STOCKPILE AND ACCESSIBILITY OF STRATEGIC AND CRITICAL MATERIALS TO THE UNITED STATES IN TIME OF WAR TUESDAY, OCTOBER 20, 1953 UNITED STATES SENATE, SUBCOMMITTEE ON OF THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, Washington, D. C. The subcommittee met, pursuant to call, at 2 p. m., in the committee room, 224 Senate Office Building, Washington, D. C., Senator George W. Malone, Nevada, chairman of the subcommittee, presiding. Present: Senator George W. Malone, Nevada (chairman of the subcommittee). Also present: Jerome S. Adlerman, counsel to the subcommittee; George B. Holderer, subcommittee staff engineer. Senator MALONE. The subcommittee will be in order. Our first witness will be Hon. Douglas McKay, Secretary of the Interior. Mr. Secretary, we are glad to see you. We believe you have some of the best engineers in the world in your Department, and we are leaning heavily on them for the record of factual material, as you know already. The Minerals, Materials, and Fuels Economic Subcommittee of the Interior and Insular Affairs Committee is working under Senate Resolution 143 of the 83d Congress, 1st session, which reads in part as follows: Resolved, That the Senate Committee on Interior and Insular Affairs, or any duly authorized subcommittee thereof, is authorized and directed (1) to make a full and complete investigation and study of the accessibility of critical raw materials to the United States during a time of war; (2) to study and recommend methods of encouraging developments to assure the availability of supplies of such critical raw materials adequate for the expanding economy and the security of the United States. The full resolution as well as the Senate Report 689 of the Senate Committee on Rules and Administration approving the resolution is made a part of the record and will appear in the appendix as A and B. AVAILABILITY IN TIME OF WAR Under the terms of the resolution, the Minerals, Materials, and Fuels Economic Subcommittee of the Interior and Insular Affairs Committee, is charged with the double-barreled responsibility of ascertaining the accessibility of the critical materials to the United States in time of war as well as the availability of these materials for the expanding economy and the security of the United States. It is imperative, therefore, that the committee study include: First, principles that will result in going concern industries and maximum productions in this Nation; second, the Western Hemisphere production of these materials and in addition, determine our ability to keep the oceanic lanes open to any foreign areas where such materials are available. HEARINGS The committee has held hearings in Washington, D. C.; Seattle, Wash.; Henderson, Nev., and will hold further hearings in Los Angeles, Salt Lake City, and again in Washington, and such other places where it may be necessary to go to get the facts essential to the committee for the formation of its findings and recommendations. DEPENDENCY UPON FOREIGN NATIONS The committee has heard testimony of engineers and producers in the mining industry as well as numerous Government officials. Some of these hearings were in executive session, closed to the public, due to security precautions, particularly those which related to the stockpiling of strategic materials necessary for the defense of the United States. The testimony received by the committee has revealed a shocking shortage of certain strategic and critical materials in the national stockpile which will be handled in a separate hearing. We have become dependent upon foreign nations across one or both major oceans for many of the materials without which we cannot fight a war or support our economic structure. STOCKPILE OFFSHORE CONTRACTS Although the stockpile program was originally scheduled to be completed by 1951, the completion date was extended to 1953 and it is now doubtful whether the stockpile program can be completed by 1958. Examination of current contracts for strategic materials, conducted in secret sessions, showed that contract terms were more favorable to foreign producers than the terms given to domestic American producers. This favoritism to foreign producers is contrary to the intention of the stockpile law and to the security of the Nation. The best stockpile avialable to the United States in time of need is an economically healthy domestic industrial structure able to produce the materials essential to this country in time of war-in short, going concern mining, petroleum, textiles, watch, precision instruments, machine, and other industries. The hearings have indicated an alarming dependence on foreign countries for strategic materials due to the failure of the past administrations to adopt a domestic policy which would develop the natural resources of the United States. If we become embroiled in another global war, we would be dependent upon foreign sources for strategic materials without which we could not defend ourselves. These materials would have to be transported from ports within striking distance of the enemy planes, and across oceans infested with enemy submarines. LINES OF TRANSPORTATION Many top military strategists believe it will be impossible to keep the long sea lanes open to shipping in time of war. There is also grave doubt of the availability of critical materials in time of global warfare due to the political background of some of the countries supplying these materials. The most important