When the U.S. Congress prohibited the importation of foreign excess property, it said in effect that the only cases where permission for such importation would be justified would be in cases where by such importation, domestic shortages would be relieved or that such importation would be otherwise beneficial to our domestic economy.

The removal of the safeguard afforded our domestic industry, as long as that industry is more than capable of taking care of domestic requirements would undoubtedly prove dangerous to the economic health of our industry.

This is also especially true since in many areas of the world, through the force of competition from foreign nations having a considerably lower scale of economy, export trade of our domestic industry has been seriously curtailed.

We do not feel that we should be further jeopardized by having to compete in our own domestic market with U.S. Government generated surplus power cranes and shovels.

According to Power Crane & Shovel Association official figures, shipments for the first 4 months of 1960 domestically by our industry have fallen approximately 82 percent, same period 1959.

At the same time, official figures of the association on reports of inventories on hand of completed machines have increased in April 1960 over April 1959 by 48 percent. These figures represent completed inventory of machines on hand in plant inventories and in dealer inventories. The total number of machines available in inventory in this country as of the end of April 1960 represent nearly 1,000 machines in the three-eighths cubic yard through 22 cubic yard capacities.

It is to be further noted that in each month of 1960 to date, the inventories of completed unsold machines have steadily increased.

By relaxation of the safeguards of present section 402 of Public Law 152 and the permission of wholesale importation of foreign generated surplus for resale in this country could very well create an economic crisis in our important segment of the construction machinery industry.

On behalf of the Power Crane & Shovel Association, I wish to thank sincerely the members of this committee for permitting me to appear before you today and would be pleased to attempt to answer any questions that the members of the committee might have.

Senator GRUENING. Our next witness is Mr. H. J. Mayer, Associated Equipment Distributors.

Mr. MAYER. Yes, sir.

Senator GRUENING. We are pleased to have you here, Mr. Mayer. You may proceed with your statement.

Mr. MAYER. Thank you, sir.

STATEMENT OF H. J. MAYER, EXECUTIVE VICE PRESIDENT, WESTERN MACHINERY CO.; GENERAL MANAGER, OF EDWARD R. BACON CO., SAN FRANCISCO, CALIF., AND PRESIDENT OF ASSOCIATED EQUIPMENT DISTRIBUTORS; ACCOMPANIED BY JOSEPH T. KING, GENERAL COUNSEL

Mr. Chairman, my name is H. J. Mayer. I am executive vice president of Western Machinery Co. and a partner and general manager of Edward R. Bacon Co., with headquarters in San Francisco, Calif. The Western Machinery Co. also has establishments in Denver, Colo.; Salt Lake City, Utah; Spokane, Wash.; and Phoenix, Ariz. I am also the current president of the Associated Equipment Distributors, a national trade association composed of over 800 heavy construction equipment retailers.

I am appearing here today in opposition to the bill, S. 3154, which would weaken the present controls over the importation of foreign excess property.

Sitting beside me is Joseph T. King, the association's general counsel. Mr. King is from Washington, D.C., and his office is located at 1028 Connecticut Avenue NW.

At the conclusion of my remarks we would like permission for Mr. King to comment on some of the legal aspects of the legislation.

The type of equipment handled by our industry has an average useful life far in excess of most other types of personal property sold by the Government as surplus. The larger items can have a life expectancy of from 5 to 20 years. For example, cranes and shovels will have a life expectancy of from 15 to 20 years, while tractors, under normal conditions, have a life expectancy of 5 to 8 years. If, as a result of the Government disposal program, the construction equipment market becomes saturated, it will remain saturated for a good many years. The dumping of construction equipment on the west coast following World War II, and prior to the enactment of the foreign excess property law in 1949, depressed the used equipment market for several years and resulted in a serious hardship to the distributors selling and renting both new and used equipment.

Because of previous misunderstandings as to the nature of our business, I feel a clarification on the subject is necessary. Except for the types of equipment we sell and the customers we serve, we are no different from the farm equipment or automobile retailer who buys, stocks, sells, and services the products of the manufacturers he represents. Like the farm equipment and automobile retailers, we are required to take trade-ins. This puts us in the secondhand equipment market. In contracts, however, nearly one-half of our distributors are also engaged in the business of renting new and used equipment. Even those not in the rental business occasionally rent the equipment as a service to their customers.

