STATEMENT OF NATIONAL PAINT, VARNISH AND LACQUER ASSOCIATION, INC., IN CONNECTION WITH HEARINGS ON EXTENSION OF THE DEFENSE PRODUCTION

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The National Paint, Varnish and Lacquer Association, Inc., with headquarters at 1500 Rhode Island Avenue NW., Washington, D. C., is a voluntary, nonprofit trade association originally organized in 1888 and comprising today approximately 1,400 members, who are engaged in the manufacture and distribution of paint, varnish, lacquer, and allied products, or of the materials used in such manufacture, and who, collectively, produce about 90 percent of the total national volume of paint, varnish, lacquer, and allied products.

The long established policy of the association has always been to support any Government programs which are designated to protect the interests of the public and to strengthen the Nation's defenses against aggression. In addition, any system of controls, voluntary or compulsory, which are required by reason of emergency and need, have and will receive the association's support.

We submit that, today, the bases for complete and further extension of the Defense Production Act no longer exist. We request that the committee and the Congress terminate price controls as of June 30, 1952, and modify the production controls of the present act.

Any control of material, product, or service, required for the national defense or for the authorized military assistance of friendly, foreign nations, is desirable and is supported by the association. We believe that any congressional authorization of production or material controls should be specifically set forth and applicable only to military needs. We request that no authority be granted to permit any allocations, restrictions or limitations upon the use of any material or products. for civilian use. A free, competitive market for civilian uses is desirable. In view of the recognized fact that supplies of many items are increasing and will continue to increase, Congress should reexamine, early next year, the portions of the act relating to the flow of strategic materials and end products for defense needs.

Price controls as presently applicable to the paint, varnish, and lacquer industry are serving no demonstrable purpose. In fact, price controls impose undue burdens upon the industry, require excessive reports, and place upon the members of the industry, the almost impossible task of manufacturing products for sale under restrictive price controls, although most of the volume of the materials used in the manufacturing of these products are uncontrolled as to price. Paints, varnishes, and lacquers are devoted to two main uses. The first is the ordinary commonly accepted view of paint for the interior and exterior protection and decoration of buildings and structures. About 60 percent of the dollar volume of the industry's products are used for these purposes. The second is for the highly specialized competitive products, usually known as industrial product finishes. These are the specially formulated coatings which follow strict specications and are sold only to manufacturers of products for application on their products as part of the manufacturing process. The finishes on furniture or on automobiles, or the coatings on metal filing cabinets are a few examples of literally thousands of such coatings. These products are many and, of necessity, vary. A manufacturer of such products, in reality, is a prescription man, the same as a pharmacist, who compounds medical prescriptions.

The result is that it is not unusual for one single manufacturer to have 10,000 different products or formulations. Under price control, he must compute separate ceiling prices and file reports in detail. This task, of itself, would be enough, but the industry must, and does progress, and, through laboratory research and development, new products, and new formulations are brought to market. Here, again, he must adhere to the computation, filing and reporting provisions of the Office of Price Stabilization.

One manufacturer, who may be classed as a medium sized member of the industry, has stated to us:

"I find that in our own company we have just sent in to Washington, D. C., prices for approximately 4,000 special items in addition to all of our standard products. We do not exactly know how much this has cost us, but we feel that it is very high, perhaps as high as a hundred thousand dollars. We have had to have legal advice and have had to use many of the highest priced people we have on our payroll to do the actual complicated figuring.

"After it is all sent in to Washington I am convinced that there isn't the slightest possibility that they can make any real use of the material we sent them. If this work is duplicated by other paint companies and then by other industries, we would certainly find that the amount of dollars spent runs up in the millions and actually this would increase costs rather than decrease them."

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Another important factor is that by volume over 60 percent of the materials used in paint, varnish and lacquer products are uncontrolled as to price. For example, fats and oils, as well as metals used in some pigments, are either processed from an agricultural, parity product or are imported. No program of price control can be substituted for the flexibility and self-adjusting characteristics of a free market. To require the members of an industry to strait-jacket its prices within the limits of a price regulation, while, at the same time, being required to purchase at least 60 percent of its materials by volume in an uncontrolled market is imposing upon such an industry confusion, uncertainty, disruptions and unnecessary burdens. Such is the lot of paint, varnish and lacquer manufacturers.

