DEFENSE INDUSTRIAL BASE REVITALIZATION ACT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86B00338R000300430011-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 73
• Document Creation Date: December 21, 2016
• Document Release Date: October 21, 2008
• Sequence Number: 11
• Publication Date: May 12, 1983
• Content Type: REPORT

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98TH CONGRESS I HOUSE OF REPRESENTATIVES ( RE PT. 98-110
1st Session Part 1
DEFENSE INDUSTRIAL BASE REVITALIZATION ACT
Mr. ST GERMAIN, from the Committee on Banking, Finance and
Urban Affairs, submitted the following
REPORT
together with
SUPPLEMENTAL, MINORITY, AND DISSENTING VIEWS
[To accompany H.R. 2782 which, on April 27, 1983, was referred jointly to the Com-
mittee on Banking, Finance and Urban Affairs and the Committee on Education
and Labor]
[Including cost estimate of the Congressional Budget Office]
The Committee on Banking, Finance and Urban Affairs, to
whom was referred the bill (H.R. 2782) to amend the Defense Pro-
duction Act of 1950 to revitalize the defense industrial base of the
United States, having considered the same, report favorably there-
on with an amendment and recommend that the bill as amended
do pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu thereof
the following:
SHORT TITLE
SECTION 1. This Act may be cited as the "Defense Industrial Base Revitalization
Act".
TITLE I-INDUSTRIAL MODERNIZATION AND STRATEGIC AND CRITICAL
MATERIALS
SIC. 101. Title III of the Defense Production Act of 1950 (50 U.S.C. App. 2091 et
seq.) is amended by inserting after section 303 the following:
"FINDINGS AND PURPOSE
"SIC. 303A. (a) The Congress hereby fords, with respect to section 303B, that-
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"(1) the national defense and economic health of the United States depend
upon the continuous maintenance of a strong and modern industrial base and
the uninterrupted access to those critical and strategic materials needed to
supply such base;
"(2) in recent years, several important industries, representing a significant
portion of our Nation's second and third tier defense industrial base, have
either virtually shut down or have substantially reduced their production capac-
ity;
"(3) a major factor in the decline of this part of our national defense industri-
al base has been the inability of small- and medium-sized businesses to obtain
access to sufficient capital to remain competitive in the face of increasing for-
iegn competition;
"(4) as a result, important segments of the United States defense industrial
base are now characterized by declining productivity, aging facilities and ma-
chinery, and a high degree of import penetration; and
"(5) at the same time, the United States has also found itself increasingly and
dangerously dependent upon foreign sources for critical and strategic materials
necessary to our defense capability.
"(b) It is the purpose of section 303B to strengthen the capability and capacity of
the Nation's defense industrial base by assisting in the process of capital investment
in certain small- and medium-sixed businesses vital to our defense preparedness,
and by encouraging the expansion of domestic production, processing, and conserva-
tion of strategic and critical materials.
"INDUSTRIAL MODERNIZATION AND STRATEGIC AND CRITICAL MATERIALS
"SEC. 303B. (a)(1) The President, utilizing the types of financial assistance speci-
fied in section 301, 302, and 303, and any other authority contained in this Act, shall
take immediate action to assist in the modernization, improvement, and expansion
of productive capacity of industries in the United States which are necessary to the
manufacture or supply of national defense materials which are required for the na-
tional security or are likely to be required in a time of emergency or war.
"(2) Such assistance shall be provided only to small- and medium-sized businesses,
as defined by the Secretary of Commerce, unless the President determines that the
interests of national defense require an exception to this limitation.
"(3) The financial assistance provided under this subsection shall, to the greatest
extent possible, be made available to small independently owned and operated busi-
nesses.
"(b)(1) The Secretary of Defense, in consultation with the Secretary of Commerce,
shall-
"(A) determine immediately, and semiannually thereafter, those industries
which should be given priority in the awarding of financial assistance under
subsection (a);
"(B) determine the type and extent of financial assistance which should be
made available to each such industry; and
"(C) with respect to the industries specified pursuant to subparagraph (A), in-
dicate those proposals, received under subsection (d), which should be given
preference in the awarding of financial assistance under subsection (a) based on
a determination that such proposals offer the greatest prospect for improving
productivity and quality, and for providing materials which will reduce the Na-
tion's reliance on imports.
"(2) Each proposal shall include a financial plan which specifies how the assist-
ance offered under this section shall be used to insure that the company involved,
by receiving such financial assistance, will become more economically viable in the
future.
"(cXl) The President shall extend assistance under sections 301, 302, and 303, and
any other authority contained in this Act, to persons engaged in the expansion of
the domestic capability and capacity to produce or process critical and strategic
metals, minerals, and materials, including-
"(A) the conservation, substitution, and recycling of such metals, minerals,
and materials; and
"(B) the development of processes, alternate product designs and material se-
lection systems, which lessen or obviate the need for such critical and strategic
metals, minerals, and materials.
"(2) The President shall exercise the authority granted under this subsection in
consultation with the Secretary of Defense, the Secretary of the Interior, the Secre-
tary of Commerce, and the Director of the Federal Emergency Management Agency.
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"(d) The President, in extending assistance under subsections (a) and (c), shall
extend such assistance on the basis of proposals submitted in response to a series of
public solicitations, the first of which shall be issued by the President within ninety
calendar days following the date of the enactment of this section.
"(eXl) Any contract for financial assistance which is awarded under subsection (a)
or (c) and which utilizes financial assistance through purchase agreements specified
in section 303 shall provide that the President has the right to refuse delivery of the
items specified in such contract and to pay the person involved an amount equal to
the amount by which the price for such items, as specified in the contract involved,
exceeds the market price, as determined by the Secretary of Commerce, for such
items on the delivery date specified in such contract.
"(2) Financial assistance under subsection (a) or (c) shall not be extended to assist
establishments relocating from one area to another or to assist persons whose pur-
pose is to divest, or whose economic success is dependent upon divesting, other per-
sons of contracts theretofore customarily performed by them, except that such limi-
tation shall not be construed to prohibit such financial assistance for the expansion
of an existing business entity through the establishment of a new branch, affiliate,
or subsidiary of such business entity if the President finds that the establishment of
such branch, affiliate, or subsidiary will not result in an increase in unemployment
in the area of original location or in any other area where such entity conducts
business operations, unless the President has reason to believe that such branch, af-
filiate, or subsidiary is being established with the intention of closing down the op-
erations of the existing business entity in the area of its original location or in any
other area where it conducts such operations.
"(f)(1XA) There are authorized to be appropriated to carry out the provisions of
subsections (a), (b), and (c) not to exceed-
"M $400,000,000 for fiscal year 1984;
"(ii) $600,000,000 for fiscal year 1985; and
"(iii) $800,000,000 for fiscal year 1986.
"(B) Such sums shall remain available until expended.
"(2XA) In the use of loan guarantees, price guarantees, and direct loans as Federal
financial incentives to accomplish the objectives of this section, the President may
utilize the borrowing authority of the Treasury to the extent that the estimated ulti-
mate net cost of such incentives to the Government does not exceed the total of ap-
propriations made by the Congress to carry out the provisions of subsections (a), (b),
and (c). Such estimates shall be based upon the past experience of the actual costs of
Federal financial incentives under this Act and related expenses.
"(B) The use of loan guarantees, price guarantees, and direct loans under this sec-
tion and the use of the borrowing authority of the Treasury under this subsection
shall be effective for any fiscal year only to such extent or in such amounts as are
provided in advance in appropriation Acts.".
TITLE II-DEFENSE-RELATED SKILL TRAINING AND EDUCATION
SEC. 201. Title III of the Defense Production Act of 1950 (50 U.S.C. App. 2091 et
seq.) is amended by inserting after section 303B, as added by title I of this Act, the
following:
"FINDINGS AND PURPOSE
"SEC. 303C. (a) The Congress hereby finds, with respect to sections 303D and 303E,
that-
"(1) there is a serious shortage of trained workers for many critical defense-
related occupations;
"(2) in many such occupations, this labor shortage will worsen as the present
defense buildup gets underway;
"(3) this labor shortage has the potential of seriously jeopardizing the Na-
tion's defense preparedness;
"(4) there is currently no federally focused effort to remedy this threat to our
national security by training workers specifically for critical defense-related
jobs;
"(5) this labor shortage is occurring at the same time that vast numbers of
skilled and semi-skilled workers have been permanently dislocated from their
prior occupations; and
"(6) there is currently inadequate assistance being provided to institutions of
higher education to assist them in obtaining and installing the modern equip-
ment needed to train individuals for work in such occupations.
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"(b) It is the purpose of sections 303D and 303E to train individuals, especially
dislocated workers, for jobs in critical defense-related skills, as determined by the
President, and to provide assistance to institutions of higher education to obtain and
install equipment to train individuals in such skills.
"DEFENSE-RELATED SKILLS TRAINING PROGRAM
"SEc. 303D. (aXl) The President shall take immediate action to develop and imple-
ment a national program to train workers in skills which the President determines
are necessary in the industries identified under subsections (a), (b), or (c) of section
303B, and which the President determines are in short supply or are anticipated to
be in short supply.
"(2) The Secretary of Defense, after consultation with the Secretary of Labor and
the National Occupational Information Coordinating Committee, shall transmit to
the President the recommendations of the Secretary of Defense regarding the deter-
minations which the President is required to make under paragraph (1).
"(b)(1) Assistance under this section shall be in the form of a grant to a Governor
to be allotted to a State board of vocational education or other agency or agencies
designated in the State plan by the Governor of the State plan for a three-year pro-
gram of skills training has been submitted by the Governor to the President and
approved by the President.
"(2) The President may, to the extent possible-
"(A) provide assistance in coordinating the State plan developed under this
section; and
"(B) provide technical assistance and support services in the implementation
and conduct of programs of skills training which are carried out under this sec-
tion.
"(c) The President, in determining the extent to which State plans shall be
funded, shall make use of all appropriate and reasonable factors, but shall give par-
ticular emphasis to-
"(1) the present or anticipated short supply in that State of skilled workers
for industries identified by the President under subsection (a), (b), or (c) of sec-
tion 303B;
"(2) the number of labor surplus areas in such State; and
"(3) the extent to which the State plan is designed to train dislocated workers
for skilled occupations in such industries which are presently in short supply or
anticipated to be in short supply upon the completion of such training.
"(d) The President shall not approve for funding any State plan unless-
"(1) the State plan has been developed with representatives of the manage-
ment and workers of the industries involved and with public and private educa-
tional institutions of the State;
"(2) the State plan includes on-the-job training, vocational, and other institu-
tional training programs;
"(3) the State plan is designated to ensure meaningful opportunities for par-
ticipation by minorities and women;
"(4) the Governor of the State has certified in writing that the State plan
will be carried out in accordance with the requirements of this section; and
"(5) such State plan includes-
"(A) upgrading skills training; and
"(B) retaining of workers in depressed industries, in surplus labor areas,
or with occupational skills which might become obsolete because of indus-
tries modernization or technological advancement, in skills which the Presi-
dent determines under subsection (a) are necessary in the industries identi-
fied under subsection (a), (b), or (c) of section 303B as necessary to the man-
ufacture or supply of national defense materials which are required for the
national security or are likely to be required in a time of emergency or war.
"(e) The State plan shall, where appropriate, include certified apprenticeship
training pursuant to an apprenticeship plan.
"(f) Any bona fide public or private training program engaged in training workers
in skills described in subsection (a) shall be considered eligible to deliver such train-
ing services upon written application, pursuant to a competitive process, to the
State board of vocational education or other agency or agencies designated by the
Governor of the State involved under subsection (bXl).
"(g) The State job training coordinating council under Public Law 97-300 shall be
given the opportunity-
"(1) to participate in the development of the plan;
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"(2) to review the plan for thirty days prior to its submission to the President;
and
"(3) to submit written comments along with the submission of the plan to the
President.
"(h) The activities funded under this section shall not duplicate facilities or serv-
ices available in the area (with or without reimbursement) from Federal, State, or
local sources, unless the plan provides evidence that alternative services or facilities
would be more effective or more likely to achieve the objectives specified in subsec-
tion (a) of this section.
"(i) The plan shall contain assurances that the activities funded under this section
will be coordinated to the maximum extent feasible with other employment-related
programs in the State, through joint agreements where practicable, or through joint
administration, with programs funded under the Job Training Partnership Act to
ensure maximum participation of eligible participants under such Act in training
programs funded under this section, and through consultation and coordination
with certified apprenticeship plans, where such plans are in effect, to ensure that
the plan does not duplicate or undermine existing certified apprenticeship pro-
grams.
"(j) The State plan shall include a certification which assures the following labor
training standards and requirements will be met:
"(1) conditions of training shall be appropriate and reasonable in the light of
such factors as the type of work, geographical region, and proficiency of the par-
ticipant;
"(2) health and safety standards established under State or Federal law, oth-
erwise applicable to working conditions of employees, shall be equally applica-
ble to working conditions of participants;
"(3) to the extent that a State workers' compensation law is applicable, work-
ers' compensation benefits in accordance with such law shall be available with
respect to injuries suffered by participants. To the extent that such law is not
applicable, each recipient or subrecipient of funds under this section shall
secure insurance coverage for injuries suffered by such participants, in accord-
ance with regulations prescribed by the Secretary of Labor;
"(4) no currently employed worker shall be displaced by any participant (in-
cluding partial displacement such as a reduction in the hours of nonovertime
work, wages, or employment benefits);
"(5) no program shall impair existing contracts of employment;
"(6) no person shall be trained for a job-
"(A) when any other employee in the same workplace or plant is on
layoff from the same or any substantially equivalent job; or
"(B) when the employer has terminated the employment of any regular
employee or otherwise reduced its workforce with the intention of filling
the vacancy so created by hiring a participant whose training is assisted
under this section;
"(7) recipients of funds available under this section have given assurances
that such funds shall not be used to assist, promote, or deter union organizing;
"(8) no funds available under this section may be used to assist, promote, or
deter union organizing; and
"(9) no funds will be used to train workers for low skilled occupations.
"(k) Any grant under this section shall be extended in any year only after the
State involved has provided a contribution, from public or private resources, to
carry out the State plan in an amount equal to 10 per centum of the cost of the
State plan for such year.
"(1) Each training program under the State plan shall include contributions and
other types of active participation during the course of training from industry or
labor organizations or both, except that the President, upon written request from a
State, may exempt training programs in economically depressed communities from
the contribution required under this paragraph.
"(m) A portion of a State's contribution may consist of 'in kind' contributions of
equipment, facilities, personnel, or services to the extent that such 'in kind' contri-
bution is utilized in carrying out the State's plan. No such 'in kind' contribution
many include equipment acquired under section 303E.
'(n) The President shall act upon each State plan not later than ninety days after
the
the date on which such State plan is received.
recommendations of the Secretary of Defense, the cSecretary of Labor, based the Secre-
tar~y of Education.
'(o) No person shall be excluded from participation in, denied the benefits of, sub-
jected to discrimination under, or denied training in the administration of or in con-
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nection with any program under this section because of race, color, religion, sex, na-
tional origin, age, handicap, or political affiliation or belief.
"(p) Not more than 10 per centum of the amount of any grant made under this
section may be used by a State for administrative expenses incurred in carrying out
a State plan.
"(q) Assistance under this section may be used to purchase and install equipment
for training purposes. The purchase of any such equipment shall be done by means
of competitive bidding.
"(r) For purposes of installing Government-owned equipment pursuant to section
303(e), the term `industrial facilities', as used in such section, shall include vocation-
al schools, other schools offering technical and vocational training programs, and
any other location in which workers are trained pursuant to this section.
"(s) There are authorized to be appropriated to carry out the provisions of this
section and sectikon 303E not to exceed $350,000,000 for each fiscal year beginning
with fiscal year 1984 and continuing through fiscal year 1986, except that not more
than $100,000,000 is authorized to be appropriated for each such fiscal year to carry
out the provisions of sections 303E. All such sums shall remain available until ex-
pended.
"DEFENSE-RELATED EQUIPMENT ASSISTANCE PROGRAM
"SEC. 303E. (aXl) The President shall take immediate action to develop and imple-
ment a grant program to assist colleges, universities, and other institutions of
higher education in obtaining and installing modern equipment which shall be used
to train professional, scientific, and technical personnel who are needed in the in-
dustries identified under subsection (a), (b), or (c) of section 303B.
"(2) All students and faculty studying, teaching, or conducting research at such an
institution of higher education shall have access to such equipment for use in ac-
cordance with regulations and practices of such institution of higher education.
"(b) Any college, university, or other institution of higher education which desires
to receive a grant under this section may submit an application to such Federal de-
partment or agency as the President shall designate. Each such application shall-
"(1) certify the cost of purchasing and installing the equipment involved; and
"(2) contain such other information as the President deems necessary.
"(cxl) Each college, university, or other institution of higher education whose ap-
plication is approved under this section may be required to provide a matching
share of up to 50 per centum of the cost of purchasing and installing the equipment.
involved.
"(2) The purchase of any such equipment shall be done by means of competitive
bidding.
"(d) At the discretion of the President, equipment may be provided under section
303(e) to colleges, universities, and other institutions of higher education. For pur-
poses of such section, the term `industrial facilities' shall include colleges, universi-
ties, and other institutions of higher education.
"GENERAL PROVISIONS
"SEC. 303F. (a) Any equipment or plant financed through Federal assistance au-
thorized by sections 303B through 303E shall be of United States origin to the maxi-
mum extent practicable. Exceptions to this limitation may be made whenever the
Secretary of Commerce determines in writing-
"(1) that the foreign sourcing of such equipment or plant will not adversely
affect the capability or capacity of the United States defense industrial base to
provide national defense materials in a time of emergency or war; or
"(2) that such equipment or plant of United States origin is not available and
is not practicable to obtain.
"(b) The Comptroller General of the United States shall monitor the implementa-
tion of sections 303B through 303E, conduct such audits as he determines to be nec-
essary, and submit an annual report of his findings to the Congress at the beginning
of each session of the Congress. The first such annual report shall be submitted in
the year following the enactment of the Defense Industrial Base Revitalization Act.
"(c) In order to carry out the provisions of sections 303B through 303E, the Office
of Technology Assessment shall, subject to approval of the Technology Assessment
Board and in a manner prescribed by 2 U.S.C. 472(d), undertake a study of the
public facilities or infrastructure essential to the defense industrial base and pro-
vide Congress with appropriate recommendations for infrastructure measures de-
signed to avoid serious impediments to the production and distribution of materiel.
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"(dxl) All laborers and mechanics employed for the construction, repair, or alter-
ation of any project funded, in whole or in part, by a guarantee, loan, or grant en-
tered into pursuant to sections 303B through 303E shall be paid wages at rates not
less than those prevailing on rojects of similar character in the locality as deter-
mined by the Secretary of Labpor in accordance with the Act entitled 'An Act relat-
ing to the rate of wages for laborers and mechanics employed on public buildings of
the United States and the District of Columbia by contractors and subcontrators,
and for other purposes', approved March 3, 1931 (40 U.S.C. 276a et seq.), and com-
monly known as the Davis-Bacon Act.
"(2) Guaranteeing agencies shall not extend guarantees and the President shall
not make loans or grants for the construction, repair, or alteration of any project
unless a certification is provided to the agency or the President, as the case may be,
prior to the commencement of construction or at the time of filing an application
for a loan, guarantee, or grant, if construction has already commenced, that these
labor standards will be maintained at the project.
"(3) With respect to the labor standards specified in this subsection, the Secretary
of Labor shall have the authority and functions set forth in Reorganization Plan
Numbered 14 of 1950 and section 276(c) of title 40, United States Code.
"(e) On October 1, 1983, and on the first business day of every sixth month begin-
ning after such date, the President shall transmit a report to both Houses of the
Congress listing all loans, loan guarantees, and commitments for loan guarantees
which were issued under section 303B during the six calendar months preceding the
transmittal date of the report involved.
"(f) Notwithstanding any other provision of sections 303B through 303E, no funds
are authorized to be appropriated to carry out such sections, unless all of such funds
are attributed to a budget function or budget allocation other than one affecting or
relating to education or labor, the Department of Education or the Department of
Labor, the Committee on Education and Labor of the House of Representatives or
the Committee on Labor and Human Resources of the Senate, or any subcommittee
of the Committee on Appropriations of either House primarily responsible for ap-
propriations for education or labor.
"(g) For purposes of sections 303A through 303E-
"(1) the term 'apprenticeship plan' means a plan approved by the Secretary of
Labor pursuant to the National Apprenticeship Act (29 U.S.C. 50 et seq.);
"(2) the term 'State' means any of the several States, the District of Colum-
bia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, the Northern
Mariana Islands, American Samoa, the Trust Territory of the Pacific Islands, or
any other territory or possession of the United States; and
'(3) the term 'United States' means the several States, the District of Colum-
bia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, the Northern
Mariana Islands, American Samoa, the Trust Territory of the Pacific Islands,
and any other territory or possession of the United States.".
TITLE III-AMENDMENTS TO DEFENSE PRODUCTION ACT OF 1950
SEC. 301. (aXl) Section 2 of the Defense Production Act of 1950 (50 U.S.C. App.
2062) is amended to read as follows:
"DECLARATION OF POLICY
"SEC. 2. (a)(1) In view of continuing international problems, the Nation's demon-
strated reliance on imports of materials and components, and the need for measures
to reduce defense production lead times and bottlenecks, and in order to provide for
the national defense and national security, our defense mobilization preparedness
effort continues to require the development of preparedness programs, defense in-
dustrial base improvement measures, and the expansion of domestic productive ca-
pacity and supply beyond the levels needed to meet the civilian demand. Also re-
quired is some diversion of certain materials and facilities from civilian use to mili-
tarry and related purposes.
'(2) These activities are needed in order to improve defense industrial base effi-
ciency and responsiveness, to reduce the time required for industrial mobilization in
the event of an attack on the United States or to respond to actions occurring out-
side the United States which could result in the termination or reduction of the
availability of strategic and critical materials, including energy, and which could ad-
versely affect the national defense preparedness of the United States. In order to
insure the national defense preparedness which is essential to national security, it is
also necessary and appropriate to assure the availability of domestic energy supplies
for national defense needs.
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"(bxl) In order to insure productive capacity in the event of an attack on the
United States, it is the policy of the Congress to encourage the geographical disper-
sal of the industrial facilities of the United States in the interest of the national
defense, and to discourage the concentration of such productive facilities within lim-
ited geographical areas which are vulnerable to attack by an enemy of the United
States.
