companies the Government has chosen to operate the syntl eticrubber plants for Government account. It is not to be expected that the Government will be any less vigilant in making the rate owners of the synthetic-rubber plants comply with the a it st laws, whoever they may happen to be. In the light of the foregoing considerations, your committee has incorporated provisions in the bill which, in its considered opinion, waen properly administered, will assure that the synthetic rubber industry operating under private ownership will be a truly compe i ve industry, free from the evils of monopoly. It should be noted that the alternative to placing this industry in the hands of private owners under adequate safeguards against monopolistic control is the continued operation of the industry by a single owner, the United Sates Government. Where Government operation of an industry is unnecessary, public monopoly is as ir herently dangerous to the principles of a democracy as is private monopoly. 5. Sale of inventory Disposal of inventory stocks of synthetic rubber and its component materials at the end of the transfer period pose a troublesome problem. Several methods of resolving the problem were considered. After much thought and lengthy deliberation, it was concluded by your committee that the most expeditious and fair method was to permit the plant purchasers to obtain such stock on a basis prorated to the capacity of the plants at prices determined under pricing policies prevailing at the end of the transfer period. This method is advantageous because it would seem to provide a means whereby the Government can get out of the business at a very early time. Moreover, it enables the purchaser of a given plant not only to have feed stocks available for continued operation, but also a small supply, at least, of the end product so that he may continue to serve customers of the plant and others which he may obtain. In the event an eligible purchaser does not buy his share of the stocks on hand, those stocks may be offered periodically to other eligible plant purchasers on a similar prorated basis. Stocks unsold after 1 year following the transfer period may be disposed of in such manner as is deemed advisable by the last Government operating agency appointed by the President. In order that preparation be made for the transfer of possession, large consumers should accumulate an adequate inventory of synthetic rubber. Naturally, it is not desirable for the present operating agency to accumulate huge unordered inventories in order to supply all purchasers. This would entail the Federal expenditure of large sums of money and would necessitate considerably expanded storage facilities. Under present procedures, purchasers are required only to give firm orders 30 days in advance of delivery. It is the understanding of your committee that the Reconstruction Finance Corporation is now preparing a plan which would require large users to anticipate their needs as much as 6 months in advance and place firm orders on this basis. Such a plan has real merit, especially as the period of transfer approaches. If firm orders are given well in advance, the operating agency can fill these orders and the large users will be able to build up a sufficient inventory to run them for possibly 2 or 3 months. Such an inventory should adequately carry the large consumer through the transition from Government to private ownership. Thereafter, the private operators should be able amply to supply the various needs in line with their adopted company policies. Small business enterprises neither have the finances nor the storage facilities to build up necessary inventories in their own warehouses sufficiently large to carry them through the transfer period. Therefore, some procedures must be programed to assist them over the period of transition. It is contemplated that the small users may purchase their needs from time to time almost up to the day when the Government turns the key over to the private purchasers. This type program will not be costly to the operating agency and will not overtax its storage facilities. In 1952, the operating agency had about 700 synthetic rubber customers. Of these, 20 accounted for over 77 percent of the sales. The remaining approximately 680 companies purchased only 23 percent, and of these, 20 absorbed more than 5 percent. Thus, out of a total of about 700 customers, 40 accounted for 82 percent and 660 accounted for only 18 percent of the sales, according to the Reconstruction Finance Corporation report. Your committee expects the Government operating agency to follow an operations procedure closely similar to that outlined in this report, in order to assure small business concerns adequate access to required stocks of synthetic rubber at fair prices before transfer of the plants and during the conversion period from Government to private operations. 