FREE AND OPEN COMPETITION BEST Our members believe in the principle of free and competitive trade. Except in extreme national emergency, they resist price fixing by congressional action or by Executive edict. They are even more determined that one or many purely private interests should not be legislated as much power by the U.S. Congress as is proposed in the Harris bill, H.R. 3669. We believe that the interests of our members and, in fact, the interests of all consumers and the interests of the Nation can best be served if all consumers are permitted to retain the right to buy the necessities of life in a free and open competitive market. We are also firmly convinced that free and open competition is best for small business in particular and for the whole national economy. The proposed Quality Stabilization Act has the characteristic of class legislation. It is designed for the special benefit of a well-organized minority, large manufacturers, at the expense of both the small independent retailers and the millions of consumers of all ages. HARRIS BILL VIOLATES STATES RIGHTS The Harris bill proposes to invade an area which has always been reserved to the States. Texas, Missouri, Alaska, and Vermont have never passed fair trade laws. Alabama, Montana, Nebraska, Utah, and Wyoming do not have fair trade laws in effect because their respective State courts have declared such laws unconstitutional. State courts in 19 other States have declared unconstitutional the most objectionable feature of their fair trade laws. Nevertheless, and in definance of the bill of the people in these States, the Harris bill would fly in the face of the principle of States rights and force upon the people of each of the 50 States a nationwide system of price fixing with its selfish and monopolistic characteristics. FAIR TRADE MEANS HIGHER PRICES Evidence presented year after year on the fair trade proposal has shown that the customer pays a high price for the protection afforded the manufacturer by existing State fair trade laws. Again, on April 23 of this year, Judge Lee Loevinger, testifying for the Department of Justice, said: "Finally, the Department of Justice has found by economic surveys that consumers in States with price maintenance, or so-called fair trade, laws pay from 19 percent to 27 percent higher prices than consumers in States without such laws. Projecting an average price increase of 20 percent for all sales that may be covered by the operation of a national price maintenance law shows that it would cost the American consumer billions of dollars and have a powerfully inflationary effect." Detailed price comparisons presented on the 1962 fair trade bill, June 11, 1962, by the Honorable Emanuel Celler, Representative from the 10th Congressional District of New York, shows the effect on retail prices when a State adopts a price-fixing policy. Representative Celler showed 1. After an Ohio fair trade law was invalidated by the Supreme Court, prices settled to a level about 20 percent below the fair trade prices. 2. Virginia and Maryland fair trade prices in 1952 for common household articles were from 11 to 53 percent higher than prices in the District of Columbia, a non-fair-trade area. 3. Surveys reported from South Carolina, Texas, and numerous other States also indicated that drug prices were invariably higher in fair trade States than in non-fair-trade States. The members of our 2 associations are a typical cross section of the 17 million Americans over the age of 65. Some 9 million of them must live on $1,000 or less a year and another 4 million have incomes between $1,000 and $2,000. These people still want to retain every possible degree of independence and self-reliance. They want an open and free market in which they can compare quality and quantity, and in which there is still a purpose in intelligent shopping. They resent and resist the principle of price fixing by the manufacturer now before your committee in the Harris bill, H.R. 3669. Older persons in the United States of America, contrary to the practice in some lands today, expect their National Government to preserve for them the freedom and opportunity to shop and find the retailer who for one reason or another is in a position to undersell his competitors. They want to retain the alternative, for example, of buying the article of their choice in a more pretertious shop in December or one operated on more austere lines in January. They take justifiable satisfaction in finding a bargain. They are suspicious of the motives of those who promote fair trade to "protect the small retailer and the consumer." They feel much more secure in their role as consumers under the present condition of open competition and free enterprise than they would if and when this Congress passes any bill to permit price fixing by the manufac turer. For these reasons we are strongly opposed to the quality stabilization bill, H.R. 3669. Mr. STAGGERS. The first witness this morning is our colleague from the State of Washington, the Honorable Thor C. Tollefson. Mr. Tollefson, we will be glad to have your statement. STATEMENT OF HON. THOR C. TOLLEFSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON Mr. TOLLEFSON. Mr. Chairman and members of the committee, I gladly testify in behalf of the quality stabilization bill now pending before you. I have introduced a similar measure. No one asked me to do so. It is just that I firmly believe in its principles. As a prosecuting attorney in my home county, I saw at first hand the bad effects of loss leader and cutrate sales methods. Such methods are harmful to the public. People are literally lured into stores by advertisements leading them to believe they are getting real bargains. More often than not, they are the victims of unscrupulous sales tactics and are sold inferior products or additional merchandise which they did not intend to purchase when they entered the store. They lose. They do not gain. This country needs to counter the self-satisfaction of cheapness and the pressures toward cheapness. We need a quality stabilization law to encourage a manufacturer to build toward superiority of product. A trademark is easily damaged. Its manufacturer needs the