countries through their control over many sources of minerals that are essential to the economies of developed nations. Their leverage will depend on their cohesion and cooperation to assure that they politically control where their supplies go, the price they receive for those supplies, and the circumstances under which they are transformed into finished goods.

Our research at the center during the past few years has concentrated on what the environment for investment is like and what the prospects are for counting on the availability of key minerals from a number of these countries.

Since we are concentrating here today on certain discrete minerals that come from the nodules, like nickel, like copper, like manganese and cobalt. I have confined my comments to developments affecting the principal countries from which these resources come.

It turns out that there have been events transpiring in a number of these countries that have made the outlook increasingly uncertain in regard to our being able to depend upon these countries supplying us these important minerals, many of which we cannot acquire from our own territory.

I will confine myself to only a few in the interest of time. I will, in my written testimony, comment on many more.

Let us look at Zaire, for example.

We obtain 45 to 60 percent of our cobalt from Zaire and 7 percent of our manganese.

For a long time, it appeared after the takeover of Union Minere, an important Belgium copper mine, that Zaire was going to be an attractive area for direct foreign investment and a dependable source for copper and other minerals.

For awhile, the Government of Zaire only required a small equity holding in foreign mining investments in Zaire.

This situation has been changing. In 1973, President Mobutu decreed that the mining companies must offer the government 50 percent of their equity and declared that all copper produced in Zaire was to be refined to metal within the country's borders by 1980.

Arrangements for compensation have yet to be worked out. Let us look at Zambia. Zambia is a source of cobalt and a major copper producer.

I might point out that both these countries and a number of others I will discuss are members of CIPEC, which is an organization of copper producers that, in time, seeks to have significant control over the world market for copper.

It has no way near the clout of OPEC presently, but it is growing in significance and may well be able to have a major amount of influence over price and the availability of copper in time.

Zambia moved in the direction of nationalization more quickly than in Zaire.

In 1969, the Government of Zaire called for taking over 51 percent of the equity of the major foreign properties. This situation was accommodated. The companies did not suffer materially. They maintained a satisfactory cash flow. The tax burdens were no greater.

Zambia also changed policies last year. The government redeemed the bonds that it had issued to pay for the shares that it ac

quired, and changed the ground rules completely for direct foreign investment.

Taxes have been increased. Exchange controls have been imposed. Capital writeoff privileges were removed. Management and technical marketing services agreements have been done away with.

The government now has complete control of marketing of copper and other mineral products.

The pattern you see emerging is quite clearly this. Private firms already invested in mining in these developing countries are finding in increasingly difficult to operate profitably in view of the alternative opportunities for investment elsewhere.

There are disincentives because of the nationalizations and even the expropriation of their properties in many cases.

There are disincentives to new private investment to increase the supply of these minerals from such source countries.

Also, there is increased pressure within the countries to do all the value-added processing within the countries rather than abroad that makes it more difficult for integrated companies to operate. Perhaps more significantly, the countries are gaining control at the governmental level of the marketing of the product, thus political determinations can come into play when they write the sales contracts.

One country of importance is Peru.

Peru provides 27 percent of our copper and produces many other minerals.

Peru is also a member of CIPEC.

In the case of Peru, in the case of several other countries which I have addressed, there is also oil. Many of these countries are or will be members of OPEC.

They apply leverage through OPEC for their oil objectives, raising the petroleum prices.

The closer relationship between CIPEC and OPEC that is emerging means that they can multiply this leverage so that the oil factor can increase the degree of influence they have over the marketing of non fuel minerals which they have mined in their borders.

Getting back to Peru, Peru is a very unusual country in that it has made rather ideological declarations as to the direction which it is to move with a considerable growth in the public and social property sector, with workers' communities sharing in the profits. of companies.

It still has allowed a certain amount of private enterprise in mining, but as its record of expropriation reveals this is a passing phenomenon.

In the long term, Peru will be primarily a state capitalistic if not a socialistic country with the government controlling all major mining activities, and that includes the minerals that we are concerned about today.

