Senator HOEY. Yet you would undertake to renegotiate it over the whole time, all of the cotton you sold?

Mr. LAWSON. Yes; that is right.

Senator BUTLER. Everything that you say with reference to merchandising cotton would apply to the merchandising of other raw products, like wheat and corn?

Mr. LAWSON. Yes; it would.

Senator BUTLER. They are also handled through future markets? Mr. LAWSON. It is exactly the same thing, except we have a great many more classes of cotton grade and staple than they have classes of wheat and corn.

Senator BUTLER. There is more confusion with reference to the various grades?

Mr. LAWSON. That is right. Senator BUTLER. There are still many grades of grain, too? Mr. LAWSON. That is true. Of course, the classing of cotton is not an exact science. It is an art, and some of the artists make mistakes sometimes.

The CHAIRMAN. All right, Mr. Lawson, you may proceed.

Mr. LAWSON. This means that a small merchant selling 500 bales of cotton to textile mills having defense contracts may be subject to renegotiation. Cotton merchants are not concerned that they will earn any excess profits which will be recovered in the renegotiation process. They are concerned with the expense and bother of having to file additional reports, keep records, and have conferences with another governmental agency going over the records of all their business, in order to obtain clearance from an indeterminate liability. In the merchandizing of cotton every cost is significant, and must ordinarily be passed back to the farmer or on to the mill.

With cotton markets closed and merchants incurring heavy losses daily as a result of the price freeze, it seems a little peculiar to be worried about this subject. If it is permitted to operate the cotton merchant business is so highly competitive and market prices in ordinary times are so well-known, that no mill will pay any price above the market for cotton. Mill buyers are experts in cotton and in negotiating for it. While we believe any board would finally reach the conclusion that it should exempt raw cotton subcontracts, yet we saw them hesitate to take that responsibility previously. To save the expense and bother of a meaningless procedure for both the shippers and the Government, we ask that this amendment be adopted.

The CHAIRMAN. Are there any questions?

Senator BUTLER. The amendment that you suggest is an adaptation of what was in the old bill?

Mr. LAWSON. Yes, sir; or the new bill with the exception or elimination of the clause, "but only if such contract or subcontract is with the producer of such agricultural commodity."

The CHAIRMAN. That would accomplish the same thing?

Mr. LAWSON. Yes, sir.

The CHAIRMAN. In other words, you do not begin renegotiation until the raw product is ready for an industrial use; that is, it is gotten. ready to be processed into an industrial commodity or use?

Mr. LAWSON. Yes, sir. Under this bill, a gin company could be renegotiated.

The CHAIRMAN. You would not have to gin but 500 bales a year before you would be renegotiated. About 400 bales would be sufficient to be renegotiated, counting the seeds and all?

Mr. LAWSON. Yes, sir.

I

The CHAIRMAN. You would be subject to all sorts of trouble. apprehend that the board would probably say that, "We will renegotiate the subcontractors, because they are only technically subcontractors. They simply are the suppliers from which the cotton mill, the spinner, gets his raw material," just as in the case of pig iron and as in the case of meats and in the case of various other farm products, peanuts, and any other shortening, soybeans, all of it-they are faced here with this same situation. We tried to correct that in the law as we finally wrote it. It looked like it worked very well. I never heard of any great excess profits being made by any of you cotton merchants and shippers.

Mr. LAWSON. No, sir.

Senator BUTLER. I think it is very well known that the people in the cotton business are not going to be fooled very much by price. The same is true in the price of grain or any other farm commodity. Mr. LAWSON. That is true.

The CHAIRMAN. The price is absolutely fixed. They are quoted hourly into all of the markets, or on the quarter-hour, are they not? Mr. LAWSON. Yes.

Senator BUTLER. Anybody buying for the Government paying too much, why, I think the fault lies there. We had better get some new procurement officers, rather than renegotiating all of the contracts already made.

Mr. LAWSON. The Government has nothing to do with the cotton. The mills buy the cotton, themselves.

The CHAIRMAN. All right, Mr. Lawson. We thank you very much for your appearance.

Mr. LAWSON. Thank you, sir.

The CHAIRMAN. We will next hear from Mr. Charles G. Caffrey, representing the American Cotton Manufacturers Institute, Inc., Charlotte, N. C. Will you please identify yourself for the record?

STATEMENT OF CHARLES G. CAFFREY, AMERICAN COTTON MANUFACTURERS INSTITUTE, INC., WASHINGTON, D. C.

