Foreign Relations of the United States, 1958–1960, Volume III, National Security Policy; Arms Control and Disarmament, Microfiche Supplement

195. Cabinet Paper¹

C–59–78/2

Washington, September 10, 1959

Proposed Policy on Strategic Materials

For consideration by the Cabinet, attached is a revised brief and Cabinet paper prepared by the Director of the Office of Civil and Defense Mobilization following discussions with the Director, Bureau of the Budget; the Administrator, General Services Administration; and the Civil and Defense Mobilization Board.

This paper constitutes the proposed Administration position on stockpile disposals and contains six specific recommendations.

Principal changes include rewording of Recommendation 2 and deletion of Recommendation 6 from the August 20 paper.

The Office of Civil and Defense Mobilization staff report (classified SECRET), and Defense Mobilization Order V–7, entitled “General Policies for the Stockpile of Strategic and Critical Materials,” should be removed from the August 20 paper and attached to the revised version.

In considering the attached recommendations, the attention of Cabinet members is called to CP–58–78/1.

Robert Gray
Secretary to the Cabinet

Attachment

Paper Prepared by the Director of the Office of Civil and Defense Mobilization

CP–59–78/3

Washington, September 10, 1959

THE CABINET

POLICIES WITH RESPECT TO STOCKPILING

Problem:

Various questions have arisen on strategic materials policy. What should continue to be the basis of stockpiling in the light of the prospective needs and supply capabilities for materials in national emergencies? What should be done about disposal of excess stocks of materials? Should surplus inventories be channeled to Government users, such as the Bureau of the Mint and arsenals? What preference should be given to disposals from the Defense Production Act inventory? Should a more intensive effort be made to cancel contracts for delivery of materials in excess of stockpile objectives?

Discussion:

1. Character of the Strategic Stockpile

The strategic stockpile has been accumulated as an industrial materials inventory for meeting military, defense-supporting and essential civilian needs. It contains raw and semi-processed forms of minerals, metals, industrial oils, fibers and certain other materials such as crude natural rubber that are basic to manufacturing. It is not an end-product stockpile to be used directly by ultimate consumers.

2. History of the Strategic Stockpile

The strategic stockpile originated because of experience of the U.S. in relying on foreign sources of supply for materials that are indispensable to meeting military and other essential needs of the U.S. in time of emergency. The U.S., despite its enormous productive capacity, is seriously deficient in some raw materials. This problem of dependence is recognized in the first section of the postwar Stock Piling Act passed in 1946.

The U.S. is completely dependent on foreign areas for one-third of the 75 materials on the current stockpile list. It is completely self-sufficient in peacetime in only 3 of the materials. These are molybdenum, magnesium and vanadium. In other cases, the U.S. has varying degrees of foreign dependence.

The strategic stockpile as originally established under the Stock Piling Act was on a 5-year basis and had only one set of objectives which assumed partial dependence on foreign sources.

In 1954 following a review by a Cabinet Committee on Mineral Policy, long-term objectives were added which completely discounted for a 5-year period the supplies originating beyond North America and comparably accessible areas. In the same year, the one-year rule was introduced which provided that when a metal or mineral is declared to be strategic and critical the long-term stockpile objective shall not be less than 1 year’s normal U.S. use.

Also in 1954 the Agricultural Trade Development and Assistance Act was passed which provided for accelerated barter of agricultural commodities for strategic materials on the assumption that it is better to have non-deteriorating materials with low storage costs than to retain surplus agricultural commodities that are subject to deterioration and have high storage costs.

Early in 1956, all cash purchasing for the strategic stockpile was cut back to meeting needs for a 3-year emergency period, but minimum and long-term objectives were kept on a 5-year basis.

On June 30 last year, the planning period for all stockpile objectives was reduced from 5 years to 3 years. This cutback followed an extensive review by the Special Stockpile Advisory Committee (Pettibone Committee) and by the Executive Branch.

3. Basis of the Strategic Stockpile Objectives

Strategic stockpile objectives generally represent estimated deficits of materials for an emergency period after taking account of the availability of materials from domestic production and imports under emergency conditions.

Requirements are computed to reflect military, defense supporting and essential civilian needs of the U.S. in emergencies. An allowance may be made for exports where the U.S. is the essential source of supply. For example, in molybdenum the U.S. produces most of the total world supply. Therefore, our allies would be dependent on the U.S. for this material.

