2
Historical Context

The concept in the United States of stockpiling important raw materials for military use predates the establishment of the National Defense Stockpile (NDS) by quite some time. The supply shortages experienced during World War I led to the establishment in 1922 of the Army and Navy Munitions Board (within the War Department) to plan for industrial mobilization and procurement of munitions and supplies.

Since then the history of stockpiling materials for military needs in the United States has been punctuated by several reports and reviews that considered many of the same issues being considered in this report, including the relative importance of military and civilian requirements, the scenarios used to define those requirements, the balance between foreign and domestic suppliers, the role of U.S. industry in meeting wartime needs, and the responsibilities of government agencies in the management of the stockpile. A detailed chronological exposition of this history can be found in Appendix A; below is a summary of the history along with a history of acquisitions and releases from the stockpile.

THE HISTORY OF STOCKPILE POLICY

Fluctuations in stockpile size, its management by different agencies, and the impact of different legislative actions on the policy reflect the changes in planning goals over time for the NDS. The committee believes that understanding this history is essential for finding a way to ensure the future supply of military-critical materials.



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2 Historical Context The concept in the United States of stockpiling important raw materials for military use predates the establishment of the National Defense Stockpile (NDS) by quite some time. The supply shortages experienced during World War I led to the establishment in 1922 of the Army and Navy Munitions Board (within the War Department) to plan for industrial mobilization and procurement of munitions and supplies. Since then the history of stockpiling materials for military needs in the United States has been punctuated by several reports and reviews that considered many of the same issues being considered in this report, including the relative importance of military and civilian requirements, the scenarios used to define those require- ments, the balance between foreign and domestic suppliers, the role of U.S. industry in meeting wartime needs, and the responsibilities of government agencies in the management of the stockpile. A detailed chronological exposition of this history can be found in Appendix A; below is a summary of the history along with a his- tory of acquisitions and releases from the stockpile. THE HISTORY OF STOCKPILE POLICY Fluctuations in stockpile size, its management by different agencies, and the impact of different legislative actions on the policy reflect the changes in planning goals over time for the NDS. The committee believes that understanding this his- tory is essential for finding a way to ensure the future supply of military-critical materials. 

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m a nag i n g m at e r i a l s twenty-first century military  for a World War II and the Korean War Period The Naval Appropriations Act of 1938 and the Strategic Materials Act of 1939 created and provided initial funding ($100 million) for a stockpile of strategic raw materials. Threatened by the potential loss of imports as a result of Japanese con- quests in Asia and possible war in Europe, the Army and Navy Munitions Board (established in 1922) developed a list of 42 strategic and critical materials needed for wartime production (Snyder, 1966). By December 1941, $70 million had been appropriated by Congress and $54 million worth of materials had been acquired (Greenwood, 1994). Of the 15 materials in the stockpile during World War II only three were from domestic sources. Between 1942 and 1944, six materials were released for military needs and a seventh, under contract, was redirected before reaching the stockpile, by Executive Order of the President (War Department and Navy Department, 1947). The first major post-World War II congressional debate on stockpiling began in 1946. The Congress considered the purposes of the stockpile (military versus civilian), the acceptable sources of materials (domestic versus foreign), and appro- priate policy and management methods. The resulting legislation, the Strategic and Critical Materials Stockpiling Act of 1946, amended the Strategic Materials Act of 1939 and provided for the Secretaries of War, Navy, and Interior, acting jointly through the agency of the Army and Navy Munitions Board, to be authorized and directed to determine which materials were strategic and critical and to determine the quality and quantity of such materials that were to be stockpiled (Snyder, 1966). The Secretaries of State, Treasury, Agriculture, and Commerce were to cooperate in this effort. The 1946 law established many of the principles by which the NDS operates today. It authorized the appointment “to the fullest extent practicable” of industry advisory committees. The Buy-American Act of 1933 would apply to pur- chases. Purchases of materials would be done by the Procurement Division of the Treasury Department, which subsequently became the Bureau of Federal Supply. The law called for the storage of materials on military and naval reservations and for the refining, processing, and rotating of materials. It authorized the disposal of materials on 6 months’ notice in the Federal Register and notice to Congress but said also that except for reasons of obsolescence no materials might be disposed of without congressional approval. And, finally, the law established the Presidential authorization that was required for the release of materials. In a further development, the National Security Act of 1947 created a civilian mobilization agency to advise the President and gave it responsibility for the coor- dination of military, civilian, and industrial mobilization, including the policies establishing adequate reserves of strategic and critical materials and for the con- servation of these reserves (Snyder, 1966). And in 1950, following a White House National Security Council assessment, a process was established for identifying

