INFORMATION MANAGEMENT BY FEDERAL
REGULATORY AGENCIES
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
REPORTS, ACCOUNTING, AND MANAGEMENT
OF THE
COMMITTEE ON
GOVERNMENT OPERATIONS
UNITED STATES SENATE
NINETY-FOURTH CONGRESS
FIRST SESSION
JULY 22 AND 24, 1975
PART 1
Printed for the use of the Committee on Government Operations
U.S. GOVERNMENT PRINTING OFFICE
r O WASHINGTON : 1975
For sale by the Superintendent of Documents, U.S. Qovemment Printing Office
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ROWnmSTtRN UNiVERSilY SuiOCM. of [M iMMi
COMMITTEE ON GOVERNMENT OPERATIONS
ABRAHAM RIBICOFF, Connecticut, Chairman
JOHN L. McCLELLAN, Arkansas CHARLES H. PERCY, Hlinois
HENRY M. JACKSON, Washington JACOB K. JAVITS, New York
EDMUND S. MUSKIE, Maine WILLIAM V. ROTH, Jr., Delaware
LEE METCALF, Montana BILL BROCK, Tennessee
JAMES B. ALLEN, Alabama LOWELL P. WEICKER, Jr., Connecticut
LAWTON CHILES, Florida
SAM NUNN, Georgia
JOHN GLENN, Oliio
Richard A. Wkgman, Chief Counsel and Staff Director
Paul Hoff, Counsel
Paul L. Leventhal, Counsel
Eli E. Nobleman, Counsel
Matthew Schneider, Counsel
John B. Childeks, Chief Counsel to the Minority
Brian Conboy, Special Counsel to the Minority
Marilyn A. Harris, Chief Clerk
Elizabeth A. Preast, Assistant Chief Clerk
Harold C. Anderson, Staff Editor
Subcommittee on Reports, Accounting and Management
LEE METCALF, Montana, Chairman
JOHN L. McCLELLAN, Arkansas BILL BROCK, Tennessee
EDMUND S. MUSKIE, Maine CHARLES H. PERCY, Illinois
SAM NUNN, Georgia LOWELL P. WEICKER, JR., Connecticut
JOHN GLENN, Ohio
Vic Reinemer, Staff Director
E. Winslow Turner, Chief Counsel
Lyle Ryter, Minority Counsel
Jack Chesson, Counsel
Gerald Sturges, Professional Staff Member
Jeanne A. McNaughton, Chief Clerk
(U)
^
1
CONTENTS
CHRONOLOGICAL LLST OF WITNESSES
Tuesday, July 22, 1974
Clayman, Jacob, secretary-treasurer, Industrial Union Department, AFL-
CIO, Washington, D.C., accompanied by Richard Prosten, director, Page
Research Department, and Brian Turner, staff member 7
Allen, June, North Anna Environmental Coalition, Charlottesville, Va 78
Silbergeld, Mark, attorney. Consumers Union, Washington office 141
Thursday, July 24, 1975
Nadel, Mark V., assistant professor of government, Cornell University___ 163
Green, Mark, director, Corporate Accountabihty Research Group, Wash-
ington, D.C., and accompanied by Irene Till, economist 180
ADDITIONAL INFORMATION
Senator Metcalf:
Opening statement 1
Excerpt from the Congressional Record, June 10, 1975 2
Letter from John A. Gradj^, Chairman of the Interagency Regulatory
Accountants Committee, re expressing thoughts on Information
Management, June 23, 1975 3
Letter from James L. Pate, Assistant Secretary for Economic Affairs,
U.S. Department of Commerce, re requesting information relating to
the clearance of BEA's report forms on U.S. direct investment
abroad by the National Advisory Council on International Monetary
and Financial Policies, July 30, 1975 (with enclosures) 44
Memorandum to James A. Griffin, Chairman, NAC Working
Group on Foreign Investment Surveys, from George R. Kruer,
Chief, International Investment Division, U.S. Department of
Commerce, July 30, 1974 46
Memorandum to NAC Working Group, from James A. Griffin,
Chairman, NAC Working Group on Foreign Investment Sur-
veys, August 13, 1974 (with attachment) 51
Memorandum to Fred Springborn, executive secretary, National
Advisory Council on International Monetary and Financial
Policies, from George R. Kruer, Chief, International Invest-
ment Division, U.S. Department of Commerce, June 24, 1974_ _ 54
Letter from James L. Pate, Assistant Secretary for Economic Affairs,
U.S. Department of Commerce, re list of NAC members and list of
members of the "working group", August 12, 1975 67
Letter from Mark Silbergeld, attorney, Washington office. Consumers
Union, re update of portion of testimony of July 22, 1975, dated
July23, 1975 142
Alphabetical List of Witnesses
Allen, June:
Map indicating location of North Anna Reactor 80
Photo showing North Anna Reactor under construction above fault
visible in excavation for reactor No. 3 81
Excerpts from papers by Dr. Ralph E. Lapp, atomic scientist who
supports the use of nuclear energy 91
(HI)
IV
Alphabetiaal List of Witnesses — Continued
Allen, June — Continued Page
Some biological hazards of the Point Beach Nuclear Power Plant in
Wisconsin, by Irving Lyon, Fellow of the American Association for
the Advancement of Science and Consultant for the Dairy Industry^ 94
Chronology of geological concern at the North Anna Nuclear Station, 110
Progress report of the North Anna Environmental Coalition of Novem-
ber 1973, prepared at the request of Congress Watch, a Nader
organization in Washington, D.C 115
Chronology of events of 1970 at nuclear excavation raises serious
questions and doubts in public mind 119
NAEC calls AEC investigation report "Fraudulent", release of
April 11, 1974 123
Geological report of the North Anna Nuclear Power Station,
Virginia , 126
Letter to Prof. William Rodgers, Georgetown University Law Center,
Washington, D.C, from Paul J. Roper, assistant professor, June 3,
1975 133
Clayman, Jacob:
Questionnaires :
Parent firm form (with deletions recommended by National
Advisory Committee) 18
Parent firm form (with deletions recommended by Bureau of
Economic Analysis) 23
Affiliate firm form (with deletions recommended by National
Advisory Committee) 28
Affiliate firm form (with deletions recommended by the Bureau
of Economic Analysis) , 36
Functions of the Industrial Union Department, AFL-CIO 69
Biographical sketch 69
Prepared statement 70
Green, Mark:
Testimony 180
Prepared statement 187
Nadel, Mark V. :
Testimony 163
Prepared statement 168
Silbergeld, Mark:
Testimony 141
Prepared statement 144
Letter to Senator Metcalf of July 23, 1975, re updating portion of
testimony of July 22 on information management by regulatory
agenc'es 1 142
Till, Irene:
Prepared statement 180
APPENDIX
Lawing, Jim, a Representative in Congress from the State of Kansas :
Letter to the Committee on Government Operations answering three
specific questions of special concern as a lawyer representing the
Kansas Civil Liberties Union's efforts 199
"The Concentration of Economic Power," by MarKley Roberts, economist
in the AFL-CIO Department of Research 203
Letter to Vic Reinemer, staff director. Subcommittee on Reports, Ac-
counting and Management, from Kenneth A. Guenther, Assistant to
the Board of Governors, Federal Reserve System, dated September 16,
1975, re: commercial banks that participated in the Board of Governors'
Monthly Interest Rate Survey for the month of November 1974, and
that failed to so participate for the month of July 1975 __. 209
Article: Vepco Fined $60,000 for A-Plant Fault, 'from the Washington
Post, September 12, 1975, by Hal Willard 210
INFORMATION MANAGEMENT BY FEDERAL
REGULATORY AGENCIES
TUESDAY, JULY 22, 1975
U.S. Senate,
Subcommittee on Reports, Accounting, and
Management of the Committee on Go\t:rnment Operations,
Washington^ D.C.
The subcommittee met at 10 :20 a.m., pursuant to call, in room
1318, Dirksen Senate Office Building;, Senator Lee Metcalf (chair-
man of the subcommittee) presiding.
Present : Senator Metcalf.
Also present: Vic Reinemer, staff director; E. Winslow Turner,
chief counsel; Jeanne A. McNaughton, chief clerk; Lyle Ryter,
minority counsel ; John B. Chesson III, counsel ; and Gerald Sturges,
professional staff member.
OPENING STATEMENT OF SENATOR METCALF
Senator Metcalf. The subcommittee will be in order.
The Subcommittee on Reports, Accounting, and Management to-
day begins hearings on Information INIanagement by Federal Regu-
latory Agencies.
We are seeking answers to two large questions:
One : How good is the data upon which Government regulatory
decisions are based?
Two : How can its accuracy, adequacy, timeliness, and availability
be improved?
To put it another way, I will cite what Pearson Hunt termed in
the ]May-June issue of the Harvard Business Review as the "Law
of Information."
Mr. Hunt said that when in Ireland recently he came upon this
law developed by one Professor Finagle. This law has three pro-
visions :
One: The information we have is not what we want;
Two: The information we want is not what we need; and
Three : The information we need is not available.
When these hearings were initially announced, in the June 10
Congressional Record, I listed 12 specific questions on which testi-
mony is invited. I am asking the staff to insert them at this point
in the record.
[The Congressional Record excerpt referred to follows :]
(1)
[From the Congressional Record, Senate — June 10, 1975]
Here are some of the questions to which we seelc answers :
First. What are the "information gaps" which hamper regulatory agencies
and users of tlie information they collect?
Second. Is information that is publicly available — although perhaps obtain-
able only by going to many sources at considerable expense — not conveniently
available to State regulatory agencies and to the public from the Federal
agency which collects it?
Third. Is the information available only on an aggregated industry basis?
If so, how can an agency and the users ascertain that aggregates and averages
are correct if they do not see individual company data on which the aggregate
information is based?
Fourth. To what extent is reported data verified by the agency which col-
lects it?
Fifth. How often is basic data regarding company operations, management,
assets, liabilities, capitalization, and control collected? Should information
now collected only as part of occasional "benchmark surveys" be available on
a more regular basis?
Sixth. What is the regulatory lag between the time information is attainable
within the firm making the report and the time it is available to the agency
and those parties to whom the agency makes it accessible?
Seventh. What is the regulatory lag between the time that agencies receive
reports and the time that statistical compilations are published? What are the
reasons for delay?
Eighth. Should agencies provide more analysis and evaluation of statistical
data than are now available?
Ninth. What do the agencies do to help guide the public to information in
their files? How can those procedures — or publications — be improved? Is in-
accurate or outdated data flagged?
Tenth. What charges are levied by the agencies for reproduction of reports?
What are the reasons for the disparity of the.se charges?
Eleventh. Prior to enactment of the Hart amendment to the Alaska Pipe-
line Act, regulatory agency questionnaires to 10 or more firms were subject to
veto by the Oflice of Management and Budget. Now they are subject to review
by the General Accounting OflSce. Is the revised procedure working out satis-
factorily from the viewpoint of reporting companies, the agencies, and the
using public? Should data sought by Congress from executive departments
whose questionnaires are not approved by the executive branch be collected
by independent regulatory agencies?
Twelfth. What progress is being made to reduce business burden — while
maintaining or improving the accuracy, adequacy, timeliness, and availability
of report.^ — ^l)y interagency development of uniform reporting requirements
regarding company operations, management, assets, liabilities, capitalization,
and control?
Senator Metcalf. These questions have been provided to wit-
nesses and are also available at the press table.
I am also submitting for the hearino: record a letter from John
Gradv, chairman of the Tnterao-ency Eefrulatory Accountants Com-
mittee—IRAC.
This jrroup consists of the chief accountino: and financial officers of
19 Federal agencies which prescribe reofulations on accountino; and
reportinji; of financial data.
This letter provides initial comiuents of the IRAC working group
on the 12 questions posed by the subcommittee. Later on in these
hearings we will invite testimony from officials of some of the
agencies represented in the TRAC group.
[The letter referred to follows:]
BUREAU OF ACCOUNTS
Snterjstate Commerce CommiJisiion
(Hasbington, B.C. 20423
June 23, 1975
Honorable Lee Metcalf
United States Senate
Washington, D. C. 20510
Dear Senator Metcalf:
As Chairman of the Interagency Regulatory Accountants Committee
(IRAC), I want to thank you for this opportunity to express the
Committee's thoughts on information management.