Estimates of supplies for the emergency period are based on the world-wide availability of materials and the vulnerability of the sources of supply under emergency conditions. Discounts are applied to reflect the risks involved internally in supply countries, the risks of concentration of the source, the risks of overseas shipping and the vulnerability of domestic sources to destruction.

The difference between the requirements estimate and supply estimate is the deficit to be met by stockpiling, unless other measures provide a better solution.

Stockpile objectives are computed at two levels: the basic objective level, which assumes partial dependence on areas beyond North America and comparably accessible areas, and the maximum objective level, which provides a higher degree of security by completely discounting sources beyond North America and comparably accessible areas.

Cash procurement for the strategic stockpile is generally limited to meeting the basic objectives. Only 3 relatively minor materials are now included in the procurement program. These are jewel bearings, diamond dies and amosite asbestos.

4. Requirements for Strategic Materials and Over-all Status of Government Inventories

The grand total requirements for strategic materials would amount to about $15 billion for a 3-year emergency, or about $5 billion per year, at December 31, 1958 prices. This requirement is somewhat below the over-all industrial potential of the U.S.

Domestic production would be relied upon to provide considerably more than half the total supply of strategic materials required. This estimate allows for possible loss of the production base where there is extreme concentration of capacity but does not yet include allowances otherwise for massive nuclear damage.

Imports of strategic materials from nearby areas would be relied upon to provide $2.3 billion in materials in the 3-year emergency.

After allowing for U.S. production and nearby imports (excluding overseas sources), about $4 billion in strategic materials would need to be supplied by the strategic stockpile.

Total Government inventories of strategic materials amounted to about $7.2 billion on December 31, 1958, valued at market prices as of that date. The composition of the inventory was as follows, in millions of dollars:

Stockpile-Grade Materials Having Objectives
Strategic stockpile	$5,777
Defense Production Act inventory	632
Supplemental stockpile	327
Commodity Credit Corp. inventory (obtained by barter)	245
Tin inventory (residual from Texas smelter)	9
Department of the Interior inventory (domestic purchases)	13
Materials Not Meeting Specifications or Having Objectives	170
	$7,173

The total quantity of strategic materials on order for all Government programs, including barter, was about $865 million on December 31.

Thus the total market value of materials on hand or on order was about $8 billion or about twice the total of the present maximum stockpile objectives.

In view of this status of the strategic materials programs, the two chief problems now relate to (1) the size and character of the stockpile needed in the light of present-day conditions and (2) policy on disposal of materials that are not needed. These problems and collateral policy problems are discussed below.

Recommendations:

Recommendation #1. Determination of Strategic Stockpile Objectives

Determine stockpile objectives on the basis of time required for supplies of materials in a national emergency to match essential needs of the emergency. Until such time as the essential needs of the nation after a nuclear attack (including reconstruction) can be determined by a pending OCDM study, the period of emergency used as a basis for planning will be limited to a maximum of three years; provided that, until such determination is made, the maximum objective shall not be less than six months’ usage by industry in the United States in periods of active demand.

Defense Mobilization Order V–7, issued on June 30, 1958, provided for reducing all stockpile objectives from a 5-year to a 3-year basis. The period applies to various national emergencies during which deficiencies of the supply of basic materials for industry may occur. This action was taken after a review by the Pettibone Committee, Interdepartmental Materials Advisory Committee, Defense Mobilization Board and National Security Council. The period is being restudied by the National Security Council and is subject to change. Pending a determination of needs after a nuclear attack on the U.S., the planning period would be limited to 3 years, but a shorter period would be used where an analysis would lead to the conclusion that supplies could feasibly match requirements in less than 3 years. (Some of the stockpile objectives currently assume a deficit of supply only over a period of 6 months to 2 years until capacity can be restored to adequate levels or alternate materials can be utilized.)

The recommendation also recognizes that a deficit of materials supply may occur after a nuclear attack on the U.S. Such a deficit, of course, could never be larger than the consuming capacity of industry as rehabilitated and would need to take into account also rehabilitated supply capacity. After a devastating attack, some stockpiles of basic industrial materials in or near consuming areas doubtless would be needed. Generally stockpile objectives established for an emergency short of an attack on the U.S. would be adequate for an emergency after an attack. In some cases, however, the objectives calculated to meet the first contingency are so small that their adequacy for the second contingency may be questionable. The recommendation provides, therefore, that until the needs after a nuclear attack, including those for reconstruction, have been determined, the maximum objectives shall be not less than 6 months’ usage of the materials by industry in periods of active demand. This level of the maximum objectives would not require any new purchases but would require retaining some materials that otherwise would be regarded as surplus.