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Historical context  stockpile requirements in the case of an extended conventional war with a 3-year industrial/military mobilization. In the same year, the North Korean invasion of South Korea led Congress to quickly appropriate $2.9 billion over a 6-month period for stockpiling materials, and the planning requirement objectives jumped from $4.0 billion to $8.9 billion (Snyder, 1966). In 1949, the Bureau of Federal Supply was transferred from the Treasury Department to the newly created General Services Administration (GSA). By December 1952, the inventory value of the stockpile was $4.02 billion (Munitions Board, 1953). As many as eight materials were released between 1951 and 1953 for defense purposes under 12 Presidential orders (Gutchess, 1969). President Eisenhower consolidated mobilization functions within the govern- ment in 1953 and the Munitions Board transferred the stockpiling program to a new agency, the Office of Defense Mobilization, thereby putting stockpiling activ- ity under civilian control. The responsibility for determining military materials requirements was transferred to the new Assistant Secretary of Defense for Supply and Logistics (Snyder, 1966). During that period stockpile requirements were based on a new 1-year’s-normal-use criterion, and imports were permitted from Canada and Mexico only. The Office of Defense Mobilization reported in 1956 a $10.9 bil- lion total value for new stockpile requirements, of which there was $4.7 billion in inventory (Office of Defense Mobilization, 1956). Cold War Years During the mid-1950s, with the cold war era well under way, military planners began to examine new scenarios for a nuclear conflict of short duration. These new scenarios affected the stockpile-oriented analysis of industrial mobilization and industry’s need for materials and led to a reduction in the quantities of materials needed for the stockpile. A revised plan developed in 1958 was based on a 3-year war instead of a 5-year war. It allowed the disposal of excess materials from the stockpile only if such activity did not disrupt U.S. domestic markets or affect for- eign relations. In 1959 an advisory committee of the Departments of Commerce, State, Interior, Agriculture, and Defense was established to review disposal plans. In the 1960s, defense planners calculated their risk analyses based on the ability to respond to two and one-half conflicts at one time—that is, war with the Soviet Union in Europe, war with the Peoples Republic of China in Asia, and a “half- war” with another regional state, in this case Vietnam. In 1962 President Kennedy announced that he was astonished to find that the stockpiling program had accu- mulated $7.7 billion worth of materials, an amount nearly $3.4 billion greater than estimated wartime needs (Snyder, 1966). The Executive Stockpile Committee was created under the White House Office of Emergency Planning (OEP) to examine the disposal of strategic and critical materials. A congressional investigation in 1962

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m a nag i n g m at e r i a l s twenty-first century military  for a and 1963 examined the operations of the stockpile in open hearings. An interde- partmental disposal committee was established by the director of the OEP in 1963 to develop long-range disposal plans for materials that were no longer required (OEP, 1965). By the end of 1965, disposal sales of stockpile materials had reached $1.6 billion (OEP, 1966). The Materials Reserve and Stockpile Act of 1965 directed that the national stockpile, the supplemental stockpile, including the Commodity Credit Corpora- tion stockpile, and the Defense Production Act inventory be combined into the National Stockpile, a single stockpile chartered to hold all the required strategic and critical materials and with a long-range disposal plan to reduce the inventory of excess materials. In this same time period worldwide shortages of some materials affected U.S. industry support of defense needs and several materials were released from the stockpile, with Presidential approval, to stabilize supply. In February 1966, the President authorized the release of quinine sulfate for use in Vietnam to combat malaria, and later that year copper and nickel were released under Presidential order. (Box 2-1 discusses releases from the stockpile in detail.) In 1973, the NSC reevaluated the stockpile and revised the basis for developing new goals or requirements for each material: (1) Materials would be used only for defense purposes; (2) conflicts in more than one theater (Europe and Asia) could be fought simultaneously; and (3) imports of supplies would be available for all years of the national emergency. Then in 1976, the President issued new guidance on stockpile policy, reintroducing essential civilian needs as a criterion and adjust- ing the military scenario to support a major war over a 3-year period, with the assumption of full-scale industrial mobilization and increased materials demands. An annual materials plan (AMP) that would cover any acquisition or disposal of excess materials was also mandated. In 1979 Congress passed the Strategic and Critical Materials Stock Piling Act, the second major revision of the original 1939 legislation. Stockpile administration and policy functions were transferred from the GSA to the newly created Federal Emergency Management Agency (FEMA). The storage, maintenance, upgrade, pur- chase, and sale functions remained with the GSA. In addition the National Defense Stockpile Transaction Fund was established in the Treasury Department to receive money from sales. From August 1979 through September 1988, total net receipts of nearly $1.2 billion were credited to the National Defense Stockpile Transaction Fund. The new law also insisted that stockpile requirements be based on a total mobilization of the economy of the United States for sustained conventional war on a global scale lasting at least 3 years. A FEMA analysis in 1980 estimated stockpile needs to be on the order of $20 billion. In 1982, in response to a Presidential directive, the GSA initiated a long-term program to upgrade chromite and manganese ores to high-carbon

