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B-110974, SEP 5, 1952

B-110974 Sep 05, 1952
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PRECIS-UNAVAILABLE THE SECRETARY OF DEFENSE: REFERENCE IS MADE TO LETTER OF AUGUST 20. FOR THE PERSONNEL ATTACHED THERETO: ***" IT IS POINTED OUT IN THE DEPUTY SECRETARY'S LETTER THAT PROVISIONS RELATING SPECIFICALLY TO COTTON AND WOOL. " WERE ADDED TO THE CUSTOMARY RESTRICTION (HERETOFORE SIMPLE "CLOTHING") FOR THE FIRST TIME THIS YEAR. THAT "WHERE THE COTTON OR WOOL BEING PROCURED IS CONTAINED IN 'MANUFACTURED ARTICLES. SINCE THE LEGISLATIVE HISTORY CLEARLY INDICATES THAT A BASIC PURPOSE OF THE LANGUAGE WAS TO "'PLUG UP A LOOPHOLE IN THE BUY-AMERICAN ACT' BY REQUIRING THAT. COTTON AND WOOL WILL ONLY BE CONSIDERED 'AMERICAN' WHEN THE ORIGIN OF THE RAW FIBRE. IS DOMESTIC. "EXCEPT THAT WHERE REPROCESSED OR REUSED COTTON OR WOOL IS INVOLVED IT WILL ONLY BE REQUIRED THAT THE REPROCESSING.

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B-110974, SEP 5, 1952

PRECIS-UNAVAILABLE

THE SECRETARY OF DEFENSE:

REFERENCE IS MADE TO LETTER OF AUGUST 20, 1952, FROM THE DEPUTY SECRETARY OF DEFENSE, CONCERNING RESTRICTIONS PLACED ON THE PROCUREMENT OF FOOD, CLOTHING, COTTON AND WOOL BY THE LANGUAGE OF TITLE III, DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1953, 66 STAT. 517, 521, READING AS FOLLOWS:

"*** PROVIDED, THAT NO PART OF THIS OR ANY OTHER APPROPRIATION CONTAINED IN THIS ACT SHALL BE AVAILABLE FOR THE PROCUREMENT OF ANY ARTICLE OF FOOD, CLOTHING, COTTON OR WOOL (WHETHER IN THE FORM OF FIBER OR YARN OR CONTAINED IN FABRICS, MATERIALS, OR MANUFACTURED ARTICLES) NOT GROWN, REPROCESSED, REUSED, OR PRODUCED IN THE UNITED STATES OR ITS POSSESSIONS, EXCEPT TO THE EXTENT THAT THE SECRETARY OF THE DEPARTMENT CONCERNED SHALL DETERMINE THAT A SATISFACTORY QUALITY AND SUFFICIENT QUANTITY OF ANY ARTICLES OF FOOD OR CLOTHING OR ANY FORM OF COTTON OR WOOL GROWN, REPROCESSED, REUSED, OR PRODUCED IN THE UNITED STATES OR ITS POSSESSIONS CANNOT BE PROCURED AS AND WHEN NEEDED AT UNITED STATES MARKET PRICES AND EXCEPT PROCUREMENTS BY VESSELS IN FOREIGN WATERS AND EMERGENCY PROCUREMENTS OR PROCUREMENTS OF PERISHABLE FOODS BY ESTABLISHMENTS LOCATED OUTSIDE THE CONTINENTAL UNITED STATES, EXCEPT THE TERRITORIES OF HAWAII AND ALASKA, FOR THE PERSONNEL ATTACHED THERETO: ***"

