poses of our committee hearings is to find out just what the facts are, because besides the Big Three the Government also controls it with defense buying and stockpiling. I also know that this year we are going to export an estimated seventy-odd million pounds of aluminum scrap to foreign countries.

Every pound of scrap that is exported from this country means the small-business man has that same number of pounds less to work with.

So it is the purpose of our committe to find out whether it is the Big Three-whether it is our own Government policy or whether it is the fabricators and the people within the industry who are disposing of the material.

Mr. O'TOOLE. Well, we find this, too, Mr. Sheehan: we find that it is very hard to find the line of demarcation as to where the Big Three begin or end, and where the Government begins or ends on this aluminum question.

Anybody who served in this Congress during the war years recalls that in bodies like the OPA, big business sent men down here, supposedly on a dollar-a-year basis. I am not attacking the dollar-ayear men, but many of those who were here on a dollar-a-year basis were serving two masters. They were serving the big corporation that loaned them, and also serving the Government. And no man

can serve two masters.

This is a serious problem. Something must be done.

As I said before, we are very, very grateful-you people are attacking it. We do hope that you will get to the bottom of it.

Mr. YATES. Thank you, Mr. O'Toole.

Mr. O'TOOLE. Thank you.

Mr. YATES. Our second witness is Prof. Leonard Emmerglick, of Georgetown University Law School, Washington, D. C. He is an expert on the aluminum industry. We have called him to give us the necessary background for the proper consideration of the testimony which will follow later.

Prior to his present position as a professor of law at Georgetown University, Mr. Emmerglick was special assistant to the Attorney General in the Antitrust Division for 10 years. He was in charge of and tried the Government's antitrust action against Alcoa. was also in charge of various other antitrust cases.

He

He is the author of many books in the legal field. He is active in the American Bar Association, the American Law Institute, the Federal Bar Association, and has been president of his local county bar association in New Jersey.

I am informed that Professor Emmerglick has an outline of a statement, but is perfectly willing to be interrupted and to answer any questions of the subcommittee during the course of his testimony. Will you take the stand, please, and proceed?

STATEMENT OF PROF. LEONARD EMMERGLICK, GEORGETOWN UNIVERSITY LAW SCHOOL, WASHINGTON, D. C.

Mr. EMMERGLICK. Mr. Chairman and members of the committee, I appreciate the invitation to appear and to endeavor to make a contribution to the work upon which the committee is embarking today.

The current problems of the nonintegrated aluminum users-some 20,000 small- and medium-sized businessmen-are not temporary or transient. They have been constantly recurring. They will continue to do so, because they are the result of unresolved monopoly power and an industrial structure which precludes these businessmen from exerting their abilities under competitive conditions.

To make this clear requires a rather extensive historical review of the monopoly litigation against the Aluminum Company of America, and a review of the expansion of the aluminum industry since 1950 following the outbreak of the Korean hostilities.

The aluminum case was instituted in 1937 against Alcoa, against a Canadian company known as Aluminium, Ltd., and against a number of the principal officers and directors of both companies.

The complaint charged that the Aluminum Company of America had monopolized the aluminum industry of the United States; that its monopoly embraced the production and sale of ingot; water power, alumina, the product which precedes aluminum; and that in various other respects the operations of the company were in violation of the Sherman Antitrust Act.

The charge against Aluminium, Ltd., was that it had joined an aluminum cartel existing abroad with the avowed purpose of aiding Alcoa in keeping out of the United States imports of aluminum from Europe.

It was charged also that Alcoa was effectively a member of the cartel because of the close relationship between Alcoa and Aluminium, Ltd.

Further charges were that Alcoa had exerted a price squeeze against rollers of aluminum sheet. This charge was in essence that Alcoa would sell aluminum sheet which it had rolled at a specific price and aluminum ingot at a specific price and that between those two prices there was a spread.

The aluminum sheet rollers in the United States who bought their aluminum ingot from Alcoa found that when Alcoa raised the price of ingot and lowered its market price of sheet, they were squeezed between these two price jaws, so to speak. This was another charge of the Government's complaint, that such a squeeze had been carried on for a number of years.