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Historical context  BOX 2-1 Summary of Releases from the NDS 1942-1944. Six materials were released for military needs, and a seventh material (which • was under contract but not yet in the stockpile) was redirected. Korean War. About $60 million worth of materials were released between 1951 and 1953 • for defense purposes. In addition, large quantities of materials on order for the stockpile were diverted to meet industry needs. 1952, 1956. Mercury was released in 1952 and 1956 for use in the atomic weapons pro-­ • gram. 1964. Because of supply shortages, Congress authorized emergency sales of antimony, lead, • and zinc, and the President approved the release of copper to relieve industry hardship cases. 1965. The President authorized copper to be released in the interest of common defense • (OEP, 1966) because of a worldwide shortage, thus serving as an economic stabilizing influ-­ ence. Under current law, the President cannot release materials for economic reasons. 1966. Quinine sulfate was released for use in Vietnam to combat a strain of malaria that • resisted the synthetic drug being used and two additional releases of copper “for purposes of the common defense” (OEP, 1966). 1969. Nickel strikes against the two largest world producers of primary nickel cut nickel • availability, and the defense industry began to suffer. Nickel was then released for use in defense production. 1979. Chrysotile asbestos was released to DoD because the one operating mine in Canada • had been depleted of reserves and the only other mine in the world, in Zimbabwe, was not producing. 1996. The U.S. Congress in the 1996 National Defense Authorization Act directed the • release of up to 250 short tons of titanium sponge to the Secretary of the Army for use in the weight reduction portion of the main battle tank upgrade program. ferrochromium and high-carbon ferromanganese. This program was aimed at sustaining a U.S. ferroalloy furnace and processing capability vital for industry supplying the national defense. In the mid-1980s, the NSC under the Reagan administration once again commissioned a stockpile requirements study that declared most of the stock- pile inventories unnecessary. This determination was in direct conflict with the prevailing thinking of Congress and several federal agencies, and in December of 1987, Congress directed DoD to take over the NDS, including requirements assessments.

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m a nag i n g m at e r i a l s twenty-first century military  for a 1988 to the Present In February 1988, Executive Order 12626 designated the Secretary of Defense to be the National Defense Stockpile Manager, and the Defense National Stockpile Center (DNSC) was established as a field activity within the Defense Logistics Agency to manage the operations of the stockpile program (Department of Defense, 1988). The civilian agencies retained a role only on the advisory committees. These events drove changes in the methodology for requirements assessments, an effort led by the Institute for Defense Analyses (IDA). While the methodology for modeling requirements was improved, the assump- tions for the modeling in the late 1980s remained limited. These assumptions, based on the 1979 Stockpiling Act, included a 3-year war scenario and considered that apart from U.S materials suppliers, only Canadian and Mexican suppliers could be considered reliable. Nonetheless, IDA made modeling the requirements more quantitative by uti- lizing econometrics to determine supply and demand for NDS materials. This enabled a range of policy options for NDS to be explored and was the framework for evaluating stockpile requirements as DoD planning guidance began to change in 1989, when the Cold War ended and foreign sources of materials were deemed more reliable. According to the annual NDS reports, the stockpile goals and holdings peaked in 1989, when the NDS contained 91 line items in 62 materials classifications. The total value of the NDS that year was $9.6 billion. Eighty-four of the ninety-one materials were listed as stockpile goal materials and accounted for virtually all of the $9.6 billion value. Although approximately $1.5 billion of the 1989 NDS value was associated with materials held in excess of the identified NDS goals, not all the materials goals in 1989 were met by NDS inventory. To meet those goals would have required the purchase of 40 items valued at $12.5 billion, yielding a total value of stockpile goal materials of $20.6 billion. Of the $12.5 billion shortfall, nearly $10.5 billion was for aluminum, copper, lead, nickel, platinum, ricinoleic/sebacic acid, titanium, and zinc. The stockpile had been deficient since before 1980 in all but one of the 40 materials identified. The General Accounting Office (GAO) commented on this in a 1992 report, which noted that when January 1991 prices were used, the variations in proposed goals ranged from more than $16 billion in 1979 (the FEMA study) to about $600 million in 1985 (the NSC study), to over $5 billion in 1991 (the IDA/DoD assessment), and, finally, to $3.3 billion in 1992. A year previously, a report from the DoD Inspector General (IG) concluded that the process for determining the types, quantities, and qualities of materials to be acquired and retained in the stockpile needed improvement (DoD, 1991). The audit also found that improvements were

