which Mr. Mayer says were filed in fiscal year 1959, it is clear that these applications would involve no more than about $500,000 worth of construction equipment at acquisition cost. This figure, by the way, should be compared with total annual domestic production of over $12 billion worth of construction equipment.

Mr. Mayer makes much of the point that foreign excess property brought into the United States will compete with used equipment acquired by equipment distributors as trade-ins on new equipment sales. Surplus is not sold in a secondhand market, except to a very minor extent. It is sold primarily in a market separate and distinct from both the market for new equipment and used equipment. A major reason for this is that most surplus equipment is probably at least 10 years old and, therefore, appeals only to purchasers who are willing to accept relatively old-fashioned equipment because they can't afford more modern items, or because such equipment is better suited for a particular job at hand. Again, there is not a shred of hard evidence showing that surplus equipment is a factor in the market for trade-ins. If equipment dealers are having difficulty disposing of used inventory, this is a reflection of their own merchandising practices, and not an indication of competition from surplus dealers.

THE DEPARTMENT OF COMMERCE POSITION

I should like to comment now on Mr. Rintels' statement to the subcommittee at the hearings on June 1. We were gratified to hear Mr. Rintels' exposition of the Department of Commerce's position. His testimony clarifies the Department's position and has considerably narrowed the area of difference. We were particularly interested in hearing Mr. Rintels' implication that the Department's position with respect to its preference for the "unless" rather than the “if” clause is based entirely upon administrative considerations.

Mr. Rintels insists that under the present language of S. 3154 the Department would be compelled to examine the entire inventory of foreign excess property to make a predetermination as to whether or not they could come into the United States. Mr. Rintels presented no justification or reasoning for this position and we believe it to be nonsense.

First of all, the Department of Commerce has been in this business of screening foreign excess property for more than a decade. Its experience during this period should indicate that there is an interest in bringing into the United States only a relatively few types of items from the thousands of products in the foreign excess property inventory. As a practical matter it is already in a position to apply the criteria to the items.

Secondly, the Department has stated that if its own proposal were adopted, as expressed in H.R. 9996 as reported by the House committee, it would establish a white list of items which could be freely imported; a black list of prohibited items; and a gray list of items which would be considered on a case-to-case basis. We do not know whether this is the best way to administer such a new statute, but if it is there is no reason why the very same steps cannot be taken under the present language of S. 3154. If, as Mr. Rintels suggests, it is the language of S. 3154 which raises a problem as to the Department's legal authority to prescribe such lists, this can be easily remedied by appropriate language in the committee report.

The distinction between "unless" and "if" is a very important one to those interested in surplus property. It affects not only the question of where the burden of proof lies, but also the spirit in which the law will be administered. There is no reason why the presumption should be against the American businessman who desires to reenter the property. Moreover, as you perceptively noted in the course of the June 1 hearings, the Department has in fact by pursuing its restrictive policies alined itself with the economic interests opposing surplus property. We have no reason to feel confidence in the impartiality of the Department in making these determinations so long as the BDSA plays a major role. We have presented voluminous evidence to the Congress demonstrating that the BDSA and some of its officials are biased against our interests. Furthermore, people interested in surplus property have no representation or voice within BDSA as to the policies which are to be followed, whereas the big manufacturers have such representation within BDSA.

With the use of the "if" clause in the bill, as in S. 3154, the Department of Commerce must make an affirmative finding of injury to reject a reentry. This protects us against the kind of arbitrary action against which we have been

complaining. On the other hand, adoption of the "unless *** not" clause would permit the Department to reject reentry merely on the basis that it does not have enough evidence for a finding that a reentry would not be injurious. This is pregnant with the likelihood of arbitrary discrimination, and in view of our experience with BDSA we cannot have confidence that the law would be impartially and fairly administered.

AMERICAN SHIPPING

During the course of the hearing, you asked whether foreign excess property brought back to the United States is shipped on American vessels. The answer is definitely in the affirmative. American steamship companies regard surplus property shipments as an important source of revenue--so important, in fact, that at least one group, the Pacific Coast Conference, has instituted a special rate for U.S. Government surplus property being returned to the United States by private purchasers. We understand that several large steamship companies are very much concerned about this problem and are communicating directly with your committee to express their strong support of S. 3154.

