ALUMINUM INDUSTRY MONDAY, MAY 23, 1955 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE No. 3 OF THE SELECT COMMITTEE TO CONDUCT A STUDY AND INVESTIGATION Washington, D. C. The subcommittee met, pursuant to recess and subsequent postponement, at 2:10 p. m., in room 362, Old House Office Building, Washington, D. C., Hon. Sidney R. Yates (chairman of the subcommittee) presiding. Present: Representatives Yates, Steed, and Sheehan. Also present: George L. Arnold, Irving Maness, subcommittee counsel; Katherine C. Blackburn, Clarence D. Everett, staff members; and Victor P. Dalmas, assistant to minority members. Mr. YATES. This afternoon we have Mr. Walsh and Mr. Elliott from GSA. STATEMENTS OF MAXWELL H. ELLIOTT AND A. J. WALSH, GENERAL SERVICES ADMINISTRATION, ACCOMPANIED BY BYRON HARDING Mr. YATES. We are pleased to have you gentlemen from GSA present to give the committee the benefit of your advice as to what has taken place with reference to the purchase by the Government and the distribution by the Government of aluminum. Mr. ELLIOTT. I have with me Mr. Byron Harding. Mr. YATES. Do you propose to make a statement? Mr. ELLIOTT. We had no formal prepared statement or even an informal statement to make in advance, Mr. Chairman. We received your letter, and we know in general what you wish to inquire of us, and we are prepared to answer to the best of our ability. Mr. YATES. The contracts between the Government and Reynolds and Kaiser contain certain provisions, under the terms of which the production from the so-called expanded facilities-I think you know what I mean by that term Mr. ELLIOTT. Yes, sir. Mr. YATES. Are to be made available on the basis of one-third to the primary producers and two-thirds to the Government, with that portion of the part allocated to the Government which isn't used for the stockpile to go to independent fabricators. I think that is a correct statement of the provisions of the contract, is it not, Mr. Elliott? Or what is your interpretation? Mr. ELLIOTT. It is with these qualifications: First of all, as was brought out this morning, the Government in a separate paragraph has a call on the entire production, if it wishes to exercises it; and second, the provisions relating to distribution are subject to priorities in allocation, as was brought out in your examination of Dr. Flemming. That comes off the top of the bottle first. Mr. YATES. Were you one of the participants on behalf of the Government in the draft conference? Mr. ELLIOTT. Yes; I was. The basic negotiations, I think, on a very high level was done by Mr. Symington, then Chairman of the National Resources Board; Secretary Chapman, of the Interior; and Jess Larsen, Administrator of General Services; and also Jim Boyd, who was then Director of Mines. After those preliminary conferences the negotiations were conducted by Irving Gumbel, who was then assistant to Mr. Larsen, and by Mr. Harding and myself. Mr. YATES. Do you have a copy of the contract with you? Mr. ELLIOTT. Yes, sir. Mr. YATES. I refer your attention to article 3, paragraph 1, entitled, "Government Requirements," specifically subparagraph (a), which is entitled, "Call on Additional Aluminum Production," which reads: The Government may require the contractor to sell to it at the price provided in paragraph 1 of article 11 all or any of the additional aluminum production for each consecutive 6-month period during the continuance of this agreement, the first such period commencing with the date of completion of the additional facilities. Do you recall the purpose of that paragraph? Mr. ELLIOTT. Yes. There were a number of purposes. The first purpose was to assure to the Government a right by the contract to be able to obtain the entire production, either because the need might arise or when there was no period when allocations were in effect, or even if allocations were in effect, it might be another tool. It was contemplated, I think, that it would primarily be used for defense purposes, but I must say in candor it was not necessarily so limited. As a matter of law, there are no strings upon the right of the Government to call. As a matter of what is right and proper, I think the Government would have to have a sound governmental reason, which might be a need for direct defense requirements or other reasons. Mr. YATES. When you say a sound, proper reason, you are not referring to its legal right to call on the entire amount in accordance with the provisions of that paragraph? Mr. ELLIOTT. No, sir, I am just referring to the prudence in which an administrator exercises legal rights. The legal rights are unquestioned in my opinion. Mr. ARNOLD. Was the Defense Production Act in effect at the time of these negotations? Mr. ELLIOTT. Yes, sir. These