r PROXMIRE. Have any of the sales or disposals of excess stockterials been made to the Department of Defense or any branch med services?

l BRAY. You say have they been made to them?

r PROXMIRE. Yes, or to any branch of the armed services, the Army, the Air Force.

al BRAY. I want to be very precise in answering your question. mes, Mr. Chairman, have loaned materials out of the strategic e to the Army or the Air Force as a method of storing. In ords, rather than storing it in a warehouse somewhere, if they se of the material on a temporary basis, we have at times apmyself, on a case-by-case basis.

or PROXMIRE. Well, let me just say what I am getting at. What tting at is whether or not there is a second stockpiling policy art of the Government.

or PROXMIRE. The Air Force doesn't do any stockpiling on vn, nor does the Army or the Navy?

ral BRAY. Not of strategic materials, no, sir.

cor PROXMIRE. Mr. Bray, if the stockpile is to be used for ecovarfare or for other foreign policy purposes, as recent history s that it might, doesn't the President need new statutory auto use the stockpile in that way?

ral BRAY. Absolutely, Mr. Chairman. He would need new statuthority.

tor PROXMIRE. Is that authority expected to be requested? ral BRAY. I would like to quarrel, sir, with the thought that it has been used for that purpose. My-I said earlier I didn't o get into a detailed defense of each time it was used, but my 1 review over these 27 instances doesn't really bear out that sion. I won't agree, however

tor PROXMIRE. Wait a minute. It doesn't bear out what sion?

eral BRAY. A conclusion that it has been used for economic re or economic stabilization purposes. In my judgment, the case ade each time on the basis of the needs of the common defense. . I would agree with you that if the Congress if somebody us to use these materials in the strategic stockpile for economic re or for price stabilization or for any of the other purposes that -nomic stockpile is intended for, absolutely, yes, it should require egislation. We should not bastardize the current Strategic and al Materials Stock Piling Act for a purpose for which in my ment it is clearly not intended.

ator PROXMIRE. Now. General Brav. given a very substantial ase in the stockpile goals, even over the pre 1973 levels, it is hard oid the conclusion that they serve some purpose other than the mal defense, either that or the people formerly in charge of piles were negligent or didn't understand stockpiles, for example. is well known that Secretary Kissinger favors a policy of stang prices and markets to prevent carters in producing nations.

What assurances do we have that the stockpile goals are not aimed at world price and market stabilization?

General BRAY. I do not agree that our new goals reflect any change in intent in the use of the stockpile beyond those very narrow purposes of the Strategic and Critical Materials Stock Piling Act.

Senator PROXMIRE. Well, then, how do you account for the increase in the goal for copper when domestic production is very large, and foreign sources benefit from increased goals are Chile and Zambia and Zaire.

General BRAY. I will show you very clearly that our projected requirements for copper in a wartime situation cannot be met by the assured sources of supply and therefore we need to stockpile copper. Only that, precisely that, and only that. No impact from the Zambian problem, no impact from world price stabilization at all.

Senator PROXMIRE. Well, I am not talking about the fact that we need to stockpile some copper. I am talking about the fact that the stockpile has been increased as much as it is, that it is on a 6-year basis, a 6-year production year.

General BRAY. No, sir, it has no impact at all.

I assure you that it is not a factor at all in the deliberations. Senator PROXMIRE. Now, a number of policymakers and advisers here in Washington have advocated using materials stockpiles as a unilateral buffer stock to break up any incipient producer cartels. Would that reasoning account for the high stockpile goals? General BRAY. Absolutely not; no, sir.

Senator PROXMIRE. What about sales of stockpiled materials to other nations? I understand that we sold industrial diamonds to Israel in 1975 without permitting American dealers to bid on them.

General BRAY. We did, sir, and that was not a factor in establishment of the new stockpile goals. Not only that, but sales to any foreign country were not a factor in determining or establishing what our goals ought to be.

Senator PROXMIRE. Well, how is that kind of preferential treatment justified under the terms of the Stockpiling Act of 1946?