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Historical context  needed in the acquisition and disposal of materials. Specifically, the IG recom- mended that DoD do three things: 1. Base future stockpile goals on a more realistic force level; such as the programmed force; use domestic production capacity from new and reopened facilities; and consider foreign production sources other than Canada and Mexico during a crisis. 2. As provided for in Section 10(a) of the Strategic and Critical Materials Stockpiling Act, establish and institutionalize an interagency advisory committee in coordination with the Departments of Commerce, Interior, and State, to be composed of government experts and to provide information on the civilian and industrial tiers that affect the materials requirements generation process and to assist in the computation of require- ments for materials that cannot be quantitatively modeled. 3. Include in the charter of the interagency committee specific responsibilities to assimilate the information necessary to formulate stockpile requirements and to prioritize the stockpile actions regarding those requirements. One of the most restrictive aspects of the methodology for setting NDS require- ments and goals setting was the statutory requirement that the criteria include the ability to sustain a global conventional war lasting at least 3 years and involving total mobilization of the economy. In its response to the IG’s 1991 report, DoD noted that it had previously suggested eliminating this criterion, but the relevant legislation was not forwarded to Congress. DoD also noted that in addition to Canada and Mexico, countries in the Caribbean basin would be included as reliable sources in the process to define the 1991 requirements. Concomitant with these developments came the fall of the Berlin Wall and the recognition that U.S. defense planning, strategizing, and force structure would need fundamental realignment. The new approach concentrated on the need to address regional conflicts while maintaining a minimal force and preserving a hedge capacity to rebuild defenses for global warfare in the event of a resurgent superpower rivalry. A new defense strategy was outlined in the 1992 National Military Strategy (NMS),1 and with changes in the geopolitical climate came a significant reevaluation of the reliability of foreign sources of materials beyond just the countries in the Caribbean basin. With the changing defense posture came a moratorium on stockpile purchases in 1992 as threat scenarios and country reliability estimates changed—and as DoD budgets were cut. These changes sig- nificantly reshaped policy toward the NDS. In 1992, the Assistant Secretary of Defense testified before Congress that because of the changing military scenario, stockpiled materials requirements had been reduced in value to $3.3 billion (versus $7.1 billion in inventory) (McMillan, 1992). In its National Defense Authorization Act for FY1993, Congress responded to DoD’s recommendations by authorizing the disposal of large quantities of 44 NDS materials (out of the 84 on the stockpile list) (DoD, 1993). Included in the 1Available at http://handle.dtic.mil/100.2/ADA338837. Accessed June 2007.

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m a nag i n g m at e r i a l s twenty-first century military 0 for a same 1993 legislation was an amendment to the Strategic and Critical Materi- als Stockpiling Act that said the NDS’s only purpose was to serve the interest of national defense. It was not to be used for economic or budgetary purposes. The law further required that the AMP submission to Congress detail the maximum quantity of each commodity to be bought or sold in the fiscal year and that the AMP also report on the projected domestic or foreign economic effects of such transactions. From FY1992 through FY2006, $6.1 billion worth of materials were sold. Since 1993, when the main sales program began, Congress has earmarked part of the funds for specific revenue goals and for particular military programs. Since then, the essential framework for modeling of stockpile requirements has remained largely unchanged (see Chapter 3 for a detailed description of the models used today). As of May 2007, the NDS inventory contained 28 materials valued at about $1.1 billion. With large reductions in the types and quantities of materials, the DNSC has significantly reduced the number of facilities for warehousing materi- als. Under the current plan, by the end of FY2007, the stockpile will have three consolidated storage locations and a total workforce of 65 (DoD, 2006). CLOSER LOOK AT RELEASES, ACQUISITIONS, AND UPGRADES OF MATERIALS IN THE NATIONAL DEFENSE STOCKPILE The specific materials and quantities to be held in the NDS must be autho- rized by the President. The law requires the President to determine the quality and quantity of each strategic and critical material to be acquired, and the form in which it will be acquired. The President’s determinations must be made on the basis of national defense requirements (including essential civilian needs in times of an emergency) rather than for short-term economic or budgetary purposes. The President must inform Congress in writing of any proposed changes to stockpile quantities 45 days before making the change. The President may also authorize the rotation or upgrading of the materials held in the stockpile, to assure that they are suitable for use in an emergency. Similarly, the President may authorize the release or disposition of materials in the stockpile at any time, provided the mate- rial release is needed for the national defense in time of declared war or during a national emergency. Figure 2-1 shows that since 1997 there have been no acquisitions of materials or upgrades to the materials already in the NDS. Releases from the stockpile have been very limited, as shown in Box 2-1. The President may also authorize the disposal of materials in the stockpile that are deemed to be in excess of requirements or at risk from deterioration.

