Because the nature of the international regime under which ocean mining would be carried out is so fundamental to investment, Mr. Chairman, I would like to briefly analyze the effect these two draft treaty proposals would have on private ocean mining activities. Both texts would:

Place access to the resources totally in the discretion of the Authority: it would be empowered to implement price and production controls and national quotas to restrict overall opportunities to mine, and would have the discretion to deny access to qualified operators for virtually any political or other reason.

Impose no limitation on mining terms and conditions: the Authority would have the unchecked discretion to impose any conditions on mining and would be authorized to require operators to enter into joint ventures with an international mining agency-the Enterprise, to transfer their technology to it, and to submit to onerous international taxation without even the assurance that the United States will take measures to avoid double taxation; even in the event American industry were accorded access to seabed minerals, the Authority would have the power to require the location of operations in other countries, thus depriving the Nation of security of supply, improvements in the balance of payments and new employment opportunities.

Result in political domination of the Seabed Authority's actions by Third World nations: the implementation of the treaty regime would be controlled by a "supreme" Assembly in which developing countries would be dominant and the politicization and unpredictability of the resource regime would be further enhanced by the absence of industrialized country influence in the Council.

Provide no assurance of security of tenure: the inherent instability of the Seabed Authority would be combined with the absence of judicial review for most of its important decisions potentially affecting operators; further, there would be no assurance that review by a judicial body, when available, would be impartial and uniform among operators.

Establish a system of seabed minerals price and production controls and allow for the imposition of national quotas that would severely limit expansion in mining production by American and other enterprises and jeopardize security of tenure for contractors.

Provide for the possible termination of State and private party access after twenty years: the outcome of a review conference after the first twenty years of operation would be clearly prejudiced under the ICNT by provision for the Enterprise to become the exclusive monopoly seabed mining entity, if agreement were not reached.

Create an Enterprise with unfair and discriminatory advantages over other mining operators: the Authority's broad discretion in according access, combined with specific preferences for Enterprise operations, would result in Enterprise domination of seabed minerals production.

With minor exceptions, these texts tend to reflect the direction of the deep seabed negotiation at the Law of the Sea Conference. For this reason, the American mining industry seriously questions whether a new treaty that would permit us to continue our ocean mining programs in a stable and reasonably profitable investment climate is achievable.

We note that, while Ambassador Elliot Richardson has publicly posed the same question and indicated that he is recommending that the President review the further participation of the United States in this forum, he would also have been willing to continue negotiations on the basis of the equally unacceptable Evensen texts. This is deeply troubling, since it demonstrates that the Administration fails to appreciate the essential requirements of private investors in moving forward with ocean mining development efforts as well as to recognize the proper magnitude of the national interest in deep seabed resources. This failure not only compounds the investment uncertainty we confront but also could seriously mislead developing countries into believing that eventually the U.S. will accept a deep seabed regime consistent with their more extreme demands.

The enactment of appropriate legislation for ocean mining is more urgent than ever. The industry requires legislation that eliminates the present obstacles to investment. We believe the United States as a nation also needs to pursue a legislative course, if there is ever to be a stable legal order for deep sea mining that enjoys some measure of international recognition.

H.R. 3350.-Recent events in the Congress on ocean mining legislation provide some grounds for optimism. In July, the House Merchant Marine and Fisheries Committee reported favorably H.R. 3350. Last week the House Interior Committee Subcommittee on Mines and Mining marked up H.R. 3350 and favorably reported it to the full committee with minor amendments. H.R. 3350 has many deficiencies from the industry's perspective. To note but a few, we are uncomfortable with the

wide latitude granted the Secretary of Commerce in regulating licensed activities, including the power to withhold permission for the licensee to commence the commercial recovery stage. We are also disappointed that the investment protection offered by the bill is limited to less than half of the projected capital investment for each project. Nevertheless, we had hoped that H.R. 3350, despite its flaws, might serve as a focal point for accommodating the diverse interests involved in the consideration of this legislation.

