in the country to seek legislation protecting itself from the adverse impact of international negotiations. A practice of legislating on current negotiations would thwart efforts to produce reasonable and, perhaps, creative agreements that would best serve the interests of the United States and the affected industry. Such a precedent should be avoided if at all possible.

It is possible here. The investment guarantee provisions of Section 202 could be stricken. Section 204 could be given substance by providing for industry contributions to an escrow fund comparable to the amount that the International Seabed Authority would be likely to require if an agreement were to come into force." In conclusion, if after close consultation with the Executive branch on the foreign and domestic policy impact of the legislation it is decided that legislation ought to go forward, then I recommend that the bill be amended to eliminate the investment guarantees, to give substance to the international contribution part of the legislation and to maintain the regulatory aspects of the bill.

Senator MATSUNAGA. Thank you very much, Professor Charney. I wish I had time, and I wish I had other members with me here, to put questions to you. We have another panel.

I would like to ask each of you if you would be willing to submit answers to written questions which may be put to you by members of the committees? If you do, if you can get those answers back to us by Thursday of next week, we would appreciate it very much. While I have questions in mind, because of the time element, and as you know I am substituting for Senator Metcalf, who is in the hospital, and we have another panel which we must get through by 12:45 for me to make another appointment.

Mr. BARNES. Is there any reason why we have to have those back by Thursday? I will be out of town for the next 2 weeks.

Senator MATSUNAGA. The firts markup is scheduled for next Thursday. However, if you wish to submit your answers simply for the hearing record, which will be ready for the other Members, you may submit——

Mr. BARNES. We would be most happy to provide answers. I will be at a conference in London. It might be difficult.

Senator MATSUNAGA. We may not have questions for you. Thank you very much. We appreciate it.

STATEMENT OF ALFRED P. STATHAM, VICE PRESIDENT, INCO UNITED STATES, INC., NEW YORK, N.Y.

Mr. STATHAM. I appreciate the opportunity to be here today. I am Alfred P. Statham, vice president of Inco United States, Inc. In my appearance here today I represent our parent company which is a Canadian corporation and our United States company, a wholly owned subsidiary.

Senator MATSUNAGA. If I might interrupt at this moment, I would ask that you summarize your statements in 10 minutes. Mr. STATHAM. I will take only half of that time, thank you. For convenience, I will simply refer to our corporate interest as Inco. I do not speak for our ocean-mining consortium or departments and

Not only does the general investment guarantee provision produce the above-described adverse effect, its terms aggravate the situation. Sec. 202 applies to the results of the Law of the Sea Conference as well as to any other international agreement that might come into force at any time in the future regardless of the negotiating environment. Sec. 202(c), providing for a ten year cut off of eligibility, computes the period based on the date that an agreement enters into force rather than the date at which operations are forced to cease. Thus, a delay of ratification is encouraged rather than continued negotiations within the structure of the agreement. The compensation provision in sec. 202(e) appears to permit compensation even if the mine site is found to be unprofitable.

I speak as an individual.

I have submitted a detailed statement. I will briefly mention three points.

First: It is desirable the legal and political questions concerning deep-seabed resources be resolved through an international agreement. National legislation that may be adopted should, in fact, promote such a resolution.

Second: The principal justification put forward for this legislation is the stated need of the United States to secure as an independent source of nickel, copper, cobalt, and manganese. I devoted considerable time in my prepared testimony of addressing this question, citing the number of studies prepared by or for the U.S. Government.

These statistics we present, supported unanimously by the studies, led to the strong conclusion there are substantial reserves to meet nickel requirements well into the next century and the supplies available to meet U.S. needs are adequate and dependable. In short, there is no immediate need to obtain nickel from ocean resources. Nonetheless, Inco is convinced sea nodules are a future source of nickel and other needed metals. It is our belief competitive market forces will permit seabed mining to begin around 1985 on a modest scale and public policy should permit this development without significant artificial stimulation or restraint.

