On the credit side, however, the time limitations imposed on certain administrative acts are constructive. Examples:

1. Sec. 103(e), imposing a time limit of 60 days on reports by other federal agencies to the Secretary on license and permit applications.

2. Sec. 103(f), imposing a 60 day limit on submission of comments on applications for a license or permit published in the Federal Register.

SITE-SPECIFICITY: AREAS

The statute should specify the size of "blocks" or areas which may be included in a license. It is generally recognized in the industry that an area of 60,000 square kilometers is required for a minimum exclusive exploration block, 30,000 square kilometers for a minimum exclusive production block, and that up to four such blocks is not an unreasonable area for a large operation.

All applicants should have equal rights to apply for, and receive licenses for "blocks" or areas, up to a stated number. The area to be made available to a licensee should not be left (as it is in both bills) to the discretion of the administrator (e.g., S. 2053, sec. 103, 105(a), 107(a)). Discrimination, e.g., in the size and location of areas, expenditure requirements, and other significant terms, should be prohibited. A self-executing penalty against the "grabbing" and hoarding of unneeded areas would be afforded by a statutorily imposed progressive scale of expenditure requirements or license fees or both, related to the area and time of holding the area undeveloped. Precedents for such safeguards are common in the mining laws of the world. A limitation on the total area that any one licensee may hold at any one time (e.g., four blocks, of the size previously indicated) would be in the public interest.

THE INITIAL DETERMINATION OF TERMS AND CONDITIONS OF A LICENSE

For some reason, perhaps inadvertent, Sec. 105(a) omits the provisions of Sec. 103(g)(2) of H.R. 3350, which gives an applicant for a license or permit (whose application has been accepted) a right of judicial review if he is unwilling to accept the special terms which the Secretary proposes to include in the license or permit. Sec. 105(a) should be amended.

Note again our objections to the implied vesting of discretion in the Secretary (Sec. 107(g)) to deny a permit for commercial recovery to the holder of an exploration permit who has complied with the terms of the statute and his license, and made investments (probably of the order of scores of millions of dollars) in discovering a particular desposit, designing the machinery to produce ore from it, and developing refining techniques which will produce an economic recovery of metals from those ores.

RELATIONSHIP OF AREAS COVERED BY A LICENSE TO THE PORTION THEREOF WHICH IS TO BE COVERED BY A PERMIT FOR COMMERCIAL RECOVERY

Section 107(a) (borrowed from H.R. 3350) reverses the technique appearing in all mining concession laws: namely, the granting of a concession for exploration which, on conversion into an exploitation license, shall require relinquishment of a specified percentage of the larger area originally licensed for exploration. Quite illogically, the language of S. 2053, unless amended, would require the Secretary to determine in the first place what the area required for commercial recovery should be, and thereupon grant a license for exploration of twice that area. If he is able to make a determination in the first place as to the area truly required for commercial operation, why should he grant a license for exploration in twice the area that he has already determined the licensee really needs for commercial development? In fact, until after exploration is completed, neither the Secretary nor the licensee will know the location or the size of that portion of the area which was originally licensed for exploration, which ultimately will be found to be worth putting into production.

ASSURANCE OF THE RIGHT TO PROCEED FROM EXPLORATION INTO COMMERCIAL PRODUCTION

A licensee who invests the large amounts of money required for exploration under a license (amounts measured in scores of millions of dollars) must be assured, by the terms of the statute and the terms of the license, of the right to continue on into commercial production in a site of his choosing within the area licensed for exploration if he is in compliance with the criteria of the statute relating to environmental and safety factors, noninterference with U.S. treaty obligations, etc. His right to do so should not be even inferentially left to the discretion of an administrator. Cf. Sec. 106(a). The judicial review provisions of Sec. 106(d) are virtually meaningless if the court is dealing with matters which the statute placed within the Secretary's

discretion, e.g., the determination of the permissible size of the applicant's production operation in competition with other entrants into the deep sea mining business.

THE SUBSTANTIVE CHARACTER OF THE PERMITTEE'S RIGHT TO PRODUCE

The right acquired by the permittee should be specified: the usufructuary right to recover, take away, own, sell, and use the hard minerals of the deep seabed, without acquiring title to minerals in place. Sec. 102 should be amended to so state.

