The Secretary has very kindly agreed to appear and is here today. Senator MURRAY. Mr. Chairman, I would like to be excused. They are waiting for me in a meeting in the Senate. Mr. ENGLE. We know you are busy over there. It was very nice of you to come over. Senator MURRAY. I am very sorry I cannot remain to hear the testimony of the Secretary of the Interior, but I promise you I will be careful to read it in the record. Mr. ENGLE. Thank you for coming, Senator Murray. STATEMENT OF HON. J. A. KRUG, SECRETARY OF THE INTERIOR, WASHINGTON, D. C. Secretary KRUG. Mr. Chairman and members of the committee, I appreciate this opportunity to appear here and discuss this important legislation with you. I do not have a prepared statement. I did submit yesterday or the day before the Department's report with reference to these pending bills. I am not sure that members of the committee have had a chance to get copies of that report yet, and if you think it helpful, I would read it and then make a few observations. Then, of course, I will submit to any questions which you might have. If that is satisfactory to the committee, I will proceed in that fashion. Mr. ENGLE. May I suggest that you do that, Mr. Secretary, because we have not had the opportunity of getting enough copies to make them available to the committee. Mr. KRUG. Before I read this report I want to clear up a few points. No. 1, and without any qualifications, we are in agreement with the principles that this committee has set forth in this important matter. We think everything possible must be done to stimulate domestic mining. We think everything possible must be done to speedily accumulate the necessary strategic stock pile. I can tell this committee that the Department of the Interior has always not only valued the stock piling by our own views as to the stock-piling objectives, but our views have been considerably higher than those of the other agencies of Government under the Stock Piling Act who are interested in those stock-piling objectives. Not only are our own views of objectives higher, but our views as to how much should come from domestic sources are considerably higher. We feel that this country will not be secure unless we have adequate stock piles, and that in securing those stock piles we can greatly strengthen our own domestic mining industry. I shall now read our report, dated April 6, 1949: Reference is made to your request for reports on H. R. 976 and H. R. 1239, bills to stimulate the exploration, production, and conservation of strategic and critical ores, metals, and minerals and for the establishment within the Department of the Interior of a Mine Incentive Payments Division, and for other purposes. You have also requested reports on H. R. 2031 and H. R. 2406, bills to stimulate exploration, development, mining, production, and conservation of strategic and critical minerals and metals within the United States and its Territories; to estab 92987-49-ser. 14- -16 lish an Office of National Minerals Development, Production, and Conservation within the Department of the Interior; and for other purposes. Inasmuch as all of these bills deal with the same subject matter and have been treated as a group at the hearings held by the subcommittee on mines and mining of your committee, this letter is being submitted as a combination report on all four of them. Each of the foregoing bills proposes to increase the production of copper, lead, zinc, and other minerals by means of direct-production subsidies payable through some form of premium-price plan. Their underlying purpose is evidently to stimulate the production of minerals in short supply or needed for stock piling or national defense. While this purpose is one that should be translated into legislation, I do not believe that the types of subsidy procedures outlined in the pending bills constitute the best method for stimulating mineral production. The shortcomings of the old premium-price plan for copper, lead, and zinc have been pointed out by the President in his memorandum of August 8, 1947, withholding approval from H. R. 1662 of the Eightieth Congress, a bill which would have extended that plan for two additional years. To a varying degree, all of the pending bills embody provisions that would be unworkable under present economic conditions, or that might be construed as requiring the payment of subsidies without adequate return to the people of the Nation in the way of increased mineral production. The experience of the mineral industry has not indicated that the over-all production of minerals in general, or of any particular mineral or group of minerals, would be increased by the methods proposed by these bills. This experience indicates rather that the net result would be apt to be: First, increased profit to a few producers who are in a favorable position to receive the benefits provided; second, some transfer of production from low cost to high cost or marginal operations; and, third, a total production with respect to any mineral involved no greater, and possibly less, than would otherwise have been obtained. The failure of the present high prices for minerals to stimulate full production is clear evidence that over-all production subsidies would not automatically have the effect of substantially increasing production. The current deficiencies in mineral production are due primarily to the fewness of the new discoveries that have been made in recent years, and this, in turn, has resulted from the paucity of exploration and the discovery of new workable ore bodies. Production can, for the most part, take care of itself, without complicated and difficult schemes for direct subsidies, if the sources of production are maintained by suitable exploration and new discoveries. In order to meet the very real need for a financial stimulus to mineral exploration, I recommend that consideration be given to amending the proposals now before your committee so as to establish a system of incentive payments for exploration work by private industry. Such a system would avoid many of the difficulties inherent in a revival of the old premium-price