further strengthen our emergency reserve position and reduce our vulnerability to petroleum supply interruptions, the recently passed Energy Policy and Conservation Act (PL 94-193) calls for the establishment of a strategic storage reserve. Stockpiling for price stabilization Our experience has been even more limited in connection with economic stockpiling for market stabilization purposes. We have only the indirect effects of disposal from the strategic stockpile. But the question of the use of buffer stocks in international commodity agreements has been very much in the forefront of recent debate. The developing countries have been pressing for the establishment of international buffer stocks for many key minerals including copper, tungsten, manganese and iron ore as well as several agricultural commodities. We will examine these commodities in a series of meetings over the next two years. With the exception of tin, for which a buffer stock has been in operation for several years under the aegis of the International Tin Agreement (ITA), there have been no examples of international economic stockpiles of critical minerals. The United States has recently signed the Tin Agreement and submitted it to the Senate for advice and consent to ratification. Under the ITA a buffer stock made up of compulsory contributions from producer member-countries and voluntary contributions from a few consumer member-countries is used by a Buffer Stock manager to intervene in the free tin market to try to maintain tin prices within a prescribed range. The United States, as a condition of its membership in the ITA has insisted that contributions to a buffer stock be the responsibility of producing, not consuming countries, since it is producer-countries that benefit most directly from the stockpile operations. As a further condition of membership, the US has insisted that disposals from our General Services Administration (GSA) administered strategic stockpile will not be affected by membership in ITA. We have, however, consulted with the Tin Council on our surplus disposals of tin and will continue to do so. The objective of the ITA is to reduce fluctuations of tin prices in international markets; our objective in surplus disposal operations is to assure that they are carried out in a way that will minimize impact upon the commercial markets. Strategic stockpiles Most U.S. Government experience has been with strategic rather than economic stockpiles. However, as far as the impact on markets and the problems caused by acquisitions and disposals in international economic relations are concerned, the operations seem similar. The Department of State has over the years participated in and advised on both the acquisition and disposal for the US strategic stockpile. Our interest has been to ensure that, in the process of buying and selling commodities in domestic and international markets, undue disruption of markets is avoided. Current directives enjoin the General Services Administration (GSA) which administers stockpile operations to acquire or dispose of excess materials in such a way as to give "due regard to the protection of the United States against avoidable losses and to the protection of producers, processors, and consumers against avoidable disruption of their usual markets." The Department of State is required to inform the President of the effect of stockpile disposals on US international relations. To this end we undertake consultations with major producing countries prior to implementation of the annual disposal program. I have briefly sketched some of the basic areas to be considered in approaching a decision on economic stockpiling. It seems abundantly clear that the thrust of future consideration must be to weigh the risks of shortages or market fluctuations against the costs of stockpiling. While some work has been carried out, a fully adequate and comprehensive balancing of costs and benefits in the widest sense remains to be done. The Department of State together with other agencies is continuing its efforts to sharpen the focus of such consideration and looks forward to the useful outcome of these hearings. Thank you. Chairman SULLIVAN. That was a good summary. You have answered a few of the things that I had down here to ask you about. I wanted to say that I have been most familiar with two imported commodities over the years, coffee and sugar. My interest in coffee imports dates back to 1954, when prices skyrocketed on the basis of a claimed shortage. Some time in the near future I'd like to be briefed by someone at State about what happened under the International Coffee Agreement that we had which was intended to help the producing countries as well as protect us as the largest importer. Mr. GREENWALD. We would be happy to submit an updating of the recent developments in coffee if you'd like. [Material submitted by Mr. Greenwald for the record follows:] INTERNATIONAL COFFEE AGREEMENT 1976 COFFEE IN WORLD TRADE Coffee is the most important export of the developing countries, next to petroleum. In 1974, total exports of coffee amounted to over $4 billion, all from developing countries. U.S. imports amounted $1.5 billion, 34 percent of world imports. COFFEE EXPORTERS 43 producing countries in