The oil industry believes in competition and, in fact, it has grown to be one of the greatest benefactors of mankind throughout the world under this competitive system. It has always believed in fighting its own battles and paying its own way. I honestly believe that the problems created in Appalachia by changing consumer demand for fuel and automation would have been faced up to by the oil industry by an aggressive campaign of research and development that would have created new markets and new jobs. An example of the latter is the record of the oil industry in its research and development program. The coal mine owners spend less than $20 million a year in coal research-the oil industry in the United States of America spent over $500 million last year for research. The coal mine owners look to the taxpayers to finance their research and development, as is evidenced in the establishment of the Office of Coal Research in the Department of the Interior. The oil industry looks to no one for help and pays for its own research and development. I make these statements merely as proof of the need of a positive American self-help program and the benefits that accrue from this approach instead of the negative attempts to gain preferential treatment at the expense of others, as has been accomplished by the coal mine owners in recent years in their successful efforts to restrict imports of a competitive fuel.

While on this subject, since coal has lost most of its household market to natural gas and No. 2 fuel and the railroad locomotive market has been lost to diesel fuel, the major market for coal lies in fuel consumed in steam electric plants. In this area, coal has gained markets while residual fuel oil has just about remained stable. It is admitted that imports of this product have increased, but these increases were merely to fill the gap between domestic supply and demand as a result of the decrease in domestic residual production-percentage yield on refinery crude oil runs of residual fuel oil on the east coast dropped from 17.3 percent in 1950 to 6.8 percent in 1963. Volumewise, this represents a drop of 370,000 barrels per day. During that same period, the total consumption of this product remained static at 1,250,000 barrels per day (this includes imports plus domestic production).

As further proof of the fact that imported residual fuel oil is not taking any business away from the domestic coal industry, in 1950 utilities consumed 213,000 barrels of residual fuel oil a day and in 1962 this figure had dropped to 182,000 barrels per day. Residual fuel oil only directly competes with coal, according to Department of the Interior officials, in a narrow area on the eastern seaboard adjacent to the coal producing areas, and the maximum market was estimated at 6 million tons per year, or less than 11⁄2 percent of total coal production. The problems of Appalachia are basically caused by the failure of the coal mine owners to set aside money for an aggressive research and development program over the years, plus the unemployment caused by automation. The American coal industry has done an outstanding job in the latter regard, and the average production per miner in the last decade has tripled with the result that one-third as many miners are needed to do the same job as was done a decade ago. The average production of coal per miner is over 16 tons per day, and in some areas it is up to 40 tons per day where strip mining is in operation. We cannot stop progress, and, in fact, the outstanding job done in automation by the domestic coal industry has created a marketing situation wherein American coal can compete anywhere in the world with any foreign-produced coal. I understand that American coal can be laid down in Italy in areas within 100 miles of domestic Italian production at prices that are competitive with this production.

In closing, I want to go on record by urging that a crash positive program, to solve the economic problems of Appalachia, be entered into by our Government and financed by our taxpayers. This program should involve an attack on how to solve the unemployment problems created by automation. This solution should not be aimed at stopping automation. Secondly, an all-out program should be developed to stimulate oversea markets for U.S. coal since the potential for coal exports is unlimited. Here again we must adopt the positive approach because our present program of restricting residual imports places our GATT negotiators in an untenable negotiating position with the other members of GATT. Residual imports represent 5 percent of our total imports and, by restricting these imports in violation of the GATT Agreement (which permits such nontariff barriers if national security is imperiled), we are putting a gun into the hands of the other members around the GATT negotiating table since they can also claim an exception of 5 percent of total imports of our manufactured goods. I state that residual imports do not imperil national security and I quote from the statement of the Department of Defense contained in the

recent Office of Emergency Planning study as to the effect of residual fuel oil imports on our Nation, "We cannot see wherein residual fuel oil imports can seriously endanger the national security."