IRAC is made up of the chief accounting and financial officers of
19 Federal government agencies which prescribe regulations on accounting
and reporting of financial data. Included in the membership are
representatives of eight independent regulatory commissions; the
Civil Aeronautics Board, the Federal Communications Commission, the
Federal Maritime Commission, the Federal Power Commission, the Federal
Trade Commission, the Interstate Commerce Commission, the Nuclear
Regulatory Commission, and the Securities and Exchange Commission.
The purpose of the Committee is to present a forum for the interchange
of ideas and discussion of common problems within the regulatory area.
The following responses to your questions on information management
represent the consensus of the members of the IRAC committee and should
not be interpreted to represent the official position of any independent
regulatory agency or group of agencies.
1. Many of the items which we would classify as "information gaps"
relate to our current inability to obtain, analyze and make available
meaningful data on a timely basis.
Currently, one agency may collect and process data that is used by
other agencies. While the information is eventually available, the
current collection and processing methods do not insure that the final
information product is timely.
Other "gaps" are incomplete identification and indexing of available
information and the limited accessibility of available information outside
the agencies headquarters area.
Honorable Lee Metcalf
These problems can be corrected somewhat through the development
and implementation of electronic data processing information systems.
The individual agencies are attempting to cope with this problem.
A major effort to close the "information gaps," whether on an individual
agency basis or on an interagency basis, would initially require some
additional resources.
2. In general, information collected by the independent regulatory
agencies is readily available to state regulatory agencies and the
public. Most data is readily accessible via publications, public
reference rooms, and data tapes at little or no cost.
A state agency with responsibilities in the areas of transportation,
power, and communications would have to obtain data from three individual
Federal agencies. While some information is coordinated through the
National Association of Regulatory Utility Commissioners (NARUC), a
vast majority of the data is available only from the individual agency.
3. Most information is available both on an individual and
aggregated industry basis. Aggregated data can be readily verified
from individual reports, the supporting data base available on magnetic
tape, and comparison with industry sources.
4. The statistical information is subject to computer verification
through selected tolerance and consistency tests, balancing and
cross checking routines. Significant errors are corrected. Records of
reporting business enterprises are audited by agency auditors.
In most agencies the frequency of audits is determined by the
type and size of the reporting company.
5. Most of the basic data is collected on an annual basis. Certain
segments, primarily financial and operational data, are collected on
a quarterly basis. "Benchmark surveys" usually extend into the data
base where the data is pertinent to continuing regulatory responsibilities.
6. There is usually a regulatory lag of one month on the filing
of quarterly reports and three months on annual reports. Upon filing
with the agency the data generally becomes immediately accessible to
the public on an individual company basis.
7. As noted in item 1, there is a regulatory lag in making aggregated
data available. The lag varies from 15-20 days for monthly and quarterly
reports to one year for major annual publications. The reasons for the
delay are many.
2 -
Honorable Lee Metcalf
Primary reasons include substantial purification procedures, lack
of adequate computer facilities and substantial printing time required
by the Government Printing Office. Other problems are delinquent
filings of data, volume of data processed at one time and continually
changing data base.
8. Ideally, agencies should do more analysis and evaluation of
statistical data. This deficiency is being addressed. However, any
substantial increase in analytical work would again require resources
that are not presently available.
9. Most agencies issue press releases regarding special publications,
provide a reference room for public use and prepare replies to individual
inquiries regarding availability of information. As noted in item 1,
more effort must be made in identifying, indexing and cataloging
available information, and to permit the user to know what is available
and in what type of format.
Reports and related publications are usually reviewed and updated
on an annual busis. One agency is currently planning a "user" survey
to determine if its publications meets the needs of users. This should
be an ongoing project for all "collectors of data" in assuring that
the information requested in the past is meaningful.
10. For the most part, publications are offered to the public
through the Government Printing Office at published rates. The
public may avail itself of information in the public reference rooms
and produce copies on a commercial copier for 25(t per page.
Requests which involve computer processing are billed at nominal
operating costs. The major reason for any disparity of charges is
the size or volume of the report or publication. A lOO-page report
will cost more than a 20-page report and three hours of computer time
will cost more than one hour.
11. Generally, the answer is^O'. The agencies had a better working
relationship with the Office of Management and Budget and were able to
obtain a preliminary review subject to final approval by the agency.
The General Accounting Office refuses to review any proposed form or
revision until approved by order of the agency.
This policy builds in an automatic 45-day time lag before any
questionnaire or form can be used by the issuing agency. In our
judgment, the independent regulatory agencies established as an arm of
Congress should collect any information sought by Congress which falls
within the scope of the agencies authorized responsibilities.
- 3
Honorable Lee Metcalf
Further, the agencies should have the ability to respond quickly
in collecting information on problem areas that arise so that action
can be taken if needed.
12. Because of the independent nature of the regulatory agencies,
little has been done in a joint effort. IRAC is in the process of
developing standard balance sheets and income statements which will
provide information leading to uniformity of data collection in those
areas.
The independent agencies have worked together when they have joint
jurisdiction. The Interstate Commerce Commission and the Federal
Maritime Commission use the same accounting system and reports for
maritime carriers. The Civil Aeronautics Board and the Interstate
Commerce Commission use the same accounting system and reports for
freight forwarders using both ground and air transportation.
Other areas which you may wish to consider in your review are:
— What is the impact of the 1974 Privacy Act? Some guidelines
must be established that will permit the agencies to obtain and
disseminate the most useful information without harm to the individual.
Also, will the restrictions in this Act limit the agencies' ability
to deal with problems?
-- What are the agencies' problems that preclude them from
obtaining and disseminating certain data? Burden on reporting
companies. Cost of obtaining data and cost of publishing data for a
small number of users.
We hope our comments will be helpful in your investigation.
Please feel free to call upon us if the Committee can be of further
service.
Sincerely yours.
/;
/John A. Grady
Chairman, IRAC
4 -
Senator Metcalf. Our first witness this mornino- is an old and
valued friend who has previously provided valuable counsel to this
and other conoTossional committees — Jake dayman, secretary-treas-
urer of the Industrial Union Department, AFL-CIO.
The last time you and I were tofjether, Mv. dayman, we were
receivinn^ an award from the Consumers Federation of America
downtown. So I am deliofhted to have you here again to testify as
you have before with your usual wisdom and we will try to follow
your guidance.
TESTIMONY OF JACOB CLAYMAN, SECRETARY-TREASURER,
INDUSTRIAL UNION DEPARTMENT, AFL-CIO, WASHINGTON,
D.C., ACCOMPANIED BY RICHARD PROSTEN, DIRECTOR, RE-
SEARCH DEPARTMENT. AND BRIAN TURNER, STAFF MEMBER
Mr. Clayman. Thank you, Mr. Chairman.
I have with me Richard Prosten, to my left, director of our re-
search department; Brian Turner, on mv right, who is a member
of that staff.
Mr. Chairman. I am going to start out by reading the testimony
I have here, because if I don't, my associates are going to be very
greatly disturbed and I don't want to disturb them. However, I am
aware of the time limitations and I may perhaps not read it all. If
so, I trust that the entire statement will be placed in the record.
Essentially Ave have a most interesting problem here, Avith our
great Government and its inventive people. We haAT been the pro-
vider of the recording technology, information storing, data process-
ing for the Avhole Avorld. Yet, Avith all this enormous capacity for
collecting, for receiving, for cataloging, for storing information,
quite obviously Ave do a relatively poor job in areas that have enor-
mous import for the people of the country and in our particular
case Ave speak for the Avorkers of the country.
While this seems to be an academic issue to many people, un-
fortunately, as the chairman knoAvs, this is far beyond academia.
.\jk1 this has vital bearing; the information that your committee and
that you have been seeking over the years has vital bearing on the
health of our society.
As Ave understand it, the current hearings are to assess the suffi-
ciency of data on Avhich government regulatory decisions are based,
and hoAv the accuracy, adequacy, and availability of this data might
be improved. We appreciate this chance to appear before your
subcommittee and share with you our feelings on the inadequacies
of information flowing from governmental agencies.
We realize that the Federal regulatory system is currently under
great attack. It would appear that the President of the "United
States is fashioning a campaign to emasculate much of the good
that these agencies do accomplish. Clearly, there are some instances
of overregulation. But all too frequently, there is too little regulation.
This situation flows from the fact that the administration has
stacked these agencies Avith people Avhose interests seem to lie more
Avith the entities they are supposed to regulate than Avith the public
they are supposed to protect.
We wish to call to your attention a variety of situations in which
we feel the oovernment's performance in the field of data ^atherino:
is totally inadequate. Since the executive departments have not seen
fit to compile the sorts of data that we feel are needed, it seems
appropriate to ask that the reo;ulatory agencies try their hand at it.
Primarily we are concerned with the lack of hard data in regard
to employment. We do not mean the sorts of a,2:o;reo;ate data about
how many people are workinc; and how many people are collecting;
unemployment checks which the Department of Labor issues. Rather
we need fi<]:ures indicatino- how and why people have become un-
employed; where work opjiortunities are diminishinp; or vanishino;;
what industries are sufferino- or are likely to suffer substantial non-
cyclical unemployment; and various offshoots of such approaches to
recordkeeping.
It seems to us that economic data collection in this country is
quite unresponsive to some of the very obvious and most pressino;
needs of our citizens. In many cases where important data is col-
lected, it is terribly out of date by the time it is put into the hands
of those who need it to shape national policies.
If we review the economic issues that have achieved crisis status
in this country over the last decade or so, we find that in an amaz-
incr number of cases, we were told that nobody knows the true
seriousness of the problem or how to fashion solutions because there
was not sufficient information.
Unless this be interpreted as an overstatement, all of us, at least
this side of the table, I am sure on your side of the table, can testify
to any number of situations where the people who should know
are forced to the corner and admit they simply don't know because
they haven't been directed or authorized or allowed to gain the
necessary information.
Clearly, it would be unreasonable for us to expect the immediate
availability of data concerning every aspect of every contingency
that may occur in or to a country as vast and economically complex
as ours. But we feel there are certain areas which cry out for
attention. We don't really care which agency or department does
the data collection, but we do care that it be collected, analyzed
and quickly made available to Congress and the public.
The sorts of data with which we are most concerned — because
they are so totally unavailable — are those that would give us a
handle on problems— current and potential — that affect jobs and
employment.
One example of what we're talking about, and which the chair-
man of the committee obviously is familiar with, was quite notice-
able during the fuel crisis. Despite the elaborate budgets of a host
of agencies and departments that collect data, nobody could find out
how many people were put out of work, or forced onto reduced
workweeks, as a result of this situation. The closest that we had to
an answer was based on what new applicants for unemployment
insurance indicated on their application as the reason they thouirht
they were now unemployed. This approach was not only unscien-
tific but unacceptable as a method of understanding the effects of
then current economic developments. It was based on the poten-
9
tially subject perceptions of insurance applicants. Of course, the
perceptions of those who were inelio-ible for unemployment insurance
were not counted at all. There was a vast <rroup of people ineligible
to collect unemployment insurance, and their attitudes, their per-
ceptions, for what they were woi'th, were not tapped.
Parenthetically, it was equally disturbing that seemingly nobody,
in or out of government, could tell us how much petroleum was
available — either on top of or beneath the ground.
Senator Metcalf. That goes for natural gas, or coal, or any other
natural resources.
Mr. Clatman. Exactly, Mr. Chairman. I recall and you recall,
we still have it. We have all kinds of charges about undersupplies,
oversupplies. conspiracies, price-fixing. All of these arise out of the
obvious fact that our government just doesn't know what kind of oil
reserves we have, indeed, what kind of current inventory that could
be available quickly. And for a country as complex as ours and so
reliant upon energy, to my simple reasoning, this becomes almost
sheer tragedy. And the pity is that this so far has not been per-
ceived, as I see it, in our current administration.
But the jobs question bothered us the most, for it reminds us of
just how inadequate and anemic our society's base of knowledge
in this area really is. It reminded us that for many years the labor
movement has been pleading for that kind of data — data that would
enable planners and policymakers to more successfully factor the
jobs and thus the welfare of working people into their actions and
proposals.
The issue of jobs — and job loss, job creation and the like — comes
up again and again as this country becomes aware of the growing
impact of multinational firms on our economy. For a number of
years now Ave have felt that American jobs were being shipped
abroad at an alarming rate.
The multinational enterprises and their friends insist that we are
wrong — on the assumption that we don't have the sufficient data in
regard to their operations; they claim that, in fact, this process has
created jobs in our economy.
