(b) Until such time as appropriations herein authorized are made, any dep ment, agency, officer, Government corporation, or instrumentality of the Un States may, in order to carry out its functions, powers, and duties under this continue to incur obligations and make expenditures in accordance with law effect on March 31, 1948.

EFFECTIVE DATE

SEC. 20. This Act shall become effective on April 1, 1948, and shall remai effect until [March 31, 1954] September 1, 1954.

MINORITY REPORT

We believe the bill reported out by the majority for the disposal of the 29 Government-owned synthetic rubber plants is gravely defective. In our opinion, it will result in a more or less forced sale of these properties to the Big Four and a Half rubber companies and the big oil companies at prices which will be greatly below their true worth. Secondly, we believe that the sales will consolidate or intensify the hold over the rubber industry which is now exercised by the Big Four and a Half instead of diffusing control and making it more possible for free competitive enterprise to function.

We attempted in committee, without success, to remove these defects so that the taxpayers could get a better price for these immensely valuable properties and so that the industry could be made more competitive. For it is upon competition that the consumers must mainly rely for protection against monopoly or cartel prices and that small processors and fabricators must depend if they are to be insured of an adequate supply of raw material. We failed in our efforts to get the committee to report a bill that meets these tests, so that there is nothing left for us to do but to oppose this bill in its present form and to set forth our position for the information of the Senate in the hope that it will concur.

The following points should be considered very carefully before a disposal program which has in it such great dangers is approved.

1. GOVERNMENT OWNERSHIP OF THE SYNTHETIC-RUBBER PLANTS HAS ON THE WHOLE BEEN A DISTINCT SUCCESS

The seizure by the Japanese of the great natural rubber-producing areas in southeast Asia in 1941 and 1942 found us with a grossly inadequate stockpile of rubber. Had we not developed the synthetic-rubber industry we might have lost the war. The plants were built to produce (1) butadiene, from both petroleum and alcohol and (2) styrene, and then (3) copolymer plants were constructed to combine butadiene and styrene into synthetic (GR-S) rubber. In addition (4) butyl plants were built to produce an excellent end-product rubber (GR-I). The copolymer plants, though Government owned, were operated in the main by the leading rubber companies, the petroleum butadiene plants by the big oil companies, the alcohol butadiene and styrene plants by big chemical companies, and the butyl plants by the Standard Oil Co. and one of its affiliates, Humble Oil. These companies Contributed certain basic patents which they had taken out to make Synthetic rubber and cooperated loyally and effectively. In return they have received (1) royalties upon patents, amounting to $18.8 million up to the end of 1952 and (2) management fees over and above all expenses of operation. These amounted to approximately $127 million by the end of 1952.

Goodyear Tire & Rubber Co., Firestone Tire & Rubber Co., United States Rubber Co., B. F. Goodrich Co, and General Tire & Rubber Co.

The synthetic program in 1944 and 1945 gave to our fighting forces and to the industries producing for them, the rubber which was needed to win the war. At first costs were high, probably running close to 80 cents a pound. At such a crucial time rubber was cheap at any price. Gradually, however, costs were reduced until today a handsome profit can be made from rubber made out of petroleum butadiene and styrene, which meets the natural-rubber price of 23 cents a pound.

It is a triumph of American ingenuity and of good and efficient government that we have now developed the synthetic industry to a point where it can more than hold its own in competition with natural rubber from southeast Asia. This has a dual advantage to us. (a) It helps to protect us in the event the supply of natural rubber is again shut off by a possible conquest of southeastern Asia by the Chinese Communists. While natural rubber is still superior to synthetic for heavy trucks and vehicles, this may well be changed by new developments and processes. (b) It helps to protect us against unreasonable increases in the price of natural rubber whether these be caused by natural or market conditions or by the price policies of a natural rubber cartel operating in southeastern Asia. When we were faced with a price squeeze in natural rubber during 1950-51 and prices shot up to over 70 cents a pound, it was synthetic rubber that brought the price down and saved hundreds of millions of dollars to the American taxpayer.

The Paley report on the mineral needs and natural resources of this country estimates that by 1975 the total new rubber consumption of the free world will be approximately 5 million tons, more than double the present rate. This it is estimated will be about evenly divided between natural and synthetic rubber. Thus a heavy and growing demand for rubber in the future is anticipated.

As was indicated above, the costs of producing synthetic rubber have been reduced to the point where it can hold its own with natural rubber and yield a large profit at the same time. This is evidenced by the fact that the RFC has been selling copolymer rubber for 23 cents a pound (the price of natural rubber), at which price a handsome profit of $62 million for the fiscal year 1952-53 was realized, and this after very liberal allowance for depreciation. This is all the more remarkable since the RFC has been operating the alcohol butadiene plants at an appreciable loss. Thus the actual unit costs of the petroleum butadiene plants have therefore been lower than appears and the profits for the operation higher than would be indicated by the average profit.

