Among our allies in Europe, reliance on South Africa for chromite is similarly heavy except for France, which benefits from longestablished ties in Madagascar for more than half its chromite imports, and Japan, which also obtains a substantial share of its chromite Imports from Madagascar. Thus, there can be no question

of the importance of central and southern Africa as suppliers both to the United States and to most of our allies.

Coupled with the current and growing dependence of the United States and its allies upon this area of the world and the important role played by the U.S.S.R. in these markets is the potential political instability of the central and southern African nations. Taken together, these facts point to less secure supplies of several imported minerals in the future.

Of the commodities studied in this review, only those listed in Table A-1 are thought to be of significant concern in terms of security of source. The analysis addressed primarily the political stability of the country or geographic area, and the extent to which the United States is dependent on that area for a particular mineral. Thus, for example, while the U.S. may be dependent on imports of other minerals, they are not included if sources of supplies are sufficiently diverse.

Mitigating Factors

Several factors are balanced against this situation. The possibility of a disruption of supplies from the African nations is reduced by the dependence of these nations upon mineral exports for foreign exchange needed for economic prosperity and development. In addition, while the supplies of minerals from central and southern African nations may be less secure, the traditional customers and producers of potential alternatives have already adjusted and will continue to adjust with larger inventories, substitution by consumers, and efforts to increase the diversification of supplies.

Associated Issues

Several issues associated with the major issue of insecure supplies of critical imported minerals were identified and deserve further consideration, evaluation, and attention.

Potential Shifts by Major Suppliers: Concerns were raised
about possible U.S. vulnerability to future shifts in tra-
ditional minerals policies by governments of regions that
have been or soon will become major suppliers of materials
to the United States, but the review indicates that these
do not have the significance of the issues identified above.
Shifts in minerals policies by these supplying nations could
result in significantly increased prices and reduced supplies
to U.S. consumers of certain minerals.

Reduced Exploration in Developing Countries: In the 1970's,
expenditures on minerals exploration and development declined
more sharply in the developing countries than in the developed
countries. However, there has not been a decline in the growth
of productive capacity in the developing countries proportional
to the slowing of the growth of world demand for minerals.
The developing countries appear to be expanding capacity on
the basis of the inventory of past exploration and discovery
by the international mining companies. But the developing
countries are not exploring and proving new reserves. If
this continues, needed expansion of minerals production in

developing countries (in terms of the intrinsic quality and economic competitiveness of their mineral deposits) will not take place over the longer term, resulting in higher prices for consumers. In short, the market does not appear to be responding adequately to the need for high-risk, long-term investment in exploration, and feasibility studies, in the developing countries.

Nonmarket Objectives Sought by Some New Producers: The wide-
spread nationalization of extractive industries during the
1960's and 70's has brought a number of new managers into the
market, who often operate under different rules from those
traditionally followed by private mining companies. Social
and economic benefits to the host country from mineral invest-
ments may take precedence over traditional, profit-motivated
behavior. Managers with non-economic objectives tend to
maintain high levels of production in a depressed market,
compounding the problems of private producers who find the
usual cutback in output insufficient to arrest the recession-
ary price slide. These new pressures have been an additional
factor impelling private mining firms to cut back explora-
tion which, in the past, they pursued somewhat independently
of short-term market fluctuations. More information about
what motivates management decisions of these new managers
is needed to assess the significance of these events.

Uncoordinated Attempts to Stabilize Markets: Inadequate cooperation among developed countries and between consuming and producing countries may lead to the adoption of conflicting, unnecessarily expensive and self-defeating policies in an attempt by the consuming nations to assure their mineral supplies. For example, as countries other than the United States turn increasingly to stockpiling for economic or strategic reasons the markets for these commodities could be destabilized by uncoordinated disposals and acquisitions or by uncertainty on the part of private traders concerning the intentions of the stockpile managers.

Limited Promotion of Diversified Supplies: U.S. commodity policy provides for some financial assistance designed to promote the diversification and security of raw materials supplied to the United States. The United States has sought to promote increased investment in the production of key raw materials through increased involvement in international development lending institutions and the Overseas Private Investment Corporation (OPIC). The OPIC investment insurance program has had only limited success in recent years in stimulating minerals exploration and development projects in developing countries, reflecting in some measure the dissatisfaction of American industry with its terms and conditions. However, this year OPIC has undertaken to provide additional types of coverage and financial incentives relevant to mining projects.

