AUGUST 14, 1969. To: Subcommittee investigating procurement procedures for A.I.D. programs as they concern the small American business community. Re fishing nets. The American Fish netting manufacturers are primarily small businesses which for the past 5 years have experienced diminishing returns, and in some cases, large deficits on capital investment because of cheaper foreign imports, the introduction of longer lasting synthetic materials, and a lack of recruitment in the marine harvesting industry. I would estimate that they are ten or less such manufacturers left in the United States today. In the past 2 years one manufacturer has stopped operations and two manufacturers have changed ownership. Therefore, the American fish netting manufacturer must look to new markets for income. AID programs would be extremely beneficial except for the following reasons which create a disadvantage in competitive bids: 1. Source of raw materials-twine-does not have to come from the United States manufacturers. In many cases Japanese firms supply this twine to Taiwan, South Korea, and Pakistan at an extremely low price. Japan has been excluded from AID programs for the manufacture of fish netting. I know that the Japanese are supplying this twine because I visited Japan in February 1968 and spoke with manufacturers who told me personally of this. In addition, many indicated that they were establishing fish netting factories in the above mentioned countries so as to be able to participate in AID programs. Other countries mentioned for manufacturing facilities were Indonesia and Malaysia. 2. All AID specifications call for 500 meshes deep by 5 meshes long-regardless of mesh size. Most American gill netting machines have a capacity of 150 to 160 meshes deep. Therefore, we would have tremendous expense for "hand work" and therefore cannot submit competitive bids. Only one AID circular has shown a deviation from the above RE: 69–202. If this circular can submit specifications, which are adaptable to the American machine, why can't all the other circulars? The American fish netting manufacturer is in desperate need of the AID market in order to survive. At present, my factory is operating at 20-25% capacity and I suspect other manufacturers will tell a similar story. Unless we can increase our production, more factories will become idle and our needs for netting will have to be supplied by other countries. Respectfully submitted. EDWARD S. STOLARZ, President. COMMERCIAL FISHING SUPPLIES Congressman Silvio O. Conte wrote to AID on May 29 and August 20 concerning the matters raised in the statement of Mr. Edward S. Stolarz, President of Commercial Fishing Supplies. A copy of our replies dated June 26 and September 24 are enclosed for inclusion in the record. Hon. SILVIO O. CONTE, Select Committee on Small Business, JUNE 26, 1969. DEAR CONGRESSMAN CONTE: In your letter of May 29, you brought to my attention two matters that have recently been discussed by the Small Business Committee: textile machinery (about which I have written to you under separate cover) and fishing nets. I can certainly appreciate the problem of the American fishing industry, as stated by Mr. Stolarz. But as he points out in his letter to you, American manufacturers are not producing fish nets that have a fine enough mesh to meet Vietnamese needs. Mr. Stolarz says that he is "suspicious" of these specifications, but we have no evidence that they were designed for any other purpose than to fit prevailing Vietnamese fishing practices. Vietnamese, as well as other East Asian fishermen, retain smaller fish in their nets than is normal practice for American fishermen. With respect to the P.D. 31 status of fish nets, our information is that in 1967, exports of fish nets from the U.S. were valued at about $1,110,000, compared with imports of $1,036,000. In 1968, even though imports remained about the same ($1,052,000), exports dropped to $467,000. Therefore, 1968 is the first year that imports exceeded exports. This shift resulted not from any significant increase in imports but from a considerable drop in exports. If this imbalance continues, a review of current procedures will be made by an Inter-Agency Committee on Net Imports which is composed of representatives of a number of government departments. However, unless U.S. manufacturers are prepared to produce the types of fish nets required by the Vietnamese fishermen, no administrative action by AID can help them to increase their exports to Vietnam. I appreciate your keeping me informed about subjects of concern to the Select Committee on Small Business, and I trust you will continue to do so. Sincerely, JOHN A. HANNAH. SEPTEMBER 24, 1969. Hon. SILVIO O. CONTE, House of Representatives, DEAR CONGRESSMAN CONTE: Thank you for your letter of August 20 in behalf of Mr. Edward S. Stolarz, an American fish net manufacturer who points out that a change in specifications for nets imported into Vietnam under AID's Commercial Import Program could help American manufacturers. We would like to change the specifications for fish netting as suggested by Mr. Stolarz, but as I indicated in my letter to you of June 26, the specifications at issue are not arbitrary. They reflect the realities of Vietnamese fishing practice. They call for smaller mesh sizes than are commonly used in the United States simply because East Asian fishermen retain and sell smaller fish than do their American counterparts. There is little we can do to alter this or to create a market for nets of the larger mesh sizes Mr. Stolarz is prepared to manufacture. Mr. Stolarz is correct in noting that one AID Small Business Circular did contain specifications more in keeping with American design. This was an exception, to supply a quite