"(2) In the construction of any Government-owned industrial facility, in the rendi-
tion of any Government financial assistance for the construction, expansion, or im-
provement of any industrial facility, and in the production of goods and services,
under this or any other Act, each department and agency of the executive branch
shall apply, under the coordination of the Federal Emergency Management Agency,
when practicable and consistent with existing law and the desirability for maintain-
ing a sound economy, the principle of the geographical dispersal of such facilities in
the interest of national defense. However, nothing in this paragraph shall preclude
the use of existing industrial facilities.
"(3) To ensure the adequacy of productive capacity and supply, executive agencies
and departments responsible for defense acquisition shall continuously assess the
capability of the defense industrial base to satisfy near-term requirements as well as
increased mobilization production requirements. Such assessments shall specifically
evaluate the availability of adequate production sources, including subcontractors
and suppliers, materials, and skilled labor, and professional, scientific, and technical
personnel.
"(4) It is the policy of the Congress that plans and programs to carry out this dec-
laration of policy shall be undertaken with due consideration for promoting efficien-
cy and competition.".
(2) Section 101 of the Defense Production Act of 1950 (50 U.S.C. App. 2071) is
amended by adding at the end thereof the following:
"(d) The Secretary of Defense may not enter into any contract of more than
$5,000,000 for any item of defense production from any manufacturer located in the
United States unless that manufacturer agrees to conduct or sponsor the training of
personnel in skills which the President determines are in short supply pursuant to
section 303D, if the defense procurement contract will require the contractor or any
subcontractor or the contractor to hire additional workers in any such skilled occu-
pations, and the training of such workers is critical to the timely completion of
work under the contract in the area in which the contract will be performed.
"(e)(1) Except as provided in paragraph (2), the President may not exercise the au-
thority granted under subsection (a) or (b) regarding any change in approval Depart-
ment of Defense urgency determinations for critical defense production programs
(including any compilation or revisions of the master urgency list on defense pro-
duction) unless both Houses of the Congress have been notified in writing of such
proposed exercise of authority and 60 days of continuous session of the Congress
have expired following the date on which such notice was transmitted to the Con-
gress and neither House of the Congress has adopted, within such 60-day period, a
resolution disapproving such exercise of authority.
"(2)(A) The provisions of paragraph (1) shall not apply in any case in which the
President determines that immediate action is needed in the interest of national se-
curity and the President transmits a notice of such determination to both Houses of
Congress. Such notice shall be transmitted to both Houses of the Congress on the
date on which the President makes such determination.
"(B) Any determination by the President under this paragraph shall remain in
effect if neither House of the Congress adopts a resolution disapproving the exercise
of the authority involved within 60 days of continuous session of the Congress after
the date on which the notice involved under this paragraph is transmitted to the
Congress. If either House of the Congress adopts such a resolution of disapproval,
the President shall cease to exercise the authority involved on the date on which
such resolution is adopted.
"(3) For purposes of this subsection, the continuity of a session of the Congress is
broken only by an adjournment of the Congress sine die, and the days on which
either House is not in session because of an adjournment of more than 3 days to a
darn certain are excluded in the computation of such 60-day period.
(f)(1) The Predident shall not exercise the authority granted under subsection (a)
or (b) of this section to achieve the performance of any contract or order for an item
of defense production if such item, or any component of such item, is obtained from
any manufacturer located outside of the United States, unless-
"(A) such contract or order is for less than $1,000,000;
"(B) the Secretary of Defense has determined in writing that such contract or
order will not result in the United States becoming primarily dependent upon
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manufacturers outside of the United States for the supply of such items of de-
fense production, or any component of such item; or
"(C) the President has certified in writing to the Congress that entering into
such contract is essential to the national defense.
"(2) The requirements of paragraph (1) shall not apply-
"(A) during any period in which there is in effect-
Ai) a declaration of national emergency which is issued by the President;
or',
(ii) a declaration of war which is adopted by the Congress; or
"(B) with respect to contracts or orders which are entered into under the
terms of any treaty which is ratified by the Senate.
"(3) For purposes of this subsection, the term 'United States' means the several
States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the
Virgin Islands, the Northern Mariana Islands, American Samoa, the Trust Terri-
tory of the Pacific Islands, and any other territory or possession of the United
States.". 2091) is
(b) Section 301 of the Defense Production Act of 1950 (50 U.S.C. App.
amended-
(1) in subsection (eX1XA), by striking out "$38,000,000" and inserting in lieu
thereof "$50,000,000"; and
(2) in subsection (eX1XB)-
(A) by striking out "60 days" and inserting in lieu thereof "30 days";
(B) by striking out "60-day period" each place it appears therein and in-
serting in lieu thereof "30-day period";
(C) by inserting "(i)" after "such proposed obligation and"; and
(D) by striking out the period at the end of the first sentence thereof and
inserting in lieu thereof the following: "or (ii) both Houses of Congress
adopt a concurrent resolution approving such obligation. If the Congress
adopts such a concurrent resolution, the guarantee involved may be made
at any time after the date on which such concurrent resolution is adopted.".
(c) Section 302 of the Defense Production Act of 1950 (50 U.S.C. App. 2092) is
amended-
(1) by striking out "60 days" and inserting in lieu thereof "30 days";
(2) by striking out "60-day period" each place it appears therein and inserting
in lieu thereof "30-day period'; and
(3) in the second sentence thereof-
(A) by inserting "(A)" after "such proposed loan and"; and
(B) by striking out the period at the end thereof and inserting in lieu
thereof the following: "or (B) both Houses of Congress adopt a concurrent
resolution approving such loan. If the Congress adopts such a concurrent
resolution, the loan involved may be made at any time after the date on
which such concurrent resolution is adopted.".
(d) The first sentence of section 717(a) of the Defense Production Act of 1950 (50
U.S.C. App. 2166(a)) is amended by striking out "September 30, 1983" and inserting
in lieu thereof "September 30, 1986".
(e) Section 720 of the Defense Production Act of 1950 (50 U.S.C. App. 2169) is
hereby repealed.
(f) Section 701 of the Defense Production Act of 1950 (50 U.S.C. App. 2151) is
amended by adding at the end thereof the following:
"(eX1XAXi) Any person signing a contract which involves the sale of any defense
article or defense service for use by a nation other than the United States and
which includes an offset agreement in excess of $5,000,000 shall file an annual
report with the Secretary of the Treasury. Each such report shall include the total
of all offsets, classified by the category of the defense material or defense services
involved, entered into by such person during the three calendar years preceding the
year in which such report is filed. The first such annual report shall be filed with
the Secretary of the Treasury not later than June 1, 1984. Subsequent annual re-
ports shall be filed not later than June 1 of each year.
"(ii) Except as provided in subparagraph (B) and notwithstanding any other provi-
sion of law, including section 552 of title 5, United States Code (commonly known as
the Freedom of Information Act), the Secretary of the Treasury shall not disclose,
except to the Congress, any information required to be reported pursuent to this
subparagraph.
"(B) Not later than the first October 1 occuring more than ninety days after the
date of the enactment of this subsection and not later than each October 1 occurring
a
Bank October 1, Urban Affairs s of the Treasury shall on
oofter such
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Banking, Finance and Urban Affairs of the House of Representatives a report on
the total number of contracts reported pursuant to subparagraph (A) and the total
amount of offsets required by such contracts. Such report shall contain a breakdown
of offsets by category of defense material or defense services involved and by recipi-
ent country.
"(2) For purposes of this subsection-
"(A) the term 'offset' means any international transaction between a buyer
and seller that provides nonmonetary compensation which may include, but not
be limited to, the transfer of production or technology to the buyer as a consid-
eration for the purchase of a particular item or service; and
"(B) the term 'person' means any individual, sole proprietorship, partnership,
or corporation.
"(3) This subsection shall cease to be effective five years after the date of the en-
actment of this subsection.
"(f) The Secretary of Defense shall report to the Committee on Banking, Housing,
and Urban Affairs of the Senate and to the Committee on Banking, Finance and
Urban Affairs of the House of Representatives any memorandum of understanding
or similar agreement which involves actual, planned, or potential offsets in con-
tracts involving the sale of defense articles or services in excess of $5,000,000 not
later than 30 days after the Secretary of Defense signs such memorandum of under-
standing.".
INTRODUCTION AND BRIEF SUMMARY OF THE LEGISLATION
H.R. 2782 addresses a national problem of vital importance and
great magnitude. The Nation's secure defense, and economic stabil-
ity require: maintenance of a solid and modern defense industrial
base; reliable and steady access to certain critical and strategic
supplies; a full complement of properly trained workers and techni-
cians to meet defense-related needs.
In recent years, it has become increasingly clear that the United
States has not been meeting these requirements. Support indus-
tries are shrinking and in many cases disappearing. We are dan-
gerously dependent on foreign imports for the critical materials
that fuel our industries. Skilled workers are aging, while qualified
replacements are not emerging in sufficient numbers. There is a
shortage of manpower with the skills necessary to design, build, op-
erate, and maintain modern machinery and equipment. Colleges,
universities, and other institutions of higher education lack suffi-
cient financial resources to furnish their classrooms and laborato-
ries with the modern equipment needed to insure the highest qual-
ity education in rapidly changing scientific and technical disci-
plines.
H.R. 2782 would strengthen our Nation's defense industrial base
by assisting in the process of capital investment in selected small-
and medium-sized businesses crucial to our defense preparedness,
and by encouraging the modernization and expansion of domestic
production, processing, and conservation of strategic and critical
materials. The bill also provides extensive funding for training and
retraining workers, with a preference for dislocated workers.
The proposed legislation authorizes a 3-year, $1.8 billion program
in the form of direct loans, loan guarantees, and purchase agree-
ments for defense-related businesses. In each case, the money must
either be repaid, or a needed product provided to the Government
or a domestic supply source assured for materials. Credit for plant
and equipment modernization is limited to small- and medium-
sized companies, which must present financial plans selected from
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a "priority industries list", to be developed and updated biannually
by the Departments of Defense and Commerce.
H.R. 2782 also authorizes up to $350 million annually for fiscal
years 1984, 1985, and 1986 for a worker training program, through
grants to States that submit training plans. The President is in-
structed to determine the amounts in which each State plan should
be funded. In making these determinations, he is to give particular
consideration to any present or anticipated shortage in that partic-
ular State of skilled workers in defense-related industries, to the
number of labor surplus areas in the State, and to the extent to
which the State's plan is designed to train dislocated workers for
skilled occupations in manpower-short defense-related industries.
There is a 10-percent State matching requirement. The grants
are to be administered by State boards of vocational education or
any other agencies designated by the Governor. Submission is re-
quired of a 3-year State plan that was developed with input from
representatives of workers and management and public and pri-
vate educational institutions, will fully coordinate programs with
existing job-training programs, includes on-the-job, institutional
and vocational training programs, and meets specified labor train-
ing standards.
The training of scientific, professional, and technical personnel
will be facilitated through grants to institutions of higher educa-
tion to purchase and install modern equipment. Up to 50 percent
cost sharing may be required.
Firms with defense contracts over $5 million would be required
to offer skill training, if the contract involves work for which there
is a shortage of skilled workers in the area.
Funding for this bill would be through the defense budget func-
tion. The total authorization would be $2.85 billion and total esti-
mated outlays would be $1.25 billion over the 5-year period cover-
ing fiscal year 1984 through fiscal year 1988.
H.R. 2782 extends the authorities of the Defense Production Act
for 3 years to September 30, 1986.
SUMMARY OF PROVISIONS OF H.R. 2782
A 3-year program of financial assistance to improve three areas
of national need:
STRENGTHENING DOMESTIC INDUSTRY
Through credit and other assistance in the form of purchase
agreements, price guarantees, loan guarantees and direct loans. In
each case, the money must be repaid or a needed product provided
to the Government, or a domestic supply source assured for materi-
als.
(1) To modernize plant and equipment
Limited to small- and medium-sized companies (size defined by
Secretary of Commerce), therefore at subcontractor and supplier
level.
Businesses chosen from "priority industries list" developed by
Departments of Defense and Commerce and updated every 6
months.
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Preference to applications offering the best hope of increasing
productivity, improving product quality, and lessening import de-
pendence. Special priority to small business. Financial plan re-
quired.
(2) To expand domestic production and processing of critical and
strategic minerals, metals and materials
Expansion must include conservation, recycling, substitution,
and new processes, alternate product designs and material selec-
tion systems.
Size of business not a factor. Financial plan required.
WORKER SKILLS TRAINING
Through grants to states (with 10 percent State match), to train
workers in critical skills in short supply needed in "priority" indus-
tries and materials expansion.
Emphasis on retraining dislocated workers in depressed indus-
tries and labor surplus areas.
Administered by state boards of vocational education or other
agency or agencies designated by Governor, after submission of 3-
year state plan which must insure that:
Plan was developed with input from workers and manage-
ment, and public and private educational institutions;
Programs will be fully coordinated with existing State job
training programs and procedures as provided for under the
Job Training Partnership Act;
On-the-job and registered apprenticeship training programs
are included;
Specified labor training standards will be met.
PROFESSIONAL TRAINING
Through grants to institutions of higher education to purchase
and install modern equipment to train scientific, professional and
technical personnel. Up to 50 percent cost sharing may be required.
FUNDING
$1.8 billion over 3 years for industry credit and other assistance;
$350 million per year for worker training and technical equip-
ment grants, with up to $100 million authorized for the latter.
Total authorization $2.85 billion. Total estimated outlays $1.25
billion.
HISTORY OF THE LEGISLATION
The Subcommittee on Economic Stabilization has conducted ex-
tensive hearings throughout 1981, 1982, and 1983 on revitalization
of the U.S. defense industrial base. Thorough examination of the
condition of this base-the keystone of our national security and
economic well-being-has revealed very serious problems.
The subcommittee heard from 146 witnesses during 30 days of
hearings. Witnesses represented government at all levels, industry,
businesses of all sizes, the financial community, educators, profes-
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sional associations, citizens groups, the military, and Members of
Congress.
During the course of these hearings, it became eminently clear
that there are real dangers to our industrial base, which must be
addressed immediately.
First, the entire U.S. economy is being undermined by an in-
creasing trade deficit, a shrinking U.S. share in the world market,
and the absence of a coherent industrial strategy.
Second, many basic industries are either closing down or cutting
production. These industries produce and supply components and
materials upon which the defense of the country depends.
Third, the skilled manpower and the trained technical, scientific
and professional personnel needed in those industries are in short
supply and that shortage is growing.
Fourth, for a number of strategic and critical materials, without
which the necessary parts and components could not be manufac-
tured, the country is dangerously dependent on foreign sources,
some of them susceptible to abrupt supply cutoff. In a politically
volatile world, we cannot afford to rely too heavily on other coun-
tries for our essential needs.
H.R. 2782 was developed to address these pressing problems
through a series of amendments to the Defense Production Act of
1950. The amendments would establish three year programs that
assist defense industries; encourage modernization and expansion
of domestic production of critical and strategic materials; train or
retrain workers for the defense industrial base; and provide fund-
ing to higher education institutions for state-of-the-art educational
tools and facilities.
Representative John J. LaFalce, chairman of the Economic Stabi-
lization Subcommittee, introduced H.R. 2782 on April 27, 1983, fol-
lowing subcommittee markup of H.R. 2057, an earlier version of
the bill. H.R. 2057 was introduced by Mr. LaFalce on behalf of him-
self and 15 members of the committee on March 10, 1983, and hear-
ings on it were held on April 13, 14, and 20, 1983. Witnesses who
testified during these hearings were: William Monteith, president,
Akromold, representing the National Tooling and Machining Asso-
ciation; Jerry Gulan, vice president, government affairs, National
Small Business Association; Keith McKee, chairman, Coordinating
Committee on Productivity and Innovation, American Association
of Engineering Societies; Steve Miller, director, govepresident, m nt polic t
analysis, Gould, Inc.; Charles E. Melbye, pMining Co., representing the American Mining Congress; Kevin
Boland, Senior Association Director, Energy and Minerals Group,
Resources, Community and Economic Development Division, Gen-
eral Accounting Office; Richard E. Donnelly, Director of Industrial
Resources, Office of the Under Secretary of Defense for Research
and Engineering, Department of Defense; Paul K. Krueger, Assist-
ant Associate Director of Resources Preparedness, Federal Emer-
gency Management Agency; Eugene Bottoms, executive director,
American Vocational Association; Robert D. Kersten, dean of engi-
neering, University of Central Florida, representing National manpower
Soci-
ety of Professional Engineers; John Jenness, director,
planning and development, Consolidated Edison of New York, rep-
resenting American Society for Training and Development; Law-
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rence J. Brady, Chairman, Industrial Mobilization Preparedness
Board, Department of Commerce; Howard D. Samuel, president, in-
dustrial union department, AFL-CIO; Charles J. Wilson, secretary
and treasurer, Industrial Fasteners Institute; Leon Reed, manager,
contingency planning, Analytic Sciences Corp.
The subcommittee marked up H.R. 2057 on April 27, 1983, and,
by a vote of 18 to 6, ordered the bill with amendments to be favor-
ably reported to the full Committee on Banking, Finance and
Urban Affairs.
On May 4, 1983, the full committee held a markup of the clean
bill, H.R. 2782. By voice vote, the full committee voted to report the
bill as amended favorably to the House.
THE NEED FOR AND PURPOSE OF THE LEGISLATION
TITLE I-INDUSTRIAL MODERNIZATION AND CRITICAL AND STRATEGIC
MATERIALS
In recent years, several important industries, representing a sig-
nificant portion of our Nation's second- and third-tier defense in-
dustrial base, have either virtually shut down or have substantially
reduced their production capacity. At the same time, the United
States has also found itself increasingly and dangerously dependent
upon foreign sources for critical and strategic materials necessary
to our defense capability.
The administration has already recognized part of this problem
by requesting $200 million in the fiscal year 1984 budget to fund
purchase guarantees for certain critical and strategic materials
and industrial products.
H.R. 2782 would go beyond the administration's program by rec-
ognizing what is a simple, but self-evident truth:
The United States cannot be a first-rate world power with a
second-rate industrial base.
Title I would establish two programs:
(1) Limited and conditional financial assistance (principally
loans and loan guarantees) to help modernize and make more
efficient certain parts of the Nation's defense industrial base;
and
(2) Conditional financial assistance (principally purchase
agreements) to encourage the expansion of domestic capacity
to produce strategic and critical materials.
Industrial modernization
H.R. 2782 recognizes that the defense industrial base is made up
not only of a few hundred major companies which hold most of the
Nation's defense contracts but that it also includes smaller indus-
trial firms which provide thousands of component parts to the de-
fense effort.
Estimates of the number of these companies vary, but the figure
50,000 is most commonly cited. For the most part, these are small-
and medium-sized businesses making essential "nuts and bolts"
components without which our warplanes, tanks, missiles, war-
ships, and other weapons systems would simply not work.
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It is toward this vital group of "second and third-tier" defense
subcontractors and suppliers that H.R. 2782 directs its assistance.
By way of illustrative example, this group would include the fol-
lowing types of industries: tool and die shops; precision grinding;
metal stamping; manufacturers of nuts, bolts, and other industrial
fasteners; screw manufacturers; bearing manufacturers; plastic die-
casting; molding; manufacturers of small machine tools such as
jigs, fasteners, and gages; electronic components; various aircraft
engine parts; plating and polishing plants; metal matrix compos-
ites; fabricated plate work; forging and blacksmithing ships; sheet
metal fabrication; and parts rebuilders.
It is these types of companies that continue to have problems in
obtaining sufficient capital at affordable costs to modernize to meet
foreign competition. And it is also these types of small- and
medium-sized companies that underpin not only our defense base,
but also our civilian economy. The Department of Defense esti-
mates that, in most cases, defense business utilizes less than 10
percent of such a typical company's total productive capacity.
What is the condition of this part of our industrial base? It is
ailing financially. It is deteriorating with age and obsolescence. It
lacks skilled people. And, it is losing the competitive war with for-
eign imports. In short, it needs help now.
That, in capsule form, is the collective judgment expressed by
more than 146 witnesses who testified at 30 days of hearings held
on this issue over the past 3 years by the Subcommittee on Eco-
nomic Stabilization of the House Committee on Banking, Finance
and Urban Affairs.
Gen. Alton D. Slay, who retired from the Air Force early last
year after years of struggling to meet the procurement needs of the
armed services put it starkly in his testimony:
We are in the grip of a virulent industrial productivity
disease which is sapping our strength and which, unless
cured, will inevitably result in forfeiture of our position of
leadership in the western world-leadership not only in an
industrial sense, but militarily and politically as well.
Mending our military fences just must be a top priority
program of the Government. But that fence-mending today
has to be done with a faltering industrial base and ith a
prob-
consequently faltering economy. And conversely,
lems of a faltering industrial base and a faltering economy
must be dealt with while having simultaneously to devote
huge sums to military fence-mending.
General Slay also pointed to a key manufacturing field illustrat-
ing the problems facing industrial America. He said:
Fifteen years ago, the United States had a net 5 to 1 ad-
vantage on exports versus imports of machine tools. In
1965, we imported less than 5 percent of our machine
tools; today, we import over 30 percent. The U.S. world
market percentage has been halved in the last ten years
and shows signs of plummeting in the next two years.
A large segment of our industry under a of cer ed
attack and is generally ill-equipped for the
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itive battle in the world marketplace that will be required
to stay alive over the next several years. The implications
for our economy and for our defense preparedness are
enormous.
Since General Slay testified, there has been little or no visible
improvement. The National Machine Tool Builders Association re-
ported on April 25 that machine tool orders for the first quarter of
1983 were almost 38 percent below the same period of the previous
year.
James A. Gray, president of the association, while expressing
hope for the future, noted ominously in the report that,
Things cannot get much worse for our industry. In con-
stant uninflated dollars, industry activity is at the lowest
level in 50 years.
What is perhaps most disturbing is that testimony in this Con-
gress has indicated that, despite falling interest rates and the
emerging economic recovery, many, if not most, of the small- and
medium-sized businesses which constitute the defense industrial
base will continue to have trouble raising the necessary capital to
modernize their plant and equipment.
H.R. 2782 would provide needed financial tools and incentives to
help modernize and revitalize important elements of our second-
and third-tier industrial base. The legislation would make it possi-
ble for high-priority small- and medium-sized companies to pur-
chase and install new plant and equipment through time-tested
and proven credit assistance incentives under the Defense Produc-
tion Act. These include loan guarantees, purchase agreements,
price guarantees, and direct loans where necessary.