Positive action on the elimination of residual imports, which have not taken markets away from the domestic coal industry since 1950, will enable our GATT negotiators to press for the elimination of foreign trade barriers against U.S. competitively priced coal and thereby tap this unlimited export market to the benefit of Appalachia. The adoption of a program such as the above will react to the benefit of the east coast economy by making it more competitive in world markets and reducing the artificial levels of fuel prices, thereby lowering the cost of living of the 50 million residents of the east coast. In this way, we can effect savings that can be used to attack the poverty and depressed economic conditions of the Appalachian area. This organization stands ready to join in this battle because we, too, believe it is inexcusable that a great and prosperous Nation such as ours should condone the continuation of the conditions that have been allowed to develop in Appalachia wherein poverty has become a disease that holds all of our fellow citzens in that area in the grasp of despair.

AMERICAN AUTOMOBILE ASSOCIATION,
Washington, D.C. May 22. 1964.

Re H.R. 11065, H.R. 11066, and related bills.

Hon. CHARLES A. BUCKLEY,

Chairman, Committee on Public Works,
House of Representatives, Washington, D.C.

DEAR MR. BUCKLEY: The American Automobile Association has no policy covering the intent and purposes of the Appalachian Regional Development Act of 1964. Therefore, we take no position regarding the objective of these bills.

A review of H.R. 11065 and related bills, however, causes us some concern as to possible effects of this legislation on the Federal highway trust fund. A careful examination of these bills fails to disclose the source of Federal funds for the construction of the 2,350 miles of development highways and 500 miles of local access roads authorized.

There are on record a number of statements which seem to indicate that the Federal funds for these highways are to be appropriated from the general fund of the Treasury, rather than from the highway trust fund.

President Johnson's letter of April 28, 1964, with which he transmitted his proposed legislation states:

"This entire program-estimated at $228 million plus $34 million included in the antipoverty program--was included in the contingency item of $500 million in my budget submitted to the Congress last January."

This statement indicates that for fiscal 1965 at least, costs are to be financed out of the general funds of the Treasury.

In discussing the highway development program, the President's Appalachian Regional Commission report released on April 10, 1964, states on page 34: "Federal financial support should be provided out of general revenue and it should be founded on a program in which the Federal Government would participate to a much greater extent than its present 50-percent contribution under the ABC system." [Emphasis added.]

Secretary of Commerce Luther H. Hodges, commenting upon these highway proposals before the ad hoc committee of the Committee on Public Works of the House of Representatives on May 6, 1964, noted on page 5 of his prepared statement:

"After the funds are appropriated from the general funds of the Treasury, the States will be authorized to proceed."

While the aforementioned statements would lead one to assume that the general intent is to finance the highway development program from general funds rather than from the highway trust fund, other sources seem inconsistent with this assumption and have the effect of beclouding the issue.

Committee Print No. 20 (Summary Report of the President's Appalachian Regional Commission), dated April 29, 1964, remains silent on the recommendation of the Commission that the highway development program be financed out of general revenue, although it does carry the recommendations of the Commission regarding possible revenue sources for financing such other phases of the program as water resources, agriculture, and recreation.

Section 201 (b) (4) on page 13 of H.R. 11065 contains a proviso (lines 20 through 24) that all development highways, "if not already coincident with the

Federal-aid primary system shall be added to such system without regard to the mileage limitation set forth in title 23. United States Code, section 103(b)." Since these highways are to be placed upon the Federal-aid system, then, may we not assume that they would qualify for highway trust fund revenues for either initial construction and/or later reconstruction.

To the extent, therefore, that the developmental highway program results in the construction of new highways or an otherwise premature reconstruction of highways already on the Federal-aid primary or secondary system, an additional liability may be created in the trust fund at a time when trust fund balances are likely to be in a precarious position because of increases anticipated in the 1965 cost estimate coming before Congress next January.

These bills contain no provision for the administrative expenses of the Bureau of Public Roads in carrying out its increased responsibilities in administration of this activity. It is presumed, therefore, that under the provsions of the legislation now before the committee any additional administrative expenses would have to be borne by the highway trust fund.

The inconsistencies between the statements of record and the provisions of H.R. 11065 warrants the committee's careful consideration of an amendment so as to specifically provide that the Federal contribution toward financing the 2.350-mile developmental highway program and the 500-mile local access road program is to be provided from the general fund, and shall include expenditures incurred by the Bureau of Public Roads of the Department of Commerce in administering its responsibilities under this program.

It is requested that this letter be included in the record as a part of the public hearings on these bills.

