who want to testify on S. 3154, and we have Max Kampelman, counsel for the American Association of Surplus Property Importers.

TESTIMONY ON S. 3154

Mr. KAMPELMAN. Thank you, Mr. Chairman.

Senator GRUENING. Mr. Kampelman, have you a written statement? Mr. KAMPELMAN. I do, Mr. Chairman. I would propose, since it is a lengthy statement, that I omit portions of it, with the understanding that

Senator GRUENING. That will be very agreeable, I think. Your full statement will be introduced into the record as presented; but if you will be kind enough, in the interest of saving time, to summarize and hit the high spots, and give us an idea what your basic thoughts are.

STATEMENT OF MAX KAMPELMAN, COUNSEL, AMERICAN
ASSOCIATION OF SURPLUS PROPERTY IMPORTERS

Mr. KAMPELMAN. Yes; I will eliminate portions of the testimony with that in mind, Mr. Chairman.

Our association, Mr. Chairman, is a newly organized group, and we came into being primarily to defend our members against an interpretation of a Federal statute by the Department of Commerce which, in our judgment, threatens the business survival of our members.

Senator GRUENING. Well, tell me, what is your organization?

Mr. KAMPELMAN. The American Association of Surplus Property Importers.

Senator GRUENING. You import property from other countries to the United States?

Mr. KAMPELMAN. We import foreign excess property, which is that property sold by our Defense Department and its agencies abroad as surplus. We purchase that property under sealed bid and by auction, and we then import it into the United States. We also purchase similar property here in the United States when it is sold at domestic depots.

Senator GRUENING. And what do you do with the property that you purchase in the United States? You do not export that, do you?

Mr. KAMPELMAN. On occasion, that property is exported, as my testimony will indicate. On other occasions, we will sell it here in the United States; frequently, we manufacture it; on occasion, we repair it; on other occasions, we sell it as is, depending upon the condition of the item.

Senator GRUENING. How many surplus property importers are there in your association?

Mr. KAMPELMAN. It is difficult to know how many there actually

are.

There are in our association about 25 or 30 importers. On the other hand, there are more than 5,000 dealers in surplus items, which include items that are imported. They are represented also by the National Auto and Truck Wreckers Association, as well as by other surplus organizations, and we are authorized to indicate their support for the bill as well.

Senator GRUENING. Are there surplus property importers who are not members of your American association?

Mr. KAMPELMAN. I would assume there are.

Senator GRUENING. But perhaps not many; most of them are members?

Mr. KAMPELMAN. Yes, they are.

Senator GRUENING. And you have about 35?

Mr. KAMPELMAN. Yes, about that.

Senator GRUENING. Well, apparently the importation and disposal of truck surplus property is a major business, is it not?

Mr. KAMPELMAN. It is a major business. Many, many thousands of people are employed in connection with that business. These members of our association might, in the vernacular, perhaps be called wholesalers rather than retailers. And stemming from them would be many dealers in community after community whose business activity relates to surplus, and they belong to their own associations there.

Senator GRUENING. Have you any idea in round numbers what the annual value of the surplus property that was handled by your association would be?

Mr. KAMPELMAN. I could give you the figure that was mentioned by the Department of Defense as to the total amount at acquisition cost of surplus property which was sold abroad, but not necessarily sold to our members. And that figure that has been used is about $350 million.

We are told, in the course of evidence before the House committee on this subject, that about 20 percent of that total is purchased by American business people abroad, which would mean, let us say, $35 million to $40 million. We are also told that, of that amount, perhaps half would be returned to the United States, and that some American purchasers do not desire to return it here if they have customers abroad.

Senator GRUENING. I take it that most of the surplus property that arrives in the United States originates with our Military Establish

ment overseas.

Mr. KAMPELMAN. That is correct, sir.

Senator GRUENING. And what are the principal articles? Is it automotive equipment?

Mr. KAMPELMAN. A great deal of it is automotive equipment. This automotive equipment takes two forms. It would take the form of the vehicles themselves; but an important item is spare parts for the vehicles, and it is difficult for me to know which is really the more important. The spare parts are very essential items.