In all cases, the money would be repaid, a needed product pro-
vided to the Government, or a domestic supply source assured for
materials. The Secretary of Defense, in consultation with the Secre-
tary of Commerce, would determine the priority industries and
update the list every 6 months. Preference would go to those com-
panies submitting proposals offering the greatest prospect for im-
proving productivity and quality and reducing the Nation's reli-
ance on foreign imports. Special priority would go to small inde-
pendently owned and operated businesses. The program would go
forward on a "fast track" by requiring a call for proposals within
90 days following enactment of the legislation.
It must be understood and emphasized that the committee is not
talking about assistance to large weapons systems makers or large
prime contractors. Rather, the legislation concentrates on thou-
sands of subcontractors and supplies, mostly small- and medium-
sized busineses. They provide to prime contractors the essential ele-
ments, components, parts and materials that go into all of our de-
fense systems. Examples might include the 10-employee machine
shop, the 50-employee foundry, a small electronics firm, and a
myriad of other similar manufacturing concerns. These companies
are not captives of the military; they also make the every day
items needed in our civilian economy.
But these companies, once the backbone of America's industrial
power, are in great trouble. Their plants and equipment are often
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old and outmoded. Their productivity rates have dropped. The per-
centage of reject parts is high. In many cases, there is a growing These scarcity of skilled labor. Costs go up and deliverieare hl the much
conditions make it virtually impossible to compete more modern factories in Japan, West Germany, and other indus-
trialized nations. As a result, U.S. companies are closing down or
losing a major share of their markets to foreign imports.
There now exists a growing consensus that this problem must be
addressed soon. This consensus has been developing eindustry, labor,
years as numerous studies, by groups P
and government, have continued to cite the problem. For example,
Representative Melvin Price of Illinois, chairman of the House
Armed Services Committee, said the following after a special panel
of that committee conducted extensive hearings on the problem in
1980:
defense industry would find
S
U
th
.
.
e
In the event of war,
it almost impossible to expend its weapon production sud-
denly and dramatically in the number necessary to sustain
a prolonged conflict.
Testimony given since that time during hearings before the
Banking Committee has confimed that several of the findings of
the Armed Services Committee are still valid and in need of imme-
diate additional remedial action:
The defense industrial base is unbalanced; while excess
production capacity generally exists at the prime contrac-
tor level, there are serious deficiencies at the subcontrac-
tor levels; lead times for military equipment have in-
creased significantly during the past 3 years; skilled man-
power shortages exist now and are projected to continue
through the decade; the U.S. is becoming increasingly de-
pendent on foreign sources for critical raw materials as
well as for some specialized components needed in military
equipment; productivity growth rates for the manufactur-
ing sector of the United States economy are the lowest
among all free world industrialized nations; the productiv-
ity growth rate of the defense sector is lower than the
overall manufacturing sector; and the means for capital
investment in new technology, facilities and machinery
have been constrained.
Some illustrative examples of our shrinking and weakening de-
fense industrial base that have been noted during hearings on this
legislation include:
-
Less than 15 years ago there were approximately 3,000 found
ries in the United States. Now there are fewer than 1,200.
Less than one-third of the machine tools are under 10 years old.
Y contrast, two-thirds of the machine tools in Japan are less than
years old.
Commercially owned floor space for the production of U.S. air-
craft has shrunk 21 percent in recent years and is now below the
minimum required for some mobilization scenarios.
would fall mobilization, , fivour domestic e times short of production need of small ball
bearings
H. Rept. 98-110 pt.1 O - 83 - 3
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U.S. import reliance is high in electronic semiconductors, alumi-
num sheet and structures, hydro turbines, and other power gener-
ating equipment, heavy steel plate, specialized forgings, copper,
metal cutting and forming tools. This reliance raises serious ques-
tions about our ability to obtain these materials in a crisis situa-
tion.
Our dwindling manufacturing sector relies increasingly on a
supply of critical and strategic materials from foreign sources, in-
cluding platinum group metals, manganese, chromium, cobalt, tin,
and nickel.
During the course of hearings, it was estimated that 8 out of
every 10 nuts, and 7 out of every 10 bolts used in the United States
today are made overseas. The U.S. fastener industry also has lost
its world leadership, and by 1985 an estimated 70 percent of the
American market is expected to be taken over by imports from
Japan, Canada, Korea, and Taiwan. Industry spokesmen in the
United States warn that this country could not respond to even a
partial mobilization if foreign supplies, for some reason, were cut
off. The United States literally could have the ability to produce
the necessary component parts for F-18 fighter planes and army
tanks, but nothing to hold them together.
Charles L. Wilson, Secretary-Treasurer of the Industrial Fasten-
ers Institute, testified on April 20, 1983, that,
It has been extraordinarily difficult to convince boards
of directors to reinvest (in new plant and equipment) be-
cause of the import trend, which has replaced large seg-
ments of industry and continues to do so. Testifying on the
same day was Howard D. Samuel, President of the Indus-
trial Union Department of the AFL-CIO, which represents
5 million workers belonging to 57 international unions.
Samuel said the AFL-CIO regarded legislation on revitaliz-
ing the defense industrial base as a valuable and perhaps
crucial first step on the road to saving the basic industrial
foundation of the United States.
One of the most pressing tasks confronting the United
States, is to revive our industrial base, put it back on its
feet so that it can continue to anchor our economy, provide
the job opportunities we need and give us the materiel on
which we depend for our defense.
The National Small Business Association strongly supported the
legislation in its testimony April 13, 1983. Jerome R. Gulan, vice
president of government affairs for the association, noted that the
Department of Defense is the largest customer in the United States
and depends heavily on small business for a wide variety of prod-
ucts. Gulan said the small business sector represents 98 percent of
all businesses in the United States.
The National Tooling and Machining Association also endorsed
the Defense Industrial Base Revitalization Act. William H. Mon-
teith, founder and owner of Akromold, Inc., of Cuyahoga Falls,
Ohio, said approximately 20 percent of the Association's members
do business either directly with the Department of Defense or as
subcontractors to prime defense contractors.
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"There is no major weapon system that can be produced
without the work of our industry," Monteith said, adding
that the industry is characterized by high capitalization
requirements for expensive machine tools and accessories.
Monteith said, "The assistance it can provide for moderniz-
ing and upgrading our plants and equipment and the as-
sistance it will provide in training the skilled work force
so essential to our industry and the nation are both vitally
needed."
A Fortune 500 company, Gould Inc., which develops and manu-
factures high technology electronic equipment, vividly described
how a large company depends on subcontractors and suppliers. Dr.
analysis for Gould,
Stephen Miller, director of government
the Subcommittee on Economic Stabilization:
It has recently become fashionable to predict that eco-
nomic salvation for the United States can be found exclu-
sively through high-technology and service-oriented indus-
tries. These predictions cause me grave concern. I question
whether those who would have us become a nation produc-
ing only computers, satellites, gene engineered chemicals,
and advanced aircraft understand that those products are
manufactured from such exotic components as nuts, bolts,
rivets, glass beakers, rubber tires and a very large variety
of forged, casted, and stamped metal products.
Miller also said,
The Armed Forces have recently instituted an Industrial
Modernization Improvement Program, which provides in-
centives for large defense contractors to modernize their
facilities and share the savings with the Government.
However, that program does nreach
whose down to the level of
general purpose parts suppliers of commercial and military companies. These small and
medium-sized companies are caught in a "catch 22" situa-
tion. The recession, and price competition from abroad,
have forced them into a position of severely restricted rev-
enues. However, in order to adequately compete with the
foreign competition, productivity must be dramatically in-
creased.
Those productivity increases require large investments
in automation-oriented capital equipment. The "catch 22"
is that the capital equipment required, in order to help re-
capture lost market share, must be financed through com-
mercial o lenders. supply Even when the commercial lenders can be
upplyneeded funds to these financially
found d to strapped
companies, their interest charges are well above those for
prime borrowers. This legislation will go far to alleviate
this problem by sharing the risk, of loaning funds to these
small companies, between the commercial lender and the
Government.
Modernization of these facilities will not only strengthen
the nation's essential tdefense hroughout the industrial base, U.S. t ecwill also
onomy
have a ripple effect
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leading to more jobs, higher industrial productivity, and
reduced inflation.
Assistant Commerce Secretary Lawrence J. Brady was asked to
testify on April 20, 1983, before the Subcommittee on Economic
Stabilization in his capacity as chairman of the administration's In-
dustrial Mobilization Working Group of the Emergency Mobiliza-
tion Preparedness Board. Although not testifying specifically on
the legislation-indeed, he stated that the administration opposed
the legislation-Brady did comment on the readiness of industries
to respond to defense needs in an emergency:
We're finding that readiness to be greatly impaired by a
number of serious constraints. Of most critical importance
to our defense preparedness and our economic welfare is a
serious decline in fixed capital formation and capacity uti-
lization. As the use of existing capacity slacks off, our in-
dustries fail to generate the funds needed to pursue tech-
nological innovation and to generate new fixed capital for-
mation. In addition, unemployment creeps up and the in-
dustries slowly shrink and begin to die.
Brady specifically suggested that Government funds be used for:
First, a small number of loan guarantees for capital for-
mation in the United States;
Necessary stockpiling of defense-related minerals and
raw materials;
Competitively awarded grants for basic research related
to the defense industrial base, and
Finally, purchase guarantees for certain defense items.
Brady said,
Our work has shown that, regardless of the exceedingly
complex reasons which include exchange rates, recession
and foreign government policies, import penetration is a
major factor in the currently weak readiness of our private
sector to respond to defense mobilization needs.
Critical and strategic materials expansion
An equally important objective of title I is to expand the domes-
tic capability and capacity of this nation to produce and process
strategic and critical minerals, metals, and, materials.
An industrial society cannot function, let alone maintain a world
leadership position, without an adequate, uninterrupted supply of
critical materials. Despite the wealth of U.S. domestic minerals re-
sources, the Nation continues to rely on imports to a very signifi-
cant extent. The United States is currently more than 50 percent
dependent on foreign sources for 23 of the 40 critical and strategic
materials used in the defense industry as well as in industry as a
whole.
This foreign dependence prompts serious concerns. One is the po-
litical instability of some of the major suppliers of a number of the
most critical materials. Internal conflicts as well as military con-
flicts with neighboring countries can cause sudden supply disrup-
tions, triggering worldwide inflation, industrial delivery delays,
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and critical shortages. For example, an invasion of the cobalt
mining areas of the Shaba Province in Zaire in 1978 resulted in
curtailment of mineral output period, tha en producer of
price increased
cobalt supply. During this pfrom $5 to $25 per pound.
The United States imports 76 percent of its cobalt from Zaire
Zaire
and Zambia, who together produce over 60 percent cobalt the world's
supply. Cobalt is essential to the defense industrial base for its
many applications, most important of which is its ability to with-
stand high temperatures. There is currently no cobalt production
importance stability to the two Uni
takes r on the political
the African nations therefore,
ular AUnited
States.
By way of further example, two of the most critical materials for
an industrial society-chromium, which is used as an alloy to in-
crease hardness and impact strength in steel as well as increase its
versatility; and the platinum-group metals (including palladium,
rhodium, iridium, ruthenium, and osmium), which are used as cor-
rosion resistant materials and as catalysts in the automotive and
chemical industries and in petroleum refining-are concentrated in
two areas of the world, southern Africa and the Soviet Union.
Most experts would say that import vulnerability exists for the
following strategic materials: bauxite (aluminum), chromium,
cobalt, columbium, manganese, the platinum-group metals, tanta-
lum, and titanium. The question is how long can this Nation afford
to remain vulnerable?
The concern over dependency and vulnerability is not new. In
1939, with the impending threat of war in Europe, the Strategic
Materials Act was passed to determine which materials were stra-
tegic and critical, resulting in a list of 39 materials. The act was
amended in 1946 by the Strategic and Critical Materials Stock
an-
Piling Act. The purpose was to assure preparedness in case where
other emergency by developing domestic sources of supply
possible and by creating stockpiles of materials not in sufficient do-
mestic supply.
The Strategic and Critical Materials Stock Piling Revision Act of
1979 revised and updated the previous legislation and strengthened
the legislative role in stockpile matters. The act provides that
stocks e strategic and critical materials be an times order of emer
cre -
crease dependence upon foreign sources of supply
gency.
There could still be serious shortages, however. As Mr. Charles
E. Melbye, who appeared on behalf of the American Mining Con-
gress, observed at a subcommittee hearing on April 13, 1983,
Since stockpile objectives are to support three years
demand under a full mobilization scenario, our current
cobalt stocks are adequate for only one and a half years at
most, and probably less due to limitations in quality.
Of the 61 family groups and individual materials in the stockpile,
37 fall below the established goal. Eight of the nine materials com-
prising the group of materials representing potential vulnerability
fall short of stockpile goals.
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Expanding domestic production and processing is a step toward
decreasing this Nation's mineral dependence and potential vulner-
ability. The goal of H.R. 2782 is not total self-sufficiency but it is a
greater measure of independence from possible shortages, cutoffs,
cartel-like arrangements, and unreasonable price demands.
H.R. 2782 seeks to encourage domestic production and to stimu-
late new industries. The Defense Production Act has in the past
been effective in doing just that. Through the use of the borrowing
authority during the Korean conflict and the midfifties, title III was
an effective tool for increasing domestic capabilities and thereby
reducing stockpiling requirements and saving millions of dollars
for the taxpayers. Thousands of transactions were carried out, re-
sulting in the establishment of billions of dollars worth of new in-
dustry. Mr. Melbye told the Subcommittee,
I believe that use of Title III of the Defense Production
Act in conjunction with the stockpile could prevent or
ameliorate many of the adverse effects from supply disrup-
tions.
Inclusion of materials processing is also an important facet of the
materials expansion program. At the subcommittee's September 17,
1981, hearing, Simon Strauss, then chairman of the minerals avail-
ability committee of the American Mining Congress, stated:
It is in great trouble and we are sending some of our
processing overseas * * * * * Many plants were old and ap-
proaching obsolescence . The zinc industry is perhaps
the outstanding example where over two-thirds of the do-
mestic zinc smelters have closed down in the last 12 years.
A similar fate has befallen the ferromanganese and fer-
rochrome producers.
Last year the large copper-smelting processing complex
in Montana was in a shutdown. The mines continue to op-
erate, but the material is being shipped to Japan for proc-
essing
By exporting processing, our capability and capacity to meet the
needs of a revitalized industrial base are weakened, and required
industries and greatly needed jobs are exported.
H.R. 2782 provides financial incentives to maintain and reopen
the domestic processing capability of this country and to develop
new processes, alternate product designs and material selection sys-
tems.
This legislation also recognizes that the expansion of domestic ca-
pability and capacity to produce and process materials is not limit-
ed to mining. Not only does this Nation contain a finite supply of
resources, but in some cases, such as columbium and maganese,
there are no domestic reserves, i.e., portions of a resource that can
be economically and legally extracted. What this Nation does pos-
sess is the ingenuity and innovation to develop alternatives.
Dr. Watchman cited a list compiled by Howard Mechlin of Wes-
tinghouse Electric called synterials, materials being developed to
decrease dependence on critical materials through advanced tech-
nologies. The list includes reinforced plastics, amorphous metals,
superconducting alloys, surface modified materials, electrically
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active ceramics, high temperature ceramics, advanced glasses, and ied
solid state materials. Dr. Watchman would materials, advanced mo poly-
alloys, rapidly solidified alloys, composite
mer technology, high performance ceramics, and glass ceramics to
the synterials list.
In addition to materials innovations, there are also activities un-
derway to improve materials performance and to conserve materi-
als through design and processing changes.
Technology is a key in reducing our materials dependence. How-
ever, technically innovative companies are often viewed as high
risk and financing is not readily available. During the Subcommit-
tee hearing on April 13, Mr. Melbye of the American Mining Con-
gress stated,
U.S. government support is essential to make invest-the market
ment
polite private industry al risk are too great feasible. be undertaken solely by
private industry.
H.R. 2782 would provide financial assistance for these innovative
industries to continue their invaluable advancements and contribu-
tions to our national security and to foster new industries as well.
A further emphasis of H.R. 2782 is conservation, not only
through improved design and production process changes, but
through improved recovery techniques and recycling. Recovery of
materials for reuse is essential in light of the fact that mineral re-
sources are exhaustible. An emphasis on recycling can aid in creat-
ing a closed cycle of some materials use, so as to eliminate waste
and conserve materials for future use.
All of the aforementioned conservation alternatives are
and ni-
cally feasible, according to Hope Babcock, Deputy
rector of Public Lands and Public Waters for the National Audu-
bon Society. Some have been proven to be economically viable recycles
well. For example, the Pittsburgh Pacific Processing Co. y
the residue of stainless steel processing. Techniques and materials
that reduce the amount of manganese needed to manufacture con-
struction grade steels are used in construction of pipelines for Alas-
kan resources.
The importance of these alternatives for materials expansion is
evident from an environmental and energy-saving standpoint. The
committee considered the contribution that conservation, substitu-
tion, and recycling can make to this effort and mandated that seri-
ous attention be given to these activities.
It should be clearly understood that the committee, in offering
this legislation, is not promoting the development of any particular
minerals. That decision should be made on a case-by-case qualified to
solely on the merits of each case by those
make such judgments in the executive branch.
The test is the national security of the United States.
TITLE II-DEFENSE RELATED SKILLS TRAINING AND EDUCATION
Title II of H.R. 2782 authorizes $350 million annually for fiscal
years 1984-86 for skills training for critical defense-related occupa-
tions and for financial assistance to enable institutions of higher
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education to upgrade training equipment. The authorization for fi-
nancial assistance in purchasing such educational equipment, how-
ever, may not exceed $100 million annually.
The need for the defense-related skills training program
H.R. 2782 authorizes between $250 million and $350 million an-
nually for fiscal years 1984-86 for a 3-year program of skills train-
ing for defense-related occupations for which the President has de-
termined that there is a present or anticipated shortage of skilled
labor. At least 150,000 to 200,000 skilled workers would be trained.
To the extent feasible, such skills training would be made available
to workers who have been permanently dislocated from their prior
occupations (CBO estimates that there are over a million dislocated
workers at the present time and the latest preliminary data from
the Bureau of Labor Statistics indicates that there are approxi-
mately 1,775,000 U.S. workers who have been unemployed for 27
weeks or more).
The need for such a defense-related skills training program be-
comes more obvious and urgent every day. The committee notes
That there is already a serious shortage of trained workers for
many critical defense-related occupations. U.S. Department of
Labor publications indicate that these include machinists, comput-
er technicians, tool-and-die makers, machine tool operators, mill-
wrights, computer system anaylsts, and many other related occupa-
tions. In testimony before the Subcommittee on Economic Stabiliza-
tion on April 13, 1983, the National Machine and Tooling Associ-
ation reported that a recent survey of its member companies
showed a need for 31,772 journeymen-even under present slump
conditions. They project that when the defense buildup accelerates,
and if the economy recovers generally, these shortages will serious-
ly affect both the defense buildup and economic recovery.
If nothing is done, this situation will not improve in the decade
of the 1980's. In fact there is every indication that many of these
skill shortages will become worse as the 1980's unfold, thus length-
ening defense production lead times and increasing competition for
existing skilled workers. Both of these factors will steadily inflate
the cost of defense preparedness.
Unless action is taken soon, the skill shortages are projected to
become worse for a variety of reasons:
A. Demographic change.-The labor market will grow at a 30-per-
cent to 50-percent slower rate than in the 1970's as the percentage
of new entrants, primarily youths and women, declines.
B. The Defense buildup.-In a March 1983 study Data Resources, Inc. for the Defense Department, iisprepared
estimated
that one out of every five new jobs will be needed for defense-relat-
ed supplies and services. Growth in defense-related industries will
be substantially greater than in the 1970s. In nearly all industries,
over 10 percent of net new jobs will be defense related. In several
industries, such as aerospace and producers of ferrous and nonfer-
rous metals, total new defense-related employment will exceed
total net new jobs.
C. Increased competition for skilled workers.-Defense-related in-
dustries will be in increased competition with the civilian sector for
skilled workers. Every occupational survey outlook recently pub-
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lished underscores the enormity of the shift of
and skills. This
toward occupations requiring higher competencies
is true in both the defense-related and civilian sectors of the econo-
my. A September 1982 paper prepared by Charles Dale of the Per-
sonnel Policy Research Group at the U.S. Army Research Institute,
indicates that competition for skilled workers, computer system an-
alysts being an obvious example, will sharpen intensely, especially
if the economy reaches a stage of full recovery.
D. Failure of education and training efforts to adequately address
this problem.-By way of example, Harvard economist James
Medoff, in a July 1982 paper for the American Society for Training
and Development, states that insufficient employer-sponsored
training has created a worsening imbalance of jobs and workers,
both quantitatively and qualitatively, since 1970. The number of
training hours afforded each worker has not changed since 1969, wors despite the accelerated introduction of new tehimpaces. This
the Na-
ening imbalance has had significant adverse
tion's productivity.
A November 1982 study conducted by Louis Harris and Asso-
ciates on behalf of the Sentry Insurance Co. forecasts serious skill
shortages in the precision metalworking industry but found that, in
the face of the recessionary pressure in 1982, employment of skilled
journeymen and machine operators declined only 4 percent while
apprentices and trainees fell 18 percent.
Past and present Federal job training efforts have not focused on
defense-related industry training need. The primary purpose of
both the past program under the Comprehensive Employment and
Training Act [CETA] and the present program under the Job
Training Partnership Act [JTPA] is the training of economically
disadvantaged persons to enable them to become ecomomically self-
sufficient. Those programs are not geared to filling defense-related ected jobs, nor can they be, since training priorities are locally most of
and geared to the individual's needs. Second, many
the workers with the work history and skill level to quickly profit
from defense-related job training (such as dislocated auto and steel
workers) are not economically disadvantaged: They may have
spouses who work or they may be currently underemployed, etc. It
is true that there is a dislocated worker program under title III of
JTPA. added $85 million, was funded at only $25 million and isenot targeted to
$
defense-related jobs.
The cumulative effect of all these factors will be increasing de-
fense-skill shortages in many critical occupations throughout the
1980s, unless Congress acts to encourage skill training for such oc-
cupations. Nor will the skill shortages be isolated to one portion of
the Nation. In late April the Subcommittee on Economic Stabiliza-
tion received from the Defense Department a report prepared by
Data Resources, Inc., on projected defense manpower needs
through 1987, broken down by State and major labor market areas.
