with these two producers and with other OPEC states, we will create in time a set of economic and political relationships that should enable us to help them achieve important national goals and to appreciate more fully their responsibility for pursuing oil policies that lend stability to the international economy.

We are convinced, Mr. Chairman, that the oil crisis will not simply go away. Our policies are designed to meet the challenge of that crisis. They will, if properly and vigorously pursued, permit us to achieve our two fundamental objectives: an international price of oil set by free market forces and substantial U.S. self-sufficiency in energy. Thank you very much.

Mr. DIGGS. Thank you, Mr. Robinson.

The President has been quoted as saying that he had many reservations about the call made at the meeting of OPEC leaders for linking oil prices with the cost of manufactured goods that the OPEC countries have to import, and also with the rate of inflation.

Could you tell us what the administration's reservations are regarding these two points and what the rationale is behind it?

Mr. ROBINSON. The oil producers have an understandable concern. over preserving the purchasing power of the oil that they sell. We appreciate that and accept that as a valid concern.

The problem is, how to administer and how to establish indexation, which is a mechanical technique for reflecting changes in the purchasing power of the currency.

It also implies that we have a base from which that adjustment or indexation applies, and that base would have to be established by international governmental agreement, presumably. It moves away from the basic concept of prices established by the free play of market forces, which is our primary guiding principle. So, we have the question of a fixed price established by international agreement, which is inherent in the question of indexation. We have the problem of how do you establish an arbitrary or mechanical formula by arbitrary decision, which will reflect changes in purchasing power.

Third, we have the basic concern of how such an agreement would hold up in the face of supply/demand factors that might, if allowed to work their magic, produce a price far different than the price established by this formula.

We see no easy way, perhaps no practical way, to establish a mechanical formula that would be satisfactory for every country. We see it as probably an unworkable concept, and yet, we have not said that we won't discuss it. We have said that we have raised these questions, but we are willing to listen because we feel that that is a part of the process of dialog. The basic objective in our effort to reach a successful conclusion at the preparatory conference was to implement this dialog.

Mr. DIGGS. Well, what about other raw materials, Mr. Robinson? Why should the oil price floor be supported and not a price floor for other raw materials?

Mr. ROBINSON. The question of other raw materials is a very complex one. We do feel that there is a unique set of characteristics with regard to energy. It does require us to look at energy as something separate and distinct.

In terms of oil and gas, it is a finite reserve, and we are going to be out of oil and gas, whether it is 20, 30, or 40 years, as the basic source of our energy. We do have to look at it in those terms, whereas, with capital expenditure and the proper development most other raw materials will be available over a much longer time frame.

Second, when we get into the question of commodities, we get into the difference in interest between specific countries. We get into differences between commodities. Our position at Paris was never one of not being concerned about this problem, never one of being unconcerned about the problem created in the developing world by the very great fluctuation of price in their basic products on which they key their export earnings.

We felt that these are issues that must be addressed. We must look at these problems, but we didn't feel that we could agree to include these very complex issues in addition to oil and energy on one agenda to be dealt with at the ministerial level in a meeting of relatively short duration. In such a meeting, all sides would have engaged in rhetoric, but without any real hope of achieving meaningful results. Mr. DIGGS. Well, of course, that is an old strategy, as you know.

I know there are several issues here in Congress that, were they not tied together, wouldn't get discussed-military aid and humanitarian aid, for example.

Before this committee, we have always tied them together, because separately they just wouldn't get the same kind of attention, so we have to give our friends of the developing world credit enough to know something about strategizing on these matters.

You say, "Sure, we are willing to come back and discuss these matters as a separate agenda," but given the importance to the developed world of the question of oil, is it likely that we would have the same incentive if there wasn't some kind of interchange, some kind of reciprocity of interest?

Mr. ROBINSON. I think that is a very good question. I think, looking at it from the strategic standpoint we should also look at the OPEC role in this. It was our intent to make this a producer/consumer conference, and we viewed the LDC's adversely affected by the increase in oil price as consumers. We even proposed that we consider joint and cooperative efforts between the industrialized nations and the OPEC nations in dealing with the problem of the most seriously affected nations who were bearing a very heavy burden and an even heavier burden as a result of the increase in oil prices. The OPEC nations saw a tactical advantage in alining themselves with the LDC's in order to put all of the blame on the industrialized nations and to avoid our approach, which was, let's share the burden of the most seriously affected nations.

Now, in terms of the real needs of the LDC's, I believe that out of the Prepcon results will come a serious consideration of the problems of other resources and relationships with the LDC's. Studies that explore all facets of that issue are now underway in all of the industrialized nations. And I think that that is a favorable result of Prepcon itself.

How we deal with these problems and in which fora, remains to be seen, but clearly, we are going to face a continued effort on the part of OPEC and LDC's to link energy and other raw materials, because they do see strength in this linkage that you pointed out.

Mr. DIGGS. When we had the joint hearing on March 26,3 your assistant, Thomas Enders, stated-and I am quoting here “* * * agreement on a minimum safeguarded price (or oil price)*** is designed to resolve the critical dilemma which we face in the development of new energy sources" by "provid (ing) some level of protection to domestic investors against possible competition from very low-cost imported oil."

That statement left a question in our minds about the current high prices, whether or not they aren't ample incentive for the industry to invest in alternative energy sources.

It would raise the question as to why a lower price, provided for in this minimum price arrangement would provide greater incentive. Mr. ROBINSON. The question of a down-side risk protection to encourage the development of alternative sources of energy is in itself a complex question. We have, first, the need to develop within the IEA within the industrialized nations, the recognition that efforts on the part of anyone to develop higher cost energy sources is in the interest of all nations because that would reduce the overall dependency on lower cost Middle East oil. Benefits would thus accrue to all of the participants.

