growth of the United States and other developed countries-since the industrialized nations, particularly the U.S., provide them-the LDC's-with their best and largest market.

To maintain U.S. economic strength and growth requires a secure supply of raw materials. To protect that supply we suggest a variety of measures. The establishment of economic stockpiles is high on the list of those measures. Indeed it is the measure most easily and quickly implemented.

Economic stockpiles are not necessary for all commodities, but only for those in which the U.S. has considerable import dependency, and which are most vulnerable to supply disruptions or price manipulation. The size of the stockpile will vary from one commodity to the next, and is dependent on the degree of U.S. import dependency, the degree of export dependency of the supplying nation and other factors such as substitutability. Economic stockpiles should be publicly owned and managed, since a main objective in adopting such a policy is to introduce the public interest into what has heretofore been a private domain.

We would hope that eventually all of the policies and programs adopted to assure a reliable secure supply of raw materials can be internationalized. But as a practical matter we cannot wait for international agreements. We must move ahead on a national basis. In the case of the establishment of economic stockpiles, the time to start is now.

Thank you.

RESOLUTION ON RAW MATERIALS

The United States must develop a comprehensive national policy for raw materials in order to secure the stable supply and price of industrial metals. Without a reliable supply the U.S. economy can neither survive nor grow. Almost every industrial job in the United States is at stake as well as the nation's general economic well-being.

Threats of cartelization, similar to OPEC in the energy industry, and the market domination of a few large multinational corporations, have raised serious questions about the continuing reliability and security of our raw material supplies.

Those nations producing raw materials have been exploring the possibilities of limiting the supply and/or raising the price of their exports through cartellike action. Producers of bauxite, copper and iron have already met for these purposes.

Those corporations producing raw materials have for many years pursued policies of market control and possible manipulation—including the limiting of supply and raising of price. A few large multinational corporations dominate the entire industry-and through merger, acquisition, joint venture, vertical integration, secondary interlocking of directors, etc. have had ample opportunities to pursue cartel-like activities.

The United States, however, has no unified, coherent policy to protect its interests and the interests of its labor force against the threats of either producing countries or producing corporations. There is no contingency plan pending in the event of foreign-initiated supply restraints. Neither is there a policy to encourage U.S. fabricators and manufacturers to produce at home. National policy on recycling development of seabed resources or encouragement of research and development efforts is non-existent-as is any effort to coordinate these very important elements into an overall raw materials strategy.

In the world market the producing companies-so often large U.S. based multinationals-have a powerful voice. The host nation-that nation endowed with the raw material resources-also has a powerful voice. The home nation—in this case quite often the United States-has little if any say.

In order to deal with these shortcomings, the United States needs a coherent and unified policy to assure that the necessary supplies of raw materials are forthcoming.

We recommend that the United States enter into specific bilateral commodity agreements with the nations which supply us with raw materials, particularly those commodities in which the U.S. is import dependent. In return for agreement on delivery of a specified quantity of the raw materials, the U.S. should offer a guaranteed, support floor, price.

At the same time that the U.S. is stabilizing the security of foreign supply sources, it should be developing new and better domestic sources as well as new techniques of increasing the use of raw materials. The U.S. government should increase its support of research and development. New materials technology for

exploration, extraction, processing and fabrication must be developed. Needed is the establishment of a special federal program similar to the NASA space effort, where specific goals were established and achieved through federal support of a joint public-private research and development effort.

Another way to strengthen the U.S. ability to survive foreign supply restraints is by establishing a domestic economic stockpile. Such a stockpile should be established, to act as a unilaterally managed buffer, to protect both the accessibility and price of U.S. supply sources. The existence of an economic stockpile would increase U.S. leverage in world markets.

U.S. leverage would also be increased, as well as protection against foreign supply restraints, by the building of special standby plants which would assure the ability of the nation to produce what it now imports. In addition, the U.S. must be prepared to bring into production mines which contain lower-grade ores which might become economically feasible in the event of international supply or price manipulation.

Another major domestic effort needs to be made to support and encourage recycling and other conservation measures. The increased use of secondary materials is a major way to decrease our dependence on imported raw materials. The U.S. government should support research efforts. Present disincentives toward recycling must be removed.

Anti-trust laws require enforcement. Those firms supplying the U.S. economy with basic raw materials and their products are too important to permit such domination by a few private companies and individuals.

Any raw materials strategy must be sure to protect and strengthen the industrial base of the United States. More research is needed on the proper balances between service-oriented and production-oriented sectors of the U.S. economy. U.S. interests in the location decisions for fabricating and manufacturing plants in essential basic materials industries need special attention-particularly when decisions to locate overseas threaten the production-oriented sector of our economy. U.S. representation in location decisions through inclusion in commodity agreements and/or new legislation is needed. In addition, present tax incentives which encourage U.S. companies to move abroad must be eliminated. The U.S. should also encourage the development of a strong maritime industry so that we have the capacity to transport commodities to the U.S. in U.S. ships, manned by U.S. crews.