S. 2053.-This brings me to your bill, Mr. Chairman, S. 2053. While in many areas similar to H.R. 3350, S. 2053 contains a number of new-and, in the view of the American Mining Congress, most serious-difficulties. We in the industry has attempted in the contest of the development of H.R. 3350 to be as reasonable as possible in accepting burdensome provisions in H.R. 3350 which we felt to be either unnecessary or somewhat unfair from the investor's perspective. We find, however, that S. 2053 has built upon the deficiencies in H.R. 3350 to produce a total package that is fundamentally unfair and unacceptable. Accordingly, we oppose enactment of this bill in its present from for the following reasons:

First, S. 2053 would not go into effect until January 1, 1980, unless the President by executive order used the authority the bill grants him to direct an earlier effective date. This means that no licenses according rights to mine specific ore deposits would be issued until 1980, nor would expenditures made between now and that date be protected under the investment insurance feature of the legislation. It is not possible for American firms and their partners ready to accelerate their development programs, at a cost of $30-50 million per year, to do so knowing that they have no priority of right to the deposit on which work is being undertaken and no remedy in the event the U.S. becomes a party to a treaty that does not allow them to proceed with mining. Furthermore, under this deferred licensing approach, firms would not be able to arrange for financing the major portion of the investment-from $400-750 million-before licenses were obtanined in 1980. That process, as I am sure you are aware, can be time consuming. In brief, the delayed effective date provision of S. 2053 would require the industry ot slow down or halt entirely its commercial programs for the 1977-1980 time period. The outcome would not be all that different from that which would prevail in the absence of legislation.

Two features of S. 2053 could mitigate against this result. The first feature is that the President would have the authority to bring the domestic licensing system into effect sooner. Recognizing the tremendous international pressures that could be brought to bear on his decision, the vicissitudes of the law of the sea negotiations and the prior impediments the Executive Branch has repeatedly perceived to supporting legislation, the industry's skepticism that this authority would ever by exercised should be understandable.

The second feature is that draft rules and regulations and a draft programmatic environmental impact statement would be prepared following the date of enactment. The time necessary to complete these draft documents could, accordingly, be deducted from the administrative start-up lag that would occur after the effective date, which is obviously of some value. However, until final regulations are promulgated and a final environmental impact statement completed, the fundamental terms and conditions to be imposed on seabed mining under the domestic regime would remain unclear. Ocean miners would thus confront not only the question of whether and when the domestic regime would take effect but also the question of what would be its content. In our view, H.R. 3350's prohibition on the issuance of commercial recovery permits until 1980, combined with the immediate implementation of the rest of the bill, represents a fair resolution of these uncertainties, while simultaneously protecting the public interest.

Additionally, the American Mining Congress believes that a deferred effective date would be harmful to the international negotiations it is presumably designed to promote. this provision tells the rest of the nations participating in the Law of the Sea Conference that they have two more years to negotiate. Having attained the advantageous position of a draft treaty text that satisfies their most extreme demands, the Third World nations are likely to pursue their repeatedly used tactic of intransigence. It will not be in their interest to compromise early, since the final negotiation will not occur until late 1979. Under these circumstances there would simply be no hope of redirecting the deep seabed negotiations towards an outcome satisfactory to the U.S., if indeed any cause to maintain such hope exists at all. Second, S. 2053 fails to accord ocean miners fundamental procedural protections for their investments.

It authorizes the Secretary to unilaterally impose on individual licensees and permittees differing and thus potentially discriminatory conditions and restrictions not set forth in the statute or applicable regulations.

It does not establish an express procedure for applicants to challenge the substance of such terms, conditions and restrictions.

It authorizes the unilateral modification by the Secretary of license and permit terms for environmental protection and "national security" reasons, or to avoid conflict with international obligations, but does not provide any express procedures under which the operator may challenge these modifications.

It authorizes the immediate suspension of activities under a license or permit by the President of the United States in order to maintain the vague objective of "national security" and expressly exempts such decision from judicial review.

Taken together, these provisions constitute a serious risk that investments in ocean mining activities could be impaired by executive action and that ocean miners will not even have the opportunity to make their views known or obtain a hearing before impairment occurs.

