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Mr. Brown. The freight rates work the other way, sir.
Mr. Brown. You can ship from Indiana to Philadelphia, but it is hard to ship back.
Senator CAPEHART. In other words, the physical properties of the product are such that,
Mr. BROWN. Oh, it ships and keeps indefinitely.
Mr. Brown. Purely a matter of cost. And I cannot accept the previous testimony that you are just in an impossible vise, that there is nothing you can do with that protein byproduct. If the Government
Senator CAPEHART. Could you not make paper out of it?
Mr. Brown. I think you could do many things with it if you wanted to go into that.
Senator CAPEHART. If they really want to get into it? Mr. BROWN. Yes.
Senator CAPEHART. If those fellows over at Agriculture really wanted to get into this thing and asked for the necessary money?
Mr. BROWN. As a general rule, sir, protein is a very valuable commodity, and in the habit of things protein is never thrown down the drain. It is valuable. You can do various things with it. Custom has been to use the byproduct of grain as animal feed, and that is undoubtedly the first and easiest place for it to go. But I would certainly not say it is the only thing you could do with it.
The third point, to get back to my statement, the bill ostensibly considers national defense. Actually it completely ignores the national-defense interests.
I might add that I said that before the witnesses testified before this committee. That seems to me to confirm it completely—that the way it is drawn, there is not any national-defense interest left.
Senator CAPEHART. Other witnesses maintain it has no nationaldefense interest.
Mr. Brown. The plant has, but what I say is the bill ignores it. The bill certainly sacrifices any national defense interest that is there, and I think the previous witnesses admit the bill does not have any national-defense interest left in it. What appears in the bill to be a national-defense consideration—the so-called security clause-on close inspection turns out to be gross favoritism to any huge chemical combine and discrimination against any small one.
Senator DougLAS. Why do you say that? Because the small buyer would not have the ability to produce alternative products?
Mr. Brown. That is right, Senator. And the small buyer would not have other plants. Previous witnesses have explained the clause a little more thoroughly than the face of the bill. As you brought out earlier, on the face of the bill you can substitute existing plants.
Senator CAPEHART. Would this plant bring more money if it was sold without any restrictions?
Mr. Brown. Senator, I could not answer what it would do. The companion plant at Kobuta was sold on a negative basis.
Senator CAPEHART. Restricted basis you mean?
Mr. Brown. No; the Commission sold Kobuta—the whole plant at Kobuta--for less than Koppers bid for part of it.
Senator CAPEHART. Yes.
Mr. Brown. So that has some indication on the commercial value. It is true that was under a security clause. But this equipment is highly specialized. Nobody has come forward who says exactly what you could use it for and get much out of it. The plant is very good to produce alcohol butadiene. Beyond that it is very questionable.
The companion plant with the styrene plant, a huge and good styrene plant at Institute, was sold for $9 million I think. The most of that is the styrene plant. That was years ago with no security clause.
They are very specialized plants. And this plant has another disadvantage. It has an easement across the whole west side and half the riverfront.
Senator CAPEHART. Half the what?
Mr. Brown. Half the riverfront. It does not exist any more. I mean it has been used.
There is another easement across the middle of the plant. So that it is not the most desirable site in the world to begin a new chemical process; I assure you of that. There are lots of defects about using it for anything but what it is.
It has no electric generating equipment. It has inadequate steam capacity. As I say, it has these very large easements that have been granted on it.
Fourth, the bill scraps the Government's $40 million defense investment in this plant in return for no guaranty at all of any improved cash realization by the Government. Furthermore, it strips the Secretary of Defense of a discretion he has under existing law; namely, to specify the type of security clause desirable in the light of the world rubber and petroleum situation a year hence.
It should be brought into focus at the outset that we are not discussing here merely the difference of a few hundred thousand dollars in the commercial sales value of the Louisville plant, although that is what might be supposed from the statements of the proponents of this bill. We are concerned with a much greater figure—a figure of more than $40 million. That is what the plant cost to build, to rehabilitate, and to maintain for more than 10 years. The Government has a defense investment of $40 million in this Louisville alcoholbutadiene plant and only as long as this plant is leased or sold under an alcohol-butadiene security clause will that $40 million defense investment be protected. Should this bill be passed and the butadiene security clause be taken off, then the Government's huge defense investment will be completely and forever scrapped.
