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When one studies these criteria and also takes into account the fact that prices are to be disregarded, one comes to the conclusion that the true purpose of the order is to bring about an absolute prohibition of the importation of surplus items. In our free economy, substitutability and alternative grades or qualities or dimensions are determined by prices. The order talks about a competitive product group or class, but what does this really mean if prices are to be disregarded?

It is well known and recognized that there are distinctive markets for surplus and used items and for lower priced categories of goods. Of course, the marginal line where the division takes place between high- and low-priced goods or between new and surplus or used goods is never clearly defined and easily identifiable. The fact that overlapping might occur at marginal levels nevertheless does not justify the refusal to recognize such different markets.

The American marketplace has always provided channels for surplus and used goods. The very existence of such markets on a wide scale gives ample demonstration of the need for such products. While no quantitative data might be available to distinguish this market from the market for new products, nonetheless, it is sheer unrealism to disregard price differentials and to ignore distinct markets in determining whether or not there are shortages for particular items.

(f) Local and national markets

It is likewise unrealistic to ignore the existence of local and regional markets. The January 1959 order states: "Shortages must be determined on a national and not on a local basis." Some products serve the specialized needs of a particular geographic area or locality by virtue of the physical characteristics of the region such as terrain, climate, etc. Transportation costs are also a vital factor. Just because a specialized piece of heavy construction equipment is available on the east coast to a user on the west coast at a prohibitive cost does not prove the nonexistence of an absolute shortage on the west coast. In addition to freight costs making the total price prohibitive, servicing the equipment may present problems. The equipment may not have been worked under west coast conditions. For these reasons the user may not be interested in making a purchase outside his locality or region. There are separate and distinct local and regional markets as every businessman who seeks to sell nationally soon finds out.

(g) Aggregate appraisal

It is little wonder that for the first 52 months of 1959, only one product was approved for import by the foreign excess property officer and another was authorized by the appeals board of the Department of Commerce. The record since then is relatively better but the long list of property disapproved clearly evidences the fact that the present order is so arbitrary and unreasonable as to effectively restrict the bulk of such imports.

DOCUMENTATION AND EVIDENCE

Ever since 1950, applicants for the importation of surplus products have been required to present data and other evidence proving that the materials which the applicant sought to import would either relieve domestic shortages or be beneficial to the economy. The burden of proof has been erroneously placed on the importer. In a letter to the House Committee on Government Operations, dated July 20, 1959, the Department of Commerce confesses that its decision is "never based upon whether or not the applicant has sustained the burden of proof but rather on whether importation would or would not relieve a domestic shortage or otherwise be beneficial to the economy." Would it not be far more proper and honest if the Government were assigned this responsibility, or if those who objected to the imports were required to prove harm?

It is particularly significant to note that the House Subcommittee on Executive and Legislative Reorganization in its report of August 18, 1958, stated: "The committee has found no one in Government who knows how much foreign excess property is imported into the United States." A similar statement appears in the report of the Committee on Government Operations of May 23, 1960. The former report also states: "The import permits issued by the Commerce Department use such broad and general descriptions of the goods to be imported that the goods cannot be identified by the customs officials at the ports of entry nor can anyone determine for which of many thousands of items under each category

the permits were issued." The committee also found that: "There is no established procedure for finding out what happens to foreign excess property which is imported into the United States pursuant to import permits issued by the Department of Commerce."

These and other quotes in the hearings and the committee reports convincingly demonstrate the tremendous difficulty involved in judging precisely whether or not specific products will relieve shortages and whether or not they will be beneficial to the economy. Certainly, if the Government with its vast resources of statistics and technicians has not been able to do a thoroughly effective screening job, then it is entirely improper and unreasonable to call upon the prospective importer to submit full documentation and evidence. It would be more logical and reasonable to place the burden of proof on the Government to justify its decision to restrict such imports rather than to require the importer to carry the burden of proof. It would be even more appropriate to remove all restrictions except where producers could prove damage and disruption caused by such imports.

It would appear clear that the attitude and approach of the Department of Commerce in its testimony back in 1949 has been ignored. That testimony, in essence, suggested varying the policy with respect to limitations on surplus imports in relation to economic conditions. It is still sound and intelligent, and merits the serious attention of this committee and of the Department of Commerce.

The application of the criterion "beneficial to the economy of this country" would certainly call for a significant liberalization of the import of surplus products at this time and for the foreseeable future. The Eisenhower administration expresses optimism about the economic outlook but remains alarmed about inflation. Certainly recent increases in production and employment give evidence of significant improvements in our economy. There is still more than a normal or reasonable minimum of unemployment in the country, but one would be hard pressed to argue that industries in the United States would be affected adversely by the maximum possible importation of surplus products under a policy of no restrictions.

Certainly, the profit picture would hardly support such contentions. Corporate profits increased from 1958 to 1959 by almost 30 percent and were at an alltime high.

