ment Committee. A requirements committee made up of broad-gage representatives of the various segments of our industrial economy are also asked to advise the Director of Program and Requirements on the broader economic impacts of any general program. To the extent possible, the members of the requirements committee are expected to subordinate their interests in any special programs.

An important part of any determination of this sort involves, of course, the full consideration of possibilities of increasing the supply of the materials and products which is currently inadequate to meet all demands. Usually this is the sort of thing which cannot be arranged in time to affect the short-range picture but is an important element in the considerations. This is especially true if there is a quid pro quo involved, such as the reservation of steel to build more aluminum plants or the export of some material to facilitate the import of another material.

A natural corollary of the above balancing activities is of course the implementing procedures; and, while generally the DPA delegates the specific use of priority powers to the other defense agencies, the broad general policies necessary to insure that the priorities are not abused, are not issued in such amounts as to deflate their value, and that the general field of production which is not given preference ratings is protected, are of course properly reserved for central determination.

As I have already pointed out, Executive Order 10200 places on the DPA responsibility for procurement methods and procedures. In carrying out this responsibility the following has been accomplished:

1. Beginning last February a group of policy consultants to the Administrator met 2 days a week for 8 weeks to consider the most effective procurement policy in view of the partial mobilization program. In order that their deliberations would have the benefit of and provide immediate direction to the Department of Defense, representatives of the Office of the Vice Chairman of the Munitions Board for Supply Management sat with and assisted in the development of over-all recommendations. This group of consultants prepared two basic documents: Procurement Policy for Small Business, and Procurement Policy for Pricing, Negotiation. Redetermination, and Renegotiation. Copies have been made available to the committee.

2. Upon the establishment of the Small Business Executive Committee under the chairmanship of DPA, its initial task was the implementation of the procurement policy for small business. After several meetings of this committee, general agreement has been reached on the recommendations of the Administrator of DPA. In a letter to General Harrison, dated April 30, 1951, General Marshall, Secretary of Defense, states the following:

I have requested the Munitions Board to prepare for my immediate approva! a supplemental directive which will restate my objective with respect to the use of small business to the fullest possible extent and will add, for the guidance of procurement officers, additional policy instructions. These policy instructions will be based upon the very fine work which has been done by your organization. With the issuance of this supplemental directive, in my belief, the Department of Defense may properly be said to have accepted your policies as well as, in effective manner and in the spirit in which they are written, your implementing recommendations.

3. Under the chairmanship of DPA, a procurement-policy comittee is undertaking in like manner the expression of the broad

policies laid down by the Administrator as a result of the work of His procurement-policy consultants. Here again representatives of the Office of the Vice Chairman of the Munitions Board for Supply Management sat with and assisted in the development of the basic policy statements. In this manner much of the thinking of the Defense Production Administration is already known to the Munitions Board, and implementation of the recommendations is being greatly facilitated.

4. In his testimony before the Joint Committee on Defense Production on April 12, the Administrator of DPA outlined a broad basic policy with respect to the cost of accelerated amortization appearing as a part of the cost of the product. A letter opposing its allowance generally as part of the cost of the product has been forwarded to the Secretary of Defense with the recommendation that it be adopted as a directive to contracting officers.

5. The policy for the administration of applications for certificates of necessity for accelerated amortization indirectly influences procurement policy. Out of the total accelerated tax amortizations of SUSE, KO,000 granted to May 4, only about 10 percent has been granted for facilities for finished products. Of this, $200 million applies to the aircraft program.

It is apparent therefore that facilities expansion for fabrication and assembly has been held to a minimum. This tends to direct military procurement to contractors with existing facilities and to prevent the building of unnecessary new facilities and thus affects the contract placement planning of procurement agencies.