“In establishing requirements of specification-grade nondeteriorating materials, which are mostly metals and minerals, consideration may be given to such factors as increasing essentiality in the light of technological change, special usefulness for reconstruction after a nuclear attack, depletion of reserves, and other pertinent factors.”

Recommendation #2. Disposal of Excesses

“Dispose of excesses whenever possible under the following conditions: (a) approval of Departments of Interior, Commerce, State, Agriculture, Defense, and other agencies concerned, (b) appropriate consultation with the industries concerned, (c) avoidance of serious disruption to usual markets of producers, processors, and consumers, (d) avoidance of adverse effects on international interests of the U.S., and (e) preference to disposal of excess materials from DPA inventories. Generally expedite disposals of excess materials that deteriorate, that are likely to become obsolete, or that do not meet quality standards.”

The Stock Piling Act requires that disposals of materials from the stockpile shall give due consideration to protection against disruption of usual markets, and current policy requires that similar protection be provided for disposals from the Defense Production Act inventory. Current policy also requires that disposals shall not adversely affect the international interests of the U.S. Continuation of these policies is recommended.

Expeditious disposal would be favored for (1) materials that are subject to deterioration or obsolescence, (2) nonspecification-grade materials and (3) materials that do not have stockpile objectives. In the case of deteriorating materials, measures other than stockpiling, such as research to develop readily-available substitutes, should be emphasized for meeting emergency needs. Materials that are not directly applicable to objectives also should be available disposal.

Recommendation #3. New Legislation

At appropriate time submit proposed legislation, subject to interagency clearance, to achieve better coordination and management of the diverse stockpile programs.

The Stock Piling Act has not been revised since its enactment in 1946. Meanwhile other stockpile legislation has been added piecemeal. It is believed that a general revision of the legislation should be submitted to recognize changed conditions, especially the greater domestic hazard resulting from nuclear warfare, and to coordinate the various enactments relating to the strategic stockpile, Defense Production Act inventory, supplemental stockpile, and the residual tin inventory accumulated from the operation of the Texas City tin smelter. Proposed legislation has already been partly cleared with agencies concerned. This proposed legislation should be completed and submitted to Congress.

Recommendation #4. Relationships Between Disposals and Barter

Continue using barter to obtain materials within strategic stockpile objectives. Consider establishing more definite standards for determining when to barter for materials beyond maximum objectives. Avoid simultaneous barter and sale of identical materials.

Barter should continue to be used to reduce the Government’s cash outlays for the strategic stockpile. Beyond that, there is a need for coordinating barter acquisition policy with disposal policy for strategic materials. Should the Government, for example, barter for more metallurgical manganese or sell a part of the inventory already on hand?

Recommendation #5. Government Use of Excess Materials

Require Government organizations which use strategic materials directly to use excess inventories when this would be consistent with the over-all disposal policy and in the best interest of the Government.

Channeling of excess strategic materials to Government agencies, such as the Bureau of the Mint, Atomic Energy Commission and arsenals, which are direct users of such materials should be authorized when feasible and consistent with general disposal policy. Required use of the materials in prime contracts and especially in subcontracts, however, is considered to be inadvisable because the quantities on individual contracts would be small and probably would add to the cost of the contracts by departing from normal supply channels, introduce uncertainty that the precise qualities of materials needed could be obtained readily, and unjustifiably complicate the bookkeeping involved. Also such required use would have substantially the same effect as an outright disposal.

Recommendation #6. Cancellation of Commitments

Continue to seek mutually satisfactory cancellation of contracts to deliver excess materials and include possible cancellation by payment of above-market premiums specified in the contracts. This would include payments to contractors on account of anticipated net profits. Negotiations to that end should be conducted in the light of over-all interests of the Government and in the light of possible contract adjustments through cash payment, payment in kind, or barter of excess property.

Current policy authorizing cancellation of deliveries in excess of objectives has functioned satisfactorily, but very little more can be accomplished by further negotiation unless some additional incentives are included.

Implementation: If approved, the Office of Civil and Defense Mobilization will initiate actions, in cooperation with the agencies concerned, to carry out the above recommendations.

Concurrences: Office of Civil and Defense Mobilization, BoB, GSA, and all members of the Civil and Defense Mobilization Board concur in the Recommendations as amended.

Attachments: OCDM staff paper on “The Program for Strategic Materials”.

1. Source: Proposed policy on strategic materials. R-Privileged. 8 pp. Eisenhower Library, Whitman File, Cabinet Series.