BADGER METER MANUFACTURING CO. BADGER METER MANUFACTURING CO., INTERNATIONAL DIVISION, Milwaukee, Wis., May 14, 1969. HOUSE SMALL BUSINESS COMMITTEE, Reference: Committee on Small Business Participation in Procurement of Goods and Services Financed with AID Funds. (Attention: Representative James C. Corman-Chairman). DEAR MR. CHAIRMAN: Badger Meter Mfg. Company has participated in many bids for procurement of goods financed with AID funds. We have been successful suppliers for hundreds of thousands of water meters amounting to many millions of dollars financed by AID. Badger's success in these bids has been due to our company's dedication in rendering outstanding service to the buyer and complete cooperation with U.S. AID. As evidence to our service and interest beyond monetary gain, Badger Meter sent me to Viet-Nam twice during 1968. My assignment was to render our company's very best service to the Government of Viet-Nam, Saigon Metropolitan Water Office, Urban Water Authority, and the Central Procurement and Supply Authority in the procurement of water meters. Badger Meter is the only U.S. manufacturer who cared enough to send a factory representative to Viet-Nam in all of these years that the Government of Viet-Nam has been procuring water meters financed with AID funds. We worked closely with the Republic of Viet-Nam's Consulting Engineering firm, Commonwealth Services, to assist in developing maintenance and repair procedures and provide advanced technical information on improvements and new developments in the water meter industry. Our company was chagrined to learn that South Korean water meter manufacturers and those of other P.D.-31 countries were permitted to bid on the last Government of Viet-Nam water meter requirement, Invitation 3156-19088, LMH/2-0121-8-113. Badger Meter faced the prospect of losing $112,000.00 worth of business on the above procurement. We were able to prevail and gain the award only because of our service to the Government of Viet-Nam through personal visits. We share your interest for the AID programs in Viet-Nam to bring antiseptic, healthful, and fresh water to the Viet-Namese people. The Water Meter Industry is highly competitive and should be protected in a manner such as our Steel Industry for AID financed projects or Commercial Import Programs where AID funds are being used for foreign currency exchange. We request that only U.S. Mainland water meter manufacturers be permitted to bid on water meter procurements of either AID projects or procurements under C.I.P. having the currency exchange provided by AID. Furthermore, we request that water meter manufacturers in P.D.-31 countries be restricted from future bidding on water meter procurements as described above. Badger Meter Mfg. Company offers its full cooperation in providing additional data and testimony to support our position. Very truly yours, (248) J. E. POWELL, Jr., Sales Manager. BADGER METER MANUFACTURING CO., SELECT COMMITTEE ON SMALL BUSINESS, Attention: Mr. James C. Corman, M.C., chairman, Procurement Subcommittee. INTERNATIONAL DIVISION, Milwaukee, Wis., June 23, 1969. Subject: Statement by J. E. Powell, Jr., International sales manager of Badger Meter Manufacturing Co., on competitive bidding in AID financed procurements for water meters by P.D.-31. DEAR MR. CORMAN: The United States water meter industry is composed of manufacturing firms none of which are classified as small business according to U.S. Government definitions. Badger Meter Manufacturing, Rockwell Manufacturing, Neptune Meter Company, Hersey-Sparling, and Worthington produce the major portion of water meters manufactured in the United States. The United States water meter industry is highly competitive in International bidding. This insures the recipient of AID funds the maximum number of U.S. high quality water meters for his AID financed purchases. It should be realized that lower wages paid for labor in PD-31 countries gives their water meter industry a competitive advantage no U.S. Mainland manufacturer can meet and still maintain high quality products. Past evaluations by experts in the field of water meters have revealed that products from the P.D.31 countries were of a much lower quality than similar goods produced on the U.S. Mainland. Badger Meter Mfg. Company has participated in many bids for procurement of goods financed with AID funds. We have been successful suppliers for hundreds of thousands of water meters amounting to many millions of dollars financed by AID. Badger's success in these bids has been due to our company's dedication in rendering outstanding service to the buyer and complete cooperation with U.S. AID. As evidence of our service and interest beyond monetary gain, Badger Meter sent me to Viet-Nam twice during 1968. My assignment was to render our company's very best service to the Government of Viet-Nam, Saigon Metropolitan Water Office, Urban Water Authority, and the Central Procurement and Supply Authority in the procurement of water meters. Badger Meter is the only U.S. manufacturer who cared enough to send a factory representative to Viet-Nam in all of these years that the Government of Viet-Nam has been procuring water meters financed with AID funds. We worked closely with the Republic of Viet-Nam's Consulting Engineering firm, Commonwealth Services, to assist in developing maintenance and repair procedures and provide advanced technical information on improvements and new developments in the water meter industry. Our company was chagrined to learn the South Korean water meter manufacturers and those of other P.D.