Although the report has not yet been officially endorsed by the De-
fense Department, the picture it presents is clear enough-the
demand for defense-related skilled manpower will outstrip supply of skilled occu Statedozens
from Massachusetts 1 to s Cinavirtuallifornialy and frommajor Alabama to
H. Rept. 98-110 pt.1 O - 83 - 4
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Washington. For example, significant shortages are predicted for
electric and electronic assemblers and aircraft mechanics in Cali-
fornia, assemblers in New York and Connecticut, and similar short-
ages in Pennsylvania, Texas, Ohio, New Jersey, Illinois, Alabama,
and other States. That is, shortages will occur in virtually every
major industrial State and defense production area.
H.R. 2782 is specifically designed to remedy this skills shortage
in defense-related industries by training at least 150,000 to 200,000
workers over the next 3 years. The bill authorizes between $250
million and $350 million annually for fiscal years 1984-86 to train
skilled workers for priority defense-related industries identified by
the President for which there is, or is anticipated to be, a shortage
of skilled workers. The Secretary of Defense, after consultation
with the Secretary of Labor and the National Occupational Infor-
mation Coordinating Committee, is to advise the President with re-
spect to determining such skills shortages. It is not the committee's
intent by this language, however, to prohibit the President from
delegating to the Secretary of Defense the authority to make such
determinations. Nor is it the intent of the committee to prohibit
the Secretary of Defense from delegating authority and transfer-
ring funds for the day-to-day administration of the program to an-
other appropriate agency such as the Department of Labor. The
committee expects such delegations to occur. The committee wants
to emphasize, however, that it shall be the responsibility of the Sec-
retary of Defense to insure that such funds are spent only for
training for the industries and occupations designated by the Secre-
tary of Defense or by the President.
Financial assistance for the program is to be in the form of
grants to States. The Governors of the States will allot these funds,
and will designate how the funds are to be allotted, to boards of
vocational education or other agencies designated by the Governor.
"Service delivery areas" established under the Job Training Part-
nership Act [JTPA] shall be deemed to be agencies for purposes of
these allotments as shall be the State job training coordinating
councils and private industry councils established under that act. It
is not the intent of the committee to establish a new job training
delivery system. It is the committee's intent that Governors have
the flexibility to use existing training systems such as the vocation-
al education system and the system established by JTPA to carry
out this program. Nor does the committee intend to impose a
"single State agency" requirement. Governors, therefore, may allot
funds to several agencies, -if provided for in their State plans.
The committee notes examples presented by the American Voca-
tional Association of delivery systems developed by States, in coop-
eration with industry, to deliver employer-specific training in skill
shortage areas through their vocational and technical programs.
These efforts are carried out in a variety of ways and are of unusu-
ally low cost. The average training cost for each student in employ-
er-specific programs is about $800 since the expenses are usually
shared by the employer. Some State mainstream unemployed work-
ers into open slots in existing secondary and postsecondary voca-
tional programs at an average cost of $1,000 per person. Others es-
tablish second shift programs in the late afternoon or evening at
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an average cost of $2,000 per person; the money is used primarily
to hire another instructor.
In Mississippi, more than 15,000 people have been trained for
shipyard jobs in a unique program conducted jointly by Mississippi
Gulf Coast Junior College and Ingalls Shipbuilding Co. The Cor-
ning Community College of New York provides with training to the
Shepard-Niles Crane and Hoist Corp., the d Kennedy
y
Space Center and the Watervliet Arsenal, to upgra
sons, designers, and machinists. This joint effort is a 1 0 percent/ / 0
percent (corporation/vocational education agency) sp
see, public vocational education has combined with the U.S. Navy
to conduct several high-tech training projects, such as avionics, for
Navy personnel. larly The committ beeye nvothat these lve instances examples are
n which vocational pro-
noteworthy beceu ause thhey
grams have worked closely with the private sector in terms of
people, materials, facilities and services. This is consistent with the
provisions of H.R. 2782 which specify that a State planm st be de-
veloped with representatives of management and appropriate labor
and labor and that
nsae of t mployers involved
butio vol ed in
organizatonsxin
butions b be m made by by
the training.
Under H.R. 2782 a grant may be extended only after the State a involved has submitted a 3-year plan for carrying aout ss sta lle torain
the
ing program. The President may provide
States. Technical assistance includes planning, evaluation, national
training conferences, and assistance in using existing information
systems. Much of this technical assistance could be provided by in-
stitutions such as the National Center for Research in Vocational
Education at Ohio State University.
The President, in determining the extent to which State with ens
shall be funded, shall make use of all app p
cial emphasis on the degree of present or anticipated defense skill
shortages in the State, the number of labor surplus areas in the
State, and the extent to which the State plan will train dislocated
workers.
A State's skills training plan must be developed with
labor organizat onspof resenta-
tives of management and approprito
ity industries and with the States public and private educational
institutions. The participation in the development of the plan by
di-
the nprivate g cunc industry 1 sheds under and/or the State
shall be deem d suff%ent
netig
to meet this requirement. ortunities for par-
The State plan must include meaningful opp
ticipation by minorities and women; vocational, institutional and
on-the job skills training in the necessary skills of workers in in-
dustries which are depressed, workers in areas with surplus labor,
p workers whose skills might
ermanetl become obsote.
d s oca ed worke spt hasis
the ext nt
pla laced on trafiinining p
feasible. The committee expects that the vast majority of the funds
wol used ro tin retrain unemployed or
the ski is of workers alre dy em-
worker ers rather thraan to u pg
ployed in defense-related industries.
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Certified apprenticeship training is also authorized. The commit-
tee does not intend this to mean that other skills training activi-
ties, not specifically authorized, are prohibited. For example, the
assessment of a worker's present skills and counseling on the
proper training program is also an allowable activity.
Public and private training providers shall be selected through a
competitive process. The committee expects that a substantial pro-
portion of the funds allotted by a Governor to a State agency or
agencies will be used to financially assist training projects, selected
on a competitive basis, operated by private (for-profit and nonprof-
it) and public education and skills training institutions. Competi-
tive factors should include demonstrated effectiveness in prior
training efforts, fiscal accountability, cost effectiveness, the degree
to which trainees are guaranteed placement in defense-related jobs
upon completion of the training, and the degree of cash or "in
kind" matching offered by industry and labor organization training
providers.
The development of the State plan must be coordinated with the
State job training coordinating council under the Job Training
Partnership Act. The committee does not intend by this to preclude
a Governor from using such a council to actually develop the State
plan. In such cases the council should submit the plan to other ap-
propriate State agencies and to the public for a 30-day comment
period.
Duplication of other Federal, State, or local programs, unless
necessary to achieve the objectives of the skills training program,
is prohibited. The committee also intends that training funded
under this program shall be over and above that normally funded
by non-Federal funds so that Federal funds are not merely substi-
tuted for such non-Federal funding.
The administration of the skills training program must be coordi-
nated with, or at the Governor's option may be administered by,
programs under the Job Training Partnership Act. Also required is
coordination with other employment and training programs.
The State plan must certify that certain labor training standards
and protections are met. Conditions of training must be a
ate and reasonable; health and safety standards establishedpunder
Federal or State law and applicable to employees must also apply
to working conditions of trainees; and workers' compensation bene-
fits shall be available to trainees where an applicable State law
exists, or, if no such applicable law exists, program operators must
secure insurance to cover injuries suffered by trainees. Protection
against currently employed or laid-off worker displacement and im-
pairment of employment contracts must be provided. The plan
must also certify that funds for the skills training program will not
be used either to aid or deter union organizing.
The State must provide matching funds equal to 10 percent. A
portion, that is, less than 50 percent, of that match may be in kind.
Industries and labor are to make cash or inkind contributions to
particular training activities operated by them except that the
President may exempt industry and labor in depressed communi-
ties.
The President must approve or disapprove a State plan, based on
recommendations of the Secretaries of Defense, Labor, and Educa-
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tion, within 90 days of receipt of the plan. The committee expects,
however, that this process will normally take much less than 90
days.
Discrimination by race, color, religion, sex, national origin, age,
handicap, or political affiliation or belief is prohibited.
A State may spend no more than 10 percent for administering
the program. The committee expects the State agency or agencies
which administer the program to allow an equitable portion of ad-
ministrative funding to training providers.
Need for the educational equipment assistance program
A further objective of H.R. 2782 is to help universities, colleges,
and institutions of higher education by authorizing up to $100 mil-
lion annually for fiscal years 1984, 1985, and 1986 for updating
equipment used in the training of scientific, technical, and profes-
sional personnel who are needed in priority defense-related indus-
tries and in the materials expansion program.
With the advances in science and high technology and t the grow-
ing international competition in these areas, the demand for qualified scientific and technically trained workers is
growing.
The Department of Defense projects a demand for more than 1.25
million engineers by 1987, and the Bureau openings of Labor Statistics fore-
sees e-
sees an annual average of 93,000 through 1990. During this same timer e, the Bat 77, w u d ap-
engineers
proximate an average annual supply
an annual shortfall of 16,000.
The educational institutions of this nation face a formidable
challenge in educating and prepareing students for the rapidly
changing society in which we live. But several problems plague our
institutions of higher education. One is the retention of qualified
competition
faculty. In the high-technology and science fields, the rce.
from industry for knowledgeable, experienced personnel is "brain
With the offer of higher salaries and better equipment, the drain" is increasing. Baccaluarate students are choosing to pursue
careers more often than advanced degrees, limiting the number of
persons holding masters and Ph. D. degrees. exists in both
Equipment is another problem. A growing gap
quality and quantity between instructional equipment and indus-
trial equipment.
In testimony before the subcommittee on April 14, 1983, Robert
D. Kersten, representing the National Society of Professional Engi-
neers, The American Association of State Colleges and Universi-
ties, and the University of Central Florida, stated:
The recapitalization of the engineering a for higher
la ora-
catory system is essential and itde aof refurbishing the steel
tion of the relative magn but it must
industry or retooling the auto industry
be done.
Review of the data reveals that the average laboratory
equipment inventory per school declined from $5,809,000
to $856,000 during the period 1971-81. Based on 250
schools with one or more accredited programs, this leads to
the conclusion that the cost of modernizing engineering
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laboratories (at the 1971 level of enrollment) will cost
$1,238,250,000. If one considers the difference in enroll-
ments (FTE) between 1981 and 1971 this figure increases
to $2,195,417,000.
Considering the life span of 10 years used in this study,
expenditures per school for laboratory equipment should
have been at the level of $589,900 annually. Actual ex-
penditures during the decade averaged $152,600 per school
per year.
While this shortfall appears on the surface to be a stag-
gering sum an expenditure for laboratory equipment of
about $400/FTE student annually or of $2,000/BS Degree
awarded could have prevented this decline in laboratory
quality. The investment required to bring engineering in-
structional laboratories up to date with state-of-the-art
equipment should become a prime national priority.
To educate people properly for the jobs of tomorrow and to
remain globally competitive in science and technology requires the
most modern equipment and instrumentation in our institutions of
higher education.
According to Dean John C. Hancock of the School of Engineering
at Purdue University, equipment is usually the last priority for
funding because salaries for faculty need to be increased in an at-
tempt to keep pace with industry. The average life of laboratory
equipment used 7 days a week, 12 hours per day, is 4 years, and
this figure does not account for obsolescence.
By updating equipment, not only would our institutions be pro-
viding quality education and training to students, but the improved
facilities and working conditions would provide an incentive for
faculty to remain in academia and encourage students to pursue
higher degrees in a quality environment.
Colleges, universities, and other insitiutions of higher education
would be required to submit an application for a grant for the cost
of the purchase and installation of equipment. In some cases, the
applicant could be required to provide a matching share of up to 50
percent of the cost of the purchase and installation of the equip-
ment. However, the committee intends that those colleges, univer-
sities, and institutions of higher education unable to provide part
of the cost of acquiring equipment be given consideration equal to
those applicants capable of providing all or a portion of a matching
amount, taking into consideration the objective of the legislation.
In designing an agency to carry out the objectives of this pro-
gram, the committee notes that the National Science Foundation
has experience in administering similar programs, and the experi-
ence and expertise available in that agency may be a valuable tool
in implementing this program. However, this program in no way is
intended to replace existing equipment and instrumentation pro-
grams. This is a new effort, a necessary link in the broader initia-
tive of revitalizing the industrial base.
Further, the committee intends that any equipment purchased
with funds provided under this program be accessible to all stu-
dents and faculty studying, teaching, or doing research at the insti-
tution, according to the institution's regulations or practices. How-
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ever, the college, university, or institution of higher education may
set priorities for the use of equipment was rchased conjunction with the
training for which the equipment
III AND OTHER PROVISIONS
The legislation also updates some standard provisions of the De-
fense Production Act of 1950.
The declaration of policy has been rewritten to incorporate the
e
thrust of major amendments contained inH.R. 2 82 totmoder ize
the defense industrial base. The key p
States should be at a level of industrial preparedness so we can
deal with emergencies as they arise and not always a clarhe fact,
or in a catchup sense. No existing language
policy was deleted.
Statements relating to diversion of certain rted purposes ndalan-
ties from civilian use to military
and hical dispersal of
guage relating to the encouragement of geograp
industrial facilities have been in the act for 30 yearionsd repe sn~
nothing new in congressional policy. provis
play principally in times of emergency or war.
H.R. 2782 also seeks to reverse the current emphasis
present law
loan guarantees Thus, the present
favoring direct loans over loan guarantees.
be
must
million "trigger" mark when proposed
sent to Congress was raised to $50 million, reflecting also the need
to take cognizance of the effect of inflation on the economy. The
direct loan "trigger" mark remains unchanged remain $48 million. review period when such proposals must rroviin before Congress
ex-
was shortened from 60 days to 30 days. A p
pedited action through a concurrent resolution also was incorporat-
ed. These changes reflect concerns that congressional action must
ju permitted d The cos of delay can be serious i n their effect one the de-
stifie
fense industrial base and uneconomical as well. Representa-
tive 2782 also contains an amendment authored by
tive Bruce F. Vento of Minnesota which requires the Department
of the Treasury to develop a data base on offsets iinrmilitary
sales. Offsets are nonmonetary, compensatory arrangements often
inclurnd in transactions
Offsets transatons may between
include, but are not limited to, the trans
g overn
fer of production or technology as a consideration for the purchase of
a particular item or service.
The Subcommittee on Economic Stabilization held a that hearing do o
offsets and foreign sourcing. Testimony i~as mands are increasing, and witnesses raised concerns that offsets
may be adversely affecting our defense industrial base by forcing
U.S, prime contractors to give preferential treatment to foreign
subcontractors and suppliers as a condition for making sales. Clear-
ly, offsets do apper antithetical to the objective of the Defense Pro-
duction Act which is the enhancement of the U.S. defense industri-
al base.
Neither the Department of Defense nor the Department of te
Treasury has been able to provide Nor ou d witeitherh Depart pen-
sive data on the size or scope of offset use.
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ment provide information regarding how much of our defense pro-
duction is conducted in foreign countries. The committee, in an
effort to determine if offsets are harming American defense sub
contractors and suppliers, has directed in H.R. 2782 that defense
contractors making sales which involve offset packages in excess of
$5 million file an annual report with the Secretary of the Treasury.
To protect business confidentiality, the committee stipulated that
defense contractors should disclose in their annual reports the total
of all offsets, classified by the category of defense article or defense
service involved, that they have entered into in the three past cal-
endar years. The contractors annual reports shall be filed each
June 1 beginning in 1984 and ending in 1988.
The Secretary of the Treasury is also directed to file an annual
report with the Banking Committees of the House and Senate each
October 1, beginning in 1984. This report shall show the offset
totals, classified by category of defense articles or defense services
and recipient country, entered into by all U.S. contractors during
the three previous calendar years. Such report shall in effect com-
prise a summation of all annual reports filed by defense contrac-
tors.
Although four different uncoordinated executive branch studies
on offsets are nearing completion, the only data that exists on the
subject is a Treasury survey mandated by the committee. This
study showed approximately 60 percent of our overseas sales of de-
fense equipment to be offset. Out of $15.2 billion in sales, offsets
amounted to $9.55 billion. The Treasury data, however, are incom-
plete in that some firms did not take part in! the study. The data
that was procured showed that the offset phenomenon is a major
and growing problem. Beyond the sheer dollar problem, the preva-
lence of offsets raises disturbing questions on the loss of U.S. high-
technology leadership and of compromise of technology security as
well as the committee's core concern-that of the erosion of the
U.S. defense industrial base. Even more disturbing was the finding
in the Treasury report that the Department of Defense often en-
couraged foreign governments in their offset demands. The commit-
tee will attempt to monitor closely future Department of Defense
activities in the offset area.
In light of the apparent lack of coherent executive branch policy
on the issue, it is incumbent on the committee to exercise vigorous
oversight. In order for this responsibility to be discharged effective-
ly, an adequate, complete, and timely data base is essential.
Much of the Department of Defense activity in the offsets area
originates in the negotiation and signing of Memoranda of Under-
trade trade treaties negotiated between the U.S.
Department of Defense and foreign governments. these have the
effect of opening the U.S. defense market to foreign companies
with consequent adverse effects on our domestic industrial base.
Some of the details of these memorandums of understanding do not
surface until foreign companies actually replace U.S. companies as
part of our defense supplier network. By opening the U.S. defense
market to foreign suppliers in this manner, these agreements often
provide an impetus to foreign demands for offsets in their defense
purchases. In order to aid the committee in its oversight of the
problem of the overseas migration of our defense industrial base,
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the bill contains language directing the Secretary of Defense to
provide copies of all memorandums of understanding which involve
present, future, or potential offsets to the committee within 60 days
of their being signed.
The committee has had great difficulty in exercising proper over-
sight over the priorities and allocations authorities granted in sub-
sections (a) and (b) of section 101 of the Defense Production Act. In
the view of some Members, this difficulty arises because of the lack
of specific statutory language mandating congressional review of
such activities. Further, the committee has discovered that execu-
tive branch conduct of these activities has fallen into some disar-
ray.
The committee did obtain the master urgency list which, with
the industrial preparedness planning list, provides a major vehicle
for the exercise of section 101 (a) and (b) authorities. This classified
document showed the need for congressional oversight over the op-
eration of the priorities system. All weapons systems of a particu-
lar kind were given the same priority-so that none, in effect has a
priority. The responsible officials had not considered the problem
that will occur at a large defense plant where four systems are ac-
corded priorities and a fifth, just coming into production, is not,
even though it has been repeatedly described as being its service's
most important program. Further, although the committee was
told that old systems were taken off the list when a successor ap-
peared, documents provided to the committee showed this deletion
had not in fact occurred in all cases and some old systems appar-
ently remain as an item of highest priority.
The committee believes that the proper exercise of section 101 (a)
and (b) priorities is essential, if the United States is to succeed in
meeting current and future demands on defense production. At
present these authorities are not being used properly.
Accordingly, the committee has added a new subsection to sec-
tion 101 which requires that all changes in the Department of De-
fense urgency determinations for critical defense production items
(primarily the master urgency list and the industrial preparedness
planning list) be submitted to Congress for a period of 60 days
before becoming effective. During this 60-day b period, House. the h Hges
will be subject to a resolution of disapproval by ehe
ever, the subsection allows for a temporary change to be effective
immediately if the President determines that immediate action is
necessary in the interest of national security. Such changes become
permanent unless either House passes a resolution of disapproval
during that 60-day period.
In order that the committee may be properly assisted in its over-
sight of the exercise of the priorities and allocations authorities,
the Director of the Federal Emergency Management Agency is re-
quested to submit to Congress in February of each year a report on
the management and effectiveness of section 101 authority initia-
tives.
The Committee has a major concern for the adequacy of our de-
fense industrial base and H.R. 2782 is an attempt to correct the
erosion of that base which started in the early 1970s. In this con-
text extremely
stances where the production disturbing components of committee of defense
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production accorded the highest priority under Section 101 (a) and
(b) were awarded to overseas suppliers with a consequent loss of
U.S. capability to produce these particular subsystems. While the
committee supports efforts to integrate the defense efforts (includ-
ing defense industrial efforts) of the Western Alliance, it believes
that it is prudent to insure that priority and surge capabilities be
available for all components of those systems accorded section 101
priorities and allocations. This priority in contracts and orders and
the guaranteed surge capability will only be available if there is a
domestic production capability for each component.
Thus, the committee has amended the existing Defense Produc-
tion Act to provide that the authorities of section 101(a) and section
101(b) may not be used for foreign manufactured items of defense
production or their components unless the following exemptions
are met: (a) the value is less than $1 million; or (b) the Secretary of
Defense determines that this will not result in the United States
becoming primarily dependent upon the foreign source; or (c) the
President certifies that the foreign purchase is essential to the na-
tional defense. This restriction would not apply while there is a
war or national emergency, or if the restriction would violate a
treaty ratified by the Senate.
Another major amendment to the existing Defense Production
Act is proposed to help deal with skill shortages now and in those
future years following the end of the current skill training pro-
gram provided in H.R. 2782. The new section 101 language provides
that those manufacturers receiving defense contracts in excess of
$5 million conduct or sponsor the training of personnel if the con-
tract requires the hiring of persons with critical skills in short
supply. Thus, the job skill training program of title I would be sup-
plemented and complemented by ongoing programs sponsored by
private industry and tailored to specific needs of specific contracts.
H.R. 2782 also calls for periodic studies to be made by the Office
of Technology Assessment of public facilities or infrastructure es-
sential to the defense industrial base.
H.R. 2782 also contains a "Buy American" provision. All equip-
ment and plant financed through Federal assistance for the entire
modernization, training, and materials expansion effort under this
bill must be of U.S. origin to the maximum extent practicable. Ex-
ceptions could be made only with the written approval of the Secre-
tary of Commerce determining that any item is not available and
not practicable to obtain in the United States, or that the foreign
sourcing of such equipment or plant will not adversely affect the
capability or capacity of the U.S. defense industrial base to provide
national defense materials in a time of emergency or war.
Funding provisions
H.R. 2782 authorizes a 3-year extension of the Defense Produc-
tion Act beginning with fiscal 1984 and mandates programs to mod-
ernize the defense industrial base, train workers in high-priority
skills, increase the domestic production of critical and strategic ma-
terials and provide equipment to train professional, scientific, and
technical personnel.
The 3-year authorization would total $2.85 billion. Of that
amount $1.8 billion ($400 million in fiscal year 1984, $600 million
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in fiscal year 1985, and $800 million in fiscal year 1986) would be
earmarked in credit assistance, price guarantees, and purchase
agreements for industrial modernization and critical and strategic
materials; $350 million annually would be authorized for fiscal
years 1984-86 in cost-sharing grants for skills training, of which
not more than $100 million would be available for grants, with
some cost sharing, for financial assistance to enable institutions of
higher education to upgrade training equipment.