At the present time, Peru determines who shall acquire the copper and other minerals produced in the country through a government instrumentality, MINEROPERU.

I will add one more country in my oral testimony because it is illustrative of what may be called the better case, and that is Gabon.

Gabon is the source of about 35 percent of our manganese.

For some time, Gabon has been a very attractive country for investment and mining. It had a very favorable attitude toward foreign investments.

This situation, however, is begining to change. The changes are very recent.

Gabon has decided to Africanize its mining industry. The Government of Gabon has declared its intent to take over at least 35 percent and possibly as much as 60 percent of private mining enterprises.

The President, who became a Moslem last year, is now courting Libya.

Gabon has become a member of OPEC. Gabon is likely to move further away from capitalism. This may, in time, make it extremely difficult for us to obtain our manganese from Gabon except at a higher political as well as economic price.

This pattern has certain very serious implications for the United States.

In the first instance, it means we have to put more priority on developing secure sources that do not come under the control or influence of countries that may adopt policies inimical to our own interests. These countries will want to cohere and collude more to assure that prices are higher and that they gain a political return for the sale of their share of their mineral resources.

It also means that the United States has to look a little bit more carefully at alternative sources of supply which are secure but are outside its physical boundaries.

That means looking more carefully to the issue of expediting the mining of minerals on the seabed, minerals that can be mined and processed under circumstances that will be most beneficial in that they can come from secure areas. They will be at prices not controlled by foreign interests but may be controlled by our own interests.

Unless we take more account of the need to assure future availability of these key minerals, it could have an extremely detrimental impact upon the economic viability and growth of our country. We are entering a more competitive period, a period in which the developing countries see their interests quite divergent from those of the United States.

Since we have elected, at least temporarily, to withdraw from a stockpiling policy in which large quantities of these minerals are held, it becomes even more important to have access to such resources as those of the manganese nodules that lie in abundance in the areas that can be well defended, if neecssary, by the growing U.S. Navy.

I would like to address one final point in my oral presentation because it has caused me a considerable amount of concern. That is the desire expressed by certain officials that we should defer action in this area until an international regime is established at the Law of the Sea Conference.

Having had considerable experience in the international area, I cannot help but feel that the officials who testify or make public statements are overly optimistic that agreement covering the many

complex issues to be considered will be reached within the next few years.

I am equally concerned that should an agreement be reached, it might provide that these resources of the deep seabed will be under the control of the United Nations which, in the long term, means under the control of mini states, unaligned, neutralist and/or antiAmerican nations that already are major producers of minerals or are allied with such nations in regional associations like the Andean ommon Market.

They will control the majority.

To add to the leverage that institutions like CIPEC will acquire by enhancing the control over supply, which could result if a United Nations enterprise is to develop and process and sell these minerals, could make our resource scarcity problem even more serious in the next decade, and enhance our security problem, too.

I also am of the opinion that some of those who say let us not move forward now because it might prejudice our interest in such a conference are somewhat unmindful of the realities of international negotiation and bargaining.

When dealing with the world at large in this very competitive period of time, in a period when the United States is not as preeminent as in the past, it becomes essential to have a strong bargaining position through actions in one's own national interest.

Other states perform in this manner. They expect great powers to perform in this manner.

When great powers do not so perform, they lose respect, they lose influence.

I believe if we move forward vigorously in this area, allowing for change, when there an international regime is established, we will gain bargaining strength.

We learned this lesson very recently in military negotiations.

In SALT I we had signaled to the Soviet Union that we did not intend to acquire any more ICBM's, submarine ballistic missiles, and

so on.

They signaled to us they were pursuing their own national interests, and we could not stop them.

Therefore, we had to bargain under adverse conditions which gave them a quantitative advantage in the agreements reached. We have learned this lesson. That is the reason Secretary Schlesinger and others are seeking to obtain more options in the new Defense budget as bargaining chips in part, but also to show the Soviet Union that we respect our own interests and will pursue these interests. Therefore, the outcome of SALT II, should an agreement be reached will be more favorable to the United States.