Latin America, Africa, and Asia participated in the negotiations for the new Coffee Agreement. Brazil is the largest producer, with Colombia, the Ivory Coast, Angola, El Salvador, Guatemala, Mexico, Uganda, Indonesia, and the Cameroon included among the top ten producers. Burundi, Colombia, Ethiopia, Haiti, and Uganda rely on coffee for over 50 percent of their export earnings. Fifteen developing countries depend on coffee for over 25 percent of their export earnings. BACKGROUND In 1962 the United States joined the first International Coffee Agreement, designed to protect coffee producers from low prices and excessive production, and agreed to its renewal in 1968. It was extended in 1972 and again in 1975 with its economic provisions suspended in order to provide statistical data and a forum for new negotiations. WORLD COFFEE MARKET IN 1976 The world coffee market today is considerably different from the one in 1962. Stocks have been depleted; prices are at record highs. The market has yet to recover from a major frost in Brazil last July. Prices remained relatively depressed during the first half of 1975, with coffee stocks at relative lows, and rose sharply after reports of widespread damage to the Brazilian crop. Civil war in Angola, floods in Colombia, and the earthquake in Guatemala also contributed to uncertainties in the coffee market. Brazilian coffee production is not expected to be restored-nor coffee prices to decline-until well into 1978. The new Coffee Agreement seeks: PURPOSE To help provide a stable flow of coffee onto the market. To encourage producing countries to restore adequate production levels. To avoid fixed price objectives and prevent prices from rising above long-term market trends. HOW THE AGREEMENT WORKS Export quotas are the main instrument for stabilizing prices at reasonable levels whenever supplies are in surplus. The Agreement will come into effect with quotas in suspense. Due to current supply tightness, quotas will not be imposed until 1979 at the earliest when drops in prices should signal a return to normal supplies. Quotas will be suspended whenever prices rise by 15 percent above previous or agreed levels. Price ranges at which quotas will be triggered will be set by decision of a two-thirds majority of consumers and producers voting separately in the International Coffee Council. Quotas will be distributed among producers according to a formula which includes their export performance during the first two years of the Agreement. The Agreement will remain in force for six years. However, the United States and other members have the option to withdraw after the third year. CONSUMER PROTECTION The Coffee Agreement will protect our interests as consumers during the next three or four years when coffee prices will be high due to a severe frost in Brazil last July. Producers are encouraged to ship everything they have during the next few years of high prices and tight supplies. When production is restored, producers are rewarded for building up stocks as a hedge against future disruptions in supply. Producing countries have an incentive to declare anticipated shortfalls in exports in time to allow their redistribution to producers who have surplus coffee to ship. There are no fixed prices and no quotas in effect when the Agreement enters into force. Quotas will be suspended automatically whenever prices rise sharply. The net effect of these provisions and incentives is to encourage lower prices not by trying to control market forces but by influencing them. NEXT STEPS The President authorized signature of the Agreement after an intensive interagency review concluded it contains significant improvements over previous Coffee Agreements. It will be submitted shortly to the Senate for advice and consent to ratification, then to both Houses of Congress with a request for implementing legislation. The Agreement is scheduled to come into effect October 1, 1976. Chairman SULLIVAN. What I would like to do-and when that bell rings again I'm going to have to take another 5, 6, or 7 minutes to get over to the House and back. I know what the vote is on. Mr. Greenwald, may I say first, that your answers may be brief. If we feel an answer should be extended we will ask you to elaborate. But otherwise you can expand on your answers when you get the transcript, to bring out more clearly some of the things that would help us in our study. Our minds are certainly open on what is the thing to do, and the more facts we have, the better able we are to study and try to come up with some conclusions. Yesterday we heard testimony that buffer stocks, such as created under the International Tin Agreement, have failed in the past. What advantages are there for the United States in signing a tin agreement now? Isn't this likely to become another indication of a producerconsumer agreement that is honored only so long as it benefits the producers? Or are we wrong in our assumption of that? Mr. GREENWALD. I'm not sure that you can say the agreement failed. What the agreement, which includes a buffer stock feature, is designed to do is to try to keep the price fluctuations within a certain range. Now it hasn't succeeded completely. In most cases it's gone up through the top rather than drop