84. Report by the Department of State to the Council on Foreign Economic Policy 1
- Department of State Comments on “The Development of Cartel Aspects in the Schuman Plan”
The Department’s comments which follow relate to the four points raised in Mr. Dodge’s memorandum of February 5, 1955, on the above mentioned subject.
Steel Export Cartel. The steel producers of the European Coal and Steel Community (CSC) have, without sanction from the High Authority, established a cartel to set minimum prices for exports from the Community. So far as is known, this agreement does not involve an allocation of markets. The High Authority has in no way condoned the existence of the agreement. Up to now, however, it has felt that it lacked the power to take action against the cartel under the CSC Treaty’s anti-cartel provisions, which could be applied only if the export cartel’s activities had an adverse effect on competition within the Community.[Page 264]
It would also be possible for the High Authority to establish maximum export prices if the prices fixed by the cartel were found to be substantially higher than prices within the Community and therefore inequitable to importing countries. A thorough examination in February of CSC export prices, made at the instigation of the Danish Government during the Ninth Session of the GATT, has failed to show that the export prices were in fact inequitable. Nevertheless, as a result of combined expressions of concern from the U.S. and other governments, the High Authority has currently decided to renew its investigation of the export cartel. Another favorable result has been the establishment of a precedent for consultation between the High Authority and third countries with respect to CSC export prices and practices.
United Kingdom–CSC Agreement. The agreement between the United Kingdom and the CSC, which has not yet come into force, was entered into primarily to strengthen the political significance of the CSC and to give impetus to the movement towards European unity. It provides for consultation and an exchange of information between the U.K. Government and the executive organs of the CSC on such questions as the supply situation for coal and steel, investment, pricing policies, and technological development. Provision is also made for consultation with a view to reducing tariffs and other trade barriers in line with objectives of the CSC Treaty.
The Department has recognized that such a relationship could form the basis for restrictive arrangements. It seems clear, however, from the history and context of the agreement, that the exchange of information on pricing is designed to reveal the presence of artificial price factors, such as subsidies or export incentives which distort trade. The powers of the High Authority in the CSC Treaty with respect to prices are, moreover, defined in such a manner as to limit the possibility of restrictive agreements on prices. It has been suggested also that the existence of arrangements for governmental supervision of the relationship between CSC and UK steel producers may in fact help to forestall restrictive agreements.
CSC Scrap Importing Arrangements. A private scrap organization in Brussels (OCCF) is primarily responsible for CSC scrap imports. While the OCCF determines CSC scrap import requirements, so far as we know, it does not administer any system of scrap allocation for the High Authority. There is an exclusive scrap purchasing arrangement between the OCCF and certain U.S. scrap dealers. This arrangement is tied in with a so-called Perequation Fund to equalize the cost of imported and domestic scrap. The High Authority supervises the administration of both the OCCF and the Perequation Fund through designated observers. Scrap may be imported by CSC consumers outside the OCCF arrangement but no perequation payments are made [Page 265] on such imports. The exclusive purchasing arrangement with U.S. scrap dealers is supposed to terminate March 31, but there is a possibility that it will be renewed.
The scrap import purchasing arrangements have developed as a means of coping with the special problems created by the removal of national barriers to trade within the CSC. Current information seems to indicate that the High Authority regards this scrap importing arrangement as temporary and that it will be terminated when supply and demand for scrap come more closely into balance. Past actions of the High Authority against restrictive scrap arrangements appear to sustain this view.
The U.S. Representative to the CSC has been instructed to indicate informally to the High Authority our reservations about the exclusive scrap purchasing arrangement2 It should be noted that the Federal Trade Commission currently is investigating the relationship between the U.S. scrap dealers and importers in other countries, including the CSC.
- U.S. Loan to CSC . The loan of $100 million to the High Authority was designed to demonstrate concretely the U.S. support for the movement toward European unity. The loan agreement gives specific recognition to the basic principles of free competitive enterprise and it stipulates that loans shall be made in a manner consistent with the operation of a common market free from national barriers and private obstruction to competition.
The attached document (Tab 1) comments on these points in more detail.
