H.R. 3350 would have to be satisfied exclusively by appropriated funds. Consequently, compensation - insurance cost-sharing between the Federal Government and licensed firms could be substantially less under H.R. 3350 than under H.R. 3652.

In summary, we believe further consideration needs to be given to alternative licensing systems of the type outlined earlier and to the need for and form of insurance compensation options. We believe also that the bills address only investment oriented questions of an overall framework for dealing with deep seabed issues and that it would be preferable to consider all issues simultaneously. Other issues include environmental safeguards, the relationship between U.S. deep ocean mining initiatives, general foreign policy, and the form of the Federal management structure. Given these deficiencies, GAO opposes enactment of either H.R. 3350 or H.R. 3652.

Sincerely yours, $

Bitkeller

Deputy Comptroller General
of the United States

Enclosures

2

Senator METCALF. We have a long list of witnesses and we are privileged this morning to have with us from the House of Representatives Hon. John M. Murphy to testify and work with this legislation. I welcome you to the committee..

I hope you will tell us how you are getting along with the legislation over in the House.

STATEMENT OF HON. JOHN M. MURPHY, A U.S. REPRESENTATIVE FROM THE STATE OF NEW YORK

Mr. MURPHY. Thank you, Senator, and it is a pleasure to be here this morning with you and to recognize your leadership in this

area.

I think it is significant that the Senate in the last Congress passed this legislation despite the different jurisdictions on the Senate side. This year, on the House side, a bill very similar to your legislation, passed the full Committee on Merchant Marine and Fisheries. It has a joint referral to the Committee on Interior as well.

The subcommittee, under the leadership of Congressman Kagen of Texas, has reported the bill and it is my understanding that the full Committee on the Interior will pass a bill that is substantially the same as the bill that passed the Committee on Merchant Marine and Fisheries.

I think it is about time that the Amercian people, and then Congress, and the administration coalesced their views and translated these views into action to protect what I think is a vital national interest.

I would ask that my full statement be placed in the record. It is lengthy and in detail. I wish to make a few of what I think are appropriate remarks concerning the issue.

Senator METCALF. We are very pleased to have your detailed statement because of the knowledge and special expertise that you have demonstrated and that your committee has demonstrated in this special area.

Senator Hollings, we just started the hearing with Congressman Murphy. Perhaps you have an opening statement.

Senator HOLLINGS. No, thank you, Mr. Chairman, I have come to listen to the Congressman and other witnesses. Thank you.

Senator METCALF. Congressman Murphy, you go right ahead. Mr. MURPHY. Scientifically, I think it is a fact that most good nodules of cobalt, nickel, manganese, and other vital metals necessary for the U.S. metallurgical and industrial processes are found in the deepest parts of the ocean-15,000 feet and deeper.

After spending $115 million of their own resources, American industry has developed the ability to mine these deep ocean areas. I think the fact that we have definitely established the technical and economic feasibility of deep-ocean mining, the rest of the world. recognizes this fact.

We have seen the movements in the Third World trying to, in effect, create a cartel and total control of these minerals. It is not insignificant that of those minerals found in the deep ocean, the United States in many cases is dependent on foreign importation of up to 100 percent in the case of manganese, 95 percent in the case of cobalt, 15 percent in the case of copper and, probably with the

declining productivity of ores of copper found in the United States today, probably a rising slope on that curve in the years to come. The question of the Third World emerged significantly over the last 6 years and what their attitudes were toward the United States exercising its proper and legal right to mine in the deep ocean under current international law.

As the Law of the Sea Conference progressed from Caracas to Geneva, to several sessions in New York, we saw an intractability develop on the part of Committee One, the committee responsible for deep-ocean mining.

The last session, with a new American ambassador and America's newly extended hand to a compromise that would benefit all nations in the exploitation of what is known as the common heritage of mankind, we did not see any progress by the Third World or the Soviet Union toward a compromise position but we found a further strengthening away from a situation where the U.S. interest would not be totally impacted.

We found in the final days a text that had been secret; that had not been debated; that placed in the hands of the Third World production controls, price controls, and site controls of deep-ocean mining; a situation that would not be in the interest of the United States.

I personally have gone to several sessions this year in New York. I have gone to the sessions in Geneva previously and had carefully considered the international problems as they had developed.

It was clear to Ambassador Richardson, at the conclusion of the deliberations in New York this year, that, with the political makeup and feelings of the Third World, it would be impossible for the United States to agree to the Committee One recommendations.

Of course, I am referring to the famous Engo text as we know it developed. It, therefore, in my mind, seems necessary that the Congress move in this area at this time to do simply the following: Protect a U.S. investor who would like to go to the deep ocean to mine. That protection is basically financial. There is no American entity today that can go to the deep ocean and mine and then have the United States, at some future negotiating session at the United Nations, or Law of the Sea Conference, negotiate away their investment in the deep ocean.

There must be some type of insurance provisions in the legislation to protect the American investor who would be impacted by the action of the U.S. Government. We have seen this in other areas of legislative jurisidiction where school impacts and we put a Federal legislation in and we have in the Federal Government compensated for those impacts.