The committee does not intend through the special 3-year pro-
gram in H.R. 2782 to restrict existing title III finanicial incentives
under the Defense Production Act. The President still retains the
authority to utilize the continuing authorization in section 711 as
he sees fit, subject to approval in appropriations acts.
In the use of loan guarantees, price guarantees, and direct loans,
the President may utilize the borrowing authority of the Treasury
to leverage the sum set aside for industrial modernization and
critical and strategic materials. However, the President is limited
in this authority to the extent the estimated ultimate net cost does
not exceed appropriations. The estimates shall be based upon the
past experience of the actual costs of Federal financial incentives
and related expenses under the Defense Production Act. All au-
acts. in such
thorities and amounts are subject to such extent
amounts as are provided in advance in appropriation
CONCLUSION
The committee asks the House of Representatives to approve
H.R. 2782 and thus launch a series of actions by our Government
and the private sector which should have the following beneficial
results:
(1) The modernization and strengthening of the defense in-
dustrial base, which is also the backbone of America's civilian
manufacturing sector;
(2) New employment, training and education in skills vitally
needed for our national secruity and which also have wide ap-
plication in peaceful pursuits;
(3) Lower costs for defense in terms of greater domestic
availability, improved productivity, quality and competition,
shortened procurement leadtimes, and a lessening of labor cost
inflation; and
(4) The needed perception by industry and the financial com-
munity of a real market which is so necessary to spur invest-
ment in new plant, equipment, and jobs.
Over the past three decades, theDefense l Production Act has
defense
been used to create or promote programs
ing
and economic growth. The results speak fonew r themselves: y n synth
U.S. aluminum production; starting pipeline; launch-
ing industry; helping complete the Alaskan oil ping the naval nuclear reactor program which led to the nuclear
power industry; initiating U.S. nickel mining; creating the titani-
um industry; and quadrupling U.S. tungsten production.
All of this work has generated nearly $9 billion in economic ac-
tivity through more than 1,000 industrial projects. The actual net
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outlay has totaled approximately $900 million, even before taking
into account various offsetting tax revenues.
The committee believes this experience can be repeated.
It is also the committee's view that successful modernization of
the type to be assisted by this bill can be translated into major sav-
ings in the defense budget.
The committee strongly believes that the United States cannot
achieve projected defense production goals economically or effi-
ciently without the type of industrial modernization envisioned
within H.R. 2782.
STATEMENTS MADE IN ACCORDANCE WITH HOUSE RULES
In accordance with clauses 2(l)(2)(B), 2(1)(3) and 2(1)(4) of rule XI
of the Rules of the House of Representatives, the following state-
ments are made.
COMMITTEE VOTE (RULE XI, CLAUSE 2 (1) (2) (B) )
The bill, H.R. 2782, was ordered reported favorably by a voice
vote.
OVERSIGHT FINDINGS AND RECOMMENDATIONS (RULE XI, CLAUSES
2 (1) (3) (A), AND RULE X, CLAUSE (z) (1) )
The extensive hearings conducted by the Subcommittee on Eco-
nomic Stabilization and the committee's findings and recommenda-
tions resulting from those hearings are contained, and described in
detail, in the "History of the Legislation" and the "Need For and
Purpose Of The Legislation" portions of this report. The committee
finds that this legislation is needed to continue the authorities of
the Defense Production Act and shore up the Nation's defense in-
dustrial base, and recommends that the House pass H.R. 2782 as
ordered reported from the committee.
The committee has received no findings or recommendations
from the Committee on Government Operations.
COST ESTIMATE OF THE CONGRESSIONAL BUDGET OFFICE PURSUANT
TO SECTION 403 OF THE CONGRESSIONAL BUDGET ACT OF 1974
(RULE XI, CLAUSE 2(1)(3)(C))
The Congressional Budget Office has submitted the following
report:
U.S. CONGRESS,
CONGRESSIONAL BUDGET OFFICE,
Hon. FERNAND J. ST GERMAIN, Washington, D.C., May 5, 1983.
Chairman, Committee on Banking, Finance and Urban Affairs,
House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: Pursuant to Section 403 of the Congres-
sional Budget Act, the Congressional Budget Office has prepared
the attached cost estimate for H.R. 2782, the Defense Industrial
Base Revitalization Act as ordered reported by the Committee on
Banking, Finance and Urban Affairs on May 4, 1983.
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Should the Committee eSo desire, we would be pleased to provide
further detas on this estimate.
Sincerely, ALICE M. RIVLIN, Director.
CONGRESSIONAL BUDGET OFFICE-COST ESTIMATE
1. Bill number: H.R. 2782.
2. Bill title: Defense Industrial Base Revitalization Committee on
3. Bill status: As ordered reported by the 4, 1983.
Banking, Finance and Urban Affairs on May
III and VII (in part) of
Titles 4. Bill purpose: The bill amends adding new sections 303A
the Defense Production Act of 1950 adate to September
through 303E and by changing the expiration
30, 1986. The amended act authorizes the following:
Financial assistance in the form of direct loans, loan guaran-
tees, purchase agreements or price guarantees to small and
nsernization
medium-sized businesses to be used for the mode
the eof
domestic industries necessary for national
pansion of domestic capability and capacity to produce or proc-
ess strategic minerals, metals and materials;
Establishment of a three-year national program in coopera-
tion with the States to train workers necessary for the indus-
tries important to national defense; learn Provision of grant assistance to institutions of f r tra ring
ing for obtaining and installing modern equipment personnel needed in the priority industries and in the strategic
materials expansion program;
Limitations on certain DOD contract awards of overc$5 mil-
lion requiring worker training to be provided
tor;
Industrial defense mobilization activities of the Department
of Commerce;
Certain emergency preparedness functions funded in the
Federal Emergency Management Agency;
of inventory of materials
The administration and disposal
procured under Section 303 of the Defense Production Act.
Administration
This is funded within the Resources s Service account.
under the Federal Property 5. Estimated cost to the Federal Government: If activity thu real
exten-
the Defense Production Act were to be simply extended at level of fiscal year activity, authorizations
sion sion would be be approximately $4 million in estimated
and outlays over the three-year span.
However, the addition of Sections 303A through 303E under the
Defense Industrial Base Revitalization Act would expand the u-
thorization levels by $2.85 billion and estimated outlays by approxi-
authority
mately on billion
how the President chooses alt through
will wdepend given to him in the bill.
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[By fiscal year, in millions of dollars]
E
t
1984
1985
1986
]987
1988
x
enson of termination date to September 30, 1986:
Budget function 370:
Estimated authorizations ........................................................................
Estimated outlays .....................
]
1
1
0
..............................................................
Budget function 050:
Estimated authorizations
Estimated outlays ........... ........................................................................
................................................
Provisions und
]
(')
'
1
(')
1
(t)
0
0
0
0
0
........................
er new section 303:
B
d
(
)
(1)
(')
0
0
u
get function 050 industrical modernization (subsection 303B):
Purchase/price guarantees:
Authorization level
Estimated ...... .....................................................................
outlays .......
400
600
800
0
.....
............
.
..........................................
State trainin
G
(')
0
....
g
rants (
subsection
303D)
:
Estimated
th
60
140
au
orizations ...............................................................
Estimated outlays
250
250
250
.....................................................
Coll
1
0
0
.....................
ege equipment (subsection 303E):
25
315
250
60
0
Estimated authorizations ...............................................
Estimated outlays ....................................................
100
100
100
0
0
......................
Total:
130
100
20
0
Authorization
Estimated o
s .................................................................................
tl
751
u
................
ays ..............................................
..
961
1,151
0
0
' Amount less than
...........................................
500,000.
176
444
351
140
140
Basis for estimate
Except where indicated, the authorization amounts are those
stated in the bill. It is assumed that the full amount will be appro-
priated before each fiscal year.
The estimate for the cost of extending the existing provisions
under the Defense Production Act is based on the administration's
plans for 1984. These would require a little over $1 million for the
Department of Commerce mobilization activities and approximate-
ly $0.2 million for activities carried out by the Federal Emergency
Management Agency for each fiscal year of the extension. The 5-
year estimate assumes a constant real level of activities with
budget amounts adjusted to include CBO inflation assumptions.
The amendment to title I of the Defense Production Act of 1950
requiring contractors meeting certain specifications to undertake
the training of workers is not expected to have a significant cost.
The estimate assumes that most of the cost of training provided by
contractors will be defrayed by participation in the State training
plans authorized by the act, and that the remainder would be ab-
sorbed by the individual contractor. However, the number of con-
tracts affected by this amendment is difficult to determine and
there could be significant costs in terms of higher procurement
prices to the Department of Defense if contractors are required to
train a large number of workers.
The major cost of this bill is associated with implementation of
titles I and II of the act, directing the President to expand and so-
lidify the national defense industrial base. Three sections, 303B,
303D, and 303E authorize appropriations; outlays are estimated
using several key assumptions.
The estimate of outlays for section 303B is based on the adminis-
tration's 1984 budget proposal. For the first time, this administra-
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tion has requested funds for expanding the use of Defense Produc-
tion Act authority and has set forth a plan guiding the use of that
authority. The administration has requested $200 million in 1984
for Defense Production Act purchases. The estimate assumes that
the administration's program would be expanded to the $400, $600,
and $800 million authorized by the bill. This funding would be used
solely for purchases of strategic parts and materials from domestic
producers. Under the administration's plan, the average purchase
contract is expected to cover a period of ten years, with no estimat-
ed outlays in the first three years and outlays equal to approxi-
mately one-seventh the total amount of the contract in each of the
remaining seven years of the contract. These authorizations are
broad, however, and in the event of a major change in policy or
plan, the budget impact of this section could vary widely.
The estimate of authorization levels for sections 303D and 303E
assumes that the grants to be used for equipment purchases (sec-
tion 303E) would reach the maximum authorized amount of $100
million stated in the bill, and that the training programs would re-
quire remaining authorization amounts.
Outlays of the worker training in cooperation with the States au-
thorized under section 303D have been estimated based on experi-
ences of the Manpower Development and Training Act and the
Comprehensive Employment and Training Act [CETA]. Outlays es-
timated for the first year of the program are assumed to be some-
what lower than outlay patterns of either of the above acts because
of the stipulation under section 303D requiring extensive states'
participation in the program. Outlays estimated for the first year
are 50 percent of total authorizations. This is also consistent with
the CBO's estimates for title I of the Job Training Partnership Act
which required state participation in fiscal year 1983.
Finally, outlays associated with section 303E are estimated as-
suming a slow first-year spendout of authorized funds. This slow
rate is typical of new programs. The spendout rate of funds author-
ized under this section is assumed to level off at a higher constant
rate after the first year.
6. Estimated cost to State and local government: Section 303D of
this bill would provide $250 million f of the costs of establishing 1984-86
to States to fund up to 90 percent
worker training program.
(By fiscal year, in millions Of WINS)
1984 1985 1986 1987 1988
-120/20 -300/50 -240/40 -60/10 0
Estimated State and local outlays ....................................
Because activities funded under this section will be coordinated
with other employment-related programs in each State, there is no
how much of the outlays shown in the
clear basis for
expended by States in the absence of this bill.
above table would be estimating
Basis of estimate
Section 303D of this bill stipulates that in order to receive Feder-
al funds for the job training program, States must provide 10 per-
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40
cent of the cost of the State plan. This estimate assumes that, in
order to receive the Federal grants in fiscal years 1984-86, States
will voluntarily provide 10 percent of the costs of the plan. Howev-
er, it is not known how much, if any, of the Federal funds received
would simply be substituted for State spending on existing training
programs. The bill does not contain either a maintenance of effort
or a nonsupplant clause that would prohibit such substitution. Vo-
cational education representatives from several States with labor
surplus areas, heavy industrialization and large amounts of defense
contracting were contacted. Given the high levels of State spending
already occurring for training and education in skills which are
likely to be among those covered by this bill, there is a high poten-
tial for the substitution of Federal expenditures for the current ex-
penditures by each State. Proper administration of this program
may prevent such substitution. Therefore, the above range shows
the maximum amounts that would be saved by States if all of the
Federal funds replaced State spending, and the maximum addition-
al amounts that would be spent by States if implementation of this
program resulted in new State spending to provide the required
State contribution of 10 percent of program costs.
The range of outlays above also includes an estimate of adminis-
trative expenses. Ten percent of the administrative costs of the pro-
gram are payable from the Federal grant. The additional adminis-
trative expenses are calculated based on averages experienced in
the CETA programs.
7. Estimate comparison: None.
8. Previous CBO estimate: An estimate for S. 855 which also
amends the Defense Production Act of 1950 was prepared by the
CBO on March 23, 1983. However, the amendments proposed under
S. 855 and H.R. 2782 result in significantly different provisions and
associated costs.
9. Estimate prepared by: Barbara M. Hollinshead.
10. Estimate approved by: C. G. Nuckols (for James L. Blum, As-
sistant Director for Budget Analysis).
INFLATION IMPACT STATEMENT (RULE XI, CLAUSE (2)(1)(4))
There should be no inflationary impact of this legislation from
its direct effect on budget outlays and the deficit. Based on the past
experience of financial incentives used under the Defense Produc-
tion Act, benefits in terms of economic activity, employment, and
increased Federal, State, and local tax revenues far exceeded Fed-
eral funds actually spent. That ratio is at least 9 to 1 on the side of
benefits.
If the legislation is implemented according to the full extent of
its congressional mandate, industrial modernization should
strengthen the subcontractor and supplier base, encouraging a
strong competition among domestic firms for defense business and,
indeed, in many civilian markets. Increases in production and
worker productivity should dampen costs.
Improved quality and the reduction in reject parts also should
bring cost savings. Less reliance on foreign imports will reduce the
dollar outflow overseas and improve the Nation's trade balance
and balance of payments, with corresponding favorable effects on
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the exchange rate of the dollar. All credit assistance and grants
under H.R. 2782 will be used and invested in high-priority national
security objectives and will be wealth-creating in economic charac-
ter because of their dual application to the civilian economy as well
as the defense industrial base. Industrial capability and capacity
are both strengthened to meet the needs of the projected defense
buildup and any economic recovery.
The skills training and education programs authorized by the
legislation should lower defense costs by making more skilled work-
ers available, thus decreasing procurement lead times and lowering
labor cost inflation. They should also result in cost savings result-
ing from reduced transfer payments such as unemployment com-
pensation and trade adjustment assistance.
SECTION-BY-SECTION SUMMARY OF H.R. 2782
Section 1 states the title of the bill to be the "Defense Industrial
Base Revitalization Act."
TITLE I-INDUSTRIAL MODERNIZATION AND STRATEGIC AND CRITICAL
MATERIALS
Section 101 amends title III of the Defense Production Act of
1950 by adding sections 303A and 303B.
Section 303A, Findings and Purpose, contains congressional find-
ings and specifies the purpose of new sections 303A and 303B to be
the strengthening of domestic capability and capacity of the na-
tion's defense industrial base by assisting in the process of capital
investment in small- and medium-sized defense industries and en-
couraging the expansion of domestic production, processing and
conservation of critical and strategic materials.
Section 303B-Industrial modernization and strategic and critical
materials
Subsection (a) directs the President to act immediately to provide
financial assistance for the modernization of U.S. industries which
are necessary, or may be necessary in the event of emergency or
war, to the manufacture or supply of national defense materials.
Such assistance shall be in the form of loan guarantees, direct
loans, purchase agreements, or price guarantees. The subsection
limits such assistance to small- and medium-sized businesses as de-
fined by the Department of Commerce, and specifies that, to the
greatest extent possible, assistance shall be given to small indepen-
dently owned and operated businesses. Larger entities may receive
assistance only if the President formally determines that the na-
tional interest requires such an exception to the limitation.
Subsection (b) directs the Secretary of Defense, in consultation
with the Secretary of Commerce, to specify immediately which in-
dustries should be given priority for financial assistance, and to
update the list of priority industries every 6 months. In addition,
the Secretary of Defense is required, in consultation with the Sec-
retary of Commerce, to specify the type and extent of financial as-
sistance for each priority industry, and to indicate which business-
es within the priority industries should be given preference be-
cause their modernization proposals offer the greatest prospects for
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productivity and quality improvement, and for reducing our reli-
ance on foreign imports. Subsection (b) also requires that such pro-
posals include a financial plan which shows how the assistance will
aid the company to become even more economically viable.
Subsection (c) relates to strategic and critical materials expan-
sion, directs the President to provide financial assistance in the
form of loan guarantees, loans, purchase agreements or price guar-
antees, for the expansion of the domestic capability and capacity to
produce or process strategic minerals, metals, and materials. In ad-
dition to existing production and processing techniques, this expan-
sion is to include methods and techniques for conservation and re-
cycling of, and substitution for, strategic minerals, metals, and ma-
terials as well as processes which will lead to a lessening or elimi-
nation of the need for traditional forms of strategic minerals,
metals, and materials. This subsection requires that the Secretaries
of Defense, Commerce, and Interior, and the Director of the Feder-
al Emergency Management Agency, be consulted in carrying out
the strategic minerals, metals, and materials expansion program.
Subsection (d) requires that financial assistance for the defense
industrial base priority industries program of subsection (a) and
the strategic and critical minerals, metals, and materials program
of subsection (c) be provided on the basis of proposals submitted in
response to public solicitations. The first such solicitation must be
issued within 90 days of enactment of the bill.
Subsection (e) establishes the price guarantee financial assistance
mechanism available under subsections (a) and (c) in connection
with purchase agreements. It requires that purchase agreements
must include the Government's right to refuse delivery of the ma-
terials ordered, and if the market price of the materials, as deter-
mined by the Secretary of Commerce, is lower than the contract
price, the Government must pay the price difference.
Subsection (e) also prohibits financial assistance under subsec-
tions (a) and (c) to aid establishments in relocating from one area
to another. Establishments may expand facilities provided that
such expansion will not increase unemployment in the area of
original location and will not result in the closing of any existing
operations. Further, no financial assistance may be extended to
assist persons in taking away contracts from those persons who
customarily perform them.
Subsection (f) authorizes the appropriation of $400 million, $600
million, and $800 million for fiscal years 1984, 1985, and 1986, re-
spectively, with appropriated funds to remain available until ex-
pended, for carrying out the priority industries and strategic min-
erals, metals, and materials expansion programs of section 303B.
This subsection also authorizes contingent liability financial incen-
tives (loans, loan guarantees, and price guarantees) to be leveraged
through use of Treasury borrowing authority, and based on esti-
mated ultimate net costs of contracts to the Government. The esti-
mated ultimate net costs may not exceed amounts appropriated by
Congress. Ultimate net costs are to be estimated on the basis of ex-
perience of actual costs of these forms of financial incentives which
have been utilized under the Defense Production Act. The use of
contingent liability financial incentives and the Treasury borrow-
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ing authority are limited to the extent and amounts provided in ad-
vance in appropriation acts.
TITLE II-DEFENSE-RELATED SKILL TRAINING AND EDUCATION
Section 303C, Findings and Purpose, sets forth congressional
findings on th need for defense-related skills training and the need
for Federal assistance for educational equipment for such training.
It also states that it is the purpose of this section and sections 303D
and 303E to provide assistance for such skill training, with special
emphasis on training dislocated workers, and for such educational
equipment.
Section 303D-Defense-related skills training program
Subsection (a) directs the President to establish and implement a
3-year national program to train workers in skills which are neces-
sary in the priority industries identified in subsection (a) and (b) of
section 303B and in the strategic and critical minerals, metals, and
materials expansion program of subsection (c), and for which skills
there is, or is anticipated to be, a shortage. The Secretary of De-
fense, after consultation with the Secretary of Labor and the Na-
tional Occupational Information Coordinating Committee, is to
advise the President with respect to determining such skills short-
ages.
Subsection (b) provides that financial assistance for the program
is to be in the form of grants to State Governors who will designate
how the funds are to be allotted to boards of vocational education
or other agencies designated by the Governor, such as "service de-
livery areas" established under the Job Training Partnership Act
[JTPA]. A grant may be extended only after the State involved has
submitted a 3-year plan, certified by the Governor of the State and
approved by the President, for carrying out a skills training pro-
gram. Subsection (b) also authorizes the President to provide tech-
nical assistance to the States.
Subsection (c) states that the President, in determining the
extent to which State plans shall be funded, shall make use of all
appropriate factors, with special emphasis to defense skill short-
ages and labor surplus areas in the State and the extent to which
the State plan will serve dislocated workers.
Subsection (d) sets forth requirements for the President's approv-
al of a State's skills training plan: That it be developed with work-
ers and management of priority industries and with the State's
public and private educational institutions; that it include mean-
ingful opportunities for participation by minorities and women;
that it include in addition to vocational, institutional and on-the-
job skills training, upgrading skills of already trained workers, and
retraining in the necessary skills of workers in industries which
are depressed, workers in areas with surplus labor, and workers
whose skills might become obsolete.
Subsection (e) authorizes certified apprenticeship training.
Subsection (f) requires that public and private training providers
be selected through a competitive process.
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Subsection (g) requires coordination in the plan's development
with the State job training coordinating council under the Job
Training Partnership Act.
Subsection (h) prohibits duplication of other Federal, State or
local programs unless necessary to achieve the objectives of the
skills training program.
Subsection (i) requires coordination with, and authorizes the ad-
ministration of the skills training program by, programs under the
Job Training Partnership Act. It also requires coordination with
other employment and training programs.
Subsection (j) requires that the State plan must certify that cer-
tain labor training standards and protections are met. Conditions
of training must be appropriate and reasonable; health and safety
standards established under Federal or State law and applicable to
employees must also apply to working conditions of trainees; and
workers' compensation benefits shall be available to trainees where
an applicable State law exists, or, if no such applicable law exists,
program operators must secure insurance to cover injuries suffered
by trainees. Protection against currently employed or laid-off
worker displacement and impairment of employment contracts
must be provided. The plan must also certify that funds for the
skills training program will not be used either to aid or deter union
organizing.
Subsection (k) requires that States provide matching funds equal
to 10 percent.
Subsection (1) requires industry and labor to make contributions
or to otherwise actively participate, except that the President may
exempt industry and labor in depressed communities.
Subsection (m) allows a portion of the State match to be "in
kind".
Subsection (n) requires that the President take action on a State
plan, based on recommendations of the Secretaries of Defense,
Labor, and Education, within 90 days of receipt of the plan.
Subsection (o) prohibits discrimination by race, color, religion,
sex, national origin, age, handicap, or political affiliation or belief.
Subsection (p) allows a State to spend no more than 10 percent
for administering the program.
Subsection (q) permits the Federal grant assistance to be used for
purchase and installation of equipment for training purposes but
requires that such equipment be purchased through competitive
bids.