plan. It should be framed on the principle of providing for exploration contracts whereby the United States would agree to pay a definite portion, not exceeding one-half, of the direct costs of any exploration project which met suitable minimum standards of feasibility and public necessity, and which was proposed to be undertaken by any domestic mine operator. Enclosed is a draft of a bill that incorporates the basic framework of the exploratory-payments system here recommended. I am convinced that arrangements of this type need to be put into effect if the mineral industry of this country is to be a sound and vigorous industry run by private enterprise. While features which would provide production and other incentives for mining are included in H. R. 2756, now pending before the House Banking and Currency Committee, this Department would have no objection to including similar authority for long-term contracts with minerals producers in any other bill or in an expansion of our proposed bill on exploration subsidies. Since a detailed presentation of the views of this Department on the subject of mineral production assistance to industry has already been made by Assistant Secretary Davidson and other representatives of this Department at the hearings before the Subcommittee on Mines and Mining, it seems unnecessary to duplicate in this letter the information and comments so made available to your committee. The Bureau of the Budget has advised that the presentation to the Congress of the draft of bill accompanying this report is in accord with the program of the President. (The draft of bill referred to is as follows:) DRAFT No. 8 A BILL To stimulate exploration for strategic and essential metals and minerals, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That, in order to promote the flow of commerce among the several States and with foreign nations, and to help remove critical shortages of certain strategic and essential minerals and metals which impede the execution of programs essential to the national security and to the carrying out of the foreign policy of the United States, the general welfare and the maintenance of economic stability and maximum production and employment, it is necessary to stimulate increased exploration within the United States and its Territories and island possessions for certain strategic and essential metals and minerals. SEC. 2. As used in this act: (a) “Eligible explorations" means exploration in the United States or its Territories or island possessions, at any location approved by the Secretary, for unknown or undeveloped sources of metals or minerals to be designated by the Secretary, whether conducted from the surface or underground, by surface trenching, core or churn drilling, tunnels, raises, winzes, or shafts, including recognized and sound procedures for obtaining pertinent geological information, and including metallurgical research on processes for the production of such minerals: Provided, That the Secretary shall not designate hereunder any metal or mineral unless it is included among those of the materials designated as strategic or critical pursuant to section 2 (a) of the Strategic and Critical Materials Stock Piling Act (60 Stat. 596) for which the Munitions Board deems further stock piling to be the only means of insuring an adequate supply for an emergency, or unless it has been designated by the President as an essential metal or mineral with respect to which such a critical shortage exists as to affect, or threaten to affect, adversely the domestic economy (including the maintenance of maximum production and employment), free competitive enterprise and particularly small business, the general welfare, the national security, or the carrying out of the foreign policy of the United States. (b) "Costs of exploration" means the costs directly attributable to eligible exploration including rental or depreciation of equipment used in exploration, direct labor, and the supervision thereof, and materials and supplies actually used in the exploration less the salvage value thereof, but excluding capital outlays and all general overhead and administrative expenses. (c) "Producer" means person, firm, corporation, or association by whom or for whose account and interest eligible exploration is to be performed. (d) "Secretary" means the Secretary of the Interior. SEC. 3. (a) Upon the application of any producer for payments for eligible exploration, the Secretary may enter into a contract in behalf of the United States for payments to such producer which shall be in an amount not to exceed 50 percent of the producer's costs of exploration within a period not longer than 3 years following the date of the contract. (b) The amount payable under this section to any one producer on account of exploration conducted in any fiscal year of the Government shall not exceed $500,000. (c) Payments for eligible exploration shall be made periodically, after the performance of and payment for the exploration work by the producer, upon suitable vouchers setting forth in detail the costs of exploration upon which the payments are based. (d) The Secretary may renew, or extend the term of, or modify by agreement contracts for payments for eligible exploration as he deems desirable to carry out the objectives of this Act. SEC. 4. (a) The Secretary may provide for the performance of any of his functions under this Act by such personnel, bureaus, or other agencies of the Department of the Interior as he shall designate. (b) The Secretary may promulgate regulations to govern the carrying out of this Act. (c) There shall be transferred to the Department of the Interior such data, records, and equipment of the Department of Commerce as relate primarily to the premium price plan for copper, lead, and zinc. (d) No new contracts under this Act shall be entered into after June 30, 1952, and no contract for exploration payments shall be made for a term extending beyond June 30, 1953. (e) There are hereby authorized to be appropriated $20,000,000 per annum to carry out this Act. SEC. 5. The Secretary of the Interior shall make an annual