Mr. CAFFREY. My name is Charles G. Caffrey. I am appearing today as the Washington representative of the American Cotton Manufacturers Institute, Inc., Charlotte, N. C., which is the central trade association for the entire cotton manufacturing industry and serves as its spokesman in matters of general and national interest. The industry is one of the country's largest, providing direct employment to more than 500,000 people and having a production output now valued in the primary market at more than $7,000,000,000 per year. Its scope of operations extends over many States in all sections of the Union, and it is especially important throughout the area extending from Maine to Texas.

The industry units are numerous, being about 1,000 in number. The size of each unit is small, the largest owning less than 4 percent of the industry's spindleage. It is, and for a long time has been,

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distinctive as the most competitive and individualistic of the country's major manufacturing industries, and for that reason represents to the maximum degree the spirit of free business enterprise. The member mills of the American Cotton Manufacturers Institute, Inc., are distributed throughout the industry's entire area and operate approximately 85 percent of the industry's total spindles.

There are three problems in reference to the Renegotiation Act of 1951 that we want to particularly point your attention to:

It would appear that there are three problems as to which definite consideration should be given before final action is taken by the Senate in passing on the new renegotiation law H. R. 1724.

These deal with the (a) effective date of the law, (b) profits from a long inventory position in agricultural commodities, and (c) treatment of standard commercial articles as to which ceiling prices have been fixed.

Effective date: Section 102 (a) of the act as passed by the House requires renegotiation as to all amounts received or accrued by a contractor or subcontractor on or after the first day of January 1951. Thus, if a man took a contract in 1950, or even in 1949, and for reasons entirely beyond his control payment was not received until after January 1, 1951, he would be subjected to renegotiation procedures even though that was not in contemplation when the sale was made. Retroactive legislation usually is unfair and is particularly so in the present instance. It is urged that the fair approach is to limit the application to earnings which have resulted from performance of a contract beginning immediately after the effective date of the act and ending on the day the act is terminated. The first Renegotiation Act of 1942 was applied only to results from performance after April 28, 1942, the date the law was approved. In the present House bill there is a provision which recognizes this principle, namely, section 2 (a), which states that the act should not be applicable "to receipts or accruals atrributable to performance under contracts or subcontracts after termination date."

We, therefore, suggest that section 2 (a) shall be redrafted striking out in two places the word "received" and in line 10 change the phrase "on or after the 1st day of January 1951" to "on or after the date of final approval of this act."

The next problem that we ask you to give consideration to is the treatment of profits from a long inventory position in agricultural commodities which more or less coincides with the testimony given by the gentleman that testified before me.

A processor could sell an agricultural commodity owned by him (cotton, corn, wheat, etc.) for civilian uses at current market prices and buy back that commodity and treat the cost for renegotiation purposes as the repurchase price.

The Renegotiation Act of 1943 recognized the equity of permitting the producer who had a long position in an agricultural product to be in the same position as to costing the product as if he had sold his long position and repurchased. A copy of section 403 (i) (3) of the Renegotiation Act of 1943 is attached to this memorandum.

We urge that a provision similar to that should be inserted in the current renegotiation law.

The CHAIRMAN. That simply means that the fair market price of the raw material, as of the date the contract is entered into, should be used; that is all there is to it?

Mr. CAFFREY. That is right.

The CHAIRMAN. And you are using cotton and wheat and other things, and you might very well include tobacco, because frequently tobacco is carried, generally, for 3 years?

Mr. CAFFREY. Yes, sir.

The CHAIRMAN. And sometimes for a longer period of time, sometimes for several years?

Mr. CAFFREY. Yes. We are merely asking that the costing of a Government contract be on the current-price basis.

The CHAIRMAN. We struggled with that principle in conference, and this bill was finally put in shape; that did seem just and fair, that seemed to be equitable and just and fair, and terminated sometime within the foreseeable future the vast and complicated renegotiations that could be carried on in this country.

All right, you may proceed.

Mr. CAFFREY. Treatment of standard commercial articles: The act of 1951 makes no reference to standard commercial articles which in the Renegotiation Act of 1943 were defined to be those which were identical with an article manufactured and sold and in general civilian, industrial, or commercial use prior to January 1, 1940, identical with articles sold as a competitive product by more than one manufacturer as to which a maximum price had been established by the Price Control Act of 1942 or which was sold at a price not in excess of the January 1, 1941, selling price.

It seems reasonable to exclude from renegotiation an article which meets the above definition, particularly if it is sold to the governmental agency under competitive bidding.