We are enclosing herewith an analysis of the construction equipment industry prepared by Mr. Robert R. Nathan who testified before the subcommittee on June 1.

We hope it will be possible for you to include these communications in the published hearings.

We very much appreciate your patient interest in this problem, and your courtesy in hearing our position. Please call upon me if we can be of any further assistance to you in the committee's consideration of S. 3154.

Sincerely yours,

MAX M. KAMPELMAN.

STATEMENT OF ROBERT R. NATHAN ASSOCIATES, INC., CONSULTING ECONOMISTS, WASHINGTON, D.C.

ECONOMIC CONDITIONS OF THE CONSTRUCTION EQUIPMENT INDUSTRY

Spokesmen for the construction machinery equipment industry seek to paint a picture of gloom and depression in their industry. They offer this portrait as a basis for their opposition to imports of defense surplus construction equipment.

While it is true that this industry has not reached the level of activity which prevailed in the peak year of 1956, it is hardly appropriate to characterize the industry as suffering a depression and faced with such severe adverse conditions as to justify the exclusion of a few million dollars worth of imported surplus items which would benefit materially a number of users who need such equipment and who cannot afford to buy new equipment. It is tremendously important to recognize the fact that the used market can be distinguished from the new market and that the availability of a very insignificant amount of imports would have a meaningless impact on sales of new equipment.

Early in 1960, the U.S. Department of Commerce published a report entitled "The U.S. Industrial Outlook for 1960." Following is the summary of the analysis relating to construction machinery and equipment:

"The general pickup in production and shipments of construction machinery and equipment noted in the first two quarters of 1959 was largely offset by curtailment of production in the third and fourth quarters.

"Production schedule cutbacks were first in evidence late in the second quarter and continued through third and fourth quarters. Inventories of finished products at both the producer and distributor levels began accumulating after July. Two reasons attributed for this condition are the difficulty experienced in the financing and letting of additional Federal highway contracts and the shutdown in the mining industry because of the steel and copper strikes. Large quantities of construction machinery and equipment are normally purchased for use in highway construction and mining.

"Ample inventories of raw materials had been accumulated by the producers prior to the steel strike. Lead time for materials-to-finished product in the construction machinery and equipment industry averages 10 months."

The general prospects for the American economy are currently subject to widely divergent points of view. The extreme optimism which prevailed late

in 1959 has been somewhat modified. The slowdown in activity in February and March was interpreted by some as a temporary phenomenon attributable primarily to the extreme weather. Others concluded that this was the beginning of another recession.

It can be stated generally that improved activity in April and May has restored considerable optimism but that the degree of favorable expectation prominent late in 1959 is still substantially absent. Nevertheless, it does appear that the year 1960 will be a prosperous one and that there are no signs at this time that a recession is imminent.

An analysis of production and profits and prices in the construction equipment industry does not in any meaningful degree substantiate any conclusion whatsoever that the industry is truly depressed. The increased degree of competition abroad which has resulted in a declining trend in exports plus the interminable delays on the part of the Federal Government in letting highway construction has no doubt delayed further improvement in the industry from the recovery which took place in 1959. On the other hand, expenditures by State and local governmental units are definitely on the increase.

Total new construction in the United States in 1959 was $54.3 billion as compared with $48.9 billion in 1958 and $47.8 billion in 1957. The big increase in 1959 was in residential nonfarm construction, which is not an important element in affecting the demand for construction equipment. Excluding residential nonfarm construction, all new construction aggregated $32 billion in 1959 which compares with $30.9 billion in 1958, $30.8 in 1957, and $27.5 in 1956. The seasonally adjusted figures for the first 4 months of 1960 are $32.5 billion. Federal, State, and local construction aggregated $16 billion in 1959, which was an alltime high. In the first 4 months of 1960, it was slightly lower than in 1959.