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Historical context  $180 Annual Funding for Acquisitions and Upgrades ($ millions) $160 $140 $120 $100 $80 $60 $40 $20 $0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year FIGURE 2-1 Annual funding for acquisitions and upgrades. Data taken from DNSC annual materials reports. 2--1 Since 1992, changes in defense requirements and supply assumptions have greatly reduced the stockpile requirements, and most of its content has been deemed to be in excess. As mentioned above, Congress instructed DoD to sell off this excess. Such a sale requires specific enabling legislation from Congress. This legislation is based on the AMP submitted to Congress by February 15 of each year, which lists the maximum quantity of each commodity to be bought or sold in the given fiscal year and recommends disposal plans consistent with stockpile requirements. All releases proposed in the AMP must be approved by the Armed Services Commit- tees of the U.S. Senate and the U.S. House of Representatives. Following approval, the AMP becomes effective on the first day of the fiscal year. A revised AMP may be submitted during the fiscal year if significant changes are needed. Before its submission to Congress, the AMP is reviewed by the Market Impact Committee (MIC), established to advise DoD on the projected economic effects of proposed stockpile transactions in the United States and abroad. The MIC includes representatives from the Departments of Commerce, State, Agriculture,

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m a nag i n g m at e r i a l s twenty-first century military  for a Defense, Energy, Homeland Security, Interior, and Treasury and is co-chaired by representatives of the Departments of Commerce and State. It balances market impact concerns with the statutory requirement to protect the government against avoidable loss. The MIC must consult with representatives of the industries that produce, process, or consume the materials in the stockpile. From FY1992 through FY2006, these sales totaled $6.1 billion, with another $629 million projected to be sold in FY2007 through FY2009 (Figure 2-2). Most of these revenues were used to offset other government expenditures, to fund the operating costs of the stockpile, or to reduce the deficit, as shown in Table 2-1. As a result of the sales program, inventories dropped from $3.3 billion in FY1999 to $1.1 billion in FY2006. The stockpile is anticipated to reach $629 million by FY2009 (see Figure 2-3), and it is expected that all excess will be sold by 2020. The NDS was established to provide an insurance policy for the supply of critical materials in time of national emergency. As shown in this section, materi- als have been released from the stockpile on only 10 occasions in the last 63 years. In recent years, the only NDS activity has been the selling of excess materials to provide funding for other government projects. $800 $700 $670 $594 $600 $513 Annual Sales ($ millions) $503 Estimates $497 $500 $462 $449 $446 $432 $428 $391 $377 $400 $322 $299 $300 $238 $219 $173 $200 $139 $100 $0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year FIGURE 2-2 Annual sales of excess stockpile materials. Data taken from the DNSC annual materials reports and the FY2008 President’s Budget Request. 2-2

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Historical context  TABLE 2-1 Use of Stockpile Collections for FY1993 Through FY2005 (millions of dollars) End Use of Stockpile Collections Stockpile operations 759 Transfers to other accounts Military department operation and maintenance accounts 1,450 Treasurya 2,225 World War II Memorial 6 Health and Human Services 92 Increase balance in transaction fund 1,398 Total 5,930 aOffset for change in foreign military sales program ($633 million), offset military costs of spectrum change ($426 million), cobalt sales receipts ($133 million), titanium sales receipts ($129 million), and other ($799 million). SOURCE: Data taken from the DNSC budget documents, Presidential budgets, and relevant authorization acts. $4,000 $3,500 $3,375 Stockpile Inventory Levels ($ millions) $3,000 $2,910 $2,483 $2,500 Estimates $2,000 $1,892 $1,712 $1,591 $1,571 $1,500 $1,078 $929 $1,000 $779 $629 $500 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year FIGURE 2-3 Stockpile inventory levels. Data taken from DNSC annual materials reports and FY2008 President’s Budget Request. 2-3

