more of her materials for internal use. How is this Canadian policy affecting the availability of materials here in the United States?

Mr. GREENWALD. Well, as far as I know, it has had an impact mainly in the petroleum and gas field. That's where there have been restrictions on exports and differential prices applied for exports and Canadian domestic consumption. I'm not aware of any other difficulties that have arisen with respect to other raw materials, but I'm not absolutely sure about that.

The ones that-in the 4 months that I have been back in Washington-have come to my attention have been gas and petroleum, and we have had consultations with the Canadians in an effort to try to ameliorate the effects of Canadian policies on our own economy and

our own consumers.

[Additional material submitted for the record by Mr. Greenwald follows:1

CANADIAN RESTRICTIONS ON EXPORTS OF OIL AND GAS TO THE UNITED STATES

GAS

Price.-Approximately one trillion cubic feet of natural gas (4.5 percent of total U.S. consumption and 45 percent of Canada's current gas production) is imported from Canada annually under long term contracts, many of which do not terminate until the late 1980's or 1990's. Consumption of Canadian natural gas is concentrated in 12 states, principally in the tier of border states, and Northern California.

The average export price of Canadian gas has risen rapidly from $.58 per thousand cubic feet in 1974 to $1.60 on November 1, 1975. In June of this year the government of Canada announced its intention to increase this price further, to $1.94 on January 1, 1977, with an interim increase to $1.80 on September 10, 1976. The government of Canada claimed that the $1.60 price was the fair "commodity value" of gas (the equivalent value on a BTU basis with competing fuels in the U.S. market).

The most recently announced price increases are justified on the basis of an equivalency with "replacement fuels" in the Canadian market. The replacement fuel in this case is imported oil delivered to Montreal. In the future, as suggested in a report by the British Columbia Energy Commission, there is some possibility that Canada will claim additional price increases are needed to compensate for the replacement cost of gas. This may mean that Canada will insist on a price equivalent to either Arctic gas, synthetic gas or liquefied natural gas imports, all of which are extremely expensive.

Supply. Another serious problem with imports of Canadian natural gas is the continuing possibility of curtailments. The U.S. is and has been considered a residual market for Canadian natural gas exports. Canadian law requires gas shipments to the U.S. to be "surplus to domestic needs". The recent upsurge in exploratory activity, resulting from the improved financial return to producers, and Canada's decision to increase domestic gas prices should improve the respective supply and demand situations. The long term prospects are not encouraging, however, and while the government of Canada has assured the U.S. of full consultations in advance of any curtailments, it is likely that U.S. consumers will have to bear the brunt of the expected Canadian shortfalls by the end of this decade.

OIL

Supply. Since the 1973 oil embargo Canada has re-examined its energy policy and resources base. In 1974 it announced a decision to limit crude exports to the United States and to phase them out gradually. Exports have dropped from a high of 1.3 million barrels per day (b/d) in 1973 to about 510,000 (b/d) in the first half of this year. This figure is expected to decline further as the effect of the newly opened Sarnia-Montreal pipeline is felt.

The phase-out of exports has been dealt with through the Federal Energy Administration's Preferential Allocation Program. This program insures that

U.S. refineries in the northern tier states dependent upon Canadian crude will have priority access to the remaining Canadian crude exported to the United States. Swapping arrangements have also been used. The Canadians, however, will only accept U.S. domestic crudes in swap and this poses obvious problems for the future.

Chairman SULLIVAN. Let me ask you about your consultations with major producing nations on disposals from the U.S. strategic stockpile. Have these consultations had any effect in reducing what you called an irritant in U.S. relations with producing nations over the past decade?

Mr. GREENWALD. We have had consultations with producing countries that have been interested in the disposals. In some cases we have been able to explain what it is that we were doing and how we propose to do it. That has removed a great deal of the concern that the action would have some disruptive impact on the market. In other cases, by making slight modifications in the program, in the timing of the disposal, et cetera, it has been possible to remove some of the difficulties or irritants, as you call them, in our relations with the developing countries. However, we have our own objectives and we haven't changed the programs basically.

On the other hand, legislation makes it clear that disposals should be carried out in such a way as not to disrupt either the national or international markets and that has been the policy of the people who have been responsible for the disposals.

Chairman SULLIVAN. On a related matter-would you say that the advice of the State Department on the international effect of strategic stockpile disposals has had any appreciable influence on these disposals? In other words, does the Department of State have any real voice in stockpile policy or disposals?