If I may digress, and yet it is very significant, we have been say-
ing, our economists have been saying, that from the period of 1966
to 1972. there has been a loss of 1 million American jobs because of
increasing imports, and a substantial amount of these imports com-
ing from American multinationals producing abroad. If this is so,
then this is a very serious allegation that goes to the core of the
stability and the future of our economy, because, without jobs,
America is nothing.
The multinationals have been saying most vehemently that this
is a canard, and the fact it, and I say this earnestly, that we can-
not say with exactness, scientific exactness, that there are a million
jobs that were lost. The employers obviously won't say this, and
the Government can't say this because it doesn't know. Let's look at
this issue, if I may suggest, for a minute. If it is true that the picture
we have presented is sound, then we have got a very basic, funda-
mental problem that needs the attention of Congress and the admin-
istration quickly. Yet, there we are in a debater's stance, employers
10
obviously sayin<r the usual, aud we are sayiuo- those thiuofs that are
closest to our hearts and our mind; and our economists tell us of the
facts, with neither one of us truly prepared to, with exactness, urg:e
that our factual base is the actual base.
And the one party in our society that essentially has that kind of
responsibility to protect the public interests is unable to answer the
debaters' charoes because it does not — indeed, as you will see very
quickly from what I am about to say — it does not want to be privy
to these facts, I assume, conceivably, because it may be politically
embarrassing. This is a horrendous thoufjht.
We still think we're ri^ht, but despite intense interest in the
subject on the part of many sectors, there is no body of date that
can be used to prove or disprove our alle^rations.
Collecting reliable information and subsequently pursuino; mean-
inofnl economic analysis on foreifjn direct investment — both inward
and outward — is essential to the economic well-being of this country.
The American people and the American Congress have a right to
this information.
Overseas production by the controlled foreign affiliates of U.S.
multinational firms is now 31/2 times larger than either U.S. imports
or exports; it now totals roughly $350 billion per year. Projecting
from the most recent Commerce Department estimates — made for
1970 — U.S. multinationals' overseas employment should now be over
51/t million — just over the average unemployment in the United
States during'calendar year 1974. Is it 51/2 million? Is it 500,000? Is
it 11/^ million. Is it 2 million? Is it important for our national
security and our understanding to know what that figure is? Is it
a meaningful figure? We think it is desperately meaningful. Yet, I
gather that our Government can't tell us that with exactness. And
that runs throughout the economy, particularly as it applies to multi-
national corporations.
So, obviously, Mr. Chairman, both of us. you on your side and we
on this side, are not talking about a triviality. We are not talking
about a theory. We are not talking about an academic issue. We are
talking about the life of our economy and its continued upbeat.
Let me return to my prepared testimony now, where there is a
bit of a horror story that has unfolded. I don't want to be in the
position of charging bad faith, desperate motivations, but let this
recounting speak for itself.
In this rapidly changing situation, wliere multinationals expand
abroad as the domestic economy languishes. Congress has a duty to
see that all necessary information is collected and that the economic
analyses that depend on these statistics are responsibly carried out.
Study after study in this area is forced to conclude with an apology
for tiie tentativeness of its results, because the underlying economic
statistics are too weak to provide solid analytical conclusions. We
won't take up your time listing the various individuals and organi-
zations who have lamented our Governmenfs irresponsibility in this
area, but there are many respected experts who would certainly
welcome more responsible data gathering and analysis.
On outward direct investment by U.S. multinationals — an issue
of great concern to us and, we believe, to the Nation — the admin-
11
istration's recent record on datii o-atlierino; lias been less than laucl-
able. In this refrard, we Avonld like to brino; to the attention of this
subcommittee the dismal history of what happened when a respon-
sible ai^ency of the Department" of Commerce attempted to improve
its data collection on U.S.-based multinational firms.
The Bureau of Economic Analysis, Dejiartment of Commerce,
has responsibility for p;atherino: and asscmblino; primary economic
data on the foreiofn operations of U.S. multinational firms. Their
last benchmark survey was conducted in 1966, and they publish
annual updated estimates on the basis of voluntary survey forms
sent out to a small sample of the known universe of American
multinational corporations.
As the multinationals' overseas activities increased, the Bureau
of Economic Analysis recoo;nized that their previous bench mark
census had become hopelessly outdated, as of course it was only 9
years ao;o, and that the ranfje of information covered in the last
bench mark was seriously inadequate to deal with urgent analytic
and policy needs.
In late" 1972, the specialists at BE A beo;an their own preliminary
analysis of topics that should be covered in such a study, and they
devised draft survey forms to be sent out to U.S. multinational
parent corporations and their foreip:n affiliates.
When this process was completed, the proposed forms were sub-
mitted for approval to a Cabinet-level interajrency clearino- commit-
tee, the Xational Advisory Committee on International Monetary
and Financial Policy — NAC — composed of representatives from
Treasury, Commerce, the Federal Reserve Board, the Export-Im-
port Bank, and the Department of State. The proposed bench
mark survey was handled at the Xational Advisory Committee by
a workino; committee chaired by James Griffin of Treasury.
The proposed BEA survey would have expanded the scope of the
data collected in 1966 and in subsequent sample surveys. For the
first time they would have asked for detailed information on employ-
ment, skill levels, and employee compensation at home and abroad:
on the cost and location of research and development activities; on
production by product line; on taxes paid into different jurisdictions
at home and abroad; on transactions between parent and affiliate;
and on the treatment of domestic and forei^jn operations in the in-
come statement of the parent firm.
This was not. in our view, an exhaustive list of what we needed
to know about U.S. multinationals. It would have been far inferior
to data presently collected on comparable domestic activities. It
would, however, have represented a sio;nificant improvement over the
data on multinationals presently gathered by the Federal Govern-
ment. It would have fulfilled needs recoofnized by all users of data on
multinational corporations, and the BEA understood it as necessary
for responsible analysis and rational policy evaluation.
If I may, for just a moment, I would like to enter a word of
hurrah and cono;ratulations for the so-called bureaucrats, people
who do this kind of work from day to day, not limited in their
original conceptions and perceptions by political considerations; they
came up with what seemed to be a wholesome beo;inningf in a rela-
tively unplowed field.
12
Senator Metcalf. JNIr. dayman, once upon ca time I served on an
appellate court. When somebody wrote an opinion, I said I concur,
and may I concur in the hurrah that you have expressed?
JNIr. Claymax. These are the fellows that work down in the ditches
and normally don't get the public visibility, and, more often than
not, at least* in my judgment, they are far in advance of those who
are more visible and more obvious to the public. It is a pity that it
is that way, but I think it is one of the facts of political life. Cer-
tainly, it is in the United States. Conceivably, it may be worldwide.
The reception given to this vitally needed expansion of our funda-
mental data base on multinational corporations was startlingly nega-
tive, although, I must say, predictable. The NAC rejected every item
on the survey form that was not strictly related to balance-of-pay-
ments accounting — on the interpretation that the Bretton-Woods
enabling legislation allows only balance-of-payments reporting. We
call this a strange interpretation because even the weak analytic
data that had been collected in 1966 — without any challenge as to
its legality — was now ruled out of order. Xo one in those days ques-
tioned the legality of the questionnaires, the information that was
sought and obtained by the Bretton-Woods enabling legislation. That
is a modern phenomenon. Everything having to do with research and
development, with the breakdown of production figures, with em-
ployment, skill levels and compensation, and even with trade between
the" multinational parent and its foreign affiliates — all that and still
more was cut out of the proposed survey by this Cabinet-level inter-
agency committee, which made the questionnaire anemic and almost
worthless — not altogether worthless, but almost worthless, to dis-
cover the kind of information that a government needs and the
public needs and Congress needs to make its interpretations of valid
legislation for the future.
We find it hard to believe that such obstructive action, against the
sound initiative of a highly professional Federal agency, could rep-
resent anything other than high administration policy.
Somebody up there doesn't want to know — or doesn't want the
public and the Congress to know — the true facts about the multi-
national corporations and their effects on the domestic economy.
I wish I could come to a different conclusion because this is a
harsh observation that I made. But I don't know, as T search my own
mind, I don't know what other interpretation that reasonable people
looking at this can place upon that action.
In our judginent, this is a scandalous situation which cannot be
allowed to endure.
We think the record of failure to responsibly provide the public
and the Congress with accurate, up-to-date information on multi-
national investment speaks for itself.
At issue here is our ability to analyze the makeup and operation
of the huge multinational sector of the U.S. economy which, to
date, has been kept hidden from responsible economic and social
analysis.
The Nixon-Ford administration has blocked attempts at monitor-
ing the activities of IT. S. -based global firms.
The multinational sector is too large and potentially too damag-
13
ing a part of tlio American economy to remain behind the veils of
corporate confidentiality.
If rational policies that can strengthen the domestic economy are
to be implemented, we must have reliable data on the multinational
sector and its signifiance in our economy. We must place particular
emphasis on the employment aspects of the question.
But let us return to what is seen as an essentially domestic issue.
In the late 1960's, this Nation belatedly began to look into environ-
mental quality — both on and off the job. From that time until this
very day — and. I guess it will be true for years to come — spokesmen
for industry have told everybody they could find that even modest
environmental standards would mean the closing of many industrial
facilities and the loss of untold thousands of jobs.
Despite industry's dire predictions, we have been unable to identify
any significant number of plant closings in which safety, health, or
enviromuental requirements were even alleged as reasons for the
action. And in those few cases where such causation was cited, we
were rarely able to verify the claim.
We believe that safety, health, and environmental questions will
be with us for many years to come. We think that it is in the na-
tional interest to study, as completely as possible, the impact to
date, as well as the potential future implications of such legislation
and standard setting on jobs and employment.
Only with solid information in hand will we be able to look at
these serious problems without being subjected to unverifiable po-
lemics.
We have given you a few examples of areas where job-related
data is needed and where presently available statistics are totally
inadequate for national policy planning or response.
Senator ^NfETCALF. Mr. dayman, I think your statement is so
thoughtful and perceptive that I hope you don't leave anything out
which you want to talk about.
I think, though, as an old-time friend you will excuse me a minute,
if I may step out and meet for the first time Congressman Max
Baucus' parents who have just stepped into the room in the back.
I will be back again in a couple of minutes.
Mr. Clatmax. I think that is very thoughtful and perceptive of
you. So I accept your observation, sir. I shall sit here quietly.
Senator Metcai.f. Just for a couple of minutes.
Thank you so much. You are always so helpful and so under-
standing.
[Brief recess.]
Senator Metcalf. Thank you very much.
My apology to you for this interruption. Thank you very much.
Mr. CijAtmax. This inadequacy is not a recent discovery for us.
For many years we have sensed that the absence of data along these
lines was painfully apparent. We searched every conceivable agency,
bureau, department, and what have you to try and find out what was
happening to the jobs of our members and in other sectors of the
economy as well. We were unable to locate any source that could
tell us such things as:
What sorts of industries are experiencing employment declines
and why?
14
Have there been significant shifts in the traditional geographic
patterns of plant installations of given industries or companies—
and why?
What identifiable patterns tended to surround the curtailment or
closing of facilities?
To be sure, we had some hypotheses about such situations. We
assumed that the conglomeration of the U.S. economy during the
1960's was destructive of work opportunities. We assumed that the
tax incentives supplied by certain of the States and the antiunion
attitudes that frequently characterize these same areas were respon-
sible for the destruction of historical employment opportunities.
We also wondered about the increasing "multinationalization" of
the U.S. economy. We wondered how many domestic employment
opportunities were being lost to a combination of the tax incentives
for job exportation provided by both our Government and host
governments and the availability in some countries of heavily con-
trolled labor forces.
At any rate, in our own modest way we undertook to compile a
listing of incidents of plant closings and curtailments. We sought
reports from unions affiliated with our organization, combined
financial journals and other periodicals and cadged information from
wherever we could.
Here we are, not being able to find out from our Government
these obvious, fundamental, economic facts and starting in our own
feeble way with our relatively small resources as compared to gov-
ernment to try to find out for ourselves.
Such an approach as ours, obviously, is not totally scientific and
we recognize that it is far from perfect. But as far as we know, it
is the only ball game in town.
One hunk of a labor force is taking a look at this enormously fun-
damental issue because we can't find it anywhere in our Government.
National financial analysts, committees of Congress and various
Government agencies frequently come to us because they are inter-
ested in exploring one or more of the areas addressed in our survey.