-31 countries were permitted to bid on the last Government of Viet-Nam water meter requirement, Invitation 3156-19088, LMH/2-0121-8-113. Badger Meter faced the prospect of losing $112,000.00 worth of business on the above procurement. We were able to prevail and gain the award only because of our service to the Government of Viet-Nam through personal visits. We share your interest for the AID programs in Viet-Nam to bring antiseptic, healthful, and fresh water to the Viet-Namese people. The water meter industry is highly competitive and should be protected in a manner such as our steel industry for AID financed projects or Commercial Import Programs where AID funds are being used for foreign currency exchange. We request that only U.S. Mainland water meter manufacturers be permitted to bid on water meter procurements of either AID projects or procurements under C.I.P. having the currency exchange provided by AID. Furthermore, we request that water meter manufacturers in P.D.-31 countries be restricted from future bidding on water meter procurements as described above. Badge Meter Mfg. Company offers its full cooperation in providing additional data and testimony to support our position. Very truly yours, J. E. POWELL, Jr., Sales Manager. BADGER METER MFG. COMPANY With certain minor exceptions, AID already restricts commodity procurement to the United States. As a matter of overall policy in furtherance of the objectives of the Foreign Assistance Program, AID does permit commodity procurement, under grant program financing, from the following eight less developed countries: India Philippines Republic of China Of these countries, all but the Republic of China and Singapore are currently receiving direct U.S. dollar loan assistance to help overcome the balance of payments restraint on their development progress. The opportunity to earn dollars through offshore purchases financed by AID for third country aid recipients contributes to this same objective and reduces commensurately their need for AID loans. In the case of the Republic of China, the opportunity to earn dollar exchange from sales to Vietnam has facilitated the transition from a country once dependent on sizeable U.S. assistance to a country no longer in need of direct assistance. In the case of Singapore, the amount of procurement from that source is so small-$270,000 in fiscal year 1968-as to be inconsequential. The total value of AID-financed procurement from these eight countries during fiscal year 1968 amounted to $28,639,000. This represents less than 22% of our total commodity import program during fiscal year 1968 and is $40,955,000 less than AID-financed procurement from the same countries during fiscal year 1967. It is anticipated that there will be further reductions in the value of procurement from these countries in future years. To assure that AID-financed procurement from these eight countries will not adversely affect the U.S. balance of payments position, each country is required to accept payment for their sales in the form of imports from the United States. While the value of AID-financed procurement from these eight less developed countries represents a very small percentage of our total commodity import programs, we realize that the added competition which results therefrom for specific products, can be a matter of concern to U.S. producers such as Badger. Nevertheless, we believe that this limited offshore procurement eligibility policy is in the overall interest of U.S. foreign policy objectives, and is justified as long as U.S. firms have an opportunity to compete. We are pleased that Badger was successful in obtaining the award referred to in their statement and hope that they will be equally successful should any further requirements for water meters develop. L. A. CHAMPON & CO., INC. Hon. JAMES C. CORMAN, L. A. CHAMPON & CO., INC., Chairman, Subcommittee on Government Procurement of the House Select Committee on Small Business, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: As a small American businessman, I appreciate the opportunity to present to the subcommittee another instance in which AID is attempting to construe its regulations so as to eliminate a small businessman from AID-financed transactions and is treating this particular small businessman inequitably, unfairly, and illegally. In 1965-66, my company, L. A. Champon & Co., Inc., made certain AID-financed sales of Freon to wholesalers and large end-users in Vietnam. Freon is Dupont's trademarked brand of florinated hydrocarbon refrigerant and we hold a non-exclusive Dupont distributorship for this product. Although two types of Freon were involved (Freon 12 and Freon 22), for purposes of illustration, I shall discuss only Freon 12. The identical principles are involved with Freon 22, except that the price is slightly higher. We paid Dupont 35c per pound for Freon 12, which was its list price to distributors. To this, we added a reasonable mark-up of slightly over 10% to arrive at our selling price to the Vietnamese importer. More than 22 years later (in May of 1968) we received a Bill for Collection from AID demanding that we repay to AID more than $35,000 on our 1965 and 1966 sales of Freon. The $35,000 represented the amount by which our selling price exceeded our cost. In other words, AID wanted us to return our entire gross profit; in the case of Freon 12, everything over 35c. The Bill for Collection stated that the prevailing export market price of Freon was 35c and that therefore this was the maximum price that AID would finance. Everything above our cost we were asked to return. We learned through our counsel that AID made its determination as to the prevailing export market price on the basis of sales which Dupont had made to its Freon distributors in foreign countries. Dupont had no distributors in South East Asia, but it did have foreign distributors in Europe and elsewhere. Since Dupont