This would be a most time-consuming and very expensive operation. Mr. BURTON. Let us go back to this pump deal we were talking about. Was this bid between two American companies? Mr. O'LEARY. Yes, sir. Mr. BURTON. To buy pumps in a foreign nation? Mr. O'LEARY. Yes, sir. Mr. O'LEARY. Yes, sir. Mr. BURTON. Well, 2 or 3 years ago I ran into a situation where we had made an AID grant to Iceland to pump hot water to heat their homes in Reykjavik and we furnished the money and they wanted Swedish pumps and they bought Swedish pumps. Mr. O'LEARY. This is new to me. I have been with the Agency 7 years. I never knew we had an AID program in Iceland. Mr. KUNZE. We have not had a program in Iceland since the 1950's. Now, at that time in our efforts to build up to rehabilitate the European economy, we were permitting purchases to be made in other countries. Mr. O'LEARY. Any place in the world except the Communist bloc. Mr. BURTON. I think it was the late 1950's and you are correct with that and that is when they were pumping their geothermal steam and water into the cities to heat homes and everything. It was a great idea but we put up the money and they bought the pumps in Sweden. Mr. KUNZE. At that time Mr. O'LEARY. At that time we had no source requirement. Mr. KUNZE. At that time I think our participation from the U.S. sources was about 50 percent. At one time it got below 50 percent. Most of the purchases were made from outside the United States. But over the past 5 years it has now gotten to the point where, as I say, we are now at 99.4 percent of all purchases in the United States. Mr. BURTON. Mr. Chairman, I said I am learning new things every day but it has taken me 5 or 6 years in the Congress to become a believer in AID and I am now to the point where I think you are doing more good than you are harm, but it has taken me that long to learn it. And I read your statement last night at home, Dr. Hannah, and I think it is a very good one, and-off the record. (Discussion off the record.) Mr. CORMAN. I would just like to make a couple of observations, and I am going to turn it over to counsel to develop some specific questions. I really would not want you to feel impotent because your role is only that of a banker. It has been my experience that the man who supplies the money does really have some opportunity to participate in decisions. And the other statement alluded to was that so often big business can do things more economically than small business. That is another one of those old saws I hope we can dispel. I would think that small business does have some built-in handicaps in the foreign market. You mentioned that the importer has to resell whatever it is that he buys, and I assume that there has been a tremendous amount of advertising that would perhaps influence foreign markets. I think that you have to figure out some ways to compensate for that, because I do not think that from the point of view of the American business community we really want to squeeze out the competitive small businessman just because he has not had the ad vantage of a very substantial advertising program in the receiving country. I am sure you can devise some ways to overcome that from this competitive point of view. Mr. O'LEARY. We have an excellent system in our technical assistance program where our goods are bought by U.S. Government agencies who do have the small business set-aside and our technicians in using the equipment which comes from the United States in the technical assistance programs, these become known to the technicians in that country and a good piece of equipment as I say where it is bought under the small business set-aside or because small business bids lower, has a scheduled contract with GSA. This is a way of introducing the small businessman and his products into the underdeveloped countries. It does work quite successfully. Mr. CORMAN. I am glad you are familiar with set-asides. We plan to discuss with you substantial expansion of that effort and I am sure we are going to be able to arrive at some new standards in that respect. I do not really think we can look at the quantity of bulletins published and sent to the total business community as any kind of a gage as to how we are fulfilling the statutory responsibility to small business. I think in the end we have to look at the percentages, which I am sure, we are going to be able to find ways together to increase. Setasides, we have found, work well when the Government is the procurer and I am sure we can figure out ways together to make them applicable here. I would not in any way want to imply that we want to waste taxpayers' dollars in the interest of small business, but in that area where we do such gigantic procuring, in the Department of Defense, we find that we do not waste them. We save money through efforts to get small business involved. I think your problems are certainly different and, in some ways, perhaps more difficult. But that is one of the roles this subcommittee hopes to play, helping you find ways to save money and encourage small business participation in your procurements. I noticed in your percentages on page 2 of your supplemental statement,' you indicate that 51 percent of the commodity import program is in categories where small business has no productive capacity or is noncompetitive. I assume that in 49 percent of your