While we are always pleased to share the results of our work with
other investigators, we do so with great embarrassment about the
inadequacy of our data. Because of the makeshift ways in which
we collect it, we cannot be sure of how representative it is of oc-
currences in the economy at large, nor can we be sure that the
sources we have used are correctly reporting the information that
we plagiarize from them.
As of the beginning of 1975, our system had been in operation for
4 years, and I confess a feeble system.
In that time span we have noted that 1,701 situations in which
jobs were permanently lost. Almost 1,300 of these cases represented
permanent plant closings, while another 400 represented permanent
curtailments.
None of these instances involved short term layoffs caused by
economic fluctuations or other temporary events.
We did not receive complete information on every reported situa-
tion but where we did, we discovered the following:
Less than 3 percent of the cases reflected claims tTiat health, safety
or environmental controls caused the action.
15
Approximately 25 percent of tlie closino;s and curtailments were
related to the inipact of foreioii competition and they accounted for
some 32 percent of all jobs lost.
The average foreign competition related closings involved 3Y9
jobs lost and the average such permanent curtailment involved 559
people. That is each particular shop involved these numbers.
Another major reason for closings involved domestic relocations,
most typically to low wages, less urbanized areas. In these cases, an
average of 262 jobs were lost in closings and 298 in permanent
curtailments.
When we expand the information covering cases where we have
complete data to all of the situations of which we are aware, we
find that we can account for a loss of almost 500,000 jobs, of which
roughly 150,000 can be related to the pressure of foreign competition.
As I said earlier, we are aware of the very great limitation of this
data, but at the same time we are frightened by what it seems to
suggest.
Is it not the sort of data that this Congress and this Government
should cause to be collected with precision so that it might be at hand
as the important economic issues of the day are considered?
Perhaps our data is not representative of what is going on in the
economy at large, but only a well-funded and skillfully implemented
study will be able to resolve that question.
Mr. Chairman, members of the committee, we realize that we may
have deviated a bit from the precise topic of these hearings, but feel
that it is important to get on the record without concern in these
areas.
These items strike us as ones that contain information which
investors would need in order to deal in the stock market more
effectively. Perhaps it is information which could be most readily
collected by an agency such as the SEC.
We are not really too particular about who does the work, al-
though we would want to make sure that it was done competently.
As a Nation we must put ourselves in the position to make rational
economic policy on the basis of information rather than guesses. We
must develop data that Avill alert us to potential employment prob-
lems before they become fatal ailments.
The data collection advances by the independent regulatory agen-
cies— empowered by the Hart amendment to the Alaska Pipeline Act
and outlined in the model reporting requirements — are steps toward
more comprehensive reform of Federal data collection.
In the not so distant future,, piecemeal reforms in Federal data
collection will have to give way to a more systematic, coordinated
approach.
To date, this lack of coordination in Federal data collection has
led to such things as: Incompatible information series; major gaps
in the information that is collected; and inefficient and artificial
barriers governing exchanges of collected information between
agencies.
"While information gathering has increased in scope, the different
agencies too often gather their data on incompatible definitional
bases. This makes it difficult for analysts, both in and out of the
Government, to compare related sets of data.
16
For instance, our information on production, sales, employment,
and wages, is collected by industry according to the Standard In-
dustrial Classification (SIC). But our import and export data are
gathered according to the substantially dilTerent categories of the
Tariff Schedule of the United States (TSUS).
As a result, the depth of important penetration or export-related
employment are often impossible to calculate.
In addition to these definitional inconsistencies, there are impor-
tant areas where data are inadequate or not collected at all. We
have mentioned a few of these this morning.
Alongside the missing information and the incompatible statistics,
we see a third problem area: A lack of imagination in using existing
data to derive additional needed data. One area that comes to mind
immediately involves the foreign operations of U.S. global corpora-
tions and their impact on domestic production and employment.
One branch of the Federal Government, an agency of the Com-
merce Department, has more or less adequate knowledge of the
identity of U.S. multinational corporations; this information is
stored on computer tape. But the Commerce Department has no
current information on these firms' employment.
The Labor Department, on the other hand, through the Bureau
of Labor Statistics, has records of domestic employment patterns for
the larger individual firms; and these records, too, are stored on
computer tape.
It would be a relatively simple matter to run these two sets of in-
formation against each other and thus discover at least the domestic
employment performance of U.S. -based multinational corporations.
Such a procedure would be inexpensive.
It would require no change in present reporting requirements, nor
would it threaten corporate confidentiality in any way. Yet, under
present arrangements, these two tapes cannot be brought together,
and these important questions remain unanswered.
A few such information gaps can be closed quickly by utilizing
currently gathered data. But in the longer run, our whole system of
data collection will require streamlining. By eliminating unneces-
sarily overlapping and duplicative reporting, we could have more
and better information, while significantly reducing the costs of data
collection and reporting.
Mutually consistent data bases must be established, and existing
information gaps must be closed, especially with regard to energy
and the overseas operations of U.S. multinational corporations.
We recognize, of course, that such an overhaul of the Federal
data gathering system is a longterm project. Yet, the Congress can
take some steps toward that future consolidation and streamlining
without delay.
A first step would be an assessment of the present diverse pro-
grams of Federal data gathering. What questions are being asked,
and by which agencies? What are the rules governing interagency
exchanges of data?
A comprehensive survey of present data collection will be essen-
tial for arriving at a more coherent, less costlv svstem for the future.
17
Such a necessary preliminary study could well be carried out by
the GAO or the Congressional Kesearch Service at the request of
this subcommittee.
Parallel to this exhaustive determination of what is now happen-
ing in Federal data collection, future reforms will require the careful
consideration of alternative approaches to more comprehensive and
coordinated data collection. There are many questions to be ad-
dressed '.
What are the most promising conceptual structures for organizing
industrv data on a common basis?
"Wliat is the range of possibilities for facilitating interagency ex-
changes of information?
How do we establish standards of confidentiality and protect
against their abuse in such a comprehensive data system ?
As the Congress implements the many needed reforms of our in-
efficient data gathering system, these questions should be systemat-
icallv explored and answered.
In closing, I would like to endorse an idea that appears in the
testimony of Dr. Abraham Briloff before the Senate Banking Com-
mittee on July 11, 1975.
Dr. Briloff, a certified public accountant and professor of account-
ancy at the City University of New York's Baruch College, urged
the" creation of a Corporate Accountability Commission to assume
the overarching responsibility of identifying the total informational
needs of our society * * * regarding our corporate enterprise and to
see how this information can be best accumulated, digested, and
disseminated. He stated:
Failing such a unitary trust I can see the present segmented, limited scope
and responsibility as producing intensified conflicts within Government, and
an inadequate and inefficient response to the fair informational requirements
of our modern democratic society * * * one which requires the delegation of
enormous power and responsibility which, in turn, demands a reciprocal
measure of accountability to those who have thus delegated the power.
Mr. Chairman, that is our formal statement. Thank you.
Senator Metcalf. Thank you very much, ^Mr. dayman.
^VA^ien you sent up the copies of your testimony, Mr. Reinemer and
Mr. Turner requested and obtained from the Commerce Department
that proposed multinational survev which you meiitioned in your
testimonv, one that was blue penciled and red penciled by the Cab-
inet-level National Advisory Committee.
I have copies and members of the committee have copies of the
questionnaires here, and so do y^^u. as I understand. I think it will
help the subcommittee if you would just highlight some of the cate-
gories regarding Avhich the Bureau of Economic Analysis sought
information which would be needed by the Cabinet-level NAC.
Mr. Clatmax. Let me do that quickly.
Senator Metcalf. Without objection, this questionnaire will be
incorporated at this point in the record.
[Copies of the questionnaires and other pertinent information fol-
low:]
18
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s
' ' ' /
/
\
/
\
/
\
Tio: T
Trn—ETTt^- Europe /
k^
\
\
,«. .e...a:.nd /
\
»
^^^ Other »u„.n...-Spe^eo„n.r,
, \
,
W. /
\
/
V
«5. /
\
.0. /
\
H21. /
... /
\
■^^
\
/
\
'
s
23
PARENT FIRM FORM
X'd (crossed out) items are those Bureau of Economic Analysis deleted
— — ' -^ I MOTICE - Th. lnfor«lloo r«>oA*i on thl> for. .Ill b. u»
ClI- Z^-
I TO; / M01 K Stro«t, m. {To.«- Building)
* ^-V y-S- D«p«rt.ont of Ccw-co
I ac-iu u i-«vrM<i-
•Jorlty.o«i«l OJ.
1 SUM CofT>or.tlon t^loh !• o>.«
lat. ati for foroljn .fflll.t..
ilrlM call (202] S23-0632.
I ee-10A - U.S. Roportors .tio i
. SCHEOUS tr For. K.1«.
I PWT I, I OOmn CATION OF U^. R£R»
Q F.rW.n,o
PJ lndl.ldu.1
PJ E.t.t. or tru.
□ Cor.r..,on
Clo.,.S..o„
o-
Q"^;
''e^ortir' (Mark on.)
a o-»"
D-Vor.
□ cifornl.
tj,ll,„,.
^J Olh«r - Specify ^
13 ^:rj:::^no'°" ""'"•'•" ""^"'""''
Q nanufacturl.^ Ifabr loatlng, lumOUng, pi
n Sdllng lor dl.lrlbutlna) joodr
a Olh.r .S»..lf,
24
6'^
► PB-l 1 - IDOTIFlUTfON Of Urf. RETORTO! - fontr,,.d
14. P»c«,t of U.S. »iporl«-. n.l «1™ (.. r»orl»i 1" It" ". »"•' I'll .cooont^J for b,^«ch ^^•||^[|"f|^^-|'°'^;^_^°^''_J__°|J'3[";;;^^";„^,
^
^r
'"**M
Cod.
? '-r 1
"■ in
'Tr
^
XSICULTUtE, FORESm, UO nSHIW
307
1.WJF4CTWING : Conlln..^.
44<
•R«Ksrom«-n OR, oowuir cm o«^aEO«i c.
.jHoJlur^ p,o4.«lon - cro,..
Mi.o..l.n»o.pl.,.io.pr,do«.
P..ro,„Un..op,..,on.
OM
.,rle>atur.i oroiuclloo - ll...tod.
~
■"*"
l..lh«- .nd l«lh.r prodoot.
<T70
.,rlc^.„r^ .....c„
«-
—
■ ^
—
__
Omor ™..r lr.n.por..tion
oeo
For..tr,
—
t^^iifjiidS'r'' "^
450
Tr.n»ort..,on b, ..r
'
~
™u;ili"gi";i^ii^»t:; ""^'^•">
10,
Ml NINO
—
—
Pri„r,.....prodpo..,^^,.,ro„.
479
Iror
TO
CoppT, l»d. .loc, 5old .nd .ll.«-
Ml
— —-'--""'•'"■"
Q.olrlo, ,.., .nd „n[t.ry ..r.io..
105
B.axl,. .OX olh^ .J-.o- or..
342
Oitla-y, h.nd to^l. .nd h.rd>.r.
5«
K»
Olh, ....lllo or,, .nd ..IJ .loin, .--.lo.
343
t!:i;!nS':SiXl!'Soi,;ia.o.r,=
*rT. :*'^.'~ •"'°~""'
—
Si;iu'!;:;;r.r'*"'"'"'""'
503
Ld*^jnd oth«- «>n.trt,ollon
nT
'^'r.ZZ'" •"^•""■" '"" """'"''
^
*sj.;r' "'"'■•'•■ """
—
'
on .nd g.. fl.ld .--..e..
345
S,- ..o.,n. proddoU, Po,,., n„...
505
D.=.rlo.. good.
150
co«s™kt,o»
506
"r-pr.:i.irJ3-«i'-"-
Mfi
Cont.lruotl.n
507
SS^rfJ^TniTri--—'-
^
MXIFtCnOING
34,
508
:i"pr!.'-"--*'""-"
M«.t orodoolt
~
0.lry produol.
509
«i.c.ll.n«o.d,^.bI.,«,d., n...o.
3S1
203
C™«1 .«! „r..»..d froll. .nd ..9.I..I..
511
552
!04
Gr..n .111 p„di,ol.
512
Orog..nd«,io....nd.ni«»~doo..
208
1^
App.r.l, PI.0. rod., .nd notion.
209
Olh«- food .nd kiodr.d pred„ol.
354
l....l-ri,lng ..ohlnor, .nd ^<^i
Grooor... .nd rol.tod p^doct.