It has been testified that there is no longer any defense interest in Louisville as an alcohol-butadiene producer. I should point out, however, that even after the Japanese had cut us off from natural rubber in the beginning of World War II, there were also expert witnesses who said that it was not ncessary to build alcohol-butadiene plants. Yet Louisville and its companion alcohol-butadiene plants were almost the sole source of synthetic rubber during many critical periods of World War II. Apparently it is possible for the experts to be very wrong about alcohol butadiene. Possibly they are wrong again.
Senator DOUGLAS. But, Mr. Brown-
Senator DOUGLAS. Am I correct in understanding that the alcoholbutadiene plants were used before the petroleum-butadiene came into production?
Mr. Brown. They were so used, sir; they came into production ahead of the oil plants. Then the oil plants had to be cut back because there was insufficient butylene to support the aviation program at that time and the synthetic rubber program. The result was that for a long period there was petroleum-butadiene capacity sitting idle.
Senator DOUGLAS. What you say is that you are afraid the same thing might happen again, that the petroleum-butadiene plants might be all dressed up but would have no place to go because there would be a shortage?
Mr. BROWN. Of the necessary raw materials.
What do you say to this argument that butane can be used instead of petroleum and that there will always be quantities of butane?
Mr. Brown. That is entirely correct, sir; butane can be used. And I am delighted to see the butane plants built, because that relieves that nervousness. But when the whole thing is finished there is only going to be about 300,000 tons of butane capacity in existence as against something like 900,000 tons or a million tons requirement.
Senator CAPEHART. What is the difference in the cost of the butadiene made out of petroleum and the one made out of gases; is one cheaper than the other?
Mr. Brown. It is awfully difficult to answer. But it is controlled by whatever the petroleum companies do not want to charge the public for gasoline. Senator CAPEHART. It is a byproduct of gasoline ?
Mr. BROWN. If you want to allocate certain costs one way or another way, you decide for yourself. If you put the cost of gasoline up, you can cut the cost of butylene. It is not something that you can make a categorical answer to.
We as manufacturers have had to meet whatever the petroleum producers put up as the price, which we were able to do as long as we had the raw material.
Senator DOUGLAS. Is not the situation somewhat different than it was in World War II! There was a very eminent gentleman in charge of the accumulation of natural rubber in World War II. While I was not around at the time, I can remember reading in the newspapers that my friend Harold Ickes was quarreling with him because he did not have a sufficient supply of natural rubber, which I guess was true.
But, now, Mr. Flemming's testimony was that they have a stockpile of natural rubber adequate to meet their needs so that we are not in as destitute a condition now as we were 16 years ago
Mr. BROWN. Well, sir, I would, from my experience in the War Production Board, I would like to say this about stockpiles. They are a one-shot proposition. They are wonderful to have to get you over the quick, first hump of getting organized, but they are no good for the long run. You cannot live long on a stockpile.
Senator Douglas. But the military experts say that the next war will be short and extremely "unsweet."
Mr. Brown. Well, sir, the military experts, if the ones on the next war are anything like the military experts on the last war, it will be just the reverse of what they predict; because I recall the military experts on the last war said they would not lose Asia so they did not have to do anything about natural rubber. That was perfectly clear. I was in meeting after meeting where I asked, "Who is going to guarantee these communications lines?" "Oh, it will be all right.
Senator DOUGLAS. In other words, you had the same fears about World War II that I have about world war III; is that right?
Mr. BROWN. Yes, sir.
Senator Douglas. And which you have about world war III. Do you think the fears in connection with a possible world war III in shutting off the petroleum from the Middle East and natural rubber from southeast Asia are well founded!
Mr. Brown. I think they are well founded, yes, sir; I agree with you.
Senator DOUGLAS. And you are an expert in this field?
Mr. BROWN. I cannot say that I am an expert, but I went through that mill once, sir, so I learned something.
Senator DOUGLAS. Do you think a Senator on this matter could have opinions superior to those of the Department of Defense ?