DURATION OF THE RIGHT OF COMMERCIAL RECOVERY

At several places in S. 2053 the concept seems to be that the duration of the right of commercial recovery shall be fixed in advance (e.g., sec. 107(b)(2)), and that an extension of this period shall require a new permit (e.g., sec. 105(b)(3)). This is wrong. The permit should remain in force as long as the permittee is in compliance with the performance requirements of the Act (e.g., secs. 108(b) and (c)), and until the nodule deposit has been recovered to the extent that such recovery operations are economically feasible. No public interest is served by requiring that this operation be turned over to a stranger, as a windfall, at the end of a pre-determined period. Such a notion encourages "high grading," i.e., the extraction of the best ores, within the pre-set time constraints, leaving the remainder unrecoverable at acceptable cost.

SUSPENSION OF OPERATIONS REQUIRED BY CHANGING MARKET CONDITIONS

Sec. 108(c) of S. 2053 is an improvement over H.R. 3350. It authorizes the Secretary, for good cause shown, including force majeure and other circumstances beyond the control of the permittee, to authorize the temporary suspension of commercial recovery activities. It would be strengthened by adding "including adverse economic conditions" after "other circumstances." Moreover, if a permit is to have a restricted duration, less than the time required for complete recovery of the resource (which, as noted, is an objectionable concept), then this period should be extended as a consequence of any permitted suspension of operations.

The Secretary's denial of an application for suspension under this section should require a full agency hearing and be subject to judicial review.

UNILATERAL MODIFICATION OF CONTRACT TERMS

Section 105(b), captioned "Modification and Revision of Terms, Conditions and Restrictions," is in urgent need of revision.

Paragraph (1) gives the Secretary the right to unilaterally modify the terms of a license or permit if necessary (in his opinion) (i) to protect the quality of the marine environment, (ii) to avoid a conflict with any international obligation of the United States, as determined by the President, or (iii) in the interest of national security, as determined by the President. We recognize that the determination by the President is required in the latter two cases, and that, as to the first case (environmental impairment), no modification of contract terms can be made for environmental reasons if the Secretary determines, after an agency hearing, that the national interest in obtaining minerals, or the economic loss to the licensee or permittee, outweighs the potential injury to the quality of the environment.

These provisions should be amended to (1) authorize orders to suspend or modify operations, not to authorize unilateral changes in contract terms, (2) to subject the Secretary's (but not the President's) determination to judicial review, and (3) to make the resulting loss compensable. It is a far different thing to permit the Secretary to unilaterally modify the terms of a contract (the subject matter of Sec. 105(b)), in contrast with his authority to require modification or suspension of operations (the subject matter of the next section, Sec. 106) if he finds such operations inconsistent with protection of the marine environment, or necessary to avoid conflicts with international obligations of the United States, or in the interests of national security (the criteria stated in both sections). The unilateral revision of a contract is intolerable.

The change from "modification of the license or permit" to "modification or suspension of operations" would require conforming amendments in various sections, e.g. Section 105(b), 106(a)(3) (A), (B), 106(a)(4), 106(b), 106(d).

Paragraph (2) of Section 105(b) authorizes the licensee or permittee to apply for revision of a license or permit (that is, by mutual consent) in contrast with the reservation of unilateral power of revision in paragraph (1). The Secretary cannot approve the application for revision unless he finds that the revision complies with the Act and regulations. This is proper.

Paragraph (3) of Section 105(b) requires revision. It requires a new license or permit if the revision would effectuate an alteration in the size (except incidental

alterations) or duration of a permit. The reservation of authority to require a public hearing is enough, the requirement of a new license or permit is excessive. It raises all sorts of serious problems: priorities as against competing applicants, for one. We comment separately on duration of a permit for commercial recovery. It should be initially, and always, for the life of the ore body, if the permittee mines it with due diligence.

RECIPROCATING STATES

Sec. 116(b) provides that if any foreign nation is designated as a reciprocating state, no license or permit shall be issued under this Act "permitting any exploration or commercial recovery which will conflict with any license, permit, or equivalent authorization issued by any reciprocating state,"

This language requires revision in three respects:

1. The prohibition should apply only with respect to areas encompassed in prior licenses or permits issued by the reciprocating state, and, in this respect, care must be exercised, in recognizing a reciprocating state, to preserve the priority accorded to activities prior to filing of the license application per sec. 101(b).