through the floor, but it has had some suc cess in moderating the large fluctuations in prices. Some people would argue that in order to do it more successfully you'd need a much larger buffer stock. Someone even suggested we should combine our stockpile with the international buffer stock, but that's not the U.S. Government position. We joined the agreement because it is an agreement that has worked relatively well compared to some of the others that have been much less successful and also for foreign policy reasons. This is an agreement that has been in existence for a long time. It has worked fairly well, and we have in fact been able to continue our stockpile disposals without any disruption. We always consulted informally with the Tin Council and we tried to coordinate any of our activities which would affect them, so that in a sense, although we were not officially parties to the agreement, we really acted as though we were. What we have really done is suggest that it's helpful to show our good faith in this case-by-case approach by actually joining the agreement and sending it to the Senate for ratification. Chairman SULLIVAN. You say very little in your statement about the actual threats of commodity shortages from international causes. I think you could answer briefly on this and then expand because probably the answer will need some expansion. Give us the State Department's current assessment of this situation. For example, what about chrome? What's the latest assessment of the situation in Rhodesia? And I think, since that's currently in discussion, you may answer that within the next 10 days from this hearing. Mr. GREENWALD. All right. [Material submitted for the record by Mr. Greenwald follows:] THE UNITED STATES CHROMIUM REQUIREMENTS I. CHROMIUM Chromium is a hard, lustrous, brittle metallic element which, because of its corrosion resistance, high melting point and other properties, is particularly important in the industrial world. Principal uses in the U.S. are in the iron and steel industry which consumes 60% of U.S. chromium imports for the manufacture of stainless steel and other alloy products; the chemical industry which consumes 20% of total chromium imports in steel plating, manufacture of paints and leather tanning; and the refractory industry which uses the balance of total U.S. consumption for the manufacture of high temperature refractory bricks for the steel and cement industries. Chromium is produced from chromite, an ore which is divided into three categories for industrial purposes. Metallurgical grade chromite is a high quality ore containing more than 46% chromium; 60% of total U.S. imports are of metallurgical grade chromite for the iron and steel industry. Chemical grade chromite is ore containing 40-45% chromium. In 1975, 20% of U.S. imports were of this grade. Refractory grade chromite is any ore that contains less than 40% chromium and in 1975 accounted for 20% of total U.S. imports. II. WORLD PRODUCTION AND RESERVES Due to the world-wide recession in 1975, production of chromite decreased from 7,931,000 to 7,350,000 short tons, a decrease of approximately 6%. According to U.S. Bureau of Mines estimates, general reserves of mineable chromite ore of all grades total 1.9 billion tons of which 64 percent is located in South Africa and 32 percent in Rhodesia. For metallurgical grade chromite ore, the grade most often used in the production of stainless and specialty steels, Rhodesia possesses 67 percent of the world's known reserves; South Africa, 22 percent; the U.S.S.R. and other communist countries, 6 percent; and Turkey, 2 percent. All other sources have a total of less than 3 percent. Based on present estimates, there are sufficient known reserves of metallurgical grade chromite to last for about 125 years at the present rate of consumption. The known reserves of chemical and refractory grade chromite are over one billion tons, sufficient for the next 350 years at present rates of consumption. It is noteworthy that recent improvements in steel smelting (the AOD process) have enabled industry to utilize chemical grade chromite in steel making. Further developments in this area could result in effectively expanding the chromite resources available to the metals industry. III. U.S. IMPORTS OF CHROMITE AND FERROCHROMIUM While the United States has sizeable deposits of low grade chromite, these deposits cannot be exploited economically at present market prices. Thus, the U.S. is now totally dependent on imports for its chromium requirements. Traditionally, the U.S. iron and steel industry imported chromite and processed it domestically into ferrochromium containing 35–70% chromium content. In recent years, however, the U.S. has been importing increasing amounts of processed ferrochromium, averaging about 35% of total domestic requirements from 1972 to 1974. In 1975, imports of ferrochromium jumped dramatically to 93% of domestic consumption. In 1975 the United States imported a total of 1,252,000 short tons of chromite ore. Imports were divided among the following sources: 1 Consist almost entirely of refractory grade chromite. Of which 103,000 short tons was of metallurgical grade equal to 17 percent of total imports of metallurgical grade. 75-381-76- 6 |