(The document referred to is as follows:) No. 721-54. DEPARTMENT OF DEFENSE, AGREEMENT SIGNED TO REDUCE DEFENSE SURPLUS SALES IMPACT In a joint effort to reduce the impact on the civilian market of Department of Defense surplus property available for disposal, the Department of Defense and the Department of Commerce have signed an agreement under which the latter will initiate technical market studies on the market impact of selected items, Thomas P. Pike, Assistant Secretary of Defense (Supply and Logistics) announced today. A memorandum of understanding, signed by the two Departments, establishes for the first time a systematic review of certain surplus personal property items declared excess by the Department of Defense. The goal of the Defense surplus disposal program is to provide a fair rate of return to the Government on property sold, at the same time eliminating unnecessary or unreasonable adverse impact on civilian markets. In order to carry out the program, the industry divisions of the Business and Defense Services Administration of the Department of Commerce will review lists of excess and surplus personal property provided by the Department of Defense. The industry divisions will evaluate the cumulative market impact of such offerings upon commodity inventories, prices, and employment situations. Based on such evaluations of selected items, technical market study reports will be issued for the use of the Department of Defense in determining current and future plans for disposal of such selected items. (Copies of the memorandum of understanding are available in Press Branch, room 2E761.) MEMORANDUM OF UNDERSTANDING AND COOPERATION IN PROGRAM FOR THE DISPOSAL OF SURPLUS PERSONAL PROPERTY (AS DISTINGUISHED FROM REAL PROPERTY) BETWEEN OFFICE OF STORAGE, DISTRIBUTION AND DISPOSAL, OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE FOR SUPPLY AND LOGISTICS, AND BUSINESS AND DEFENSE SERVICES ADMINISTRATION, DEPARTMENT OF COMMERCE Consonant with the exchange of letters between Lothair Teetor, Assistant Secretary of Commerce for Domestic Affairs (May 18, 1954), and Thomas P. Pike, Assistant Secretary of Defense for Supply and Logistics (June 4, 1954), the following cooperative understanding between the Department of Commerce and the Department of Defense is accepted and placed in operation upon signature by indicated parties for and on behalf of these Departments. The purpose of this Memorandum of Understanding is to establish a systematic review by the Department of Commerce of significant sales of DOD surplus personal property and the subsequent issuance of technical market study reports concerning sensitive items to the Office of the Assistant Secretary of Defense for Supply and Logistics indicating market impact of serious proportions likely to result from the sale of quantities of such selected items. To carry out the mutual objective of these two Departments that surplus personal property of the Armed Forces be disposed of in such a manner as to provide a fair rate of return to the Government but with a minimum impact on civilian markets, the following cooperative arrangement is established: 1. The staffs of the several Industry Divisions of the Business and Defense Services Administration, Department of Commerce, will review lists of excess and surplus personal property available for sale and evaluate the cumulative market impact of such offerings upon commodity inventories, prices, and employment situations. Based on such evaluations of sensitive items, technical market study reports will be issued, as required, for the use of the Department of Defense in determining current and future plans for disposal of such sensitive items. All such market study reports will be based on substantiating evidence collected and held in the files of reporting BDSA Industry Divisions. 2. For the purpose of securing reports on the cumulative effect of surplus property sales the Office of the Assistant Secretary of Defense for Supply and Logistics will make necessary arrangements with the Armed Forces to provide the Business and Defense Services Administration, Department of Commerce with the following information on excess reportable and surplus nonreportable personal property. (a) For reportable property: Six copies of listing showing excess personal property available for redistribution, when and as prepared by the Department of Defense central screening agency. (b) For nonreportable property: Three copies of Invitation to Bid or auction catalogue on which one or more of the nonreportable items contained in the attached or subsequently revised list appear, in the condition noted, and in or exceeding the quantities of or acquisition cost shown for each class. 3. Items in quantities and condition as indicated on the attached list (except foreign excess) shall be designated by red circling of the item or lot number on each of the three copies of the Invitation to Bid form or auction catalogue prepared for BDSA, Department of Commerce by any camp, post, station, base, depot, or any other single installation from which a single sales offering is being made, regardless of the location of the property being offered. 4. The above designated copies of listings of excess property and of marked Invitations to Bid or auction catalogue shall be forwarded directly to the following address: Surplus Property Report Coordinating Office, Business and Defense Services Administration, U. S. Department of Commerce, Room 4864, 15th Street NW., Washington 25, D. C. 5. Volunteered requests from the military departments for technical advice on potential market impact of surplus disposals (as prescribed in Section IID6c, enclosure 1 of Department of Defense Instruction 4160.4, 13 July 1954), shall be channeled through the Assistant Secretary of Defense for Supply and Logistics. 6. Periodic review and revision of this memo shall be made. 7. Official liaison between these two agencies shall be the responsibility of the undersigned or their designated representatives. 8. No news releases shall be made by either agency concerning technical reports issued by the Department of Commerce to the Department of Defense unless or until they are cleared and approved by authorized public information officials for both agencies. 