report to the Congress, wherein 3 months after the end of each calendar year, on the operations under this Act. Such reports shall include information on all transactions or commitments entered into during the previous calendar year, stating the person, amount, and purpose involved in each such transaction or commitment, except to the extent that the Secretary determines in specific instances that disclosure of such information would be contrary to the interest of the national security. SEC. 6. This Act may be cited as the "Minerals Exploration Act of 1949." Secretary KRUG. That, Mr. Chairman, is our report on the pending bill. At prior hearings, and I believe at prior meetings with the chairman and other members of this committee, the differences between us, it seems to me, have been boiled down to "How are we going to accomplish the desired result?" From what I know of the attitude of the committee, I think we all agree on the question of giving some kind of stimulus to exploration, but we have disagreed as to how best to stimulate production. The members of the committee who have talked to me seem to favor rather strongly the mandatory across-the-board stimulus provided in the premium-price-plan formula. It had been my strong feeling, and I believe the feeling of the President, that a better job could be done in stimulating production and building up the stock pile by making long-term contracts with the producers who could add to the production of these metals. Of course, it would be with primary consideration to that area re ferred to by Senator Murray, which is so extremely important in mining, and that is the small explorer and the small producer. The committee has expressed concern that that kind of a selective approach, with discretion and complete discretion in any member of the administration, might lead to abuses and might lead to a favored few getting the contracts and others who qualified equally not getting the contracts. At your suggestion, Mr. Chairman, our people have attempted to work out your thought of using standards in the bill, with anyone meeting those standards getting such a contract without any discretion on the part of the administration. Such a bill has been prepared at your request, and I am ready to submit that to the committee today. Mr. Slaughter and Dr. Boyd, who prepared it, are here, and would be glad to explain it if this is the time for that. I have not had an opportunity to discuss that proposal with the Bureau of the Budget or with the President, and I cannot tell you at this time whether that kind of a compromise, which would, in effect, put the standards in the legislation and would make it mandatory to give long-term contracts to producers who met those standards, would have the approval of the Bureau of the Budget or the President. That bill, however, is made available at your request and for the consideration of the committee. With whatever modifications your com mittee may care to make in it, we would be pleased to report on it when you are ready for it. Mr. ENGLE. Mr. Secretary, our basic concern in the selective contracting system, which is envisioned in H. R. 2756, which we call the Spence bill, is not so much the favoritism which might result. We are not directing any greater criticism of that feature against your Department than we would direct against any other department. Secretary KRUG. I appreciate that. Mr. ENGLE. In other words, we take the position that it is inevitable and that we are not reflecting on your Department or picking your Department out as a particular agency in which that would occur with any more frequency than it would occur anywhere else in Government. Secretary KRUG. I tried to make my statement apply to the entire administration. Mr. ENGLE. We are not picking out this administration, either. We think that this administration is as good as any administration, and a good deal better than most. However, our point is that in that kind of a contracting system favoritism occurs. It is inevitable. However, that is not our basic objection. Our basic objection to the selective contracting system is that so far as the small operator is concerned, he does not have the facilities for making the contacts and getting himself a contract. We think that the fellow who is out on a pinnacle in Colorado, for instance, would have an extremely difficult time to make any practical utilization of that kind of a program. That is the reason we wanted a measure which was set up with standards in it so that whoever came within those standards, within a limited amount of administrative discretion-and we think it should exist-would be entitled to receive a contract. I asked the question of Mr. Davidson, "If you have a selective contracting bill with adequate standards written into it, what is the difference between that and an application for a premium under a premium-price program with standards established?" In one instance you make an application for a premium quota which, when granted, is a contract with the Government; and in the other you make an application for a contract under a piece of legislation which sets up standards, and when the offer to meet those standards is met with an acceptance by the Government, you have a contract. I am particularly interested in the last sentence of the first paragraph of page 2 of your statement in which you say: The failure of the present high prices for minerals to stimulate full production is clear evidence that over-all production subsidies would not automatically have the effect of substantially increasing production. The committee has never disagreed, so far as I know, with that statement. It is very clear to us that we have the highest mineral prices in history. What we think prevents any substantial development of these marginal deposits and the increase in production is the instability of the market. In other words, if we set up legislation which gives stability to the market, even at a lower price than that which exists in the open market today, in some instances, those people who want to go into mining would do so and would feel secure in doing so, if their |