the Big Four rubber companies. Was there an agreement between them not to bid on copolymer plant 1278? Parenthetically, in this comparison it will be noted that the higher price was paid by one of the Big Four rubber companies. Was there an agreement among them not to bid on copolymer plant No. 1278? 5. Why were the initial bids on copolymer plants 129, 983, and 1278 acceptable as full fair value whereas the initial bids for other copolymer plants were considered to be too low? Why did the Commission establish acceptable bids of varying prices without regard to the capacities of the plants? 6. Why did copolymer plant 1278 sell for approximately the same price as copolymer plant 127, although 1278 has 150 percent of the capacity of 127? 7. Why did butadiene plant 1593 sell for approximately 17 percent of the price of butadiene plant 485, although the capacity of 1593 is slightly higher than 485? 8. Did greater competition for butadiene plant 1063 raise the sales price by $9 million over the initial high bid? If so, did lack of competition for other plants depress their sales prices? 9. Why did butyl rubber plants 572 and 1082 sell for exactly the amounts of the initial bids by the only bidder, since the other facility (butadiene plant 485) purchased by this bidder was sold after competition and resulted in a sales price 12 percent higher than the initial bid? These are questions which, in the opinion of the Committee on Small Business, should be answered. Answers are not obtainable from the Commission's report. So much for the question of fair value, Mr. Chairman. Turning now to other criteria of the law with which the Committee on Small Business is more directly concerned, let us consider the safeguards in points 1 and 3 of Chairman Vinson's statement. I quote from Chairman Vinson's statement which is, in turn, quoted from the law: 1. The program had to be designed to best afford small-business enterprises and users, other than the purchaser of a facility, the opportunity to obtain a fair share of the end products of the facilities sold and at fair prices. 3. The recommended sales must provide for the development within United States of a free, competitive synthetic rubber industry and not permit any person to possess unreasonable control over the manufacture of synthetic rubber or its component materials. These are the criteria established by the law which the Commission was supposed to follow. The Commission expresses confidence that a continued fair share of synthetic rubber will be made available to small busines. The report say (p. 14): First, a large segment of GR-S capacity has been placed in the hands of Shell Chemical Corp. and Phillips Chemical Co. neither of which is a rubber fabricator. Consequently, they have no need for their GR-S output, and must sell to the market generally. Secondly, in each contract of sale for a copolymer plant, the Commission has required of the purchaser a commitment that he will make available to small-business enterprise a certain specified amount of his production. On its surface, Mr. Chairman, this would appear to be a satisfactory assurance that GR-S would be supplied to small-business enterprises in even greater quantities than under present operation by the Govern ment. The Commission apparently assumes that the total maximum capacity of Shell and Phillips, 152,000 long tons, would, because of the non-rubber-fabricating nature of these companies, be made available to an open market. Add to this the 90,000 long tons to be put on the open market by other prospective purchasers under contract commitments, and one arrives at a figure of 242,000 long tons annually to be sold in an open market under maximum capacity conditions, and presumably available for purchase by small business. The 242,000 long tons is approximately 32 percent-it is really 35 percent, that is a mathematical error of the total annual maximum capacity of 689,000 long tons for all the facilities proposed for sale. Mr. Chairman, it takes only a brief glance at the facts to cast serious doubt upon the validity of the Commission's conclusions. The first assumption is that of maximum-capacity operation, on the basis of which 35 percent of GR-S production is to be sold on the open market. What is maximum capacity, Mr. Chairman, and how is it determined? It has been alleged that the theoretical technical rating of several of the plants concerned is unattainable in practice. If this be so, as has been alleged, the maximum capacity concept is to that extent a fictitious measurement device. Moreover, while maximum capacity production is estimated at 689,000 long tons annually— and listen to this, that is maximum production-the plants that are being sold actually produced only about 478,335 long tons during 1954, not 478,000, but 469,000. In estimating the amount to be sold on the open market after sale, is it not therefore more realistic to use 1954 production