& In his statement at a meeting on April 27. 1851. of officials of the Department of Defense, Office of Defense Mobilization. Defense Prodritis: A dministration. National Production Authority, and Bureau of the Budget, the President laid great stress on the establishment of 1900 et poly designed to accomplish deliveries of military sodsistent with the actual time of need. This has the objektive of preventing the sudden acquisition of the entire civilian of east-to-procure items by the military just because funds flable This objective Las been part of the procurement policy recomendations of the Defense Production Administrator from the Pere ition of this need by the President will support its Dentation

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ATISER

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While the major attention of procurement policy has been directed rand the mary departments, the Small Business and ProcurePulley Comminees include representatives of other executive The resures that all major agencies Laring promtrement teare ribed by the same basic policies.

3

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by sentry cocted of policy will it be possible to effect the Red Bullore between the rate of defense spending and the besee

& TE FTL endICT.

T Lame been wrately mastions of the necessity for aid and as-istthe small-babes werent of our encozy to sen tre te pare Patton in the defense ofon and to protect he traditional positie i production of grille goods. Sektion TE TOLE titude and ELT Spec. 90%in the defense pro

An appraisal of the usual problems which beset smaller enterprises, as well as the special problems which have come to the attention of the Office of Small Business of NPA during the 8 months since the Defense Production Act was passed, indicates that ample authority exists to meet and solve the problems of small business which arise from the conditions of the defense program. The limiting factors in meeting the expressed needs of small business do not result from a lack of legislative authority or intent but rather from the supply and demand situation for materials and the character of the defense items being purchased by the armed services.

Title III contains a number of aids to production and expansion upon which great reliance has already been put and which will have increasing value as the program develops.

Section 301 in effect reestablishes the V-loan program of World War II, its principal purpose being to bring out private capital loans to defense contractors and others in the defense effort by providing for a system of Government guaranties.

The guaranteeing agencies are in general the Government procurement agencies and include the Departments of the Army, Navy, Air Force, Commerce, Agriculture, and Interior, and General Services Administration and the Atomic Energy Commission. Where private loans are guaranteed, these guaranteeing agencies employ the Federal Reserve System banks as fiscal agents. Where public financing institutions make the loans, such as the Reconstruction Finance Corporation or the Export-Import Bank, those agencies are guaranteed directly.

The Defense Production Administration does not participate in operations under this V-loan authority but is interested, of course, in the coordination of this program for expansion of productive capacity and supply with other programs for the same purposes provided for in title III of the Defense Production Act, including Government loans and guaranties under section 302, and purchase, installation of equipment, and exploration programs conducted under section 303.

In the main, the program to date has been carried out through utilization of private capital and by the use of the Federal Reserve System as fiscal agent. Some loans by the RFC have been guaranteed by the Department of Defense. The private loans guaranteed since the beginning of the program to April 15 total 288 for a total dollar amount of $347,684,000. As of the same date, 94 applications amounting to $116,485,000 were under consideration by the guaranteeing agencies.

Section 302 of title III of the act provides for loans to aid in carrying out Government contracts for the procurement of materials or the performance of services for the national defense. These loans are for the expansion of capacity, the development of technological processes, or the production of essential materials, including the exploration, development, and mining of strategic and critical metals and minerals. Under the terms of the statute, such loans may be made only to the extent that financial assistance is not otherwise available on reasonable terms.

It has been a fundamental policy of the administration of the defense program to date that the expansion of productive facilities and the expansion of production should to the maximum degree possible

be achieved by the utilization of private capital by private business. There are certain areas and operations, however, in which financial assistance over and above that available from private sources must be provided by the Government if the program is to go forward as rapidly as desired. The authority provided by section 302 makes it possible for the Defense Production Administration to supply funds on terms suitable to the need in aid of the defense program where that is deemed necessary.