contracts were negotiated pursuant to the Defense Production Act. Mr. ARNOLD. The Defense Production Act gives the Government the right to purchase or call on all facilities for military defense purposes, doesn't it? Mr. ELLIOTT. It gives them the right-the Defense Production Act gives the Government the right to impose controls and allocations, which in turn would give it the right to get production for defense purposes. As I say, we put this in the contract to give the Govern ment another tool to do that, and also because conceivably some Government purposes might arise in which the Government wished to call but which were not within the confines of the Defense Production Act purpose for allocation. Mr. YATES. It is the understanding that has been given to us, too, that one of the purposes, and possibly part of the intent, which lay behind the drafting of that paragraph was the need for the Government to protect itself and the nonintegrated users from exorbitant prices, and a price squeeze, giving the Government the power to purchase all of the production and to sell it on the open market would permit it to break a high price. Do you recall any discussions on that? Mr. ELLIOTT. Yes, sir, I remember specifically those discussions. They arose after we had negotiated preliminary letters of intent, although we had not executed them, with the producers, and in accordance with the then administration requirements, consulted with the Department of Justice and the Antitrust Division to get their reaction. At that time the first-round program envisaged, in addition to the three major producers, Alcoa, Kaiser, and Reynolds, also the introduction of Harvey, and Independent, and Apex, which is also an independent, although it is in the secondary-smelting business. And negotiations with those firms were underway as well. The Antitrust Division raised a question of what might happen to those two independents in case of a price squeeze under circumstances that would not be a violation of antitrust law. And we in writing advised them of this paragraph and advised them that in such a circumstance we could exercise our right by calling and reselling to break any price squeeze. Mr. YATES. And we there any discussion at the time of the possibility of using that paragraph, too, to protect the nonintegrated users in periods of short supply, as exists at the present time? Mr. ELLIOTT. Very frankly, Mr. Chairman, I have no recollection of either any discussion on that point or any thinking on it, one way or the other; I mean, it was just silent, we didn't think about that point. Mr. YATES. Is there any reason that you can think of, in view of the fact that discussion was had of the possibility of using it to protect against exorbitant pricing, why it shouldnt be used as well to prevent a monopolization of the supply during the period of shortage? Mr. ELLIOTT. Well, to answer your question as a lawyer, I would have to say I can see no reason. To answer your question as a matter of policy, then I think you are in the situation which you were discussing this morning, relative to that being the-I am now quoting Dr. Flemming-that being indirectly a form of control which, if he were elected to take steps, he would want to take all the way and not piecemeal. But that is a question, frankly, that GSA can't answer. That is a policy question which Dr. Flemming would have to answer as to whether it would be exercised. Mr. YATES. While we are on policy and lack of policy, the impression I got from Dr. Flemming this morning was that while there is supposed to be some integration in Government agencies, there seems, shall we say, a low fence, if not a complete barrier, to the operation of this policy. Dr. Flemming stated that supervision of this program really is under GSA. Would you agree with Dr. Flemming in that respect? Mr. ELLIOTT. No, sir. I would agree-although frankly, I didn't recall him to say that, I thought he said that supervision of the administration of the contract was under GSA, and that statement is correct. But insofar as calls are concerned, we get our directives from ODM. They direct us as to the amount of the calls in every case. Mr. YATES. In other words, Dr. Flemming's agency, ODM, tells you to go out and buy so many tons of aluminum for the stockpile? Mr. ELLIOTT. That is right, sir, or for any purpose. I would not concede that under the hierarchy under which we live that GSA of its volition would have authority to issue call for any purpose all by itself without first a direction from OD. Mr. YATES. IS ODM responsible for the administration of the stockpile other than the calls? Mr. ELLIOTT. ODM is responsible for determining what materials shall be stockpiled, the quality, quantity, and at what