Principal Issue:

B. Domestic Minerals Production

Several of the domestic mineral industry segments
examined in this review are expected to experience
declining production by the year 2000. These and
a number of other mineral industries may also lose
shares in both the U.S. and world markets over the
same time period.

Discussion of Issue

Factors affecting domestic minerals production and the ability of the domestic industry to compete with foreign producers in U.S. and world markets were examined to better understand the potential for problems in future domestic minerals production. Because the factors which influence domestic production are many and variable, the outlook for domestic production is extremely difficult to analyze adequately. These factors may vary in significance from operation to operation. Even for the same mineral, two identical ore bodies may not yield identical evaluations given differences in location, available labor, or government policy.

Among the most important factors are: ore quality, labor costs, technology available, energy costs and availability, management skills available, and government policy. These were reviewed, to the extent possible, using current data. This yielded some useful qualitative comparisons, and general conclusions. However, an important finding is that more detailed examination of individual commodities or industry sectors is needed before we can develop an adequate understanding of the interrelationships among factors and identify those that are susceptible to influence by government policy.

Some factors were identified which warrant more study than others in determining the position of various segments of the nonfuel minerals industry. The two principal economic factors are ore quality and labor

costs:

"Ore quality" includes quantity, grade, by-product or co-
product potential, depth, and any other physical charac-
teristics of available mineral deposits that affect
production costs. Efficient use of resources requires
that, ideally, mineral deposits be mined in order or
overall quality, i.e., at any given time, producing
mines require less labor, capital, and other resource
input per unit of mineral output than would the next
best deposits available.

As this section process continues, given the availability
of land for exploration, production costs increase as ore
quality drops. Technological advances in mining and ore
processing have reduced costs sufficiently, in some instances,
to allow competitive mining of very low grade U.S. ore, e.g.,
copper ore containing less than one-half of one percent
copper. Many foreign countries have mineral deposits that
are of significantly higher quality than most known U.S.
deposits.

"Labor costs" include changes in both wage rates and productivity. U.S. wages have been substantially higher than wages in many foreign producing countries, particularly the developing countries. This situation is likely to continue.

Historically, higher U.S. wage rates have been in part off-
set by higher U.S. productivity, or output per time unit
per worker.

The two principal non-economic factors that have been identified are U.S. environmental, health and safety regulations, and foreign government subsidies and promotional policies. The general, and theoretical, importance of each is clear, but the relationships among specific impacts on each commodity are not well known and require study on an individual commodity or industry basis.

The environmental problems associated with minerals production and the effect of environmental, health and safety regulations are discussed in a separate issue of this report (see p. 37). A major goal of the environmental protection legislation is to assure that the cost of increased environmental protection is borne by producers (and thus consumers) causing the environmental damage. To the extent foreign producers are not required to bear the costs of similar environmental and health and safety protection, the costs of production of U.S. producers (and thus, the product prices) have increased relative to the production costs of foreign producers.

Japan and Europe generally have used aid and technical assistance more systematically than the United States to foster the development of mineral resources overseas, especially in the LDCs. A French government corporation, for example, invests directly in LDC minerals production. Japanese tax laws enable mining companies to set aside large, tax-free reserves against a variety of risks and contingencies and then offset them against losses in poor years. Major European countries, including especially Germany, have also been active in negotiating bilateral investment treaties with LDCs.

The effect of these factors was considered for individual sectors of the U.S. nonfuel minerals industries. Past trends were examined, and judgments were made by Bureau of Mines experts about the net effect upon 21 U.S. mineral industry categories through the year 2000. (See Table B-1.)

Three indicators related to the ability to win and hold market position were used to assess the position of the domestic industry through this time frame.

Domestic output. The quantity of marketable product pro-
duced at each stage of the production process.

This per

U.S. producers' share of the domestic market.
centage indicates the extent to which domestic suppliers
are meeting domestic demand.

U.S. producers' share of the world market. This percentage indicates the extent to which U.S. suppliers are meeting world demand.

Of the 21 mineral industry categories examined (Table B-1), only four are expected to experience a decline in production by the year 2000 relative to a base of 1973-1977 average annual U.S. production. However, looking at the U.S. producers share of the U.S. market, the number of industry categories expected to lose ground by the year 2000 increases to 11 out of the 21. Finally, U.S. production is expected