2. A distinction must be maintained between exploration licenses and permits for commercial recovery. As has been explained, once an exploration license is issued under this Act, the licensee's right to continue on into commercial recovery, if in compliance with the Act, should be automatic, and so the possibility of interference with a permit for commercial recovery issued by a reciprocating state can never arise. The possibility of conflict is restricted to license applications.

3. Manifestly, both this bill and the mirror legislation of the reciprocating state must be tightened with respect to definitions of areas, license applications and approval of licenses. H.R. 3350 and S. 2053 leave areas wide open to the Secretary's discretion. So far as the bill says, he can include hundreds of thousands of square kilometers in one license, a tenth as much in some other license, and no one will know, from reading the license application, what the ultimate conflict may be between the license, if granted, and a similarly pending application in a reciprocating state.

AT-SEA PROCESSING

The bill is inconsistent with respect to location of processing plants. In several places it specifically includes processing on-board vessels, at sea, e.g., Sec. 102(c)(2). În other places, it appears to contemplate only on-shore processing plants, e.g., Sec. 101(a)(2)(3).

ANTITRUST REVIEW

The antitrust review provision of S. 2053, section 103(d), does not appear in H.R. 3350. We do not object to the principle (which may have been borrowed from the authorization for licensing by E.R.D.A. of nuclear power plants), but we suggest four modifications: (1) Dual reference to the Federal Trade commission and the Department of Justice is unnecessary-the Department of Justice should be enough. (2) Failure to report adversely in 60 days should have the effect of a favorable report. (3) Antitrust review should be required of rejection of a license or permit application, as well as proposed approval. Rejection of opportunities for new entrants into deep sea mining could have obvious antitrust implications. (4) We would reverse the prohibition against admissibility of the effect of issuance of a license or permit, and of the Attorney General's clearance, in subsequent court proceedings. Such documentations are obviously relevant as evidencing administrative determinations; their admission in evidence does not, of course, establish that they are conclusive on any issue.

U.S. DOCUMENTATION OF VESSELS

Section 102(c)(2) of S. 2053 requires U.S. documentation for both the mining ship, processing ship (if processing takes place at sea), and transport vessels. H.R. 3350 excludes transport vessels from this onerous requirement, and the House bill is preferable in this respect.

Industry witnesses have testified that the additional costs imposed by U.S. documentation (primarily construction and operating expenses) would be prohibitive if transportation vessels were included. On the other hand, the mining ship, and perhaps the processing ship, will be crewed by U.S. nationals in any event, and this more limited obligation can therefore be accepted without insupportable penalty.

INDEMNIFICATION FOR CONSEQUENCES OF A TREATY

The provisions of secs. 202, 203, 204, providing for indemnification of loss of investment by U.S. citizens in consequence of U.S. ratification of an adverse seabed treaty, or its implementation, are sound in principle. In general, they track similar provisions of H.R. 3350.

In certain respects, S. 2053 is superior because of the definition of U.S. citizen in Section 6(15) as including "any corporation, partnership, association, or other entity organized or existing under the laws of any of the United States." This language, as we read it, means that investments of a foreign national in deep sea mining operations under a U.S. license or permit would be protected against the consequences of U.S. ratification of an adverse treaty if this investment is made in a U.S. corporation (even one wholly owned by the foreigner). Such a corporation would be subject to all U.S. tax, antitrust, environmental and other laws, and subject to the requirement of the Act that all minerals recovered be processed in the United States (unless special exemption is petitioned for and allowed, Sec. 102(c)(3)(A)), and subject to the requirement that the mining ship (and processing ship) be U.S. documented (Sec. 102(c)(2)).

We will submit perfecting amendments to these sections. For example, we believe that the offsetting of "after tax revenues, and other tax benefits" in Section 202(e)(B) is unfair, and should be replaced by the offsetting of compensation from other sources for such loss of investment (e.g., the State of origin of a foreign participant in a U.S. licensed consortium).

We recommend that Sec. 202(f) be broadened to give the injured investor the option to sue either in the U.S. Court of Claims or a U.S. District Court.

All investments made after enactment of the Act should be covered by the treaty's indemnity provisions.

