ANNEX B Reconstruction Finance Corporation loans to Reynolds Metals Co. and Reynolds Alloys Co. Reference: Questionnaire annexed to letter from Chairman Yates to Richard Reynolds, Jr., dated July 25, 1955-Question 2a. A portion of the proceeds of the 4th series of the company's 4-percent serial 1st mortgage bonds and the $8 million loan respectively was used to refund certain notes payable to Reconstruction Finance Corporation issued during the first half of 1942. These notes ($4 million total) covered temporary advances made by Reconstruction Finance Corporation pending the issuance of the above mentioned 4th series of bonds and the execu tion of the loan agreement of June 11, 1942. Annex C to responses of Reynolds Metals Co. to questions by Hon. Sidney R. Yates, chairman, Subcommittee No. 3, Select Committee on Small Business of the House of Representatives of the United States, 84th Congress Mr. MARION M. CASKIE, WASHINGTON 7, D. C., January 11, 1951. Executive Vice President, Reynolds Metals Co., World Center Building, Washington, D. C. MY DEAR MR. CASKIE: I have your letter of January 3 with reference to the following that appeared recently in Mr. Pearson's column: "Reynolds was urged by Secretary of the Interior Ickes to manufacture aluminum in completition with the giant Aluminum Corporation of America during the war, and was given all kinds of Government loans, orders and backing ***" As I recall, Reynolds Metals Co. entered the aluminum business in competition with the Aluminum Company of America entirely on its own initiative without any Government agency requesting or urging it to do so. It was done over the active opposition of some of those in charge of the national defense program. Mr. Reynolds also had difficulty in getting power. At first, TVA turned him down until Senator Lister Hill brought it to its senses. Mr. Reynolds had to come to me personally to get Bonneville power but I was glad to let him have it, even if some men high in the administration brought real pressure to bear upon me to give it to Alcoa instead of to Reynolds. After Reynolds had arranged its initial loan from RFC, I then urged it to increase the productive capacity of its then comparatively small plant contemplated at Longview, Wash., and I advised Reynolds that I had conferred with Mr. Jesse Jones and that RFC would lend additional amounts to Reynolds to permit it to increase that plant's capacity up to 60 million pounds per year. Mr. R. S. Reynolds, Sr., chairman of your company's board, promptly responded to my request. The plant's capacity was thus increased, and its production proved most helpful in the successful prosecution of World War II. I further recall that the Senate War Investigating Committee and the Senate Small Business Committee found that while the Aluminum Company of Canada was advanced $68,500,000 by our Government, without collateral and originally without interest, and was given firm orders for large quantities of aluminum that aggregated as much as 1,400 million pounds with favorable escalator clauses to take care of possible increases in cost of production, Reynolds Metals Co. was not afforded similar treatment for the same purpose-namely to produce aluminum for the defense purposes. For its original and subsequent loans, Reynolds was required to produce adequate collateral in the form of first mortgages on all of its numerous industrial plants, then unencumbered, as well as first mortgages on the plants to be built with the proceeds of loans or subsequently acquired. In addition, it was required to deposit as collateral all stock held by the company in subsidiary and affiliated companies. Reynolds' loans bore interest at the rate of 4 percent, and my recollection is that this was a higher rate than that charged the Aluminum Company of Canada. Reynolds received no firm orders, no down cash payments, and none of the other favorable terms afforded the Canadian company. I have before me the interim report of the Surplus War Property Subcommittee of the Special Committee To Study Problems of American Small Business, United States Senate, 79th Congress, 1st session, pursuant to Senate Resolution 28, of September 10, 1945, in which reference is made to the extraordinary assistance given the Aluminum Company of Canada by the United States Government. The committee concluded with the following findings and recommendation as set forth on page 10 and 11 of its report: "Government loans made to Reynolds on terms less favorable than loans made to the Canadian company, should be renegotiated. It would seem to be indefensible for the Government to exact harsher terms from United States operators than those given to the newly created giant competitor across the border." I am informed that following the above recommendation, your company requested RFC to comply therewith but that no action was taken in this direction by RFC. Sincerely yours, HAROLD L. ICKES, Annex D to responses of Reynolds Metals Co. to questions by Hon. Sidney R. Yates, chairman, Subcommittee No. 3, Select Committee on Small Business of the House of Representatives of the United States, 84th Congress FUTURE OF LIGHT METALS INTERIM REPORT OF THE SURPLUS WAR PROPERTY SUBCOMMITTEE OF THE SPECIAL COMMITTEE TO STUDY PROBLEMS OF AMERICAN SMALL BUSINESS, UNITED STATES SENATE, PURSUANT TO SENATE RESOLUTION 28, SEPTEMBER 10, 1945 [Pp. 10 and 11] Extraordinary assistance was given by the United States Government to the Aluminum Company of Canada, which has resulted in the rise of that company from a minor institution to the largest and probably the lowest cost private producer of aluminum ingot in the world. The principal stockholders of Alcoa own a majority stock interest in Aluminum, Ltd., a holding company whichohwns the Aluminum Company of Canada. United States assistance to the Canadian company grew out of our unpreparedness to meet requirements for aluminum to carry out the aircraft expansion program of 1941-42. Officials of Defense Advisory Commission and Office of Production Management had relied on assurances of Alcoa and private power officials that we would have ample power and aluminum to meet all needs. Pleas made in 1940 by R. S. Reynolds, Secretary