limited demand. Although we cannot interfere with business activities of the Japanese in other countries, we have eliminated Japan as an eligible source country for AIDfinanced commodities. This means that under provisions of AID componentry regulations fish nets manufactured in other countries with Japanese twine are not eligible for importation into Vietnam with AID funds. Last year, when AID investigators in Taiwan uncovered violations of this componentry rule, we suspended all such AID funded imports from Taiwan until the Government of the Republic of China (GRC) took a series of remedial actions. The GRC now screens all AID-financed transactions and certifies as to their compliance with AID componentry regulations. I appreciate Mr. Stolarz's concern over the depressed state of the American fish net industry, and I regret that we do not see any action that we can take at this time, to help the industry. I will be happy to discuss this subject with you further at any time. Sincerely, JOHN A. HANNAH. CONFIDENTIAL SOURCE LETTER Representative JOE L. EVINS, -, July 2, 1969. Chairman, House Small Business Committee, DEAR CONGRESSMAN EVINS: We are writing to you in response to the notice that a public hearing would be held in Washington on May 15th to consider the problem of participation by small business firms in AID financed transactions. is engaged exclusively in exports of petroleum products, purchasing from refiners and processors in the U.S. and selling overseas. The firm has been in business for over fifty years and has exported to most foreign markets. Part of the service which gives its foreign customers is its knowledge of sources of supply for U.S. petroleum products. Over the years has done business with very many smaller local refineries as well as with some of the largest oil corporations and as an independent export supplier, has access to all domestic suppliers. We have made many shipments under AID and have been steady readers of the Small Business Administration publications. It is our firm belief that the transactions published in the Small Business Administration Bulletins relating to petroleum requirements represent a minimal percentage of the total value of AID financed petroleum shipments. We cannot determine how publication is avoided. We have given the matter considerable study over the years but determinations of what has happened in individual cases are difficult from the outside because of the several "waiver of notice" situations provided by AID Regulation 1. But even after allowing latitude for circumstances in individual cases which might be unknown to us, it is inconceivable that legitimate waivers could have been obtained in so many cases. One of the avenues by which waiver of publication can be obtained under Section 201.24 of Regulation 1 provides for waiver of notice in cases where an exclusive supplier-distributor relationship exists. In order for this avenue to be used, Regulation 1 sets up several conditions, one of which is that the supplier should be the manufacturer or manufacturer's regularly authorized exporter. Although it is impossible for us to know which basis for waiver was used in any instance, we believe from an examination of cases that refineries have been regularly shipping the products of other refineries as their own and obtaining waivers under Section 201.24. We have been able to observe closely the situation in India. Our own personnel visit India often, we have agents in that country in close contact with the import market and we subscribe to the daily customs bulletins of the principal Indian ports. We know that India has restricted the use of free exchange for petroleum imports and is relying heavily on AID funds. In the Indian customs bulletins we read of vast quantities of U.S. oils supplied almost entirely by major refineries: Esso Export to Esso Eastern; Asiatic Petroleum (a whollyowned subsidiary of Royal Dutch Shell) to Burma-Shell; Standard of California and Texaco to Caltex; Castrol, New Jersey (a subsidiary of British Petroleum) to Castrol, India. We find that a very great proportion of Indian AID funds is used for Lubricating Oils, which are made here mostly from imported crude. About 95 per cent of the Lubricating Oils is imported into India from the U.S., and is made by a few Major Oil Companies and a very great proportion is handled by the "Asiatic Petroleum" who act as buying agent for Burma-Shell the major importer of lubricating oils into India. The purchases of Burma-Shell are never published in Small Business Circular. In any case, even if the U.S. exporter and the Indian importer are affiliated directly or through European parent corporations, it would appear to be contrary to the goals of AID to have financed transactions arranged without the benefit of competitive offerings. We believe it is essential for the best use of AID funds that publication of all items be required and suggest that the cancellation or drastic reduction of waiver situations would improve the function of the AID program. We are grateful to the Committee for undertaking a review of this situation which has been a source of increasing frustration to smaller businesses trying to participate in the AID program. Very truly yours, LETTER OF JULY 2, 1969 TO CONG. EVINS (FROM CONFIDENTIAL SOURCE) AID recognizes that, in certain cases, the standard advertising requirement would not only serve no useful purpose but would, if required without exception, also lead potential suppliers to believe there were sales opportunities which, in fact, did not exist. AID has, therefore, provided in Section 201.24 (c) of AID Regulation 1 for the waiver of its normal notification and advertising requirements in the following situations: (c) Waiver provisions. AID