~
"~
355
Sp.ci.1 indo.lr, ^ohioor.
515
''•■-*"=*■«• •-■'■'•
220
~
,„.,„.,:. o^dooU
35.
'zzt^^r '-'-"-
517
P.troI.« .nd p.trol«. pr^doot.
519
-..o.I,.„»o. ,.,„iur.b,. good, n . 0
230
SaHF"
357
Offlc, =o.tPlIng, .nd .copunlln, ..okl
1^
SSSTSEc 1
liliil;:;:;""" '"" """'" "^"^
R,t.il tr.d., ..c», food .tor..
2U
3.i9
tachlnor,, «o.p> d^lrlcl 0.
524
rood .tor..
^y
■""
Ho *old 1 t id li
«»
nmiKt,' INSUR»NCE.'»W) REAL E5T4TE
262
Polo, o«.«-.ndt>o.rd.lM.
B.„Vi^
364
UrfSint"'"'"' ■""""■'"'
610
Cr.di..,.n.i..otK.rth.nb.nk.
"4u'l^?"'"°"" ""^ "■-""='"°"
X!
' l's:lj'.."ind°°r'iu.'?n'd':;.'u.:;';
367
a.o.™niooo.pon„...nd.o=..„r,..
270
Prinllns. oubll.hln9, .nd IVti Indu.trl..
630
! :r::r""oS:-'- •"""• '"'-
ai
LT.?;^:! fnTly'SSUf"""
369
Q,c.rio., ..o^inor,, n.,...
650
»3
0™,.
371
*.or.*.o... .ndo^ip-onl
660
^' ™»!"io;n.'"lo~«';f < > 0. 6
w
379
O.h.. .r.n.por>..lon ..„,p.„, o.
670
Holding «w.ni,.
P.lnl, .„d.ni«)pr<,duet.
361
^:;:::Ji;;^M3'»"~ni::,"^
700
SERVICES
»7
.,rl«.Uur.l ct,„lc.l.
^.stJ'ioST-n;"?.^:- ""■ •"
363
Op.io.,.„dopMK.:.ic,«d.
299
a-lcl product., "...e.
751
4d.«-ti.lng
364
?::?:si;i:i:r'.^^.r'-
291
lnl.,r..M p.lrol™ r.fln.n, .nd »lr.cllo
780
292
Pr.rol.,™ refining .llhool .Xr.c.ion
=66
89,
^i^l^rJT*!"""*'' "^
299
W.tch.., clodc., .nd ntoho....
89,
'b:.°s;:;i?„; ::;?X,1' ""^
S^dSi:?";;."""'"'"'"'^
""""■ ""*■"•
899
°i!:r;o:r"n::'.o!"' ~"'""
FOR.
OE-IQ
«-<r-7y;.r-..
P.g. 2
25
.ISTIW OF TOW at- 106 HLED I
1V^
tej
Full o.». of r»r«lgn ifflll.t.
. •• It vpur. In Il«. 3. For. BE-10«)
""'8L'iil;:fi::§r
^f^f'
7zrj_
I
«*?
23. E<^Uy Invost-enl In foreign aff 11 latos%Jil ch U.S.
Roporler Is raportlrtg aa a parent - Equ.ty investment.
including e<^lty in undistributed earnlnqs since acquis*-
a. TOTtL WW ^^^"ol'Tt^r^.'lL^ ilt "' " Mi
. TOTAL LIABILITIES (Su« of lt«a 26 through 30)
EQUITY. (Ec^alB Item 25 mlr
clalma on foreigners. Include, for exanple.
Foret^/» liabilities - That portion of tots
payables Ig fbrelgnera for Jjcart?. J nclgc
^^im.fi^.^^/p.
^ Included .bo.. - 5p«oir,j
~ t»JH jH(^ ^^^''^CT'erKilti
,^
<5. U.S. InoMit ta.os - Pro.i.lon for Fod.r.1.
l"or So'Sf
'"■ >
26
27
?-S
^.=.u..n, .....„.«. ,,..6.....
,..t..,
Cports
r-vort.
'^iilEslvi^'^I?"
th.S foreign
f.o.b. foreign port]
TotJ
(.1
ProducU^of
"■ ll^UI^H'of;* 3!s""Ri,^«^I'Llll"'-'°£*LT?hf ^ oI'iiIII'tI"
^
,
OJSSlFiaTIOKS booUeU
77. f<»i. t,.»^«. and tot«»
SITC cod..
(
^
7*. 4"»llbl. o~d- ..t«-lri,, e,c»t fuds
2
\
\
„. PMrol^ ..«. P^duc... „al^.n, nawr^ ,„
55
1
)
BO. Ch»lcd.
5
1
(
81, ».«„n^„d,ctr,d.l.n<.»».d.ctr.=..
21-72
I
\
82. Ro.d„u,r.*,d„.ndp....
752
j
]
/
8*. Itetid Mnuf>ctur«5
67. ea. and 69
(
\
85. Oth- ..,„,.=W.s
\
/
86 «1 oth.
5 (..clud.n, 551.
,
, /
. (
BvCDUNmy ■ ■
,
, /
. \
,
,
, v
. /
»
88. Br«U
mr- «».«
1
(
«
$ 1
' )
$
(
^ /
»
92.
«
m^
J
84.
,
' /
^(
s
».stern Europe
,
. C
» /
iu
_*^ Unl.^ K.nado.
>
(
10O H,lh-l.nd.
/
101. Bd,lu. .nd Lu.»b<.u,^
(
102 lrd.nd
V
1<n. Oafmrk
)
/
105. 5.ltierl.nd
$ I
, )
, (
,
107.
//
\
)
m
I
1
m. c..t.rne.rop. -
V
112 J«..n
\
115. Austria i.
J
1W N» Zealand
1
His. South Afric
\
, )
«
)
1
118.
/
{
120.
\
1
122
/
125.
1
f—^
'
28
AFFILIATE FIRM FORM
X'd (crossed out) items are those National Advisory
Committee deleted
n^ X ;j£,^ c^jU^^ A/AC
! ^^ Z)je/if:T V/7ff .iLi-ju
IMPOMTANT - /V-se r<Jd
. FILUG - > c»«,l.l.j For.
^-/
.iJi^LliJ.
J.iJJJ JJ...!JJ..Liij.J,J ' ' ' '
Q
Q.. ..„,.„ Do
^
]»FIL
rm
la«lrl>^ ann
•?:? I "lir
a. ifiu. wi. /ii.^ .1, ,^ ,
1^ SELEaED nKWCIAL 0*U and PART IV, HNANCIAL 50HEDUtE5
Q l^isr 9si,':?i"S,™i,iu-„^2.^!i8rii^'." •
•Mll.t.. Ila. U thr^^t. J
29
C-A
p...
., OENTI nan ON OF FORE. GN.mU.Tt BEING
REPOBTEO -
on,in„.d
D
D
Other -Specif,,
.n.ol.ed ,n,hl. .cti.ll/7
"S
;,::.H'L"£'E^^Sji3^'Si
s^r^li-'
«RT ™«0E CL»SS1FiaTI»IS Booklet for ,
^Hlc'r^t^HrifHlE^"*'^"*'" ' '
-•
.rj.n
'—
':^
,nd„,tc.
^(a)
iiir
induatr.
010
<G»I OJLTIFE. FORESreV, AND HSMING
\
307 1
„,
-R.»5PORT.TioN.^oo»juNi am>K^^am, c.
.,r:^l.^., pnod^C^on - e..„.
Pe.roleu. tanker operation.
020
.,ri™U...lpr.d„=.^.n-l,.„.oc»
310
Lcner.nd leather orod>,=.s
..,
070
.,ric„Uur.l scr.ic.
Glass pnodoe,.
~
.50
'o^rc;^^'^;:^^:":"'' "'
WO
.............
.61
n;?s;rgi";s^»?«?;; -"'"■'•'•s
,31;
Pri.ar, ..t.l product., ferrous
101
1
1 .«..
.79
,35
Pri..r, .etal product., no^ferrou.
'-"
.80
10.
-t::^.. „,„.„„..
3.1
Hetalcn. and .Hippie ^ntainer.
.90
Electric, ,.., and „nitar,ser.ic.s
105
B,„„.e."do,h„.J-ln„.„r„
3.2
Cutler,, h.nd Ux.1. and h.r*..re
„.
WWDLESAIE raOE
109
„„„„,.„„, d.«.l.ln,„,.,^.ic.
i;ea;'n?'lSlSl,ii";"i.rdectric
*ri;;n*d'Sp"it«'"'°"°""
120
S'cUlu'Jr. jir""" "'""""'
i;"^.;"" ""'"' °°""''""°"
—
rnS^;::!',-:: """"°" '"° """'"'
SO.
;ro?e^^ •'"-■"•"=-'
™
on .„d,..r,.,d „,.!„.
505
Electrical good.
-1
COKSTWaiON
506
"e^Cl^i^-t.^ai-rsU-plI^.^"*-
Conl.trucl.on
507
HAXJF»aUIlllG
"si
--
:«:p::2t""*" ■"'""•^' -^
Heat produolj
202
D.lr, p™*,pl.
Miscellaneous duraCle good., n.e.c.
203
.
Cnnri .nd pr..«-.«) fruit, and .«,««!.,
J51
511
Paper and paper product.
20.
Gr.,„ .111 product.
352 1
n.
Drug, and ch^ical. and allied product.
353 i
^
B..cr«g..
l>pparel. piece good., and notion.
^
Olh«- food .-d kindr»J pro*,.!.
35. J
Metal-rking machine-, and »»ip.eht
51.
Grocer,., and related p^duct.
^~
^~
T.P..O. ..„„,. = ,„r»
,55 '<
Special indu.tr, ..chiner.
515
Far^Foduct terial.
220
T„.U..,np™d„e..
e^rp-i,;"*"''"' •""'■"'' ""
517
Pe.roleu. and petroleu. products
519
M,sc.ll.n„„s,..-d„r.t,e,ood. c.
230
'"d"i.';:^drfro/;«HS
,57
Office, co-^utiog, and accounting -achi
570
RETAIL 7R.0E
,58
machinery
Retail trade, except food stores
2.0
E„...„d«ddp^..,.,„e.t,„F.t„„
,59 1
itechioer,, ccept electrical c.
52.
250 j
1
Furrllurc.™! Fi.tur,.
Hou.ehold electrical appliance.
FINWCE, IHSURANCE.'.NO REAL EST.TE
Pulp. p>p,r.„d».,rd.;.l.
'"
'eJiu'ipient "'"'"'■""' "''"^
6M 1 Bank.ng |
3Et-
«.SC,U.n»„. »n.^..<<p«,^„r„*,e,s
"ei;;;eJ?-""°- •- —"""""
2«5
620
l:s;::^'e,"ind":^'! i'..''rn5':::esL'i"''; f
,.,
El.ctronic„^„..t,.n..cce.»rie.
270
Printing, puPli.hing. .nd alli«. industr...
—
'"■=^--"-— ■•
2S1
i.::?",;r.it; :;;r;,^tS;t?U"""
,69
Qectrical .achiner,, n.e.c.
650
1
263 1
371
*,tor ..hicle. and e,^,p..nt
660
26. i
Sow, =l«n«..^„d^ toilet good.
379
Other tran^ortation .<^,p.eht, n.e.c.
670
Holding co.».„ies
265 '
361^
|j^i^=a:ri:s^^i^
700
SERVICES
-
—
:"— - --"
T.'i:^';J^.%l,ucV."' ""'■ *"*
Optical and ophlh.l.ic good.
383
731
.d.ert,si.
38*
Surgica^^.edical. and^deotal
291
lnte,r.t«J polnoln,. rofinin, and „lr.«io„
760
rei;rs?;rt;p-j',:rf?fr ■
292
Petrols., refining. ltho„t ,.tr«.ion
»e.
Ptato,raphice«ip,aent and suppl i e.
89,
^:xx't^?^'"""'- ""
299
Watche.. clocks, and .atchcase.