figures, rather than so-called maximum capacity as a base for calculation? Should we not have reasonably expected the Disposal Commission at the very least to attempt to forecast probable production and demand levels for the near future, rather than resorting to an ideal-type model which could have only theoretical significance to justify its position? The second assumption of the Commission-that Shell and Phillips, both nonrubber fabricators, will place their entire output on sale in the open market, for purchase by small or large companies-takes on meaning only if viewed in terms of the probable marketing pattern. which such open market sales will produce. What has been the experience with these plants on the west coast and the ones purchased by Phillips? Here we can only guess in measure, but we have the benefit of what the patterns have been under present operation. This experience shows that for the California plants proposed to be sold to Shell, there has in the past been a 90-10 division of total production 90 percent of sale to the Big Four fabricators, and 10 percent to other users. A similar situation has prevailed at the facilities to be purchased by Phillips. How, then, can the Commission have us believe that these distribu-tion patterns will not persist after sale is made? And how, given the likelihood that they will persist, can it be said that the full production of these two companies will be placed on an open market? So how can the Commission say all of this will be available for small business, when in the past 90 percent of it has been sold to the four big users. Mr. DURHAM. Will the gentleman yield at that point? I think it is important. Mr. YATES. Be glad to yield to the gentleman. Mr. DURHAM. We were told and we were given the figure that the use of all small business was 127,000 tons. Now, we are releasing to this, under these agreements, 242,000 tons. Mr. YATES. Well, Mr. Durham Mr. DURHAM. That is the total. I am not talking about one point here particularly. Mr. YATES. I know that, sir. I develop that here in the next page. And then I will be glad to answer your question after that, if I may. How, then, can the Commission have us believe that these distribution patterns will not persist after sale is made? And how, given the likelihood that they will persist, can it be said that the full production of these two companies will be placed on an open market? To complete this phase of the argument, Mr. Chairman, let me share with you what is certainly one of the most curious aspects of this whole question. Let us assume that sale of the plants is to be consummated on March 25. Assume further that production for the next year continues at approximately the level of 1954, and that, I think, is a reasonable assumption, that the distribution pattern of the Shell plants is a 90-10 between Big Four and other users, and that Phillips' production is divided 40-60 based on that company's statement that a major portion of its production will be made available to small business. Therefore, in terms of the calculation we have accorded small business 50 percent of the production. It can then be shown, Mr. Chairman, that small business during the coming year, even in the expectation of a competitive situation, will have available for purchase less of the total market than in previous years-and, Mr. Durham, less than the 127,000 tons they are now getting. Let me show why. This may sound incredible, but if you will follow these calculations the point may become clear. Mr. DURHAM. You are taking one company, and not the overall. Mr. YATES. Beg pardon? Mr. DURHAM. You are just assuming you have one company. Mr. YATES. Mr. Durham, my next paragraph pertains to the overall. Mr. DURHAM. It does? Mr. YATES. Under a condition of maximum capacity, there would be approximately 242,000 long tons available to all purchasers in the open market. Of this total, based on present distribution data, about 110,000 tons would be purchased from Shell and Phillips by the Big Four. This would leave a total of 132,000 or 1970 available for all other users. But these conclusions are based upon operation at maximum capacity, a condition which has rarely existed-if ever-and certainly did not exist during 1954, the year to which the Commission should properly have turned for a realistic appraisal. However, if we take 19 percent of actual capacity during 1954, which is the relationship of 132,000 to the overall maximum capacity, rather than the maximum. capacity of the Commission, we find there will be available for the use of small-business enterprises only 88,000 tons. Thus we see that the rubber available for purchase by small business under the proposed sale would seem to be approximately a third less than was available during 1954 under Government operation. If these calculations be correct Mr. DURHAM. Yes Mr. YATES. Let me finish my statement and I will be glad to