Mr. GREENWALD. I think there have been a number of cases where our consultations and interdepartmental discussions have resulted in modifications of programs which have resulted in less serious impact on foreign policy and on international markets. We feel that we have had some influence through the interdepartmental discussions.

Chairman SULLIVAN. I have an issue I want to go back to, Mr. Greenwald. The State Department is properly concerned about the impact of our economic policies on other governments, because you're the people who have to explain to foreign governments why we have done something or other which may adversely affect their economies. Sometimes we in the Congress think you carry this concern much

too far.

You speak of the "irritant" in our foreign relations when we release materials from stockpiles because this depresses world markets, but isn't it true that the only time we have released materials from the stockpile has been when world markets have been chaotic and prices have gone sky high? At what point do we worry more about the inflationary impact on our own people of these soaring prices rather than about their effect on other governments when we are trying to bring excessive prices down?

Mr. GREENWALD. Well, Madam Chairman, any decision made by the Government that affects the domestic economy and domestic consumers, as well as the international markets and foreign governments or foreign producers, has to be arrived at through a fine balance be

tween various concerns. We in the State Department feel that our recommendations are consistent with our overall national interest and we are not in any way neglecting our domestic concerns, including inflation, or the need for materials or the need for reasonable prices. Most of our suggestions have had to do with-I won't call them marginal--changes in the techniques or the timing and amount of the disposal action which doesn't necessarily go to the heart of it, but which has helped prevent undue disruption.

Certainly any substantial disposal is going to have an effect on the international market and affect the price. If the prices are what we in the Government as a whole consider unreasonable, we certainly are not going to stand in the way of the disposal.

Let me give you an example, which isn't one of the critical ones. that's in here, that has come up since I have been in office. We have a stockpile of wattle. It's a dye used in the tanning of shoe leather. This is in our stockpile and there's a proposal for disposal. The government of one of the countries that produces this came in and said it would be unfortunate if we disposed of such and such an amount of the stockpile at such and such a time because it would disrupt the markets and cause a decline in prices.

We took a look at the price developments and, although the demand had decreased, the price was still up, and-this is the State Department view-we felt that perhaps there had been some price rigging and that the market hadn't reflected the change in supply and demand. We concluded that it would be in the overall interest of the United States as well as the international interest to go ahead with the disposal. For that reason we didn't interpose any objection and explained to our visitors that, after looking at the market developments, it looked to us as though perhaps somebody was manipulating the price and that the disposal might have a salutary effect rather than a disruptive one.

Chairman SULLIVAN. You mean the State Department really does those things?

Mr. GREENWALD. Yes.

Chairman SULLIVAN. I'm glad to hear it. I have been using coffee as an example in these hearings, although I know it's not the kind of commodity anyone suggests that we stockpile. But as I told you, I had some experience with coffee prices as chairman of the House Subcommittee on Consumer Affairs over a dozen years, and, in fact, going back to 1954, long before I became chairman. Until the most recent skyrocketing of coffee prices, didn't Brazil always tend to regard the 1954 prices as "normal" and anything below that as "depressed," even though the 1954 coffee prices were as abnormal as they are this year? The tremendous increases in coffee prices in 1954 got me interested in this subject during my first term in Congress.

Mr. GREENWALD. Well, I'm afraid I don't have your long experience in the coffee agreement and I really don't know enough about the price trends.

Chairman SULLIVAN. This is something that I think the State Department should answer for us, because it gives us an example of the kind of commodity problems we are talking about here. We did participate in the International Coffee Agreement because it was supposed

to help both producers and consumers. In view of the fiasco over the last International Coffee Agreement, which petered out when the producers refused to supply sufficient coffee to stabilize coffee prices, why are we now proposing U.S. adherence to a new coffee agreement, and one which doesn't even pretend to set or maintain a ceiling on coffee prices? I think that should be included in the answer that you get for us.

Mr. GREENWALD. If I could just answer briefly in general terms about the present coffee agreement and the present developments. The real problem, as I'm sure you know, is the frost in Brazil. That's what's affected the price much more than the agreement or negotiations or Government intervention.

Chairman SULLIVAN. That was the same reason given in 1954 and again in 1964.