commodity import programs they are producing and are competitive. Mr. KUNZE. I would say theoretically so, yes, but for the other reasons which I mentioned. Mr. CORMAN. Yes, sir. I wanted to get at those, because they account for about a quarter of your commodity program, almost a quarter of a billion dollars. One of the reasons that small business cannot compete is because of restrictive contracts between the manufacturers and distributors. I do not know if it is in our interest to just let those stand without taking a close look at them. Perhaps the supplier makes most of his money on spare parts on which he is to agree to restraint of trade, getting a corner on the market. I think that, if they do not want to use American taxpayers' money, then they do whatever they want, short of displaying Clayton Act, I guess. But if they are going to use American taxpayers' money, I think that we should take a look at that and see if maybe we could deny them that opportunity. a See p. 18. Would that do you think that might be worth exploring? Mr. KUNZE. Well, we will always be glad to discuss it with the committee, Mr. Chairman. I think, though, that where there is a contractual arrangement, and these are bona fide arrangements and we insist on getting the documentation to prove it, between a distributor in India, let us say, and a producing company in the United States, I think that it would be counterproductive if we refused to acknowledge it and to give him the financing necessary to buy from his own producing company in the United States. Now, to the best of my knowledge, there are no examples where this results in an underselling of the basic commodity dependent on making a profit on the spare parts. And many of these some of these companies who have the benefit of what we call sole agency relationships are small business companies. They are not by any means all exclusively large businesses, although most of them are. Dr. HANNAH. I think the question the chairman asked really had to do with where the price was controlled by a cartel arrangement in the United States of large operators, as to whether or not it would not be appropriate for the committee to take a look at such restrictions to make certain that the small enterpriser was not handicapped. My answer to that would be, I think it would be appropriate. Mr. CORMAN. Thank you, Mr. Administrator. Regrettably, I have to go to another meeting. These gentlemen do, too. Mr. BROYHILL. I can stay awhile. Mr. CORMAN. If you could I would appreciate it. Counsel has some questions that are terribly important to us and, if you gentlemen have the time now, we would like to get this information on the record. I want to point out that after we hear all other specific observations and what might be, in some people's minds, complaints from the small business community, we will give you ample opportunity to review and answer them for the record. I would hope we can go through this entire process with the idea that together we are going to figure out concrete ways to see that the small business community in the United States participates in a much more substantial way than they do now in the AID program. There is no question in my mind but that it is going to be as easy to do as it has been in the Department of Defense, and I think as useful both to the health of our own economy and to the dollars saved to the agency itself. Again, I sincerely appreciate your cooperating with us and, if Mr. Broyhill will take over, Counsel both have questions and we would appreciate your answering them. Mr. BROYHILL (now presiding). Mr. Wertheimer, you had some questions? 1 Mr. WERTHEIMER. Congressman Conte, who regretted he could not be here this morning, asked me to raise a couple of complaints he has received from manufacturers of textile machinery and from manufacturers of fishnetting, that they are receiving what they feel is discriminatory treatment in their attempts to sell to AID-financed purchasers. I am going to forward these complaints down to you and hope we can get a response to these charges as soon as possible. * See p. 81. 2 See p. 257. Dr. HANNAH. If you will give us the material we will certainly find out what the facts appear to be.1 Mr. WERTHEIMER. Thank you very much. Mr. BROYHILL. Mr. Robinson? Mr. ROBINSON. Mr. Chairman, before I ask some questions, I would like to attend to some of the technical aspects of the hearing and ask that the April 8, 1969, letter of invitation from the committee to Administrator Hannah and other pertinent correspondence be made a part of this record at the appropriate place and that the response to a portion of this letter of invitation found in the Agency's May 7, 1969, response, addressed to Chairman Corman, likewise be made a part of the record at the appropriate place. Also, there have been referred to so far documents consisting of the Federal Register, incorporating AID Regulation 1, and I would offer this to be made a part of the record at the appropriate place together with such other documents that have been submitted for the examination of the committee and, Mr. Chairman, to the extent that they may be appropriate, that portions be placed in the hearing record and that the balance remain in the subcommittee's files. Mr. BROYHILL. These documents will be received for the record in the interests of a complete record on this