The Government-owned synthetic plants have therefore greatly lowered costs of production, met emergency defense needs, saved the taxpayers enormous amounts, and are now making large profits. Facilities well maintained and not obsolete

At the same time, the plants have been kept up to date and in good physical condition. In the House debates on a companion disposal measure, statements were made by Members, who were apparently misled by the large depreciation allowances, that the plants had been allowed to deteriorate and would shortly be worn out and obsolete Testimony before our committee (pp. 195-196) by Mr. K. R. Cravens Administrator of the RFC and Mr. Morton Yohalem, deputy in charge of disposal, refuted those statements. Mr. Cravens testified

that he had asked experts to inspect the plants and that they had reported the plants "were most modern in every respect." Mr. Yohalem testified that he had inspected most of the plants and that they had a reputation for being "very well maintained, maintained. according to the highest ordinary standards of maintenance and so far as I know, they are not obsolete in any major sense" (p. 195). Mr. Yohalem went on to say that "there simply is no basis for characterizing them as obsolete in any major sense at all."

Mr. Cravens indeed stated that the allowances which had been charged for depreciation had been in fact "excessive" and that he did not foresee "any real obsolescence factor in the immediate foreseeable future" (p. 196).

Representatives of smaller plants which need rubber for some of their products also testified before the committee that the Governmentowned plants were eminently fair in the distribution of rubber and saw to it that the smaller fabricators had a fair chance to get their needed raw material.2

2. NEVERTHELESS WE FAVOR THE SALE OF THESE PLANTS TO PRIVATE ENTERPRISE PROVIDED THE TAXPAYERS, SMALL BUSINESS AND THE CONSUMERS ARE GIVEN ADEQUATE PROTECTION

The question might therefore very well be raised, if Government ownership of these synthetic rubber plants has been such an all-round success, why then should we sell them?

Those who may raise such a question will not only point to the successes of Government ownership which we have listed, but also to the fact that competent and impartial witnesses before your committee testified that they expected the transfer of the synthetic plants to private ownership to be necessarily followed by an increase in the price of synthetic rubber. Thus Mr. Cravens stated "I think there is no question but that the immediate effect will cause an increase" although he expected an ultimate decrease (hearings, p. 202). Mr. Yohalem in developing this point in greater detail stated that under Government ownership the butadiene which is produced by Government plants and is the major ingredient in copolymer rubber, is charged in at cost. But under private control, the ownership of the butadiene and copolymer plants will be in separate hands, oil companies undoubtedly taking the former and companies dealing with rubber the latter. The manufacturers of butadiene will undoubtedly want to make a profit on their product and hence will probably increase the price of butadiene. Mr. Yohalem made a rough estimate that the increase in price might be as much as 3 cents a pound, or a new price of 26 cents. We would agree that prices can be expected to increase, and we would add two more probable causes to those which have been cited. (a) When the present integrated processes are split up into separate ownership, it is probable that no one will buy the alcohol butadiene plants, for their production costs per unit are appreciably above selling price. The supply of butadiene and hence of rubber will therefore be less than it would otherwise have been, and this in itself will tend to raise prices. (b) We must also consider the fact that control over prices has in the past been exercised by the major rubber fabricators. They pleaded nolo contendere in Federal court to charges initiated by

See testimony of C. T. Johnson, president of Endicott-Johnson, "Under Government regulation, the stbution of synthetic rubber has been excellent. There has been absolutely no favoritism or partiality show. The Government has done a splendid job in the distribution" (hearings, p. 71).

the Department of Justice in 1947 that they fixed prices collectively on the major items of goods which they sold. This was virtually equivalent to saying that they did not dispute the correctness of the Government charge. Unless great care is shown in further diffusing the ownership of these plants, such a cartel may well be reestablished with the result that prices may be boosted.

Nevertheless, in spite of all these considerations we do not favor the Government retaining the ownership of these plants. We would like to see private ownership of these plants established because of our general belief in the free competitive enterprise way of doing business. This is the declared policy of the Rubber Act of 1948, and we not only support it, but also wish to see that it is effectively attained in any disposal action that is taken.

Essential principles for disposal

We insist, however, that there are two basic principles which should be followed in any such sale:

(1) The Government should get a fair price for its properties whether based on original cost of present properties, reproduction cost, or earning power. The terms of sale should be such as to encourage competitive bidding and should not be permitted to lead to a more or less forced sale of the properties to their present operators under conditions where there would not be more than one bid for a given plant. We should not continue on a giveaway, throwaway or sellaway program. The taxpayers and citizens should be protected against any attempt to pick up these immensely valuable properties for less than they are worth.

(2) The result of the sales should be to lessen the possibility of cartels in the rubber industry and to build up more competition thus making the free enterprise system in fact free.

After careful scrutiny we believe that the present bill is grossly defective in these basic respects and that unless it can be properly amended, it should be defeated.

3. BASIC FACTS WHICH SHOULD BE BORNE IN MIND IN CONSIDERING THE TERMS OF SALE

The following table shows the number of synthetic rubber plants of each type which the Government now owns, their original cos and productive capacity:

TABLE I.-Main types of Government-owned synthetic rubber plants