Third: We realize, Mr. Chairman, our position on ocean mining may appear to be motivated by our existing investment in landbased nickel production facilities. This is not the case. Indeed, our present estimates are the cost of producing nickel from seabed nodules in the foreseeable future would be greater than the cost of production for land-based facilities.

Furthermore, our belief in the future of ocean mining is attested by more than 10 years of effort we devoted to studying the potentials for mining sea nodules and developing the technology to do so.

In my prepared statement, I describe the work schedule of our ocean-mining consortium. In brief, we have at least 2 more years of effort before we will improve our mining system and collect all of the information we believe is essential to make a commercial investment decision since we do not believe it would be prudent for us to proceed otherwise.

We simply will not go forward with commercialization decisions until we first have sufficient technical and economic data to forecast a reasonable return on investment. Notwithstanding all of this, Mr. Chairman, we do recognize congressional interest in ocean-mining legislation.

If you do decide to proceed with the consideration of the bills before you, we believe there is one critical change that should be made in S. 2053 and comparable provisions of other proposals. Most of these bills require processing of nodules in the United States and give the United States ultimate control of the metal produced under a U.S. permit.

The ocean-mining consortiums all have substantial foreign participation at least some of which are interested in sea nodules as an independent source of supply for their nation. Their motivation is not unlike that of some people in the U.S. Government in this regard. We interpret the provisions I have mentioned as too inflexible to accommodate these interests, notwithstanding the intent of other provisions in S. 2053 to establish a system of reciprocity. Two significant changes are required in our opinion.

First, section 102(c)(3) should be amended to give the United States absolute control of at least the proportionate share of the U.S. interest in a group operating under a U.S. permit. Second, the Secretary should be directed to negotiate arrangements with reciprocating nations dealing with processing and distribution of metals recovered from the nodules. Obviously, the United States should not be expected to provide investment guarantees to foreign participants under such an arrangement.

While these recommendations are of paramount importance, I have also commented on several other provisions in my prepared statement including the mandatory use of vessels documented in the United States which also could hamper operation of an international consortium. All of our recommendations, Mr. Chairman, are intended to take into consideration the practical economic and political realities and in our opinion would more nearly promote the orderly exploitation of the seabed.

Thank you.

[The prepared statement of Mr. Statham follows:]

STATEMENT OF ALFRED P. STATHAM, VICE PRESIDENT, INCO UNITED STATES, INC., NEW YORK, N.Y.

Mr. Chairman, my name is Alfred P. Statham. I am a Vice President of Inco United States, Inc., a subsidiary of Inco Limited. Inco United States, Inc. is organized under the laws of the State of Delaware, and Inco Limited is a Canadian Corporation, I represent our Canadian and United States companies in my appearance today, and for the sake of convenience will refer to our total corporate interest as Inco.

Inco appreciates the opportunity to testify on legislation pending before these Committees dealing with the subject of deep seabed mining. This legislation is of importance to the United States and other individual nations, the international community collectively and a number of private corporations. It is important to individual nations because of the long range economic significance of deep seabed mining; it is important to the international community because of the effect the enactment of such legislation may have on the United Nations Conference on the Law of the Sea; and it is important to private corporations because of the potential commercial value of deep seabed mining. We believe it is essential that the legislation be viewed in this broad context.

In order to place Inco's position on the matter in proper perspective, I wish to describe briefly our operations and our interest in certain minerals which may be recovered from the deep seabed. Inco and its predecessor companies have been mining, processing and marketing primary nickel for more than seventy-five years. In addition, we have developed and manufactured high nickel alloys for more than fifty years. We also produce substantial quantities of copper, precious metals and other metals from our Canadian nickel-bearing ore. All of our mines were located in the vicinity of Sudbury, Ontario, Canada, until the early 1960's, at which time additional mines were developed in Thompson, Manitoba, Canada. Within the past six months we have also inaugurated nickel mining facilities in Indonesia and Guatemala. Our largest production continues to be in Sudbury. We have refining facilities in Canada and in Great Britain, and our nickel alloy manufacturing facilities are located in the United States and Great Britain. We also have significant metallurgical research laboratories in the United States, Canada and Great

Britain, as well as exploration activities in Canada, the United States and other countries.