Mr. GREENWALD. And that's the reason for the skyrocketing prices in this case. I think our assessment is that the current agreement won't have any real economic impact for the 3 years of its life, in practice: our hope, however, is that with the agreement it will give some sort of assurance or encouragement in Brazil and in other countries to increase production so that in the longer run we hope it will serve to increase the supply and hopefully bring prices down.

Chairman SULLIVAN. This is exactly the reason I voted for the first agreement, to the dismay of some of my own constitutents as well as to the coffee drinkers around this country. We thought, since we're the largest importer and we import nearly all of our coffee, that if we could help the producing nations to stabilize their prices, or at least let them know what our needs were going to be through some sort of quota agreement, we could have them produce what they knew could sell and not have an excess, which could not be sold, depress the price. The whole thing started because in 1954 coffee just soared for no valid reason. We had large inventories on hand. A study was made which found that all the charges that I had made in January and February of 1954 were true. A 6-month study, made by the Federal Trade Commission, established that it was based on market manipulation, not crop damage. They had a bad frost in Brazil and they had a little fire, but it was not anywhere near as bad as Brazil had claimed, and it was the next crop which was affected, not the current one. Besides, we had large inventories. There was absolutely no justification for the prices except the pressure to get as much as the market would bear, with a tremendous amount of insider market manipulation. Immediately after the FTC study was made public, prices came down. There was a similar scare in 1964. Then they started working on a coffee agreement which we joined to try to stabilize supply and demand. It worked effectively for a number of years until, again, they began to say, well, "we want more." Then they refused to sell as much as they should have in order to try to boost prices to the 1954 "norm." The agreement collapsed as a result. Now prices are even higher than 1954.

We have been hearing about the inordinate costs, running into billions, of trying to set up economic stockpiles. Maybe this would be a mistake. But isn't it money that we could confidently expect to get back, just as we hope to get back the $2 billion just given to Great Britain to stabilize the pound? Now this may be something you want to think about before answering.

Mr. GREENWALD. I want to think about it, but I'd like to say I'd draw a distinction between the financial support for Britain and for a stockpile operation. Just very briefly, this agreement with the United Kingdom is what's called swaps by the Federal Reserve Bank and the Treasury. Unless the country is going to go into bankruptcy, swaps are only for 30 days and can be turned over for another 30 days before Dr. Arthur Burns starts to foreclose. I think it's a somewhat different situation from the question of purchase and disposal of stockpiles. I'm not sure it's a parallel.

Chairman SULLIVAN. I agree that there's a great difference there, but with the witnesses yesterday, we brought out the fact that it depends upon how you buy and how you sell as to whether or not your money comes back.

Mr. GREENWALD. Agreed.

Chairman SULLIVAN. But again, these are the things that we have got to know and weigh in considering the issue.

Well, thank you for your answers, and when you get the transcript if you will answer the additional questions, I will appreciate it. Senator Williams has indicated he will also have some to supply. Thank you very much.

Our next witness is Maj. Gen. Leslie Bray, Jr., Director of the Federal Preparedness Agency. We are glad to have you here, General Bray.

General BRAY. Thank you very much, Madam Chairman.

Chairman SULLIVAN. You know the rules of our hearing, 15 minutes for your oral presentation and your full statement will be printed in the record.

STATEMENT OF MAJ. GEN. LESLIE W. BRAY, JR., DIRECTOR, FEDERAL PREPAREDNESS AGENCY

General BRAY. Since my statement is already in general summary form, I will go through it quickly because I think it does cover the salient points I would like to make.

Chairman SULLIVAN. That's fine.

General BRAY. I certainly do appreciate the opportunity to meet with you this morning to discuss briefly my strategic and critical materials stockpile responsibilities and to offer a few general observations on the complex issue of economic stockpiling. The origins of the strategic and critical materials stockpile precede World War II. The basic legislation, passed in June 1939 and substantially amended in 1946, is known as the Strategic and Critical Materials Stock Piling Act. The act provides for the acquisition and retention of stocks of materials and encourages materials conservation measures and the development of domestic sources of supply to decrease and prevent dangerous and costly dependence upon foreign sources to meet the needs of the common defense in national emergencies. I want to talk later about how these words have been interpreted over the years: "the needs of the common defense." In practice, the act has been used largely to build a stockpile to deal with anticipated mobilization shortages and has not generally been used to establish conservation programs or to develop domestic sources. Actions to develop domestic sources of supply have, for the most part, been under the aegis of