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m a nag i n g m at e r i a l s twenty-first century military  for a COSTS OF OPERATING THE STOCKPILE The NDS operations team is funded through the sale of excess materials (des- ignated the National Defense Stockpile Transaction Fund). The funding is used for a number of purposes: • Acquire, maintain, and dispose of strategic and critical materials, • Update materials specifications and upgrade existing stockpile materials to current specifications, • Test stockpile materials, • Study future material and mobilization requirements for the stockpile, • Contract for materials development and research to improve the quality and availability of materials in the stockpile and develop new materials for the stockpile, • Improve facilities, structures, and infrastructure, • Perform environmental remediation, restoration, and waste management, and • Pay employees and other expenses of the stockpile program, including the cost of employees. As the size of the remaining stockpile decreases, so does the size of the staff, facilities, and expenses of its operation. TOOLS TO ASSURE SUPPLY: NOT A NEW QUESTION It became clear to the committee early in the study that the question of the future of the stockpile was anything but new. Some previous reports asked some important questions about the stockpile, considered alternative ways to assure materials supply, and recommended future actions. Some of those reports are summarized below, because although many of them are decades old, they deal with either the same issues as did this committee or similar ones. 1975 General Accounting Office Report In 1975 the General Accounting Office (GAO)2 issued the report Stockpile Objectives of Strategic and Critical Materials Should be Reconsidered Because of Short- ages (GAO, 1975). In it the GAO referred to an earlier report, U.S. Actions Needed to Cope with Commodity Shortages (GAO, 1974), where it had noted that shortages of basic commodities were causing serious economic, social, and political problems 2 Effective July 7, 2004, the GAO’s legal name became the Government Accountability Office.

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Historical context  for the United States and other countries around the world. It also noted that the final report of the National Commission on Materials Policy (NCMP)3 had come to a similar conclusion: U.S. materials demands on the rest of the world’s supply were growing at a time when other nations’ demands were growing even faster (NCMP, 1973). The NCMP report said that in the past the United States had had little difficulty importing the minerals it needed but suggested that the situation might change because of (1) increasing competition for scarce resources and (2) the possibility of actions to restrict supplies and/or increase prices. The 1975 GAO report noted the NCMP reported that: The nation’s vigorous industrial and economic growth over the past century has resulted in the highest standard of living in the world. Our complacency, however, has resulted in our failure to develop new material sources as fast as required by the economy. As a conse- quence, the United States is increasingly dependent upon foreign sources. The NCMP report concluded that, on the basis of commodity summaries and projections, the gap between U.S. requirements and domestic supply was widening for most of the country’s basic materials. Provided that the stockpile was replen- ished, said the 1975 GAO report, stockpiled materials could be released and used as an alternative to imports as a source of supply, reducing import dependence. Although not a long-term source of supply, it went on to say, the stockpile could be a short-term method of neutralizing economic and/or political crises. The GAO report concluded that because competition for a finite supply of nonrenewable resources was increasing and because producer boycotts and other restrictions were possible for some resources, the United States might no longer be able to count on importing the quantities of resources it needed. (Stockpile policy at the time did, however, assume that the United States would not be able to import from communist countries or from those involved in a conflict.) The GAO believed this assumption ran contrary to the world resources outlook and that long-range planning would be necessary to deal with the increasing demand for resources. Its report noted that the United States relied heavily on imports of some of the materials that had been authorized for selling off and questioned whether enough thought had been given to their future supply. If long-range planning had 3 The Resource Recovery Act of 1970 created the NCMP, giving it the charge “to enhance environ- mental quality and conserve materials by developing a national materials policy to utilize present resources and technology more efficiently, to anticipate the future materials requirements of the nation and the world, and to make recommendations on the supply, use, recovery, and disposal of materials.” One finding of the NCMP’s 1973 report to the President and to the Congress, Material Needs and the Environment Today and Tomorrow, was that in 1972 the U.S. imported $14 billion worth of minerals (including petroleum) and exported $8 billion worth, for a net deficit of $6 billion.

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m a nag i n g m at e r i a l s twenty-first century military  for a been done earlier, the disposals might never have been authorized. Such planning was particularly important for materials that • Had no substitutes, • Were largely imported, • Were in strong demand, and • Were susceptible to producer boycotts and other restrictions. The GAO recommended in its 1975 report that the Secretary of Defense and the National Security Council reevaluate stockpile assumptions to ensure that adequate materials were stockpiled to meet the nation’s readiness needs. It also recommended that the then stockpile manager, the Administrator of General Services, use these kinds of data to arrive at new national stockpile objectives. Finally, the GAO suggested that the Congress might want to consider broad- ening the strategic and critical materials stockpile concept to release material to meet short-term economic as well as national defense emergencies. Any materials released for economic purposes, the GAO suggested, should be replenished so that all national defense requirements could be met. 1983 Congressional Budget Office Report A paper by the Congressional Budget Office (CBO) noted that stockpiles were named according to their purposes: defense stockpiles are intended for use dur- ing a military emergency, while economic stockpiles are buffer stocks intended to smooth out transient supply disruptions (the Strategic Petroleum Reserve, is an example of the latter) (CBO, 1983). The CBO noted that the NDS was not an economic stockpile—that is, it was not designed to bridge markets during localized interruptions of mineral flows in normal times or to assist in price control. Indeed amendments to the legislation governing the NDS precluded the stockpile from being used for economic proposes. Looking at the future of the stockpile, the CBO suggested a number of policy options for ensuring materials supplies during national emergencies. The following options make a good short list of the tools government can use: • Increasing the size and scope of the National Defense Stockpile, • Building economic stockpiles, • Subsidizing domestic production, • Diversifying sources of supply, • Encouraging exploration for and production of critical minerals on public lands,