General BRAY. You mean the specific sale of industrial diamonds to the Government of Israel in the past?

Well, Mr. Chairman, in the first place, I don't think it is contrary to law at all. I do think it was a-there was a precedent, and if I look back on it, as I testified before a couple of committees a few months ago, if we had to do it over again, I would come up before the committee and advise them of what our intentions were, and read them on it beforehand.

I find nothing in the law, however-when we have authority from Congress to dispose-that precisely describes how we must dispose of a material, and we do have a long history. Our intentions are to protect the U.S. Government as best we can and get the best money for the material and so on. In this particular instance, there was the sale of industrial diamonds, part of an overall economic assistance package to the Government of Israel in which this was simply one of the factors that was used. We did get money for this. We did sell it under clear authority from Congress to dispose of the material. The law authorizing the disposal of diamonds-Public Law 92-108specifically provided for the type of disposal used in this case.

say, as a precedent, and because it was the first time we had used rticular method of negotiated sale to a particular foreign I think we would have been prudent to come to the approcommittees and advise them of it, but I do not think it was and certainly it had nothing to do with the establishment of 7 stockpile goals at all.

tor PROXMIRE. Well, will we sell stockpile materials that are excess to our allies or other friendly nations if they need them? ral BRAY. No, sir, that are not in excess? Only in other

tor PROXMIRE. We did in the case of diamonds.

ral BRAY. No, sir, those were excess.

tor PROXMIRE. Those were excess?

eral BRAY. Those were excess, absolutely, and the Congress had ized us to dispose of them.

tor PROXMIRE. General Bray, I want to thank you very much. re obviously an extremely well informed witness, and you are competent.

n troubled by this new policy, as you might be able to see by
estions, and I am not at all satisfied that over the next 5 years
e are not going to have an increased cost because of this policy.
e never seen a defense policy of any size that didn't exceed its
and I doubt if this is an exception to that, and this has been
stance for almost 20 years.

any rate, your testimony is most crucial to the record. I hope
ill respond to questions we will submit to you for the record.
neral BRAY. Yes, sir.

ator PROXMIRE. We would appreciate it.

neral BRAY. Thank you, Mr. Chairman.

nator PROXMIRE. Our next witness is the Comptroller General, Clmer Staats.

would like to have Mr. Staats here to testify.

-. Staats, we are delighted to have you this morning, and you a substantial statement with a number of appendixes which we have printed in full in the record.

d if you want to summarize your statement, we would be happy
ve the entire statement printed in full in the record, and you
at introduce your colleagues,

TEMENT OF HON. ELMER B. STAATS, COMPTROLLER GENERAL
THE UNITED STATES: ACCOMPANIED BY MONTE CANFIELD,
RECTOR, ENERGY AND MINERALS DIVISION: JOSEPH FERRI,
SSISTANT DIRECTOR, ENERGY AND MINERALS DIVISION; AND
ERNER GROSSHANS ASSOCIATE DIRECTOR, LOGISTICS AND
OMMUNICATION DIVISION

r. STAAT. Thank gon. Mr. Chairman.

n the interest of aring time, if I may. I would like to have the re statement om tred for the record and then I will road cy latively mail part of it and w* *... ne nopet up pougonay ra tay

r questions,

have with me hia mom ng Me Morte (20fold. The card of one ergy and Minerzia Dirigion and Me Joo finer, to nie r' dit Aurich.

ant Director of that Division; and Werner Grosshans here who has been concerned with the stockpile problem for quite a long while, testified before Congress on it, and is Associate Director of our Logistics and Communications Division.

Mr. Chairman, we have made a number of studies involving materials and minerals over the past several years. We have included reference to those in the appendix to this report, but roughly, our most recent work dates back to 1974, growing out of the great concern developed in 1973, particularly in the field of energy, as to the availability of critical materials to the United States for all of its requirements.