89,
'^z:'i?ri TeJlLi- "^
--''■""•■•""""
699
1 °^:TcSr~?:'.c:'^ ~"""' 1
56-957 O - 75 - 3
30
C-J
I I I I I I I \-- I
^ .Yyi,-p-MiAti^ i}^a-o~f^^
X
X
X
31
^-/
^P... ,1 . ,»V[5T»E« « TR.N5.CT10NS BOVE™ P.BENT .ND FOREIGN .m LI ATE - C„.l™ed - - REPORT .LL .WUNT5 IN THOUS.«,S OF U.S. DOEIARS |
Aooordin, to Pool., of p.ront
. EXPLANATION .
assols oth»- th.n o.sh
5. Transfer of „vlp.mt,_
tangiblo prpporly
8. Othor - Spool f.
"n^'
••"-',"•'=*-'
!::L:||gH||Sg:g^^
,
,
.8. Es..«l.h.„. (IO.U l,*l..,loM of .ff^.l.t.
A9. '°*«'lf?i;i"r"' ^ '"'"' °' '" '*'" '""""' '
51. Fro. U.S. p.rsoo=
V i^;'-;;^'/;;-;,-;--'. "'--o""" ■"-"'-
S3. -„sit/;ri: tsTMffTf,l?s!='" """'^' °' '--" -—^ '' -"•« '- - ^^"•""'
SA. To U.S. p.r,o„
55. G.i. (lo„) on ..1= or li*M.,ion („,..U, or ioUll of ,„ „„Uy Inter...
S6. Cpit.. oonlrlMloo. »t r.^Uin, io i s.o.nc. of oapl..l stool,
57. ..,t.„p (.rlt.*»l
~
58. Exeh.n,.r.t, flucto.,. on during th,,.,r
59. Ot„..-Sp.olf,
,
,
,
,
61. N.t Inor.... (door...,) ro.oltlng fro. tn.n..ot,on, ,ith .11 for.lgn.r.
6.. No. lnor,..e ldocro.,ol nosultin, fro, in.n„otlon. .i.h .11 U 5 por^na
65. 0,n.r - Spool fy
»
X
RECEIPTS tm PAYMENTS OF DIVIDENDS. INTEREST. FEES. B0VA1.TI ES. AND RENTALS
"luyr
' Ibl
-'Kr
T„ .ithhold
65. Di.ldond. on oo™on .„d pr.fornod „.oS p.id no. o, o.nnln,., o.olodlng .too. dl.ld.nd.
,
s
s
67. Royaltios. 11 o.n„ fo... ond oth.r f.o. for th. „., or s.l. of ,nt,n,,01. pnoport.
68 Ron..l. for tho „.. of t.oglbl. prop.rt.
"■ :?"o:t;,-::;;:::,:*;tr"""^"'""' """"•"' ""'"'■ ""'""->' - "*"'=" ""'=-
70.F,l.ort,„.,.,on..por.n,„.
™— --"• m
s
S
s
$
or tho yo.r
-■SiS£?S=~iSBi^^^
,
^ P.r. Ill - SELECTED R NANCl AL DAT. OF FOREIGN AFFILIATE - REPORT ALL AWUNTS IN THOUSANDS OF U.S. DOLLARS |
. FINANCIAL DATA .
75. Tot.l ...... ., „d of ropof„n, poriod (S,.o .. It„ 90. ool.-n .)
"■=;.s=ss=sS=s™-i2^
™- s;o;"?f:.%':iT.s;°i;ir '" ""''" "~- ""- '"' """■• ''-'""" - — -■' -""■"
"■mmmmmm=^^^^^^^^^^-
^mmsmMm^mm^sssi^...
.
►s3m™v™Ev^^^^^
32
as
33
C'^
34
^-7
► Pan m-FINANCIM SCHEDOIES— » - — ^ - —= - — - -l- »-- '" —■ '— - -• ■•— '- -• "■'-•'"' 1
MERCHANDISE TRADE
t;'
Shipped b, the U.S. "0>orl.r(s)f'';''g'^p2.^in
,s„ ,.„e... •,";:':.:^r™f "rLr.,™!'".r,t:"r.„u,
:?.xi?,'jrs-
':'^i.
"'• ??::,f;::'t/?.:::'i;:''j»;';«"::^i^in";;;;-n:;=;^;L„,. ,»,
"
«
1M\_ Food, be..ra9.s, md tobacco
0- 1
/
,.^\,... ...... ........
/
.. ..o..V.od....„.„d,. „,....
„
/
.. ...>^\
5
/
.......... .^^.. .......
71-72
/
.. „o.d......„a„dV.
752
/
™. „.._..... o...\
e.,aodln, 752
/
.. ..„.™,.o.., \
67, 68 ,pd 69
/
.. 0........ \
61 through 66
/
\
5,...5.o9 55,.
/
/
165. For r„.l. .Ithoul foriher ..nuf.otur. >S.
/
166. Capil.1 .*,p.obt for lo„. or rental b, .ffUi.tr to otbrr, ^V
167. Upai ,^ip-on. for .„ 6, .ffUi.te ^\
168. 0.b^-Sp.c.f,_
f
,
,
.
''"N
Sb,ppedt.tHeU.S.Peporter<s.
Shipped to oth«- U.S. persons |
k (b,
Products of
-■ -f ,i-;r',j^';;i';;:oiV?5.r "- ='""• '-'• '--" /
.\
,
1,0. Fo..b..::r::r::::r'°°""' /i
/™ eode.
\
\
171. Ir^^bl, orud. ..t.ri.U, «,=»> fu.Is /
\,
172. P.trol™. .™< produc... .,C^i„, n.l„r.I „s /
„
\
175. Ch«i.lcls y^
5
\
™. .o.„.. ............ .r,./
71-72
\^
- ---» --'- 7
7,2
\,
„6. Ot.rrtr_.,t,or..„/
\
- ^~ /
67, 68 .Pd 69
\
^\rs=s
\
17. ...ot. X
»-..
,
,
,
\
....
lb)
• fi^::
leoy/oh.rdise export, sblpp^l b, .ffill.t, to nor^Unilrt Slates persons
,
J
5 \
\
COIWEBCE USE ONLY
35
C-S
' ► PaitlVRNmnCHMS^^^^^^-"^'
3m% firaNciiiftiioN..
l;aTa8!'giS;'i""
) SURPLUS RESERVES - CORPOBAI
mmw %_m& \\\
??;3g;33«<:"sro. ,
CD10SIII9N Df wm. \wm
m"ll,'i2fand"9l] °'°""'
xt. ir.vr,f '"" °' °"""^ '
^
36
AFFILIATE FIRM FORM
X'd (crossed out) items are those Bureau of Economic Analysis deleted
t Ol.Ulon -Bf-UISSel
IMPOKTANT - /'/-s^ r^^^
FILIIIG -i_£aKljlja For. a£-106 It r
M't». I* .% I.^l>l«. «il Ijfal M».«tMT
2. EXEIPTIONS
^V
< «FnU«TE SEIH
,IJi,l,i
llJJJJl.!JJ..Liij.J,J ' ' ' '
i~n~i
COIIERCE USE ONLY
ffi
Jafil
[~rT
r U.9. Dva-ur
PiPT IV, nNANO^Al^ SCHEDULES for the afl
3. CENERAL NOTES - SPECIAL
In tha osntKt of t|u.
i;^ I "lii
T=JrWTCTX-
d PART I V, n NANCI AL SCHEDULES
£j. jgsi8|^?si,':?i''S,'„?'iii:i-„«ts.'viasf^':
Pk "•OO'l *>•• "Ol Irolud. P/MI iv.nmiicm, SOIEIIULES portiMIno to .fflll.l, b.uuu
SdiS" 1 '*'' ' ';',"''■' ■'*••"• '"I "•'"■•• O' »">•• oporitlni r.-«»,t.
g .......
~';.si[.^^'''"ji> IJi;iii'.Ii— " "•^"''' "•
37
Z)'^
P... , . mENTmUTio^ OF ™e,« .mn.TE mm rented - ce».,™„ |
''lE::H,H.Sill':L-fEH:sJ^'i;-ii^ii^'^sr:ii^^^
-•
sales
' —
Cod, '•;?'"•
industry
CO.
'snr
industry
010
307!
441
•BAKSPOOTATION, OJIHINI C4TI ON, ELECmiC,
GAS, AW5.NITABY SERVICES
.,r,„,Uur.,p~duc.i,n- crops
Petroleu. t.n.er op.rafons
020
.,H»,Uur,lprpd„ct,o„-li.„..o.
44,
070
Agri^lior.! services
Glass products
~
Forestry
-^
450
L""c;it^';;:;d;"r'' ■"'
cso
Fishir,, h^nlir,. ..d Ir.ppin,
;
461 1
nnrglrSLltlrn '"^'"^"^
551
Pri.,ry ..tal products, ferr.u.
.01
1
-MINING
479
Transportation, n.e.c.
555 i
Priory ,etal product,, no^ferrou.
Co
102
541
Metal can, and shipping container.
10^
5.2
Cutlery, hand tool, and har*„re
SO.
ynoLESALE thaoe
Olh«-.e..nic.res.nd,et,l .Mir, service
5.5
Metal pitting ^fl.ture^.nd^^^^^^^
^Kiird'S^ir^t'"*"""""
—
^ir.'ir;rd^r'*"'° "'"•""■
503
-
Lu-b^er^and other construction
IvT
^r:.;s;f,~: """"°" '" """"^'
544
50.
::;?ifes:'' -'"•"'*■ -" ■
™
0.1 .rd ,., field service.
,45
505
Electrical good.
ISO
tONSTTOCTlON
506
"eSC'e^-t.VnT'.LS.I?.""""'
546 1
Cort.lruct.or '
507
20,
MANUFACTURING
5M
':^.Xr'--'*""^"^
M„l preducl.
202
O.iry product.
M..cellaneous durable good. =.
OT
,
Cored srd preserved frol ts .rd vegetables
?.51
511
Paper and paper products
20«
Gr„n .111 product.
352 1
^-^
Drug, and che.lo.ls and alll«l product.
555;
208
Apparel, pl.ee goods, and notion.
2<»
0.h«- food .od klrdred products
Groceries and related product.
~
Tobacco ..ruf.Cure,
555 j
Special industry -achinery
515
Fare^roduc. ra. ...erial.
220
Te.tile.i„ products
Sjini"*"'^'" """'""•'■'' ■""
5f;
Petroleu. and petrol-,. p„duet.
519
MLcellaneous nondurable good., n.e.c.
250
S^:rl?'r:!S?jr'"
557
Office, oowting. and aeoounting ..chl
sio
Retail trade, e.cept food store.
Lu.O,r ard-od products, cceptFurriture
559 1
Machinery e.cept electrical n.e.c.
52.
Furoilure and fixtures
563 '
Ho hold 1 I cal 1 nces
6«
FINANCE, INSURANCE.- AND REAL ESTATE
262
Pulp, paper and board .ill.
36,
%f;L'^r •*''"' ""•"'^
■wr
Miscellaneous oorverted paper products
610
1 Cred.tagencie, other than b.n.s
"eSipAeif-"- •" "•~"'""°"
265
Paperboardcootaioer, ardbo...
620
«*;;^^.-'lnn:;;;c'.,''rn'd'T;;.s"'e:^';
567
n.ctro„,ceo^„ents.nd.ooe.„rl..
270
Prirtin,, publishing, and alll«i industries
650
' '^Tzv.^fr- ""'"• ^''"-
2B1
l^e^l^iS l-iyftSilfcl'""
569 ,
Electrioal -achinery. n.e.c.
650
Real estate
265
571
*tor vehicle, and eguip-en.
660
26.
,79
Other tranaporftion e^.p.en.. n.e.c.
285 ■
Paints and allied products
581 ^
SSr'-^^^~"^^'
7M
SEFVICES
-
optical and ophth.l.ic good.
Ch«.ic.l products, n.e.c.
585
751
Advert.. ing
584
?nS™i;i'1id'l; Tf.f "'"
291
Integrated petroleu. refining and clr.ction
780
tS:','T^iv :M%t.'^ ■
292
Petroleui. refining- ithout extraction
bT
P.tographlce,ulp.enta...plles
89,
299
Hatches, clod... and ..tchcases
893
••^Tc:::?^ rii'Li- "^
pro5?cl""".c!~'"'"'''^
501
Pubber product, '
899
?:;:Tc:?"n?::=!"' ■"•■""•
38
Z>'3
^ .^yy\,yp.-cd^^ 6-/.^^>-y^
IWESBPfT BDIiJEEN PftREWT AND AFTHLU
X
X
X
""^J"""
39
Z)'/
^P.rt M - INVEST«E«T .« TBANS.aiONS emEEN PMEKT « FWEIGN .FTILIHE - Cntlnocd - - »EmT .EL AKJUHTS IN THOUS.«>S OE U.S. OOLLARS |
According to books Of parent
. EXPLANATION .
