Foreign Relations of the United States, 1955–1957, Western European Security and Integration, Volume IV

126. Report by the Department of State to the Council on Foreign Economic Policy¹

CFEP 520/5

Washington, October 28, 1955.

SUBJECT

• Information re “CFEP 520. U.S. Policy Toward European Coal and Steel Community”

REPORT OF DEPARTMENT OF STATE

On the basis of submissions by the Department of State and other interested agencies on the cartel problem in the European Coal and Steel Community (CSC), the CFEP on April 19, 1955, concluded that this problem warranted a continuing concern on the part of the United States Government. It decided that no change should be made in U.S. policy of supporting the CSC as a constructive development toward European economic and political integration, and the U.S. should continue to encourage the High Authority to develop a competitive market for coal and steel. Finally, the Council asked the State Department to prepare additional information on various aspects of the High Authority’s activities on the cartel problem and on U.S. actions to further development of a competitive coal and steel market.

Conclusions

A detailed description of the High Authority’s activities in the cartel field is appended and is summarized herein. The following conclusions may be drawn from the facts thus set forth.

(1) Decisions already taken by the High Authority under the antitrust provisions of the Treaty are consistent with the broad objectives of establishing and maintaining competitive conditions in the Community.

(2) Numerous business agreements exist which are believed to involve restrictive practices. Many of these are currently being investigated by the High Authority.

(3) The High Authority has not considered it feasible to use directly its lending operations based on the U.S. loan as a means of eliminating restrictive business arrangements.

(4) Despite the complexity of the problems involved, the High Authority would appear to be pushing firmly ahead in its current efforts to solve the coal cartel problem. In general, prospects for continued efforts by the High Authority to combat restrictive practices are enhanced by the strong interest of its new President, Rene Mayer, in enforcement of the antitrust provisions of the CSC Treaty.

(5) Policies in areas outside the field of restrictive business practices (i.e., with respect to price controls, transport discriminations, and subsidies) to develop more competitive coal and steel markets are being pursued by the High Authority.

Current Implementation of U.S. Policy toward CSC

In addition to continuing consultations with the High Authority directed to solutions of specific problems of restrictive business practices in which the U.S. has a special interest, the following are the principal actions in this field planned by the Department for the near future:

1. Based on preliminary discussions initiated by the High Authority, its approval will be sought for a U.S. expert group to consult with the High Authority on the comparative organization and operation of steel markets in the U.S. and the CSC area. The State Department hopes that the creation of such a group would enable both the High Authority and the U.S. to obtain an authoritative, firsthand survey of competitive conditions in the CSC steel industry. It would also provide an occasion for advising the High Authority generally on problems of competition and monopoly in that industry.

2. The problem of the development of a more competitive coal and steel market will be discussed with the new President of the High Authority, Rene Mayer, on his projected visit to the U.S. this winter.

Summary of High Authority actions against restrictive business practices

The antitrust provisions of the CSC Treaty are the principal basis on which the High Authority can proceed against restrictive business practices and, together with their powers to eliminate a range of national trade barriers, promote a more competitive market for coal and steel. These provisions prohibit all restrictive agreements in the first instance (Article 65) and provide for review of mergers and consolidations of enterprises which might prevent the maintenance of effective competition in a substantial part of the CSC (Article 66).

The following information relates to those specific points raised in the CFEP meeting of April 19.

“actions taken by the High Authority against restrictive and monopolistic practices”

Although the High Authority has comparatively little experience in this field and few if any precedents to rely on, a number of significant actions have been taken against restrictive practices during the slightly more than two years that the antitrust provisions have been in effect. Three formal decisions calling for the liquidation of three national scrap cartels have been issued; three other scrap cartels have been liquidated voluntarily; and seven agreements covering various coal and steel products have been revised to conform with the Treaty’s antitrust provisions either voluntarily or upon intervention by the High Authority. Relatively more important problems in this field, however, are now under consideration by the High Authority. The High Authority’s anti-cartel program is being put to a major, perhaps even crucial, test in connection with the reorganization of the Ruhr and other coal cartels. Many complicated economic and social factors must be taken into account in dealing with this problem. Latest reports indicate that the negotiations between the High Authority and Ruhr coal group concerning its reorganization are nearing a conclusion. If the coal cartel obstacle is successfully surmounted, the High Authority considers that it must come to grips with the problem of competition in the steel industry where the existence of agreements on prices has been suspected since the common market was established in 1953. So far there is every indication that the High Authority is pushing firmly ahead in its efforts to solve these problems.