IT IS POINTED OUT IN THE DEPUTY SECRETARY'S LETTER THAT PROVISIONS RELATING SPECIFICALLY TO COTTON AND WOOL, INCLUDING THE WORDS "REPROCESSED" AND "REUSED," WERE ADDED TO THE CUSTOMARY RESTRICTION (HERETOFORE SIMPLE "CLOTHING") FOR THE FIRST TIME THIS YEAR. HE ASSUMES, THEREFORE, THAT "WHERE THE COTTON OR WOOL BEING PROCURED IS CONTAINED IN 'MANUFACTURED ARTICLES,' THE SECTION APPLIES ONLY TO THE PROCUREMENT OF MANUFACTURED ARTICLES WHICH, LIKE FABRICS, CLOTH 'MATERIALS' AND 'CLOTHING' ITSELF, CONTAIN RECOGNIZABLE FORMS OF COTTON OR WOOL IN SIGNIFICANT AMOUNTS." SINCE THE LEGISLATIVE HISTORY CLEARLY INDICATES THAT A BASIC PURPOSE OF THE LANGUAGE WAS TO "'PLUG UP A LOOPHOLE IN THE BUY-AMERICAN ACT' BY REQUIRING THAT, CONTRARY TO PAR. 6.103.1 OF THE ARMED SERVICES PROCUREMENT REGULATION, COTTON AND WOOL WILL ONLY BE CONSIDERED 'AMERICAN' WHEN THE ORIGIN OF THE RAW FIBRE, AS WELL AS EACH SUCCESSIVE STAGE OF MANUFACTURE, IS DOMESTIC," THE DEPARTMENT PROPOSES TO APPLY THE RESTRICTION ACCORDINGLY, "EXCEPT THAT WHERE REPROCESSED OR REUSED COTTON OR WOOL IS INVOLVED IT WILL ONLY BE REQUIRED THAT THE REPROCESSING, I.E., GARNETTING, BE PERFORMED DOMESTICALLY."

IN RESPONSE TO REQUEST FOR ADVICE AS TO WHETHER THIS OFFICE HAS ANY OBJECTION TO SUCH APPLICATION, THERE IS PERCEIVED NONE. REPRESENTATIVE BERRY, WHO PROPOSED THE CHANGE, EXPLAINED, DURING THE DISCUSSION ON THE FLOOR OF THE HOUSE, THAT THE NEW LANGUAGE WAS DESIGNED TO OVERCOME THE INTERPRETATION ADOPTED BY THE ARMED SERVICES - WHEREBY THE BUY-AMERICAN ACT, 47 STAT. 1520, 41 U.S.C. 10A, WAS REGARDED AS NOT APPLYING TO THE YARN USED IN THE MANUFACTURE OF CLOTH IN INSTANCES WHERE CLOTHING WOULD BE PROCURED. CONGRESSIONAL RECORD, APRIL 9, 1952, PAGE 3911. SEE, ALSO, THE DISCUSSION ON THE FLOOR OF THE SENATE BETWEEN SENATORS SALTONSTALL AND O'MAHONEY (CONGRESSIONAL RECORD, JUNE 30, 1952, PAGE 8730,) AS FOLLOWS:

"MR. SALTONSTALL. IS NOT THE MEANING OF THE AMENDMENT, WHEREIN IT REFERS TO REPROCESSED OR REUSED WOOL, MERELY TO GIVE PREFERENCE TO SUCH WOOL, REGARDLESS OF ORIGIN, SO LONG AS THE PROCESSING OF SUCH WOOL HAS BEEN ACCOMPLISHED WITHIN THE UNITED STATES OF AMERICA, ***

"MR. O'MAHONEY. I AM OF OPINION, AND I AM SURE EVERYONE WHO SPONSORED THIS AMENDMENT IS OF OPINION, THAT ARTICLES WHICH ARE PROCESSED IN THE UNITED STATES, AND WHICH THEREFORE HAVE NECESSITATED THE USE OF AMERICAN WORKERS, ARE WITHIN THE PROTECTION OF THE 'BUY AMERICAN' CLAUSE. ***"

IN REQUESTING AN OPINION AS TO THE PROPER INTERPRETATION OF THE TERM "AT UNITED STATES MARKET PRICES" EMPLOYED IN THE EXCEPTION TO THE GENERAL REQUIREMENT, THE DEPUTY SECRETARY SUGGESTS THAT THREE ALTERNATIVE CONCLUSIONS MAY BE REACHED. THAT IS TO SAY, DOMESTIC ARTICLES COULD BE FAVORED '(A) SO LONG AS THE PRICE IS EQUAL TO OR LESS THAN THE U.S. PRICE OF FOREIGN COTTON AND WOOL, (B) REGARDLESS OF PRICE, UNTIL THE DOMESTIC SUPPLY IS EXHAUSTED, OR (C) IN ACCORDANCE WITH PRICE CONSIDERATIONS OF THE TYPE FOLLOWED IN THE ADMINISTRATION OF THE BUY-AMERICAN ACT."

