confronts us today. Then you listed the countries that were supplying us with some of these scarce minerals. To make it explicit, are you telling us that a handful of countries which now supply us with these scarce minerals, vital to our national life, may perhaps do the same thing to the United States, as far as those resources are concerned, that the Arabs have done to us with petroleum? Dr. KILMARX. I am saying that the experience of OPEC can be drawn upon with awareness that the leverage, in the short period of time of these producers of copper, nickel will not be as great. I am saying that in time we will see increasing collusion very probably. Certainly there is the hazard of such collusion between these states and very likely the formation of a number of supplier groups, so to speak with a preliminary objective to insure higher prices. This is, after all, part of the problem. They also seek to have more control over the rate at which the mines produce, which is part of our problem because in a number of these countries the philosophy of conservation. the philosophy of nongrowth, if you will, or delayed growth is finding more allure, turning away from the pure western model of accelerated economic enhancement. A case in point is Papua New Guinea, which is rich in copper. Papua New Guinea is another case of political changeover which might lead in the direction of more government control over a major copper mine and establishment of a regime that discourages exploration and exploitation by private mining companies. I am saying also that these countries, through their interrelationships with OPEC, might pull together to bring pressures on the developed nations for major concessions in the international political arena. Just because there are alternative sources of bauxite does not lead me to conclude that we can be complacent about the possibility that major producing nations will be able to push up price significantly, particularly if they can find allegiance in some manner with major suppliers, like Australia. Many of our so-called safe countries that I have not mentioned, like Australia, cause one some concern about changes in their investment policies and in their willingness to allocate their minerals in a manner that would meet the future needs of the United States. I do not wish to cast any aspersions on the decisions of a great nation, but it is a fact that they have initiated legislation and decrees that point in the direction of 50 percent or more acquisition of mining industries. They have created disincentives to foreign acquisition and capital imports that restrict investments in mining from abroad. This discourages the rate of expansion of mineral production. They now see their political future more with the undeveloped countries rather than in alliance with the United States. These developments enhance my concern about the kind of action which restricts supply or increases prices. Senator METCALF. Every time we have held hearings on this subject matter, not only in this administration, Dr. Kilmarx, but in the previous one, we have been told that if Congress acts we will delay and prevent international agreements, that we should defer to international conferences to be held in Geneva or New York or now in Caracas. Do you have any comment on whether passage of this legislation will do harm to our efforts to achieve an international agreement? Dr. KILMARX. I both will probably discredit or enhance my answer by the introductory statement that I have had no professional association with any of these negotiations. However, I have had the privilege of studying the law of the sea, having served as a consultant on naval matters. I cite this primarily to point out that it was in 1970 when I was a personal advisor to the Governor of Puerto Rico and we studied the international regime of the seas. We heard then from the leading U.S. governmental spokesmen at that time that we can expect international agreement on a new legal regime for the seas in 12 years. That was 1970. I do not have as much patience as some others do concerning the timing that is required for the passage of what I think is important legislation. Pious wishes, maybe even secret commitments to other nations are important. But I have not seen more than an articulation of the former and a nonexpression of the latter that could cause me perhaps to reevaluate the position I have just taken. Senator METCALF. Suppose we pass this legislation and we begin to develop these nodules. We begin to refine them in the United States and have a new source of basic minerals. It is said that that will destroy the economy of some of these so-called "exporter countries" that you listed in your formal statement and will cause considerable international concern when we withdraw or reduce our purchases from those countries. Would you comment on that? Dr. KILMARX. I think there are several considerations involved. Number one, many of the countries that are supplying these minerals, unlike Zambia are diversing extensively in other areas and even finding oil, so dependency on one or two minerals is decreasing. Second, there are a number of programs afoot in the world to provide assistance to these nations by such means as generalized tariff preferences or even broadly ranging bilateral aid in particular areas. We also make massive contributions to international lending agencies, for example, to the World Bank Group. I also would like to emphasize that the growth rate in terms of demand for these minerals is increasing much greater in other parts of the world than in the United States. It is going to be a burgeoning of demand. Supply over the long term may not catch up. Therefore, I believe that the likelihood for price stability and good return lies ahead for these countries as well as foreign assistance from many other sources. As these countries