Although we equipment dealers have probably suffered as much, if not more, than any other single segment of the economy as a result of the disposal of Government surplus property, we recognize the problem will exist so long as the country is required to maintain a strong defense. Our position with the disposal agencies is that they spread their sales of construction equipment geographically and avoid periodic dumping. Where the disposal agencies have disregarded these recommendations it has caused serious problems in the local market. In appearances before other committees, we have repeatedly taken the position that the long-term solution to this problem lies in the control of military procurement and utilization of inventories currently in the hands of the military.

The construction equipment industry's role in the economy is not always fully appreciated. This industry not only must be geared under present world conditions to serve a normal economy but also must be prepared to meet defense and wartime emergencies practically overnight. In a less dramatic way our industry is as essential to the defense of the country as those producing military weapons.

In addition to filling direct military requirements in time of war, equipment must be available for related wartime expansions, such as construction of new and the enlargement of existing production facilities, and the construction of military training bases and housing. At the same time the industry must satisfy the construction equipment requirements of the civilian economy and war-supporting activi

ties which include highways, railroads, utilities, waterways, mining, and logging operations. This industry is geared to perform this threefold function in wartime as is evidenced by the fact it currently is meeting full civilian and defense demands plus the requirements for the national highway program while operating at only 60 percent of capacity.

During World War II, while the manufacturers were producing new equipment to meet direct military requirements, the dealers were maintaining used equipment and rebuilding old and obsolete machines to fill the needs of the civilian economy, war-supporting industries and for the expansion and maintenance of utilities. Although this is no more than should be expected, this threefold function of the industry has an important bearing on the question before the committee. If the Government continues to depress the industry through the disposal of competitive products, this is bound to result in the reduction of present facilities at both the manufacturer and distributor level. Such an effect obviously would be detrimental to the overall defense

program.

During my experience in the construction equipment industry I have never seen a competitive situation any worse than it is today. Net profits before taxes have been continually shrinking since 1956. The association's cost-of-doing-business survey shows that the average distributor's return on sales before taxes in 1956 was 3.37 percent. In 1957 it was 2.46 percent. In 1958-admittedly a recession year—it was 2.15 percent. The 1959 figures are currently being compiled but everything indicates that the situation has not improved. In my own company I know the situation was worse. So far in 1960, sales are off from the comparable 1959 period. Based on my discussions with other distributors around the country, apparently this downward trend in sales and profits is industrywide.

I offer the committee a few pieces of recent sales literature on used construction equipment which is further indication of our oversupply problem. First, I call your attention to the auction by Forke Bros. at Manchester, N.H., which is to be held on June 16, 1960, and the auction held by the same company at Boise, Idaho, on April 14 and 15, 1960. These are not isolated instances as this organization is continually holding auctions in different parts of the country. Your attention is also directed to an auction held by Davis Weisz Co. on May 24, 1960, at Hemet, Calif. When items like these are thrown on the auction block, it clearly indicates a strong buyer's market.

I also call attenton to the flyers sent out by the U.S. Truck Sales Co., of Cleveland, Ohio, and received by one of our members on March 24, 1960. Two of the flyers cover unused surplus equipment and the third flyer covers both Government surplus equipment and non-Government used equipment.

In addition, I call your attention to the two attached releases of the Boston office of the Small Business Administration dated April 22 and May 6, 1960. I do not know how often these releases come out, but these are only about 2 weeks apart. These releases cover only Government property declared surplus by New England installations in this very short period of time. This, as you can appreciate, is only a sample of what is being offered by military installations throughout the country.

Government surplus is also being donated to State, local, and municipal governments. These were our former customers. The only charges to the State and local governments are the cost of handling and transporting this construction equipment. I offer you this clipping from the Victoria Advocate, March 19, 1960, as a typical example of the type of surplus equipment available, practically without cost, to our governmental customers and symptomatic of what our industry is confronted with as a result of surplus disposal programs. From the foregoing it should be evident that the productive capacity of the construction equipment industry far exceeds the demands of the current market; the market is saturated with used equipment taken in trade; and domestic generated surplus is presently more than we can cope with, as evidenced by "Rock and Dirt," one of the many publications advertising used and surplus equipment, which is typical of the situation all over the country. Each of these factors has contributed to the present depressed economic condition in the industry. In the light of these facts you can appreciate why we are concerned about the suggestion that more surplus property be returned from overseas. This would be "heaping coals on the fire."