H. R. 1724 in section 106 (c) authorizes the Renegotiation Board in its discretion to exempt certain types of contracts including those under which the profits can be determined with reasonable certainty when the contract price is established, such as certain classes of agreements for personal services or for the purchase of real property, perishable goods, or commodities the minimum price for the sale of which has been fixed by a public regulatory body. We believe that the act should provide for mandatory exemptions with respect to standard commercial articles sold as a result of competitive bids as to which ceiling prices have been established by the Economic Stabilization Agency.

It is, therefore, suggested that section 106 (a) shall be so amended that the act will not apply to

any contract for a standard commercial article as defined in the Renegotiation Act of 1943 sold as a result of competitive bids or sold under negotiated contracts whose prices are based upon recently submitted competitive bids and subcontracts related to such contracts, provided the contract price or prices is in conformity with a price regulation or order of the Economic Stabilization Agency fixing ceiling prices.

Senator BYRD. What you want to do is to go back to the last act? Mr. CAFFREY. Yes, sir. That is what we have in mind, Senator Byrd. In other words, if there is a fixed price by the Government, why renegotiate that price?

Mr. BYRD. Put it on a competitive-bid basis?

Mr. CAFFREY. On a competitive-bid basis.

The CHAIRMAN. If the article is a standard one.

Mr. CAFFREY. Like sheets, pillowslips, clothing of all types, would come within that category.

We believe there is more justification for the suggested amendment than there is for including in the bill the provisions authorizing exemption of contracts for the purchase of commodities, the minimum price of which has been fixed by a public body. If the price charged to the Government for an article is at or below the legally fixed ceiling price and the contract has been let after competitive bidding, it would appear that all interests of the public have been adequately protected and that there is no need to subject the successful bidders to all of the expense, trouble and uncertainty of renegotiation procedures.

I have here an amendment which we suggest, which is section 403 (i) (3) in the Renegotiation Act of 1943, and which we hope will be given consideration and made a part of the present bill, which will exempt the raw commodities.

(The amendment referred to follows:)

SECTION 403 (1) (3) IN THE RENEGOTIATION ACT OF 1943 DEALING WITH TREATMENT OF A PROCESSORS LONG POSITION IN AN AGRICULTURAL PRODUCT

(3) In the case of a contractor or subcontractor who produces or acquires the product of a mine, oil or gas well, or other mineral or natural deposit, or timber, and processes, refines, or treats such a product to and beyond the first form or state suitable for industrial use, or who produces or acquires an agricultural product and processes, refines, or treats such a product to and beyond the first form or state in which it is customarily sold or in which it has an established market, the Board shall prescribe such regulations as may be necessary to give such contractor or subcontractor a cost allowance substantially equivalent to the amount which would have been realized by such contractor or subcontractor if he had sold such product at such first form or state. Notwithstanding any other provisions of this section there shall be excluded from consideration in determining whether or not a contractor or subcontractor has received or accrued excessive profits that portion of the profits, derived from contracts with the Departments and subcontracts, attributable to the increment in value of the excess inventory. For the purposes of this paragraph the term "excess inventory" means inventory of products, hereinbefore described in this paragraph, acquired by the contractor or subcontractor in the form or at the state in which contracts for such products on hand or on contract would be exempted from this section by subsection (i) (1) (B) or (C), which is in excess of the inventory reasonably necessary to fulfill existing contracts or orders. That portion of the profits, derived from contracts with the Departments and subcontracts, attributable to the increment in value of the excess inventory, and the method of excluding such portion of profits from consideration in determining whether or not the contractor or subcontractor has received or accrued excessive profits, shall be determined in accordance with regulations prescribed by the Board. In the case of a renegotiation with respect to a fiscal year ending prior to July 1, 1943, the portion of the profits, derived from contracts with the Departments and subcontracts, attributable to the increment in value of the excess inventory shall (to the extent such portion does not exceed the excessive profits determined) be credited or refunded to the contractor or subcontractor, and in case the determination of excessive profits was made prior to the date of the enactment of the Revenue Act of 1943, such credit or refund shall be made notwithstanding such determination is embodied in an agreement with the contractor or subcontractor, but in either case such credit or refund shall be made only if the contractor or subcontractor, within ninety days after the date of the enactment of the Revenue Act of 1943, files a claim therefor with the Secretary concerned.

The CHAIRMAN. Are there any questions?

Senator BUTLER. I notice that you are the second man who has appeared on the subject of cotton. I do not see anyone appearing for corn or wheat, but I presume that the same arguments that you advance for commodities made from cotton would apply to articles made. from other raw crops?

Mr. CAFFREY. That is right. I think you are absolutely correct in that interpretation of it.