do more processing at home, which is their objective, they get more value added. This is the goal of most which the West will have to accommodate to. There will be more interregional trade between them and their overall economic dependence upon the export of these minerals will slacken. The outlook for good return on these minerals from developing nations will be enhanced unless we have a major prolonged depression. Senator METCALF. Dr. Kilmarx, Senator Fannin has suggested that the economics of international support will protect these nations and as we develop we will need their resources in addition to the seabed sources until they can expand their own economies. Is that correct? Dr. KILMARX. Right. Might I just footnote that by stating that lest I seem unduly critical of the administration, I am impressed with the initiatives it has taken within a number of areas to improve our rela 31-789 (Pt. 2) O 74 - 11 tionship with a number of developing countries. The experience of the James Green mission is a case in point. I have close associations that indicate to me that the recent mission to Papua, New Guinea by Deputy Secretary Rush provided many genuine offerings of technical assistance. This kind of forward looking policy will be to our advantage. Senator METCALF. Senator Metzenbaum. Senator METZENBAUM. If this legislation provided for government to develop the seabed, instead of the private corporations, would you still support the legislation? Dr. KILMARX. I think I would have to see the terms in which that was stated because there can be entrapments. Senator METZENBAUM. If someone had the appropriate safeguards, would you totally reject out of hand? Dr. KILMARX. No; I would not totally reject it out of hand. I would be perhaps more wary of its provisions and the likelihood that we would have sustained support from administrations that change from time to time. The outlook of companies may be 10 to 20 years. It is another process that we witness here. Senator METZENBAUM. Would you support a concept similar to Comsat? Dr. KILMARX. I would have to give more thought to that. I am not an expert sufficiently on Comsat to comment. Senator METZENBAUM. Thank you. Senator FANNIN. Just to follow through on that and we must realize what is happening in the oil industry. Here of the 550,000 wells that have been drilled worldwide, 480,000 of them have been drilled by American companies. The success of many countries of this world can go right back and be attributable to American technology, American ingenuity, and American capital, so I think we must recognize this that as far as a government project, other than some ongoing project such as outer space and a few of those particular programs, private enterprise carried through most every successful enterprise that this country has been involved with. So I just feel that if we had so much success in all these years and are leading the world in these endeavors, then why should we go back to a concept that in most instances has been a complete failure? Dr. KILMARX. May I make a comment on that since it may be my last one and you will allow me a slight tilt in the direction of philosophy. I agree entirely with your commentary. I think we are in a period in our own history where we are subjecting the free enterprise system to microscopic examination, a period where even the good standing of business may have been tarnished in the public mind perhaps by unwarranted horror stories or valid horror stories that have been universalized or generalized. This leads to over reaction, to premature reappraisals of the proper role for the private enterprise system. Senator METCALF. Dr. Kilmarx, I know that you have to leave. I congratulate you on your very helpful and most informative statement and your response to our questions. Would you be willing to submit answers to some other questions if we sent them to you within a few days? Dr. KILMARX. I will be pleased to do so, sir. [Subsequent to the hearings Dr. Kilmarx submitted the following:] Dr. ROBERT A. KILMARX, U.S. SENATE, COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, Director of Business and Defense Research Center for Strategic and International Studies, Georgetown University, Washington, D.C. DEAR DOCTOR KILMARX: This will repeat my appreciation for your 5 March 1974 presentation to the Senate Subcommittee on Minerals, Materials and Fuels hearing on deep seabed hard minerals. As I told you then, I would submit in writing questions which occurred to me as I listened to your testimony, but which I did not have time to ask. They are attached. They and your replies will be a part of the hearing record, which will be held open until 1 April 1974. Very truly yours, Enclosure. QUESTIONS FOR DR. KILMARX LEE METCALF. 1. You are telling us that handful of countries which now supply us with minerals vital to our national life can do the same thing the Arabs did with petroleum? 2. But some of these countries are friends of ours. What about them continuing to be a source of supply? For example, Canada and nickel? 3. For years we have heard Administration witnesses oppose this legislation on grounds that it would do harm to their efforts toward international agreement. Have you a comment on this argument? 