Mr. WHITE. Well, it is appropriated here as dollars and you exchange it into local currency, is that right? Mr. JUST. ECA appropriated dollars spent for recovery items for the participating countries become local currency through the over-all ECA grant mechanism, and we in turn use 5 percent of such local currency for strategic materials and other local currency expenditures of the United States. Mr. WHITE. We propose to find out something of the policies and the expenditures and disbursements of this money that is being handled by your concern. My question is directed to that end. Mr. JUST. I am doing my best to answer you as frankly as I possibly can, sir. Mr. WHITE. Now, sir, I would like to know, in your going into these primitive areas, these foreign countries, to obtain strategic metals with funds that have been appropriated in dollars by the Congress of the United States. You tried to confuse me by telling me it is foreign currency. If it is foreign currency, dollars are exchanged for it, is that correct? Mr. JUST. In effect; yes. Mr. WHITE. There are two funds. You are dealing with money that is granted to these governments and you are dealing with some money that has been set aside in the amount of 5 percent; if I am wrong or misstating the fact going into this record, you correct me; you are dealing with this 5 percent money that is being exchanged into foreign currency, but in the original money that is appropriated, it was dollars; was it not? Mr. JUST. That is right. Mr. WHITE. How is it exchanged to foreign currency? That is what I would like to know.* Mr. JUST. The conversion into foreign currency has nothing to do with strategic materials. It is part of the general grant assistance given by ECA to these countries. In a typical grant item such as, for example, wheat, going, let us say, to France Mr. WHITE. That establishes the request. That is a credit against this strategic metal fund as I understand it. Mr. JUST. If you will permit me to explain the mechanism. Mr. ENGLE. Will the gentleman yield for just a minute? I would like to call the gentleman's attention to the fact the House is in session. We are not allowed to sit while the House is in session. Mr. WHITE. I will be willing to terminate my interrogation at this point, but I think the fact that has been developed here of taxpayer's money going into these foreign countries as a grant to rehabilitate these countries and the method of securing this strategic metals should be laid out in a very plain concise way so that everybody can understand it. If he would explain the mechanics of the thing, I would appreciate it. I will withdraw my question and we will terminate the hearing, Mr. Chairman. 4 SUBCOMMITTEE NOTE.-See p. 45 for more detailed explanation of the question as subsequently submitted by Mr. Just. Mr. ENGLE. I think Mr. Aspinall has one question to ask. Mr. ASPINALL. I wonder if it would be appropriate to ask the witness to give to the committee samples of these contracts and let the chairman of the committee do whatever he desires to do to write them into the record. Mr. ENGLE. I think that would be all right. Mr. JUST. Some of this material, Congressman, is classified. Mr. ENGLE. Can you give us a blank contract as illustrative of the type you used? Mr. JUST. Yes. Mr. ENGLE. I think, then, Mr. Just, if you care to submit that answer to the question which Mr. White has raised for the record, we would be glad to have it. (The information referred to is as follows:) ANSWER TO QUESTION ASKED OF MR. EVAN JUST, OF THE ECONOMIC COOPERATION ADMINISTRATION, BY CONGRESSMAN WHITE AT HEARING ON FEBRUARY 17, 1949, IN THE SUBCOMMITTEE ON MINES AND MINING OF THE COMMITTEE ON PUBLIC LANDS OF THE HOUSE OF REPRESENTATIVES QUESTION Mr. WHITE. There are two funds. You are dealing with money that is granted to these governments and you are dealing with some money that has been set aside in the amount of 5 percent; if I am wrong or misstating the fact going into this record, you correct me; you are dealing with this 5 percent money that is being exchanged into foreign currency, but in the original money that is appropriated, it was dollars, was it not? Mr. JUST. That is right. Mr. WHITE. How is it exchanged to foreign currency? That is what I would like to know. ANSWER Appropriated dollars are allotted by ECA on its books to the participating countries for financing recovery items to be furnished to those countries on a grant basis. This does not mean the dollars are paid over to the participating countries. The following illustration will show how the participating countries get the benefit of the ECA dollar allotments. A buyer in France contacts a seller in the United States and arranges for the sale to the French buyer of an essential recovery item, such as food. If this transaction is approved by ECA, ECA issues a procurement authorization to the French Government and the French Government, in turn, authorizes the buyer to proceed with the transaction. When the goods are delivered by the seller to the buyer, the seller in the United States will apply to ECA in the United States for reimbursement in