The American mining industry thus strongly recommends that S. 2053 be substantially amended to include appropriate provisions guaranteeing that all such decisions as relate to a denial of a license, modification or suspension be subject to administrative and judicial review at all times. We believe that the terms, conditions and restrictions for licenses and permits should be contained in rules and regulations promulgated by the Secretary. In the event that the Secretary is nevertheless empowered to impose differing conditions in licenses or permits, express provision must be made for these proposed conditions to be challenged in an adjudicative proceeding, after an agency hearing, with recourse to judicial review. The ability to impose specific terms and conditions on operators not contained in the statute or the applicable regulations is a powerful resource management tool which can cost the operator millions of dollars, and its use justifies specific procedural safeguards.

The mining industry is opposed to empowering the President to modify the terms of licenses or permits on national security grounds. A brief review of recent applications of the term "national security" clearly indicates that it can encompass many different types of foreign affairs interests of the United States, regardless of their overall national importance. Moreover, to authorize the modification of fundamental terms and conditions upon which a billion dollar investment may be based for a vague and subjective purpose, without even providing a statutory balancing test between the seriousness of the risk to the "national security" and the economic harm to miners, would be tantamount to according the President total power to decide when and how mining can be undertaken. It would be truly unfortunate if American ocean mining companies were to gain the investment protection required against the risk of an unfavorable treaty only to find the investment climate still uncertain as a result of this unprecedented grant of discretionary power to the executive. These considerations are equally applicable to empowering the President to suspend operations on national security grounds, and we accordingly oppose this feature of S. 2053.

Third, S. 2053 would require that all vessels used in a deep sea mining project be documented under U.S. law. In contrast, H.R. 3350 limits the requirement to recovery and processing vessels. In the event that transportation vessels must also be U.S. flag, operations of U.S. permittees would not be competitive with those of other nations. Indeed, the costs of compliance with this requirement could be prohibitive of undertaking commercial recovery at all. Since mining and processing vessels will represent the largest share of the maritime labor required, we believe the H.R. 3350 provision constitutes a reasonable accommodation of the national merchant marine interest.

Fourth, the procedures set forth in the bill for the issuance of licenses and permits are, in our view, unduly cumbersome and unworkable. The antitrust review provision requires that all applications for issuance or transfer of an exploration license or commercial recovery permit must be reviewed by the Attorney General and the Federal Trade Commission, who are to report on the competitive effects of such issuance or transfer within 90 days. This is a time-consuming procedure and completely unnecessary for the effective enforcement of the antitrust laws under existing authority. We believe that the requirement of full consultation with all interested federal agencies and department prior to the issuance of a license or permit is similarly cumbersome. Provision can, and should, be made for specific consultations on particular questions of direct concern to other agencies but need not grant almost every department the power to delay the application process. Finally, the statutory requirement for notice, public comments and hearings on each application could better be handled under the rule-making authority of the Secretary, which would enable the tailoring of these procedures to the public interest and need for them.

Fifth, we have identified a number of problems with the environmental protection procedures in the bill. These procedures should establish definite time limits for the preparation of the first draft programmatic EIS, the final programmatic EIS, and all subsequent required statements. Without these time limits, the implementation of the licensing system could be delayed indefinitely as a result of normal administrative inertia. Moreover, we do not believe that it is necessary or sound policy to decree, as does S. 2053, that approval of applications would be a "major federal action significantly affecting the quality of the human environment." This statutory judgment would require the preparation of a full EIS on each and every application. The Secretary should have the discretion, after reviewing all relevant factors, to determine that approval of an application would not significantly affect the environment, and hence that no separate EIS is necessary. Indeed, information developed and analyzed in connection with the preparation of the programmatic EIS may justify this conclusion.

Sixth, we are concerned that the bill fails to clarify which tax, customs and similar laws will apply to operations. As presently drafted, Section 115 of the bill concerning the application of certain laws simply protects against discrimination in the application of these laws but does not require that the same laws be applied to ocean and land-based mining in the United States.

Seventh, the mining industry finds the bill's provisions for civil fines of $50,000 per day and criminal fines of $250,000 per day excessively high and bordering on an insult to its integrity.

Finally, we note that S. 2053 would designate the Secretary of the Interior as the responsible cabinet officer to implement the act, while H.R. 3350 so designates the Secretary of Commerce. We had hoped that disputes as to which agency had lead jurisdiction over this subject would have been resolved under this Administration, and simply take this opportunity to urge that this be done to avoid further delays in the legislative process.