In addition to the automotive equipment, construction equipment is sold abroad. And then there are soft goods-shoes and the like. Senator GRUENING. Clothing?

Mr. KAMPELMAN. Clothing, yes, and the like.

Senator GRUENING. Now, does your association act as a unit in bidding?

Mr. KAMPELMAN. No, it does not.

Senator GRUENING. Individual importers go to various places, various depots, and make these sealed bids, is that it?

Mr. KAMPELMAN. Yes. It is a highly competitive business.

Senator GRUENING. Highly competitive?

Mr. KAMPELMAN. Highly competitive, and these sales are done in sealed bids; although of late, the auction principle has been adopted. Now, the auction principle was adopted, I understand, by the Department of Defense because there has been a great deal of pressure and urging on the part of some of the committees of the Congress on the Department of Defense to increase its return on the acquisition dollar, and they have been challenged, therefore, to find techniques which might increase the amount received. Therefore the auction principle went into effect so these sales are either by sealed bid or auction.

Our people would all fit within the category of small business. It is an industry that came into existence, Mr. Chairman, after the war. It was started by a great many individuals who used their ingenuity to find out how best they could prosper and find a place for themselves in the community. During the course of the last 15 years or so this industry has become firmly established as a good, valid, respectable industry. It is an industry which is now on its feet and would like to remain and survive as an industry.

Senator GRUENING. I suppose as long as there are large quantities of surplus there will be agencies originating efforts to dispose of it. Could you give me any idea about what percent of the original cost is provided in the bidding by these various surplus importers?

Mr. KAMPELMAN. It is very difficult to tell, and there is no constant on it. I have asked this question of our members, and I have been answered with illustrations. For example, it might go as high as 20 cents on the acquisition dollar, and sometimes even higher. On the other hand, it will go as low perhaps as 5 cents on the acquisition dollar. It would depend on the item.

If I can add a word at that point, I would say that we have found, and we have introduced rather substantial evidence, Mr. Chairman, during the course of three different hearings before the House Committee on Government Operations, that, in addition to that cost, our members will frequently spend as much, if not more, in additional cost in order to improve the items that are purchased.

Senator GRUENING. Now, Mr. Kampelman, do you favor the passage of S. 3154?

Mr. KAMPELMAN. I do, Mr. Chairman.

Senator GRUENING. You do?

Mr. KAMPELMAN. I do.

Senator GRUENING. You think this is good legislation?

Mr. KAMPELMAN. We think it is good legislation. The fact is, Mr. Chairman, we think it is essential legislation if we are going to survive. You will see from a reading of my testimony when the committee gets to studying the testimony, Mr. Chairman, that we are now governed by a 1949 statute. We had been operating under that 1949 statute until 1958, and had been surviving. We had always assumed that the 1949 statute had a definite established meaning, and everyone seems to have the same assumption. Beginning in 1958, however, administrative practice altered, so that without the Congress passing an amendment to the law, the Department of Commerce completely changed the interpretation of the law. The result is that, since 1958, there has been a virtual embargo. I do not want to say that nothing has been allowed in on a license, but very little has been allowed in on a license.

Senator GRUENING. Well, I will be glad to have you develop that. Tell us how it happened and what has happened.

Mr. KAMPELMAN. Thank you, sir.

Section 402 of the existing law reads, and I will quote just that provision:

But in no event shall any property be sold without a condition forbidding its importation into the United States, unless the Secretary of Commerce determines that the importation of such property would relieve domestic shortages or otherwise be beneficial to the economy of this country.

Foreign excess property is defined elsewhere in the act to mean property under the control of any Federal agency which is not required for its needs and the discharge of its responsibilities and which is located outside the United States.

It is worth noting that such property is really not foreign in any sense other than its being situated outside the United States; in every other sense it is thoroughly American.