In order to assure the implementation of these recommendations a new gov ernment corporation should be established-a Commission on National Resources with direct responsibility for the development of materials policy as well as the oversight and management of much of the policy program. A COMSAT model offers the best avenue for government participation in seabed development, and perhaps for the management of standby capacity. The Commodity Credit Corporation could provide the model for the operation and management of the economic stockpile.

With millions of jobs, billions of dollars, and the stability of the U.S. economy at stake, the United States must adopt a unified, coherent and comprehensive set of policies to assure that the continued supply and price of raw materials be both reasonable and reliable. The machinery to implement these policies is equally essential: Now, therefore, be it

Resolved, We urge the U.S. Government to move quickly to plan and develop a comprehensive raw materials policy and programs to assure our economy the steady flow, present and in the future, of the raw ingredients necessary to the American industrial process.

Such programs must of necessity include stockpiling of raw materials; bilateral commodities agreements between the U.S. and other countries which are suppliers of raw materials; development of new domestic sources of such materials; exploration and research for and of new raw commodities; the beefing up of recycling and other conservation methods; the building of standby plants to process certain raw materials when and if necessary, and strong anti-trust surveillance of those corporations engaged in the supply of such materials. Such programs carefully designed and vigorously pursued can achieve a constant stream of basic raw materials sufficient to keep the American industrial machinery in full motion.

Chairman SULLIVAN. You know, there's so much meat in the kind of study you have made, and in the testimony so far, and as we go into the questioning I hope to bring out some of the things that are

bothering us about our materials supply. The subject is tremendously important. It is, unfortunately, very hard to get Members of Congress to find the time to look into such nonpartisan issues. How does this country stay at the top with all of the problems that are coming before us so that we can anticipate what may happen to prevent us from continuing to stay on top? I just hate to keep your testimony to 15 minutes. But as you know, we have tried to study the testimony in advance. This is why the staff pestered you to get it to us early because there's just so much you can absorb in a given time.

We will now hear Mr. Strauss. I'm glad to see you before us again, Mr. Strauss. As you reminded me this morning, you came before us in the House Banking Committee when we were working on coinage legislation.

Mr. STRAUSS. Right.

STATEMENT OF SIMON D. STRAUSS, CHAIRMAN, MINERALS AVAILABILITY COMMITTEE, AMERICAN MINING CONGRESS

Mr. STRAUSS. Thank you very much, Madam Chairman. The first part of my statement is largely historical in nature and I will not try to do anything other than to summarize it very briefly. It reviews the stockpile program and my friend, Mr. Bergsten, has made reference already to my advanced age. I did take part in the early days of stockpiling during World War II when the Metals Reserve Co. handled the procurement of materials for the war effort. When the war ended, because we had done I think a credible job, we had a very substantial residue of materials still on hand and that formed the nucleus of the present strategic stockpile.

In your own very interesting opening remarks, you made some reference to the strategic stockpile and the fact that over the years there appears to have been some deviation from the original purpose. The original purpose was clear. It was to provide materials which were to be drawn on only in the event of a national emergency involving the defense of the country.

One of the reasons that we had these ups and downs in regard to the strategic stockpile was that the objectives were constantly being changed. Now the objectives were reached by a group of undoubtedly dedicated public servants drawn from the various departments of the Government, but were never made public until President Kennedy's concern about the stockpile erupted in 1961, I think it was. During the previous 15 years-the act was passed in 1946-—the objectives were classified information and the objectives were arrived at on the basis of a lot of assumptions-how long a war, what kind of a war, what sources would be secure to us, what sources would not be secure in this country-and it was this up and down movement of the objectives which created a good deal of the opportunity for what you described as the sale of materials from the stockpile to meet price problems that existed at times when there appeared to be shortages. In fact, in respect to some of the most critical materials, the ones which Mr. Bergsten referred to, we now have nothing left in the strategic stockpile. The aluminum and copper and nickel stockpiles have been completely liquidated. The zinc and lead stockpiles have been greatly reduced. Even for tin, chrome, manganese and platinum,

which are among the materials Mr. Clayman referred to, the quantities on hand have been greatly reduced.

Mr. Nixon in 1973 proposed virtual liquidation of the whole stockpile because he said any war we would be in would only last a year and if it lasted longer we would just gear up additional production. Well, in my opinion that is not a feasible method of dealing with the stockpile program. One cannot bring new mining capacity into production in a period of a year, nor can one substitute other materials. There are design problems, retooling problems for industry in substituting one material for another.

