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

operation would become uneconomical and they would fall by the wayside. In substance, the creation of a new market would be the death knell to the old market. This is a situation where one man's meat is another man's poison.

6. It also has been stated that the importation of this property would be beneficial to the economy.

It has been argued that if the U.S. importers could bring this oversea surplus back into the United States, they would be in better position to bid against foreign purchasers. This argument has little merit because evidence shows that surplus sold overseas brings a return of slightly over 7 percent of the acquisition cost, while on the domestic market the Government only realizes 5 percent of the acquisition cost. Another consideration: If the present foreign excess property law is weakened, what is to preclude the foreign purchaser from becoming an exporter to the United States in competition with the U.S. importer?

7. It has been argued that the reimportation of these products would be beneficial to the United States because it would create new employment and result in additional income tax.

The question whether access to lower-priced products is beneficial or detrimental to the economy has long engaged the interests of economists and politicians. Certainly some people would be better off if we eliminated all tariff barriers so the consumer would have the advantage of the lowest possible world price on any given commodity. Some consumers would benefit while labor and domestic industry would be harmed. It is difficult to see that there would be any net benefits to either the economy, the Government, or the people as a whole.

8. Finally, it has been stated that there should be no distinction between the criterion governing the disposal of domestic and foreign excess property.

This we would agree to, provided there was a legislative mandate which protected those industries victimized by the procurement programs of the military. Our industry is a case in point. The military, justifiably or unjustifiably, purchases large quantities of construction equipment from the manufacturers. This equipment, rightly or wrongly, is declared surplus after a period of time. It ends up in the hands of the dealers' normal customers. Carried to the nth degree, the disposal agencies become the distribution industry. We had nothing to do with the sales or procurement policies; yet, in the end result, we are the sacrificial lamb of what in my considered opinion is an intolerable situation. Whether salesmanship of manufacturers, unwise procurement policies of the military, or lack of congressional budgeting control, or a combination of two or three of the factors, is at the root of the problem, should be determined and corrective measures taken.

Since there is no brake on the disposal of domestic surplus, it would only further aggravate the situation to apply the same test to the disposal of foreign excess property. Disposal agencies have a policy statement which would allegedly prevent any undue impact on industry whenever there is a substantial quantity of surplus property for disposal. We have yet to see any concern over the problems of

our industry in this regard when surplus property is dumped on the

market.

I'm sure you will realize that in the limited time available, I have only touched on the elements of the surplus program that are of serious concern to members of the construction equipment industry. I hope we have left no doubt in your minds that the disposal of Government excess property can have-and does have a serious impact on this industry. It follows then that any weakening of present controls over foreign excess property can only further depress production, sales, and employment in our industry.

In behalf of Associated Equipment Distributors, I would like to express our sincere appreciation to the committee for inviting us to appear today, and also for your kind indulgence during the time I have taken to express our views. With your permission, I would like to have Mr. King comment on some of the legal aspects of the legislation.

Senator GRUENING. Mr. Mayer, thank you very much for a very comprehensive and excellent statement. I would like to ask you one or two questions.

The industry-your industry-is apparently in a decline; is it not? Mr. MAYER. It certainly is, Mr. Chairman.

Senator GRUENING. And apparently, from your figures and statement, the decline is being aggravated, getting worse instead of better? Mr. MAYER. According to the figures for the first quarter, within our company and from conversations with a number of people in the business, I would say this is true.

Senator GRUENING. That is, the failure to pass this legislation would not be a solution to your problem at all, would it?

Mr. MAYER. We have a problem today but this legislation would aggravate the problem.

Senator GRUENING. Well, if your profits are down to 2.15 in 1958 and 1959 profits are going to be lower and 1960 seems to be still worse, then you appear to be heading for bankruptcy.

Mr. MAYER. A number of distributors have gone bankrupt last year and this year.

Senator GRUENING. You do not think that the powers vested within the Department of Commerce, either under the present legislation or under the provisions of this proposed act, which gives the Secretary the authority to curtail any importations that are injurious to business would hurt you?

Mr. MAYER. I did not quite understand you, Mr. Chairman.

Senator GRUENING. Do you not think that the present law makes it possible to stop this importation sufficiently to prevent an aggravation to industry?

Mr. MAYER. The law as it now stands is fine from our standpoint. We would like to have the law stand just as it is. We think the Department of Commerce has done a good job in not allowing certain equipment to be imported into the United States because of the great supply of this very same equipment that is presently in the hands of the legitimate dealers in the industry. I say "legitimate dealers." I mean people who have places of business, who have money invested in inventories and stocks, who have shops, field service and everything else that goes to make a going business of this nature.

Senator GRUENING. Have you any suggestions as to what should be done, with this surplus property abroad if it is not to be re-imported? How would you dispose of it; or would you just scrap it?

Mr. MAYER. I do not think it has to be scrapped. Take for instance the difficulty down in Chile. Here is a place where there is going to have to be a lot of construction done in a hurry, and I do not see why a lot of this equipment could not be given or loaned to the Chilean Government. It is a cinch that they do not have the resources to buy equipment of this nature that is going to be required. It would seem to me that there are other places throughout the world where this equipment could be put to good advantage but the countries are not in a position to buy it. Businessmen in such countries would not be bothered by having this equipment donated, because the people who would use it, or the countries themselves, are not in a financial position today to purchase it.

Senator GRUENING. Have you any ideas as to the surplus disposal policies of the Defense Department? Do you think it declares some of its supplies surplus too soon?

Mr. MAYER. I think so. I know they have a policy where, after a number of years, a piece of new equipment, whether used or not, is obsolete and they feel they should have the latest models. This automatically creates surplus as the new replacement equipment is purchased.

Senator GRUENING. Of course, the more rapidly they declare their equipment surplus, the better off your industry is, is it not.

Mr. MAYER. Well, that may be true, as far as the manufacturers are concerned; but I am a dealer myself, and we do not share in that business. It hurts us. Ultimately, it hurts the manufacturers and their employees.

Senator GRUENING. Well, we are interested in both aspects of this problem, both the policies of declaring what is surplus and the policies of the disposal of surplus, and I am wondering whether you have some specific suggestions that would go to both aspects of this problem.

You take a stand in opposition to this legislation; you want to prevent this surplus from being imported into the United States. Have you any suggestions; has your organization any suggestions as to what should be done to help your industry? We do not like to see an important industry like this go into a steady decline, as apparently yours is.

Mr. MAYER. Well, I would suggest that the procurement be done more carefully and more slowly-lower procurement. And greater utilization of the equipment itself after it is purchased by the military or other agencies of the Government would help the taxpayers as well as the industries that must compete against Government surplus.

Senator GRUENING. Well, if they were more cautious in their procurement policies, that would diminish your volume of buisness, would it not?

Mr. MAYER. No, because we do not see the military. They purchase direct from the manufacturer.

Senator GRUENING. Yes.

Mr. MAYER. I do not think this would hurt the manufacturing industry very greatly. I doubt that it would result in any greater