812.659/66
Memorandum by the Acting Chief of the Foreign Funds Control Division (Meltzer)
Mr. Duggan’s memorandum of May 22 refers to the monopolistic implications of the Cyanamid deal and suggests the desirability of exploring other alternatives with the other interested agencies. In this connection, it should be observed that for several months we have been in close touch with the Department of Justice and BEW, with a view to developing a preferable and workable alternative. The Department of Justice at one time suggested a Government corporation, but Assistant Attorney General Cox in a meeting with Mr. Acheson indicated that because of the coolness of BEW, which would [Page 503] have to direct the formation of the corporation, he was doubtful that the corporation could be organized in time to deal with the Mexican situation. For this reason and other reasons which I spelled out in my memorandum of April 242 I do not believe that the use of any Government corporation not yet organized would be a feasible alternative to the Cyanamid proposal. The only other “alternative” is the nebulous suggestion of the APC,43 which Mr. Messersmith declined to convey to the Mexicans. I do not believe, for the reasons given below, that we should risk effective action against the Axis properties in Mexico in order to press the APC’s proposal—or more realistically, his desire to begin negotiating an arrangement with the Mexicans.
Mr. Duggan speaks with great generality about alternatives, presumably alternatives without monopolistic implications. The experience of the last three months has revealed the difficulty of formulating any practicable alternative, monopolistic or not. Moreover, analysis of the Mexican situation reveals the difficulties in the way of formulating non-monopolistic alternatives, or, more accurately, alternatives which will promote a free competitive market. Nationalization of a large segment of an industry and its operation under Government sponsorship necessarily involves a dominant position for the nationalized company and the elimination of some competition. The nationalized company will have a controlling position in distribution in Mexico. This will obtain irrespective of whether Cyanamid manages the nationalized properties. However, this distribution “monopoly” is essentially Mexico’s business. Our concern may properly be focussed on the desirability of giving Cyanamid a controlling position on the supply side. However, given a concentrated distribution system and the desire of the Mexicans for management by a United States company or companies which manufacture chemicals, it is difficult to formulate proposals for management of the Mexican company by private United States companies which make a significant difference in terms of competition. Thus let us assume that four American companies agreed to assume the management of the nationalized companies. They probably would agree to a division of fields on the supply side and we would have more units in the management corporation but not significantly more competition. Indeed the substitution of three or four large chemical concerns for Cyanamid might well create greater difficulties for outsiders. For example, let us assume that the management group was to consist of Dupont, Allied, General Aniline and Cyanamid. In that case, non-participating firms seeking access to the Mexican market might be faced with the added difficulties of bucking a combination of four Cyanamids.
[Page 504]Moreover, the multiplication of American companies participating in the management of the Mexican companies would necessarily involve a dilution of responsibility for management. The Mexicans may with justification prefer the concentration of responsibility in a single company to a business analogue of an interdepartmental committee.
It should be added that an “alternative” to be acceptable to the Mexicans who have been negotiating for eight months must be something more concrete than a general exhortation against monopoly.
Mr. Duggan concludes that American Cyanamid would be in a position effectively to prevent other drug and chemical concerns from selling their products on any important scale in Mexico. I am afraid that I cannot accept this ipse dixit. Many of the products which will be required by Mexico, Cyanamid does not produce and must acquire through American firms. It is true that many United States companies, if they sell, will have to sell through the nationalized distribution company. But this would be true irrespective of whether or not Cyanamid participated. It is also true that Cyanamid may use its dominant position in the distribution plan to exact concessions in other markets from the American suppliers. I believe that in this field we can expect some help from the Antitrust Division. Moreover, I must express some fear concerning the Department’s disapproval of an arrangement that per se violates no law—on the basis of a prejudgment that the anti-monopoly laws will be violated.
The gains from further delays and further search for alternatives are extremely conjectural. The risks of such a course are substantial.
- (1)
- The disapproval of the Cyanamid proposal and further delays may result in the Mexicans taking no effective action against the German properties. These properties might continue under the dubious supervision of the Mexican interventors or be sold to “Mexican” cloaks for the Axis.
- (2)
- Unless effective action against the Axis properties is taken, and unless American management assists, the properties will probably be badly run and the return of I. G. Farben to domination of the Mexican chemical industry will be more likely.
- (3)
- The Mexicans may view our disapproval as an expression of an unwillingness to assist in the establishment of a local Mexican industry, thereby further disturbing relations which at present are, I believe, none too good.
- (4)
- I take it that any approach to the Mexican Government would necessarily indicate that we could present alternatives which would be superior means of achieving the Mexican objectives. In view of the inchoate nature of these alternatives I believe that such representations would be dangerous if not irresponsible. They would involve implied governmental commitments which we might not be able to redeem. They would involve a continuing responsibility for the development of the Mexican chemical industry which I do not [Page 505] believe we should assume. I am concerned that our advice to the Mexicans may outdistance our wisdom.
I do not believe that the Department is being high-pressured into action in this case. The case has been carefully considered here. It has been carefully considered by other agencies. If there are realistic alternatives, three months of thought should have produced them. I believe that we should meet with the other agencies and see whether there are alternatives which we have overlooked. Absent such alternatives, I believe that we will gain nothing by further delay.
Finally, it is not proposed to give any affirmative blessing to the deal but merely to avoid any objection and to couple this with a statement to the Mexicans that we assume no responsibility for effective performance by Cyanamid.