With regard to concentrations and mergers, the High Authority has had under consideration 14 cases and has authorized 7 on the grounds that they would not adversely affect competition in a substantial part of the CSC. The remaining 7 cases are under study. Although there has been a trend in the CSC member States in recent years toward greater concentration in the steel industry, this does not appear to be a problem at this time. Out of a total of 250 steel enterprises in the CSC, the total production of the three largest amounted to only 13 percent of the 1954 production of the CSC area. By way of comparison, the largest U.S. steel firm produces approximately one-third of the total U.S. production.

“the nature and extent of business arrangements which have been approved or rejected by the High Authority under the anti-cartel provisions of the Treaty”

The High Authority has the power to authorize a business agreement to specialize in production, or to engage in joint buying or selling, of specified products only if the participants would not be in a position to influence significantly competitive conditions in the CSC. Only 7 of 71 agreements submitted to the High Authority have been authorized up to August 1, 1955, including two specialization agreements for iron and steel products, two joint selling agreements for iron and steel products, and three joint selling agreements for coal. One application for authorization from a German scrap cartel has been formally rejected by the High Authority.

“the nature and extent of restrictive practices of firms which have received loans from the High Authority ”

All of the $100 million U.S. loan had by May 1955 been allocated by the High Authority to specific projects aimed at modernizing and expanding production of raw materials and the construction at mines of power plants utilizing low-grade coal. (Loans for establishing or modernizing steel production facilities were excluded under the terms of the U.S. loan agreement.) None of the 59 enterprises which has received a loan is known to be engaged in restrictive practices in violation of a decision of the High Authority under Article 65 prohibiting such practices. A number of the loan recipients, almost all of them in the coal industry, are, however, participating in business arrangements which are under investigation by the High Authority or in which modifications are being proposed because of their alleged restrictive character. Arrangements of the type in question are of long standing in the European coal industry, preceding the establishment of the CSC; embrace all or nearly all of the coal producing or marketing enterprises of the countries concerned; and were generally either sponsored or approved by the national governments. As noted before, no quick or easy solution has been found so far for the coal cartel problems because of the complicated economic and social factors which have to be dealt with in Europe, as in other coal producing countries. If the High Authority had made no loans to firms believed to be involved in restrictive arrangements pending the outcome of its investigations or efforts to modify broadly the structure of coal marketing in the CSC area, coal companies would have been eliminated from consideration as loan recipients, since the loan had to be drawn by June 30, 1955. As a practical matter this would have meant that the lending operation of the High Authority under the U.S. loan would have been frustrated—with a consequent loss of important benefits to the European economy from increased production and lowered costs as well as the political benefits envisaged from the loan through strengthening the position of the High Authority and encouraging European integration. The High Authority did not consider it feasible to use the granting or withholding of loans as an instrument for influencing changes in business arrangements, and it is unlikely that by withholding loans to the CSC coal industry it could have enhanced its ability to modify the arrangements on which negotiations are now in process.

“whether national governments are hampering efforts of the High Authority to develop more competitive markets”

Although no government of a CSC member State has openly obstructed efforts of the High Authority to enforce Article 65, the position of the Federal Republic of Germany has been described as not being “helpful” in the attempt to reorganize the Ruhr coal cartel, GEORG. The Federal Republic’s position is reported to be based on a concern about the effects of the proposed reorganization both on stability of production and employment.

“cases in which the High Authority’s orders have been disregarded by the firm or firms involved and the High Authority’s action thereon”

The only case known to the Department in which a decision of the High Authority is probably being disregarded or circumvented is that involving Campsider, the Italian scrap cartel. Campsider was ordered to cease its operations in 1953, but instead revised its statutes, supposedly to conform to the provisions of the Treaty, and asked for High Authority authorization. Pending a decision on this application, the organization continues to operate.

“actions taken by the High Authority in other areas designed to develop more competitive markets”

The High Authority has followed policies in areas outside the field of restrictive business practices designed to develop more competitive markets. Widespread national price controls which had been in effect prior to the establishment of the CSC were eliminated when the common market was established. Although not hesitating to impose controls in exceptional cases when necessary, the High Authority has kept its own use of price controls to a minimum in line with its objective of having the coal and steel markets governed by the play of competitive forces. The High Authority has intervened in steel pricing in an effort to eliminate discriminations and to introduce greater flexibility in steel prices. In the important field of railway transport the High Authority has made outstanding progress in the elimination of national discriminations and in harmonizing national transport policies with a resulting impetus to competition through the greater movement of coal and steel across national frontiers. With respect to the few instances in which subsidies on certain products in specified countries are still permitted by the CSC Treaty, the High Authority has taken some important actions looking toward the earliest possible termination of subsidy payments.²

1. Source: Department of State, E–CFEP Files: Lot 61 D 282A, CFEP 520. Secret. Transmitted to the CFEP on November 15 under cover of a memorandum by Paul Cullen which summarized its contents. (Ibid.)
2. A more detailed 23-page report, which elaborated on the points presented in this summary memorandum, was attached to the source text.