right to safeguard his reputation symbolized by the good will for that trademark. He does not now have this right. The quality stabilization bill recognizes the property right of the manufacturer in his brand or trademark. If an unscrupulous retailer abuses the manufacturer's brand or trademark by misrepresentation, by "bait and switch" tactics, or by deviation from the established price, then under this bill the trademark owner in the public interest may deny that reseller further use of the trademark. The ethical retailer will also be afforded protection from the practices of the unscrupulous merchant. The proponents of this measure who are here to testify in its behalf will supply detailed evidence to this effect. May I respectfully urge the committee to give favorable consideration to the quality stabilization bill. It has the support of many distinguished Members of Congress of both political parties who believe, as I do, that the bill has tremendous merit. Mr. STAGGERS. The committee appreciates your appearance and testimony, Mr. Tollefson. Mr. TOLLEFSON. Thank you for the opportunity, Mr. Chairman. Mr. STAGGERS. I might say that if any of you who are here to testify this morning wish to present your prepared statement for the record and summarize your statement, we would be glad to have you do that, if you care to; if you want to give the whole thing, of course, that is your privilege. Our next witness will be Clinton Fair. Mr. Fair. Mr. FAIR. Good morning, Mr. Chairman. Mr. STAGGERS. Would you identify yourself for the record? Mr. STAGGERS. And you may start right in. STATEMENT OF CLINTON FAIR, LEGISLATIVE REPRESENTATIVE, APPEARING FOR ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, WASHINGTON, D.C.; ACCOMPANIED BY ANN DRAPER, ECONOMIST Mr. FAIR. Mr. Chairman, my name is Clinton Fair, and I am here this morning because Mr. Biemiller is out in St. Louis, Mo.; the executive council of the AFL-CIO is in session today, tomorrow, and Thursday, so I am here to represent him. I am a legislative representative for the American Federation of Labor and the Congress of Industrial Organizations, and I am here in behalf of our membership and their families in opposition to H.R. 3669, proposed Quality Stabilization Act. Miss Ann Draper is with me. Miss Draper is an economist with the research department of the AFL-CIO. We are opposing H.R. 3669 because it is a Federal resale price maintenance bill designed to achieve by somewhat different means the same purposes as other price maintenance bills proposed in the past and usually known as fair trade bills. They all mean higher prices for the consumer. Some advocates of this bill have insisted that it is not a fair trade bill, and we do not insist on calling it that. We do insist, however, on calling it a Federal resale price maintenance bill, because that is what it is. Mr. Chairman, I wish to submit for the record at this point the official policy statements of the AFL-CIO on the subject of Federal resale price maintenance. And I have a copy here. The first statement is a resolution adopted by the AFL-CIO executive council on Federal resale price maintenance legislation (fair trade laws) on February 24, 1959. The second statement is entitled, a "Policy Resolution on Fair Trade," adopted by the third constitutional convention of the AFLCIO in September of 1959. And the third statement is entitled, "Policy Resolution on Consumer Protection," adopted by the fourth constitutional convention of the AFL-CIO, December 1961. Mr. STAGGERS. Mr. Fair, this is to back up your statement, these three resolutions, are they? Mr. FAIR. Yes, sir. Mr. STAGGERS. Well, without objection, then, they will be presented for the record. Mr. FAIR. Thank you very kindly, Mr. Chairman. (The three documents referred to follows:) STATEMENT OF THE AFL-CIO EXECUTIVE COUNCIL ON FEDERAL RESALE PRICE MAINTENANCE LEGISLATION (FAIR TRADE LAWS) SAN JUAN, P.R., FEBRUARY 24, 1959 The AFL-CIO views with grave concern the pending proposals in Congress to prevent price reductions on branded consumer goods through enactment of a Federal resale price maintenance law. This legislation, as represented by H.R. 1253, is designed to bolster up the nearly defunct State fair trade laws, which have come under increasing attack both by State courts and by the U.S. Supreme Court. It would affirmatively provide Federal sanction for an exception to the antitrust laws, under which manufacturers could fix the retail prices of trademarked products and bring suit in the Federal as well as the State courts against any retailers selling such products below the prices they have set. The dangers of this proposed legislation to the interests of consumers, of whom wage earners and their families form the greater number, are obvious. Retailers now selling trademarked goods at prices below the manufacturer's list will be compelled to raise these prices anywhere from 10 to 40 percent, if the manufacturer chooses to invoke the law. The average wage earner supporting his family, will be forced to cut his purchases on such items, either going without, or turning where possible to cheaper products and private brands. On some branded goods traditionally subject to fair trading, notably drugs prescribed by a doctor, he will have no choice but to pay the fixed noncompetitive price or go without. The major functions of resale price maintenance, which is backed by various organized trade groups, notably the National Association of Retail Druggists. and by a number of brand manufacturers, is to provide a specific guaranteed profit to the seller on each item he sells. This markup is geared to comfortable profits on low-volume sales and certain traditional methods of doing business. But the advance in merchandising techniques since the war, the development of self-service facilities, the diversification of lines carried by single retail outlets, and the development of merchandising policy emphasizing high-volume sales at low unit profit makes this type of economic protectionism obsolete. Not every manufacturer would wish to use this law if it were passed. Many prefer to place their reliance upon volume sales of their products, which merit and low prices will bring