dollars of the sale price and will obtain direct reimbursement if his documentation is satisfactory, out of the ECA dollars allotted to the recovery program for France. The French Government requires the buyer to pay local currency (francs) for the goods to the French Government and that Government, in turn, places in a special account in a French bank a deposit in French currency in an amount commensurate with the amount of ECA dollars which have been paid by ECA to the seller. This deposit of local currency in an amount commensurate with the ECA dollars expended for this food item shipped to France, is required by section 115 (b) (6) of the Foreign Assistance Act of 1948 (Public Law 472, 80th Cong). Section 115 (b) (6) further provides that the local currency accounts established as set forth above by the participating governments shall be held and used within the country making the deposits, for such purposes as may be agreed between such country and the ECA Administrator in consultation with the National Advisory Council on International Monetary and Financial Problems and the ECA Public Advisory Board. Among the purposes specified in 115 (b) (6) for which such local currency may be used, is the following: 66* * ** for the stimulation of productive activitiy and the exploration for and development of new sources of wealth * * *"" servation of strategic and critical ores, metals, and minerals both for the national defense and a sound domestic economy. But we cannot subscribe to the theory that subsidization will accomplish the desired objective. We believe that it will be harmful to the country and the industry in the long run. Briefly, we believe that— (1) Peacetime subsidization of a large part of the nonferrous mining industry is at variance with the free enterprise that has given us the greatest mining industry in the world. It is a step toward nationalization of the industry, and will eventually prove disastrous to the future development of the mining industry and the country. (2) These bills would be impractical in operation, discriminatory in application, and a needless expenditure of more than a half billion dollars of taxpayers' money. Our reasons follow. PRODUCTION HAS INCREASED WITHOUT SUBSIDIES The wartime premium price plant for copper, lead, and zinc was terminated on June 30, 1947, with the President's veto of the Allen bill which would have extended the plan for two more years. A copy of the President's soundly conceived veto message, which is in many respects even more applicable today, is appended. The record since then shows that a free market is already accomplishing in a most efficient manner what it is proposed to try to accomplish by subsidies without any assurance of success. Lead mine production in the United States in December 1948 is estimated at 37,000 tons, the highest rate for any month since early 1944, compared with an average monthly rate of production of 32,000 tons in the first 6 months of 1947 under premiums. According to the United States Bureau of Mines, lead mine production in the United States in the first 6 months of 1947, which were the last 6 months in which premiums were paid, was 191,220 tons. This compares with 204,331 tons in the first 6 months of 1948 when no premiums were paid. It represents an increase of 7 percent. Moreover, the current estimated monthly rate of production is 17 percent greater than in June 1947, the last month in which premiums were paid. Thus the record clearly indicates that there is no need to use the taxpayer's money to stimulate the production of lead under the free market conditions prevailing today. PREMIUMS NOT PRODUCTIVE Furthermore, studies of the operations of the wartime premium price plan reveals that in a free market premiums for marginal producers could result in only negligible production increases and might even actually reduce production. In the wartime plan, 72 percent of all the mines which received premiums accounted for only 0.5 percent of production. 6 I might qualify that by saying that that includes some lessors who were working for large companies. 6 SUBCOMMITTEE NOTE.-For statistical data see the report prepared by the Bureau of Minos ^n Th Duomium Dice Plan-Its Cost and Its Results, which is included in the appendix as exhibit 9, p. 310. It is also probably true that if those mines had not received premiums their labor would have been employed at more productive mines and the over-all production per man in the industry would have been higher, resulting in greater total production. TOO MUCH DISCRETION FOR ONE MAN The bill, H. R. 976, provides for the establishment of a new Incentive Payments Division in the Interior Department under the administration of a Director. It only specifies in general terms to whom and under what conditions payments shall be made. How much shall be dispensed to copper, say, how much to lead, and how much to the dozens of strategic minerals and metals rests almost entirely with the discretion of one man, the Director, whose appointment would be made without any congressional approval, and to decide who shall receive payments, and how much. It