9. Sources of information, reference, and procedural guidance used in negotiating this arrangement are as follows: (a) Defense Supply Management Handbook DSMA-H-2-1-dated August 1953 (to determine kinds of property included in class). (b) Department of Defense Instruction Number 4160.9 dated 20 April 1954: Appendix I (nonreportable property); Appendix II (exceptions to reportable property). (c) Department of Defense Directive 4160.8 dated 16 March 1953 (for determination of applicable condition codes). (d) Merchandising Plan (draft). 10. Amendments to the documents listed in item 9 above shall have force and effect in implementing this understanding and in future review and revision thereof. The above understanding is approved this 19th day of July 1954. CHAS. F. HONEYWELL, Administrator, Business and Defense Services Administration, Director, Office of Storage, Distribution, and Disposal, Office of the Assistant Secretary of Defense for Supply and Logistics. Mr. WALDEN. In this connection, namely the disposal of surplus, I would like to hand you, so you can follow me, a copy of a report which I shall later introduce into the record. This report recapitulates a number of services which BDSA has done for business, and I will introduce the whole thing at a later time. I will refer you to the galley so you also can see what I am talking about. If you turn to galley 56, I will read you the following excerpt from a memorandum dated January 6, 1953, from C. R. Burrell, Director of the General Components Division to you which states in part as follows: Handtools: The Division received information that the military agencies contemplated declaring as surplus a large quantity of handtools which has been purchased in the past 2 years. These handtools are standard and not subject to specification changes in the future. Therefore there seems to be no point in dumping them on the market at sacrifice prices now with the consequent disturbance to normal business and then repurchasing similar tools a year later. Through the efforts of the Division arrangements have been made so that these tools will not be dumped at this time. The question is, Did the Division make arrangements with the Department of Defense relating to the disposal of surplus handtools? Mr. HONEYWELL. The Division made recommendations to the Department of Defense in which this particular case the Department of Defense chose to follow the recommendations as submitted by BDSA. Mr. WALDEN. The document says "Through these efforts," what were the efforts you say the efforts are recommendations. Mr. HONEYWELL. The effort consisted solely of a recommendation. We have no discretion whatsoever as to what the Department of Defense will do with its surplus property. They have granted us the privilege of making a recommendation. Mr. WALDEN. Would one of these recommendations, Mr. Honeywell, be that the Department of Defense would dispose of this surplus for export only? Mr. HONEYWELL. That has been such a recommendation, I believe. Mr. WALDEN. At this juncture I would like to introduce into the record a memorandum for the Director, Office of Storage, Distribution and Disposal, Office of the Assistant Secretary of Defense, which was obtained from the Department of Defense, on the subject of export sales only. (The document referred to is as follows:) OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE, SUPPLY AND LOGISTICS, Memorandum for the Director, Office of Storage, Distribution and Disposal. Subject: Sales for export only. Reference is made to the objections taken by Mr. Stempler, Assistant General Counsel, to the attached replies prepared for Mr. Pike's signature to Congressman Keogh of New York, and Congressman McCormack of Massachusetts. His objections in both cases are based on his belief that sales for export only may not be made by the armed services because "we have no formal approval of the policy." It is a fact that we have no formal disapproval of a “sales for export only" policy; in such a case the usual rule is that the armed services may avail themselves of all alternative courses of action open to them. The NSD, Mechanicsburg, sale for export only, described in the letter and accompanying data intended to answer Congressman McCormack's questions was designed by the Navy to dispose of its market impact surpluses of jungle cloth and herringbone twill. Both items have been under quota controls set by Mr. Pike on January 4th of this year, the Navy being permitted to sell on domestic markets not more than 100,000 yards per month of each, The Department of Commerce (BDSA) recommended this restricted type of disposal for these items, and also suggested that where possible, every effort be made to move these textiles into export markets. Because of this recommendation from BDSA and because it was manifestly unwise to dump our market impact items (duck, jungle cloth, twill, outersoles and heels) we prepared, in December 1954, the first draft of a DOD market impact item list, restricting domestic sales to specific monthly quotas, and providing export warranty sales conditions to be used should the armed services find such action necessary or desirable for any reason. The memorandum draft failed to receive Mr. Stempler's approval; his views at that time are contained in the attached memorandum. No mention was then made that the proposed policy might be "contrary to anti-trust policy." Since we had frozen all textile sales from June through December, due to depressed conditions in the textile industries concerned, Mr. Spencer requested that we strike the export warranty con ditions from the paper and transmit it for signature to Mr. Pike, and issuance to the procurement secretaries, which was done on January 4, 1955. Army and Navy decisions to dispose of quota-controlled items by sale for export only were made after they learned that domestic sale of these market impact items in the quantities planned would not be authorized. It is our belief that when we have surpluses in quantities whose unrestricted dumping on domestic markets would adversely and substantially affect the United States economy (and we depend upon the Department of Commerce for much of this advice), that the wise and prudent thing to do is to control the amount that may be sold monthly in the United States and to allocate those quantities which exceed these monthly quotas to export channels. The latter course is necessary if the total surplus of these items is to be disposed of during an economic upswing, such as we have had for the past 9 months in the textile industry. We believe that there will always be differences of opinion between exporters and buyers for the domestic market as to whether the United States Government should sell in one market or the other. Both want the surplus sold in the market they understand, and resent its sale in any other, regardless of considerations involving the overall economy of the United States. There is considerable direct and indirect pressure from both groups to accomplish the objective that will result in financial success for them. Our position is and has been clear: We should not sell surplus for export only except when it has been found to be a DOD market impact item, and a competitive price can be secured from those who would buy it for export. Even then a portion (roughly half) should be reserved for United States markets under a quota system. We think that this is sound policy, and that the armed services should be authorized, or even directed, to so dispose of market impact surpluses whenever situations of this type occur. A minor point made by Mr. Stempler on the McCormack letter is that there is an "implication that Justice caused the 'deal' to fall through." The paragraph to which he presumably refers (the 4th) is completely in accord with the facts of the case and is so stated. It is obvious from these facts that decision by the Attorney General on or before the 20th of May holding that there was not a "situation inconsistent with the antitrust laws" in the proposed sale, it would have gone through. Since the buyer acted before the Attorney General the question of whether there was an antitrust situation in this disposal is academic, and it is our understanding that, since no decision is needed, none will be written. We recommend that these letters issue as written. SAMUEL V. KERR. Mr. WALDEN. Do you know whether the Army upon the recommendation of BDSA disposed of its surplus property on an allocation basis, geographical allocation or by quantity, say 50,000 tons, 50,000 tons, and so forth? Mr. HONEYWELL. There have been many different types of recommendations made. I don't follow the specific one you may have in mind, but if it would appear that a higher price can be recovered by disposing in a distributed manner or a limited manner than dumping a whole vast quantity on the market at one time, that might well be our recommendation. Mr. WALDEN. Would your recommendation, Mr. Honeywell, come as the result of a communication from the trade association that the Army was disposing of this property? Mr. HONEYWELL. In practically every instance at least the current arrangement is that the Department of Defense notifies us of the items which are considered to have industry impact and ask advice as to how in our judgment the best distribution methods can be followed. Mr. WALDEN. At that juncture I would like to introduce into the record a memorandum from Willis H. Taylor, Acting Deputy Direc tor, Textile and Clothing Division, to you, Mr. Honeywell, subject "Disposal of Surplus Textiles," it says: On August 25, we were advised by the Secretary of the Southern Garment Association that a large quantity of cotton utility trousers were being offered for sale on the Pacific coast. Today the Navy confirmed this and furnished us with invitation No. B-3555 for usable clothing located at Stockton, date of opening bid is August 27. We are making a survey of the garment industry and will be prepared in short time to make recommendations covering the disposition of these surplus textiles. In this instance was the recommendation made by the Business and Defense Services a result of information brought to its attention by the trade association? Mr. HONEYWELL. Initially apparently the information came to us from the trade association. Mr. WALDEN. And you made recommendations pursuant to that? Mr. HONEYWELL. We made recommendations to the Department of Defense I assume. I don't know the details of the followup in that individual case. Mr. WALDEN. The document continues, "We requested by telephone and now confirm the withdrawal of the following items" and the items are listed. When you call up the Department of Defense and tell them to withdraw or request that they withdraw these items, from bid, will the Department do that at your suggestion? Mr. HONEYWELL. Only if in their judgment it is an appropriate action to take. I do want to emphasize the fact that we are only making recommendations. (The document referred to is as follows:) AUGUST 26, 1954. To: Mr. Charles F. Honeywell, Administrator. On August 25 we were advised by the Secretary of the Southern Garment Manufacturers Association that a large quantity of cotton utility trousers were being offered for sale on the Pacific coast. Today the Navy confirmed this and furnished us with Invitation No. B-35-55 dated August 11 for usable clothing located at Stockton and Oakland, Calif. Date of bid opening is August 27, 1954. 27, 1954. We requested by telephone, and now confirm, the withdrawal of the following items: Item 1 through 5-187,074 pairs trousers, utility, cotton herringbone twill Item 25 through 28-34,140 pairs trousers, utility, cotton herringbone twill Item 37 through 39-4,184 undershirts, men's, medium weight cotton-wool In the above lists there are included some individual items that have previously been withdrawn. We are making a survey of the garment industry, and will be prepared in a short time to make recommendations covering the disposition of these surplus textiles. In the meantime their withdrawal from sale is requested. Approved: CHAS, F. HONEYWELL. Mr. WALDEN. With respect to this disposal of surplus textiles, I would like to introduce a telegram into the record procured from the Department of Defense sent by Henry Modell, president, Smaller |