yield, Mr. Durham. If these calculations be correct-and they were made on the basis of the Commission's report-small business has indeed cause to fear the proposed sales. Now, we don't know what additional information is necessary to arrive at other facts if there are other facts. That is something for this committee to go into, and that is the reason we raise the point. Mr. DURHAM. The difference in your assumption and oursMr. YATES. Yes. Mr. DURHAM. We are basing our assumption of 242,000 long tons available to small business based on the production heretofore. Mr. YATES. No, sir. Mr. DURHAM. That we got. Mr. YATES. No, sir. Mr. DURHAM. You are assuming something here is going to happen, in your figures. Mr. YATES. Sir, your 242,000 long tons is predicated upon maximum production which has never been achieved. It is supposed to be a third Mr. DURHAM. Oh, yes, it has. We produced maximum capacity for about 2 or 3 years during the war. Mr. YATES. All right, shall I say has been rarely achieved, then. But shouldn't 1954 production have been taken for the test, rather than the 3 years to which you point? Those were probably war years. Mr. DURHAM. This operation has had to be based on a consuming record; that is, on a consuming capacity. You can't store synthetic rubber. Mr. YATES. I am sorry, sir, I didn't hear you. Mr. DURHAM. You can't store or stockpile synthetic rubber; you know that, of course. Mr. YATES. Yes. Mr. DURHAM. It has to be predicated on that. Mr. YATES. Well, Mr. Durham, I am not willing to believe that it has to be predicated on that when you don't find that as being the In 1954, you didn't have that as the case. case. The CHAIRMAN. But you lose sight of the fact, Mr. Yates, that these purchasers are buying these plants to make rubber. Mr. DURHAM. That is right. The CHAIRMAN. They want to run them at maximum capacity. They are in the business of selling rubber. And they are buying it and putting their money in to purchase it to get in the rubber business and to make as much rubber as possible. Mr. DURHAM. Yes. Mr. YATES. Well, Mr. Chairman, may I, with all due deference to your question, point out the past record of these companies? The CHAIRMAN. What? Mr. YATES. May I point out the past record of these companies insofar as the antitrust laws are concerned, and we may very well find these companies do not produce to the maximum capacity. The CHAIRMAN. Let's go ahead with your statement now. Mr. YATES. Mr. Durham is asking me questions. Shall I answer them? The CHAIRMAN. Yes, of course. Mr. DURHAM. Your whole thing is predicated on the assumption that these people are not going to produce synthetic rubber for the open market; isn't it, this last statement? Mr. YATES. Is predicated on what? Mr. DURHAM. Is predicated on the basis that these people are not going to produce rubber, regardless of the demand. Mr. YATES. No, sir, that isn't true. The CHAIRMAN. No. Mr. YATES. My statement is predicated upon what I consider to be a more realistic base than maximum production, which is the 1954 production. That is what my statement is based on. That is an actual fact. We know what that is. Maximum capacity was achieved only during the 3 war years that you point out. Mr. DURHAM. I don't see how in the world you can base the figures on anything except the past record of production. Mr. YATES. That is what we are doing. Mr. DURHAM. That is what it is based on. long tons is based on. What these 240,000 Mr. YATES. Mr. Durham, may I suggest this: You were willing to assume the figures of maximum capacity. I suggest that a more realistic basis would be actual production for 1954 in terms of determining the allotments, sir, to which small business shall be entitled. Now, I don't know what the calculations are in terms of these commitments to which the chairman has alluded. Mr. DURHAM. If you could say Mr. YATES. It may be based upon 1954 production, rather than on the maximum capacity. Mr. DURHAM. Now Mr. YATES. This is something for your committee to go into, and we call it to your attention. The CHAIRMAN. We appreciate what you are doing. Mr. DURHAM. The gentleman has made a very fine statement here. The CHAIRMAN. Go ahead, Mr. Yates. Mr. DURHAM. The only way we can make a determination on your formula, the only way in the world we can make a determination on what the small-business man would consume, is to have an allocation, and for him to tell us exactly how much he is going to consume this year. And you can't do it under this kind of a basis. Mr. YATES. Mr. Durham, I am told-I must confess I am not an expert in this field. Mr. DURHAM. That is right; I am not an expert, either. Mr. YATES. All I have learned has been really in the last 3 days because until the last 3 days I have been in the hearings of the Appropriations Committee, and I tried to acquaint myself with this problem during the last 3 days. Mr. BROOKS. Mr. Chairman, will the gentleman yield? |