sporting goods is reduced, their operating costs go up, their capital is tied up in inventory that they cannot move, and their orders for similar and for other goods are reduced if not eliminated. The influence of the low priced sale of a small quantity of imported sleeping bags, like waves in a pond, extend in all directions. The point that only a few sleeping bags are involved is not valid because many, many dealers and many wholesalers will become involved. If 3 dealers in a town where 30 dealers exist, sell the low priced imported sleeping bags, 27 dealers are not able to compete effectively pricewise in the sale of goods of like grade and quality.

I believe that your committee and the Congress should consider carefully the far-reaching effects of admitting a single shipment of sleeping bags and tents declared surplus overseas for resale in this country. I hope that you will make these few points I have tried to bring out a part of the subcommittee hearings concerned with H.R. 9996, as amended.

DEAR SENATOR GRUENING: During the course of your subcommittee's hearing on S. 3154 on June 1, a number of statements were made by various witnesses on which I feel some comment is necessary.

THE CONSTRUCTION INDUSTRY

First of all, let me say, Senator Gruening, that you were completely correct in pointing out that if the construction equipment industry is facing a problem, the problem must be met squarely by going to its root. It is perfectly clear that foreign excess property has nothing to do with whatever may be the present plight of the manufacturers and distributors of construction equipment.

We do not question that the construction equipment manufacturers are operating at only 60 percent of their capacity. But this capacity is geared for wartime conditions, and barring some major and unlikely upsurge in our peacetime economy, this industry cannot hope to operate at peak capacity. Thus, during the Korean war in 1951 and 1952 respectively, the Government bought $316 million and $445 million of construction equipment, while Government procurement under normal peacetime conditions such as during the past 5 years has run from $50 to $74 million. This is a fact of economic life, and availability of surplus property has nothing to do with this fact. Actually, there have now been since June 1958 four major hearings on the problem of reentry of foreign excess property-three hearings before the Dawson committee in the House, and the hearing before your committee. Despite all the complaints and concerns expressed, there has never been a single specific, factual example presented as to injury to a domestic manufacturer caused by availability of surplus property.

The recent report by the Dawson committee on H.R. 9996, companion bill to S. 3154, explicitly points out that there has been little "hard evidence" and no cases shown of harm to domestic industry. In his testimony before your committee, Mr. McKenrick, spokesman for the Construction Industry Manufacturer's Association, acknowledged that his industry has not been hurt in the past by importation of foreign surplus because of the present provisions of law. But is it not significant that he cannot point to even a single case of harm caused by domestic surplus, which has entered the economy on a volume about 20 times that of foreign surplus ever since the end of World War II?

There are a number of hard facts which we can give the committee. We urge you to consider the following.

1. Wholesale prices of construction machinery and equipment have risen from (1947-49=100) 90 in 1947, to 111.5 in 1950, to 148.6 in 1956, to 169.2 in April 1959. This should be compared with the wholesale price index for all commodities which has risen from 96.4 in 1947 to 120 in April 1959.

2. Many manufacturers of construction equipment have continued to show a high volume of sales and net profits, with a decline only for the period reflecting the most recent business recession. Caterpillar Tractor Co., for example, had net sales of more than $742 million in 1959, well above the $685 million sales in the "peak year" of 1956, and its sales for the first quarter of 1960 were well above those for 1959. In addition, Caterpillar's net earnings in 1959 were considerably higher than in our recent year except 1956. The same is true for Koehring Co. The sales of Allis-Chalmers in 1959 were higher than for any recent year except 1956, and 1960 sales for the first quarter were well above those for the comparable period in 1959. Engineering News Record for March 24, 1960, states that January 1960 was a record month for new equipment orders, percent over the record set in 1951, and predicted that 1960 "should set a new high in equipment orders."

3. American manufacturers of construction equipment have established manufacturing facilities in many foreign countries. Department of Commerce figures show that there are at least 85 such plants in other countries. Prior to 1958, the United States produced 96 percent of the construction equipment used in the free world. This new development has drastically reduced exports of equipment from the United States, and much of this equipment manufactured abroad is returned to the United States for sale in competition with equipment made by American workers.

CONSTRUCTION EQUIPMENT DISTRIBUTORS

Mr. H. J. Mayer testified at the June 1 hearing concerning the "plight" of construction equipment dealers. He points out that his association's Cost of Doing Business Survey shows that the average distributor's return on sales before taxes was 3.77 percent in 1956, 2.46 percent in 1957, and 2.15 percent in 1958, which, he added, was "admittedly a recession year." He uses these figures to suggest that the problem is one of a falloff of sales. But this very same survey on page 4 characterizes 1956 as a "peak year" from the standpoint of sales volume, and shows that for all distributors, the median average sales volume was $1,994,419. True the median average of sales dropped in the recession years 1957 and 1958 to $1,770,743 and $1.739,859 respectively. Thus the decline in median average sales from 1956 to 1958 was only about 10 percent. The real difficulty with the profit picture of this industry is not to be found on the sales side, but rather on the expense side. This is shown clearly in the survey introduced by Mr. Mayer which indicates and explicitly states that the "generally dismal gross profit picture on used equipment sales can be traced to over allowance on trade-ins" which over allowance averaged 12.6 percent per dollar of sales. Similarly, the survey shows that another factor affecting profits on used and new equipment has been the increases in the prime interest rate since 1956.

Accordingly, the effort to suggest that there is a meaningful relationship between foreign excess property and the economic situation of equipment distributors must be labeled as palpably misleading, to put it mildly.

Similarly, your subcommittee was told that the recent practice of auctioning construction equipment "indicates a strong buyer's market." This is simply not true. Within the past several years, the Department of Defense has commenced the practice of selling surplus construction equipment at auctions. The experience at such sales showed that auctions could move equipment more quickly with greater monetary return than ordinary selling techniques. Accordingly, several private companies have become construction equipment auctioneers. Development of this auction practice is not a reflection of distress-it reflects only a new, aggressive sales device for getting rid of inventory at good prices.

Mr. Mayer uses the device of "scare" figures. First, he tells the committee that there are no sound estimates as to the amount of foreign excess property. Then he tells the committee that during the fiscal year 1959, prospective importers sought to bring $30 million worth of construction equipment into the United States as foreign excess property. His admittedly "rough" analysis is untrue. Colonel Rey provided authoritative data on the quantity of foreign excess property. There is no mystery about this. According to Colonel Rey's testimony, during fiscal year 1959 the Department of Defense disposed of only $12 million worth of construction equipment as domestic surplus. Thus, only about 0.6 percent of all domestic surplus was construction equipment. Applying this percentage to the $75 million worth of foreign excess property applications

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.

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,

ΜΑΧ Μ. ΚΑMPELMAN.

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.