In addition to these mining and related operations, ESB, Inc. is a wholly owned subsidiary engaged primarily in the electric battery business. ESB is a Delaware corporation with worldwide manufacturing and marketing facilities.

Mr. Chairman, since its organization in 1902, Inco has been one of the leading nickel producing companies in the world. We continue to occupy such a position, although many new companies have entered the business in the past twenty-five years. I will describe the diverse character of the industry in a few minutes. It is appropriate at this point in my testimony, however, to acknowledge the substantial existing investment we have in land-based nickel production facilities. Indeed, it may appear that Inco's position on ocean mining is motivated in part by a desire to protect our existing investment or avoid further competition; this is not the case. Obviously, we do not intend to abandon this investment, and we hope to continue operating our mines and processing facilities for many years in a profitable manner. We expect to be producing nickel from Canadian ores well into the next century; the resource is adequate to maintain such production, assuming no substantial adverse economic conditions in Canada. And, in Indonesia and Guatemala we have not yet established regular commercial production, so these resources have not begun to be depleted.

It is our current belief, Mr. Chairman, that the cost of producing nickel in these existing operations will be lower than the cost of producing nickel in the foreseeable future from sea nodules. Although we will not know this with certainty until we have actual experience in ocean mining, our present estimates and projections suggest this will be the case. Under such conditions, sea nodules do not present a competitive threat to the existing production capacity of Inco. Only if ocean mining is subsidized by nations seeking independent sources of metals contained in nodules, or given some other form of artificial advantage over land-based production, will Inco's existing investment be jeopardized.

While we plan to continue mining our existing land-based orebodies in a prudent manner in order to maximize the economic life of our mines, we also must plan the development of additional future mineral deposits. Deep seabed nodules, in our opinion, represent such a valuable long-term resource. We believe that today's mining resources will be supplemented and in some cases eventually replaced by resources of the sea. With respect to nickel specifically, our judgment is that market forces will permit seabed production to begin on a modest scale in the 1985 timeframe and increase moderately into the twenty-first century. It will thus begin to supplement land-based nickel in much the way that production from laterite ores has been supplementing sulfide production during the past twenty years or so. This exploitation of deep sea nodules should be undertaken to the extent that it can be justified on an economic basis, in free and fair competition with land-based resources. Under such conditions, we do not view sea nodules as a threat to Inco's existing position.

Our interest in the future of ocean mining is attested by the substantial efforts we have devoted to the subject since the middle 1960's. In addition to the work we carried on within our Company for approximately ten years, we are now participating in a joint venture which has a major feasibility study underway. Our partners in this effort, each with a 25 percent interest, are SEDCO, Inc., a United States company; DOMCO, a group of Japanese companies; and AMR, a group of German companies. This joint effort was initiated in 1975 and consists of research, development and testing of the technical, economic and resource factors that will determine the feasibility of deep seabed mining. We will expend substantial sums of money in this effort which is scheduled for completion in 1979. We believe this study will support the conclusions I have previously outlined.

May I digress for a moment at this point, Mr. Chairman, to state that the positions I express throughout my testimony are those of Inco alone. They do not necessarily represent the views of our partners individually or our consortium collectively. Each of us may have slightly different attitudes or areas of particular interest. These matters of emphasis, however, do not affect our basic beliefs in the future of ocean mining.