Mr. Chairman, the mining industry has identified a variety of other important difficulties with S. 2053 and, with your permission, the affected companies will submit more comprehensive comments on the bill for the record of the committee. In addition, we are anxious to be afforded an opportunity to work with the staff in proposing amendments necessary to make S. 2053 a satisfactory vehicle for advancing the national minerals interest. I would only reiterate at this time the importance we attach to the prompt enactment of an adequate domestic administrative framework and our deep appreciation for the efforts of this and other congressional committees to move expeditously to advance the national interest in deep seabed

resources.

Senator METCALF. Mr. Clements is next.

STATEMENT OF B. GILL CLEMENTS, PRESIDENT, SEDCO, INC.

Mr. CLEMENTS. Mr. Chairman, my name is B. Gill Clements. I am president of SEDCO, Inc., a marine engineering company. In order to keep my testimony today as brief as possible, I would like to submit for the record my testimony before the House Merchant Marine and Fisheries Committee on April 19.

This testimony gives strong support to H.R. 3350, a companion bill to S. 2053. The subject I would like to discuss today is the political risk protection provided in both of these bills.

As I read these bills, the maximum protection offered per mining project is $350 million. This protection is totally inadequate considering that an ocean-mining project will cost in excess of $1 billion. Perhaps it is easier to understand our concern by answering for yourself this question: Would you build a $100,000 house with an $80,000 loan and insure it for $35,000? Of course you wouldn't. The political risk protection that we are requesting is very much like fire insurance on your home. You don't expect to lose your house to a fire and I can honestly say that we don't believe that the U.S. Senate would ratify a United Nations treaty that would damage or destroy an important industry. The probability of occur

rence in either case is low but the financial consequences could be catastrophic.

I really have a hard time understanding the congressional reluctance to provide adequate protection. I realize that the numbers are large, but the risk that we fear, the ratification of an unfavorable United Nations treaty, is entirely within your control and uninsurable by any other entity. I believe that terminology may be a major problem.

Many people who read H.R. 3350 and S. 2053 get confused by the language investment protection and investment guarantees. Political risk insurance is a more descriptive name for the protection our industry needs. We do not desire government loans, subsidies, or guarantees which are available to other industries. Our industry is prepared to accept all commercial risks, which are considerable in ocean mining.

The political risk protection section is the very heart of any domestic ocean-mining legislation. Without substantive political risk protection, domestic legislation is useless to us. I would request that this committee give considerable additional thought to this subject keeping in mind the following:

One: Ocean mining will be performed by international consortia. It will not and should not be a U.S. monopoly.

Two: Many of the foreign investors are actually representing their government who will insist on access to a portion of the minerals. These governments are prepared to offer their investors political risk protection if they can receive a share of ocean minerals for their economies.

Three: Political risk coverage in the amount of at least $1 billion, or 80 percent, of the investment must be available for each mining project.

With these thoughts in mind, I would suggest that the solution to the political risk problem lies with one of the following approaches: One: Keep the $350 million limit on protection but restrict eligibility to "pure" U.S. interests. When the U.S. Congress passes domestic ocean-mining legislation, Germany, Japan, and others will follow with similar reciprocal legislation. Their objective in doing so will be to obtain a share of the sea-based minerals for their economies and on that basis they will provide the political risk coverage for their own investors.

So, our first proposal is to keep the $350 million limit for each mining group but restrict the eligibility to pure U.S. interests as it was worded in one of the early H.R. 3350 drafts.

Two: Political risk insurance provided by the U.S. Government in amounts chosen by industry at premiums set by the Government. If the U.S. Government wants to encourage ocean miners of all nationalities and retain all minerals produced, then it should provide appropriate coverage in sufficient amounts at an established premium and allow each investor to decide the amount of coverage desired and the desirability of having to commit his mineral production to the U.S. markets as a condition of the political risk coverage.

Thank you for the opportunity to appear here today and I would be pleased to try to answer any questions you might have. Senator METCALF. Thank you very much, Mr. Clements.