Therefore, there was a psychological and real economic need for establishing the importance of sharing in the responsibility and in the risk that would be involved in developing these alternative energy sources. So that, there is, within the IEA, an important necessity for tying together the 18 participating countries in a common cause.

Over and beyond that, each nation will use its own funds for developing alternative energy sources. The expense involved ranges from relatively reasonable costs for traditional and, near traditional oil/ gas sources, to substantially higher costs than the current market of $10 and $11 per barrel of oil for very exotic sources that would represent.

Certainly, the present price of oil is not the problem. The problem is that a good deal of that oil is produced at 20 or 30 cents à barrel, as low as that. Therefore, if there was an intent to use oil as a political weapon, there is always the possibility that, whether as the result of play of market forces or as a political move, the price could be lowered and create great hardship for those who have made significant capital investments in an effort to create and generate new alternative sources of energy. So, it isn't the price level. It is the certainty of a minimum price which is important in inducing investors to make the investment in the development of alternative sources.

Now, at what price level would that produce results? Obviously, each country is going to have to face different problems for different industries and different forms of alternative energy, and we are going to have to develop some realistic mechanisms and support techniques to encourage the development of the more exotic sources of oil, such as oil shale or liquefaction of coal, or tar sands, perhaps, solar.

These will require different support mechanisms, and we undoubtedly will be thinking in terms of prices above the present price of oil. Mr. DIGGS. Mr. Enders also indicated that further analysis is necessary before this minimum level of price is set, and we would like to know what progress is being made toward that end?

3 See joint hearing of the Subcommittees on International Organizations and on International Resources, Food, and Energy entitled "Legislation on the International Energy Agency."

Mr. ROBINSON. The discussions in the IEA have not been definitive in nature, but the general feeling is that a minimum price level in the range of $6 to $7 may be a realistic goal.

I want to make it clear that this does not mean the price at which oil is purchased, but merely the price at which imported oil would be sold in the domestic markets of the participating IEA countries.

Mr. DIGGS. Mr. Enders also stated that our Government will make, as he put it, “a major commitment to the development of relatively expensive energy."

What did he mean by "relatively expensive energy?"

Mr. ROBINSON. Perhaps, Mr. Enders could answer that better, himself. I am not quite sure what he did mean, but I would mean by that, energy such as liquefaction of coal and the development of oil from shale by techniques which are still in the process of development.

Mr. DIGGS. What was meant by "major commitment?" I assume that he was authorized to use this kind of adjective, and it would seem to suggest something pretty big. Could you give us the parameters?

Mr. ROBINSON. Well, not in financial terms, and I don't know whether he was thinking in financial terms. The administration has been dedicated to the principle that we should encourage significant investments in the development of some of these alternative sources, not only to increase our insulation and reduce our dependency on Middle East oil, but also to support the research efforts to develop commercially viable techniques that can be applied to gas, oil, shale and for sands. So, there is a research and development element in that investment prior to major commercial development. I don't know that we have any specific order or magnitude figured, but it would call for a significant investment if we are to proceed with these developments. Mr. DIGGS. As you know, the President of Algeria is quoted as having stated-and I am reading from a report in the Wall Street Journal on March 6-"If rich nations like the United States expect cooperation from OPEC concerning oil, then they must enable the developing countries to mobilize their raw materials for the benefit of their own economies, which implies that the selling price for them shall be raised and their real value safeguarded and that the industrialized countries shall desist from obstructing action," as he put it, "by producers' unions in the developing countries."

I was interested in getting your response to that position. How does the U.S. position impact upon the ability of developing countries to combat global inflation, including the high prices both of the West's manufactured goods and of petroleum products?

Mr. ROBINSON. The statement of the President Boumedienne is consistent with the position that Algeria has taken for some time. I met with the President about 2 months ago, in Algeria. We discussed this issue

Mr. DIGGS. But this statement doesn't just reflect Algeria's position. Mr. ROBINSON. That is true. They are very sensitive to the growing needs and desires in the developing world, and they are responding to that and have cast themselves in the role of leader of the developing world.

I believe that we are moving into an era of relative scarcity of basic industrial raw materials to meet our expanding requirements. I think that, if we take a close look at the way in which our industrial economy and the economies of all of the industrialized nations are to continue to grow and develop, that we will conclude that we must build a new relationship with the developing countries. We must find a way to establish a great degree of stability in prices and assure the continuity of supply. And I think the time has come when we must take a positive and constructive look at this problem.

The volatility of demand for basic raw materials is increasing in my judgment, and this is imposing very serious hardships on many of the developing countries. It creates a situation in which they cannot carry out long-term development programs. This will not only place a burden on the industrialized nations, but it will create economic conditions within which it will be much more difficult for us to achieve our own goals.

There is an increasing degree of interdependence, and we must reflect that in a constructive, imaginative, new relationship that I feel certain will be developing over the next few years.

I say this, I might add, based on 25 years of experience throughout the developing world, developing resources, which was my experience prior to coming into Government service. So that this is not an academic view, but one based on the practicalities of developing resources and establishing the kind of relationship between the developing and the developed world which assure both worlds that our interest are going to be properly protected.

Mr. DIGGS. There are some statistics that we would like to have submitted for the record, Mr. Robinson.

First of all, the figures on the balance of trade of non-oil-producing countries for the past 5 years. (I noted in the April 8 edition of the Guardian, that the current account deficit of these countries rose from $8 billion in 1973, to about $22 billion last year, and could reach $25 to $28 billion this year.)

[The information requested follows:]

TRADE BALANCES OF NON-OPEC COUNTRIES, 1970-74 (EXPORTS F.O.B. MINUS IMPORTS C.I.F.)