With this background, I would like now to discuss pending legislation and the situation in the United Nations. As witnessed by your sponsorship of S. 2053 and similar proposals in the past, Mr. Chairman, and the consideration of this legislation by these Committees, it is clear that you are aware of the uncertainty that exists with reference to legal and political issues that may affect the orderly development of the ocean mining industry. Although Inco has always supported an international agreement to resolve these issues, we believe the opportunity for discussion offered by hearings on pending legislation is very helpful. We continue to

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believe, however, that an international approach is desirable, and we regret that a satisfactory conclusion has not been reached in the Law of the Sea Conference. We are hopeful that continued efforts will be made, not only for the purpose of resolving issues dealing with ocean mining, but also with reference to the other vital issues such as national economic zones, freedom of navigation and ocean research. In our opinion, broad agreement on these issues is in the best interest of all concerned.

We recognize, of course, that many diverse interests exist on these issues and that agreement may not be reached in the near future. We recognize also the interest in the United States and other countries in the enactment of national policies that will permit the continuing development of the ocean mining industry. I will offer some suggestions on the nature of such legislation in a moment, but I would first like to present some background information we believe is relevant to your consideration of S. 2053 and related proposals.

Mr. Chairman, the principal justification put forward for this legislation is the stated need of the United States to secure an independent source of nickel, cobalt and manganese. It is said that the United States must not rely on the availability of these materials from other countries, that world resources of at least some of the metals are dangerously short, and that the United States has immediate economic and strategic requirements to obtain supplies of these metals from sea nodules. It is further suggested by some that for all of these reasons, there is an urgent need for the passage of legislation such as S. 2053. I would like to comment on these issues, first with primary reference to nickel supplies and then the issue of legislation. It was not many years ago, Mr. Chairman, that almost all nickel produced in noncommunist countries came from Canadian ores. (All references will be to noncommunist country data unless otherwise stated.) In fact, in 1950 production amounted to 260 million pounds, of which 247 million pounds or 95 percent was produced in Canada. For 1976, world production was 1,210 million pounds, and of that amount Canada produced 535 million pounds, or approximately 41 percent. The new sources of nickel in that period were developed in such countries as Australia, the Philippines, Rhodesia, Botswana, and indeed the United States. All in all, nickel is now mined or refined in at least twenty countries. Based on current exploration and anticipated projects, it is likely that this number will increase even more. Together with this increase in sources of nickel by location, many companies have entered the nickel business. Whereas Inco was the major producer in 1950, there are now some fifteen to twenty companies engaged in the mining and processing of primary nickel. These companies are located throughout the world and accounted for more than sixty percent of free-world nickel in 1976.

In addition to this diversity of supply, Mr. Chairman, it is interesting to consider also the change that has taken place in consumption patterns. Let's take the same time period-1950 to 1976. The United States consumed 200 million pounds of the 290 million pounds consumed in 1950. In 1976, total consumption was 1,100 million pounds, of which 336 million pounds were consumed in the United States. So the U.S. share of consumption decreased from approximately 69 percent to 30 percent in the period from 1950 to 1976. Another way of looking at these trends is to compare the growth of U.S. requirements with the increase in supply. From 1950 to 1976, U.S. consumption increased 68 percent while world supply increased by almost fivefold.

This historical analysis clearly demonstrates that there are increasingly diverse sources of nickel and that U.S. requirements relative to total supply have decreased substantially in recent years. Let me turn now to the future.

Admittedly, Mr. Chairman, it is difficult to make specific forecasts of future conditions, but I suggest to you that there is no credible evidence to support a conclusion that the world is going to run short of nickel in the foreseeable future. In July of this year the United States Bureau of Mines published information on domestic and world trends in nickel demand and capacity. The Bureau estimated that world reserves are 60 million tons but stated that "the estimates are based on fragmentary information and are probably low." Total world resources, according to the Bureau, are estimated to be 175 million tons. (All Bureau figures include deposits in the U.S.S.R. and Cuba.)

The Bureau also projected nickel demand for the period from 1975-2000. Its estimates are based on an analysis of industry-by-industry requirements for nickel and are broken down between the United States and the rest of the world. The Bureau estimated that cumulative world demand in the period will be 29.4 million tons and concluded:

"The world's nickel reserves of 60 million tons available at the 1975 price level, coupled with the high probability of additional discoveries of workable laterite