Sincerely,

CORNELIUS R. GRAY, Director, Legal Department.

STATEMENT SUBMITTED BY THE NATIONAL ASSOCIATION OF MANUFACTURERS As a voluntary organization long devoted to fostering economic progress, the National Association of Manufacturers is interested in any constructive measures that might contribute to this objective and serve the national interest.

Your committee and the national administration quite properly are focusing public attention on a persistent economic problem-the plight of people and communities that have failed to keep pace with the gratifying economic progress of the Nation as a whole.

Our association, therefore, welcomes this opportunity to comment on H.R. 11065, and we would like to assist the committee in finding satisfactory ways to help ameliorate problems resulting from economic decline, wherever they may be found.

The feelings of members of the business community about such problems differ in no important way from those of members of other major segments of the national society; business leaders generally have a deep concern for the unemployed and other people who, for whatever reason, are deprived of the social and economic benefits the vast majority of Americans now enjoy.

As employers, businessmen are keenly aware of the complexities of some of the human problems involved. A number of companies belonging to the National Association of Manufacturers have operations located in the Appalachian region and other areas where some of the residents are handicapped by extreme poverty, inadequate education, and low standards of health, sanitation, and housing. The difficulties of speedily raising the general standard of living of people in long depressed communities are fully apparent.

Despite the scope and individual variations in the overall area known as Appalachia, a great deal of economic progress has been made. We would like to devote the first part of this statement to discussing some of the basic reasons for this progress. We then will turn to an analysis of H.R. 11065, and in conclusion offer the committee several suggestions about some nongovernmental approaches that may be helpful in getting at the human problems.

I-PROGRESS IN APPALACHIA

The President's Appalachian Regional Commission emphasizes what the National Association of Manufacturers and many other responsible business organizations believe is the most basic and enduring way of creating more and better jobs for people: investment of capital by private business in enterprises

that will satisfy economic and social needs, and done in the expectation of realizing a profit for the entrepreneurs and other investors.

In the language of the report, this viewpoint is stated thus:

"The private businesses of the Appalachian region are critical of future growth.

"They provide the means by which the potential of regional public investment is realized in the form of more and better jobs for the people who are the target for the developmental effort.

"The entrepreneurs who translate the capacities of the region's economy into first-level jobs are indispensable to economic growth. The availability of adequate developmental capital will be critical to their contribution."-PARC report, page 53.

The outlook for the Appalachian region is considerably brighter today than in recent years because of accelerated interest on the part of private investors in the economic possibilities of the area.

Because of growing diversification of economic pursuits, the Appalachian region seems unlikely to experience again the discouraging economic setbacks such as accompanied the decline of mining and agriculture in the 1950-60 decade. In these two fields of endeavor, 640,000 jobs were lost over a 10-year period. However, it is significant to note that employment in manufacturing, construction, and services in the Appalachian portions of the 10-State region in the 1950-60 decade increased by 565,000 persons, manufacturing employment being responsible for more than 35 percent of the increase. Thus, there was a net loss of 75,000 jobs in the decade.

Yet the President's Commission has commented:

"The Appalachian people are clearly striving to meet the challenge of deprivation. Their achievements are the best augry for the ultimate success of a fullscale, concerted developmental effort."

In the present decade and beyond, the best hope for the Appalachian region is for further investment in job-creating facilities by private business-both those who already have experienced satisfactory results from operations placed there and by others who may be persuaded to locate there because of beckoning economic opportunities.

While the rate of increase in manufacturing jobs in that area was smaller than for the U.S. economy as a whole during the decade, the rate of increase in Appalachia for 8 out of 14 manufacturing industries was greater than for the remainder of the country.

Industries whose employment gains in Appalachia were comparable to and in some case in excess of-employment provided by the Nation as a whole, included: Fabricated metals, nonelectrical machinery, transportation, equipment, other than motor vehicles, food and kindred products, apparel and other fabricated textile products, printing, publishing and allied products, motor vehicles and motor vehicle equipment, and other nondurable goods.

While the area is not especially rich in metallic minerals, Appalachia has begun to develop as a source of metal-processing employment. During the 1950-60 decade, fabricated metal industries added jobs in the Appalachian portion of each of the 10 States, and in all but 2 of the States jobs were created in the primary metal group.

