressure to accept for exports lower prices than for domestic sales. If the American producers are sufficiently competitive to be unable to accept lower prices for foreign than for domestic sales, foreign buying monopolies will find that great restriction of purchases is necessary to achieve reduced prices for American exports. The restriction of purchases will usually not be worth the result.

3. Combination among American exporters where export sales are a considerable proportion of total sales means that an organized group of exporters will face an organized group of importers (or a single importer). Whether or not this situation can be said to result in equality of bargaining power on each side of the market is debatable. In any event, no competitive solution is feasible when one seller faces one buyer. Both sides are impelled to resort to specious bargaining techniques, including bluffing, tricking, and political pressure. Collective bargaining between American industrialists and foreign purchasing agencies invites nationalist and anti-foreign feelings, leading to conflict between nations. National governments are urged to come to the support of their foreign trade agencies and a new and rich source of international friction is opened up. We should do

our best to discourage organized selling and purchasing among nations. The United States has recently shown great wisdom in asking the governments of foreign countries to withdraw the purchasing commissions they had maintained here during the war.

Disparities of bargaining power on either side of a market occur within our own country. But the accepted public policy is to deal with concentration on one side of a market by restricting or reducing concentrated power and not by fostering concentrations on the other side of the same market.

4. American export combinations may serve to transmit from country to country pressures to combination in international trade which strike at the root of the present American policy of removing or reducing barriers to this trade. Organized American exporters may be tempted, under foreign pressure, to sell at lower prices in foreign than in domestic markets. Unification of policy among American producers is a necessary instrument of such a policy of dumping. Such a policy penalizes buyers in countries where importers have not combined in restraint of trade. These countries may have good reason to believe that they are being exploited by organized American exporters. Using the argument stated earlier in this report (to justify organization among American exporters) they can justify organization among their own importers or a state monopoly of import. Thus, in self defense they may combine to obtain the advantages which American exporters are enabled by their combination to grant when sufficient pressure is brought to bear upon them.

5. Effective organization in the American export trade cannot be prevented from enhancing monopolistic tendencies in the industry in the home market. To expect manufacturers to discuss and agree upon prices, volume of sales, and marketing practices in relation to exports, but to forget all these discussions in planning their domestic production and selling policies is unrealistic, more particularly as export policies have direct effects upon domestic policies. Dumping, for instance, penalizes domestic buyers who cannot be protected from combinations of exporters. No feasible statutory controls over the organization and conduct of export associations seem likely to succeed in insulating restraint of foreign trade from operations in the home market.

6. Agreements among American exporters will fail to equalize the bargaining power of sellers and buyers in a number of important trades unless the American exporters can come to terms with competing foreign exporters in other countries. Such agreements may enable American exporters to achieve a given volume of particular exports at higher prices than otherwise. Although such sales may throw no direct burden upon domestic consumers of the same product, they are contrary to the national interest because of their reactions (above-mentioned) upon restraint of trade in domestic business, upon international conflicts and upon the prospect of freeing international trade from many of its present restrictions. Section II of this report reveals that "a number of export associations have entered into international cartel arrangements" but assumes "that effective enforcement of the Sherman Act against illegal cartel activities is possible." The prospects of successful enforcement, however, are admittedly very uncertain and failure to prevent American export cartels from contributing to the further development of international cartels would destroy American efforts to free international trade from all removable barriers. Furthermore, it is difficult to see how regulated export cartels can "raise the plane of competition in international trade" (p. 860). The reinvigoration of a free world economy and the achievement of a higher plane of competition are more likely to be achieved by the removal of barriers to, and controls over, trade.

We, therefore, recommend the repeal of the Webb-Pomerene law on the genieral ground that present American foreign policy calls for the removal of restra nts in international trade rather than their elaboration in the form of defensive combinations in restraint of American export trade. The removal of such combinations should go along with the reduction of import duties as an earnest demonstration of the sincerity of American proposals with regard to freeing international trade. But, in addition, necessity for restraint of competition in the American export trade to meet restrictions upon competition among importers is not proven. Finally, the repeal of the act would remove a means of restraining trade within this country.