Ickes, and western and southern Senators and Members of the House of Representatives for capacity great enough to meet the challenge of Germany's air armada went unheeded. In April 1941 it suddenly became realized by our authorities that vastly larger quantities of both aluminum and magnesium were urgently needed.. Our officials were informed that part of our requirements could be supplied by the Aluminum Company of Canada, and placed orders in the spring of 1941 and in the spring of 1942 with the Canadian company for over a billion pounds of aluminum ingot, at prices averaging several cents per pound higher than the United States market price. In order to assist the Canadian company to expand its production facilities to fill these orders, our Government made to the Canadian company advances of $68,500,000. At the same time, a program was adopted for expanding United States private and public power and aluminum and magnesium production tothe present levels. The United States purchases and loans in Canada, together with similar loans. and purchases by the British Government, with provisions for writing off the plant investment through accelerated rates of depreciation, combined to provide the Canadian company with a new and magnificent plant with a capacity of over a billion pounds of aluminum per year, and with a hydroelectric production of over 900,000 kilowatts capacity, mostly paid for out of wartime earnings. With these facilities, the Canadian company will probably be able to undersell in foreign markets any American aluminum producer and perhaps even to sell large quantities of aluminum in the United States over the existing tariff wall of 3 cents per pound. Had our defense officials heeded the warnings they received in 1940 and early 1941, and acted more promptly to enlarge public power and metal-production facilities in the United States, much more of the needed aluminum could have been produced in this country, at lower prices than were paid to the Canadian company, and, instead of building up a foreign competitor, the facilities would have been ours for postwar use. The Surplus Property Board and other Government agencies should give consideration to these facts in formulating light-metals policies. Terms of lease. sale, or loans to new producers should be made with a view to permitting United States producers to meet Canadian competition. Government loans made to Reynolds on terms less favorable than loans made to the Canadian company, should be renegotiated. It would seem to be indefensible for the Government to exact harsher terms from United States operators than those given to the newly created giant competitor across the border. ANNEX E ALUMINUM APPENDIX 16.-GOVERNMENTAL WARTIME ASSISTANCE ΤΟ THE COMPANY OF CANADA, SUBSIDIARY OF ALUMINUM LTD. (ALTED) Plant investment of the Aluminum Company of Canada for war purposes for which special depreciation was allowed amounted to about $193 million. This included about $70 million for the Shipshaw power development and $122,850,000 for production plant and machinery. By arrangement with the Canadian Government, 60 percent of the cost of the power project, or $41,250,000, was written off against profits during 41⁄2 years, and all of the $122,850,000.1 The company obtained from foreign governments advances on purchases of aluminum of nearly $80 million and loans of nearly $90 million including lines of credit. This assistance comprised advances on purchases of metal of $68,500,000 by the Metals Reserve Company (Reconstruction Finance Corporation); $10 million to $12 million by Great Britian; $3 million to $5 million by Australia; a line of credit from the Export-Import Bank of the United States, which protected outstanding bank loans of $30 million as of December 3, 1943; and loans by Great Britain aggregating $55,600,000.2 The Metals Reserve Company contracted for deliveries of 1,370 million pounds during 1941-45. The base purchase price on the advances, 17 cents per pound, was initially the same as the price in the United States but was subject to very liberal escalator allowances for more than actual increases in major items of cost due to the war. In October 1941 the American price dropped to 15 cents but the Canadian company granted only a partial reduction in its base price. The actual average cost of the Canadian metal to this country was 18.6 cents as compared with the American price during 1942-45 of 15 and 14 cents. This difference meant an extra cost of over $35 million on deliveries from 1941 through 1944. If the United States had canceled the contract at any time, the unrepaid portion of the advance would also have been canceled, and the Metals Reserve Company would have been subject to an additional penalty charge of 1 cent per pound for all unaccepted metal. The British loan was repayable over 20 years with annual abatements directly proportional to the extent that no use was made of the facilities built to meet British needs. The other terms of the Metals Reserve Company advance were also very liberal. The first advance was $25 million at 2 percent (May 2, 1941); the second advance was $25 million (July 15, 1941); the 2 advances were consolidated into a non-interest-bearing advance on March 6, 1942, supplemented by a line of credit through the Export-Import Bank up to $25 million with interest at 3 percent; and the last advance was $18,500,000 on April 1, 1942. supplemented with an additional line of credit up to $9,250,000 with interest at 3 percent. Criticism of these arrangements led to a revision of the contracts in 1943, under which an interest charge of 3 percent was imposed retroactively on all advances. The terms of American participation in this Canadian program were reviewed by the Truman committee of the Senate 2 and by the Senate Small Business Committee.3 1 Canadian House of Commons, Votes and Proceedings No. 120, January 26, 1944, p. 744. Canadian House of Commons Debates, March 23, 1943, p. 1426, Moody's Industrials, 1944, and Investigation of the National Defense Program, S. Rept. No. 10, pt. 16, 78th Cong., 2d sess., pp. 68-70. Hearings on Problems of American Small Business, 79th Cong. pts. 57 and 58, the Shipshaw Contract, I and II. |