may waive any notification requirement in the following situations: (1) Procurement under certain special supplier-importer relationships. (i) A supplier may apply for a waiver for the benefit of a named importer if (a) The procurement concerns a registered brand name commodity (1) Which is for resale by the importer; (2) For which the importer is a regularly authorized distributor or dealer of the supplier; and (3) For which the supplier is the sole distributor; or (b) The procurement concerns a commodity (1) Which is for resale by the importer; (2) For which the importer is a regularly authorized distributor or dealer of the supplier; and (3) For which the supplier is the manufacturer or the manufacturer's regularly authorized exporter for the destination involved; or (c) The procurement concerns a commodity (1) Which is procured for manufacture, processing or assembly, and resale of the end-product by the importer; (2) For which the importer is a regularly authorized distributor or dealer of the supplier; and (3) For which the supplier is the manufacturer or the manufacturer's regularly authorized exporter for the destination involved; or (d) The commodity is procured under such other commercial relationship which appears to AID to merit a waiver from the notification requirements. (ii) Applications for waiver shall be sent by the supplier to the Office of Small Business, AID, Washington, D.C. 20523, and shall include the following: (a) The name and address of the importer who serves as the authorized distributor or dealer; (b) The specific commodities covered by the supplier-importer agreement; (c) Certification concerning the nature and duration of the commercial relationship between the supplier and the importer, supported by a copy or abstract of the pertinent provisions of any underlying written agreement between the supplier and the importer; and (d) If the supplier is not the manufacturer of the commodity, a statement containing the pertinent provisions of any underlying agreement between the supplier and the manufacturer. (iii) The waiver, if granted, will be forwarded in duplicate to the supplier. The supplier is responsible for forwarding one copy of the waiver to the importer and for advising the Office of Small Business, AID/W, of any change in his agreement with the importer which may affect the waiver granted by AID. (2) Proprietary procurement. (i) Procurement where AID has determined that, in order to assure the interchangeability or standardization of equipment, or because of special design requirements, or for any similar reason, purchase of a commodity by reference to a particular specification, trade name, or designation is necessary. (ii) Application for waivers shall be made in writing to AID by the importer and shall include supporting justification together with the recommendations of the borrower/grantee. In the absence of other instructions, such applications shall be submitted to the USAID for a transmittal to AID/W. Notice of approval or rejection of any such application for a waiver will normally be transmitted to the importer through the USAID. (3) Emergency procurement. (i) Commodity procurement necessary to avoid a serious delay in project completion or in a plant's production, or to avoid a substantial increase in the cost thereof, if the procurement cannot be effected within the time limitations prescribed by paragraph (a) of this § 201.24 for notification procedures. (ii) A request for any emergency procurement waiver shall be made by the importer to the USAID. The request shall state the facts justifying such emergency procurement and shall bear the endorsement of the borrower/grantee. Emergency procurement requires the prior written approval of the USAID. (4) Special situations. (i) Procurement in special situations, if AID/W has determined that it would be impracticable or inconsistent with the purposes of the Act to require adherence to the notification procedures prescribed in paragraph (a) of this § 201.24. (ii) A request for a special situation waiver shall be made by the importer to the USAID. The request shall justify the procurement and shall bear the endorsement of the borrower/grantee. In the absence of other instructions, the USAID shall transmit the request to AID/W for decision. A review of the names of the importers of petroleum products listed on the Indian customs bulletins which were drawn to the attention of the Committee shows that we have issued waivers of publication under Section 201.24 (c) (1) (special supplier-importer relationships) for Burmah Shell; Esso Standard Eastern, Inc.; Gulf Oil India Pvt., Ltd.; Castrol, Ltd.; and Caltex India, Ltd. Each waiver was supported by the certificates and the underlying documents required by the regulation. We find no record of having issued waivers of publication for Storage & Dist. Co. of India, Ltd.; Synbiotics, Ltd.; Maadan's Footwear Corp.; New Lahore Shoe Co.; or Power Cable, Ltd. There is no indication in the Indian customs bulletins, of course, whether the transactions represented by these releases from Indian customs were AIDfinanced. If they were, and had not been either publicized or covered by a waiver of publication, any amounts expended by AID to cover their financing would be subject to claims for refund from the Government of India. Also, if, as suggested in the complaint received by the Committee, the suppliers shipped products which were not covered by those authorized in the waiver, these two would be subject to refund demands. Though the specific transactions involved may be difficult to identify from the incomplete data shown on the Indian customs bulletins, we will attempt to determine whether the provisions of our publication waivers have been violated. |