was selling to these foreign-based distributors at the same prices it was selling to Mr. Champon, an American-based distributor. Since Mr. Champon obviously had to mark-up his cost in order to make any profit at all, his prices to his Viet Nam importers (wholesalers and large users) was naturally higher than Du Pont's price to its importers (foreign distributors). On the theory that Du Pont's sales to its foreign distributors established a "market price prevailing in comparable export sales" pursuant to Reg. 1, § 201.63 (a), AID issued its Bill for Collection based on the difference between Champon's prices to wholesalers and large users, on the one hand, and Du Pont's prices to its foreign-based distributors, on the other. This reasoning, I hope you will agree, is entirely fallacious. The sales by Du Pont to its foreign-based distributors are not "comparable export sales". Reg. 1, §201.60 (f) defines "comparable export sale" as any ""comparable sale' in export transactions." A "comparable sale" (as defined by sub-section (e) of the same paragraph) is defined as "any sale . . which, with respect to the... class of purchaser" is the same. Here the class of purchaser to whom Du Pont sells is entirely different from the class of purchaser to whom Champon sells. Sales to a foreign-based distributor are not the same class of purchaser as sales to a wholesaler, or a large user. The two types of sales are at completely different levels of the distribution process. Champon's customer-importers are either wholesalers or large users. The wholesaler will buy a quantity of cylinders and resell a cylinder at a time and sometimes even less than a full cylinder, e.g., to a refrigerator repairman. The larger users to whom Champon sells directly will typically be a small manufacturer of bug bombs and the like. By contrast, Du Pont's export sales are to Du Pont distributors. These foreignbased distributors sell to the same class of customer to whom Champon sells. They are at the same level of distribution as Champon. And the sales by Du Pont to such foreign-based distributors are at one step higher in the distribution process than Champon's sales to wholesalers and large users. The different functions which Champon's purchasers and Du Pont's purchasers serve in the distribution process is reflected in the fact that Champon's importers (wholesalers) will sell many products including those of Du Pont's competitors. Du Pont's importers (its foreign-based distributors), on the other hand, would naturally not handle the products of Du Pont's competitors. The contrast between Champon's importers (wholesalers and large users) and Du Pont's importers (foreign-based distributors) is also emphasized by the fact that Champon has 27 different customers listed on this Bill for Collection in a country the size of Viet Nam. By contrast, Du Pont has a single customer for almost all of Europe. Thus, the "class of purchaser" to whom Du Pont sells is entirely different from the "class of purchaser" to whom Champon sells. It is therefore improper to use Du Pont's export sales as the basis for developing a comparable market price which Champon may charge his importers. AID's conclusion is not only wrong as a matter of regulatory interpretation, but it is also wrong as a matter of policy. If a sale to a foreign-based distributor is held to be comparable to a sale by an American distributor to a wholesaler or a large user, the result will be to drive the small businessman out of the market whenever the manufacturer makes any export sales directly. This is surely in conflict with the aims of AID's statutory charter.' The manufacturer naturally draws no distinction between an Amrican-based distributor and a foreign-based distributor. There is no reason for him to sell to one at a lower price than the other. For a variety of valid business reasons-not the least of which is the size of the market-many large American manufacturers maintain foreignbased subsidiaries or distributors in large overseas markets. Smaller markets are served by American-based distributors who may have permanent or traveling representatives in these markets. AID's position would cut out all of these small American businessmen because only the manufacturer can sell at the distributor's prices. Surely the small American businessman who is an American-based distributor of a large manufacturer such as Du Pont cannot resell at the same prices he purchases his products from Du Pont. 1 The Foreign Assistance Act of 1961, 22 U.S.C. 2352, provides : Insofar as practicable and to the maximum extent consistent with the accomplishment of the purposes of this chapter, the President shall assist American small business to participate equitably in the furnishing of commodities, defense articles, and services (including defense services) financed with funds made available under this chapter. It may be AID's purpose to force the manufacturer to lower its price to the American-based distributor. The manufacturer says he will not do it. For one thing, to do so would raise serious Robinson-Patman problems because Du Pont would be charging different prices to different American-based distributors (most of whom have nothing to do with the foreign market).2 If AID wishes to force the manufacturer's hand and in effect require him to sell directly to a foreign-based distributor in Viet Nam (if he wishes to sell at all), then it should