sold to its foreign-based distributors at the same price it was selling to us as an Americanbased distributor, AID concluded that it would not finance a price of more than 35¢ on our sales to Vietnam. We pointed out to AID that our sales to wholesalers and large end-users were not comparable to Dupont's sales to its foreign-based distributors and that AID regulations provided that the maximum AID supported price must be determined by reference to "comparable export sales." Regulation 1, § 201.63 (a). A sale by a manufacturer to a distributor is not comparable to a sale by a distributor to a wholesaler or large end-user. The two types of sales are at completely different levels of the distribution process. Our position was urged at length in a letter to AID dated July 30, 1968, a copy of which we enclose. We did not hear from AID for almost nine months (April, 1969) when AID asked for a conference with our attorney. At that conference AID made no defense of its previously urged basis for the Bill for Collection. Instead, AID advised us that its investigators had made a more thorough investigation of Dupont's sales of Freon and had learned-on a confidential basis- that Dupont had made certain isolated sales of Freon to endusers in other parts of the world (presumably Europe). Because of the confidential nature of this information, AID was unwilling to give us any other details about these sales. However, AID sought to meet our argument that Dupont's sales to foreign distributors were not comparable to our sales to wholesalers and 33-611 0-70- -17 large end-users by pointing to the fact that AID could now rely on at least some sales Dupont made to end-users at the 35¢ price. On the basis of such sales, AID sought to establish a comparable export price of 354. This position would appear to be even more unreasonable and inequitable than AID's previous position. In the first place, how could we know of these isolated sales on the other side of the world when it took the federal government with all its resources almost four years to make this discovery. Secondly, these still confidential sales in an entirely different market should not be considered comparable to our sales to a wide variety of importers in Vietnam. Certainly the special circumstances that motivated Dupont to make these isolated sales to end-users in other parts of the world were not present in our Vietnam sales. What small businessman in his right mind would participate in AID-financed sales if he realized that years later he might be required to pay back his entire gross profit if some isolated sales occurred at a lower price somewhere in the world in a different market which he had no way of knowing about. Yet this is the position that AID puts small businessmen in. We have urged to AID that its position runs directly counter to the Government's best interests because it discourages competitive small businessmen from participating in AID-financed sales. But our argument has thus far proved of no avail. We believe that the appropriate method for establishing the export market price in this and similar cases is to take the generally available price to distributors and adding thereto a reasonable markup. This is the method provided for Regulation 1, § 201.63(e) when there are no comparable sales. But AID refuses to apply this regulation. Instead it insists that a few isolated sales in another market establish the market price all over the world. This is simply not true. A few sales don't make a market, as every businessman knows. Special circumstances may enable some few customers to get a special price on occasion, but this does not fix the market price. In determining fair market price, all factors must be weighed and the overall market considered. It may also be worth pointing out that the price of Freon in this country is considerably more than we were charging in Vietnam. It is therefore hard to say that such a price is excessive. We have not received from AID any reasoned defense of its position. We would appreciate it, Mr. Chairman, if you would request AID to explain the first position it took-fixing our fair market price at the price Dupont charged its foreign distributors as well as the position it now takes-fixing our fair market price at the price Dupont sold to end-users in isolated cases on the other side of the world. We would very much appreciate being given a copy of AID's response. We believe that reasonable criteria should be used to establish price comparability and that AID regulations should not serve as a trap for an unsuspecting small businessman who purchases at list price from a highly reputable manufacturer without any way of knowing that in fact that manufacturer itself made certain isolated export sales in an entirely different market. We appreciate the subcommittee's consideration of our case. Sincerely yours, BERNARD P. CHAMPON. GLASSIE, PEWETT, BEEBE & SHANKS, WALTER MENKE, Esq., State Department, Washington, D.C. Re L. A. Champon & Co., Inc. DEAR MR. MENKE: This is in response to Bill for Collection dated May 14, 1968 addressed to L. A. Champon and Co., Inc., relating to alleged overcharges on AID financed sales of Freon gas refrigerants to Viet Nam. The facts are as follows: Champon is a non-exclusive, American-based distributor of Freon for E. I. Du Pont De Nemours and Co. Freon is Du Pont's trademarked brand of fluorinated hydrocarbon refrigerant. Champon purchases its Freon from Du Pont at distributor's list price and re-sells to wholesalers and large users in Viet Nam. A total of 27 different importers are listed in the Bill for Collection. AID apparently made an investigation of Du Pont's sales to non-Americanbased distributors (none of whom sells in Viet Nam) and found that Du Pont |