age steel mills or foundries to use iron and steel scrap. The absence of compensating tax incentives to scrap materials means the virgin material enjoys a significant competitive advantage.

These problems not only bear on the scrap industry, but on the entire Nation. As cities, towns, and States are finding, disposal of solid waste is, by necessity, everybody's problem, not just because the volume of solid waste is growing, but because the Nation is running out of places to bury its waste.

Because municipal solid waste has recyclable components such as metallics, paper and glass, officials are beginning to look at the possibility of "resource recovery" as an alternative. With the advent of the energy shortage, the prospect of burning municipal waste to generate electricity or support resource recovery programs, have entered the calculations of municipal officials, some of whom are already experimenting with such programs.

Wherever and whenever these programs of municipal recycling and resource recovery come under discussion, whether of materials and/or energy, the scrap processor is an important person to be involved. As an expert in recycling metallic solid waste, he knows the problems and possibilities better than anyone else. His advice is invaluable to municipalities exploring the possibilities in this new era of recycling and reclamation.

During 1973, the scrap industry processed and shipped record tonnages of scrap iron. The industry has always contended that obsolete scrap will move to processors for recycling when the economics become attractive, when the price paid to the processor is high enough to permit payment of higher prices to collectors. This happened during 1973 and is continuing in 1974. One obvious result is the near disappearance of the ubiquitous abandoned auto that often disfigures the countryside and produces headaches for municipal officials. The hulks disappear because the markets are there. It is economically advantageous for them to be brought to processors' plants for preparation into a raw material to be recycled by steel mills and foundries.

As the preceding discussion indicates, a number of viable domestic industries have developed to collect and process significant quantities of various discarded materials so that these materials do not enter the solid waste stream and, thus, do not require disposal at Government expense.

On the other hand, a clearly recognized governmental function traditionally has been the collection and disposal of garbage (solid waste) which is not drawn back into the industrial process by private sources. The reduced availability of land and the increased need for domestically generated energy have created demands for new waste treatment and disposal centers which can reduce substantially the amount of waste requiring disposal and possibly can generate significant energy from solid waste.

Such disposal systems also raise the possibility of recovering quantities of recyclable commodities from solid waste as a byproduct of the disposal system.

The Institute has reviewed the various proposals pending before the Public Works Committee with the functions of private industry on one hand and the function of governmentally administered or sup

ported waste management and disposal centers on the other in mind. În reviewing these legislative proposals, the Institute has focused on the broad implications of Federal support for waste management and disposal centers, rather than on the specific provisions of any bill.

In summary, all bills are designed to provide assistance in the development of new waste disposal systems at the local level. Care must be used, however, to assure that Federal funds are not used as a device for hindering or eliminating private industry from fulfilling its function of removing valuable recyclable materials before they enter the solid waste disposal stream.

Federal support for research and development and demonstration projects to test various processes clearly is warranted where the project is novel and not merely another application of existing technology since such novel projects will provide a much clearer understanding of the costs and benefits of various forms of solid waste management. This research, however, also should include an examination of the available and new markets for the byproducts recovered from these waste disposal systems so that this material does not become merely a substitute for recyclable materials already being sold.

In evaluating the form and scope of Federal assistance for solid waste treatment and disposal centers, it is important to reemphasize that the purpose of these centers is to perform a legitimate public health function-environmentally sound waste disposal. To the extent that energy or materials can be recovered and marketed for less than the cost of disposal of these materials, the costs of the waste management system naturally are reduced.

If the public disposal system seeks to go beyond this by-product marketing, however, to siphon off material traditionally acquired by the recycling industries, the disposal system is impinging on the legitimate role of private enterprise. In the long run, such competition will result in the destruction of a segment of industry unable to compete with the subsidized waste disposal system. Federal legislation previously has recognized that public funds, either in the form of a loan or grant, should not be utilized to foster competition with private in-dustry unless the public policy favoring such competition is overwhelming and then such competition should be limited to the extent necessary to meet this policy.