THE FIRST ALTERNATIVE IS DISAPPROVED ADMINISTRATIVELY ON THE FOLLOWING GROUNDS:

"AS A PRACTICAL MATTER, THE *** INTERPRETATION WOULD NULLIFY THE EFFECT OF THE AMENDMENT. U.S. PRICES FOR DOMESTIC WOOL CANNOT DROP MUCH BELOW THE PRICE FLOOR PROVIDED BY THE AGRICULTURE DEPARTMENT'S LOAN SUPPORT PROGRAM, WHEREAS THE U.S. PRICES FOR FOREIGN WOOL CAN AND DO GO LOWER. THEY ARE GENERALLY LOWER AT THE PRESENT TIME. ON THE OTHER HAND, WHEN PRICES FOR FOREIGN WOOL ARE HIGH, THE PRICES OF DOMESTIC WOOL GO UP WITH OR AHEAD OF THEM BECAUSE THE TOTAL DOMESTIC SUPPLY IS SO MUCH LESS THAN THE TOTAL DOMESTIC DEMAND THAT THE DOMESTIC SUPPLY DOES NOT DOMINATE THE U.S. MARKET. CONSEQUENTLY, U.S. PRICES FOR DOMESTIC WOOL WILL SELDOM BE EQUAL TO OR LESS THAN U.S. PRICES FOR COMPARABLE FOREIGN WOOL. THEREFORE, IF THE *** INTERPRETATION WERE FOLLOWED, THE CURRENT PROCUREMENT PATTERN WOULD NOT BE AFFECTED AND WOOL OF FOREIGN ORIGIN WOULD CONTINUE TO MAKE UP THE BULK OF OUR PURCHASES. SUCH A RESULT WOULD NOT SEEM TO BE CONSISTENT WITH THE LOGICAL ASSUMPTION THAT CONGRESS, BY CHANGING THE STATUTORY LANGUAGE, MUST HAVE INTENDED THERE WOULD BE SOME CHANGE IN THE PATTERN OF COTTON AND WOOL PROCUREMENTS."

THE SECOND ALTERNATIVE, ALSO, IS REJECTED WITH ADMINISTRATIVE COMMENT THAT -

"THE STRONGEST BASIS FOR THIS INTERPRETATION IS THE FACT THAT HISTORICALLY THE PHRASE 'AT U.S. MARKET PRICES' HAS NOT BEEN CONSTRUED AS WORLD PRICE PLUS DUTY. ON THE CONTRARY, IT APPEARS TO REFER TO U.S. PRICES OF DOMESTIC PRODUCTS ONLY. OTHERWISE, THERE WOULD HAVE BEEN NO MEANING TO THE FOLLOWING LANGUAGE CONTAINED IN THE SAME SECTION OF AN EARLIER APPROPRIATIONS ACT: 'AT U.S. MARKET PRICES AND WITHOUT UNDULY INCREASING FUTURE U.S. MARKET PRICES'. PUBLIC LAW 434, 81ST CONGRESS, INDEED, THE PRESENT WORDING REPRESENTS THE END PRODUCT OF AN EVOLUTIONARY TREND AWAY FROM LESS RESTRICTIVE LANGUAGE THAT STARTED OUT AS 'AT REASONABLE PRICES'. SEE PUBLIC LAW 768, 80TH CONGRESS, AND EARLIER ARMY APPROPRIATION ACTS. PRESUMABLY SENATOR O'MAHONEY HAD THIS HISTORICAL EVOLUTION IN MIND WHEN HE SAID 'I WOULD SAY NOTHING IN THIS AMENDMENT CHANGES THE INTERPRETATION OF "U.S. MARKET PRICES" WHICH HAS BEEN MAINTAINED FOR YEARS ...' CONGRESSIONAL RECORD, 30 JUNE 1952, PAGE 8730.