Mr. BROWN. Well, sir, if I did not think that, I would not think much of the Constitution for setting up Congress. If the executive agencies are going to know everything, why bother setting up Congress?
Incidentally, sir, even in Korea, which is by no means a full-scale war, this plant had to be reopened again. And it was also much nearer to today. There was not the same petroleum conditions as 15 years ago; it was much closer to today's conditions. And even so, the plant had to be used.
Year after year the Government invested substantial sums to keep Louisville available as an alcohol-butadiene plant. After World War II, it was kept in standby and was required to be operated twice during the Korean war. In all the hearings and debates on the Rubber Disposal Act of 1953, no one in Government or out questioned the defense importance of either Louisville or Kobuta. In the discussion on Public Law 433 at the last Congress, again no question of Louisville's defense importance was raised, even though the plant was then under lease to us.
Under date of February 2, 1956, Chairman Pettibone of the Rubber Producing Facilities Disposal Commission, wrote to this committee:
This Commission is of the opinion that for both national security and economic reasons it is desirable to have this plant in operationthat is, as an alcohol-butadiene plant.
On March 9, 1956, before this committee, Mr. Sheehan, counsel to the Rubber Commission, reaffirmed the Commission's position. In the 17 years since this plant was started, no question of its defense importance was ever raised until the morning before the House Armed Services Committee that it became apparent that the plant could not be sold under the Rubber Disposal Act to a large chemical company,
recommended by the Rubber Commission.
Senator DOUGLAS. What is that chemical company?
The reason it could not be so sold was the Attorney General's finding that that company could not and so would not operate this plant for the production of alcohol-butadiene. Then and only then was it announced that Louisville was no longer needed as a butadiene plant and could be knocked out of the synthetic rubber industry. If it were not a rubber plant, it could be sold to any large chemical combine, without the sale being vetoed by the Attorney General.
Senator Douglas. Well, Mr. Brown, since you wrote this we have cross-examined the witnesses, both this morning and this afternoon, and they state that since 1956 there has been this greatly increased capacity to produce butadiene from petroleum products and that, therefore, the situation today is different from what it was a year ago; while their letter of a year ago might have been correct, that the same conditions do not hold now; that, therefore, they are simply keeping up with the times.
Mr. BROWN. I am sure, sir, that that explains the difference, in their opinion. However, I think the point is this-changes in capacity of petroleum production, changes in requirements of gasoline and those things, do not change quite that fast. At that time, I think everybody was aware that the petroleum-butadiene was going to expand. I knew it; I think everybody knew it. I am not exactly sure of the dates on which the scheduled capacities were announced in the trade papers, but there were considerable expansions already talked about in March 1956; and if more came in, announced afterward, they were simply indications of what everybody in the trade knew anyway.
And if I may say so, sir, I think the essential point comes back not to the total expansion of butadiene capacity but thhe expansion of butane-based butadiene, which is the key point, and on that there is insufficient butane-based butadiene, in my judgment.
If you do not mind, I would like just to put in the record, because it has been covered so fully that it is not necessary, the next section of the History of the Plant and of Previous Salez Efforts.
Senator CAPEHART. And to which page do we go? Mr. Brown. Go to page 8. That also omits the section on “Significant Provisions of H. R. 2528 in Contrast with Existing Legislation," as it was covered also.
Senator DOUGLAS. Oh, yes. That will be done. (The two sections of the prepared statement referred to follow :)
HISTORY OF THE PLANT AND OF PREVIOUS SALES EFFORTS
In order to make clear the purpose and meaning of H. R. 2528, it is necessary to consider it as merely the latest step in the somewhat tangled history of this plant.
The Louisville plant is the only remaining Government-owned alcoholbutadiene plant, 1 of the 3 such plants on which United States synthetic rubber production was almost entirely dependent during several of the most critical periods of World War II. After being shut down after the war, it had to be put into operation again to meet the needs of the Korean war.
No company offered to purchase this plant from the Government during the disposal of most of the synthetic rubber plants. Only after Publicker leased this plant for the commercial production of butadiene, did an expression of interest occur on the part of one chemical company, a company that had occupied the plant and maintained it at Government expense for about 10 years prior to the time