In accord with this general policy objective, any legislation adopted by the Public Works Committee should provide that no solid waste treatment and disposal center receiving direct or indirect Federal assistance under the act may seek to acquire, for processing, materials not collected in the normal garbage and waste collection process for the area served by that center. Such a provision would prevent the disposal center from diverting material which normally would flow to private industry.

A second requirement which Congress should insist upon in any demonstration project or other treatment facility seeking to recover resources, where the project is sponsored by a Federal grant or loan program, is that the appropriate Federal and local agencies be required to make a thorough review of the economic impact of the proposed project, similar to the environmental impact statement required under the National Environmental Policy Act, in which such matters as the availability of new markets for the byproducts of the project and the

effect of the marketing of these byproducts on existing industries are considered prior to the commitment of Federal funds.

Adoption of these two suggestions will do much to assure that waste management treatment and disposal systems are developed to provide the most economical disposal of waste and yet do not provide unfair competition for private industry.

This committee should be concerned with protection of private industry not only from the philosophical viewpoint of not unduly burdening free enterprise, but also because of the public policy considerations that the demise of private industry could result in a reduction in the processing of junk automobiles and other obsolete metallics such as refrigerators and farm equipment.

In this event, the increased recycling of tin cans would merely result in the buildup of these other obsolescent materials in the form of solid waste. Government policy should seek to insure that both tin cans and junk cars are recycled, rather than bringing about a tradeoff by substituting one for the other.

A number of the bills under consideration would grant the Environmental Protection Agency authority to establish disposal standards in place of the authority to issue guidelines now contained in Federal law-section 209 of the Solid Waste Disposal Act. Under these proposals, EPA would be authorized to require licenses or permits with respect to solid waste disposal sites. Clarification of the authorization granted to EPA is warranted spelling out whether standards may be promulgated: (a) only for hazardous wastes, (b) for all solid waste sources, including residential, commercial, and industrial sources, or (c) only for sites actually utilized primarily for waste, garbage, and other nonusable discarded material disposal.

If the final category is intended, the legislation should specify that industries whose principal activity is processing for recycling purposes are not included within the definition of a solid waste disposal site. To summarize the position of the Institute on solid waste legislation: (1) The final bill should be structured so that there is a distinct recognition in the legislation of the primary purpose of the bill, which is the protection of health and welfare through disposal of solid waste, especially hazardous waste. It must be recognized that materials and/ or energy recovered through recycling are simply byproducts of this primary purpose.

(2) The emphasis of this legislation should be upon expanding of markets to make recycling more viable. Because removal of economic hindrances to increased recycling is national in scope, the problem of expanded markets must be resolved at the national, rather than the State or local levels.

(3) Great care should be taken to prevent the substitution of publicly subsidized centers for the established, privately funded scrap processing industry whose entire rationale is recycling, and

(4) This legislation should grant no funds or aid to recycling complexes until and unless an economic impact study is provided covering the region or area to be serviced. Only a Federal agency can be in a position to evaluate properly the total economic impact of increasing amounts of recyclable materials and the ability of the country to absorb these materials. Thank you, Mr. Chairman.

Senator RANDOLPH. Thank you very much, Dr. Cutler. I shall not ask more than one or two questions at this point. You say in your very helpful statement that there are inadequate, viable, and continuing markets for ferrous scrap.

I really think the Panel members would want to know the reason that the Commerce Department is restricting exports; why is that going on? Why are some persons calling for an export ban and why, Dr. Cutler, are prices for scrap at an all-time high?

Mr. CUTLER. Let me try to answer the two or three parts of your question, Mr. Chairman. The reason the prices are at an all-time high is a reflection of an all-time high for new steel demand.

Scrap iron is used for one purpose, that is to make new steel. As the demand for finished steel accelerates, not only domestically, but worldwide, the ability of the steel industry to expand is contingent upon a large increase of scrap iron used.