I sincerely hope that this committee will take into consideration my modest contribution to its deliberations.

Mr. DOWNING. Doctor, you have made a significant contribution. This is the first time anybody has directed his testimony on this important aspect that underlies this bill, and I think you have done it magnificently and impressively.

Mr. KILMARX. Mr. Chairman, might I submit my prepared remarks for the record at this point?

Mr. DOWNING. Without objection, so ordered.

[The full prepared statement of Dr. Kilmarx follows:]

STATEMENT BY DR. ROBERT A. KILMARX, DIRECTOR OF BUSINESS AND DEFENSE RESEARCH, CENTER FOR STATEGIC AND INTERNATIONAL STUDIES, GEORGETOWN UNIVERSITY

AN INTERNATIONAL PERSPECTIVE TO U.S. ACCESS TO DEEP SEABED MINERALS

Gentlemen, it is a privilege to have the opportunity to testify this morning in reference to legislation bearing on deep seabed hard minerals. For some years I have directed studies at the Center for Strategic and International Studies, Georgetown University, on the environment for investment in mineral resources in many countries and have conducted seminars on specific minerals, for example, copper. I hope this background, plus recent experience as a technical advisor to a United Nations Workshop for leaders of developing nations on negotiating mining agreements will qualify me to contribute some meaningful facts, analyses and conclusions on the international perspectives relevant to decisions concerning the establishment of a regime to facilitate the early exploitation of deep seabed hard minerals by United States corporations, notably copper, nickel, manganese and cobalt.

In our increasingly complex world it has become more important than ever before to coordinate major policies and programs in specific economic sectors like mining, to ensure to the extent we can that they are responsive to international realities and to the long term interests of the United States. Of course, in our pluralistic society and mixed economy, this is very difficult to do. Perhaps it is more difficult today since we may have lost some of our past national consensus in regard not only to goals but also values. A quick review of legislation relevant to the mining industry over the last few years would demonstrate that we have occasionally tended to respond to a particular transitory constellation of internal political forces and vaguely perceived shifts in priorities rather than to overarching objectives and interests that are supportive of the future place of the United States in the world order and that take adequate account of political and economic risks.

With our present national preoccupation with internal concerns and our national propensity to prematurely translate high aspirations for peace and prosperity into an assumed reality, we can readily lose sight of the great challenges we face as a global power. Sound mining policies can help us to meet these challenges.

The decade ahead may, in fact, be the most momentous in our history. It will be a period dominated by scarcities, increasing political multipolarity and competitiveness, unprecedented inflation and threats of recession, monetary crises, shifts in power balances and fragility, even disintegration of alliance structures that have provided security and stability, and have fostered our economic development since World War II. Already we are witnessing the limits of detente, major fissures in the cohesion of NATO, disruption in previously established international monetary and trade relationships, and the prospect that the United States will lose its preeminence as a military power.

Then came the energy crisis which threw into disarray all prior calculations and estimates about the economic growth and even the viability of many nations, large and small. This long term problem enhances the prospect of future instability and insecurity in global relations. All mining policies should take account of these developments.

We have also witnessed an unanticipated increase in the influence and political leverage of underdeveloped states which have been endowed by nature with rich stores of essential mineral resources. Perhaps there is even wisdom in the world view of Chou-En-lai who says that great opportunities for the Third World lie ahead because of the problems within and the competition between the great powers.

The increasing leverage of small nations is not limited to oil producing nations in OPEC. It is already being demonstrated by nations that are producers of non-fuel minerals. Secretary Kissinger experienced this when he met recently with the Foreign Ministers of 24 Latin American countries to encourage the formation of a new hemispheric community. He found that it was mainly the producers of minerals, for example, Peru, Argentina, Guyana and Venezuela which were the most skeptical and most disposed to pursue inde