factors adversely affecting production of the critical materials in this country are: the 1934 Trade Agreements Act, Restrictions on venture capital by the Securities and Exchange Commission, and our failure to adopt adequate tax relief to new ventures for exploration and development of our natural resources. With the new technique in atomic bomb and submarine warfare it is believed that transportation across either major ocean will be, to say the least, uncertain. For example, most of this Nation's current supply of manganese comes from India, whereas if proper measures are taken in time, western hemispheric production can be increased to such an extent that we can become self-sufficient for our total war needs. It is imperative that the shortsighted policies of past administrations favoring foreign instead of domestic sources for this mineral must be reversed. The committee expects in the near future to receive testimony on the past policy of the State Department which culminated in the dependence of the United States on foreign sources of supply for strategic materials essential to the security of the United States. INTERNATIONAL CARTELS Hearings will be held on the subject of the International Materials Conference, and the projection of international cartels sired by the State Department, coupled with the diversions and withdrawals from the national defense stockpile of materials vital to the defense of the country and which had a detrimental effect on the domestic market. This policy contributed to the almost complete destruction of the lead and zinc and other critical material markets for domestic production in the United States. RETARDED DOMESTIC PRODUCTION Specifically, complaints have reached the committee that domestic production has been retarded on five major fronts: 1. Trade agreements made by the State Department-under the 1934 Trade Agreements Act-called reciprocal trade. 2. Taxes, both direct and indirect. 3. The regulations of venture capital investments by the Securities and Exchange Commission. 4. The policy of favoring the purchase of foreign minerals and materials over domestically produced products under the Stockpile Act. 5. The manipulation of their currency and participation by foreign governments for trade advantage both here and in their own areas. First, article I, section 8 of the Constitution of the United States provides that "Congress shall have the power to lay and collect *** duties, imposts and excises" (tariffs or import fees) and "to regulate foreign commerce"; and The Congress, through the 1934 Trade Agreements Act, transferred its constitutional responsibility to regulate foreign trade, through the adjustment of the duties, imposts, and excises-commonly referred to as tariffs and import fees-to the executive branch of the Government. The question posed then in regard to the regulation of foreign trade is whether or not Congress should resume its constitutional responsibility through allowing the 1934 Trade Agreements Act to expire on June 12, 1954. Second, excessive income and indirect taxes are alleged to discourage the investment of venture capital-and that the progressive higher brackets of income taxes dampen the incentive for the continued maximum production of going concern producers for the calendar year. Third, claim is made that the interpretation of the Securities Exchange statute by the administrators of that act that they must in some manner determine the feasibility of the contemplated investment before giving their approval to a stock issue-and through public announcement of an investigation of such investments upon unstable grounds has retarded the investment of venture capital. Fourth, it is alleged that definite policy of favoring the purchase of foreign minerals and materials over domestically produced products under the Stockpile Act-where producers do not pay American wages or American taxes has discouraged the investment of venture capital in such domestic enterprises and has caused unemployment, and the abandonment of mines, mills, and factories in this country, which has resulted in a serious loss of our defense potential. Fifth, complaint has reached the committee that currency manipulation and government participation in trading operations by foreign nations, including empire preferential rates, has reacted to the disadvantage of American producers. Senate Resolution No. 143 directs this committee to determine the "accessibility of critical raw materials to the United States in time of war***to assure the availability of supplies of such critical raw materials adequate for the expanding economy and the security of the United States." It is of great interest, then, to this committee and to the United States Senate why we find this Nation dependent upon foreign nations across one or both major oceans for many such raw materials without which we cannot supply our plants and factories in war or in peacewhere eminent military strategists agree that transportation of such materials to this country in time of war would be problematical, to say the least. DOMESTIC RESOURCES OF STRATEGIC MATERIALS Today's hearings will be devoted to testimony from Secretary of the Interior Douglas McKay and Assistant Secretary of the Interior Felix Wormser, and from engineers and officials of the Bureau of Mines of the Department of the Interior on the productive capacity of the United States, the Western Hemisphere, and other nations in |