Purchasing is not only increased by those mills which have previously used scrap, but also by many mills that have not used purchased scrap at all or only marginally. When that happens, the collection system, which is described in my statement, does not have the ability to respond instantly to the demand, and the effect is that the price reaches higher levels than would be the case had the demand been constant or at least continuous overtime.

Scrap iron contracts for the purchase of scrap iron by steel mills are generally on a 30-day basis. There is obviously, on a 30-day basis, an inherent instability in price. That meets the first part of your question. The high price can be directly traced to a record demand for new steel.

The second part of the question dealt with the various attempts to control the exports of scrap iron from the present situation where there is a quota to some legislation that has been introduced dealing with higher and lower quotas and in some cases even an embargo on all scrap exports.

The reason that the Commerce Department has imposed the quota which is in effect now, which is basically 2.1 million tons per quarter, falls back on the Export Administration Act in which there are three criteria spelled out. The three criteria are that there must be a threat to the domestic supply and an abnormal foreign demand creating a domestic inflationary impact. I have taken some liberty with the words, but those are the three criteria.

The issue seems to hinge on the third one, whether or not there is an inflationary impact. There is testimony before the Senate and House Banking Committees on the extension of the Export Administration Act wherein the consumers, the people who buy scrap iron, stated for the record that no consumer was unable to get the material that he needed.

If there is no difficulty in getting the material that is necessary, then clearly there can't be a shortage. The question then goes to the matter of price. As I said before, price can be directly attributable to the increased demand for finished steel.

As the collection system, which is a very loosely formed industrythese are the people who bring in the junk cars and refrigerators to the scrap processor-as that industry begins to pick itself up and become

active after years of being dormant because there was little or no demand for the material, as it reaches its climax, more and more material is made available. It is only a matter of time before the price starts down. The price of scrap iron is determined in what must be one of the last vestiges of private enterprise and the free market. For example, there are no futures contracts. There is an inherent instability in price. Our position regarding limiting the exports to quotas is that there has been a misunderstanding of the term-inflationary impact. With commodity that is freely traded, just because the price is up at one point is not inflationary; it is not an administered price product. It finds its own level and, as such, goes down as well as up.

Historically, it has done that. We don't believe an upward movement for this product of a short-term duration is an inflationary impact. We have so put this in the record.

Senator RANDOLPH. Have you discussed this with Commerce officials? Mr. CUTLER. Yes, sir.

Senator RANDOLPH. You say they don't understand?

Mr. CUTLER. No, it is a question of a difference of opinion. It is a matter of economic theory. As you know, if you have two economists, you have three opinions. I happen to be an economist and I guess Í would make it four opinions.

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Senator RANDOLPH. I had not thought to ask this now, but I will. You refer to scrap that is bought, and not sold, and that usually on a monthly basis, consumers of ferrous scrap advise the processors of ferrous scrap the tonnages they require and the prices they will pay.

We had earlier witnesses from the primary materials industries. They supported the guaranteed buy-back provisions in the bill that I presented for consideration along with other bills.

They did, however, advocate that the price be negotiated between the buyer and the seller.

Are you saying that that possibility does not exist in our present marketplace?

Mr. CUTLER. I am saying that in the main, that is not the procedure. In the main, that is not the procedure. The price, because we have only one place that it can be sold-we are many sellers to a relatively small number of buyers as was stated in the presentation-the price is generally established by the buyer and then it is a "go" or "no go" situation for the seller.

Senator RANDOLPH. You are saying, then, that the marketplace should determine the price paid for recycled materials or are you saying that we should have a guaranteed minimum price in order to assure that recycling does occur?

Mr. CUTLER. I think, Mr. Chairman, that the primary producers of the primary steel industry were speaking only to metal coming out of the municipal centers, not to the entire recycling industry.

As to the part that is handled by private enterprise, that is not the way it is done. I doubt that the primary producers would suggest that. Senator RANDOLPH. You may be right. We will attempt to clarify that and check on the testimony.

Thank you very much, Dr. Cutler.

[Mr. Cutler's prepared statement follows:]