"HOWEVER, THE LEGISLATIVE HISTORY IN SUPPORT OF THIS INTERPRETATION DOES NOT SEEM TO OUTWEIGH SIMILAR SUPPORT FOR EITHER OF THE OTHER TWO ALTERNATIVES. FURTHERMORE, IF THIS INTERPRETATION WERE ADOPTED, THE POTENTIAL COST TO THE TAXPAYER WOULD BE TREMENDOUS. SINCE THERE IS NO PRICE CEILING ON DOMESTIC WOOL, AND SINCE THIS COUNTRY ONLY PRODUCES APPROXIMATELY 25% OF ITS ANNUAL REQUIREMENTS FOR APPAREL WOOL, THE APPLICATION OF THIS INTERPRETATION COULD AND PROBABLY WOULD RESULT IN TREMENDOUS INCREASES IN THE DEMAND AND HENCE THE PRICE OF THE REQUIRED GRADES OF DOMESTIC WOOL. THERE IS NO EVIDENCE THAT THE RESULTING DRAIN ON DEFENSE APPROPRIATIONS WAS INTENDED BY ANYONE."

WITH RESPECT TO THE THIRD ALTERNATIVE, IT IS STATED AS FOLLOWS:

"C. DOMESTIC PREFERENCE SIMILAR TO THE BUY-AMERICAN ACT PREFERENCE:

THIS INTERPRETATION WOULD HOLD THAT, SO FAR AS COTTON AND WOOL ARE CONCERNED, THE EXCEPTION IN QUESTION REFERRING TO 'U.S. MARKET PRICES' IS NO DIFFERENT FROM THE PRICE EXCEPTIONS CONTAINED IN THE BUY-AMERICAN ACT. THIS INTERPRETATION IS SUPPORTED BY THE TESTIMONY OF CONGRESSMAN BERRY AT THE TIME THE AMENDMENT WAS INTRODUCED IN THE HOUSE AND ACCEPTED BY CONGRESSMAN SIKES, THE APPROPRIATION COMMITTEE REPRESENTATIVE ON THE FLOOR. CONGRESSIONAL RECORD, 9 APRIL 1952, PAGE 3910. TOWARD THE CLOSE OF THE SENATE HEARINGS, CONGRESSMAN FISHER STATED: 'I DO NOT THINK ANYONE CAN INTERPRET THE MEANING OF THAT U.S. PRICE EXACTLY. IT WILL BE A MATTER OF ADMINISTRATIVE INTERPRETATION ...' '... IN THE NORMAL COURSE OF PURCHASING, YOU ALWAYS GO BACK TO THE U.S. PRICE WHICH THEY HAVE INDICATED HERE MAY BE INTERPRETED BY THE PROCUREMENT OFFICE AS A WORLD PRICE PLUS THE TARIFF, WITH POSSIBLY SOME DIFERENTIAL ...' '... SO, THIS SIMPLY CLARIFYS THE LAW, THE INTENTION OF CONGRESS AS SET OUT IN THE BUY-AMERICAN ACT OF 1930'. SENATE HEARINGS, PAGE 1435. THIS ASSUMPTION THAT THE PRICE ASPECTS OF THE AMENDMENT WOULD BE ADMINISTERED IN ACCORDANCE WITH THE PRICE CONSIDERATIONS FOLLOWED UNDER THE BUY-AMERICAN ACT SEEMS TO BE IMPLICIT IN MOST OF THE TESTIMONY BEFORE THE SENATE SUBCOMMITTEE. SEE SENATE HEARINGS, PAGES 1405-1452, AND PARTICULARLY PAGES 1418, 1426, 1433, 1435 AND 1451. THIS INTERPRETATION WOULD APPEAR TO BE THE ONE MOST REASONABLY CONSISTENT WITH BOTH THE SALTONSTALL POSITION OUTLINED IN SUBSECTION (A) ABOVE, AND THE CLEAR INTENTION OF SENATORS CASE AND O'MAHONEY, CONGRESSMAN BERRY AND FISHER, AND OTHERS, TO EFFECT SOME CHANGE IN CURRENT COTTON AND WOOL PROCUREMENT PRACTICES."

