committee met, pursuant to recess, at 10:05 a.m., in room 5302, n Senate Office Building, the Honorable William Proxmire hairman of the committee) presiding. ent: Senator Proxmire.

tor PROXMIRE. The committee will come to order.

y we are considering the strategic and critical materials stocks part of the Joint Committee's review of the defense industrial

strategic stockpiles are an outgrowth of the cutoff of foreign als supplies during World War II. In 1946, the Congress passed ock Piling Act. Since then, it has created the Supplemental -ile and the Defense Production Act Inventory.

war experience, and especially the severe material shortages of nd 1974, has confirmed the wisdom of maintaining a stockpile edge against disruptions in foreign supplies of vital materials ich the United States is heavily dependent on imports.

ognizing the commonsense wisdom of stockpiles, however, does I us very much about how to manage them to suit our defense ts. It doesn't tell us very precisely what materials to hold or uch of these materials to stockpile in a technologically, poy, and economically volatile world.

eover, the history of our stockpiles is replete with examples of use or abuse for budget balancing, for price stabilization and nost every other purpose other than the only legal one-strategic zation.

stockpiles have been especially controversial since 1973, when idance was issued that virtually eliminated the stockpiles as known them before. This controversy has led to a year-long gency study and the development of a new stockpile policy. It policy that the committee intends to examine today.

new policy has two parts: a new set of assumptions and a new la or methodology for calculating stockpile goals. This complex ormula is an abrupt departure from the old system of stockpile ves. Right at the start, it will increase our stockpile require

ments for 72 of the 93 essential materials. It will increase the cost by literally billions of dollars.

Furthermore, it permits the stockpile goals to be revised annually to account for changes in a variety of economic and political factors. And it calls for a new stockpile acquisition and disposal plan to be submitted to the Congress every year for the necessary appropriations.

Stockpile planning will be far more fluid and difficult to comprehend than it has been in the past. With a constantly changing acquisition and disposal plan and a routinely changing set of stockpile goals, there seems to be little or no way of keeping track of where it stands or of getting a good grip on what this new stockpile will consist of or what it will cost us. There is a real potential here for stockpile costs to go steeply upward. If a close friend of the administration wishes to have a material bought in which he has a big financial interest, why couldn't this easily be done with little or no accountability? If the President wants to save a billion or two to balance his budget or make it look good, wouldn't this new stockpile policy easily permit it?

There are many other important issues at stake in this new policy. We want to know, for example, why civilian materials requirements are being included in what is, by statute, a national defense stockpile. This gives it the appearance of an economic stockpile rather than a strategic stockpile. There is a real question in our minds, I think, as to whether we need a stockpile as big as the new one now being planned; especially in an era of relative peace and when the Joint Chiefs of Staff are planning for short wars, not long ones. Are we overinsuring against the negligible military threat of an extended conventional war? What are the real motives that led to these increases in stockpile goals, so soon after they had been dramatically reduced? We want to know, too, whether this new policy contemplates using the stockpile as a unilateral buffer stock against cartels of foreign producers and for other forms of economic warfare. Or whether it is aimed at stabilizing world or domestic materials prices. In this connection we would be interested to know whether the current statutes permit use of the stockpiles for these or other purposes, such as catering to special interests. We need to know the effect of disposal and acquisition programs on the civilian economy, especially markets, prices and employment. Will this hoarding of materials further retard economic recovery? We need to be assured that any other use of the stockpile, if permitted, would not exhaust its resources in a way inimical to our national defense, which of course is the basic justification for stockpiling.

We also want to examine the new assumptions that drive stockpile planning to see whether they are defensible. We want to look at the new methodology to be sure it is manipulation and tamperproof and not just an economically elegant shell game.

Finally, we want to examine the new stockpile policy and formula in the context of our national materials situation. We want to know whether it takes other initiatives into account, such as the forthcoming recommendations of the National Commission on Supplies and Shortages. If the new stockpile policy does not fit comfortably into a total strategy for dealing with materials problems across the board, then it will not be of much use and will not long survive.

ps the biggest issue at stake here is the overall credibility of inistration's new stockpile policy. The administration discovlier this fall just how deep is congressional skepticism of › management when it failed to pass a major stockpile dis11. The entire history of the stockpiles permits no attitude an one of healthy skepticism.

al Bray, we are glad to have you back before the Joint ComThe committee appreciates what you and your staff have done › inform us on the new stockpile policy. However, there are a of important questions remaining and we are going to need straight answers before the Congress is going to be comforth this new approach to stockpiling.

fer that we conduct today's hearing entirely in open session. is material that cannot be divulged in the open hearings, I ppreciate it if you would bring it to my attention and submit e committee separately in writing or perhaps in an executive later on.

ill accept your written statement for the record and you may ize your remarks.

written statement, as a matter of fact, is concise. Perhaps you
go ahead with that and we will take up.