It is apparent that various restrictive arrangements exist among the coal and steel industries of the CSC. The steel export cartel has already been discussed. Another example is the German central organization known as GEORG which decides price and sales policies for all Ruhr coal. The High Authority is attempting to reorganize this restrictive system but is encountering determined opposition from the Ruhr industry. In the latter case, as in most cases involving restrictive business practices, there are political and social factors involved as well as economic. Although it is fully realized that action by the High Authority to promote competitive conditions is of vital importance to the success of the Community, it was not expected that the establishment of the CSC would quickly lead to the abolition of all restrictive arrangements. There are a number of important factors which must be taken into account such as the complexity of the [Page 266] problem; the long history of such arrangements in Europe; the limits on the High Authority’s powers for dealing with restrictive arrangements extending outside the Community; the pioneering character in Europe of the High Authority’s efforts; and the long and careful preparation required in undertaking an antitrust action, as shown by U.S. experience. Consequently, although progress is slow, to some extent this is inevitable in the circumstances.
Some steps have already been taken by the High Authority against restrictive arrangements and we have been assured that further measures are now in preparation. We consider that there are reasonably good prospects for further progress by the Community in combating such arrangements.
The developments cited by Mr. Dodge should, moreover, be considered in the broad perspective of the Community’s potential contribution to U.S. interests in Europe. The following points deserve attention:
- The European Coal and Steel Community represents a dramatic movement in the direction of European unity, the promotion of which has been established by Congress and the Executive Branch as a basic objective of U.S. policy. Although the collapse of the EDC 3 provided a set-back to the extension of the supranational principles embodied in the CSC, the Community serves as a rallying point for those upholding the idea of a united Europe. United States support for the CSC is widely recognized as a symbol of U.S. interest in encouraging progress towards this goal. The President has on frequent occasions expressed his support for this objective, and has described the CSC as “the most hopeful and constructive development so far toward the economic and political integration of Europe.”4 The Secretary, in a communication to M. Monnet, has recently referred to the CSC as “a bold and inspired conception which will serve as a beacon for the future.”5
- The provisions of the CSC Treaty directed against monopolies and restrictive business practices, while quite analogous to U.S. antitrust legislation, are completely unprecedented in Europe. They point the way for other efforts in Europe to encourage more competitive and dynamic economics.
- While the Community’s progress in combating restrictive practices has been slow, it has been substantially more active in this sphere than most individual European governments or other international bodies. Further, it should be realized that the CSC cartel problem [Page 267] cannot be considered entirely apart from the same basic cartel problem in other segments of the European economy. Some progress on this problem has been made by Western European governments since the war. Much remains to be done, however, and we should continue to give all possible encouragement to these governments, as well as to the High Authority, toward further development of programs for the elimination of restrictive business practices.
- The United States should continue its strong support for the High Authority and the Community, especially in view of the far-reaching significance of the CSC as a major step towards European unity.
- The United States should continue to take every opportunity to encourage the High Authority to use its powers firmly and expeditiously in order to develop a competitive market for coal and steel. In this way the U.S. can help to promote continued progress by the High Authority towards this goal.
- The facts currently available to the Department concerning reported cartel developments in the CSC, in conjunction with the steps which the High Authority has taken and is anticipating in implementing the anti-cartel provisions in the CSC Treaty, do not warrant a reconsideration at this time of U.S. policy towards the Coal and Steel Community.
- Source: Department of State, E–CFEP Files: Lot 61 D 282A, CFEP 520. Secret. Transmitted to the Council on Foreign Economic Policy (CFEP) on March 16, under cover of a memorandum from Samuel C. Waugh to Joseph M. Dodge. Waugh’s memorandum reads as follows: “There are enclosed the Department’s comments on the reported cartel developments in the European Coal and Steel Community cited in your memorandum of February 5, 1955. Our comments are in the form of two documents. The first of which is a brief summary of the specific points raised in your memorandum in relation to our CSC policy, while the second is a more detailed analysis of these points.” A copy of the report and the covering memorandum are ibid., Central Files, 850.33.↩
- Robert Eisenberg was the Acting U.S. Representative to the ECSC. The instruction in question has not been found in Department of State files.↩
- Reference is to the proposed European Defense Community (EDC), which was defeated by the French National Assembly in August 1954. For documentation on U.S. policy toward the EDC, see Foreign Relations, 1952–1954, vol. v, Part 1, pp. 571 ff.↩
- The President made this statement in identical letters to the Chairman of the Senate Foreign Relations Committee and the House Foreign Affairs Committee, dated June 15, 1953. For complete text of the letters, see Department of State Bulletin, June 29, 1953, pp. 927–928.↩
- Reference is unclear. Jean Monnet was the President of the High Authority of the ECSC.↩