I AM IN SUBSTANTIAL AGREEMENT WITH THE LAST ALTERNATIVE, APPARENTLY FAVORED BY THE DEPARTMENT OF DEFENSE. IT IS CLEAR THAT THE NEW LANGUAGE WAS SPONSORED FOR THE PURPOSE OF OVERCOMING ADMINISTRATIVE REGULATION INTERPRETING "BUY-AMERICAN" STATUTES AS APPLYING, IN THE CASE OF MANUFACTURED PRODUCTS, TO THE END PRODUCT ITSELF AND TO THE COMPONENTS DIRECTLY FURNISHED FOR THAT END PRODUCT, BUT NOT TO THE SUPPLIES USED IN THE MANUFACTURE OF SUCH COMPONENTS. IN OTHER WORDS, THE ADDED LANGUAGE WAS DESIGNED TO IMPLEMENT THE STANDARD "BUY AMERICAN" PROVISION OF APPROPRIATION ACTS, AND, CONSEQUENTLY, THE BUY AMERICAN ACT ITSELF, TO REQUIRE THAT, FOR EXAMPLE, THE SUPPLIES USED IN THE MANUFACTURE OF CLOTHING (THE RAW MATERIALS SUCH AS WOOL USED IN FABRICATING THE COMPONENT CLOTH) BE TAKEN INTO CONSIDERATION. IT DOES NOT APPEAR THAT ANYONE PARTICIPATING IN CONSIDERATION OF THE LEGISLATION EXPRESSED AN UNDERSTANDING OF ITS PURPOSE DIFFERING FROM THAT OUTLINED BY REPRESENTATIVE BERRY, DURING THE SENATE HEARINGS, WHEN HE STATED THAT "ALL THIS AMENDMENT DOES IS JUST SAY THAT AMERICAN WOOL SHALL BE COVERED BY THE BUY AMERICAN ACT AND THE 'BUY-AMERICAN' PROVISION OF THE BILL." SENATE HEARINGS, PAGE 1421.

THE TERM "UNITED STATES MARKET PRICES" WAS DEFINED BY SENATOR O'MAHONEY, DURING THE SENATE CONSIDERATION OF THE PROVISO, AS "THE NECESSARY PRICES NORMALLY IMPOSED, INCLUDING THE COST OF ALL FACTORS WHICH GO TO MAKE IT UP" AND HE ADDED THAT, WITH REFERENCE TO WOOL IT MIGHT BE BASED ON SUCH FACTORS AS THE WORLD PRICE PLUS IMPORT DUTY AND POSSIBLY TRANSPORTATION. SEE REMARKS OF SENATOR O'MAHONEY, CONGRESSIONAL RECORD, JUNE 30, 1952, PAGE 8729. HIS STATEMENT THAT THE PREVIOUS INTERPRETATION OF THE TERM WAS NOT ALTERED EVIDENTLY RELATES TO THE FACT THAT THE PROVISO CONTINUES THE REFERENCE TO FOOD AND CLOTHING AND ADDS COTTON AND WOOL. A WORLD PRICE MIGHT NOT EXIST WITH RESPECT TO THE FORMER PRODUCTS, BUT ITS EXISTENCE WITH RESPECT TO THE NEWLY-ADDED ITEM OF WOOL IS FOR CONSIDERATION IF IT IS A FACTOR THAT GOES TO MAKE UP THE "UNITED STATES MARKET PRICES" OF THAT COMMODITY.

WHILE THE RECORD INDICATES THAT THERE WERE REQUESTS FOR A MORE EXPLICIT DEFINITION IN THE LAW, THE EXPLANATION OF THE TERM BY CONGRESSMAN FISHER - WHICH IS NOT INCONSISTENT WITH THAT OF SENATOR O'MAHONEY - APPEARS TO BE UNCONTRADICTED AND TO REPRESENT THE GENERAL UNDERSTANDING OF ITS MEANING.