Authority contained in section 303(e) of the Defense Production
Act to install Government-owned equipment in private "industrial
facilities" is extended by subsection (r) to vocational schools, other
schools offering technical and vocational training, and other
worker training facilities which are used in the program.
Subsection (s) authorizes to be appropriated to carry out the
skills training program authorized by section 303D and the equip-
ment assistance program authorized by section 303E, $350,000,000
in each of fiscal years 1984 through 1986, of which up to
$100,000,000 is authorized to be appropriated each fiscal year for
equipment assistance.
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Section 303E-Defense-related equipment assistance program
Subsection (a) directs the President to begin immediately to de-
velop and implement a program of grants to institutions of higher
education for obtaining and installing modern equipment for train-
ing professional, scientific, and technical personnel needed in the
priority industries identified under subsections (a) and (b), and in
the strategic and critical minerals, metals, and materials expansion
program of subsection (c) of section 303C.
Subsection (b) provides for an application for financial assistance
process.
Subsection (c) states that grantees may be required to pay part,
up to 50 percent, of the cost of equipment purchase and installa-
tion.
Subsection (d) states that, at the discretion of the President, Sec-
tion 303(e) Defense Production Act authority to install Govern-
ment-owned equipment in private facilities may be extended to in-
clude colleges, universities, and other institutions of higher educa-
tion.
Section 303F-General provisions
Subsection (a) requires that equipment or plant financed under
sections 303A-303E must be of United States origin, to the maxi-
mum extent practicable. The only exceptions to this requirement
are when the Secretary of Commerce determines, in writing, that
foreign sourcing will not adversely affect the capability or capacity
of the U.S. defense industrial base to provide national defense ma-
terials during an emergency or war, or that the U.S.-origin plant or
equipment is unavailable and not practicable to obtain.
Subsection (b) requires the Comptroller General of the United
States to monitor and audit the implementation of sections 303A-
303E and to report to the Congress each year at the beginning of
each session of Congress.
Subsection (c) directs the Office of Technology Assessment to
study the public facilities and infrastructure needs essential to the
defense industrial base and to report to Congress with appropriate
recommendations.
Subsection (d) applies the Davis-Bacon prevailing wage standards
construction, repair, or alternation of projects funded by a loan,
loan guarantee, or grant extended under section 303A-303E.
Subsection (e) Directs the President to report to Congress every 6
months, listing all loans, loan guarantees, and commitments for
loan guarantees issued under sections 303A-303E.
Subsection (f) states that no funds are authorized to carry out
sections 303A-303E unless the funds are attributed to a budget
function or budget allocation other than one affecting or relating to
education or labor, the Departments of Education and Labor, the
House Committee on Education and Labor, the Senate Committee
on Labor and Human Resources, or any subcommittee of the House
and Senate and Senate Appropriations Committee primarily re-
sponsible for education or labor appropriations.
Subsection (g) contains definitions of terms used in sections
303A-303E.
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TITLE 111-AMENDMENTS TO THE DEFENSE PRODUCTION ACT OF 1950
Section 301(a)(1) amends section 2 of the Defense Production Act,
the declaration of policy, to bring the purpose of the act in keeping
with present-day national defense and national security needs. In
particular, the amendment calls upon executive agencies and de-
partments to assess continuously the capability of the defense in-
dustrial base to satisfy both near-term and increased mobilization
production requirements.
Section 301(a)(2) amends section 101 of the Defense Production
Act by adding:
A new subsection (d) to require, as part of any defense pro-
curement contract of over $5 million, a commitment by the
contractor to conduct or sponsor skill training whenever addi-
tional skilled workers will be necessary and there is a shortage
of such workers in the area in which the contract or a subcon-
tract will performed;
A new subsection (e) to prohibit the President, except under
certain conditions, from exercising authorities under section
301 relative to priority performance of contracts and allocation
of materials, unless he first submits to Congress for a 60-day
period any change in approved Department of Defense urgency
determinations for critical defense production programs. The
change goes into effect if neither House of Congress disap-
proves the change. This requirement is waived if the President
makes a determination that immediate action is needed in the
interest of national security and transmits notice of that deter-
mination to Congress. The President's determination would
remain in effect if after 60 days neither House of Congress dis-
approved it; and
A new subsection (f) to prohibit the President, except under
certain conditions, from exercising authorities relating to pri-
ority performance of contracts and allocation of materials to
carry out any defense contract for items or components of such
items obtained from foreign manufactureres. The prohibition
would not apply if the contract is less than $1 million, or the
Secretary of Defense determines the contract will not make
the United States primarily dependent on foreign manufactur-
ers for such items, or the President certifies to the Congress
the contract is essential to the national defense. None of the
requirements would apply if a national emergency or war
exists or if a treaty ratified by the Senate would be violated.
Section 301(b) amends the loan guarantee authorizing section of
the Defense Production Act (section 301) by increasing from $38,
million to $50 million the threshold amount beyond which individ-
ual loan guarantees must be submitted for review by Congress. The
subsection also amends the congressional review procedure for such
loan guarantees by shortening the review period from 60 to 30 days
of continuous session and provides for an expedited approval
through a concurrent resolution of both Houses of Congress.
Section 301(c) amends the direct loan section of the Defense Pro-
duction Act (Section 302) by reducing the congressional review
period for loans over the threshold amount from 60 to 30 days of
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continuous session and provides for an expedited approval for such
loans through a concurrent resolution of both Houses of Congress.
Section 301(d) would extend the termination date of the authori-
ties of the Defense Production Act from September 30, 1983, to Sep-
tember 30, 1986.
Section 301(e) would repeal section 720 of the Defense Production
Act, the National Commission on Supplies and Shortages, the au-
thority for which was terminated in 1977.
Section 301(f) adds a new subsection to section 701 of the Defense
Production Act requiring any contractor entering into an offset
agreement of more than $5 million in connection with the sale of
defense articles or services for use by a foreign nation to report an-
nually to the Secretary of the Treasury the totals for the three pre-
ceding years of all such offsets, classified by material or services.
Reports are due by June 1 of each year beginning with 1984.
"Offset" means any international transaction between a buyer and
seller that provides nonmonetary compensation which may include,
but not be limited to, the transfer of production or technology to
the buyer as a consideration for the purchase of a particular item
or service. This subsection prohibits the Secretary of the Treasury
from disclosing the reported information except to t he Congress,
and requires an annual report from the Secretary by October 1 to
the Congress on the total amount of offsets broken down by catego-
ry of material or services and by recipient country.
The offset reporting requirements of the new subsection termi-
nate 5 years after the date of enactment of the subsection.
The Secretary of Defense shall report to the Congress any memo-
randum of understanding or similar document which involves
actual, planned or potential offsets in defense sales contracts total-
ing more than $5 million within 30 days following their signing.
CHANGES IN EXISTING LAW MADE BY THE BILL, As REPORTED
In compliance with clause 3 of Rule XIII of the Rules of the
House of Representatives, changes in existing law made by the bill,
as reported, are shown as follows (existing law proposed to be omit-
ted is enclosed in black brackets, new matter is printed in italic,
existing law in which no change is proposed is shown in roman):
DEFENSE PRODUCTION ACT OF 1950
s * s s i s i
[DECLARATION OF POLICY
[SEC. 2. In view of the present international situation and in
order to provide for the national defense and national security, our
mobilization effort continues to require some diversion of certain
materials and facilities from civilian use to military and related
purposes. It also requires the development of preparedness pro-
grams and the expansion of productive capacity and supply beyond
the levels needed to meet the civilian demand, in order to reduce
the time ruired for full mobilization in the event of an attack on
the United States or to respond to actions occurring outside of the
United States which could result in the termination or reduction of
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the availability of strategic and critical materials, including
energy, and which would adversely affect the national defense pre-
paredness of the United States. In order to insure the national de-
fense preparedness which is essential to national security, it is also
necessary and appropriate to assure domestic energy supplies for
national defense needs.
[In order to insure productive capacity in the event of such an
attack on the United States, it is the policy of the Congress to en-
courage the geographical dispersal of the industrial facilities of the
United States in the interest of the national defense, and to dis-
courage the concentration of such productive facilities within limit-
ed geographical areas which are vulnerable to attack by an enemy
of the United States. In the construction of any Government-owned
industrial facilities, in the rendition of any Government financial
assistance for the construction, expansion, or improvement of any
industrial facilities, and in the procurement of goods and services,
under this or any other Act, each department and agency of the
Executive Branch shall apply, under the coordination of the Office
of Defense Mobilization, when practicable and consistant with ex-
isting law and the desirability for maintaining a sound economy,
the principle of the geographical dispersal of such facilities in the
interest of national defense. Nothing contained in this paragraph
shall preclude the use of existing industrial facilities.]
DECLARATION OF POLICY
SEC. 2. (a)(1) In view of continuing international problems, the
Nation's demonstrated reliance on imports of materials and compo-
nents, and the need for measures to reduce defense production lead
times and bottlenecks, and in order to provide for the national de-
fense and national security, our defense mobilization preparedness
effort continues to require the development of preparedness pro-
grams, defense industrial base improvement measures, and the ex-
pansion of domestic productive capacity and supply beyond the
levels needed to meet the civilian demand. Also required is some di-
version of certain materials and facilities from civilian use to mili-
tary and related purposes.
(2) These activities are needed in order to improve defense indus-
trial base efficiency and responsiveness, to reduce the time required
for industrial mobilization in the event of an attack on the United
States or to respond to actions occurring outside the United States
which could result in the termination or reduction of the availabil-
ity of strategic and critical materials, including energy, and which
could adversely affect the national defense preparedness of the
United States. In order to insure the national defense preparedness
which is essential to national security, it is also necessary and ap-
propriate to assure the availability of domestic energy supplies for
national defense needs.
(bXl) In order to insure productive capacity in the event of an
attack on the United States, it is the policy of the Congress to en-
courage the geographical dispersal of the industrial facilities of the
United States in the interest of the national defense, and to discour-
age the concentration of such productive facilities within limited ge-
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ographical areas which are vulnerable to attack by an enemy of the
United States.
(2) In the construction of any Government-owned industrial facili-
ty, in the rendition of any Government financial assistance for the
construction, expansion, or improvement of any industrial facility,
and in the production of goods and services, under this or any other
Act, each department and agency of the executive branch shall
apply, under the coordination of the Federal Emergency Manage-
ment Agency, when practicable and consistent with existing law
and the desirability for maintaining a sound economy, the principle
of the geographical dispersal of such facilities in the interest of na-
tional defense. However, nothing in this paragraph shall preclude
the use of existing industrial facilities.
(3) To ensure the adequacy of productive capacity and supply, ex-
ecutive agencies and departments responsible for defense acquisition
shall continuously assess the capability of the defense industrial
base to satisfy near-term requirements as well as increased mobiliza-
tion production requirements. Such assessments shall specifically
evaluate the availability of adequate production sources, including
subcontractors and suppliers, materials, and skilled labor, and pro-
fessional, scientific, and technical personnel.
(4) It is the policy of the Congress that plans and programs to
carry out this declaration of policy shall be undertaken with due
consideration for promoting efficiency and competition.
TITLE I-PRIORITIES AND ALLOCATIONS
SEC. 101. (a) * *
? s s - a s s
(d) The Secretary of Defense may not enter into any contract of
more than $5,000,000 for any item of defense production from any
manufacturer located in the United States unless that manufactur-
er agrees to conduct or sponsor the training of personnel in skills
which the President determines are in short supply pursuant to sec-
tion 303D, if the defense procurement contract will require the con-
tractor or any subcontractor of the contractor to hire additional
workers in any such skilled occupations, and the training of such
workers is critical to the timely completion of work under the con-
tract in the area in which the contract will be performed.
(e)(1) Except as provided in paragraph (2), the President may not
exercise the authority granted under subsection (a) or (b) regarding
any change in approved Department of Defense urgency determina-
tions for critical defense production programs (including any compi-
lation or revision of the master urgency list on defense production)
unless both Houses of the Congress have been notified in writing of
such proposed exercise of authority and 60 days of continuous ses-
sion of the Congress have expired following the date on which such
notice was transmitted to the Congress and neither House of the
Congress has adopted, within such 60-day period, a resolution disap-
proving such exercise of authority.
(2)(A) The provisions of paragraph (1) shall not apply in any case
in which the President determines that immediate action is needed
in the interest of national security and the President transmits a
notice of such determination to both Houses of the Congress. Such
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notice shall be transmitted to both Houses of the Congress on the
date on which the President makes such determination.
(B) Any determination by the President under this paragraph
shall remain in effect if neither House of the Congress adopts a res-
olution disapproving the exercise of the authority involved within
60 days of continuous session of the Congress after the date on
which the notice involved under this paragraph is transmitted to
the Congress. If either House of the Congress adopts such a resolu-
tion of disapproval, the President shall cease to exercise the authori-
ty involved on the date on which such resolution is adopted.
(3) For purposes of this subsection, the continuity of a session of
the Congress is broken only by an adjournment of the Congress sine
die, and the days on which either House is not in session because of
an adjournment of more than 3 days to a day certain are excluded
in the computation of such 60-day period.
(f)(1) The President shall not exercise the authority granted under
subsection (a) or (b) of this section to achieve the performance of any
contract or order for an item of defense production if such item, or
any component of such item, is obtained from any manufacturer lo-
cated outside of the United States, unless-
(A) such contract or order is for less than $1,000,000,-
(B) the Secretary of Defense has determined in writing that
such contract or order will not result in the United States be-
coming primarily dependent upon manufacturers located out-
side of the United States for the supply of such item of defense
production, or any component of such item; or
(C) the President has certified in writing to the Congress that
entering into such contract is essential to the national defense.
(2) The requirements of paragraph (1) shall not apply-
(A) during any period in which there is in effect-
(i) a declaration of national emergency which is issued by
the President; or
(ii) a declaration of war which is adopted by the Con-
gress; or
(B) with respect to contracts or orders which are entered into
under the terms of any treaty which is ratified by the Senate.
(3) For purposes of this subsection, the term "United States"
means the several States, the District of Columbia, the Common-
wealth of Puerto Rico, Guam, the Virgin Islands, the Northern
Mariana Islands, American Samoa, the Trust Territory of the Pacif-
ic Islands, and any other territory or possession of the United
States.
TITLE III-EXPANSION OF PRODUCTIVE CAPACITY AND
SUPPLY
SEC. 301. (a) * * *
*
(e)(1)(A) Except as provided in subparagraph (B), the maximum
obligation of any guaranteeing agency under any loan, discount,
advance, or commitment in connection therewith, entered into
under this section shall not exceed [$38,000,000.] $50,000,000.
(B) Guarantees which exceed the amount specified in subpara-
graph (A) may be entered into under this section only if the Com-
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mittees on Armed Services of the Senate and the House of Repre-
sentatives have been notified in writing of such proposed obligation
and (i) [60] 30 days of continuous session of Congress have expired
following the date on which such notice was transmitted to such
committees and neither House of Congress has adopted, within
such [60-day] 30-day period, a resolution disapproving such obli-
gation or (ii) both Houses of Congress adopt a concurrent resolution
approving such obligation. If the Congress adopts such a concurrent
resolution, the guarantee involved may be made at any time after
the date on which such concurrent resolution is adopted. For pur-
poses of this subparagraph, the continuity of a session of Congress
is broken only by an adjournment of the Congress sine die, and the
days on which either House is not in session because of an adjourn-
ment of more than 3 days to a day certain are excluded in the com-
putation of such [60-day] 30-day period.
4 i 3 * ? # #
SEC. 302. To expedite production and deliveries or services to aid
in carrying out Government contracts for the procurement of mate-
rials or the performance of services for the national defense, the
President may make provisions for loans (including participations,
or guarantees of, loans) to private business enterprises (including
research corporations not organized for profit) for the expansion of
capacity, the development of technological processes, or the produc-
tion of essential materials, including the exploration, development,
and mining of strategic and critical metals and minerals, and man-
ufacture of newsprint. Such loans may be made without regard to
the limitations of existing law and on such terms and conditions as
the President deems necessary, except that (1) financial assistance
may be extended only to the extent that it is not otherwise availa-
ble on reasonable terms and (2) no such loan may be made in an
amount in excess of $48,000,000 unless the Committees on Armed
Services of the Senate and the House of Representatives have been
notified in writing of such proposed loan and (A) [60] 30 days of
continuous session of Congress have expired following the date on
which such notice was transmitted to such Committees and neither
House of Congress has adopted, within such [60-day' 30-day
period, a resolution disapproving such loan or (B) both Houses of
Congress adopt a concurrent resolution approving such loan. If the
Congress adopts such a concurrent resolution, the loan involved may
be made at any time after the date on which such concurrent resolu-
tion is adopted. For purposes of this section, the continuity of a ses-
sion of Congress is broken only by an adjournment of the Congress
sine die, and the days on which either House is not in session be-
cause of an adjournment of more than 3 days to a day certain are
excluded in the computation of such [60-day] 30-day period.
FINDINGS AND PURPOSE
SEC. 303A. (a) The Congress hereby finds, with respect to section
303B, that-
(1) the national defense and economic health of the United
States depend upon the continuous maintenance of a strong and
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modern industrial base and the uninterrupted access to those
critical and strategic materials needed to supply such base;
(2) in recent years, several important industries, representing
a significant portion of our Nation's second and third tier de-
fense industrial base, have either virtually shut down or have
substantially reduced their production capacity;
(3) a major factor in the decline of this part of our national
defense industrial base has been the inability of small- and
medium-sized businesses to obtain access to sufficient capital to
remain competitive in the face of increasing foreign competi-
tion;
(4) as a result, important segments of the United States de-
fense industrial base are now characterized by declining pro-
ductivity, aging facilities and machinery, and a high degree of
import penetration; and
(5) at the same time, the United States has also found itself
increasingly and dangerously dependent upon foreign sources
for critical and strategic materials necessary to our defense ca-
pability.
(b) It is the purpose of section 303B to strengthen the capability
and capacity of the Nation's defense industrial base by assisting in
the process of capital investment in certain small- and medium-
sized businesses vital to our defense preparedness, and by encourag-
ing the expansion of domestic production, processing, and conserva-
tion of strategic and critical materials.
INDUSTRIAL MODERNIZATION AND STRATEGIC AND CRITICAL
MATERIALS
SEC. 303B. (a)(1) The President, utilizing the types of financial as-
sistance specified in sections 301, 302, and 303, and any other au-
thority contained in this Act, shall take immediate action to assist
in the modernization, improvement, and expansion of productive ca-
pacity of industries in the United States which are necessary to the
manufacture or supply of national defense materials which are re-
quired for the national security or are likely to be required in a time
of emergency or war.
(2) Such assistance shall be provided only to small- and medium-
sized businesses, as defined by the Secretary of Commerce, unless the
President determines that the interests of national defense require
an exception to this limitation.
(3) The financial assistance provided under this subsection shall,
to the greatest extent possible, be made available to small indepen-
dently owned and operated businesses.
(b)(1) The Secretary of Defense, in consultation with the Secretary
of Commerce, shall-
(A) determine immediately, and semiannually therafter, those
industries which should be given priority in the awarding of fi-
nancial assistance under subsection (a);
(B) determine the type and extent of financial assistance
which should be made available to each such industry; and
(C) with respect to the industries specified pursuant to subpar-
agraph (A), indicate those proposals, received under subsection
(d), which should be given preference in the awarding of finan-
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cial assistance under subsection (a) based on a determination
that such proposals offer the greatest prospect for improving
productivity and quality, and for providing materials which
will reduce the Nation's reliance on imports.
(2) Each proposal shall include a financial plan which specifies
how the assistance offered under this section shall be used to insure
that the company involved, by receiving such financial assistance,
will become more economically viable in the future.
(c)(1) the President shall extend assistance under sections 301, 302,
and 303, and any other authority contained in this Act, to persons
engaged in the expansion of the domestic capability and capacity to
produce or process critical and strategic metals, minerals, and mate-
rials, including-
(A) the conservation, substitution, and recycling of such
metals, minerals, and materials; and
(B) the development of processes, alternate product designs
and material selection systems, which lessen or obviate the need
for such critical and strategic metals, minerals, and materials.
(2) The President shall exercise the authority granted under this
subsection in consultation with the Secretary of Defense, the Secre-
tary of the Interior, the Secretary of Commerce, and the Director of
the Federal Emergency Management Agency.
(d) The President, in extending assistance under subsections (a)
and (c), shall extend such assistance on the basis of proposals sub-
mitted in response to a series of public solicitations, the first of
which shall be issued by the President within ninety calendar days
following the date of the enactment of this section.
(e)(1) Any contract for financial assistance which is awarded
under subsection (a) or (c) and which utilizes financial assistance
through purchase agreements specified in section 303 shall provide
that the President has the right to refuse delivery of the items speci-
fied in such contract and to pay the person involved an amount
equal to the amount by which the price for such items, as specified
in the contract involved, exceeds the market price, as determined by
the Secretary of Commerce, for such items on the delivery date speci-
fied in such contract.
(2) Financial assistance under subsection (a) or (c) shall not be ex-
tended to assist establishments relocating from one area to another
or to assist persons whose purpose is to divest, or whose economic
success is dependent upon divesting, other persons of contracts there-
tofore customarily performed by them, except that such limitation
shall not be construed to prohibit such financial assistance for the
expansion of an existing business entity through the establishment
of new branch, affiliate, or subsidiary of such business entity if
the President finds that the establishment of such branch, affiliate,
or subsidiary will not result in an increase in unemployment in the
area of original location or in any other area where such entity con-
ducts business operations, unless the President has reason to believe
that such branch, affiliate, or subsidiary is being established with
the intention of closing down the operations of the existing business
entity in the area of its original location or in any other area where
it conducts such operations.
(f)(1)(A) There are authorized to be appropriated to carry out the
provisions of subsections (a), (b), and (c) not to exceed-
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(i) $400,000,000 for fiscal year 1984;
(ii) $600,000,000 for fiscal year 1985; and
(iii) $800,000,000 for fiscal year 1986.
(B) Such sums shall remain available until expended.
(2)(A) In the use of loan guarantees, price guarantees, and direct
loans as Federal financial incentives to accomplish the objectives of
this section, the President may utilize the borrowing authority of
the Treasury to the extent that the estimated ultimate net cost of
such incentives to the Government does not exceed the total of ap-
propriations made by the Congress to carry out the provisions of sub-
sections (a), (b), and (c). Such estimates shall be based upon the past
experience of the actual costs of Federal financial incentives under
this Act and related expenses.
(b) The use of loan guarantees, price guarantees, and direct loans
under this section and the use of the borrowing authority of the
Treasury under this subsection shall be effective for any fiscal year
only to such extent or in such amounts as are provided in advance
in appropriation Acts.