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Historical context  • Intensifying metals and materials R&D, and • Utilizing foreign policy initiatives. The CBO report noted that the National Commission on Supplies and Short- ages, established by President Ford, endorsed the creation of an economic stockpile in its 1976 report. Such a stockpile would be used to supplement mineral supplies when they were disrupted for political or logistical reasons. The CBO suggested that the Congress might wish to consider allowing use of the defense stockpile for that economic purpose during localized disruptions of individual minerals, just as the Strategic Petroleum Reserve was established to bridge oil import disruptions. Subsidizing Domestic Production Title III of the Defense Production Act authorizes the President to guarantee loans and take other measures to expand production of strategic minerals in the interest of the national defense. During the Korean War, this authority was used to increase significantly domestic production of aluminum, copper, tungsten, and other metals. But this production was achieved at a substantial cost—by 1959, subsidized production acquired by the government at a cost of $1.4 billion was worth only $0.8 billion at market prices. The CBO noted that the disadvantage of this option is its potential cost. The CBO report noted that diversifying sources of supply assures both U.S. metal-using industries and the economy as a whole that damage from supply con- tingencies could be contained. Diversification, the report said, would provide alter- native supplies during a disruption and lower the chances of a cartel manipulating minerals markets. The CBO noted that U.S. policy traditionally encouraged U.S. investment in resource industries of developing nations, but as such, the applica- tion of the policy did not discriminate in favor of investments that represented true diversifications. The CBO report noted that about one-third of U.S. land area is public land, much of it closed to minerals exploration and development. The CBO report rec- ognized that providing access to these lands was (and remains) controversial, given the inherent tension between development and aesthetic preservation. It suggested that a survey to better define the mineral wealth of public lands (perhaps by the U.S. Geological Survey) could minimize the conflict between wilderness preserva- tion and minerals development. The CBO report noted that R&D in minerals exploration, production, and applications could limit and had limited U.S. vulnerability to shortages of imported minerals. The report noted the substitution of ceramic magnets for cobalt ones and the development of replacements for metals (graphite comes to mind) as examples of innovations. Federal funds for research on materials, however, are mainly used for research on fuels and renewable resources. The CBO suggested that the Congress might wish to consider legislation to promote R&D for minerals and metallurgical science.

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m a nag i n g m at e r i a l s twenty-first century military  for a The CBO noted that the international character of minerals flows makes supply vulnerability a foreign policy issue. Even though written nearly a quarter century ago and long before the term “globalization” entered common parlance, the CBO report opined that expanding and diversifying minerals supplies might be best accomplished in the context of the international development agencies, with U.S. leadership. It suggested that a review of foreign policy focused on U.S. concerns about the stability of mineral supplies could suggest diplomatic efforts that would stabilize and diversify mineral imports without significant budgetary costs. New policy initiatives could be implemented through trade agreements or other steps to assure the security of minerals supplies.4 SUMMARY As originally conceived, the stockpile was a kind of insurance policy in sup- port of a major mobilization during a national emergency. Since then, U.S. defense strategy and global threats have changed significantly, especially since the end of the Cold War. Stockpile requirements and NDS inventories have also changed. Later chapters in the present report explore how the dependence on foreign sources has evolved through the beginning of the twenty-first century. Many forums and reviews have considered how the changing threats, defense scenarios, and minerals markets should affect the operation of the NDS. None of those reports brought about any 4 The committee was also made aware of two relevant reports from the Air War College and the Industrial College of the Armed Forces. The 1994 Air War College report National Defense Stockpile: Modernization or Suicide? (Byzewski, 1994) concluded that in many cases close examination of the quality and quantity of each of the materials being offered for sale from the stockpile reveals “sound judgment and logic which appear to fully incorporate national security strategies.” The report warned, however, that using “overly optimistic planning factors to assess the availability of minerals which the U.S. relies upon from unstable sources also seems contrary to a strong national defense posture.” It suggested that the national investment in the stockpile is comparable to buying an insurance policy, and that if no emergency does arises, there are always those who will say that a 3-year supply of strategic and critical minerals was a waste. A 2004 Industrial College of the Armed Forces (ICAF) report on strategic materials noted that although they account for only a small percentage of the U.S. GDP, materials will be “key to our future economy” and “vital to meeting the security needs of an agile, lightweight force combating new threats in a global war on terrorism” (Industrial College of the Armed Forces, 2004). It noted also that the decision to sell off the contents of the NDS was in keep- ing with the expectation of only short-duration conflicts into the future. Risk would be minimized, it judged, by the retention of short-term supplies of materials and by arranging for rapid availability of materials from multiple sources on the global market. The ICAF report concluded, however, that the elimination or significant reduction of the stockpile increased the risk in the event of a protracted war or terrorist sabotage of key production sites. It suggested that stockpiling should be constrained to areas where few sources exist since prolonged dependence on a single foreign source poses a risk to national security that varies depending on the relationship with the source country. The report specifically recommended that the government consider stockpiling selected rare earth elements.