MENT OF MAJ. GEN. LESLIE BRAY, JR., U.S. AIR FORCE,
ETIRED, DIRECTOR, FEDERAL PREPAREDNESS AGENCY

ral BRAY. Mr. Chairman, thank you very much.

-, before I read my short written statement, let me say that I ate very much the interest that this committee is showing in rticular area. I agree wholeheartedly with the issues as you nounced them. Those are exactly the issues that we have foreour minds. I believe we have reasonable answers to those sorts tions, and I welcome the opportunity to discuss them with you thright and open manner, and I hope I can be helpful in gainbetter understanding and appreciation of some of these issues ee them.

Chairman, at your request, of course, I am here to discuss the l stockpiles of strategic and critical materials established puro the Strategic and Critical Materials Stock Piling Act of 1946, nded. I especially welcome this opportunity to discuss national le planning in the context of your interest in industrial preess planning because these two areas are intimately related and re both special responsibilities of the Federal Preparedness

7.

Director of FPA, I am responsible for policy guidance and cotion of the emergency plans and preparedness assignments of l departments and agencies relative to the mobilization of the , natural and industrial resources of the Nation to meet the conof a national emergency, including attack upon the United These responsibilities flow primarily from the National ty Act of 1947, the Strategic and Critical Materials Stock Piling 1946, the Defense Production Act of 1950, the Federal Civil e Act of 1950, all as amended, and related authorities vested in esident of the United States.

The spectrum of our activities covers the emergency planning of Federal, State, and local government agencies, national economic resources, the full range of possible national emergencies, and the economic and strategic implications of emergency preparedness plans. Therefore, I am especially aware of the numerous and complex interactions between the factors that must be considered in emergency preparedness planning. From this perspective, I will bring you up to date on the new stockpile policy guidance we have received, and I will try to discuss some of its implications, especially the near- and long-term economic and strategic implications.

Recently, a year-long interagency study of stockpile policy was completed under the chairmanship of the Federal Preparedness Agency. The study resulted in a Presidential decision and the issuance of new stockpile policy guidance by the National Security Council. The new policy calls for a strategic and critical materials stockpile capable of supporting U.S. defense requirements during a major war; over a 3year period; assuming large-scale industrial mobilization and the associated increased materials demands; and providing at the same time for a broad range of basic civilian economic needs to insure the health, welfare, morale, and productivity of the civilian population needed to maintain the vitality of a wartime economy. This policy goes well beyond the stockpile guidance issued in 1973. The new guidance calls for a different configuration of the stockpile than we presently have and it will entail major programs of both acquisitions and disposals. Because the statute requires us to avoid, to the extent possible, any undue disruption of the market, the rate at which materials can be bought or sold will necessarily be constrained. Further, data on materials requirements and domestic and international situations constantly change. For both of these reasons, any achievement of the new stockpile goals, as we now call them, will probably be a long-term proposition stretching out over a number of years.

An important procedural change, known as the variable confidence level approach, was adopted during the stockpile policy study. In this approach, materials required during a period of national emergency are specifically identified as being required for either defense, essential civilian, or general civilian use. Planning factors used to estimate supply sources and availability can be varied for these three groups. More conservative factors can be used for the defense portion of the requirements, and more moderate factors for the other requirements. Separate estimates for each year of an assumed war and the relative priority based on the three groups can also be used.

The study also recommended a new stockpile planning process to permit updating of stockpile goals and to better coordinate disposal and acquisition decisions. The new planning process will involve maintaining current data and planning factors, developing an "Annual Materials Plan" and providing for recurrent review of stockpile policy guidance. The Annual Materials Plan, which will fully take into account the results of industry and market studies performed on a commodity-by-commodity basis, will allow for changes in national security planning, market and economic conditions, international events, and budgetary considerations. This plan will be integrated into the budget cycle.