Reasons for divergence of opinion

In view of the foregoing divergence of conclusions as to policy, we find it desirable to make explicit the reasons for this divergence. These reasons are: 1. Difference of opinion as to the extent to which international trade will be subject to greater private or public control in the future than in the interwar years.

2. Difference of opinion as to the necessity for, and the economic consequences of, efforts to "equalize the bargaining strength" of groups of American exporters, either with that of rival exporters in international trade or with that of purchasers. 3. Difference of opinion as to the extent of the repercussions upon domestic trade of agreements restraining competition in the export trade (including differences of opinion as to the feasibility of enforcing different standards of competition in domestic and in foreign trade, especially upon firms active in both fields).

4. Difference of opinion as to the feasibility of devising statutory standards for the organization and conduct of export associations to prevent their perversion.

SURVEY OF Acquisitions, Mergers, and Growth of Chemical ManufaCTURING CORPORATIONS

(By A. E. Lundvall, Federal Trade Commission)

Introduction. The chemical industry in the United States has expanded rapidly since World War I. A period of expansion began during that war when the country was cut off from European chemical importations, and the industry was stimulated to meet the military requirements of the war. The use of German chemical patents which were seized during the war and made available to the industry also contributed to its continued growth. These patents, which numbered about 4,500 and covered chemical processes, formulas, trade-marks and products registered in the United States by Germans and other enemy aliens, were sold in 1919 by the Alien Property Custodian to the Chemical Foundation, Inc., for $270,000. This company was organized by members of the American Dyes Institute, the American Manufacturing Chemists Association and other members of the chemical industries in the United States to acquire the patents and make them available, without discrimination, through license on a royalty basis, to any American manufacturer desiring to use them. In addition, the company sponsored and supported chemical research and assisted financially in the publication of scientific magazines and articles.

The industry has grown steadily since that time with the development of a great number of new processes and products through intensive progressive research, resulting in a self-contained American industry which is playing a vitally important part in this war. The value of its manufactured products increased nearly sixfold between 1914 and 1939, and approximately one and three-quarter times between 1919 and 1939. The value of manufactured chemical products for the year 1939, according to the Bureau of the Census of the Department of Commerce, in its latest published statistics, was $1,416,126,176. The products included in the census classifications aggregating this amount were rayon and allied products; tanning materials, natural dyestuffs, mordants, assistants, and sizes; coal-tar products, crude and intermediate; plastic materials; salt; compressed and liquefied gases-not made in petroleum refineries; bone black, carbon black, and lampblack; and chemicals not elsewhere classified.

This growth, as in older industries, was accompanied by a concentration of the business in fewer companies, largely as a result of numerous consolidations and mergers within the industry. The acquisitions of capital stocks or assets of other companies were the foundation for the development of four of the largest companies in the industry; viz., E. I. du Pont de Nemours & Co., Allied Chemical & Dye Corp., Union Carbide & Carbon Corp., and American Cyanamid Co. Together, the sales of these companies in 1939 accounted for 50 percent of the value of chemical products of the industry for that year, as reported by the Bureau of the Census of the Department of Commerce.

The development of the E. I. du Pont de Nemours & Co. and American Cyanamid Co. in the chemical industry is attributable to a policy of business diversification that began after the last war with the acquisition of the capital stocks or assets of many chemical companies down through the years. On the other hand, Union Carbide & Carbon Corp. and Allied Chemical & Dye Corp. each acquired its powerful position in the industry at time of organization in 1917 and 1920, respectively, through the acquisition of stocks of some of the largest chemical companies in the industry.