PROPRIETARY DATA

Sec. 112(b) authorizes the Secretary to require each licensee and permittee to submit such data and information as the Secretary "may reasonably need." This is too broad. Statutory parameters should be established. So also with respect to protection against disclosure of proprietary information under sec. 112(c). The crossreference to U.S.C. Title 5, sec. 552(b) is not sufficient. The data involved here is as unique as the data singled out for protection in subparagraph (9) of sec. 552(b), i.e., "geological and geophysical data concerning wells."

PENALTIES

The penalties prescribed by sec. 302(a) ($50,000 per day as a civil penalty) and Sec. 303 ($250,000 per day as a criminal penalty) are grossly excessive. They originated in amendments made on the last day of mark-up of H.R. 3350 in the House Committee on Merchant Marine and Fisheries, and are not supported by a line of testimony. The civil penalty in H.R. 3350 as introduced was $10,000 per day, the criminal penalty $25,000. These amounts were derived from the Outer Continental Shelf Lands Act, and have appeared in all deep seabed mining bills so far, including S. 713, 94th Cong., as reported by the Senate Committee on Interior and Insular Affairs.

The penalty is, in any event, one which applies to each day: "Each day of a continuing violation shall constitute a separate offense." $10,000 per day, $25,000 per day, are, themselves, monumentally high penalties. It would be ludicrous to multiply them by five with respect to an area which is beyond the national jurisdiction of the United States, more than 1,000 miles from land in most cases, and under 15,000 feet of water. Just what sort of activities are conceivable which would justify penalties of this magnitude?

Senator METCALF. I want to thank you all, before I call on Mr. Stern, for your quite frank and candid suggestions for changes in the forms of the bill. As the Senator from New Mexico knows, none of us are wedded to any particular provisions in the legislation. We want to work out the best bill we can for industry and in the public interest of the United States.

We will now hear from Mr. Stern.

STATEMENT OF MILTON STERN, SENIOR VICE PRESIDENT, KENNECOTT COPPER CORP.

Mr. STERN. My name is Milton Stern. I am senior vice president of the Kennecott Copper Corp., and a member of its board of directors. I am responsible for this project and will determine whether we abandon it or whether I recommend to our board of directors to continue.

That recommendation, if it is to continue, is in the face of a variety of other investments which we and a variety of other corporations also have.

Senator Metcalf, I would first like to express my personal appreciation for your leadership in this field. I have watched it over the years. I recognize your insight and your judgment.

Mr. STERN. We think our testimony here today is terribly serious. I would like to address myself particularly to this legislation. In fact, I will not read my testimony but I would like your permission to submit a supplement. That supplement deals with 24 specific comments we have developed regarding the legislation. We would be pleased if you would accept and review it.

Senator METCALF. Without objection, that will be submitted and made a part of the record.

Mr. STERN. That summarizes the height of our attitude with regard to this legislation. First, we are concerned about the delayed date that has been mentioned. We have a laboratory on the west coast totally dedicated to this work, significant professional people, significant expenditures, highly motivated at the moment. We have the problem of concern of maintaining that activity and it is not obvious to us there is any reasonable business justification for not doing that until 1980.

We are concerned about the change in terms regarding the terms of the license, those terms imposed by bureaucratic judgments. Those bureaucrats changing through time and those judgments having a marked influence on the economics of our project. We just cannot live with that, especially since there does not seem to be any procedural process for review or judicial review.

That arbitrariness which appears to be in here is the same arbitrariness which frightens us away from many mineral projects in other countries, and that is something I think we would strongly recommend you reconsider.

Finally, we would support the political risk insurance concepts presented by Mr. Clements. The level of this activity is not only inadequate, again, Kennecott having just gone through 7 or 8 years of antitrust problems with the Federal Trade Commission in its coal business, would attest to you, sir, the laws of this land are very strong in the antitrust area-very adequate, very appropriate, very necessary, and they are there.

We think the antitrust future of this bill would present overkill and if nothing else, another bureaucratic procedure which has cost us delays and which has provided no national benefit.

Again, we appreciate your energetic pursuit of a bill on behalf of the Nation and we look forward to cooperating with your staff. Senator METCALF. Thank you very much, Mr. Stern.

[The prepared statement of Mr. Stern and supplement follows:]