Chairman LAFALCE. Suppose you need computers during a war as much as you need small arms ammunition. Could you enter into such an agreement regarding computers as opposed to small arms ammunition?

Mr. KRUEGER. I think it highly unlikely and that you would have to contrive a special circumstance.

Chairman LAFALCE. Do you think it highly unlikely because of the specific wording of the law or because you're ingrained with what's gone on in the past?

Mr. KRUEGER. No, because of two things. Because of the law, it would be difficult to demonstrate the national defense requirement. Second, because of the attitudes of the Anti-Trust Division in the Department of Justice and the Federal Trade Commission.

Chairman LAFALCE. Well, the attitude of the Department of Justice and the Federal Trade Commission is the attitude of the President on an issue like this.

Mr. KRUEGER. Let me explain the reason for the tanker agreement. At any point in time, major U.S. oil companies have something like 30 days of oil supply at sea. If you are concerned with the rapid deployment force and with moving two or three divisions from one part of the world to another part of the world quickly, obviously, energy is an important component. If the Department of Energy has a contract with Texaco, but Texaco's ships are in the wrong position and cannot permit refueling at sea, while there is an Exxon ship close, then Texaco and Exxon can swap contracts; they can exchange information and determine what is the most time effective way of resupplying the rapid deployment force.

In the case of small arms ammunition, you may have only one company producing a certain type of ammunition today. It may involve certain proprietary knowledge. In the interest of maximizing production of ammunition, you may want a number of companies to manufacture that particular type. This would permit the sharing of the proprietary information that would allow that to happen. [Slide.]

The last program or authority we are using is the National Defense Executive Reserve. This is the civil counterpart to the military reserve system, where you have preidentified people to serve the Government in a civil capacity in time of a national emergen

cy.

There are a number of Departments and agencies who do have National Defense Executive Reserve units, including the military themselves. The Military Traffic Management Command, for instance, has a National Defense Executive Reserve unit composed of people from the transportation industry, particularly trucking and rail. The Department of Commerce has two separate National_Defense Executive Reserve units. The Department of Energy, the Federal Emergency Management Agency, and the Department of the Interior have units. [Slide.]

In this regard I should mention that there is a National Conference of Executive Reservists in Washington next week which will bring together some 700 people from the various units at a national level.

That sums up the current use of the Defense Production Act. I'd like to emphasize the day-to-day nature of this. It is not something

that is just put on the shelf. The entire defense procurement system depends upon these authorities on a day-to-day basis.

The machine tool trigger order program and the ongoing program for the development of domestic natural rubber are using the title III authorities on a day-to-day basis. The National Defense Executive Reserve and the voluntary agreements use the authorities in title VII to provide continuity.

That concludes this presentation. Your blue books contain much more detail.

Chairman LAFALCE. Very good. Thank you.

Mr. SHUMWAY. I have one more question. Maybe I misunderstood the way you described this, Mr. Krueger, but going back again to the matter of the machine tools, I think you said that the Government has started some contingency contracting for $500 million at no cost.

It seems to me that if purchasers don't come along, if there is no market, the Federal Government then has to pay. Aren't we moving toward a situation where there would be substantial cost? Or do I misunderstand?

Mr. KRUEGER. The purpose of these contracts is to reduce the normal lead time. The contracts can't be executed except at the request of the Government. The company cannot execute these contracts.

Right now these are just standby contracts, in that the Government and the companies have gone through the negotiation process, have identified which machine tools and how many of each type and have negotiated contingency prices on these machine tools if the company cannot sell them to defense contractors during an emergency.

The Government has not told, and would not tell, the machine tool manufacturers to execute against these contracts because we are not now in a time of mobilization.

Mr. SHUMWAY. So there's being nothing manufactured, no output

Mr. KRUEGER. Against those contracts.

Mr. SHUMWAY. And they're simply entering into these contracts and putting themselves in that kind of state of preparedness? Mr. KRUEGER. Yes.

Mr. SHUMWAY. Without any expense to the Government? Their own goodwill is motivating them to do that?

Mr. KRUEGER. Well, there is some expense to the Government in terms of the personnel time, and whatever it takes to execute a legal agreement. But right now all they are doing is providing the legal framework prior to the occurrence of emergency, so that if the emergency occurs, you can execute these contracts.

Mr. SHUMWAY. Well, are those contracts an ongoing thing? In other words, are they being made today and tomorrow?

Mr. KRUEGER. Yes.

Mr. SHUMWAY. And are they being reviewed and renewed from time to time? Are they updated, ever? Or do they just stay on the shelf?

Mr. KRUEGER. They will be updated.

Mr. SHUMWAY. How often?

Mr. KRUEGER. I would think that you would want to review them every 2 to 4 years, as the nature of the defense industry changed and as the technology changes within the machine tool industry itself.

Mr. SHUMWAY. I would think particularly that some contracts would be more sensitive in that regard than others, technology changing as rapidly as it does.

Mr. BRINKERHOFF. We are rejeuvenating this program after a lapse of many years. What we are doing now is letting initial contracts with program goals to get this program underway. Once we have the initial contracts, then we'll provide continuous review of the nature of the machine tool industry and take advantage of all the technological advances, particularly in the robotics area.