The pricing policy of the construction machinery and equipment is an important factor that needs to be considered. From the beginning of 1957 to date, average wholesale prices in the United States rose about 3 percent. However, construction machinery and equipment rose on the average by 16 percent. From 1950 to April 1960, all wholesale prices increased about 16 percent but construction equipment prices rose 57 percent. Increases for certain categories of equipment are even greater; for example, tractors (for other than farm use) increased in price by nearly 70 percent since 1950. This raises the question whether the producers of such equipment are not pricing themselves out of markets both in the United States and abroad.

It is to be noted, further, that the profits of the industry, as reflected in published data for leading companies, scarcely support a picture of gloom and deep depression. Many of these firms produce large quantities of agricultural and industrial equipment in addition to construction machinery and their improved profits reflect improvement in sales generally. The net earnings of one of the largest construction equipment manufacturers, the Caterpillar Tractor Co., fell from $81 million in 1957 to $62 million in 1958 but increased to over $90 million in 1959. The Allis-Chalmers Manufacturing Co., also one of the largest makers of construction equipment, reported net earnings of $38 million in 1957, $42 million in 1958, and $45 million in 1959. International Harvester's net operating profits increased from $73 million in 1958 to $138 million in 1959. Smaller companies such as Link Belt Co., Bucyrus-Erie Co., Koehring Co., and Thew Shovel Co. report improved profits in 1959 but continued lower than in the banner year of 1956.

Nearly all of the companies mentioned above reported substantially improved shipments in 1959, and available reports for the first quarter of 1960 are on the plus side. U.S. Census Bureau data available for the first quarter, 1960, show that shipments of tracklaying tractors were 12 percent higher than during the same quarter in 1959.

The longer term outlook for the construction and equipment industry is certainly favorable. From our analysis of this industry we can only conclude that the long-term trend is for increased production and shipments. Higher levels will be the more quickly attained as the Federal Government decides and is able to move ahead with its multibillion-dollar highway program and other public expenditure programs. Expenditures of State and local governments for construction equipment will continue to rise, and it may be anticipated that expenditures by private construction firms and others who utilize construction machinery will reflect improvement in economic activity generally.

Incidentally, the declining export trend not only reflects increased foreign competition but may be attributable to capture of oversea markets by an increasing number of U.S. wholly owned foreign facilities and foreign-owned facilities operating under licensing arrangements. Prior to 1958, U.S. companies had 7 oversea manufacturing plants; the number has jumped to 85. These factories do business from England, France, Germany, Brazil, Japan, and other countries and take local currency for payment.

The industry itself, through more realistic and aggressive pricing and marketing policies, can and will, in our opinion, effectively reduce existing inventories and generate new demand for its products. Shutting out a few million dollars of excess property imports of surplus construction machinery and equipment could only insignificantly benefit the industry and must be weighed against the economic benefits to be derived by the Federal Government through sales of foreign surplus and by the ultimate users of such equipment.

In any event, the blanket contention that imports of construction equipment, sold as foreign excess property, are detrimental to the economy is without foundation. Clearly, this needs to be examined periodically in the light of the growth needs and performance of the American economy. What this calls for is a flexible approach such as would be embodied in the new legislation we recommend.

INTERNATIONAL COOPERATION ADMINISTRATION,

OFFICE OF THE DIRECTOR, Washington, D.C., June 1, 1960.

Hon. JOHN L. MCCLELLAN,
Chairman, Committee on Government Operations,
U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: This is in reply to your requests dated September 30, 1959, for our views regarding the provisions of S. 2725 and S. 2732, two bills to amend the Federal Property and Administrative Services Act of 1949 to permit the donation of foreign excess property for use in foreign countries for health and educational purposes.

ICA believes this proposed new authority for donations of foreign excess property for health and education purposes could be of valuable assistance in promoting economic development and improving living standards in foreign countries. ICA, therefore, favors the enactment of legislation permitting such donations.

My specific comments on the provisions of the two bills, S. 2725 and S. 2732, are as follows:

1. Centralized management

Both bills provide for some centralized management of operations to be carried out under the bill. I agree that centralized management would appear to be necessary for such purposes as establishing criteria for determining the eligibility of the agencies requesting donations, assisting in determining the adaptability of requested property for the intended health and education purposes, approving proposed programs for the use of excess property by recipient agencies, and assuring that donated property is not diverted to unauthorized uses.

