REPORTED STOCKS OF REFINED COPPER IN THE NON-COMMUNIST WORLD

(1969-77) (1)

EXHIBIT

Debt Ratios (Debt/Debt Plus Shareholders Equity)

Senator HART. Thank you very much for coming today.

I would like to reintroduce Mr. Bosworth, Deputy Assistant Secretary of State for International Resources, who has presented a very comprehensive statement for the record and summarized that and is available for questioning.

STATEMENT OF STEPHEN BOSWORTH-Resumed

Mr. BOSWORTH. Thank you.

Senator HART. Let me just ask a couple of questions to put the tin problem in perspective. Would you tell us how big the tin buffer stock is now and also how large it would need to be before it is effective in controlling prices in your opinion?

Mr. BOSWORTH. I believe, Mr. Chairman, the tin buffer stock now is around 30,000 tons roughly. I can correct that for the record. Senator HART. If you would give us the precise figure.

[The information follows:]

The precise figure is 32,980 tons.

Mr. BOSWORTH. Our feeling is that it is significantly too small. We would hope that the 5,000 tons that the United States would contribute would in itself provide a substantial addition to the, if you will, muscle of the buffer stock involved.

We are also optimistic that our contribution will bring forth further contributions. In particular, for example, Japan has already indicated that in the light of the U.S. desire to contribute to the buffer stock, they also will contribute to it.

Senator HART. How many other tin consumers are there that should contribute and how many have been contributing? Do you know?

Mr. BOSWORTH. Well, I think there are seven that have contributed thus far. I think Japan is probably the largest noncontributing consumer who we would hope would make the decision to make the contribution, as we have. There are a number of smaller European countries who may conceivably also contribute, although given their participation in the tin agreement and their relatively small size in the world tin market, those contributions would not account for large amounts of tin.

Senator HART. Could we achieve the objective that you are proposing here merely by making a cash contribution to the buffer stocks now? Mr. BOSWORTH. Well, if the market were in a different phase, we probably could, Mr. Chairman. The problem, of course, now is the tin buffer stock is virtually exhausted of metal. If we were to make a cash contribution, that would not put any additional metal into the world market and have a stabilizing effect on prices which we hope to obtain through the contribution of metal.

Senator HART. As I understand the situation, any contribution of tin to the buffer stock now would immediately go on the market because the market price is higher than the ceiling price. Is that so as far as you know? And if so, what good will that contribution on our part do?

Mr. BOSWORTH. That situation is correct, Mr. Chairman. The current market price is above the ceiling price of the band. Well, our calculations indicate that there is a potential deficit between world tin demand and world tin supply this year of somewhat just under 20.000 tons. We believe that our 5,000 ton contribution which would go into

the market relatively quickly, would have the affect of dampening the price rise which has occurred over the past couple of years.

Senator HART. On the 5,000 tons on page 8 of your statement, you note that $43.5 million contribution which would be the United States share is only 3,500 tons of tin at current prices.

Could the amount in the bill be reduced to 3,500 tons and still achieve the desired results?

Mr. BOSWORTH. I don't believe so, Mr. Chairman, no. That calculation is a rather intricate one because the valuation of our contribution is calculated on the basis of the floor price in effect when the contribution is made. And our contribution will be credited in those terms.

Senator HART. Even if this bill is enacted, wouldn't you have to get an appropriation for the $43.5 million value of the tin?

Mr. BOSWORTH. I don't believe so, Mr. Chairman. I believe if this bill was enacted, that in and of itself will authorize the Executive to proceed with the contribution.

Senator HART. Turning to the bill which I have proposed S. 2575, would you comment on the provision which is found in section 7 (c) (3) that prohibits sale of excess stockpile materials to foreign interests?

Mr. BOSWORTH. In the context of the tin contribution?

Senator HART. Yes.

Mr. BOSWORTH. Or in the general context?

Senator HART. Either way.

Mr. BOSWORTH. Well, I think the U.S. contribution of 5,000 tons would be put in the market in the United States and it would in effect be available for purchase by U.S. concerns.

Senator HART. Senator Melcher indicated-shifting, just momentarily turning to the copper situation-several firms in the copper industry have petitioned the ITC for relief under section 201 of the Trade Act. In your opinion does this have the potential to help the U.S. copper industry?

Mr. BOSWORTH. Well, I hesitate to offer an opinion on that petition since it is still before the ITC. I would say in a more general context, Mr. Chairman, that it seems to us that the problem of the copper industry is basically one of demand as well as of excess supply. As you know, copper is a commodity the demand for which is very closely tied to the business cycle. The relatively low rates of economic growth in the industrialized world over the past few years, particularly in Europe, are in our view a fundamental cause for the current instability and low prices in the world copper market.

Now, that is compounded by a relatively recent situation developing which is increasingly large share of world production come from developing countries where the copper production corporations or mines are government-owned. These developing countries, for whom in many cases copper is the sole or certainly the far and away most important source of foreign exchange earnings, have shown a tendency to continue to try and maintain their exports at the same volumes, even in the face of price declines.

This has caused a situation in which world production has not responded to lower prices by cutting back, as has taken place in the United States. But I think that the one lasting long-term benefit that can be provided to the copper industry in this country is to maintain

a little more rapid rate of growth in the world economy so that the demand for copper increases.

I think in general terms our position would be that we do not believe that the problems of the U.S. copper industry and the interests of the United States in a more general sense in the world trading system can be met through the imposition of protectionist measures at the border.

Senator HART. Thank you. Senator Bartlett.

Senator BARTLETT. Mr. Bosworth, the United States joined the International Tin Council in 1976 in order to help tin producers and consumers stabilize the price of tin. Nevertheless, we have an inconsistent situation in which the price of tin continues to rise. I understand it has tripled in the last 5 years. Yet there is also a current tin shortage.

In your statement on pages 4 and 5 you suggested the shortage is the product of export controls and tax policies in the producing nations. Would you expand on that?

Mr. BOSWORTH. I would be happy to, Senator. As I indicated in my statement, we believe the basic structural problem or shortcoming with the Tin Agreement is that the buffer stock has traditionally been too small. This meant that when tin prices were falling, the buffer stock did not have enough financial resources to buy sufficient tin and take it off the market to keep prices above the floor price.

As a consequence, the other major economic tool in the agreement— namely, export controls-was resorted to.

Now, in the case of tin we have found that it requires a significant period of time to reverse the effect of export controls. In many cases export controls result in production cutbacks which are reflected in the closing of mines and the closing of mine operations.

So that even when then the price begins to come back up at a different stage in the business cycle and the price cycle, there is a significant lag of time between the price increase and the time at which the supply begins to respond to higher prices.

So our objective, which we think would be significantly furthered by this contribution to the buffer stock is to make the buffer stock large enough so that it, in and of itself, has the economic capability to keep the price within the band: so that we do not have to resort in the future to export controls. This should create a situation in which as the prices goes up, there will be more tin in the buffer stock and we will be better able to defend the ceiling price as well as the floor price.

The problem with export controls is that they are quite effective in defending a floor price but they are not at all effective in defending a ceiling price. And as tin consumers, we believe that we have a very strong interest in obtaining a symmetry of protection between the floor price and the ceiling price.

Senator BARTLETT. Mr. Bosworth, is the purpose of the International Tin Agreement to protect foreign tin producers from the adverse impact of their own unwise domestic tax, investment, and export policies?

Mr. BOSWORTH. No, sir, that is not the purpose at all. We happen to believe that the tax and investment policies pursued by some of the producers in the past couple of years are not in either their own long