389. Action Memorandum From the Acting Assistant Secretary of State for Economic Affairs (Greenwald) to Secretary of State Rogers 1

SUBJECT

  • Recalculation of Stockpile Objectives

On an accelerated basis an inter-agency committee, headed by the Office of Emergency Preparedness (OEP),2 is now recalculating stockpile objectives for raw materials on the basis of criteria approved last autumn by President Johnson.3 This memorandum recommends that you suggest to General Lincoln that these recalculations be suspended until the new Administration has had an opportunity to examine the criteria. OEP has the authority under law for setting stockpile objectives and for directing that the General Services Administration (GSA) procure for or dispose from the stockpiles.

Discussion

The US Government stockpiles some 55 basic commodities. Present inventories are worth at market value about $6.9 billion; on the basis of [Page 978]the “old” calculations, some $3.2 billion are in commodities excess to our needs. The last Administration sold surplus commodities: about $1 billion worth in Fiscal Year 1966, about $470 million in FY 1967, and about $210 million in FY 1968. Sales are continuing.

After prolonged but sporadic inter-agency study President Johnson at an NSC meeting last October 31 approved “new” stockpile criteria. (The “old” and “new” criteria are described in Tab B.) Various agencies, chaired by OEP, were requested to calculate new stockpile objectives by last January 20. Only nine objectives, for relatively minor commodities, were approved by January 20th. In March six more objectives were approved, mostly for minor commodities but also for two major ones, tin and rubber.

We have a number of misgivings about the way the new objectives are being calculated. The case of copper, on which we are now working, is a good example. Copper is one of the few commodities in which we are now under our stockpile objective; the current objective is 775,000 tons; the current inventory is 260,000. Under criteria approved by President Johnson the new objective could be as high as 1,150,000 tons —against which GSA, at OEP’s direction, would have to procure copper. But if the new copper stockpile objective were calculated somewhat differently, in a way which we think might be feasible, it might be reduced by as much as 200-300,000 tons. That represents several hundred million dollars. On the basis of new criteria we also might have to procure such high-cost items as platinum and nickel, although calculations have not yet been made.

We are also concerned that the new criteria have not been checked with Senators Russell and Symington and Congressmen Rivers and Philbin of the Armed Services Committees of the Senate and House. In the past these Congressmen have been suspicious that stockpile assumptions and criteria might be biased so as to create larger surpluses for sale. Congressional criticism at some future date of the new criteria and objectives might cause revision of the objectives we are calculating now.

New stockpile objectives have important effects. The mere announcement of a new, higher copper objective would probably have a bullish effect on already high copper prices. If the USG procures copper, it will be competing with US consuming firms and, since the US is a net importer of copper, there will be an adverse effect on our balance of payments.

Further we have procured commodities in the past, only later to revise our objectives downward and then sell. Sales from our stockpiles have caused problems for the executive branch with both domestic and foreign producers.

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Conclusion

We see no need to rush ahead on stockpile recalculations prior to a careful review of the entire matter by the new Administration. At a minimum, we would suggest a suspension in the recalculation of stockpile objectives. During the suspension period we should not procure commodities except those whose stockpile levels are critically low. But, because many firms now count on stockpile disposals, we probably should continue to sell in those cases where it is reasonably clear that there is little risk that we will be selling commodities we later might have to buy.

We also believe there would be considerable merit in going further and examining the basic premises of our stockpiling program. For example, are we stockpiling those things which we will need most in a national emergency? Could private industry play a greater role in our stockpiling program? There has not been a real review of the basic premises, at least not in recent years.

A review carried out by the new Administration could lead to stockpile objectives that would be generally higher than those approved on the basis of criteria authorized by President Johnson. We understand, for example, that General Lincoln tends to favor larger rather than smaller stockpiles. But whatever the outcome of a review, at least we might be confident that our subsequent work rested on reasonably solid assumptions.

Recommendation

That you sign the letter to General Lincoln at Tab A.4

Tab B

Criteria for the Calculation of Stockpile Objectives

The old stockpile objectives were calculated on the basis of civilian and military requirements during a three-year conventional war and on the basis of supplies that would be available from domestic sources and from a “contiguous” foreign area, i.e., Canada, Mexico and the Caribbean. Various factors were applied for concentration of supplies, shipping losses and other hazards.

Under the new criteria: (1) we would continue to assume a three-year war; (2) we would now assume that supplies would be available from foreign countries, other than Canada, Mexico and in the [Page 980]Caribbean, on the basis of “accessibility” determined by the Joint Chiefs of Staff and political and economic reliability determined by State; and (3) the Council of Economic Advisers prepared a more sophisticated projection of civilian economic activity and requirements than had been used previously. In addition, the President approved a recommendation by Governor Daniel, then OEP Director, that we would assume that supplies would not be available from other than domestic sources and the contiguous foreign area during Year I of an assumed three-year war. This recommendation, apparently reflecting Governor Daniel’s concern about disruption of shipping during the first year of a war, was mentioned to other agencies but not staffed out prior to the NSC meeting.

We believe that, among other things, we should examine further the assumption that no account should be taken of supplies from non-contiguous foreign sources during Year I; if such supplies are ruled out during the first year, a case can be made for counting them in during Years II and III, on the grounds that they were produced although not shipped during Year I.

  1. Source: National Archives, RG 59, S/S Files: Lot 73 D 288, NSC/Misc. Secret. Drafted by C.R. Carlisle (E/ISM) on April 9 and cleared by Schnee (H). Attached to Document 390.
  2. P.L. 90-608, approved October 21, 1968, changed the name of the Office of Emergency Planning to the Office of Emergency Preparedness. (82 Stat. 1194)
  3. See Foreign Relations, 1964-1968, vol. IX, Document 375.
  4. Document 390.