Senator MALONE. Industry does not like the domestic production, then, you are telling the committee, because of the limitations on the grade. Mr. WALSH. That is right, sir. There is some domestic production-there is a limited number of mines that produce to specifications which are satisfactory to industry. Senator MALONE. Industry takes the 65 percent. That can be concentrated or smelted to any grade necessary, can it not? Mr. WALSH. I believe so. Mr. FREDELL. That involves additional cost. Senator MALONE. Do you know what that additional cost is? Mr. FREDELL. It would vary with the particular mineral they were treating. Senator MALONE. Give me some idea. Mr. FREDELL. I couldn't. Senator MALONE. You do not know a thing about it, is that right? Mr. FREDELL. I don't know the details of the cost. Senator MALONE. You do not know what the cost would be, do you? Mr. WALSH. As I understand it, sir, they take this and either go to a powder or they go to a ferro. That is the next operation. Senator MALONE. But the objection of industry to the domestic production-this is a very important item, now-is that it cannot be handled as economically as the foreign product and the difference is enough to make them prefer the foreign product? Mr. WALSH. I would say that is correct, sir. Senator MALONE. We are going to have both the producers and the users here, so we will clear that up. But that is the only reason, then, that you would prefer to buy the foreign product? Mr. WALSH. I have no preference. As long as it meets the specification, I have no preference. Senator MALONE. These domestic producers are meeting specifications, you say, and industry is consuming their production. Is there now an excess of domestic tungsten? Mr. WALSH. We are taking from the domestic producers all of the tungsten that they cannot sell to industry; all of it. Senator MALONE. Then what you are saying is that there is production above the demand in industry, or are you still furnishing the foreign product to private industry. Mr. WALSH. We have not sold any foreign product to industry in over a year. Senator MALONE. Do you know whether industry is importing tungsten? Mr. WALSH. I am sure they are; yes. Senator MALONE. Do you know how much the domestic production of tungsten is short in meeting the domestic industrial requirements? Mr. WALSH. On a tonnage basis? Senator MALONE. Yes. Mr. WALSH. No, sir; I do not know. But I would like to repeat, all of the domestic production that industry is not taking up is put to the Government. Senator MALONE. You are buying it under the Tungsten Act. Senator MALONE. Under the extension of the Tungsten Act which we passed here this last session? Mr. WALSH. Yes, sir. Senator MALONE. I think that is good on that particular point. We have already entered into the record the act under which the Emergency Procurement Service is operating? Mr. WALSH. Yes, sir. We did not complete it, though, sir. Although it is in there. As of August 14 the Defense Materials Procurement Agency was liquidated by Executive Order 10480 and the functions performed by Defense Materials Procurement Agency were transferred to the Emergency Procurement Service as the Materials Division. So that rounds it out completely. Senator MALONE. Where the real authority now rests is with Mr. Flemming as Chairman of the Office of Defense Mobilization? Mr. WALSH. Both under Public Law 774 and Public Law 520. Senator MALONE. In other words, he is the last word. Mr. WALSH. Yes, sir. APPLICATION OF THE BUY AMERICAN ACT Senator MALONE. Now let me ask you, Mr. Walsh, if you are familiar with the following passage of Public Law 520, 79th Congress, 1946, a statement made by the President of the United States and approving Senate 752. That statement is dated July 23, 1946, immediately after the passage of the act. Mr. WALSH. I recall seeing the letter but I do not remember its contents. Senator MALONE. It says: I have today signed the Strategic and Critical Minerals Stockpiling Act because it is important to the national interest that this Government have the power to acquire stockpiles. It is only because of the overriding importance of this purpose that I am able to overcome my reluctance to signing a bill which reaffirms the application to stockpile purchases of the provisions of title III of the act of March 3, 1933 (47 Stat. 1520), known as the Buy American Act. Those provisions will not only materially increase the cost of the proposed stockpiles but will tend to defeat the conservation and strategic objectives of the bill by further depleting our already inadequate underground reserves of strategic materials. Furthermore, there can be a serious conflict between those provisions and the foreign economic policy which this Government is