The case came on to be tried before United States District Court Judge Caffey, and the trial proceeded over a period of more than 2 years. At the end of the trial, Judge Caffey delivered an oral opinion from the bench which took him many days to deliver and which completely absolved Alcoa of all of the charges made by the Government.

Thereupon the Government appealed to the United States Supreme Court. That Court found itself without a quorum of judges able to hear this case, since 4 of the 9 Justices disqualified themselves because they had been Attorney General or Solicitor General while the case was pending in the Department of Justice. Five were not a quorum. And so the Congress enacted legislation which was approved by the President, constituting, as it was then called, the Circuit Court of Appeals for the Second Circuit, sitting in New York, as a court of last resort to hear the appeal in lieu of the Supreme Court.

Well, the appeal was heard by that court, composed of Judges Learned Hand, Augustus Hand, and Swan, the three senior judges of the court.

In its decision the court reversed Judge Caffey on a number of the major issues in the case. The court found that Alcoa had monopolized the aluminum-ingot industry, and that its monopoly was a 90percent control of the industry, the other 10 percent being made up of imports, Alcoa, of course, then being the sole producer of primary aluminum in the United States. It was in 1945 that the decision came down.

The court further held that Aluminium, Ltd., had become a member of an international cartel agreement, the purpose and effect of which was to prevent the importation into the United States of aluminum ingot. The court held that Alcoa was not chargeable with participation in that cartel. The Government strongly urged that Alcoa was so chargeable, because a small group of stockholders controlled both Alcoa and the Canadian company.

The control came about in this way: In 1928 Alcoa owned its properties in the United States and its properties in Canada and in other parts of the world, mainly in Europe and South America. In 1928 Alcoa caused the Canadian company to be organized and transferred to the Canadian company most of its properties outside of the United States, retaining very few of them itself.

All of the stock of the Canadian company was turned over to Alcoa and immediately distributed to the stockholders of Alcoa. The controlling stockholders were to be found in four closely united families, so that in the hands of a few people there was this control of both Alcoa and the Canadian company. It was upon that ground that the Government urged that Alcoa should be held to be chargeable with participation in this cartel.

The court, however, refused so to find, but held that the Canadian company was chargeable with participation in that cartel.

Now, as to the remedial action that the court then took, the Canadian company was enjoined from further participation in the cartel agreement and from entering into any other cartel in the future.

Mr. SHEEHAN. May I interrupt there?

Mr. EMMERGLICK. Yes.

Mr. SHEEHAN. How can the United States court tell the Canadian corporation what to do?

Mr. EMMERGLICK. The Canadian company came into the United States and did business here. It had an office here and conducted business regularly from an office in New York City. It was found there even as a Mississippi corporation doing business in the District of Columbia might be found suable here. So this Canadian corporation was found in the United States doing business here.

At this time the Canadian corporation, it must be remembered, was owned to the extent of more than 85 percent of its stock by American citizens. The principal officers for the most part lived in the United States.

Mr. SHEEHAN. Still a foreign corporation.

Mr. EMMERGLICK. But it was a foreign corporation and was subject to our jurisdiction, because it was found here doing business and enjoying the protection of our laws. This is not a new principle. It is quite an old and common one, the subjecting of a foreign corporation to our laws if it comes here.

Mr. SHEEHAN. But only insofar as the business it does in the United States.

Mr. EMMERGLICK. Yes; and the business that the court found that it was doing was a business in selling aluminum in the United States, and in connection with that the court found that the Canadian company had entered into agreements with foreign companies by which they agreed that they would not ship aluminum to the United States. Mr. SHEEHAN. That is the only point that I wanted to get cleared up. In other words, the court could only enjoin the Canadian company from whatever business it was doing in the United States. It could not prevent its cartel arrangements with any other foreign companies.

Mr. EMMERGLICK. It could not prevent the cartel arrangements which had their operation elsewhere.

Mr. SHEEHAN. That is all that I wanted to clear up.

Mr. EMMERGLICK. Yes.