If prices of paints, varnishes and lacquers had skyrocketed, or if inflationary pressures were of such strength that the national economy were jeopardized, the association believes that such limitations, although burdensome, would be necessary and worth while. However, no such pressures exist, nor do they appear to be anticipated. Mr. Roger L. Putnam, Administrator of the Economic Stabilization Agency, has stated:

"There is no justification for maintaining the burden of controls in areas where the controls do not presently serve a demonstrable economic purpose and where these controls can presently be suspended or relaxed without resulting in a wave of unstabilizing cause-and-effect reactions, and where they can be reimposed quickly and effectively whenever that might become necessary.'

This statement is applicable to the paint, varnish, and lacquer industry. Mr. Ellis Arnall, in a statement on March 19, 1952, to the Senate Committee on Banking and Currency, in its consideration of the extension of the Defense Production Act, stated, in reference to suspensions of ceiling prices:

"When I testified before this committee 2 weeks ago, I told you that the conditions under which price ceilings or record-keeping and reporting requirements may be suspended in such areas are now under study. This study has made some further progress in these last 2 weeks and the committee which is charged with the responsibility for this study has made its first report to me.

"This report proposes standards for the selection of certain kinds of commodities whose ceilings may be suspended and procedures which should be used to make certain that suspension of ceilings can and will be terminated when there is serious danger that present ceiling levels might be pierced.'

To date, the Office of Price Stabilization has effected decontrol or price suspension on only a few commodities, although some of these are fats and oils and cotton, which further enlarge the decontrolled material market for paint, varnish, and lacquer manufacturers. The economic facts have been available to OPS to demonstrate the decontrol of paint, varnish, and lacquer products for some time, particularly with respect to industrial product finishes. These products are sold only to a manufacturer, never reach a retail counter, are used only in a manufacturing process and are made strictly to specifications in a highly competitive market. The operation of competitive markets for these products and the acknowledged fact that the manufactured end items are in great supply and now selling at lower prices with the attendant supply and demand effect of pushing down the prices of these products, results in the condition today, that only a few of these paints, varnishes, and lacquers are selling at or near their ceiling prices.

Why does the association, in behalf of the paint, varnish, and lacquer industry, object to the continuance of price controls on the industry's products when so many manufacturers do not have buyers at current ceiling prices?

First. We wish to state that our objections stated herein bear no criticism of the Office of Price Stabilization or of its officials. That agency and its administrators have been as helpful and cooperative as possible. It must be stated, however, that price controls are never a desirable substitute for the law of supply and demand in a free competitive market. It is impossible for any Government agency, no matter how efficient, to meet the adjustment needs of the industry and supply the flexibility of the open market. Of necessity, the Office of Price Stabilization is required to establish general policies, which, by mere issuance, create inequities and disruptions.

Second. The enormous burden, the time, money and effort spent to compute prices for each item, which for many run into thousands of products, with variations of color, grades or quality. This burden is on both large and small manufacturers. The result is a computed ceiling price which bears no relation to the price the manufacturer can get for the product.

Third. The complex nature of the industry's products. Every product is made according to formula-cach specially suited for a particular use. Colors, tints,

methods of application, special conditions present specific economic demands with variations as to costs and selling prices as between products and as between manufacturers. The restrictive limitations and arbitrary ceilings and formulas of price regulations ignore these variations, which we have attempted to describe above, by likening the paint, varnish and lacquer manufacturers to a corner druggist who fills various prescriptions for many patients of different doctors. The generalities of price control are not susceptible to this heterogeneous situation. Inequities are difficult of presentation and, when adjustments are made available, relief, if any, is tardy and, in most cases, inadequate.

Fourth. The paint, varnish and lacquer industry is one of change and progress. New products, new formulations, new uses are developed each day. Price adjustments to fit these developments into a pattern which seeks to adhere to a preKorea base period, when such new items were unknown, places burdens on a manufacturer which, in light of any effect upon inflation, is excessive and unnecessary.

Fifth. There is no shortage of paint, varnish, and lacquer for any use today, either military or civilian. In fact, the paint, varnish and lacquer manufacturer is seeking markets. Production has decreased. Figures released by the Bureau of the Census on May 12, 1952, indicated that the industry's sales for the first 2 months of 1952 were 10.3 percent less than during the first 2 months of 1951. The decrease in trade sales was 6.2 percent and the decrease in industrial sales was 16.1 percent. This indicates that adequate supplies exist. To burden the industry with nonrealistic controls in its attempts to increase its sales and to recover its lost markets is a failure to recognize the industry's capacity to meet any demands on a competitive basis.

Times have changed. Two years ago, Korea had just begun. Now those conditions have changed, and so have the reasons for any continuance of price control. The effort of OPS to "suspend" on a selective basis, gives no guaranty of controls to combat inflation, but leaves authority to continue controls for the sake of controls.