actively pursuing. It also seems to me that the application of the Buy American Act may frequently hamper the effective achievement of the essential purpose of the legislation which is to enlarge the stock of the vital raw materials available within our borders in time of possible emergency. Do you agree with that general sentiment expressed in that statement? Mr. WALSH. Yes; I do. Senator MALONE. I think I have no argument with you, then, except to say and call further attention to the fact that you paid $65 for tungsten and I suppose comparable prices for all others, which we will get into later, to foreign purchases using labor costing anywhere from 10 to 50 percent of the labor costs in this country, and it being held out in general statements that of course under those conditions it can be purchased cheaper there, but you are paying the same price that you pay for domestic purchases. How do you figure that out? Mr. ELLIOTT. If I could interject, sir, I think the answer is that at the time, that is in 1951, due to the expansion of industry and the need for military requirements, there just wasn't enough domestic tungsten to go around. Mr. GUMBEL. And the stockpile requirements. Mr. ELLIOTT. Yes. Senator MALONE. So you were subject to a sort of blackmail. Senator MALONE. You had to pay all the traffic would bear. Senator MALONE. The point I would make is that you do not get it cheaper because of cheap labor. You pay what the traffic will bear. Mr. ELLIOTT. That is correct; yes, sir. Senator MALONE. But you do not believe in the Buy American Act? Mr. WALSH. Yes; I do. Senator MALONE. The sentiment here that you just expressed was that you agreed with Mr. Truman, who is against it. Mr. ADLERMAN. Perhaps you would like to read this [indicating letter]. Mr. WALSH. All right. I would like to inject something here, if I may, which I think may be helpful to you. Back when foreign tungsten was selling for around $18 we made contracts with domestic producers at $26 a unit. Senator MALONE. And you did carry out the Buy American Act? Mr. WALSH. That is right. To get those mines into production. Senator MALONE. When did you abandon the policy? Mr. WALSH. We didn't abandon it, sir. What we were ordered to do was to terminate those contracts to permit those producers to sell that tungsten to industry at higher prices when the prices were spiraling. We did that. Senator MALONE. Do you believe now that in purchasing foreign materials and domestic materials the Buy American Act should be taken into consideration? Mr. WALSH. On those materials wherein the source of supply is domestic as well as foreign, I believe it should. use. Senator MALONE. I go on with the President's letter: The Buy American Act requires that only articles produced or manufactured from materials originating in the United States shall be purchased for public However, the act also provides that exceptions to this rule may be made when buy American purchases are determined "to be inconsistent with the public interest or the cost to be unreasonable." This provision clearly indicates that the stockpiling program should not be used as a means of general subsidizing those domestic producers who otherwise cannot compete successfully with other domestic or foreign producers. In other words, the Buy American Act, he says, should not be used to enable domestic producers to produce in competition with foreign producers. Do you believe that? Mr. WALSH. What we did, sir. There was a revision made to the Buy American Act, I believe in 1949 or 1950, which permitted us to reach a finding that the material was for national defense and therefore we could go beyond the going market prices, and we did do that. Senator MALONE. This is for foreign material? Mr. WALSH. For domestic material. 39888-54-pt. 2- -5 Senator MALONE. You did not need any revision in the Buy American Act to go beyond the foreign price. But the President says in so many words that if they cannot compete with foreign producers you should not use domestic purchases. Mr. WALSH. We did in some cases; yes, sir. We paid more under that finding than we could buy for in the foreign field. Senator MALONE. Did you do that subsequent to July 23, 1946 ? Senator MALONE. More for domestic purchases than you did for foreign? Mr. WALSH. Yes, sir. Senator MALONE. Under the Buy American Act? Senator MALONE. Continuing the President's letter: Furthermore, to insure the necessary stockpiles are accumulated as rapidly as deemed advisable and with a minimum cost to the public, this act should not be used as a device to give domestic interests an advantage over foreign producers of strategic materials greater than that provided by the tariff laws. In other words, you should not use the buy American clause. Did