closely related to it. It is the same kind of function. It is going out and buying.

As a matter of mechanics, the Defense Production Administrator says now, rather than the Munitions Board, what goes into the stockpile.

The Munitions Board says what should go in, but out of a limited supply the Defense Production Administration says what actually does go in; and contracts entered into under the stockpile, those materials are diverted before they actually get into the stockpile, in some cases to the requirements of a defense operation in this country, to our own industries.

Mr. ROBACK. What is the relationship between EPS and DMPA right now?

Mr. LARSON. EPS, under a regulation issued by myself as Administrator of DMPA, is continuing to perform these same functions.

Now, I might divert and give you the picture of the plan of operation of DMPA. As I said earlier, DMPA, why it was brought about, was to give world-wide scope to programs for the acquisition of materials which were critical and necessary to our defense effort and to our essential civilian economy as well as the stockpile.

Generally speaking, you will find the priority of allocations in this order: first of all, the defense requirements; secondly, the essential civilian requirements; and, third, stockpile, which, as long as the civilian requirements remain essential civilian requirements, is in the order I think it should be.

DMPA will take over the functions formerly performed by DMA and will extend those functions around the world.

FUNCTIONS OF DEFENSE MATERIALS PROCUREMENT AGENCY

As an example of how DMPA will operate under the present Executive order and the agreed procedures, the DPA is responsible for requirements. They determine that we need X million units of tungsten. Through supply figures furnished to DPA from DMPA and other sources, DPA determines that there is available in the world to the United States X million units of tungsten.

The difference between what is available and what the supply is, is the deficit. DPA will then issue a directive to DMPA stating that the deficit is so much in tungsten, and DMPA will present a program for meeting that deficit.

DMPA will take that directive and with its staff will determine the sources of supply, will determine what needs to be done to make up that deficit, whether it be a matter of price which will have to be passed upon by OPS or EPS, whether it is a matter of entering into long-term procurement contracts with suppliers in various areas of the world, or rather with producers in various areas of the world, whether it requires local direct loans by the Government to domestic producers and, in the foreign field, recommended reasons by Export-Import Bank to producers, or a combination maybe or both loans and pro

curement contracts.

Out of that data DMPA will formulate a program which is coordinated with the various agencies of the Government, including

the State Department, Department of Defense, and so forth, and that program will be submitted to DPA for certfication.

DPA will examine that program and, if it agrees, will certify, including the funds that are requested, and then from that point on it is DMPA's responsibility to go out and carry through that program which has been certified.

I think that gives about the best picture of DMPA as to how it should function and is beginning to function now. Formerly DMA would make a program for supplying that deficit only to the extent that it could be supplied from domestic sources. Now it is DMPA's responsibility not only for domestic sources but foreign sources as well.

INTERNAL ORGANIZATION OF DEFENSE MATERIALS PROCUREMENT AGENCY

Now, in the organization carrying that out, there are divisions set up in DMPA that are now being staffed called a Foreign Expansion Division, Domestic Expansion Division, Spot Procurement Division, the Program Division, the Claimant and Priorities Division getting materials to go along with expansion contracts, and necessary staff to staff such divisions.

The world will be divided into approximately six areas, depending upon the arrangements we make with the mutual-aid organization that will be coordinated by Mr. Harriman, and those areas will be staffed with a small staff, including technicians of perhaps not over an average of six or seven people to the area, headed by a regional director who will be responsible to the Administrator of DMPA here in Washington.

The functions of that staff will be to constantly survey the sources of supply in that particular area to evaluate from a technical standpoint potential possibilities of production and necessary steps that might be taken by this country under the provisions of the Defense Production Act to expand and acquire such production.

Mr. KENNEDY. You mentioned the emergency procurement function that you are performing in Tokyo. Who constitute the bulk of the group that you purchase from? Are they private Japanese firms?

Mr. LARSON. A great deal of procurement is done in Japan. Some of it that cannot be done in Japan is done in this country. I might give you a little history there.

ORIGIN OF TOKYO OFFICE OF GENERAL SERVICES ADMINISTRATION

Originally at the request of ECA this office, which is now in Tokyo, was set up in Seoul, South Korea, and was the procurement agency for the rehabilitation operations that were carried on in South Korea. As a matter of fact, Mr. Morton was one of the civilians that barely got out of Seoul in time, and when he left Seoul and went to Tokyo we immediately established the office in Tokyo. He was engaged in buying, procuring such things for instance as fishing boats for the Japanese, with ECA funds.

We were operating then strictly in an administerial capacity for the acquisition of materials and items needed or requested by ECA to carry out their programs.

He was engaged in preliminary negotiations, or at least negotiations on that end of the line for engineering know-how, to reconstruct the transportation system of South Korea, the communications system of South Korea. This mining operation was a part of ECA's program at that time.

Then it was a Federal supply office performing procurement functions and contracting functions in the normal everyday sense of the word; but, with the stepping up, with the emergency situation created in raw materials clear around the world by the outbreak of the Korean war, it became necessary to have somebody in the Pacific to ride herd on, or exercise surveillance on, our contracts that we had negotiated here in the Washington office for stockpile acquisition.

So, that office has evolved from a service office to ECA in South Korea to the position that it occupies today as a general GSA operations office in that area.

Mr. KENNEDY. Another point: You mentioned bringing back of this scrap to the United States. Could you outline the procedure under which it is being brought back?

Does the Army bring it back and then dispose of it to the surplus dealers or salvage dealers in the United States, or are they bringing it back to have it find its way into the hands of steel producers? Is there a transitional stage where they return it and then sell through bids, with the possibility of its finding its way back into essential production militated against?