So what I would like to say is that in the view of the mining industry, the experience with the strategic stockpile has not been a happy one. It's been disruptive in its effect on the commodity markets. In spite of that, we support the idea of a strategic stockpile for defense purposes because what the stockpile is important for is not tons of materials or even dollars; it's hours of labor in a time of national emergency; it's energy, particularly noticeable in the case of aluminum; it's transportation. I well recall that during World War II, 25 percent of all the bauxite being brought into this country was sunk by German submarines in the Caribbean. That meant the loss of vessels which could have been used, which could have taken people and materials to the fighting front.

In the same way, because of the manpower requirements of gearing up the war effort, the Government had to give automatic deferment to workers in the copper and iron mining business in this country. Those workers had precisely the talents that the Army Engineers, the Sea Bees and the Air Force could have used for the construction of airports and so forth.

So the stockpiles represent a store, not just of materials but of skilled labor, of energy, and transportation, and these are badly needed in times of military emergencies.

So regardless of its unfortunate experience with the strategic stockpile, the mining industry supports the concept of a strategic stockpile. Now the oil embargo which both my colleagues have already referred to has caused apprehension in government circles about other vital commodities and has raised this question of economic stockpiles. Now I think one ought to reexamine the shortages of commodities which were experienced in late 1973 and early 1974. With the exception of oil, there is no evidence that there was any interruption in the supplies of any of these materials. In fact, the available supplies of most metals and minerals that I'm familiar with in 1973 and early 1974 were at the highest rates ever experienced and these were freely available in world markets, but at escalating prices.

What happened and what caused the problem was not a short fall or interruption in supply; it was a sudden and very, very marked expansion in demand. This expansion was not only due to the industrial boom that the Western World had suffered in 1972 and 1973, but also to speculative purchases due to currency uncertainties. Mr. Bergsten has referred to those. Commodities that are traded on commodity exchanges are a favorite vehicle for speculation-or investment if you want to call it that. The financial pages of the newspapers were full of advertisements at that time-urging investors to switch to commodities. Many of the brokers were advising that. Now if the

man in the street who doesn't really need the commodity for purposes of keeping a factory going buys copper, lead, zinc, tin or whatever, who is going to sell it to him? There's only a certain amount of production available. So his purchase, in effect, drives the price up and creates a sort of a panic. Widespread fear of cartels caused much of the buying. People thought there might be interruptions in supply. The interruptions did not occur.

And finally, purchasing agents of the large corporations, when they see prices rising, get very nervous because there's nothing a purchasing agent is more concerned about than having a factory shut down because he hasn't provided an adequate supply of raw materials. That's sufficient cause for losing his job. So there was an enormous increase in inventories.

In the middle of 1974 it suddenly dawned on everybody that the industrial boom was over. In fact, it had probably ended in late 1973. Automobile sales were down. Housing was already starting down. But it took until the middle of 1974 before this downturn began to affect the commodity markets because commodity markets were too preoccupied with these other things-the fear of cartels and so forth.

By the third quarter of 1974 the fear of shortage had evaporated and the same purchasing agents who had been busy adding to inventories started to reduce them. They reduced them very drastically indeed, and this caused the sharp drop in prices that has since occurred. Now I would be less than candid if I didn't say that we will have similar spot shortages of commodities in the future. They will develop because supply is relatively inelastic. It takes a long time to create new mining capacity. While Mr. Clayman has made an interesting suggestion that we should have standby capacity, the cost of such standby capacity is appalling and, furthermore, there is a question of maintaining the plants in good mothball condition.

So if demand fluctuates sharply and supply can increase only slowly, there will probably be a recurrence of shortages, no question about that. Since shortages will develop from time to time, the proposals for an economic stockpile seem at first glance to be imminently reasonable.

If you look at the Bible, at Joseph, he, in effect, created the first economic stockpile when he interpreted Pharaoh's dream and said there were going to be 7 fat years followed by 7 lean years and you'd better stock up. Pharaoh had an advantage that the U.S. Congress and government don't have, and that is his absolute power created no money problem of any kind for him. He just put the stuff away in the granaries at the time of surplus then later on sold it presumably at a profit. The Bible is silent on that point, but he did sell it back to the people for them to have and the whole crisis was met. That is an ideal economic stockpile operation. No question about it.

The difficulty is that since we don't have Pharaoh around, where do we get the money? The amounts involved are going to be absolutely enormous and the effects on the market of economic stockpiling will be great.

Now speaking not just for myself, but for our industry, I would say that we view the proposal for economic stockpiles with misgivings because we are fearful of the way in which they will be managed. But, if they are to be created, if it is the consensus-and after all the decision in this rests not with industry but with government-if the stock