A star performer in Appalachia, however, was the motor vehicle and motor vehicle equipment industry, which showed a 67.3-percent increase. Although the President's Commission does not indicate the number of jobs involved, it is evident that job creation in this industry requires considerable investment.

The availability of electric power provides an inducement to industry to locate in a given area, and in this respect the Appalachian region is in solid shape to compete with other regions. Not only is there no power shortage, but power is being exported over a broad geographical area.

Twenty-three investor-owned electric utility companies have made important contributions to the economic development potential of the region. Their 244 powerplants generate 30 million kilowatts annually, and an additional 7.5 million of generating capacity is planned.

Both the coal and railroad industries are helping to enlarge the national market for Appalachian coal, particularly in the growing electric power industry. Unitized trains, installed several years ago by railroad lines operating in and beyond the coal mining territories, are lowering transportation costs, such distance utility companies as Consolidated Edison Co., of New York, are contracting for sizable Appalachian coal requirements over a 3-year period; and

the coal mine operators in Appalachia are pricing their product more competitively because of the guarantee of volume orders. Thus, the operations of the marketplace-plus the ingenuity of entrepreneuers in detecting and fulfilling customer needs-are moving to improve employment in the Appalachian coal mining industry.

A projected program by 20 investor-owned utilities to create a vast network of power generating and transmitting facilities to serve major population centers will require an additional 60 million tons of coal a year. American Electric Power Co., which in the spring announced a billion dollar expansion program, will eventually increase its coal requirements by 12.5 million tons a year, according to its current planning.

The trend toward diversification in the Appalachian region augurs well for increased employment. Movement of private capital into the area because of such inducements as available manpower and natural resources, plus the encouragement of local communities, is increasing. In our view, the major role in job creation will be played by private enterprise. National policies that encourage capital investment by the private sector of the economy should provide more enduring, meaningful, and satisfactory solutions for not only Appalachia, but other regions that may not have kept pace with the rest of the national economy.

Because competition subsidized by Government proves a deterrent to competition spurred by private investment, we believe that, as a matter of national policy, massive Federal Government spending projects in these areas should not be encouraged.

Acceleration of the rate of national economic growth is dependent upon greater encouragement to private investors to put their money to work in the expectation of making a profit. The unleashing of the creative energies of people who are thus provided opportunities to get productive employment is made possible.

II-ANALYSIS OF THE BILL AND ITS PURPOSE

Let us now examine some of the current legislative proposals.

The proposed creation of a new federally financed corporation-the Appalachian Development Corporation calls for a corporation to be managed by a single Administrator appointed by the President with advice of the Senate. Although ostensibly the Corporation would be created "in order to provide financial assistance to local development districts in the region," it would actually be empowered "to acquire in any lawful manner any property, real, personal, or mixed” and “to hold, maintain, use, and operate same."

This would enable the taxpayer-subsidized corporation, if it so desired, to own and operate blast furnaces, rolling mills, petroleum refineries, papermills, lumbermills, coal mines, electric power generating plants, power transmitting lines, railroads and other transportation systems, and fabricated manufacturing plants of all types.

Because such a corporation would be exempt from the corporate income tax and from State and local taxes, it would be able to compete unfairly with private enterprise manufacturing ventures both within and outside the Appalachian region.

If such a corporation is established, it is reasonable to expect that other regions would petition for similar tax-exempt corporations. Federal Government-subsidized competition with private enterprise through such devices could well become commonplace, and discourage private investors from putting funds into enterprises depending upon private capital investments.

President Johnson recognizes that the funds freed by the recent tax legislation give private enterprise opportunities to increase investment and employment. There is evidence that this is occurring in various segments of U.S. industry. However, we believe that the proposal to create this new corporation contradicts that philosophy. We also believe the proposal runs directly counter to the Bureau of the Budget goal to reduce commercial-industrial activities of the Federal Government.

We have noted the pick up in manufacturing employment in the Appalachian region over the past decade, the trends currently underway which are generating new jobs, and the plans underway for substantial capital investments by private enterprise.

With this most promising economic movement underway, we believe it would be regrettable to impose upon private investors and individual entrepreneurs a