about. Others, however, have developed a system of marketing name merchandise at the highest price advertising can induce. while at he same time tapping the large-volume market by offering at a lower price the identical merchandise under another, but relatively unknown name not subject to fair trading. This latter practice, documented in the recent congressional hearings on the subject, detracts heavily from the argument that manufacturers have a right to protect their trademarked products against cheapening by price cuts at the retail level. Is there an inherent right to enforce a high price, not for the product itself, but for its name? Significantly, not one consumers' organization has come forth in favor of the proposed legislation, nor have any of the Federal agencies which have studied fair trade legislation over the years testified in its support. They have unanimously recommended against it as tending to raise the price of consumer goods, and to eliminate price competition, not only at the retail and wholesale level, but also at the manufacturers' level. The noncompetitive retail price system has been widely advocated as vital to the preservation of small business, which will otherwise be driven from the field by predatory price cutting, loss leader practices, and other drastic economic tactics on the part of its larger rivals. But at best, uniform pricing is at least of doubtful value to the typical small businessman. Denied the possibility of competing in prices on trademarked merchandise, he is left to cope with the superior resources of larger businesses in terms of service, credit, advertising, store amenities, and the sale of "house brands," which he is in a less advantageous position to provide. Specific remedies against extreme unfair trade tactics are or can be made legislatively available, but to enact the principle that any price cut, for any reason, even when due simply to superior operating efficiency, is unfair is to establish that competition in itself is unethical. The problems facing small business are far more complex and difficult than can be solved by a system of uniform prices on branded products. The AFL-CIO favors every constructive aid to the preservation of small business enabling it to offer genuine competition to large enterprises, but believes that blanket price protection, at the expense of the consumer, is no answer. POLICY RESOLUTION ON FAIR TRADE, ADOPTED SEPTEMBER 1959, BY THE THIRD CONSTITUTION CONVENTION OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS With the breakdown of so-called fair trade laws in several States under presure of the courts, a movement has quietly arisen to enact substitute and supplenentary legislation at the Federal level. This proposed legislation is a direct hreat to the interest of millions of wage earners in their capacity as buyers of onsumer products sold at retail. The proposed Federal fair trade law would enable manufacturers to fix miniaum prices on their branded products, below which wholesalers and retailers ould not legally sell. All price competition on such products by the different etail outlets would be eliminated. This would inevitably mean higher prices for Forkers and their families to pay for any products they buy on which a manuacturer chooses to invoke the law. Despite the protestations of the organized retail druggists, who are the main roponents of such a law, we are not convinced that price fixing at the expense f the consumer is a proper remedy for the problems of small business. It is an ttempt to eliminate not just the unfair competition on branded products, but to o away with all price competition whatever on such products. We believe that t would ultimately prove to be of main benefit, not to small retailers, but to the arge chains which sell most of the branded products as well as unbranded and rivately branded house products, and that it would strengthen the already domiant influence of large manufacturers over other parts of the economy. We beeve that it would retard the further development of high-volume, low-cost erchandising techniques and thus slow down the advance in American living andards: Now, therefore, be it Resolved, The AFL-CIO opposes the enactment of resale price fixing legislaion and calls upon the Congress to reject the so-called fair trade bills now ending before it. OLICY RESOLUTION ON CONSUMER PROTECTION, ADOPTED DECEMBER 1961, BY THE FOURTH CONSTITUTION CONVENTION OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS In the field of consumer protection, organized labor must take a leading role | behalf of its own members and in support of programs to benefit the consuming ublic at large. Through its own program of consumer counseling, sponsored by le AFL-CIO community services and the union label and service trades departents, the AFL-CIO seeks to educate union members and their families in wise udgeting and buying so that they may obtain the full value of the dollars they end for consumer goods and services. Through support and sponsorship of ›nsumer cooperatives, in which members democratically join together to supply or themselves such basic necessities as housing, medical care, drugs, consumer edit, and insurance, union members are able to obtain high quality consumer ods and services at reasonable cost. By supporting public programs and legistive proposals to protect the consumer against misleading advertising, decepve merchandising practices, excessive prices, and against products unsafe or fit for human use, organized labor makes common cause with the public inrest of the community as a whole. The most glaring of the consumer interest issues arising over the past 2 years that of the high price of prescription drugs, based on monopoly patent rights, strictive licensing agreements, brand-name promotion and vast outlays for [vertising. Drug industry profits, running at 18 percent on stockholders' vestment, outstrip those of all other manufacturing industries in the country. urther, the drive for profits has led to irresponsible advertising claims, conalment of dangerous side effects of powerful drug agents, and the subordina›n of research on useful drug products to the development of inconsequential |