Mr. KRUEGER. Where you have to be careful is as the major weapons systems change, although just because there has been a change in technology, let's say in the method of manufacture of the machine tool necessary to produce a gun tool; that is, an artillery tool, which is not particularly sophisticated. If that is what you were contracting for, you are not contracting for a very sophisticated item or an item that's likely to change.

Mr. SHUMWAY. But still, if we change our technology so that we make guns now with robotics instead of the old method, certainly we're going to want to.

Mr. KRUEGER. Yes.

Mr. SHUMWAY. And that's happening all across the board, is it not?

Mr. KRUEGER. That's why it requires coordination not only with the Department of Defense, but also the Department of Commerce, to catch both ends of this change, the change in defense systems as well as the change in manufacturing technology.

Chairman LAFALCE. I wonder if the staff of any of the members have questions that they'd like to ask the three individuals present?

[No response.]

Chairman LAFALCE. Mr. Lockwood, Mr. Brinkerhoff, and Mr. Krueger, thank you very much.

I do want to announce, though, before we conclude this morning's briefing that we will have a hearing a week from this morning on the extension of the DPA on Wednesday, March 9.

[Whereupon, at 10:45 a.m., the hearing was adjourned.]

APPENDIX

This reprint contains the Defense Production Act of 1950, as amended, including the 1980 amendments found in Part "A" of the Energy Security Act of June 30, 1980. It does not contain provisions pertaining to the Synthetic Fuels Corporation found in Part "B."

DEFENSE PRODUCTION ACT OF 1950, AS AMENDED

June 30, 1980

THE DEFENSE PRODUCTION ACT OF 1950 1

(64 Stat. 798; 50 U.S.C. App. 2061 et seq.)

AN ACT To establish a system of priorities and allocations for materials and facilities, authorize the requisitioning thereof, provide financial assistance for expansion of productive capacity and supply, provide for price and wage stabilization, provide for the settlement of labor disputes, strengthen controls over credit, and by these measures facilitate the production of goods and services necessary for the national security, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act, divided into titles, may be cited as "the Defense Production Act of 1950." (50 U.S.C. App. 2061)

SEC. 2. In view of the present international situation and in order to provide for the national defense and national security, our mobilization effort continues to require some diversion of certain materials and facilities from civilian use to military and related purposes. It also requires the development of preparedness programs and the expansion of productive capacity and supply beyond the levels needed to meet the civilian demand, in order to reduce the time required for full mobilization in the event of an attack on the United States or to respond to actions occurring outside of the United States which could result in the termination or reduction of the availability of strategic and critical materials, including energy, and which would adversely affect the national defense preparedness of the United States. In order to insure the national defense preparedness which is essential to national security, it is also

The Defense Production Act of 1950 was originally enacted by Public Law 774, 81st Cong., 64 Stat. 798, Sept. 8, 1950, 50 U.S.C. App. Secs. 2061-2166 Legislation during the 1951-1980 period extending or amending the Defense Production Act of 1950 is listed after section 720 of this Act. 2 Authority to condemn added July 31, 1951; title terminated at the close of June 30, 1953. Authority terminated at the close of April 30, 1953.

Control of consumer credit terminated June 30, 1952. Control of real estate credit terminated at the close of June 30, 1953.

(33)

2

12

DEFENSE PRODUCTION ACT OF 1950

necessary and appropriate to assure domestic energy supplies for national defense needs. 5

In order to insure productive capacity in the event of such an attack on the United States, it is the policy of the Congress to encourage the geographical dispersal of the industrial facilities of the United States in the interest of the national defense, and to discourage the concentration of such productive facilities within limited geographical areas which are vulnerable to attack by an enemy of the United States. In the construction of any Government-owned industrial facilities, in the rendition of any Government financial assistance for the construction, expansion, or improvement of any industrial facilities, and in the procurement of goods and services, under this or any other Act, each department and agency of the Executive Branch shall apply, under the coordination of the Office of Defense Mobilization, when practicable and consistent with existing law and the desirability for maintaining a sound economy, the principle of the geographical dispersal of such facilities in the interest of national defense. Nothing contained in this paragraph shall preclude the use of existing industrial facilities. (50 U.S.C. App. 2062)

TITLE I-PRIORITIES AND ALLOCATIONS

SEC. 101. (a) The President is hereby authorized (1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contracts or orders by any person he finds to be capable of their performance, and (2) to allocate materials and facilities in such manner, upon such conditions, and to such extent as he shall deern necessary or appropriate to promote the national defense.

(b) The powers granted in this section shall not be used to control the general distribution of any material in the civilian market unless the President finds (1) that such material is a scarce and critical material essential to the national defense, and (2) that the requirements of the national defense for such material cannot otherwise be met without creating a significant dislocation of the normal distribution of such material in the civilian market to such a degree as to create appreciable hardship.

(cX1) Notwithstanding any other provision of this Act, the President may, by rule or order, require the allocation of, or the priority performance under contracts or orders (other than contracts of employment) relating to, supplies of materials and equipment in order to maximize domestic energy supplies if he makes the findings required by paragraph (3) of this subsection.

(2) The President shall report to the Congress within sixty days after the date of enactment of this subsection on the manner in which the authority contained in paragraph (1) will be adminis

Public Law 96-294, the Energy Security Act of June 30, 1980, amended the "Declaration of Policy" by adding to the first paragraph the language beginning with the words "or to respond to actions occurring outside the United States" and continuing through the remainder of the first paragraph.