^ kEAK OF
3. Exchange of Stock or
■"'"•-EF"
ettlcen, ^de,
,
«. E,t.bl,.h.„, (totU l,«,d.t.o„| of .ffi.i...
49. "V'^IrimiiSr"' "' '°"'' °' " ■""'" '"'"■"' '
^- £-.?j>,;-'^Hfrit??nstS"=''' """"' °' '»""" ""- " '""" " ■ ^'"•""'
51. Fro. U.S. p.r.on.
52 "^''^infmi^^e'"'"" °' '" ■*'" '"'"""' "
55. SoiSJ/So-: K:n?fT.-,&!='" -'- " '-'-' '-""- " '"■"- '" ' -""""•
5.. T,U.5. p.„oo.
55. Gain (.o..) o„ ,.1. or l,*,d,t,on (p.c.i.l or tot.. 1 oE ,r „oity Intor...
56. Caplt.l a,ntrit„l.ons not rcsoltio, 1„ i sa,.nc. of capital atock
57. ,ri.»p («.,..do.„)
-
a. E.=han,, rate fluctu.tloo d.rl„, Ih. ,.ar
59. Other -specif,
.
,
.
,
62 Net iocreas. Idecreaael re.ultin, f^. trana.ction, with all U S per«,n.
65. Other - Specif,
64. Net capita, o„tflo.(e,^it,ool,l
,
xr
leceiptsb, parent fro.'.ff ,1 lat,
~-'>Kf"
(bl
.itjh,,d
(d)
65. Oi.idend. or c^on ard preferred stock, paid out of earnings, e.doding stock di.idend.
s
t
,
66. ,«„est
67. „o,..ties, license fees, and other fees for the ose or sal. of int.ngiOle property
"■ L":ca°;d":;;;;es:'"e?r""'"'='"'""' ~""-"' •"•"■"•■ <-""'•'"" <■'■ "*"-i ""—•
70. Eil. or television tap. rental.
™"— ™' •
s
$
$
«
"■:s:;Hf::l2::L'Ti:;S{^":i:'5iHrH;H?^
,
^ Part ,11- SEEEQEO n N.NC, At DATA OF FDBEI GN AFF, LI ATE - REmi ALL AkCUMTS 1 « THIUSANOS OF U.S. DOLLARS
. HNAKUL DATA .
T5. Total assets a, end of reporting period (S.-e as it™ 90, clo.n ,]
75. U.S. .erchandise exports shipped to affiliate, f.a.s. U.S. port (Sa.e as it.. 153, colu.n a)
76. U.S. .erchandise imports fro. affiliate, f.o.b. foreign port (Sa.e as i te. ,69, clo.n .|
™- ^tL;x:.'nTtr;;ir '" '°^'"" '™- '—■ "" """ ''-"■^' °" "»"-" -■" '"""'■'
••■mMmmmms?^^^^^^^^^^^-'--''
'■mmmmmmmFis^^ss^^^..
"Si^ij-SHfS:^^^^^^^
► H:-StH'.S:= Si -aft "=SS=;1:S^
^x^
40
► Part IVflNANCIfll IMMlt^
J2^
REPORT ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS
BALANCE SHEET
INCOME STATEMENT
Ttjde iccounis ini notes receivable - Net c
. Sales la>es - Th. .
.na l.n« h.ld lo, ....I. . -
« COSTS AND EXPENSES •
93. Otliei current lialillltles -
9*. Loni'lerm debt (eacludlni current p
41
42
-7
Pin IV-HlimiCI)ll SCHEDOLBi"
MERCHANDISE TRADE
Hhc.
Uj^e
43
► PartlV-FlNCIfllSCHWSi™
. .^T .. .-,«n ,. ^^^ 0. „^. oou.^.,, „..: ,„„... ... ™. ........ ,u. .... „„„..., [
^IDPIUS HFCOIICIIIMII
....
' anMEn or CHMGES II nwiciAi pgsiriDi >
'" xr-
. "C"«'^f; ™f,^^^„^^°S^°'' •
"'• ;:L'?s'i«r' '"■°"'"°" '"' '"'"'" '""" "■" ""'" """"'
"^•1Si;&r^~'-
"*• 2='.rit'jit:;i ;;5%-«S'.s; ;i ;;f.:".?7:r'!;L""'S """"' '° '""•
"'•S'^:ri;°.?o;.'?Mi:,rb,r.M:s:'.^""u:/t;.;~"i3ii°.;:r,',;;"e9
.. S.I.. 1
k »..,.-„„ 1
i;??"l^rt?«"?fil*l?-'S.=l?i'"~"
^'' IIISEiSSSSiiS^^ "•
186. Qo.i^ b.l„„l«,.l .w.l-it» 1B2 plu.
'"?siS!£i:!;i-:::::r'
'"• S'elS^g'w^'oil""'"""" """ *• ""'"^ """" '""'
200.0.h.r».r=„-Sp.eir,,
201- TOTAL SOURCES (Sm of iim 192 M^
*
-iSSg=Sr
"l|||||lllililiP''
-■|5;25r=ss»r
SSETROLEUM AND MINING EXPLORATION
AHS4J£VEL0PMENT EXPENDITUREj__^
:*^
'^' i^i^^rfi^fwis^iwiC^'*'**^'''
'"'• °;s;„;r;;i:"i7'°- l~"Jrr"' '""' '"'"^"- "'""' '""' '*"'"*"'
''"• W^3ajPii#«?7?rorn7] ^^
,.,.,^^
r"JTr.i;ii.'"ii'«i *"'"" '"°''"' °' "" '"""' '""""' "
•^'^
^' '^oSst^i"''"'^"'^"''^'''"'"'"'''''""*'''"""^^^^^
CDHHismoii OF mr
Fill;
sis:;; °i
n„„o,a ..,.,.„ .„b. 1
U.5!"r«ld,m..
a
Olhor
— ™
•
^^°-Sf3:vS:^?^.r:ir-
,
s
,
.
S
'^^•E"H;s^'r2^i:i--
'"■ '^u:J,:ir\T^\TilTs.T' **" •""'
='"'"«
tss;s.%s;}"" " "" " *'* '• ""-""•^
"S"?"-"---'
?15. TOT.L |5„. o
,,.„..o ....... •
,
X.
X
X
x^
.
J
-^rl:^^-^i^^
---
b. To o.h.. .h.. h..W.
"'■mx^^^^--
.. T« l..nk.
b. To o.».r .h,„ b.n».
^^■if^r::,:^^^^^^^^-'-^''^''
»«"l"9 '.!•"".
^^^.~^^^,^^^,
si:i4S!-l.r.?:..T.?
!£'!l'?H'-™
.0,. .„.,.-.«....«, »
.
x~
^x-
><
><^
44
UNITED STATES DEPARTMENT OF COMMERCE
The Assistant Secretary for Economic Affairs
Washington, D.C. 20230
'^'B JUlWS
Honorable Lee Metcalf
United States Senate
Washington, D. C. 20510
Dear Senator Metcalf:
This is in reply to your letter of July 17, 1975 to George Kruer,
Chief, International Investment Division, Bureau of Economic
Analysis, requesting information relating to the clearance of
BEA's report forms on U.S. direct investment abroad by the
National Advisory Council on International Monetary and Financial
Policies (NAC).
The documents enclosed relate to the review of the form--which
was sent to your office on Tuesday, July 18, 1975 by Mr. Kruer' s
office--during the clearance process. Much of the work was
conducted at meetings of the Working Group or by telephone and
no detailed records exist. Mr. Kruer' s memorandum to James A.
Griffin dated July 30, 1974 was prepared after it became apparent
that the Working Group was going to recommend substantial cuts in
the form. It was an attempt to justify the form as it was
originally proposed and to forestall major cuts in the form. The
attempt was unsuccessful.
The memorandum of August 13, 1974 from Mr. Griffin to the NAC
Working Group summarizes the results of the meetings and contains
a draft of a report to the NAC staff committee chairman,
Robert Watson.
The final report was sent by Mr. Griffin to Mr. Watson on
August 23, 1974, NAC Staff Document 74-24. Since the NAC possesses
the report you request and labels all its papers "For NAC Use Only,"
copies of the report should be requested directly from the NAC.
At a subsequent NAC staff meeting, the Working Group was instructed
to meet again to decide which of the items labelled "questionable"
were to be retained or deleted. The NAC staff wanted a firm over-
all proposal from the Working Group rather than considering
individual items.
45
2
Given that the "delete" items were out and subsequent discussions
showed that the "questionable" ones would become "deletes," the
matter was not pursued further. BEA decided that the truncated
survey would not provide data essential for the analysis of U.S.
direct investment abroad, and chose to review the possibility of
seeking new and specific legal authorization for the survey.
Such a review is continuing.
I would like to underline the fact that no member of the Working
Group felt that the deleted data were unnecessary for analysis and
policy purposes, but rather it was felt that the legal authority
to collect data pursuant to the Bretton Woods Agreements Act did
not cover the deleted items.
Sincerely,
WMES L. PATE
Assistant Secretary for
Economic Affairs
Enclosures (2)
U.S. Department of Commerce,
Social and Economic Statistics Administration,
Bureau of Economic Analysis,
Washington, D.C., July 30, 197Jf.
To: James A. Griffin, Chairman, NAC Working Group on Foreign Investment
Surveys.
From : George R. Kruer, Chief, International Investment Division.
Subject: Survey of U.S. Direct Investments Abroad.
AVith reference to the July 12, 1974, meeting of the NAC Working Group
on Foreign Investment Surveys, and the view expressed by some members
that the information requested in the propo.sed Survey covering 1973 of U.S.
Business Investments Abroad may exceed the legal authority conferred by the
Bretton Woods Agreement Act, I wish to raise the following points for con-
sideration by the Working Group: (1) a review of the Articles of Agreement
of the IMF, which specifies the data to be furnished the Fund upon request
and its relevance to the 1973 survey; (2) a review of the justification given
by the NAC for its approval of the Survey of U.S. Business Investments
Abroad taken for 1966; and (3) a comparison of the proposed 1973 survey
with the 1966 survey to illustrate their similarity. These points support the
view that the proposed survey is substantially the same in content as was the
1966 survey approved by the NAC. Although the number of questions on the
1973 survey may exceed the number of questions on the 1966 survey, the addi-
tional questions primarily reflect an attempt to improve the quality of the
data collected rather than to enlarge the scope of the .survey. The similarity
between the past and proposed surveys, the record of previous action by the
NAC in approving such surveys, and the continuing need of the U.S. Govern-
ment for the data to be collected in order to comply with standing requests of
the IMF and IBRD, justify approval l)y the NAC of the proposed survey. Since
experience has shown that mandatory reporting is essential for a satisfactory
response, we have requested NAC approval to conduct this survey under the
mandatory authority of the Bretton Woods Agreement Act.
Information Requested By the IMF
To evaluate the standing request of the IMF to the U.S. Government to
furnish data to the IMF, it is important to consider Article VIII, section 5,
of the Articles of Agreement of the Fund, in its entirety.
SECTION E. furnishing OF INFORMATION
(a) The Fund may requii-e members to furnish it with such information as
it deems necessary for its operations, including, as the minimum necessary for
the effective discharge of the Fund's duties, national data on the following
matters :
(i) Official holdings at home and abroad, of (1) gold, (2) foreign exchange.
(ii) Holdings at home and abroad by banking and financial agencies, other
than official agencies, of (1) gold. (2) foreign exchange.
(iii) Production of gold.
(iv) Gold exports and imports according to countries of destination and
origin.
(v) Total exports and imports of merchandise, in terms of local currency
values, according to countries of destination and origin.
(vi) International balance of payments, including (1) trade in goods and
services, (2) gold transactions, (3) known capital transactions, and (4) other
items.
(vii) International investment position, i.e., investments within the terri-
tories of the member owned abroad and investments abroad owned by persons
in its territories so far as it is possible to furni.sh this information.
(viii) National income.
(ix) Price indices, i.e.. indices of commodity prices in wholesale and retail
markets and of export and import prices.
(x) Buying and selling rates for foreign currencies.
(xi) Exchange controls, i.e., a comprehensive statement of exchange controls
in effect at the time of assuming member.ship in the Fund and details of subse-
quent changes as they occur.