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Historical context  visible change in stockpile operations. This committee’s report addresses many of the same issues, and its conclusions and recommendations complement those in the earlier reports. One of these issues is whether the NDS as currently structured provides the type of insurance that may be needed in future emergencies. As a case in point, the following action took place while this report was being written. Because of the urgent need to counteract improvised explosive devices (IEDs) in Iraq, the DoD decided to put the Mine Resistant Ambush Protection (MRAP) vehicle on a fast-track production schedule. To ensure enough armor steel to build such a large number of vehicles, Defense Secretary Gates approved DX rating for MRAP on June 1, 2007.5 The committee notes that in this particular instance—a real material requirement for a wartime situation—it is doubtful that the NDS as currently structured could solve the problem. REFERENCES Byzewski, Robert H. 1994. National Defense Stockpile: Modernization or Suicide? Congressional Budget Office (CBO). 1983. Strategic and Critical Nonfuel Materials: Problems and Policy Alternatives. Department of Defense (DoD). 1988. Strategic and Critical Materials Report to the Congress, Operations Under the Strategic and Critical Materials Stockpiling Act During the Period October -March . DoD. 1991. Audit Report of the Inspector General: Requirements for the National Defense Stockpile. DoD. 1993. Strategic and Critical Materials Report to the Congress, Operations Under the Strategic and Critical Materials Stockpiling Act During the Period October -September . DoD. 2006. Strategic and Critical Materials Report to Congress, Operations Under the Strategic and Critical Materials Stockpiling Act During the Period October 00-September 00. General Accounting Office (GAO). 1974. U.S. Actions Needed to Cope with Commodity Shortages. Washington, D.C.: General Accounting Office. GAO. 1975. Stockpile Objectives of Strategic and Critical Materials Should Be Reconsidered Because of Shortages. Washington, D.C.: General Accounting Office. Greenwood, Alfred R. 1994. Prepared Statement of Congressional Research Service Before the Readiness Subcom- mittee on Issues Relating to the National Defense Stockpile. March 8, 1994. Gutchess, F.J. 1969. Selling Defense Materials—An Informal Historical Compilation of the Program for the Sale of Excess Strategic and Critical Materials by the General Services Administration, Property Management and Disposal Services Through June 0, . Industrial College of the Armed Forces. 2004. Spring 00 Industry Study: Strategic Materials. Washington, D.C.: National Defense University. 5 The Defense Priorities and Allocations System (DPAS) regulations authorize “delegate agencies” to place contracts and orders in support of certain approved programs and requires contractors, subcontractors, and vendors to give precedence to the performance of those contracts and orders over all other contracts and orders, even commercial contracts and orders. Such contracts, subcontracts, and purchase orders are called “rated orders,” and they can have one of two ratings: DO or DX. All DO-rated orders support programs that are designated by the secretary of defense as being “of the highest defense interest” and have equal priority with each other and take precedence over unrated orders. All DX-rated orders support programs that are designated by the President as being “of the highest national priority” and have equal priority with each other and take precedence over all DO- rated orders and all unrated orders.

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m a nag i n g m at e r i a l s twenty-first century military 0 for a McMillan, Colin. 1992. Statement Before the House of Representatives Subcommittee on Seapower and Strategic Critical Materials. April 29, 1992. Munitions Board. 1953. Stockpile Report to the Congress— February . National Commission on Materials Policy. 1973. Material Needs and the Environment Today and Tomorrow. Washington, D.C.: Government Printing Office. Office of Defense Mobilization. 1956. Stockpile Report to Congress, January-June . Office of Emergency Planning (OEP). 1965. Stockpile Report to the Congress—July-December, . OEP. 1966. Stockpile Report to the Congress—July-December . Snyder, D.H. 1966. Stockpiling Strategic Materials, Politics and National Defense. San Francisco, Calif.: C.A. Chandler Publishing. War Department and Navy Department. 1947. Stockpiling Report by the Secretary of War and Secretary of Navy to the Congress—Covering Operations from  June  to  December .