subject matter. Mr. ROBINSON. Dr. Hannah, I have a feeling that you and I have some things in common. This is an area where I feel that I am learning and I am anxious to learn more about the AID programs, particularly since this is not a direct procurement program we are talking about, at least in the sense of Defense Department or GSA direct procurements. I think another thing we have in common is the goal that we are attempting to achieve here, to determine whether the existing programs are adequate and sufficient to satisfy the congressional intent that small business enterprises in this country be protected and assisted to the maximum extent possible. The Agency for International Development has evidently been very active in the publication field. You publish a lot of notices and a lot of circulars. You publish a lot of information bulletins and make thousands and thousands of mailings to a list of 7,500 firms in this country, some of whom are large and some of whom are small, telling the American business community about opportunities that apparently exist through AID-financed purchases, by governments or their entities, in the less-developed countries. I get the feeling, however, from your testimony and that of your associates and staff today, that you are telling us, in effect that this is not a real opportunity at all for small business. There are a lot of pitfalls, a lot of disadvantages. The big firm has an edge; he has got the inside track; he has got his representation abroad; and there is a kind of a caveat here of small business beware. In fact, you are telling us that there is only a very small portion of your commodity purchases of $1.2 billion in fiscal 1968 in which small business has any opportunity at all to compete because 75 percent, in effect, is set aside for large business. You tell us that for 51 percent. there is no small business competition; there is no small business capa 1 See pp. 207, 257. 2 See p. 4. 3 See p. 12. See appendix, p. 383. your bility for these items. Another 24 percent consists of spare parts and sole source purchases. That leaves only 25 percent in which all of these people that you are writing to and notifying of opportunities have any so-called opportunity at all. I am very grieved to observe that test shows that out of that 25 percent, that small corner, small business does not do well at all. They only get about 20 percent of that 25 percent. In effect, out of the total AID-financed procurement pie, amounting to $1.2 billion, and running over a billion dollars annually, the smalls participate, according to your test figures, only to the extent of about 5 percent. This is obviously a great area here for improvement and there is a great challenge for us to devise methods and means to correct the situation if at all possible. In that spirit, Dr. Hannah, we will probably be reviewing some of the programs of the Agency in the past-not by way of criticism but if it is that, it is by way of constructive criticism— to explore possible remedial changes. Dr. HANNAH. My only comment would be that, of course, you and I cannot do anything about it if sheet steel is not made by small manufacturers or if automobile trucks are made by three or four large corporations in this country, and this is what is going to be imported. As I indicated in my testimony, we are sympathetic with the objectives that your committee has in mind. For many years the legislation has included sections 601 and 602 which were designed to assure that opportunity for small business to participate in competing for business, and we agree with the objectives. The point I would like to make is that the AID Agency is not operated primarily for the purpose of making business in the United States. If we are going to have to, in the interests of national security, or whatever the objectives are, provide some economic inputs into a limited number of countries in the world-as you know, the bulk of all of our AID assistance is now in a relatively few countries. If a decision is made that it is in our national interest to do whatever it is that we are going to do in India or Pakistan or Turkey or Iran or whatnot, and if we are going to provide this economic input through making foreign exchange available to those countries, the Congress has decided, appropriately, that if we are going to do it, then this money is to be used to buy U.S. goods with only the exception for some of the East Asian countries in order to encourage their participation in the Vietnamese effort. So when we say that we want to investigate and see whether or not we can provide more encouragement for small business, I agree that we should, provided that we are practical about it, and that we are not going to draw up a lot of restrictions that are going to take a lot of supervision, a lot of investment in auditing and all this sort of thing. I am assuming that the committee is going to be practical and reasonable, and I think we should be. Mr. ROBINSON. Dr. Hannah, do you feel that these cooperating countries and their private enterprise firms would find any valid reason to object to the Agency doing all possible to assure that our own free economic enterprise system is encouraged, and that the trend and the tendency toward monopolistic growth in this country is discouraged with the same dollars that we are lending and granting to these |