MAGNITUDE OF FOREIGN EXCESS PROPERTY DISPOSALS

Not only would a liberalization and even removal of all import restrictions on all surplus imports not be harmful to American business generally, but such a move would be beneficial in fighting inflation even though the amount likely to be imported under circumstances of no restrictions would be quite limited. Although data are lacking with respect to the quantities or value of foreign excess property that have come back to the United States, indirect evidence demonstrates that the value has been small in relative importance.

For example, in the fiscal year ending June 20, 1958, total disposals of foreign excess personal property by the Department of Defense aggregated $872,544,000 in terms of original acquisition cost. Of this total, nearly $1 million was donated and approximately $165 million was scrapped. Also, nearly $12 million was abandoned or destroyed and approximately $105 million was used for nonsale purposes, such as military aid to eligible countries. The remainder which is identified as material "sold as usable or for salvage" had a value of $582,419,000 in terms of original cost. The Department of Defense sold this material for $42,101,000.

In fiscal 1959, according to testimony presented on March 1, 1960, by Lt. Col. John F. Rey of the Department of Defense before the subcommittee of the House Committee on Government Operations, total disposals of "usable property" at acquisition costs amounted to approximately $735 million. This figure, by the way, is in error according to the Defense Department's report to Congress. That identified only as material "sold as usable or for salvage" had a value of $715,500,000 in terms of original cost and the Department of Defense sold this material for $46,400,000.

The rate of disposals during the current fiscal year is about half that of last year, as pointed out by Lieutenant Colonel Rey, and the volume for the next fiscal year is expected to be reduced still further to $350 to $450 million at acquisition cost, according to his testimony. The return on sales during the first

half of the current fiscal year was $14.7 million, as compared with $46.4 million for the full year in fiscal 1959 and $42.1 million in fiscal 1958.

It would be completely erroneous to think that anywhere near these volumes or values were actually returned to the United States and competed with new or surplus domestic supplies, or that such amounts would have been imported had there been no limitations. In the first place, a large part of the foreign excess property sold consists of military-type items as distinguished from civilian-type items. Dealers in surplus have a far greater interest and find a more ready market for civilian-type goods than for military-type items.

Secondly, in disposing of foreign surplus, the U.S. Government gives priority to the wants of the government of the country where the surplus is located. Substantial sales are made on a negotiated basis to these governments. What is left is then offered to competitive bidders. The number of local bidders is far, far larger than the number of American firms bidding for the products. Unfortunately, there are no data available on the nationality of either the total bidders nor of the successful bidders. Such information would be particularly interesting because it is unlikely that foreign bidders would be in a position to dispose of their purchases in the American market.

Purely informal discussions with Government officials and surplus dealers have led to the conclusion that well under 10 percent of disposals abroad are made to American firms. Even such a figure would not be entirely conclusive with respect to the amounts that would be shipped back to the United States were there no restrictions. Many American buyers seek outlets in foreign countries where they can find ready markets for American surplus. Some buyers send the goods back to the United States in bond for reconditioning and for reexport.

Certainly, only a small fraction of foreign excess property was returned to the United States prior to the almost complete prohibitions imposed in January 1959. One can only speculate with respect to how much would have come back had there been no restrictions. It is difficult to conclude that more than a few million dollars worth of surplus would be returned per year at sale price and not substantial volume even at acquisition cost. Lieutenant Colonel Rey testified that less than 10 percent of foreign excess property is actually sold for export. Of this less than half is sold to Americans, perhaps $15 or $20 million at acquisition cost this year. This is the maximum that would come back to the United States as foreign excess imports.

It may be interesting to the committee to compare the sales of surpluses abroad with sales within the United States for domestic consumption. In fiscal years 1958-59 and 1957-58, sales within the United States of products classified as usable or for salvage were about three times the sales abroad, both expressed in terms of original acquisition cost. It is probable that the original cost of the foreign surplus items returned to the United States in these 2 years was from 1 to 3 percent of the surplus goods sold by the Defense Department here in the United States.

Relative to our total national production or to our output of manufactured goods or to more narrowly defined categories of products being disposed as surplus, actual disposals are very limited in magnitude. What appears to have taken place is the tendency for those who have complained about the excessive imports of surplus to generalize from a few isolated instances, some of which would undoubtedly not stand up and have not stood up under intensive scrutiny. In essence, we have adopted policies and procedures which are far more harmful and wasteful than beneficial and constructive in their aggregate impact.

Moreover, the amount of regulation and administrative effort that has gone into the control of foreign excess property imports, which are infinitesimal compared to domestic surplus disposal, is wholly out of proportion. If the American economy needs protection, it should be at the point of greatest danger, not at the point of least danger.

We talk about economic growth and we talk about efficiency in our economy, and yet in the existing legislation and under the prevailing order, we are arbitrarily being wasteful and inefficient and reducing competition. It is true that the funds which our Government derives from the sale of surpluses are quite limited compared to our total budget, but one would expect that the tremendous drive to reduce expenditures and to maximize revenue would logically lead to efforts to maximize Government revenues from the sale of surplus. It seems clear that the present rules and regulations which restrict imports lead to reducing proceeds from the sale of surplus abroad. Permitting such imports would broaden and expand the markets for such goods and would help bring about

higher proceeds. Certainly, it would intensify the competition on the part of buyers and this would increase the proceeds.