6 Criteria for disposal Four criteria of paramount significance have already been discussed in this report; namely, full fair value, national security, small business, and competitive new industry. Other criteria of importance are also listed in the bill for the guidance of the disposal Commission. They warrant consideration and discussion in this report. It is absolutely essential that the purchaser both intends to operate the plants to produce synthetic rubber or its component materials and has the ability to do so. The ability to do so requires adequate financing and technical competence to the extent that the purchaser will be able to staff adequately a given plant with competent technicians and other employees. It is not necessary that the purchaser have any prior experience in the operation of the facility which he purchases or of any rubber-producing facility. Another important criterion insofar as national security is concerned is contained in the provision requiring that the plants sold must have an aggregate annual capacity of at least 500,000 long tons of generalpurpose synthetic rubber and an aggregate annual capacity of at least 43,000 long tons of butyl rubber. If for any reason definitive contracts cannot be recommended by the disposal Commission for such amounts, no disposal plan can be submitted to the Congress. This is true whether that reason is a lack of a sufficient number of proposals or because amounts representing less than the full fair value of the facilities have been proposed or because of failure to meet any of the other criteria established. 7. The disposal Commission Your committee considers the disposal Commission feature of the bill to be quite important. The three-member Commission is to be appointed by the President from civilian life. Compensation is at the rate of $50 per diem while performing the duties of a Commissioner plus transportation and $9 per diem while away from home on Commission business. No employee of the rubber or petroleum industry or that part of the chemical industry which supplies, or is capable of supplying, feed stocks for the manufacture of synthetic rubber is eligible to serve as a Commissioner. Also ineligible is any person receiving a substantial part of his income from such industries. Your committee cannot emphasize too strongly its belief that the success or failure of the program is to a great extent dependent upon the selection of competent, able persons who individually possess a keen sense of business judgment. They will be conducting negotiations involving very valuable properties. Both the speed with which the disposal plan is consummated and the effectiveness of the plan will depend upon the quality of the job done by the Commission. The disposal plan must be so formulated as to satisfy the Congress that it meets each and every one of the listed criteria. Moreover, the speed with which it is evolved will benefit the taxpayers both from the standpoint of the cost of the disposal program, and, more significantly. because as soon as the plants are turned over to private industry, the earned revenues from the plants become subject to Federal income taxes. A solemn duty is placed on the Commission to recommend to the Congress the sales which should be made, to whom, and at what price. It is authorized to enter into contracts for the sale of the facilities and such contracts become binding on the Government and the purchaser unless the disposal plan is disapproved by either House of the Congress within the time limit prescribed. S. Advertisement for proposals Rather wide latitude is granted the Commission in giving notice by advertisement that it will receive proposals for the rubber-producing facilities. No target date is established in the bill with respect to when notice and advertisement must be given. The reason for this is that some reasonable time will be required before the Commission is able to accumulate and compile information required by a prospective purchaser. It is assumed, however, that the Commission will move with all possible dispatch. Some doubt has been expressed with respect to whether the period of 45 to 90 days after the first day on which proposals may be received is adequate time to enable every prospective purchaser to submit a definite, bona fide proposal. In case of any doubt existing in the minds of the Commissioners, your committee suggests that the doub be resolved in favor of granting more time than the minimum 45 days All data required for submission of a proposal to purchase any on or more of the plants must be furnished by the Commission to any prospective purchaser, unless the Commission has reason to believ that such person has not identified his principal, is not financially responsible, or is a poor security risk. 9. Contents of proposals The term "proposal" is used in the bill in preference to "bid" because in the opmion of your committee it more clearly describes the process which is contemplated than would be indicated were the term "bid" used. The latter bespeaks more finality then is contemplated by the bill. Normally, the highest bidder is the successful bidder. In this situation, however, that is not necessarily true because of the other criteria involved. Nevertheless, inasmuch as a negotiation is contemplated with any person submitting a proposal, whether or not he made the highest offer, it was thought to be more descriptive of what is contemplated in the bill to use the term "proposal." A provision of utmost importance to the Commission is contained in the requirement that the proposal must state the plans or arrangements for the supply of feedstock to and disposition of the end products of the facilities expected to be purchased. This feature will enable the Commission to determine whether a strong competitive pattern will be established in the new industry. It also will assist the Commission in the discharge of its responsibility to assure the Congress