Now, in our judgment-and we have material that we will submit for the record in this connection, Mr. Chairman-the legislative history of section 402 establishes that the Congress never intended to prohibit or unnecessarily curtail imports of surplus property purchased by Americans from the U.S. Government at overseas bases. Quite to the contrary, Congress clearly intended this provision only as a safety valve to avoid serious repercussions which might result from substantial imports of foreign excess property in the event of economic depression. Everything in the legislative history suggests that a flexible reasonable policy in the light of actual economic circumstances was contemplated. And that is the manner in which the Department administered the section from the time of its enactment in 1949 until the last several years.

In 1958, this was changed by the Department and its extremely restrictive and inflexible policy resulted in an absolute embargo on importation of foreign excess property. Now, this new policy was adopted largely as a consequence of hearings held by a subcommittee of the House Committee on Government Operations in July 1958, and that committee's subsequent report and hearings. Although the House committee was concerned only with what it regarded as slipshod administration of the section by the Department, nevertheless these hearings led to the change in the interpretation.

As a result, during the first 6 months of 1959, for example, when we first began to feel the pinch of this-the new regulations were effective in January of 1959-the Foreign Excess Property Office had authorized the importation in only 2 cases out of 73 applications submitted.

I might say, by the way, that many potential importers recognizing that the cards were stacked against them, did not even bother to submit applications.

As a result of this, Mr. Chairman, our association last July went before the same House subcommittee which had investigated this program in 1958. We reported what had transpired. We were given 2 days of hearings by Mr. Dawson. As a result of that, the bill which is now before you was originally drafted by Chairman Dawson of the House committee. It reflects the judgment of that committee based on its extensive study of this problem over a period of 3 years, including three rather extensive hearings.

I will not take the time of the committee at this point to analyze why we were unhappy with the regulations, but I will say that the representatives of our association testified at very considerable lengths before the Dawson committee as to problems they had been encountering under the present law and as to the necessity for a change in the law.

Again in the interest of time, I suggested to our members that we not individually appear before your committee repeating that testimony. But you can see from their previous testimony that in many cases the form and usefulness of foreign excess property items were substantially altered and improved by the importers before the property is sold to the ultimate user.

One of our witnesses, for example, told about how his company had imported surplus hydraulic traversing mechanisms which were originally used-and this is interesting-as a part of tracking gear in a 40-millimeter antiaircraft gun. Then Mr. Groban converted these mechanisms into hydraulic transmission for midget automobiles with gasoline engines made for children. In this case the mechanisms which otherwise would have been sold for scrap at 75 cents apiece were purchased by him for $5 apiece under competitive bidding. Thereafter, Mr. Groban spent an additional $15 per unit converting them into transmissions.

Subsequently, when Mr. Groban's competitors saw how it was done, they wanted to copy his ingenuity, so they bid $12 per unit. Thus, these mechanisms got to be a competitive item on the next sale, and the return to the Government as a result of this was dramatically increased.

Sometimes surplus equipment is converted by the importer's customers. For example, one of the witnesses at last July's hearing testified that his company purchases surplus trucks from the importers, and spends approximately $1,000 a truck in reconditioning them. That is in American labor. Then he mounts water tanks on each truck, at an additional cost of from $1,750 to $2,500 per truck, depending on the size. These trucks are then used to provide vitally needed water for construction projects in California in areas which have virtually no water otherwise. This company spent $351,000 in the first 9 months of its last fiscal year for labor and material incident to the production of these water trucks. Surplus trucks are the only kinds of trucks desired by contractors for this purpose and they are the only kind of trucks which it is economically feasible to use for this purpose. This is because surplus World War II vintage trucks have a special added ruggedness and utility for this particular kind of work.

We believe that we play an important role in the economy. We believe that our economic well-being is something which ought to be considered by this committee and by the American Government when it formulates public policy.

Again my prepared testimony cites specific instances as to how we have become unable to operate our businesses. But I, again, do not want to take the time of the committee in connection with that, other than to say this: All of these restrictions and administrative problems which we face-and, Mr. Chairman, they have plagued us legion— really appear ludicrous in the light of the actual dimensions of the