is true that the bill establishes certain maxima above which the Director may not pay. But these maxima are not clearly established, the wording permitting several interpretations. Under our interpretation the limits would be unusually high, about 44 cents per pound for copper, 27.5 cents for zinc, and 2434 cents for lead. Yet the Director may exceed even these limits with the approval of the Munitions Board. In the absence of the Director, the bill provides that his duties shall be performed by an Assistant Director. The Director is required to be suitably qualified in administrative and mining experience. No such qualifications are required of the Assistant Director. We believe that vast power over an entire industry should not be given to any one man, particularly without more clearly defining the limits of his power and particularly when that man holds an appointive office not subject to congressional approval. He could be, and undoubtedly would be, subjected to terrific pressures which even the ablest and honest would find it difficult to resist. STOCK PILING The bill provides that "All additional ores, metals, and minerals, the production of which is wholly dependent upon production payments," shall be transferred to the national security stock pile. We have already stated our belief that little additional production of lead, if any, can result from the operation of this act. Consequently, we fail to see how the stock pile can benefit. Furthermore, lead totaling more than 15 percent of 1948 domestic mine production is being acquired for the stock pile in the current fiscal year by voluntary arrangements with producers. In addition, the Munitions Board has already the power to make long-term contracts with producers, at above market prices, if necessary, for metal for the stock pile. And it can, and does, go abroad for metal. The bill no place defines what is meant by "additional ores, metals, and minerals." This could be the cause of much confusion and disagreement, particularly in the case of mines now producing which might subsequently obtain payments under the bill. It would be absolutely essential to establish some definite yardstick by which "additional" tonnages could be clearly and unequivocally measured. For example, a mine might have produced 1,000 tons of lead in 1947, 500 tons in 1948, and 75 tons in 1949. Yet, by mining lower grade ore, it might have received payments in 1949. What would its additional tonnage be, or would there be any additional tonnage? Or it is quite possible that by mining lower grade ore and obtaining premium payments, a mine could maintain its profits and yet produce less metal because the bill requires that payments be made to guarantee a reasonable profit. Indeed, this would be the soundest policy for a mining company to adopt. Where would the country benefit from the production of less metal at higher cost to the taxpayers? NEW DIVISION EXPENSIVE AND UNNECESSARY As previously stated, a new division in the Interior Department is created by the act. We fully believe that the United States Bureau of Mines and the United States Geological Survey, which have had long and satisfactory experience dealing with the American mining industry, are competent to handle any governmental problems relating to mining. Creation of a new division is an unnecesary expense and would unduly complicate the operations of Government and of the mining industry. EXPLORATION PAYMENTS The bill provides for governmental grants to producers for exploration work. While it establishes a limit to such grants for mines in actual operation, it leaves completely to the discretion of the Director the amounts paid and projects which shall receive grants in other This places entirely too much responsibility in the hands of one man. Furthermore, such grants carry no obligation on the part of the recipient to use them efficiently. Certainly any governmental grants for exploration work should provide for at least equal financial participation by the recipient in order to assure that the money will be spent in the most productive and efficient manner. COST The entire cost of the program would be half billion dollars for payments, plus an unpredictable amount for administrative and engineering expenses. It is difficult to justify saddling the taxpayers of this country with such a burden when most metals are selling at prices high enough to assure profits to competent, efficient producers and when it is highly unlikely that the huge expenditures will result in any appreciable benefit to the country or its security. I would like to add there that the present price of lead is 2112 cents a pound as compared with a ceiling price during most of the war of 612 cents a pound. It is sometimes contended that only in this manner can low-grade ore reserves be saved from total loss to the country caused by closing mines, with subsequent caving and flooding. Most competent mining engineers will dispute this statement. It is rarely that an ore body is completely lost. In the history of mining many mines have closed and again opened as economic and technologic conditions changed. |