that no person by purchasing a facility or facilities will possess unreasonable control over the manufacture of synthetic rubher or its component materials. Moreover, such a requirement will be of great benefit to a prospective purchaser. Your committee expects, of course, that none of the present operators of the plants for Government account will use that position in such a manner as to deny access of the purchaser of any plant included in the disposal program to feedstock required for operation of the plant purchased. The proposal must be in writing and, among other things, must contain the identification of the principal for whom the proposal is made, including the business affiliations of such person; the facility or facilities proposed to be purchased and the order of preference; the amount proposed to be paid and the financial arrangements proposed. 10. Good-faith deposit to accompany proposal As an expression of good faith, the bill requires that proposals be accompanied by a deposit of cash or United States Government bonds. of face amount equal to 2% percent of the gross amount proposed to be paid but not exceeding $250,000 for each facility. If the proposal is for one of a number of facilities on an alternative basis but the prospective purchaser intends to buy only one facility, the amount of the deposit is computed on the highest amount proposed to be paid for any one plant. The object of this provision is to confine the proposals to those who seriously contemplate purchasing a facility for the purpose of operating it and to minimize the possibility that speculators, seeking to purchase & facility for quick profit on resale, will submit proposals. Opinion varied as to the amount of the deposit which should accompany each proposal. It was concluded finally by your committee that the percentage and aggregate amount decided upon is fair. This should eliminate speculators but not prevent any interested person from submitting a proposal. Deposits will be returned to nonpurchasers, without interest, at the end of the period for congressional review of the disposal plan. As to purchasers, deposits will be applied, without interest, to the purchase price. However, each purchaser is required to substitute cash equal to the face amount of the deposit, if such deposit consists of Govern ment bonds, in whole or in part. It is assumed the Commission will arrange contracts of sale so that any purchaser who fails to consum mate the purchase will thereby forfeit as liquidated damages his deposit. 11. The payment Payment of the purchase price may be made in part by a purchasemoney mortgage in an amount not to exceed 75 percent of the purchase price. The mortgage terms are to be determined by negotiation but maturity of the mortgage cannot exceed 10 years and the mortgage note shall provide for periodic amortization and a uniform interes rate of not less than 3 percent per year. Your committee concluded that this method of payment was the fairest and most equitable financing arrangement for all purchasers The downpayment is sufficiently high to keep out speculators and a the same time constitutes a sufficient equity to encourage purchaser to continue operation of the facilities and retire their obligations. The 3 percent interest rate constitutes a floor, not a ceiling, and i must be uniform across the board to all purchasers. It need not b set until near the end of negotiations. 12. The negotiation At the end of the period for receiving proposals, the Commission i charged with the responsibility of negotiating definitive contracts o sale. The period for such negotiation shall not exceed 6 month unless the President deems that additional time is desirable and, i that event, he may extend the period not to exceed 30 days. It is during this period that the Commission will endeavor to ente into definitive contracts which attain the three major objective outlined in the President's letter to the Congress and meet the othe criteria established by the bill. It will be during this period especially that the Commission shoul consult and advise with the Attorney General in order to secure h guidance as to the type of disposal program which will best foster th development of a free, competitive synthetic-rubber industry. bill requires that the Commission supply the Attorney General wit information throughout the performance of its duties in order that h may be equipped with the necessary data upon which an opinion ca be based. It visualizes close cooperation between the Commissio and the Attorney General at all times. However, the crucial perio will be during the time negotiations are in progress. Then will formulated the final pattern of disposal and the Commission mu negotiate definitive contracts consistent with that pattern. Realistically, the highest amount proposed to be paid for a facilit should be used as the basis for negotiation, irrespective of wheth such negotiations are with the person proposing the highest amount with the person proposing a lower or the lowest amount for a give facility. This is elementary because, consistent with other provision of the bill, the ultimate goal is to obtain the most money possible f the Government in the sale of these facilities. The Commission is not limited to negotiating proposing the highest amount for a given facility. it is given wide latitude in conducting negotiations. with the perso To the contrar It may negotia |