It is respectfully submitted that wisdom and prudence dictate a release of paint, varnish and lacquer from any relation to those commodities which are causing or feeding inflation. We, therefore request that the committee and Congress take action to remove title IV of the Defense Production Act from any legislation extending such act, and to continue title I with an express proviso that it shall relate only to military allocations and shall be reviewed by Congress early in the year 1953.

Respectfully submitted.

NATIONAL PAINT, VARNISH, AND LACQUER ASSOCIATION, Inc. By DANIEL L. BOLAND, General Counsel.

TOBACCO ASSOCIATES, INC., Washington, D. C., May 13, 1952.

Congressman BRENT SPENCE,

Chairman, House Banking and Currency Committee,

United States House of Representatives, Washington 25, D. C.

DEAR CONGRESSMAN SPENCE: I understand that testimony has been presented to the House Banking and Currency Committee urging the retention of section 104 of the Defense Production Act of 1950 as amended. The policy set forth in section 104 is in such direct conflict with the policy set forth in other acts of Congress that I had hoped that the retention of this section would not become an issue when the present act came up for extension. The advantages of international trade are well known and supported by various acts of Congress. If we are to continue to participate in international trade, we must import as well as export merchandise. In the tobacco industry, we export and import tobacco and tobacco products, the value of our unmanufactured leaf exports being about five times the value of our unmanufactured leaf imports. We are convinced that in the long run restrictions such as those now imposed under section 104 would affect United States tobaccoproducing interests adversely. Consequently, we urge that section 104 be either repealed outright or allowed to expire at the end of the current fiscal year.

In my judgment, some of those who have urged the retention of section 104 would be affected adversely by it. Take the dairy industry, for example. Cheese imports have been reduced because of this amendment. Actually, the value of the cheese exported from the United States in 1951 was in excess of the value of the cheese imported. In the case of the dairy industry generally, the value of all

dairy products exported was over three times the value of dairy products imported. While I do not presume to speak for the dairy industry, I am convinced that restrictions such as those now imposed by section 104 would affect adversely the total market for United States dairy products and the income of United States dairy producers.

Sincerely yours,

J. B. HUTSON. By J. C. FRINK.

P. S.-We request that this letter be included in the hearings as part of the record.

STATEMENT ON BEHALF OF THE NATIONAL INSTITUTE OF MUNICIPAL
LAW OFFICERS, WASHINGTON, D. C.

Mr. Chairman and members of the committee, this statement is presented on behalf of the National Institute of Municipal Law Officers.

I appear here today to support H. R. 7079, a bill to amend the Defense Production Act of 1950 which would eliminate any doubt but that the Congress has intended to exempt from price control charges made by State and municipal governmental agencies. S. 2722, which has been introduced, contained this exemption.

With the committee's permission we should like to submit for the record the resolution of the National Institute of Municipal Law Officers adopted at its last annual conference on this subject.

The National Institute of Municipal Law Officers is an association of 670 of the largest cities located in all the States, acting through the heads of their legal departments. We maintain a national headquarters in Washington, D. C., which we operate as a national clearinghouse for municipal legal information and from which we send out publications on current developments in the field of municipal law. We also carry out extensive research in this field. All of our services are supported entirely by appropriations from the public funds of municipal corporations.

As you can thus see, we are lawyers for cities, and our presentation to you will relate to the legal phases of the issue raised by the refusal of the Office of Price Stabilization to recognize and implement the intention of Congress in the Defense Production Act to exempt from price regulation the charges made for municipal utility services.

The Defense Production Act as originally adopted contained an exemption which lawyers for the States and municipalities thought was ample to express the congressional intent to exempt charges for State and municipal services. In section 402 (e) (v) the act exempted "rates charged by any common carrier or other public utility," making, however, adequate provision for the Federal price stabilization agencies to appear and present arguments on such proposed price increases.

The Director of Price Stabilization, however, has interpreted this exemption in a most peculiar way. He has ruled that while private corporations performing functions which may be classed as common carrier or utility operations are exempted by the act, nevertheless the same operations carried on by municipalities and other public agencies are not within the congressional exemption. This is a most unusual reversal of the normal. Certainly any interpretation which imputes to Congress an intent to exempt private operators while regulating State and municipal agencies, is a suspect interpretation, to say the least.

On behalf of the municipal attorneys of the country, I assert that it is an improper interpretation. We shall state our reasons shortly. However, we feel that it is appropriate to ask the Congress to restate the exemption in clear and unmistakable language such as appears in H. R. 7079, so that local governments throughout the country should be spared the necessity of litigating at public expense to establish the congressional intention from the present language which the Office of Price Stabilization chooses to interpret against State and municipal exemption.