I think it would be fair for us to make this guarantee to American companies. This, of course, is necessary because of the large amounts of capital necessary and the capital markets, the banking institutions, would require some type of guarantee by the U.S. Government in this regard.

A second consideration, of course, is to show to the world that the United States is not just generally mining everywhere in the deep ocean. The legislation calis for site-specific mining. That is the Government, whether it be the Department of Commerce, or De

98-973 - 78 - 5

partment of the Interior as the two bills on the House side differ, there would have to be a license for a site specific.

Then, of course, the environmental and other factors of present practice in the United States would then affect those mining sites. We, of course, require in the legislation on the House side that processing be done in a U.S. facility.

Basically, on balance, I think this is a very reasonable approach. In an extended discussion I had with representatives of the Soviet Union, England, France, Japan, we found great support for the U.S. position in technologically developed countries with the exception of the Soviet Union.

It was clear from that one meeting that the Soviet Union is not prepared to go forward with deep-ocean mining in the foreseeable future. They, therefore, have taken that attitude and have created support for the Third World-those countries that currently are the producers of the minerals we have been discussing.

Of course, the landlocked countries whose support has gone to group 77 or group 105 as it now evolves. I think on national security regulations, it is vital that the United States go forward with those industries that are capable and willing and able to go to the deep seabed to protect what we feel is an American interest in a world area.

Senator HOLLINGS. Mr. Chairman, on that score, I am not at all unmindful of the leadership given the intent of the legislation and not unsympathetic in a sense.

But to be a devil's advocate, is there any comparison, Mr. Murphy, with respect to the actual value of-let's take manganese. Are we looking at that as an economical thing, as a matter that you characterized as American interest?

You said, for example, manganese, and 100 percent of it is imported from Gabon, Brazil, South Africa, Australia, and India. Now, under a deep-sea mining venture, what would be the general cost of bringing that manganese in, those nodules and otherwise, from the deep-sea venture on the one hand, and the cost that we presently are paying?

I take it that we do not look with any particular worry on the sources of supply, those countries are all generally friendly: Brazil, South Africa, Australia, India, and otherwise. We are not about to be cut off in anyway.

On the other hand-maybe you would disagree with that. What is the relative cost? I am trying to get it fixed because many who do not favor the legislation say: Why should we be giving insurance for these big companies to go out and make a lot of money? That's what I'm getting at.

Mr. MURPHY. Senator, I would address myself, first of all, to the security of supply from South Africa, Brazil, and some of these other countries. Although, historically, they may have been friendly countries, because of political considerations between the United States and those countries at the present time, there could be a situation developed where the source of supply of those minerals certainly could be impacted. I think that has been apparent to all of us in light of political considerations in both South Africa and Brazil recently.

But I think that more than 90 percent of all manganese consumption is used in the steel industry. For every ton of steel produced, 13 to 20 pounds of manganese ore is consumed. I think that it is pretty vital for us have this source of manganese.

The cost from deep-ocean mining is going to probably parallel the cost of production of nuclear energy. It is going to be on a very declining scale once production starts and mining has begun.

The initial cost, I think, would be high, but as time proceeds and the efficiency of the operation grows, it is going to be a much smaller cost. But there is no substitute for manganese in its major applications, and, therefore, I think we should have the opportunity for this type of supply.

Senator HOLLINGS. What would be the relative cost considering Brazil, Australia, and India are fairly reliable sources? What would be the relative cost of some manganese from Brazil as compared to a ton of manganese from deep seabed mining? That's what I'm trying to put in the record.

Mr. MURPHY. I don't have that at my fingertips. However, I will get that and supply it for the record.

But I would make one comment. In 1976, imports of manganese and the other three metals contributed to $1.5 billion deficit in our balance of payments and that is a consideration that also weighs in favor of deep-ocean mining of these metals.

Senator HOLLINGS. What are the major companies that will conduct the mining, since we are talking about the balance of payments deficit. I never know whether I am talking to an American company or whether I'm talking to a foreign company. Specifically, many of the major oil companies have a majority of their profits made beyond the continental limits.

Mr. MURPHY. We are dealing with multinational companies. They are American companies: their headquarters and their history started in the United States. They do have foreign entities in their associations, but basically they are American companies. Senator HOLLINGS. How many are there?

Mr. MURPHY. There are four major companies at the present time that have the capability-these are American companies-in deep-ocean mining and I will supply those names for the record.

Senator HOLLINGS. What guarantees, Congressman Murphy, would you give when we talk generally, if you and I could sit down and draw up a bill this afternoon for a joint conference between the House and the Senate? What would be generally the confines and guarantees you think appropriate?

Mr. MURPHY. I think the guarantees should be on the investment that the American entity has made to the venture. The portion of that investment that has been impacted or taken away by U.S. Government action in a Law of the Sea Conference.

Senator HOLLINGS. No other guarantees, unless it's taken away by action of the Law of the Sea Conference, then the guarantee would not cover any of the losses; is that right?

Mr. MURPHY. No; that would be one guarantee. I think we also must afford an American entity the protection of the American flag on the high seas or in the deep ocean.

Senator HOLLINGS. Have you had an opportunity to look indepth at just what exactly constitutional authority of the United States