AS CONGRESSMAN FISHER INDICATED, THERE IS OBVIOUSLY LATITUDE FOR ADMINISTRATIVE DISCRETION, WITHIN THE LIMITS OF GENERAL INTERPRETATION, IN DETERMINING WHAT "UNITED STATES MARKET PRICES" ARE. THIS IS ESPECIALLY TRUE SINCE SUCH A DETERMINATION IS NOT MERELY A MATTER OF ARITHMETICAL CALCULATION BUT DEPENDS TO SOME EXTENT ON ADMINISTRATIVE JUDGMENT. MOREOVER, IT MAY NOT ALWAYS BE PRACTICABLE TO ARRIVE AT A SINGLE PRICE WHICH COULD BE REPRESENTED AS THE "UNITED STATES MARKET PRICE" BUT RATHER IT MAY BE NECESSARY TO DETERMINE IN A PARTICULAR CASE WHETHER A BID BASED ON DOMESTIC PRODUCTION FALLS WITHIN THE RANGE OF "UNITED STATES MARKET PRICES."

WHILE IT DOES NOT APPEAR THAT THE LEEWAY PERMITTED IS NECESSARILY THE SAME AS THAT CONTEMPLATED BY THE "UNREASONABLE" TEST PROVIDED IN THE BUY- AMERICAN ACT (WHICH HAS BEEN APPROVED AS AUTHORIZING A TWENTY FIVE PERCENT DIFFERENTIAL - 30 COMP. GEN. 384) IT IS CLEAR THAT THE TERMINOLOGY "UNITED STATES MARKET PRICES" WAS USED IN A SOMEWHAT SPECIAL SENSE BECAUSE OF THE RELATIONSHIP TO SUCH PRICES OF AGRICULTURAL PROGRAMS DESIGNED TO SUPPORT PRICES OF DOMESTIC ARTICLES AND OF TARIFF PROGRAMS DESIGNED TO EQUALIZE GENERALLY LOWER PRICES OF FOREIGN ARTICLES. PRESUMABLY, CONGRESSMAN FISHER'S INCLUSION IN HIS DEFINITION OF "SOME DIFFERENTIAL" ALONG WITH WORLD PRICES (INCLUDING TRANSPORTATION) PLUS TARIFF, WAS INTENDED TO COVER SUCH CONSIDERATIONS, AMONG OTHERS, AS PROPER IMPORT DUTY ADJUSTMENT AND PRICE SUPPORT ON THE BASIS OF ESTABLISHED LOAN AND PARITY FIGURES.

THEREFORE, IN APPLYING THE PERTINENT EXCEPTION TO THIS PROVISO, IT APPEARS THAT THE SECRETARY IS REQUIRED TO DETERMINE - NOT WHETHER THE COST OF THE DOMESTIC BID IS UNREASONABLE - BUT WHETHER THE BID IS WITHIN THE REASONABLE RANGE OF NORMAL UNITED STATES MARKET PRICES FOR DOMESTIC ARTICLES. TO THE EXTENT THAT SUCH PRICES ARE ESTABLISHED OR AFFECTED BY WORLD PRICES PLUS TRANSPORTATION AND TARIFF, OR BY AGRICULTURAL PRICE SUPPORT PROGRAMS OF THE UNITED STATES OR OTHER NORMAL FACTORS, THOSE FACTORS SHOULD BE CONSIDERED. SPECIAL CIRCUMSTANCES, SUCH AS THE AVAILABILITY AT LOWER PRICES OF FOREIGN SUBSIDIZED MATERIALS, SHOULD OF COURSE BE NEUTRALIZED IN ARRIVING AT THE RESULT. IF IT BE FOUND THAT "UNITED STATES MARKET PRICES" CAN BE REASONABLY ESTABLISHED BY THE APPLICATION TO THE WORLD PRICE PLUS TARIFF AND TRANSPORTATION, OF A DIFFERENTIAL WHICH WOULD GIVE DUE EFFECT TO OTHER APPLICABLE FACTORS, THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT.

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