The provisions of S. 2732 appear to me to permit necessary centralization of the administration of functions authorized under the bill while leaving sufficient flexibility for distribution of those functions between the agencies owning excess property and the administering agency in whatever manner may be determined most practicable. S. 2725, on the other hand, appears to go too far in the direction of centralization in that it appears to require one agency designated by the President to donate all foreign excess property and to determine the suitability of such property for health and education purposes. The act of donation itself would, I think, be best performed by the agency owning the property. The determination as to the suitability of the property can also often best be made by the holding agency, which is likely to possess the most expert knowledge concerning the property.

2. Administrative funds

The agency designated by the President to undertake the centralized management functions referred to above will need funds for salaries and expenses in carrying out such functions. It is probable that the agency which will be designated by the President to carry out these functions will have no authority

to expend its funds for such purposes. It might be well, therefore, to include in any bill which your committee may consdier, an authorization for an appropriation to the President of such sums as may be necessary from time to time to carry out the provisions of the proposed new section. Experience with similar programs indicates that the program contemplated by these bills will in all probability require considerable funds for its administration. Effective implementation of a program of donations of foreign excess property will depend upon a careful estimate of the cost of implementation and appropriation of the necessary funds.

3. Eligible recipients of excess property

First, S.

The authorization in S. 2725 to donate foreign excess property to any "nonprofit, charitable, or eleemosynary public or private organization which carries on health or educational activities in such foreign country" seems to me to be preferable to the provisions of S. 2732, which authorize donations to "nonprofit or tax-supported medical institutions, hospitals, clinics, health centers, schools, colleges, and universities" with preference for such organizations directly or indirectly founded, sponsored, or supported by American citizens. 2725 avoids the preference for American organizations which might appear unduly discriminatory to sensitive foreign countries. Second, the language of S. 2725 in describing eligible recipients in terms of the type of activity which they carry on rather than in terms of the type of organization as in S. 2732 will avoid the possibility of inadvertent exclusion of an otherwise appropriate organization. In addition, the phrase "nonprofit or tax-supported" as used in S. 2732 may give rise to difficulties of interpretation which are avoided by the language of S. 2725.

4. Role of foreign government

Both bills provide for donations or transfers of foreign excess property only to an agency (except preferred American-supported agencies under S. 2732) designated by the foreign country for the purpose of distribution of property disposed of under the new section. In addition, S. 2725 requires a certification from the agency so designated that property received under the section is usable and needed for educational and health purposes in the foreign country and a determination by the U.S. agency designated to carry out the new section that the foreign agency has conformed to minimum standards of operation prescribed by the U.S. agency.

I believe that the intent of these provisions can best be achieved by an agreement to be entered into between the recipient agency and either the U.S. agency donating the property or the U.S. agency performing central management functions, which agreement might, depending on the circumstances, set forth the purpose of the donation, the terms and conditions under which the donated property is to be used, and the right of the United States to conduct audits and end-use checks to assure against improper diversions of property. Such agreements could be entered into under section 405 (d) as set forth in S. 2732. Requirements for certifications by foreign agencies and conformance with standards prescribed by the United States might seem somewhat offensive to foreign countries and might not be as practical a means of insuring proper use of excess property as would the agreement and audit procedure described above. I would therefore prefer the language of section 405 (d) as contained in S. 2732 to the sentence in lines 7 through 16 on page 3 of S. 2725.

The requirement in both bills that the foreign country designate the organization to receive donations under the section presents two problems: (1) the language, especially as worded in S. 2732, could be construed to mean that the foreign country may designate only one agency to receive all property disposed of under the new section, which central agency would presumably redistribute the property to other agencies, and (2) the foreign government must play an active role by designating eligible agencies. It would seem an unnecessary complication to require one central receiving agency and to require formal designations by the foreign government. I would propose as a substitute for the sentence appearing in lines 2 to 7 on page 3 of S. 2725 and on lines 6 to 12 of page 3 of S. 2732 the following:

"No property shall be donated under this section except pursuant to arrangements agreeable to the government of the country in which the property is to be used."