PROTECTION FROM INJURY

The real problem faced in liberalizing imports of foreign excess property stems from the fact that some few individuals or companies might be temporarily affected in an adverse manner. The administrative agencies can establish appropriate regulations after careful study and exploration with all interested parties. The burden of proof of injury ought to be on those who contend they are adversely affected. They should be required to give proof and evidence that they are being or will be harmed and that restrictions should be applied. What we have done in essence in the existing legislation is to bar imports subject to proof and evidence that they will not be harmful. What really ought to be done is to remove all restrictions of surplus property imports. However, if any limits are introduced, they should, as the Senate bill tries to do, permit such imports subject to evidence and proof that they are harmful.

In the final analysis, no valid reason exists today for continuing the present dubious and impracticable distinction between foreign and domestic surplus property. If this distinction must remain, then the law should be revised in accordance with the language in the Senate bill which would liberalize the inflow of our surpluses being sold abroad. It provides the administering agencies with the flexibility that is needed and would replace the existing extreme and arbitrary restrictions.

Competition is still a powerful constructive force and it should not be shackled as is done inadvertently by the present law, and in a rigid manner by the Department of Commerce. The Senate bill makes the changes that are necessary so that our foreign surplus can come into the United States, thus maximizing our Government revenue, helping to fight inflation and making for more competition.

Senator GRUENING. Mr. Randolph K. Vinson, executive director, Machinery Dealers National Association.

Mr. Vinson, are you in favor of the bill or are you against it? Mr. VINSON. Yes, Mr. Chairman, we are in favor of the bill. Senator GRUENING. Very well.

Mr. VINSON. And as the executive director of our association, I would like to read a brief statement in favor of the bill, for the chairman of our Government affairs committee who was unable to be here today.

Senator GRUENING. You may proceed.

STATEMENT OF RANDOLPH K. VINSON, EXECUTIVE DIRECTOR, MACHINERY DEALERS NATIONAL ASSOCIATION, FOR ALEX ZEEVE, JR., CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE Mr. VINSON. Mr. Chairman and members of the committee, please accept my sincere appreciation for the opportunity to appear before your committee on the subject of importing Government-owned surplus machine tools and contiguous production equipment, covered in section 402 of the Federal Property and Administrative Act of 1949. As chairman of the Government Affairs Committee of the Machinery Dealers National Association, my name is Alex Zeeve, Jr., of the Alex Zeeve & Co., Inc., 2617 Woolworth Building, New York 7, N.Y. We believe that S. 3154 will help to bring up to date the law as it specifically applies to machine tools and production equipment and, at the same time, correct a situation which we believe to be detrimental

to American industry. We respectfully urge you to seriously consider the following:

I. The present foreign excess property law is not protecting domestic machine tool builders as it is intended to do. The present law is presumably intended to protect domestic industry from indiscriminate dumping onto the domestic market of American-built equipment which becomes surplus to the U.S. Government at oversea locations. It fails, however, to accomplish this as regards machine tools and production equipment because it is predicated upon a misconception; namely, that every used machine tool sold here in the United States represents one less new equipment machine tool that could be sold by a builder. This is definitely not the case. There are hundreds and thousands of plants here in the United States which would be glad to buy a used machine tool, but who do not have the funds or budget to buy the equivalent new machine. In other words, these plants never were a customer for the new machine tool. These smaller plants which are in the growing stages could conceivably at some time later in their development become a customer for the new machine tool.

If these customers cannot find a good used American-built machine within their allocated budget, their alternate choice then becomes a new foreign-built equivalent machine, and statistics plainly show that in the last 10 years the influx of these new foreign-built machines has grown and grown, to the obvious disadvantage of our domestic machine tool industry.

II. The present law is actually improving the chances of foreign machine-tool builders permanently establishing themselves in the U.S. market, which is the exact opposite of what the law is probably intended to accomplish. (See reasons under No. I above.) Furthermore, once a small plant here has started purchasing new foreignbuilt machines, there is a very good chance that as they expand and have more funds, they may continue purchasing foreign tools, whereas if these smaller plants were given the opportunity to buy a reasonably modern used American-built machine, when they became more prosperous and could afford better equipment, they would probably favor American-built machines.

III. The present law has undoubtedly caused a substantial quantity of surplus American-built equipment winding up behind the Iron Curtain. The Hoover Commission Reports on Foreign Excess Property repeatedly indicate that their committee believed that a good deal of the foreign excess property being sold overseas was winding up behind the Iron Curtain. Their report admits that there is no effective way that the Government can police the ultimate destination of the property they sell overseas. For this reason alone, we believe a determined campaign to have the law changed should be made, so that at least these surplus American machines can be sold here in the United States without restriction, instead of permitting them to be sold to foreign buyers who may easily dispose of them behind the Iron Curtain.

IV. The present law is causing our Government to realize negligible monetary return for surplus machine tools being sold overseas. At present, foreign buyers know that they will have no competition from dealers like ourselves or other purchasers in the United States;

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