you abide by this order? Mr. WALSH. In cases we did not abide by that order. We paid domestic producers more than we could buy for in the foreign field. Senator MALONE (reading): It is the policy of this Government to work for international action to reduce trade barriers. Do you agree with that sentiment? Mr. WALSH. That is a policy statement, sir. I would not like to comment on that. Senator MALONE (reading): We have proposed to other countries a set of principles governing trade, and lock forward to the successful conclusion of broad international arrangements embodying the essential principles of these proposals. Pending the conclusion of such arrangements, it is the policy of this Government to avoid taking measures that will raise barriers to trade or prejudice the objectives of the forthcoming discussions. We are asking other countries to follow similar policies. The United States is opposed to governmental policies fostering autarchy, for itself as well as for others. Encouragement of uneconomic domestic production and unjustified preferential treatment of domestic producers destroys trade and so undermines our national economic strength. A large volume of soundly based international trade is essential if we are to achieve prosperity in the United States, build a durable structure of world economy and attain our goal of world peace and security. I should say that the policy of these alphabetical agencies has been to avoid paying the tariff and has complied with this letter. The actual effect of it has been to do just that. Mr. WALSH. Under Public Law 774 there has been a great deal of domestic expansion undertaken at prices which are higher than the now existing world price. So there is a parting of the ways there immediately under what is going on today as expressed within that letter. Senator MALONE. I guess you got your instructions from Congress that time. Mr. WALSH. Yes, sir. Senator MALONE. It is probably very well that we wrote it in the bill, if the past administration of the act is any indication. I have here volume V of the Paley Report. Are you familiar with the Paley Report! Mr. WALSH. I had an opportunity to read a few chapters only. SEVENTY-SEVEN PERCENT OF STOCKPILE PURCHASED FROM FOREIGN SOURCES Senator MALONE. The Paley Report says on page 141, column 1, under the Buy American provision: It was then following the rule of limiting the allowable price margin to 25 percent above world price plus any tariff. This rule is no longer applied rigidly. The (Munitions) Board is now under instructions to judge the reasonableness of a price differential in each particular case and to exceed the 25-percent limit in exceptional cases justified by strategic urgency. By June 30, 1951, 77 percent of the materials purchased under Public Law 520 had gone for foreign materials. Is that about right? Mr. WALSH. That is approximately correct, sir. Senator MALONE. That is a long time after World War II. Still world war III was going on. Is that the reason that 77 percent of that was purchased from foreign sources? Mr. WALSH. No, sir. A lot of the materials in the stockpile do not have a domestic source. Senator MALONE. For example? Mr. WALSH. I do have a study compiled by the Muntions Board on that. If you wish, I will run down it. I can let you have this after I read from it, or do you want it in the record? Would that be better? Senator MALONE. You may read from it. Mr. WALSH. We will go down the list, if you don't mind. On the aluminum oxide abrasives, 77 percent of that is foreign. Senator MALONE. That is 77 percent of your purchases? Mr. WALSH. Seventy-seven percent of the United States requirements, of the total United States requirements. Senator MALONE. Has been purchased from foreign sources? Senator MALONE. That is what you mean, it has been purchased from foreign sources. Mr. WALSH. Yes, sir. And of course therefore your take to the stockpile would relate itself to these percentages. Senator MALONE. Go ahead. Mr. WALSH. Aluminum, 90 percent as of the date of this study was domestic production. Right now I should say that percentage is way, way up closer to 98 or 99. Senator MALONE. What is the date of this study? Mr. WALSH. This is November 1952. On antimony, 38 percent was imports. Asbestos, amosite, 100 percent; chrysotile, 87 percent; and crocidolite, 100 percent. Bauxite is 60 percent; beryl is 89 percent; bismuth, 27 percent; hog bristles, 100 percent; cadmium, 20 percent and celestite, 100 percent. Chrome, chemical ores, chemical chrome, 100 percent; metallurgical 99 percent. Senator MALONE. There is no chrome in this country; is that right? Mr. WALSH. Yes, sir. There is some being brought in now. We are operating this depot out at Grants Pass in Oregon. The first year of |