4. In connection with our stockpiles, do you have any information as to why the Administration has recently been drawing them down-when it is apparent that we may need them? 5. According to published reports, the oil producing countries are encouraging mineral producers to similarly combine to increase prices and influence in the world community. Can you tell us anything on this and how effective these actions have been to date? 6. It also has been argued that if the United States develops seabed minerals we will threaten those nations whose economies are based on the export of landbased minerals. Is this argument valid in your view? 7. In my introductory remarks, I included a reply from the Congressional Research Service of the Library of Congress to my question: If we were cut off from foreign sources, how long could we continue to make steel from our stockpiles. Have you information on this question? I'd also appreciate any information you may have as to how long our stockpiles could sustain current production if we were cut off from foreign supplies of cobalt, nickel and copper. If we were so cut off, do you think it rational to assume the Defense establishment could allow release of stockpiled minerals in significant amounts for domestic production? 8. Dr. Kilmarx, you have been in this business a long time. We are told that there is little likelihood that mineral producing nations will be able to get together to put the squeeze on us. Are you familiar with a recent study on this subject? If so, can you tell us anything about it? 9. And a related question: Do you know of a single expert who was forecasting, let's say five years ago, that the oil exporting nations would now have us in the bind we are in? 10. As we head into the law of the Sea Conference, it is apparent that there are two views of who shall develop seabed resources. Am I right in saying that only a handful of developed nations favor a licensing authority and that a vast majority now favor development of an international agency? Do you see any area in the United States proposals in the Law of the Sea Conference where we could make concessions of such magnitude as would be required to give us a two-thirds vote for our point of view? THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, Senator LEE METCALF, GEORGETOWN UNIVERSITY, Washington, D.C., March 25, 1974. U.S. Senate, Committee on Interior and Insular Affairs DEAR SENATOR METCALF: I was very pleased to have the opportunity to testify before your sub-committee on March 5. In response to your letter of March 8, I have tried to answer as many of your questions as I could. Several answers relate to more than one of your questions. I have only suggested a small revision to the Tenth Question. In regard to your last point, I hesitated to add to the record since the required concessions would probably be very damaging to the U.S. defense interests. Frankly, I would be satisfied with a national regime for many years, working out international disagreements on a bilateral basis should they arise. seeking international legal agreements first only on such issues as territorial waters and free passage through international straits. But the Administration apparently needs the test of defeat or delay at the international conference table to even think in these terms. Sincerely yours, Enclosure. Dr. ROBERT A. KILMARX, Director of Business and Defense Research. Question 1. You are telling us that a handful of countries which now supply us with minerals vital to our national life can do the same thing the Arabs did with petroleum? Question 5. According to published reports, the oil producing countries are encouraging mineral producers to similarly combine to increase prices and influences in the world community. Can you tell us anything on this and how effective these actions have been to date? Answer. Since the United States is becoming increasingly dependent on foreign sources for many non-fuel minerals, there should be growing concern in the country about the prospect that foreign source countries will in time band together to raise prices and to possibly restrain supply. For example, should Canada, Australia and Papua, New Guinea join CIPEC, the association of copper producers, short term success may be expected in efforts to keep copper prices up when they falter. Pressures for the formation of organizations of commodity producers is stimulated not just by the example of OPEC but also the high price of oil. Even producers of bananas and timber are moving in this direction. The newly formed association of bauxite producers has already convinced a major U.S. aluminum company to renegotiate its old contract. The outcome will be higher prices for bauxite. The task, of course, is more difficult for non-oil cartels because of their lack of strong financial reserves and the need for revenue. Also, demand for non-fuel minerals is more cyclical and there are more sources of supply than can come on stream when prices stay high. The challenge of new cartels, however, is strengthened by evidence of talks between Arab oil leaders and leaders of developing nations with non-fuel minerals. Arab countries may help them squeeze the developed nations and even help finance stockpiles. For example, President Mobuto of Zaire, a large copper producer and member of CIPEC, has been quoted in the press as indicating that talks were being exchanged between Arab leaders and his government regarding future Arab assistance which would enable copper producers to maintain prices at remunerative levels. Saudi Arabia is seeking closer cooperation with Zambia, another CIPEC member, and is interested in investing in Zambian development. This emerged after talks between President Kaunda and King Faisal. Also, a high official from copper-rich Papua, New Guinea recently visited Kuwait. Question 2. But some of these countries are friends of ours. What about them continuing to be a source of supply? For example, Canada and nickel? Answer. It is true that some of these countries are friends of ours. But even friends can be vigorous economic competitors and cause us economic stress at one level while Joining hands around diplomatic tables when other matters are at issue. Canada is a case in point. Canada is becoming increasingly interested in an independent foreign policy and is moving towards a nationalistic economic policy, leading to increased Canadian equity holdings in and control over foreign mining companies in Canada. |