do so by prospective ruling, not by trying to take away from a legitimate small businessman his gross profit on these sales. AID has unfortunately been cheated and bilked, lied to, and pettifogged-all too often and especially in Viet Nam. But not by Mr. Champon or L. A. Champon and Co.! An agency that has been taken advantage of so much, that has been the object of so much unfair treatment, should be particularly sensitive that its own treatment of others not be unfair. To press this Bill for Collection further would be, we submit, grossly unjust to Mr. Champon and his small company. He is guilty of no deception or chicanery. He has been completely open and above board. He had no control over the price Du Pont charged him. He was in no position to make a study of Du Pont's pricing policies to other distributors. We do not believe the interpretation suggested in AID's letter of correction is correct. We do not believe that a sale to a foreign-based distributor is a comparable sale on which to establish an export market price for a sale by an American-based distributor to a wholesaler or a large user. Such an interpretation uves not comport with the language of the regulations, nor the purpose of the Act. If, however, AID wishes to persist in this interpretation, it should do so by prospective pronouncement only. Sincerely, HERSHEL SHANKS. L. A. CHAMPON & CO., INC. L. A. Champon & Co., Inc. has been requested to refund to AID certain overcharges it made in sales of Freon Refrigerant to Vietnam. The reason for this refund was that the prices charged by Champon exceeded the prevailing market price in comparable export sales in the United States, in contravention of AID regulations. In the case of Freon Gas, the overwhelming bulk of export sales to foreign importers is made by Dupont, and the export price charged by Dupont is the U.S. prevailing export market price. In the transactions giving rise to the AID refund request. Champon not only sold at prices higher than the export price charged by Dupont but included, in addition, excessively high handling charges, both contravening AID maximum price limitations. Information available to AID does not support the contention that sales by Champon are not comparable to sales by Dupont. AID has been aware of a wide range of Dupont prices for Freon 12 varying downward from 354. This price, which AID found to be the prevailing market applicable to Champon's transactions, represented Dupont's price to its least favored class of customer. AID did find that, in order to sell with a profit at a price not higher than Dupont's price, Champon would have had to purchase from Dupont at an appropriately lower price. Most manufacturers who export, sell to other exporters at a discount because, in such cases, the manufacturer is spared the cost of making the export sale. In fact, Champon has now made such arrangements and Dupont prices to Champon currently permit a 10% profit for the latter on resale at the prevailing market price. Champon has, in other instances, exceeded the prevailing market price on its AID Financed sales. Refund has also been requested on sales of certain industrial equipment items which pre-date the Freon transactions. The company has made an inadequate, partial refund offer to AID of these overcharges. 3 Du Pont does sometimes lowers its prices to a foreign-based distributor but these export sales are not covered by the Robinson-Patman Act. The reason the price is lowered is because of competition in the specific instance from other foreign manufacturers. The foreign-based distributor is able to get a better price from Du Pont by arguing that if he fails to do so he will lose the business to foreign manufacturers of the same product. In the case of AID-financed sales in Viet Nam, however, a distributor cannot use this argument to get a lower price from Du Pont since the statute prevents competition from foreign manufacturers. CHIEF INDUSTRIES, INC. CHIEF INDUSTRIES INC., Grand Island, Nebr., May 6, 1969. HOUSE SMALL BUSINESS COMMITTEE, 2361 Rayburn House Office Building, Washington, D.C. DEAR SIR: We find it almost impossible to find out about AID goods in our particular products such as Grain Bins, Drying Bins, Bulk Feed Tanks, and pre-fabricated Steel Buildings. If these products could be put under specific headings it would sure help us in our bidding of jobs. Thank you. Yours truly, GENE M. REAB, CHIEF INDUSTRIES, INC. Vice President-Sales. All proposed procurements of AID-financed commodities on which bids or offers are being solicited are published in the AID Small Business Circulars or Procurement Information Bulletins. Chief Industries, Inc. is on our mailing list to receive Circulars and Bulletins which contain the products in which they are interested. They would, therefore, receive notices of any proposed purchases of those items. Our mailing lists are already broken down into 20 commodity classifications, and subscribers receive only those Circulars and Bulletins which include items which are within the commodity groups in which they have indicated an interest. To assist U.S. suppliers in determining whether any of their particular products are included in a Circular, the first page of each Circular also indexes the items which it contains. A further breakdown of our mailing list to the specific product level suggested would be excessively costly and is a practical