If I may, I will start on page 6 (see p. 44) of our statement. It picks up the current work on the stockpile by the National Security Council. The NSC in 1973 provided certain changes in assumptions to the General Services Administration's Federal Preparedness Agency which is responsible among other things for the management of the national and strategic stockpile.

The changes in assumption in April 1973 reduced the objectives for the stockpile from $4.8 billion to $700 million.

The basic assumptions which were changed and which had the most profound effect on the national stockpile included, (1) reduced reliance on the national stockpile as a source of supply from 3 years to 1 year during an emergency; (2) revised import assumptions and rates; and (3) increased civilian austerity and greater use of substitutes.

We reviewed these changes and testified on two occasions before the Subcommittee No. 3 of the House Armed Services Committee. Our report entitled, "Stockpile Objectives of Strategic and Critical Materials Should Be Reconsidered Because of Shortages," was issued March 11, 1975.

Because the United States relies heavily on imports of some materials and because the possibility of producer boycotts exists for some of the resources, the United States may no longer be able to assure that we can always import quantities to satisfy our increasing demand of materials.

We concluded that long-range planning was needed particularly for materials which have no substitutes, are largely imported, are in strong demand, and are susceptible to producer boycotts.

We recommended that the Secretary of Defense and the National Security Council reevaluate the current stockpile and insure that the Nation's readiness need is met. We also recommended that the GSA Administrator use this data, as well as data from other studies that were in process, to arrive at new national stockpile objectives.

The House Armed Services Committee did not publish a report on their hearings involving authorizations of disposal of several materials. However, it became abundantly clear that the committee would not act favorably on the bills until a complete analysis had been performed. A National Security Council staff member confirmed this and also stated that President Ford was not necessarily convinced that the 1973 change was appropriate.

The NSC issued a study memorandum on August 14, 1975, tasking the various agencies to make a new analysis.

e first phase of the study, completed in November 1975, concluded more work should be done. The second phase was completed in 1976. Results of this phase, we are told, cited the pros and cons e 1- to 3-year alternative assumptions, and the President chose -year option. The President signed the NSC decision memoranin August 1976.

e have requested these studies from the NSC, but we have not furnished copies. We have been permitted to read portions of the . However, until we are given the opportunity to review the studn detail, it is difficult to evaluate the support to the proposed pile policy.

might say when this reading took place, we were not allowed ke any notes or take any papers back with us.

w, if I may, I would like to move over to page 11 (see p. 45) which nents on the materials plan. GSA contends that the Annual rials Plan will give the Congress the desired visibility as to the pile needs. This plan will be submitted annually with the Presis budget and will identify the dollars required to buy critically ed stockpile items. The specific minerals or metals will not be ified in the annual plan to insure that market prices will not rapidly once the Government's needs are known. We are told information will be readily available in closed hearings. The will also identify items which represent excesses and the quantity aterials which can be disposed of during the year. The current edure for requesting congressional approval for the disposal of egic and critical materials will be followed.

hile we agree the Annual Materials Plan will provide Congress the opportunity to decide whether to fund any or all of the reed needs for the year, we believe that in order for the Annual erials Plan to be of most use to the Congress. it should be suped or supplemented by the Federal Preparedness Agency's longe plan for meeting the established goals extending beyond the et year.

hen considering budget requests for specific items to meet the ral civilian goal which have less priority than defense goals, the ress should consider the trade-off of investing funds for other term options such as increased materials research and developas a means of minimizing foreign dependency. According to the staff member. trade-offs such as these were not specifically adsed in their study.

e recently announced policy change regarding the strategic and cal materials stockpile again raises the issues of whether (1) the pile will be used solely for military purposes or for economic oses as well: (2) the strategic and critical materials stockpile esents the most desirable method of accomplishing the designated tives: and (3) the appropriate items and quantities are being miled. Also of concern is whether the stockpile fits appropriately the Nation's evolving materials policy.

t me commert on each of these three questions.

he purpose of the stockple is to insure that we will have the re v raw materia's to support military requirements and the base fan economy durit g periods of extended confia wa wen woma