The acquisitions by these four companies, together with other information concerning their growth and profitableness, are presented for four companies, as follows:

E. I. du Pont de Nemours Co.-This company was originally formed as a partnership in 1802, incorporated in Delaware in 1897, and reorganized in 1903 as E. I. du Pont de Nemours Powder Co. to consolidate the numerous interests of the du Ponts in various powder plants of approximately 100 corporations. The consolidation gave the company control of 95 percent of the powder business in the United States. As a result of court proceedings by the United States Government under the Sherman antitrust law, the company was ordered in June 1942 to divest itself of a substantial portion of its business which was transferred to two new companies, Hercules Powder Co. and Atlas Powder Co. This led to the incorporation of the present company in 1915 and the subsequent dissolution of the old company.

Up to this time the company's principal business was the manufacture of explosives. With the reorganization of the company a policy of business diversification was adopted and the company expanded its activities into the chemical industry by the development of new products and the manufacture of others through acquisition of numerous companies in the industry. This diversification included, among other things, the production of dyes, 1916; viscose rayon, 1920; cellophane and "Duco" lacquer, 1923; photographic films, 1924; ammonia, 1925; tetraethyl lead and alcohol, 1926; synthetic methanol (a solvent in place of alcohol for paints and varnishes), 1927; acetate rayon, 1929; "Dulux" enamels, 1930; synthetic rubber, 1932; synthetic camphor, 1933; urea, 1935; plastics for automobile safety glass, 1938; staple fiber and nylon yarn, 1939.

The company is the largest in the chemical and allied products field and ranks as the leading domestic producer of explosives, smokeless powder, dyes and cellophane, and one of the leaders in the production of rayon, alcohol paints, lacquers, and varnishes, zinc and zinc products, ammonia, plastics, acids, heavy chemicals, and pigments. Since its reorganization in 1915, the company's recorded capitalization has increased sixfold from $128,596,450 at the end of 1915 to $755,003,918 at December 31, 1944.

A substantial part of this growth has been through the acquisition of stocks of other companies in the chemical and allied products industries and their subsequent merger with the assets of the du Pont Co. These acquisitions, which are summarized below, were the nucleus for the company's development into its present position of leadership in the industry.

In 1915 the company acquired all of the capital stock of the Arlington Co., manufacturers of celluloid under the name of "Pyralin."

In 1917 and 1918 it acquired the following important companies in the chemical and paint and varnish business:

Beckton Chemical Co.,

Bridgeport Wood Finishing Co.,

Cawley Clark & Co.,

Harrison Brothers & Co., Inc.,

Mantua Chemical Co.,

Flint Varnish & Color Works, and
New England Oil Paint & Varnish Co.

In 1917 it also acquired a large interest in General Motors Corp., a large consumer of its products. The initial acquisition, together with subsequent purchases, amounted to approximately 37 percent of General Motors stock at the end of 1922. In 1923 a substantial portion of the stock was sold to executives of General Motors Corp. by the du Pont Co. along with other stockholders of General Motors under a plan to insure a capable, loyal, and enthusiastic management of that corporation by having its principal managing executives become substantial stockholders. The consummation of this plan resulted in a reduction of du Pont's stock interest in General Motors to approximately 26 percent by the end of 1925. At December 31, 1944, the du Pont's interest in General Motors was approximately 23 percent, as represented by the ownership of 10,000,000 shares of common stock. These share are recorded at $247,000,000 or $24.70 per share, which closely corresponds to their equity on the books of General Motors Corp. This valuation exceeds the actual investment of $57,621.758 in these shares by the du Pont Co. at December 31, 1944, by $189,378,242. In 1919 the company acquired a substantial interest in Canadian Explosives, Ltd., the name of which was later changed to Canadian Industries, Ltd. This company produces ammunition, explosives, fertilizers, acids, alkalis, cellulose film, nylon yarn, and miscellaneous chemicals. The du Pont Co. owned approximately 47 percent of the stock of this company at the end of 1944.

In 1920 the company acquired Chicago Varnish Co. and full control of du Pont Fabrikoid Co., which began the production of artificial leather in 1915.

In 1920 the company entered the rayon business when it got together with French interests and formed du Pont Fibersilk Co. to manufacture rayon. The name of the company was changed to du Pont Rayon Co. in 1925, and full control was obtained in 1929.