Mr. LARSON. Well, I am sorry, Mr. Kennedy; I cannot say exactly what that is.

DISPOSITION OF KOREAN BATTLE SCRAP

It is my understanding that originally the battlefield-generated scrap that was taken over by the Army went back to Japan and, in connection with our rehabilitation operations in Japan, was largely made available to Japanese industry by the military authorities selling to Japanese industry.

There was some complaint by the South Korean Government about that because of the traditional antipathy toward Japan by the Koreans, and I understand that later that was changed where only a portion of it went to Japan. The rest was brought back and sold through normal trade channels.

I understand that now, as a result of NPA and DPA working directly with the Munitions Board, there is some thought, if not in complete operation at this time, of channeling that directly into allocated channels that the Defense Production Authority will have set up, if it has not already.

If I might make a passing remark in that regard, the handling of scrap through any means other than normal trade channels is a very difficult thing.

Scrap is both ferrous and nonferrous, and the nonferrous scrap is sometimes tied together in the same mass of metal. For instance,

a wrecked airplane will contain aluminum and copper and lead and zinc and steel of varying degrees of alloy content, and to attempt to set up segregation of that by Government civil service or otherwise Government-supervised people we found in our War Assets days was a very expensive and a very unsatisfactory operation.

A tank has a very high content of alloy which is not acceptable to the average blast furnace, and the scrap trade, more or less affectionately referred to sometimes as the junkies, are the people who have acquired the know-how and set up the yardsticks to make that segregation for an orderly flow to the mills.

I do not know why I offer this, but I just may be anticipating that you were thinking it might be better for the Army to sell direct to the mills rather than to go through the dealers. I think you will find that analysis of the problem and those difficulties, and it seems to me that either the Government has to duplicate that know-how and those facilities or we have to take advantage of the present trade.

I am currently in receipt of letters that are written to Members of Congress, and even to the White House, about the alleged profits that people in the junk business are making, and decrying the fact that the Government is not selling its scrap directly to the mills, and what I have related is based on our War Assets experience and on our current investigations in reply to those communications.

DRAFTING OF EXPERIENCED SCRAP MEN

Mr. BROWNSON. Of course, Mr. Larson, there is one situation that has changed a little bit. I find that the armed services now seem to be taking over most of these people who customarily sort this junk. In fact, in some of the areas it looks like they are deliberately making a drive on scrap people, and I am wondering if there are not more people that know how to handle scrap today who have been drafted into the armed services than there are left in the scrap industry.

Mr. LARSON. If there are, Congressman, they will probably end up serving in a band or in some hospital somewhere.

Mr. BROWNSON. That is the trouble I had. I went as high as Assistant to the Secretary to get one man back on scrap, but never made it. Mr. LARSON. Seriously speaking, I know something about the chaos that exists in the steel industry and other nonferrous industries today as result of scrap not flowing, price being one reason why it is not flowing, but the thing that you mentioned is another reason, and those people certainly are essential.

Mr. BROWNSON. The Army made the point that this man had been in the armed services now for 6 months, and that canceled out his civilian background, so he would no longer be acceptable to sort scrap.

Mr. LARSON. It takes more than 6 months to get back to being a civilian after you have been in the Army, I know that from experience. What I say about the Army I do say lightly. I do not want to leave the impression that my Army experience was not one of the happiest experiences of my life.

Mr. ROBACK. Did the GSA team find any scrap in India? Do you have any report on that yet, Mr. Larson?

Mr. LARSON. Find anything what? I understand that they are making an investigation, in addition to the Korean trip, in India and elsewhere. I am not aware of this mission having gone anywhere but to the Pacific area.

STRATEGIC MATERIALS IN INDIA

(Off the record.)

Mr. LARSON. Mr. Pauley, Bill Pauley, is special ambassador. He has currently been over for the State Department, has worked with us, brought back the Minister of Resources of India with him whom we have talked to.

He is very sympathetic, conversations are very good, but we get over to India and we find a lot of obstacles that we do not anticipate. There is no scrap program in India so far as I know.

Mr. BONNER. Are there any further questions by the subcommittee or staff?

Mr. WARD. Yes, may I ask you a question?

Do you think that those activities of scrap and salvage and so on should be coordinated with the procurement program.

Mr. LARSON. I think it should be coordinated with the DPA programs. I think that transcends everything else.

The dire need for scrap is such that it ought to flow into the places where it is most needed, one of the things that is a handicap now, as I pointed out, is the price situation, by going through normal channels of trade.

Office of Price Stabilization reduced the price on scrap, and the result has been that the junkies have held it in the yards and it is not flowing to the mills. It is a serious problem, too.

I mean if you break the dam on scrap, you certainly are going to have a lot of pressure to break the whole price structure dam across. There is some indication that that piling up is getting inventories beyond which the junkies are able to carry or want to carry, and it is beginning to flow out now, and that may correct itself, and I think transcending the procurement, the desirable procurement procedures is the quickest way to get that scrap into the smelters that is so sorely needed.

SHORTAGE OF COPPER

One of the most serious things that we are confronted with today is a shortage of copper, and there is no solution on the horizon for copper. Copper is a disappearing metal. All of the known workable projects are being worked, the accessible projects.

Our only hope for solution of the copper problem is some sort of an arrangement with the principal South American producing countries, namely Chile, where you have a political situation that is likewise just almost impossible, and the two companies. American companies dominate that field, and we are trying to hold the price lines in this country while the Chileans are inclined to want their copper to go to higher markets, some of which even are behind the iron curtain, although officially there are protestations about wanting to cooperate and so forth.