Now, the remedial problem with respect to Alcoa was very much. more difficult. That was March 1945, and we were desperately engaged in the war. While the case had been going on, and to meet the necessities of our wartime requirements, the Government had caused many aluminum plants to be built in the United States. These were plants producing alumina from bauxite, plants for smelting aluminum, and a great variety of plants for fabricating aluminum in various

ways.

These plants were under lease for the most part to Alcoa as operator, and the leases had not yet expired. And, of course, in March 1945 no one could tell how long it would be necessary for the Government to continue to have these plants in production. By August 1945, however, it became clear that Alcoa's lease should be terminated and the RFC gave the required notice provided for by the lease.

In September 1945, pursuant to an act of Congress, a plan for disposal of the aluminum plants was submitted to the Congress by the Surplus Property Board, and this plan was approved by the Congress. As a result of the disposal plan, the Surplus Property Board and later the War Assets Administration began to dispose of the Government's surplus aluminum plants.

The mandate from the Congress to the Surplus Property Board was not that it should act as a banker and try to get the highest dollar, but that it should endeavor to promote competition and increase the public interest in disposing of these aluminum plants.

And so the plants were disposed of. Some of them were, so to speak, cannibalized. They were broken up and sold for the value of the machinery or the value of the shell of the building. Some were sold out of the aluminum industry altogether. But for the most part the plants were disposed of to create new integrated producers. One is Reynolds Metals Co. and the other Kaiser Aluminum Co.

Mr. SHEEHAN. Mr. Emmerglick, you mention the Congress said that these were to be integrated plants. Would you dwell a minute on the thoughts of Congress with reference to this possible integration of the whole industry?

Mr. EMMERGLICK. I perhaps did not make myself clear. I was not suggesting that Congress said that they should be integrated operations. Congress said that these plants should be disposed of to promote competition.

Mr. SHEEHAN. But during the hearings and also on the floor the question of integration came up, whether they should be integrated plants or not.

Mr. EMMERGLICK. That came up.

Mr. SHEEHAN. Do you remember what the thought was on that? Mr. EMMERGLICK. I do, indeed. I am not able to recall what you have in mind, but I will be very glad to develop anything that you would like to suggest.

Mr. SHEEHAN. I only thought it would be appreciated to bring out the fact that when breaking these plants down, in the hearings that were held the facts were brought out that it would have to be an integrated operation, not broken down, so that the various component parts of aluminum would be sold, but it was thought that both of these companies would have to have, like Alcoa, a complete integrated operation.

Mr. YATES. In order to compete favorably.

Mr. SHEEHAN. Right.

Mr. EMMERGLICK. Mr. Congressman, I do not want to tax the Congress with the responsibility for that. It is my recollection that while there was discussion of that, it was left to the disposal agency to determine the pattern of distribution and how the disposal agency should proceed to dispose of the plants. I think that perhaps a mistake was made in the disposal of those plants in an integrated pattern. If that is so, I would not think I would want to put the blame on the Congress, because I think it rests elsewhere.

Mr. SHEEHAN. You might look up the hearings. You will find in the report issued in 1952 it was felt in order to favorably compete with Alcoa the plants would have to be integrated. The report so

stated.

Mr. YATES. What do you mean by a report-a report of the committee?

Mr. SHEEHAN. Yes.

Mr. YATES. Which one?

Mr. SHEEHAN. Aluminum expansion program in the 83d Congress, the 1st session.

Mr. YATES. You are referring to the Defense Production Act Progress Report No. 24; are you not?

Mr. SHEEHAN. That is right.

Mr. YATES. Issued on January 2, 1953. And I think you refer specifically to the items that appear on page 15 which refers to the statement by the Department of Justice

Mr. SHEEHAN. And the item on page 17.

Mr. YATES. And on page 17, which has a subhead to the effect that Congress recognized and endorsed integration as essential to competition. I read this report last night, and I wondered about that subheading, inasmuch as the reference in the body of that paragraph states that this was a finding of the Senate Small Business Committee, rather than of the Congress itself.

Mr. SHEEHAN. That is right. There was no official action of the Congress.