impossibility. (255) CITIZENS AND SOUTHERN NATIONAL BANK Hon. JOE L. EVINS, CITIZENS AND SOUTHERN NATIONAL BANK, Chairman, House Small Business Committee, House of Representatives, Washington, D.C. SIR: I understand that the Subcommittee on Government Procedure intends to conduct hearings designed to broaden American Small Business participation in the procurement of goods and services financed with AID funds. I hope that the Committee will give some thought to the possibility of broadening the number of U.S. banks allowed to participate in financing AID exports through the issuance of commercial letters of credit in favor of U.S. exporters. AID continues to follow the practice of requiring that the U.S. issuing banks be designated by the foreign borrower, thus resulting in an almost complete concentration of this business among the very large banks in New York, Chicago, and San Francisco. The result of this policy has been an inability on the part of customers of many regional banks such as ourselves to arrange for payment locally. Even when our customers who are suppliers under AID commitments emphatically request of their foreign customers that such letters of credit be made available locally, the requests are invariably ignored. The result of this practice is that the regional U.S. banks are called upon to provide preexport financing, assistance with documentation, and other services to ensure that documents are prepared in a manner to facilitate payment, and must then submit such documents to a distant competitor who will effect the payment and earn the only authorized fees. Some 135 U.S. banks belong to the Bankers Association for Foreign Trade thus signifying both their competence in international banking and their maintenance of full-time international banking departments. These banks should be allowed to handle AID letters of credit when their customers, acting as suppliers under AID commitments, so request. The Committee's consideration of this matter would be appreciated. WILLIAM B. GRIFFIN, Jr., Assistant Vice President. CITIZENS AND SOUTHERN NATIONAL BANK This subject was presented to the Committee during the industry hearings on July 15 by Mr. Robert W. Bee, Vice President of the First Wisconsin National Bank of Milwaukee, Wisconsin. AID comments on Mr. Bee's statement apply equally to the statement presented by the Citizens and Southern National Bank.1 1 See p. 239. (256) COMMERCIAL FISHING SUPPLIES COMMERCIAL FISHING SUPPLIES, Congressman SILVIO O. CONTE, Washington, D.C. DEAR SILL: I have been meaning to write to you for some time to let you know that I have been pleased with the judgment used in carrying out your responsibilities as a congressman. You see, you and I were attending Boston College at the same time, 1945-1949. We met a few times, thru a mutual friend, Joe Ruscetta, of Pittsfield. Joe and I roomed together at 93 Manet Road for 4 years next to the firehouse. I started in Pre-Med and finished in the college of Business Administration. Since then, for 20 years, I have tried hard in being successful in the commercial fishing industry. I recently purchased a fish netting factory, act as a factory representative for American Smelting & Refining Company, and my own organization distributes materials necessary for commercial harvesting of seafood on a national and regional basis. Unfortunately we are also importers of fish netting and sundry items. This is because of extremely low selling prices. Since 1964 I have been a Commissioner on the Atlantic States Marine Fisheries Commission and at present chairman of the North Atlantic Section. This commission was established by the Federal Government in 1942. Unfortunately it takes a common denominator to renew old acquaintanceships. In this case it concerns our mutual interest AID hearing scheduled for May 15, 1969. The position of manufacturers of fish netting has deteriorated to the point where our production is but 20% of what it was 10 to 12 years ago. This is primarily a result of imports and a lack of recruitment of people to the commercial fishing industry. Today there are approximately ten manufacturers of fish netting in the United States. One company closed its doors 2 years ago and two companies have been sold within the past 2 months. We are all interested in securing business thru the AID program but none of us are able to compete for the following reasons: 1. Nylon denier sizes are written for manufacturers of fish netting from the Far East. 2. All specifications are written as 500 meshes deep, by 5 meters long-regardless of mesh size or twine size. The average American gill net machine has a mesh depth size of 150 meters. I am particularly suspicious of these specifications. 3. We are forced to compete with countries such as China and Korea where labor costs are only 20% of our costs. The American fish net manufacturer needs this business to stay alive. During the month of April tons of netting were submitted for bid for shipment to South Vietnam. I doubt seriously if any American manufacturer will submit a bid. Please refer to the following AID bulletins 69-130, 69–136, 69-148 and 69-152. If our country is to depend on the American manufacturer to furnish camouflage netting and commercial fishing nets during a time of crisis, then programs such as AID will have to keep us alive. Certainly, I will be happy to discuss this matter in more detail if called to do so. |