The difficulties concerning the interpretation of the utility exemption in the Defense Production Act go back to an identical exemption in the Emergency Price Control Act of 1942. Under that act the Office of Price Administration also chose to add qualifications to the exemption as enacted by Congress. that time the OPA ruled that no operator could be deemed to be a common carrier or public utility within the meaning of the congressional exemption unless the

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operator's charges were subject to regulatory control by some outside public agency and unless in addition the operator was what the OPA would class as a "traditional" public utility.

These arguments seem to have been discredited in a series of cases. In several cases, it was held that a common carrier was not subject to OPA price control whether or not its rates were subject to outside public regulation. Dunham & Reid v. Porter (157 F. 2d 1022 (1946)); Fleming v. Railway Express Agency (161 F. 2d, 659 (1947)); In Re Rice (165 F. 2d 617 (1947)); Fleming v. Chicago Cartage Co. (160 F. 2d 992 (1946)) and Bowles v. Wieter (65 F. Sup. 359 (1946)). And in the only case which went to the United States Supreme Court, it was held that the OPA requirement of a "traditional" public utility status was not required for exemption. Davies Warehouse Co. v. Bowles (321 U. S. 144 (1944)). See also Farmers' Gin Co. v. Hayes (54 F. Supp. 47 (1943)). Perhaps the single most important factor stressed by the Supreme Court in determining whether a particular operation was within the congressional exemption of public utilities was the nature of its classification as such under State law. The Office of Price Stabilization, nevertheless, refuses to accept this criterion.

Incidentally, we report with some diffidence that the United States Supreme Court criticized the lack of decisive intent in the language of the earlier statute. The Court said: "Congress, in omitting to define 'public utility' as used in the act, left to the Administrator and the courts a task of unexpected difficulty."

It is to eliminate one of the principal difficulties that we support H. R. 7079. The Supreme Court has invited such a clarification and the OPS interpretation makes it necessary.

In our opinion there was never any doubt but that Congress intended to exempt publicly owned utilities from Federal price control regardless of the presence or absence of any outside regulation of its charges. The act never required outside regulation as a condition for exemption. But if there ever was any doubt, it would have been dispelled by the history of the proposed amendments of 1951.

The House of Representatives, in its version of the 1951 amendments, adopted the OPS suggestion and would have incorporated into the act a qualification of the exemption of common carriers and public utilities so that their charges would be exempted only if their "proposed increase in any rate or charge is subject to control by Federal, State, municipal, or other public regulatory authority exercising jurisdiction to approve or disapprove proposed increases in such rates or charges. However, after a Nation-wide protest by municipal officials including the National Institute of Municipal Law Officers, which we represent, the Senate refused to accept this House amendment and the exemption was retained without this qualification.

Nor is this all. On the floor of the Senate there appeared on July 27, 1951, a colloquy between Senator Knowland of California, Senator Capehart of Indiana, and Senator Maybank of South Carolina, in which the Senator from South Carolina, in charge of the legislation, assured the Senator from California that the language of the Defense Production Act as it now stands exempts publicly operated utilities regardless of the lack of outside State regulation and pointed out that it was to assure the continued exemption of such bodies that the Senate conferees refused to accept the so-called Kennedy amendment contained in the House bill. We have read with interest the discussion which appears in the Congressional Record of February 25, 1952, between Senator Knowland and Senator Schoeppel of Kansas which discussed much of this history of the intention to exempt public agencies under the Defense Production Act. We subscribe, on behalf of the National Institute of Municipal Law Officers to the Senators' concern about the readiness of certain executive and administrative agencies to frustrate the intention of Congress in such matters. With Senator Schoeppel, I say, "The only way I know to stop such a practice is for Congress to spell out in detail its intent." Adoption of H. R. 7079 would accomplish that result.

Since the National Institute of Municipal Law Officers is an association of municipal attorneys, we have restricted our remarks to the legal question of statutory interpretation, but we also feel deeply the reasons of public policy which will be expressed by other representatives of public officers here that even apart from the necessity of clarifying the congressional intention up to this point, Congress should avoid Federal control of charges made by State and municipal officers for many reasons.

In the first place, there is no need to superimpose the control of Federal officers upon that of local officers since both are servants of the public alike and municipal officers are as full as OPS officers of the zeal to do the best that can be done in the public interest, including avoiding any unnecessary increase in the cost of