rate. And then we carry out the administerial function. And they are also responsible for designating the storage areas. Mr. YATES. Does anybody supervise you in the administration of that program? Does ODM ever check up on you? Mr. ELLIOTT. Mr. Walsh, would you like to answer that in detail? Mr. WALSH. Yes, sir, they do check up on us constantly. We are required to report to them monthly as to performance. Mr. YATES. What is the nature of the report you are required to make to ODM? Mr. WALSH. It is a report showing progress made against their directives, both dollarwise and quantitywise. And semiannually a report is made to them showing the open contracts and the undelivered materials against those open contracts. Mr. YATES. It was indicated this morning that once such a metal as aluminum enters the stockpile there is no resale of it. Dr. Flemming, by an order earlier this year, suggested that 75,000 tons be diverted, that apparently you had placed for the stockpile. Did you carry out Dr. Flemming's order? Mr. WALSH. Yes, sir. Mr. YATES. What happened to the 75,000 tons which was diverted from the stockpile? Mr. WALSH. As yet some of it is not produced. Mr. YATES. That was 75,000 tons which was to be delivered in the first and second quarters? Mr. WALSH. Yes. Mr. YATES. How much of it has been produced, and by whom? Mr. WALSH. I really don't know what amount has been produced. That would include production up to the end of June. And how far that production has gone I really don't know. Mr. YATES. Dr. Flemming also stated that 25,000 tons were to be diverted during the first quarter. Mr. WALSH. Yes, sir. Mr. YATES. And did you execute that request of Dr. Flemming? Mr. WALSH. That was included in the 75. Mr. YATES. That is correct. But I assume that 25,000 was diverted, that was also produced, was it not? Mr. WALSH. Not necessarily. We did not issue this directive to divert until the 7th of April. Mr. YATES. Well, there will be 75,000 tons diverted from the first quarter's production, will there not? Mr. WALSH. First and second quarters' production. Mr. YATES. How is that to be allocated? Mr. WALSH. You answer that. Mr. ELLIOTT. On April 7 we wrote to all the producers-I say "we"Mr. Walsh wrote them-Mr. Walsh wrote to all three producers proposing to cut back the amount that we had previously called for stockpile purposes by the amount for each producer on condition that each producer would make that amount available to the nonintegrated producers, in addition to the amounts that they had delievered and committed to delivery to the nonintegrated prior to April 7. Mr. YATES. Do you have copies of that letter, Mr. Elliott? Mr. ELLIOTT. Yes. Mr. YATES. May we have one for the record? Mr. ELLIOTT. Quite frankly, there was a request that goes beyond the obligation of the companies under the expansion contract. (The documents referred to are as follows:) Mr. A. J. WALSH, ALUMINUM COMPANY OF AMERICA, Commissioner, Emergency Procurement Service, General Services Administration, Washington 25, D. C. DEAR MR. WALSH: In accordance with the instructions contained in the last paragraph of your letter of April 7, we are returning herewith the original and one copy of the letter which has been executed by Robert B. McKee, vice president, on April 11. In accordance with instructions received verbally from the Purchase Division of EPS, we are also returning without signature indicating our acceptance all copies of your letter of March 11 covering the purchase of 54,860,000 pounds of pig aluminum under contracts Nos. GS-OOP-(D)-12007 and 12096. Yours very truly, ALUMINUM COMPANY OF AMERICA, Assistant District Sales Manager. GENERAL SERVICES ADMINISTRATION, ALUMINUM COMPANY OF AMERICA, Washington 6, D. C. GENTLEMEN: It is proposed that our purchase order of December 13, 1954, as amended, be further amended as follows: 1. Delete the first paragraph and substitute in lieu thereof the following: "General Services Administration hereby orders from Aluminum Company of America 91,490,000 pounds of primary aluminum pig under the following contracts between the Government and contractor, from production during the first and second calendar quarters of 1955, and distributed among said contracts as indicated: Contract No. GS-OOP-(D)-12007, as amended, 53,000,000 pounds; contract No. GS-OOP-(D)-12096, as amended, 38,490,000 pounds." 2. Delete from the third paragraph the date "May 31, 1955" and substitute in lieu thereof the following: "August 31, 1955." Add at the end of said paragraph the following: "You agree to furnish by May 15, 1955, a proposed schedule of delivery for any undelivered quantity of this order." 3. Delete the first sentence of the last paragraph of page 1 and substitute in lieu thereof the following: |