FINDINGS AND PURPOSE
SEC. 303C. (a) The Congress hereby finds, with respect to sections
303D and 303E, that-
(1) there is a serious shortage of trained workers for many
critical defense-related occupations;
(2) in many such occupations, this labor shortage will worsen
as the present defense buildup gets underway;
(3) this labor shortage has the potential of seriously jeopard-
izing the Nation's defense preparedness;
(4) there is currently no federally focused effort to remedy this
threat to our national security by training workers specifically
for critical defense-related jobs;
(5) this labor shortage is occurring at the same time that vast
numbers of skilled and semi-skilled workers have been perma-
nently dislocated from their prior occupations; and
(6) there is currently inadequate assistance being provided to
institutions of higher education to assist them in obtaining and
installing the modern equipment needed to train individuals
for work in such occupations.
(b) It is the purpose of sections 303D and 303E to train individ-
uals, especially dislocated workers, for jobs in critical defense-relat-
ed skills, as determined by the President, and to provide assistance
to institutions of higher education to obtain and install equipment
to train individuals in such skills.
DEFENSE-RELATED SKILLS TRAINING PROGRAM
SEC. 303D. (a)(1) The President shall take immediate action to de-
velop and implement a national program to train workers in skills
which the President determines are necessary in the industries iden-
tified under subsections (a), (b), or (c) of section 303B, and which the
President determines are in short supply or are anticipated to be in
short supply.
(2) The Secretay of Defense, after consultation with the Secretary
of Labor and the National Occupational Information Coordinating
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Committee, shall transmit to the President the recommendations of
the Secretary of Defense regarding the determinations which the
President is required to make under paragraph (1).
(b)(1) Assistance under this section shall be in the form of a grant
to a Governor to be allotted to a State board of vocational education
or other agency or agencies designated in the State plan by the Gov-
ernor of the State involved. Such grants may be extended only if the
State plan for a three-year program of skills training has been sub-
mitted by the Governor to the President and approved by the Presi-
dent.
(2) The President may, to the extent possible-
(A) provide assistance in coordinating the State plans devel-
oped under this section; and
(B) provide technical assistance and support services in the
implementation and conduct of programs of skills training
which are carried out under this section.
(c) The President, in determining the extent to which State plans
shall be funded, shall make use of all appropriate and reasonable
factors, but shall give particular emplasis to-
(1) the present or anticipated short supply in that State of
skilled workers for industries identified by the President under
subsection (a), (b), or (c) of section 303B;
(2) the number of labor surplus areas in such State; and
(3) the extent to which the State plan is designed to train dis-
located workers for skilled occupations in such industries
which are presently in short supply or anticipated to be in short
supply upon the completion of such training.
(d) The President shall not approve for funding any State plan
unless-
(1) the State plan has been developed with representatives of
the management and workers of the industries involved and
with public and private educational institutions of the State;
(2) the State plan includes on-the-job training, vocational,
and other institutional training programs;
(3) the State plan is designed to ensure meaningful opportuni-
ties for participation by minorities and women;
(4) the Governor of the State has certified in writing that the
State plan will be carried out in accordance with the require-
ments of this section; and
(5) such State plan includes-
(A) upgrading skills training; and
(B) retraining of workers in depressed industries, in surplus
labor areas, or with occupational skills which might become ob-
solete because of industrial modernization or technological ad-
vancement, in skills which the President determines under sub-
section (a) are necessary in the industries identified under sub-
section (a), (b), or (c) of section 303B as necessary to the manu-
facture or supply of national defense materials which are re-
quired for the national security or are likely to be required in a
time of emergency or war.
(e) The State plan shall, where appropriate, include certified ap-
prenticeship training pursuant to an apprenticeship plan.
(f) Any bona fide public or private training program engaged in
training workers in skills described in subsection (a) shall be consid-
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56
ered eligible to deliver such training services upon written applica-
tion, pursuant to a competitive process, to the State board of voca-
tional education or other agency or agencies designed by the Gover-
nor of the State involved under subsection (b)(1).
(g) The State job training coordinating council under Public Law
97-300 shall be given the opportunity-
(1) to participate in the development of the plan;
(2) to review the plan for thirty days prior to its submission to
the President; and
(3) to submit written comments along with the submission of
the plan to the President.
(h) The activities funded under this section shall not duplicate
facilities or services available in the area (with or without reim-
bursement) from Federal, State, or local sources, unless the plan pro-
vides evidence that alternative services or facilities would be more
effective or more likely to achieve the objectives specified in subsec-
tion (a) of this section.
(i) The plan shall contain assurances that the activities funded
under this section will be coordinated to the maximum extent feasi-
ble with other employment-related programs in the State, through
joint agreements where practicable, or through joint administration,
with programs funded under the Job Training Partnership Act to
ensure maximum participation of eligible participants under such
Act in training programs funded under this section, and through
consultation and coordination with certified apprenticeship plans,
where such plans are in effect, to ensure that the plan does not du-
plicate or undermine existing certified apprenticeship programs.
(j) The State plan shall include a certification which assures the
following labor training standards and requirements will be met:
(1) conditions of training shall be appropriate and reasonable
in the light of such factors as the type of work, geographical
region, and proficiency of the participant;
(2) health and safety standards established under State or
Federal law, otherwise applicable to working conditions of em-
ployees, shall be equally applicable to working conditions of
participants;
(3) to the extent that a State workers' compensation law is ap-
plicable, workers' compensation benefits in ~ accordance with
such law shall be available with respect to injuries suffered by
participants. To the extent that such law is not applicable, each
recipient or subrecipient of funds under this section shall secure
insurance coverage for injuries suffered by such participants, in
accordance with regulations prescribed by the Secretary of
Labor;
(4) no currently employed worker shall be displaced by any
participant (including partial displancement such as a reduc-
tion in the hours of nonovertime work, wages, or employment
benefits);
(5) no program shall impair existing contracts of employ-
ment,
(6) no person shall be trained for a job-
(A) when any other employee in the same workplace or
plant is on layoff from the same or any substantially equiv-
alent job; or
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(B) when the employer has terminated the employment of
any regular employee or otherwise reduced its workforce
with the intention of filling the vacancy so created by
hiring a participant whose training is assisted under this
section;
(7) recipients of funds available under this section have given
assurances that such funds shall not by used to assist, promote,
or deter union organizing;
(8) no funds available under this section may be used to
assist, promote, or deter union organizing; and
(9) no funds will be used to train workers for low skilled oc-
cupations.
(k) Any grant under this section shall be extended in any year
only after the State involved has provided a contribution, from
public or private resources, to carry out the State plan in an amount
equal to 10 per centum of the cost of the State plan for such year.
(1) Each training program under the State plan shall include con-
tributions and other types of active participation during the course
of training from industrry or labor organizations or both, except
that the President, upon written request from a State, may exempt
training programs in economically depressed communities from the
contribution required under this paragraph.
(m) A portion of a State's contribution may consist of "in kind"
contributions of equipment, facilities, personnel, or services to the
extent that such "in kind" contribution is utilized in carrying out
the State's plan. No such "in kind" contribution may include equip-
ment acquired under section 303E.
(n) The President shall act upon each State plan not later than
ninety days after the date on which such State plan is received.
Such action shall be based upon the recommendations of the Secre-
tary of Defense, the Secretary of Labor, and the Secretary of Educa-
tion.
(o) No person shall be excluded from participation in, denied the
benefits of, subjected to discrimination under, or denied training in
the administration of or in connection with any program under this
section because of race, color, religion, sex, national origin, age,
handicap, or political affiliation or belief
(p) Not more than 10 per centum of the amount of any grant made
under this section may be used by a State for administrative ex-
penses incurred in carrying out a State plan.
(q) Assistance under this section may be used to purchase and in-
stall equipment for training purposes. The purchase of any such
equipment shall be done by means of competitive bidding.
(r) For purposes of installing Government-owned equipment pursu-
ant to section 303(e), the term `industrial facilities, as used in such
section, shall include vocational schools, other schools offering tech-
nical and vocational training programs, and any other location in
which workers are trained pursuant to this section.
(s) There are authorized to be appropriated to carry out the provi-
sions of this section and section 313E not to exceed $350,000,000 for
each fiscal year beginning with fiscal year 1984 and continuing
through fiscal year 1986, except that not more than $100,000,000 is
authorized to be appropriated for each such fiscal year to carry out
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the provisions of section 303E. All such sums shall remain available
until expended.
DEFENSE-RELATED EQUIPMENT ASSISTANCE PROGRAM
SEC. 303E. (aX1) The President shall take immediate action to de-
velop and implement a grant program to assist colleges, universities,
and other institutions of higher education in obtaining and install-
ing modern equipment which shall be used to train professional, sci-
entific, and technical personnel who are needed in the industries
identified under subsection (a), (b), or (c) of section 303B.
(2) All students and faculty studying, teaching, or conducting re-
search at such an institution of higher education shall have access
to such equipment for use in accordance with regulations and prac-
tices of such institution of higher education.
(b) Any college, university, or other institution of higher education
which desires to receive a grant under this section may submit an
application to such Federal department or agency as the President
shall designate. Each such application shall-
(1) certify the cost of purchasing and installing the equipment
involved; and
(2) contain such other information as the President deems
necessary.
(c)(1) Each college, university, or other institution of higher educa-
tion whose application is approved under this section may be re-
quired to provide a matching share of up to 50 per centum of the
cost of purchasing and installing the equipment involved.
(2) The purchase of any such equipment shall be done by means of
competitive bidding.
(d) At the discretion of the President, equipment may be provided
under section 303(e) to colleges, universities, and other institutions
of higher education. For purposes of such section, the term `industri-
al facilities' shall include colleges, universities, and other institu-
tions of higher education.
GENERAL PROVISIONS
SEC. 303F. (a) Any equipment or plant financed through Federal
assistance authorized by sections 303B through 303E shall be of
United States origin to the maximum extent practicable. Exceptions
to this limitation may be made whenever the Secretary of Commerce
determines in writing-
(1) that the foreign sourcing of such equipment or plant will
not adversely affect the capability or capacity of the United
States defense industrial base to provide national defense mate-
rials in a time of emergency or war; or
(2) that such equipment or plant of United State origin is not
available and is not practicable to obtain.
(b) The Comptroller General of the United States shall monitor
the implementation of sections 303B through 303E, conduct such
audits as he determines to be necessary, and submit an annual
report of his findings to the Congress at the beginning of each ses-
sion of the Congress. The first such annual report shall be submit-
ted in the year following the enactment of the Defense Industrial
Base Revitalization Act.
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(c) In order to carry out the provisions of sections 303B through
303E, the Office of Technology Assessment shall, subject to approval
of the Technology Assessment Board and in a manner prescribed by
2 U.S.C. 472(d), undertake a study of the public facilities or infra-
structure essential to the defense industrial base and provide Con-
gress with appropriate recommendations for infrastructure measures
designed to avoid serious impediments to the production and distri-
bution of material.
(d)(l) All laborers and mechanics employed for the contruction,
repair, or alteration of any project funded, in whole or in part, by a
guarantee, loan, or grant entered into pursuant to sections 303B
through 303E shall be paid wages at rates not less that that those
prevailing on projects of similar character in the locality as deter-
mined by the Secretary of Labor in accordance with the Act entitled
"An Act relating to the rate of wages for laborers and mechanics
employed on public buildings of the United States and the District
and com-
of approved cM rch are 19and 31 (40 US.C.c 276a e~ eqfor .), other
monly monly known as the Davis-Bacon Act.
(2) Guaranteeing agencies shall not extend guarantees and the
President shall not make loans or grants for the construction,
repair, or alteration of any project unless a certification is provided
to the agency or the President, as the case may be, prior to the com-
mencement of construction or at the time of filing an application for
a loan, guarantee, or grant, if construction has already commenced,
that these labor standards will be maintained at the project.
(3) With respect to the labor standards specified in this subsec-
tion, the Secretary of Labor shall have the authority and functions
set forth in Reorganization Plan Numbered 14 of 1950 and section
276(c) of title 40, United State Code.
(e) On October 1, 1983, and on the first business day of every sixth
month beginning after such date, the President shall transmit a
report to both Houses of the Congress listing all loans, loan guaran-
tees, and commitments for loan guarantees which were issued under
section 303B during the six calendar months preceding the trans-
mittal date of the report involved.
(f) Notwithstanding any other provision of sections 303B through
303E, no funds are authorized to be appropriated to carry out such
sections, unless all of such funds are attributed to a budget function
or budget allocation other than one affecting or relating to educa-
tion or labor, the Department of Education or the Department of
Labor, the Committee on Education and Labor of the House of Rep-
resentatives or the Committee on Labor and Human Resources of
the Senate, or any subcommittee of the Committee on Appropri-
ations or of either House primarily responsible for appropriations
for education or labor.
(g) For purposes of sections 303A through 303E-
(1) the term apprenticeship plan means a plan approved by
the Secretary of Labor pursuant to the National Apprenticeship
Act (29 U.S.C. 50 et seg.);
(2) the term "State' means any of the several States, the Dis-
trict of Columbia, the Commonwealth of Puerto Rico, Guam,
the Virgin Islands, the Northern Mariana Islands, American
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Samoa, the Trust Territory of the Pacific Islands or any other
territory or possession of the United States; and
(3) the term "United States" means the several States, the
District of Columbia, the Commonwealth of Puerto Rico, Guam,
the Virgin Islands, the Northern Mariana Islands, American
Samoa, the Trust Territory of the Pacific Islands, and any
other territory or possession of the United States.
TITLE VII-GENERAL PROVISIONS
SEC. 701. (a)
* * * * *
(e)(1)(A)(i) Any person signing a contract which involves the sale
of any defense article or defense service for use by a nation other
than the United States and which includes an offset agreement in
excess of $5,000,000 shall file an annual report with the Secretary of
the Treasury. Each such report shall include the total of all offsets,
classified by the category of the defense material or defense services
involved, entered into by such person during the three calendar
years preceding the year in which such report is filed. The first such
annual report shall be filed with the Secretary of the Treasury not
later than June 1, 1984. Subsequent annual reports shall be filed
not later than June 1 of each year.
(ii) Except as provided in subparagraph (B) and notwithstanding
any other provision of law, including section 552 of title 5, United
States Code (commonly known as the Freedom of Information Act),
the Secretary of the Treasury shall not disclose, except to the Con-
gress, any information required to be reported pursuant to this sub-
paragrah.
(B) Not later than the first October 1 occurring more than ninety
days after the date of the enactment of this subsection and not later
than each October 1 occurring after such October 1, the Secretary of
the Treasury shall submit to the Committee on Banking, Housing,
and Urban Affairs of the Senate and to the Committee on Banking,
Finance and Urban Affairs of the House of Representatives a report
on the total number of contracts reported pursuant to subparagraph
(A) and the total amount of offsets required by such contracts. Such
report shall contain a breakdown of offsets by category of defense
material or defense services involved and by recipient country.
(2) For purposes of this subsection-
(A) the term "offset" means any international transaction be-
tween a buyer and seller that provides nonmonetary compensa-
tion which may include, but not be limited to, the transfer of
production or technology to the buyer as a consideration for the
purchase of a particular item or service; and
(B) the term `person" means any individual, sole proprietor-
ship, partnership, or corporation.
(3) This subsection shall cease to be effective five years after the
date of the enactment of this subsection.
(f) The Secretary of Defense shall report to the Committee on
Banking, Housing, and Urban Affairs of the Senate and to the
Committee on Banking, Finance and Urban Affairs of the House of
Representatives any memorandum of understanding or similar
agreement which incolves actual, planned, or potential offsets in
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contracts involving the sale of defense articles or services in excess
of $5,000,000 not later than 30 days after the Secretary of Defense
signs such memorandum of understanding.
SEC. 717. (a) Title I (except section 104), title III, and title VII
(except sections 708, 714, and 719) of this Act, and all authority
conferred thereunder shall teminate at the close of September 30,
[1983] 1986: Provided, That all authority hereby or hereafter ex-
tended under title III of this Act shall be effective for any fiscal
year only to such extent or in such amounts as are provided in ad-
vance in appropriation Acts. Section 714 of this Act, and all author-
ity conferred thereunder, shall terminate at the close of July 31,
1953. Section 104, title II, and title VI of this Act, and all authority
conferred thereunder shall terminate at the close of June 30, 1953.
Title IV and V of this Act, and all authority conferred thereunder,
shall terminate at the close of April 30, 1953.
[NATIONAL COMMISSION ON SUPPLIES AND SHORTAGES
[SEC. 720. (a) SHORT TITLE.-This section may be cited as the
"National Commission on Supplies and Shortages Act of 1974".
[(b) FINDINGS.-(1) The United States is increasingly dependent
on the importation from foreign nations of certain natural re-
sources vital to commerce and the national defense.
[(2) Nations that export such resources can alone or in associ-
ation with other nations arbitrarily raise the prices of such re-
sources to levels which are unreasonable and disruptive of domestic
and foreign economies.
[(3) Shortages of resources and commodities are becoming in-
creasingly frequent in the United States, and such shortages cause
undue inconvenience and expense to consumers and a burden on
interstate commerce and the Nation's economy.
[(4) Existing institutions do not adequately identify and antici-
pate such shortages and do not adequately monitor, study, and ana-
lyze other market adversities involving specific industries and spe-
cific sectors of the economy.
[(5) Data with respect to such shortages and adversities is col-
lected in various agencies of the Government for various purposes,
but is not systematically coordinated and disseminated to the ap-
propriate agencies and to the Congress.
[(c) PURPOSES.-It is the purpose of this Act to establish a na-
tional commission to facilitate more effective and informed re-
sponses to resource and commodity shortages and to report to the
President and the Congress on needed institutional adjustments for
examining and predicting shortages and on the existence or possi-
bility of shortages with respect to essential resources and commod-
ities.
[(d) ESTABLISHMENT OF COMMISSION.-There is established as an
independent instrumentality of the Federal Government a Nation-
al Commission on Supplies and Shortages (hereinafter referred to
as the "Commission"). The Commission shall be comprised of thir-
teen members selected for such period of time as such Commission
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shall continue in existence (except that any individual appointed to
fill a vacancy occurring prior to the expiration of the term for
which his predecessor was appointed shall be appointed for the re-
mainder of such term) as follows:
[(1) The President in consultation with the majority and mi-
nority leaders of the Senate and the majority and minority
leaders of the House of Representatives, shall appoint five
members of the Commission from among persons in private
life;
[(2) The President shall designate four senior officials of the
executive branch to serve without additional compensation,
and may appoint additional nonvoting ex officio members from
agencies having jurisdiction over areas being considered by the
Commission;
[(3) The President of the Senate, after consultation with the
majority and minority leaders of the Senate, shall appoint two
Senators to be members of the Commission and the Speaker of
the House of Representatives, after consultation with the ma-
jority and minority leaders of the House of Representatives,
shall appoint two Representatives to be members of the Com-
mission to serve without additional compensation.
[(e) CHAIRMAN AND VICE CHAIRMAN.-The President, in consul-
tation with the majority and minority leaders of the Senate and
the House of Representatives shall designate a Chairman and Vice
Chairman of the Commission.
[(f) COMPENSATION.-Each member of the Commission appointed
pursuant to subsection (d)(1) of this section shall be entitled to be
compensated at a rate equal to the per diem equivalent of the rate
for an individual occupying a position under level III of the Execu-
tive Schedule under section 5314 of title 5, United States Code,
when engaged in the actual performance of duties as such a
member, and all members of the Commission shall be entitled to
reimbursement for travel, subsistence, and other necessary ex-
penses incurred in the performance of their duties.
[(g) FUNCTIONS OF THE COMMISSION.-It shall be the function of
the Commission to make reports to the President and to the Con-
gress with respect to-
[(1) the existence or possibility of any long- or short-term
shortages; employment, price or business practices; or market
adversities affecting the supply of any natural resources, raw
agriculture commodities, materials, manufactured products (in-
cluding any possible impairment of productive capacity which
may result from shortages in materials, resources, commod-
ities, manufactured products, plant or equipment, or capital in-
vestment, and the causes of such shortages, practices, or adver-
sities);
[(2) the adverse impact or possible adverse impact of such
shortages, practices, or adversities upon consumers, in terms of
price and lack of availability of desired goods;
[(3) the need for, and the assessment of, alternative actions
necessary to increase the availiability of the items referred to
in paragraph (1) of this subsection, to correct the adversity or
practice affecting the availiability of any such items, or other-
wise to mitigate the adverse impact or possible adverse impact
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of shortages, practices, or adversities upon consumers referred
to in paragraph (2) of this subsection;
[(4) existing policies and practices of Government which
may tend to affect the supply of natural resources and other
commodities;
[(5) necessary legislative and administrative actions to de-
velop a comprehensive strategic and economic stockpiling and
inventories policies which facilitates the availability of essen-
tial resources;
[(6) the means by which information with respect to para-
graphs (1), (2), (3), (4) of this subsection can be most effectively
and economically gathered and coordinated.
[(h) REPORTS OF THE COMMISSION.-The Commission shall report
not later than December 31, 1976, to the President and the Con-
gress on specific recommendations with respect to institutional ad-
justments, including the advisability of establishing an independ-
ent agency to provide for a comprehensive data collection and stor-
age system, to aid in examination and analysis of the supplies and
shortages in the economy of the United States and in relation to
the rest of the world. The Commission may, until March 31, 1977,
prepare, publish and transmit to the President and the Congress
such other reports and recommendations as it deems appropriate.
[(i) ADVISORY COMMITTEE.-(1) The Commission is authorized to
establish such advisory committees as may be necessary or appro-
priate to carry out any specific analytical or investigative under-
takings on behalf of the Commission. Any such committee shall be
subject to the relevant provisions of the Federal Advisory Commit-
tee Act.
[(2) The Commission shall establish an advisory committee to de-
velop recommendations as to the establishment of a policymaking
process and structure within the executive and legislative branches
of the Federal Government as a means to integrate the study of
supplies and shortages of resources and commodities into the total
system for coordinating these efforts with appropriate multi-State,
regional and State governmental jurisdictions. For the purpose of
carrying out the provision of this paragraph there is authorized to
be appropriated not to exceed $150,000 to remain available until
March 31, 1977.