During the course of these hearings, others will advance arguments supporting the relaxation or elimination of present controls over the reimportation of foreign excess property for sale on the domestic market. Previously the proponents of this legislation have contended:

1. That there is very little usable surplus property overseas and that the amount disposed of overseas is relatively minor compared to that disposed of domestically.

In the first place, there is so much conflicting information on the amount of current or potential surplus property overseas that we can only speculate on the actual amount. The only logical approach is to project available data and reach some plausible measure of the oversea surplus situation as it applies to our industry.

According to Department of Commerce estimates, the amount of oversea surplus held in bond in U.S. ports as of March 31, 1960, had an acquisition value of $8 million. Using the Department of Commerce figures and estimates, apparently 40 percent or $3 million of this bonded oversea surplus are items handled by our dealers.

During the fiscal year 1959, according to the Department of Commerce, importers applied for permits to bring approximately $75 million worth of oversea surplus into the United States for sale on the domestic market. Applying this ratio, it would mean that $30 million worth of construction equipment could be involved in these applications. Admittedly this is at best a very rough analysis of our part of the problem.

The extent to which the applications would increase in the event. the controls were relaxed is problematical but could reach serious proportions. We wish to make it clear we have been talking in terms of acquisition value, which is the only figure that can be used since values on specific items range all over the lot and depend upon individual appraisals or values placed on the property for importation bond.

In view of the conflicting evidence on the amount of oversea surplus we contend the problem is substantially greater than some would

lead us to believe. But even if it were not, to argue that a little more surplus from overseas will not be damaging when you compare it with the quantity that is being disposed of on the domestic market is like saying one more drink for the road won't hurt.

2. It has also been argued that this cheaply acquired oversea surplus will not compete directly with manufacturers because it is sold in a secondhand market, which the manufacturers do not reach.

This argument disregards the fact that this secondhand market is where dealers dispose of the used equipment they acquire as trade-ins on new equipment sales.

3. It has also been argued that there is a real market for this oversea surplus equipment among farmers and other small users who have intermittent use for this equipment.

Obviously, there is a market of intermittent users of secondhand equipment. Admittedly there is always a market for anything that sells below the going price. This so-called intermittent demand, however, is currently met by the contractors and by companies who rent equipment to the so-called do-it-yourself customers. Is it proposed that these contractors, renters, and their employees be deprived of this livelihood?

4. Then it was stated that there are small operators who are unable to purchase such equipment, even at the lowest normal prices of usable secondhand equipment.

This argument implies that oversea surplus equipment would be sold only to those unable to purchase secondhand equipment currently offered on the domestic market. I don't believe any of us are so naive as to believe that this equipment would not go to the highest bidder regardless of his economic status. Assuming, however, that it might be sold to a person who could not normally buy it from normal channels, what assurance do we have that he would not in turn sell it to another person who would have been a buyer in normal channels? The possibilities remind me of the veterans preference deals following World War II.

5. Again, it was said that this equipment will be sold to a person who is currently unable to get into the contracting business.

Even if this could be guaranteed, the contractor with the oversea surplus equipment or property (if he acquired it cheaper than a comparable product on the domestic market) would have an economic advantage over the contractor using equipment purchased on the domestic market.

It might be helpful to use an analogy to demonstrate the fallacy of this argument. Let's assume you do not have a public utility commission fixing cabfares here in Washington. Cabdrivers would then base their fares on their cost of operation, plus a profit. If some cabdrivers were able to acquire Government surplus automobiles at approximately 25 percent of their acquisition costs, the purchasers of these cars would have an economic advantage and would be able to establish lower rates. According to this argument, some individuals, who could not otherwise buy a new cab, could start up in business and a new market would have been created.

However, with a lower cabfare offered by these new entrepreneurs the drivers operating with cabs purchased in commercial channels would have to meet these competitive prices. When they did, their