Applications for defense loans are filed with Commerce, Interior, Agriculture, and the Defense Transport Administration in accordance with their respective responsibilities under the act. The applications are reviewed by the staffs of those agencies, assisted by the RFC, which, through its field offices, makes the necessary credit and field investigations. Under the procedures established by the loan regulations and appropriate Executive orders, the several agencies may deny loan applications on their own responsibility. If, however, approval of a loan is recommended, it is referred to the DPA as the certifying authority for the utilization of borrowing authority under section 304 of title III. The DPA reviews the recommendation from the point of view of consistency with the over-all program for the expansion of production and the necessity involved, and may certify the loan, in which event the RFC acts as the disbursing agent for the recommending agency. In many instances loans under the authority of section 302 are needed only for a portion of the financial needs of borrowers because other funds can be supplied by private banking institutions or the RFC acting under its regular lending authority. In other instances the entire amount of the funds required by a borrower to expand facilities or to finance some operation deemed essential to the defense effort is unavailable from other sources and is supplied by nieans of a section 302 loan. Every effort is made to coordinate this means of financial assistance in aid of the defense effort with other types of financial aids which may be available from other governmental sources.

As of April 30, 1951. applications for loans in the aggregate amount of $1.371.000.000 had been filed. As of the same date, loans had been approved in the amount of $59.800.000. Loan applications in the amount of $1520.00 had been denied. These denials were based principally spot a lack of showing that the loans were necessary in the inferest of the defense effort.

It is worthy of note that, of the loans so far approved, approxinately three-quarters have been made to small-business applicants Laving lear han 500 employees. These loans have been in aid of inmaxi betion of sich basic materials as pig iron, cement, metal shapes and forgings, and the production of finished prod eta, inc. de ngandaran egunment and components, military automotive equip bent, electrical and electronic equipment for aircraft, and merella pore manufactured by subcontractors,

nisa

B. Letary estimates are now in preparation as to the amou PROALT WILL DE required for the ban program in 1942.

Septic MC has been employed accessfully to effect the proote bent of matemas that esential to the success of the defènæ pro mm. To due, there have been 18 perjanta antroned for comoxing Wybory to ing about $52.10.00, Kihong, whia, uncorre

FETI -13

have been restricted to $450,440,000 because of exhaustion of the funds authorized by section 304.

Broadly speaking, projects approved under section 303 fall into the following categories:

(a) Revolving funds for the purchase and resale of materials essential to the defense program;

(b) Contingent liabilities under procurement contracts for essential materials; and

(c) A program for the encouragement of exploration of critical and strategic minerals and metals.

Revolving funds have been provided for that type of program which because of its nature and scope had to be undertaken by the Government. For example, the natural-rubber market reacted to an abnormal American demand following Korea. A tremendous price increase occurred which to an undetermined degree was influenced by speculative purchases. In order to relieve this economically dangerous situation and to effect an orderly acquisition of natural rubber necessary for essential defense requirements, the Government became the sole importer of natural rubber. The funds provided under section 304 are used merely to provide financing during the period between the foreign purchase and resale in this country. Thus far, both purchases and resales have been made at the same price, so that no loss has been involved in the transactions. However, there is little doubt that in other cases critical and strategic materials will have to be resold at a loss.

Another type of revolving fund has been employed to encourage the production of essential materials or substitutes therefor which have been customarily imported from foreign countries. For example, the overwhelming percentage of castor beans crushed in this country has been imported. Because supply may be cut off by crop failures or enemy action, it has been determined necessary to provide for a domestic supply of raw materials for the production of castor oil. Because this will be a new type of crop in this country, it is possible that the cost of production of the castor oil might exceed the market price, making it necessary to take a loss on resale.

The second over-all type of program which has been conducted under section 303 involves Government procurement contracts to encourage the production of materials considered essential to the defense program. The Government obligations under these contracts take the form of large contingent liabilities, either for a certain amount of the contractors' production which might not be salable on the open market, or for the unamortized cost of the facility. Of course, the Government would eventually recover, in large part at least, any outlays occasioned by such commitments.

The proposed amendments to section 303 would provide additional authority to cope with problems which the expanding defense economy has brought to light.

There are two broad amendments proposed to section 303 (a). The first enlarges the President's authority in regard to the type of material which may be purchased for resale by eliminating the word "raw" from the phrase "to purchase metals, minerals, and other raw materials." The amendment thus permits the purchase of all materials defined in section 702 (b), including raw materials.