[V) STAFF AND POWERS OF THE COMMISSION.-(1) Subject to such
rules and regulations as it may adopt, the Commission, through its
Chairman, shall-
[(A) appoint and fix the compensation of an Executive Di-
rector at the rate provided for level III of the Executive Sched-
ule under section 5314 of title 5, United State Code, and such
additional staff personnel as is deemed necessary, without
regard to the provisions of title 5, United States Code, govern-
ing appointments in the competitive service, and without
regard to chapter 51, and subchapter III of chapter 53 of such
title relating to classification and the General Schedule under
section 5332 of such title; and
[(B) be authorized to procure temporary and intermittent
services to the same extent as is authorized by section 3109 of
title 5, United States Code.
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[(2) The Commission or any subcommittee thereof is authorized
to hold hearings and to sit and act at such times and places, as it
may deem advisable.
[(3) The Commission is authorized to contract with public or pri-
vate agencies, institutions, corporations, and other organization.31
[(k) ASSISTANCE OF GOVERNMENT AGENCIES.-Each department,
agency and instrumentality of the Federal Government, including
the Congress, consistent with the Constitution of the United States,
and independent agencies, is authorized and directed to furnish to
the Commission, upon request made by the Chairman, such data,
reports, and other information as the Commission deems necessary
to carry out its functions under this Act.
[(1) AUTHORIZATION OF APPROPRIATIONS.-There is authorized to
be appropriated to the Commission not to exceed $1,484,000 to
remain available until March 31, 1977, to carry out the provisions
of this Act.]
SUPPLEMENTAL VIEWS OF HON. STEWART B. McKINNEY
AND HON. GEORGE C. WORTLEY ON THE DEFENSE IN-
DUSTRIAL BASE REVITALIZATION ACT, H.R. 2782
This legislation is very similar to a bill, H.R. 5540, which re-
ceived considerable attention in the 97th Congress. That proposal,
also entitled the Defense Industrial Base Revitalization Act, was
cosponsored by more than 70 Members including 25 Republicans.
When the bill reached the House floor, it had the support of such
groups as the American Mining Congress, the American Legion,
the Conference of Mayors, the AFL-CIO, the National Small Busi-
ness Association, the American Association for Engineering Educa-
tion, the Association of Community Colleges, the American Defense
Preparedness Association, the National Machine Tool Builders As-
sociation, the Reserve Officers Association, the UAW and the Na-
tional Society of Professional Engineers. This list does not include
all those organizations who recognized the need then to address the
problems of a weakened defense industrial base, but the diversity
of the support emphasizes the severity of the situation facing our
Nation.
It is unfortunate that the House was not able to complete consid-
eration of last year's legislation because the time lost has only ex-
acerbated the threat to our national security. At a period in our
Nation's history when world peace is jeopardized daily by the ac-
tions of other nations, the United States continues to follow prac-
tices which further reduce our ability to respond to those chal-
lenges.
The opposition to the Defense Industrial Base Revitalization Act
has said that the bill should be defeated because it will drain
money from the private sector. If we do nothing, they argue, eco-
nomic forces will solve the problems of those companies which
supply our defense establishment.
Such an argument may sound good to OMB or some economic
theorists. However, we live and compete in a "real world" situa-
tion. The fact is that we cannot allow our productive capability to
continue to disappear. If some allocation of resources is needed to
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maintain our national security, then we should accept that fact.
History has many examples of ideology falling victim to reality.
Reality in this instance is:
The need to have domestic manufacturers for high priority
defense-related items;
Reduced dependence on foreign sources of strategic and criti-
cal materials for defense industries;
A sufficient number of skilled workers to design, build, oper-
ate and maintain modern machinery and equipment;
Modern laboratory equipment for the education and training
of a professional work force.
Support for H.R. 2782, the Defense Industrial Base Revitalization
Act, is not a partisan issue. It is a matter of logic. For those of us
in the House who feel that the best deterrent to a potential aggres-
sion is the ability to respond and react, it makes more sense to
strengthen our basic defense industrial base than to spend money
on new weapons which we will eventually pay to manufacture
abroad.
The investment we seek to make in our national security
through H.R. 2782 is relatively small when compared to a $1 tril-
lion defense budget for the next 3 to 5 years. However, the rewards
for that investment will be much greater than the potential risk
we face by rejecting this proposal. The witnesses before the Eco-
nomic Stabilization Subcommittee over the past several years have
made quite clear the message: The vulnerability of the U.S. defense
supply lines to interdiction by our potential enemies, whether mili-
tary or economic, is a paramount concern and every effort should
be made to reduce the number of vulnerable points.
The Defense Industrial Base Revitalization Act is an important
step in that direction. It will provide more dependence on domestic
resources to meet our national security requirements; it will pro-
vide a better trained work force to meet the manpower needs of
priority industries; and, it will help us educate better trained engi-
neers, scientists and technical personnel to meet the challenges to
our national security.
If we lived in a perfect world, we might be able to ignore the
threat to our democratic society posed by the deterioration of the
defense industrial base. Unfortunately the lessons we have learned
from the recent shocks to our system, such as the OPEC embargo
and the Iranian hostage situation, have demonstrated clearly that
the United States can no longer afford to passively command re-
spect from the nations of the world. We can still meet military
threat with military threat. But we can no longer meet the eco-
nomic challenges.
That situation can be reversed by passage of the Defense Indus-
trial Base Revitalization Act. A revitalized defense industrial base
and the use of the Defense Production Act authorities are the most
cost-effective way to reduce U.S. dependence on foreign sources.
Since a sound economy is essential to a strong defense policy, the
passage of H.R. 2782 will have a double impact.
STEWART B. MCKINNEY.
GEORGE C. WORTLEY.
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SUPPLEMENTAL VIEWS OF THOMAS J. RIDGE ON H.R. 2782,
THE DEFENSE INDUSTRIAL BASE REVITALIZATION ACT
I am unable to join either the majority of the committee in sup-
porting this bill or the minority in opposing it. During hearings in
both the 97th and 98th Congresses, there has been evidence pre-
sented that clearly shows problems exist in the defense industrial
base of our country. These problems have arisen from many differ-
ent causes such as the recession, the penetration of the domestic
market by imports, and the lack of trained workers. The scope of
this legislation does not encompass the problem of imports nor does
it include the impact the credit assistance will have on other small
and medium businesses.
The work force in many of our defense contracting forms is aging
with little influx of new, trained workers. It is also evident that the
existing job training programs are not able, nor were they intend-
ed; to cope with this need. The job training provisions of H.R. 2782
are targeted toward providing a highly skilled worker to help meet
the existing and future defense needs of the United States. There is
no other job program with this goal. The others are intended to
help unemployed workers, as part of a comprehensive system of as-
sitance, until they find new jobs. For this reason they contain pro-
visions which target the aid to the poor and the unemployed, as
they should.
The job training program in title II of H.R. 2782 is intended to
provide for the needs of the defense industrial base rather than to
assist individuals. This program in fact may be viewed as an at-
tempt to meet the future requirements of our country by filling a
specialized need for trained workers. Many witnesses testified
before the Economic Stabilization Subcommittee that the engineer-
ing and vocational schools do not have the resources to modernize
their facilities to properly train workers for these industries. And
the longer we wait to provide this training, the more serious the
lack of skilled workers becomes.
The main problem that I have with H.R. 2782 is the massive new
credit assistance program created in title I of the bill. I am not con-
vinced that there is a need to spend $400 million in fiscal year
1984, $600 million in fiscal year 1985, and $800 million in fiscal
year 1986 to help an industry that is already receiving billions of
dollars in government monies.
Considering the amount of money the government is spending on
defense and the many new contracts that will be let by the Depart-
ment of Defense, I find it hard to believe that these companies will
be unable to find the capital they need to operate and modernize
their facilities. If they cannot find financing under these condi-
tions, it is difficult for me to believe that they should be subsidized.
I understand that defense contracts are cyclical in nature and that
many companies have a hard time dealing with the down cycles of
(66)
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defense contracts and therefore do not even enter the competition
for the business, but we simply have to find better ways of dealing
with that problem than using our traditional response of providing
more money.
Federal credit programs allocate credit to businesses that other-
wise would not get it. Presumably the borrower is marginal at best
or else the Federal credit assistance would not be needed. Federal
credit programs effectively move the marginal borrower to the top
and push an otherwise acceptable borrower out of the credit
market. Considering the size of current defense outlays, over $230
billion this year, I fail to understand how any reasonably well-run
firm cannot get capital to fulfill a defense contract in the private
market. What we are doing is redirecting credit to a favored few
businesses at the expense of other small and medium businesses,
many of whom may have sacrificed in order to modernize and im-
prove their facilities. This is doing nothing short of creating a
privileged class of business, defense contractors, who will receive
additional Federal funds.
I fully recognize that there are real problems facing the industri-
al base of our country. These problems need to be dealt with in an
orderly manner and not addressed piecemeal. Consideration must
be given to broader approaches about how to finance the revitaliza-
tion of our entire industrial base, not just the defense portion of it.
Attention needs to be given to the proper role of the Federal gov-
ernment in this process on a comprehensive basis rather than this
piecemeal approach where certain defense contractors may be
aided at the expense of the rest of the economy. Any effort such as
this should consider all segments of the economy and how to best
help all businesses, not just a select few within the defense indus-
try. We also need to recognize that part of the problem will only be
corrected when these businesses are able to operate at near capac-
ity. Imports and the recession have reduced the business that many
second and third tier contractors do and credit assistance is not the
best way to correct idle capacity.
For this reason, during full committee markup of H.R. 2782, I of-
fered an amendment that would have deleted the credit assistance
of title I while leaving intact the jobs training provisions of Title II
and the three year reauthorization of the Defense Production Act
of 1950. The amendment received bipartisan support from members
of the Banking Committee, however, it was not adopted.
In balance H.R. 2782 contains provisions that are needed to meet
the legitimate needs of our country. I urge all my colleagues in the
House of Representatives to carefully consider the provisions of
H.R 2782 and support efforts to pass those sections of the legisla-
tion that are needed to strengthen the defense industrial base with-
out harming the rest of the economy.
TOM RIDGE.
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MINORITY VIEWS ON H.R. 2782, THE DEFENSE INDUSTRIAL
BASE REVITALIZATION ACT
We strongly oppose H.R. 2782 as reported by our committee. We
do not disagree with those who argue that our defense industrial
base has some serious problems, and we recognize that the health
of the thousands of firms that supply our defense needs is of vital
importance to our national security. We do not feel, however, that
the best and most appropriate way of preserving and improving
our defense industrial base is through the institution of yet an-
other federal credit assistance program. We believe, in fact, that
this legislation, if enacted, could actually harm our defense indus-
trial base.
Title I of H.R. 2782 authorizes the appropriation of $400 million,
$600 million, and $800 million for fiscal years 1984, 1985, and 1986
respectively for Federal financial assistance under title III of the
Defense Production Act of 1950. Under this act, these funds could
be used for loan guarantees, direct loans, purchase agreements,
and price supports. It has been estimated that, through the use of
the Treasury Department's borrowing authority, the funds author-
ized could be leveraged by a ratio of as much as 10 to 1. In addition
to a direct budget impact of $1.8 billion (under title I), then, the bill
could lead to a drain on the credit markets of up to $18 billion.
The extent to which the Federal Government consumes available
credit is increasingly understood; it has been said that in recent
years more than 50 percent of our limited pool of private savings
has been absorbed either directly or indirectly by the Government.
The authorization of an additional Federal credit program as pro-
posed here could only further reduce the amount available for the
private sector, and would thus help keep interest rates higher than
they otherwise would be-particularly as the private demand for
credit increases as the economy grows stronger.
As was pointed out in hearings held by the Economic Stabiliza-
tion Subcommittee, it is estimated that more than 90 percent of the
business of the firms that make up our defense industrial base is
nondefense related. It should therefore come as no surprise that
such firms may be having economic problems; the past several
years have been characterized by the most severe recession since
World War II. There is hardly a business or industrial sector in our
country that has not suffered. We believe, however, that as the eco-
nomic recovery now underway gains strength, the condition of our
defense industrial base will inevitably improve.
The single factor which now most seriously threatens economic
recovery is the prospect of continued high interest rates. We ques-
tion the wisdom of enacting any legislation such as this, no matter
how well intended, which would exacerbate this problem. We
therefore intend to support amendments to H.R. 2782 when it is
taken up by the full House similar to that offered by Mr. McCol-
(68)
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lum last year to the bill's predecessor, H.R. 5540. The McCollum
amendment, which was adopted, stated in part that none of the
funds authorized could be expended if the Secretary of the Treas-
ury determined that in so doing interest rates would be adversely
affected.
We believe that H.R. 2782 can best be viewed as a new subsidy
program for a broad cross-section of American business. As Leon S.
Reed, of the Analytic Sciences Corp., and formerly a staff member
of the Joint Committee on Defense Production and subsequently
the Senate Banking Committee, testified before the Economic Sta-
bilization Subcommittee:
Presently, the authorities of the DPA are extremely
broad, but they are narrowly focused on defense produc-
tion. This focus is considerably broadened by (H.R. 2782).
For instance, Title III (of the DPA) presently authorizes fi-
nancial assistance to expand defense productive capacity.
The new proposal would broaden this to permit assistance
to modernize defense-related industry; the direct relation-
ship to national defense is lost.
Reed argued further that:
The proposal tries to accomplish many ambitious pur-
poses. Besides modernizing industry, the bill provides addi-
tional encouragement (beyond existing authorities) to pro-
mote materials production, conservation or substitution,
and subsidizes job training programs. Subordinate goals in-
clude preservation of existing jobs and prevention of plant
relocation. While a number of these are worthy goals, it
makes for a confusing combination of purposes. Again, the
direct relationship to defense is diminished.
Nowhere does the bill state that a company receiving Federal fi-
nancial assistance be exclusively or even primarily a defense con-
tractor, subcontractor, or supplier; nowhere is the recipient compa-
ny required to show that credit cannot be obtained elsewhere. The
one limitation is that only small and medium-sized businesses, as
defined by the Secretary of Commerce, are eligible for assistance-
unless, of course, the President determines that it is in the national
interest that an exception be made. In this context, Mr. Shumway
offered two amendments during full committee markup which
would have required that any financial assistance made available
under the bill be more strictly targeted to defense production, and
that financing for the project in question could not be found else-
where. Unfortunately, these amendments were rejected.
We do not deny that unemployment is a serious problem, and
that certain parts of the country and certain industries have been
disproportionately impacted by the recession. Yet the way to ad-
dress these problems is not to throw money at them, as would this
legislation. It is not appropriate for the Federal Government to at-
tempt to allocate credit; rather the government should continue to
try to remove impediments to the orderly functioning of the free
market, and to economic recovery. In his testimony before the sub-
committee on April 14, Roger S. Schwer, president and general
manager of Cannon-Muskegon Corp.-a Michigan company which
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produces high-temperature superalloys, and which would presum-
ably be eligible for assistance under this bill-expressed opposition
to Federal subsidies for businesses such as his, and stated that
based on his experience, the existence of demand for a given prod-
uct or material will be sufficient to create the necessary supply. In
view of the size of the defense budget proposed by the administra-
tion, we think it unlikely that aggressive and efficient companies
will not find it profitable to provide for defense needs, and that pri-
vate financing will not be available for such companies.
Title III of the Defense Production Act already provides for ex-
ceedingly broad powers and authority, including loan guarantees,
direct loans, and purchase agreements. In other words, if the Presi-
dent determines that critical materials will not otherwise be made
available, he now has the authority to request funds for federal
subsidy programs. The administration has requested $200 million
for Title III activities for fiscal year 1984; Richard E. Donnelly of
the Department of Defense testified before the subcommittee that a
$2 billion, 5 year program is currently being contemplated.
Explaining the administration's support for a 5 year extension of
the Defense Production Act, without amendment, Donnelly stated
that,
We plan to use only purchase commitments under Title
III to avoid any undue disruption to the credit market-If
loan guarantees were made, the increase in Federal credit
demand could raise interest rates and could unfavorably
impact businesses that the bill is designed to help. (H.R.
2782) would set the government up as a privileged competi-
tor to private financial institutions. Government credit al-
location through direct loans and loan guarantees would
result in an unsound examination of the relative risks and
returns of projects and would lower the productivity of fi-
nancial capital.
Lawrence J. Brady, Assistant Secretary of Commerce for Trade
Administration, testified that "to offer grants, loans, or procure-
ment contracts across the board to failing private sector defense re-
lated industries would be a dangerous and self-defeating policy.
Such an approach would fast lead to total government support of a
huge portion of the private sector * * * " We agree with both
statements.
While we share the concern of the proponents of this legislation
with the need to assure that our defense industries are able to at-
tract skilled workers, here too some of us disagree with the ap-
proach taken. In the words of Paul K. Krueger FEMA Assistant
Associate Director for Resource Preparedness:
The creation of a state training grant program and the
authorization of a new grant program for colleges and uni-
versities to purchase equipment are inappropriate to the
purposes of the Defense Production Act and would dupli-
cate a number of ongoing provisions and new Administra-
tion initiatives in other areas.
In our view, the various jobs and skills training programs con-
ducted by the Federal Government suffer from a decided lack of co-
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ordination; to attempt to meld a jobs program into the Defense Pro-
duction Act might only make this problem worse, while at the
same time taking the DPA itself far beyond its basic purpose.
We want to make it clear, however, that our primary concern is
with title I of H.R. 2782; we supported a Ridge amendment offered
in full committee which would have stricken this title. If the Ridge
amendment had been adopted, many of us might have voted to
report the bill.
In conclusion, we understand that, on its face, H.R. 2782 may
appear attractive. It attempts to assist failing industries, it pro-
vides for job training, and it focuses attention on our educational
needs. As argued above, however, the overall costs of the bill far
outweigh any potential benefits. In addition, H.R. 2782, in requir-
ing the President to engage in huge business subsidy and training
programs, moves far beyond the legitimate and proper focus of the
Defense Production Act. We, therefore, urge that it be defeated.
CHALMERS P. WYLIE.
GEORGE HANSEN.
RON PAUL.
ED BETHUNE.
NORMAN D. SHUMWAY.
STAN PARRIS.
DAVID DREIER.
JOHN HILER.
STEVE BARTLETT.
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DISSENTING VIEWS OF HON. RON PAUL
The majority report on this proposal fails completely to look at
some of the reasons why our defense industrial base may be dete-
riorating. If these root causes of growing inefficiency in our long-
term capital markets, slowly deteriorating industrial productivity,
and accelerating loss of high-technology capability to foreign pro-
ducers are not understood, no amount of government programs for
easy credit, job training, or economic planning will help.
I believe the decline in our Nation, and the problems that have
been discussed and examined in great detail by an extensive series
of witnesses before the Subcommittee on Economic Stabilization,
are aptly characterized as a "slow rot." The process that is slowly
and steadily leading to a less and less efficient coordination of capi-
tal, labor, raw materials, new technology, etc. is a failure of busi-
ness management, entrepreneurship. This is not meant as a criti-
cism of the talents of America's business leadership, however. In a
free market economy, business leadership is constantly under the
gun and therefore unable to become fat and lazy on a universal
scale. Free markets, consumer choice, investor choice, and innova-
tion assure us, in theory, that poor business management will con-
tinually be replaced with better management.
Yet our problem is a systemwide problem. All business leaders
seem to be confronted with similar problems, and are led up and
down the hills of business expansion and recession, year after year,
with cumulatively destructive results. Unemployment grows to new
heights and when "recovery" comes, it remains at higher and
higher low points. Many economists have expressed puzzlement at
the growing loss in American productivity, but I believe there is a
clear source of such a problem-one that is indeed common to all
productive activity in the United States. Every businessman and
investor has to conduct his strategic planning and forecasting
under the fog of a monetary system that today has the shortest
time horizon in our history, imposed by an intrinsically unstable
monetary unit.
Every student of finance and by far the majority of business fi-
nancial officers are familiar with the procedure for calculating rel-
ative values among different investment projects: the procedure of
present-value computation. It is possible-given the assumption of
a stable discount (interest) rate and a determinate purchasing
power for units of money-to evaluate diverse kinds of investments
and different strategies for allocating resources in accordance with
the great efficiency. This would be the way in which a free market
conducts economic planning, designs the structure of investment,
and achieves improvements over time in labor productivity.
This process of economic coordination among labor, capital, raw
materials, and new technology is the very essence of the free
market. No other kind of economic arrangement makes use of this
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essentially decentralized method of planning. Access to resources
and the discovery of their optimal utilization in terms of ultimate
consumer objectives is entirely bound up with the system of rela-
tive prices and the ability of businessmen, investors, and consum-
ers to evaluate the wide range of opportunities from a present-
value perspective.
The critical role of capital market prices in the system of eco-
nomic coordination was first described by Prof. Ludwig von Mises
of the University of Vienna, in his book "Socialism," in the 1920's.
This important work created a major controversy in economic cir-
cles, because it overturned the popular dogma of "efficient and
rational" central economic planning.
Unfortunately, this legislation-the Defense Industrial Base Re-
vitalization Act-seems to codify all of the fallacies of government
economic planning. Credit assistance is irrelevant unless it is at
below-market rates, and if it is at below-market rates it represents
a pattern of government planning as a substitute for market plan-
ning. Job training is irrelevant unless it creates opportunities and
motivates individuals to train in skills that have only an artificial,
government stimulated demand-with, of course, the inevitable
problem that the demand will vanish when government programs
change.
In the past 50 years, the United States has begun so severely to
regulate, distort, and tax its formerly free market economic system
that it is no surprise at all to me that the system is suffering from
the apparent effects of "slow rot." In the steel and automobile in-
dustries, the impact of labor laws, which enabled the growth of
wages and benefits far in excess of the growth of productivity, have
resulted in a rapid erosion of productive capacity. Our irrational
system of taxing economic success and rewarding economic failure
has led to a slowdown in capital formation, real savings, and with
the recent recession-caused by the Federal Reserve System in a
desperate attempt to save the U.S. dollar as a unit-of-account in in-
ternational finance and end price-index escalation at home-the
shutdown of many factories and mills that will never again reopen.
The purposes of this legislation cannot be served by the means
that it offers. There is no repeal of irrational labor laws in this bill;
on the contrary, provisions of the Davis-Bacon Act are extended.
There is no repeal of the discretionary powers of the Federal Re-
serve to manipulate money and credit with their destructive
impact on long-term capital markets and business planning. On the
contrary, the easy credit facilities in this bill will make the prob-
lem of inflation and misallocation of capital worse.
The additional powers and functions that are provided in this bill
for active governmental intervention in the economic system will
only make the functioning of relative prices as "information
guides" for the rational and efficent allocation of resources and
labor less able to perform that essential role.
It is indeed a pity that legislation of this nature, which is sup-
posed to make our Nation better prepared for self-defense, is actu-
ally going to make us weaker, less efficient, and less able in time of
genuine need to solve defense production problems.
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