47
(xii) Where official clearing arrangements exist, details of amounts awaiting
clearance in respect of commercial and financial transactions, and of the
length of time during which such arrears have been outstanding.
(b) In requesting information the Fund shall take into consideration the
varying ability of members to furnish the data requested. Members shall be
under no obligation to furnish information in such detail that the affairs of
individuals or corporations are disclosed. Members undertake, howevei', to
furnish the desired information in as detailed and accurate a manner as is
practicable, and, so far as possible, to avoid mere estimates.
(c) The Fund may arrange to obtain further information by agreement
with members. It shall act as a centre for the collection and exchange of
information on monetary and financial problems, thus facilitating the prepara-
tion of studies designed to assist members in developing policies which further
the purposes of the Fund."
The list of items contained in section 5, are "the minimum necessary for
the effective discharge of the Fund's duties." Of the specific items listed,
items (v), (vi), (vii), and (viii) describe data items we obtain in the survey.
With reference to item (viii), the survey will permit the computation of value
added for foreign affiliates and U.S. parents. Items (ix) and (x) could have
been covered in the survey but were not because of the already extensive
reporting required and the difficulty of obtaining such data without substan-
tially increasing reporting. For 1966, affiliates were required to report data in
foreign and U.S. currencies. This requirement for foreign currency reporting
has been eliminated due to the difficulty of using data previously reported.
It should also be noted that section 5 provides that the Fund "will consider
the varying ability of members to furnish the data requested. . . . Members
undertake to furnish the desired information in as detailed and accurate a
manner as is practicable, and so far as pos.sible, to avoid mere estimates."
The data requested by the IMF through Article VIII goes substantially
beyond the request for a single balance of payments capital flow item or
investment position item, which in this case could most narrowly be con-
strued as the scope of a survey of U.S. direct investments abroad. It should
also be recognized that the proposed survey attempts to measure all of the
relevant balance of payments transactions and the investment position arising
between U.S. parents and their foreign affiliates. Various transactions between
U.S. parents and their foreign affiliates are specifically identified within the
U.S. balance of payments accounts whenever they can be separately identified^
The benchmark survey has in the past and should continue to obtain data on
the full range of these transactions. Furthermore, as in the past, the operat-
ing data reported as financial statement items should continue to be obtained
as a basis for evaluating the reliability and the significance of the balance
of payments items we wish to measure. Section 5, subsection (c) which states
that the Fund "shall act as a centre for the collection and exchange of in-
formation on monetary and financial problems, thus facilitating the preparation
of studies designed to assi.st members in developing policies which further the
purposes of the Fund" is also subject to a broad inteniretation. The multi-
national enterprise operations are ceretainly an integral part of international
monetary and financial developments, problems, and policies.
NAC ACTION C7-171 JUNE 6, 1967, RELATING TO THE 196G SURVEY
When considering whether the proposed .survey is necessary in order for the
U.S. Government to comply with official requests from the IMF for balance
of payments information, members of the Working Group should review^ care-
fully "the criteria for the NAC approval of the 1966 Survey of U.S. Business
Investments Abroad as summarized in the annual report of the NAC covering
July 1, 1966. to June 30. 1976. The full text of the relevant section of that
report is attached.
COMPARISON OF THE 19G0 AND THE 1973 SURVEYS
The U.S. multinational company (MNC) covered by the Survey of U.S.
Business Investments Abroad — 1973 is defined exclusively by the criteria used
to define U.S. direct investments abroad for balance of payments purposes.
Therefore, the universe of U.S. parent companies consists of those companies
48
and their domestic affiliates who have direct investments abroad. The foreign
component of the U.S. MNC consists of the foreign affiliate in which the
full.v consolidated U.S. enterprise reporter has direct investments. The basic
definitions of U.S. parent companies and their foreign affiliates are virtually
the same in the 1973 as in the 1966 survey.
For the 1966 survey one report form, called the "A-Form," collected data
for U.S. parent companies while several report forms, including a "B-Form"
for allied foreign affiliates (those in which U.S. ownership exceeded 25 per-
cent), two other specifically designed B-Forms for foreign affiliates which are
finance and insurance companies, and a "C-Form" for associated foreign
affiliates (those in which U.S. ownership was between 10 and 25 percent)
collected data for foreign affiliates. For the 1973 survey there is one form,
the A-Form, to collect data for U.S. parent companies, and only one form, the
B-Form, to collect data for all foreign affiliates.
The scope and content of the B-Form for foreign affiliates in the 1966 and
the proposed 1973 surveys are virtually identical. They both ask for the same
general types of information — financial statements, data on investment between
parents and affiliates, employment and U.S. merchandise trade data, and state-
ments of changes in financial position. Within the various sections of the
B-Form, some changes in detail have been made. These changes were primarily
for clarification, to fill in gaps in the 1966 survey which greatly limited the
usefulness of the 1966 data, or to simplify processing and reporting. In many
cases, any addition of items to a section of the B-Form was offset by dele-
tions of items. The only major changes in scope were made on the A-Form
for U.S. parents. These, and the changes in detail on the B-Form are dis-
cussed below.
Although the 1973 A-Form is slightly abbreviated compared to the 1973
B-Form, the A-Form has been expanded from the 1966 parent form. The A-
Form was expanded as a result of the difficulties encountered in processing
and analyzing the data for U.S. parent and foreign affiliate transactions when
the two sets of data on the A and B-Forms were not parallel. We found that
parellel reporting is necessary if the entire MNC — both its U.S. and foreign
components — is to be considered as a whole. Furthermore, since the U.S.
parent is. for U.S. balance of payments purposes, the principal TT.S. transactor
of concern, we have expanded reporting for the consolidated domestic enter-
prise to more fully analyze the role of the T^.S. parent. A comparison of the
1966 and 1973 A-Forms will indicate an expansion of financial statements, and
the addition of data for U.S. employment and employee compensation. The
latter were added because of the interest in recent years in whether MNCs
seek to invest in areas of low wages and whether this investment results in
the export of U.S. jobs. Among other uses, financial statement items such as
employee compensation will permit the computation of value added for U.S.
parents.
Part of the expansion of the A-Form is also related to one of the most
important changes introduced in the 1973 surve.v — the integration of items
such as financial position, trade, sales, or other data items for which country
or other detail are requested, with items reported in the financial statements
of the affiliate and the U.S. parent. When detail items are subsets of an
aggregated financial statement item, their relationship to the more aggregated
item is clearly specified. This integration should not only facilitate editing
and processing, but also should improve the definitions, consistency, and
accuracy of data items included in the survey.
The A and B Forms contain two sections, one for trade items and one for
the industry classification of the entity being reported — the U.S. parent or
the foreign affiliate — which may give an initial appearance of an increased
reporting burden. Upon closer examination, it is evident that a change has
been made only in reporting method with the objectives of reducing processing
time and improving the data. The data to be reported are more or less the
same as for 1966. For example, the survey for 1966 asked Reporters to list
the countries against which the Reporter will enter exports. This list looks
longer than in 1966 when the Reporter was asked to list the countries himself.
We are asking for no additional data, but the preprinted country lines means
they are precoded. and therefore saves us processing time and eliminates er-
rors since there is a possibility of error each time a person has to enter a code.
The other example is the industry classification of the Reporter or the
foreign affiliate obtained on the A and B Forms respectively. In 1966, the
Reporter was asked to give a written description of its own and each of its
aflaiiates "type of business." This led to many telephone calls to Reporters and
considerable time expended on researching public information (Moody's, Stand-
and Poor's) in order to be able to assign an industry classification to both
Keportei's and affiliates. Un the 1973 A and B Forms, an entire page of the
form will consist of preprinted, and precoded, industry classifications against
which a Reporter is to enter his percentage of sales, for those categories ac-
counting for over 5 percent of sales. This takes up a large amount of space
on the form and therefore may give the appearance of an increase in Reporter
burden. This is not the case. Based on our experience with the 1970 mini-
census and the recent Sources and Applications survey, the "typical" aflaliate
will probably make only about 4 entries. There will always be the "conglomer-
ated" types with many entries, but these will be offset by the single industry
types, such as crude oil producing aflSliates. The offset to any possible increase
in Reporter burden is the very real gain we make in reducing processing effort
and time by using precoded industry bl(»cks. These types of changes are the
ones that will insure that the results of the 1973 survey will be available with
a sharply reduced time lag compared with the previous survey and with in-
creased accuracy.
The 1966 survey included, in addition to the A, B, and C Forms, separate
forms to record foreign trade — the E-S Form on which exports of the parent
were reported and the E Form on which imports from the U.S. by the affiliate
were reported. This type of information will be collected in the 1973 survey
but within the A Form and B Form. Eliminated are the duplication of items
reported on the E and E-S Forms and certain questions on the intended use
of goods traded, and the separate reporting of goods charged and goods con-
signed for export. The 1973 A-Form asks for data on imports where previously
sales data reported by foreign affiliates were used as a proxy and data on im-
ports by U.S. Reporters from unaflHliated foreigners were not obtained at all.
We have added questions to obtain a product break of both aflSliate and par-
ent trade. Since trade is measured in the U.S. balance of payments accounts
on a "when and where shipped" rather than "when and where charged" basis,
we have adopted this criterion to define the merchandise trade, and have
eliminated the reporting of exports on both bases which greatly complicated the
1966 survey. The net effect of these changes is probably nil in terms of number
of items to be reported.
As mentioned above, the 1966 survey also contained separate B Forms for
finance and insurance companies, which are treated as exceptions when meas-
uring direct investments for the T\S. balance of payments accounts or the
international investment position where there is special accounting treatment
of financial records. To standardize reporting and to simplify the proces.sing of
the data, we have incorporated all -special industry reporting within the format
of the A and B Fonns and included special instructions where necessary.
Data for sources and applications of funds were collected for 1966 for for-
eign aflSliates solely as "change" data. For the 1973 survey, part of them are
being collected as "change" data, but some are to be derived as the difference
between the beginning-of-year and end-of-year balances. Obtaining data on both
stocks and flows will permit stock/flow analyses of external sources of funds
and financial uses of funds. A transactor break is obtained in the survey for
items such as sales or trade, to identify transactions of foreign afiiliates with
the U.S. Reporter, other foreign affiliates of the U.S. Reporter, other foreign
residents, and other U.S. residents. Similarly, for sources and uses of funds,
a transactor break will be obtained for stocks rather than for flows only, as
was obtained for 1966. These data will give a complete picture of external
financial transactions of the foreign affiliates. Data to be collected within the
sources and applications of funds statements also include a reconciliation of
the property, plant and equipment (PPifcE) accounts found in the balance
sheet. These datn were also collected in 1966.
One section of Form P. that was revised substantially for the 1973 survev is
the Part IT section collecting data on U.S. direct investments abroad. Addition-
al questions are included primarily to refine data for direct investment capital
flows by identifying non-flow items or transactions in the foreign affiliate's
50
stock which involve a country other than that of the foreign affiliate heing re-
ported. For 1966 similar questions were asked but not as specifically. Thus, re-
porting was inconsistent and required special attention or telephone calls to
Reporters in processing, and the derived adjustments could not be put on
computer.
Annual report of activities of the National Advisory Council
on International Monetary and Financial Policies
Letter froai Secretary of the Treasury, Chairman,
National Advisory Council on International Monetary and
Financial Policies
transmitting the annual report of the policies and operations of the
COUNCIL covering THE PERIOD JULY 1, 1966, TO JUNE 30, 1967
During the fiscal year, net gold sales by the United States to foreign coun-
tries totaled $232 million compared with sales of $378 million in fiscal year
1966. The substantial further reduction in the volume of gold sales continued
the improved trend noted in the annual report a year ago. France was again
the principal buyer, purchasing $277 million. All French purchases took place
during the first fiscal quarter. The main offsets to this loss were receipts of
gold from the United Kingdom and Canada totaling $175 million.
EXCHANGE AGREEMENTS
In May, the Council approved a request of the Government and Central Bank
of Argentina for a $75 million, 1-year, exchange agreement with the U.S.
Treasury. The Agreement supplements a $125 million I]MF standby arrange-
ment with Argentina announced by the Fund on May 1. 1967. and is intended
to assist Argentina in promoting economic stability and freedom in its trade
and exchange system. Under the terms of the Agreement, the United States
may purchase Argentine pesos with dollars, and any pesos so acquired would
be subsequently repurchased by Argentina.
An exchange of letters in June 1967 between Secretary of the Treasury
Fowler and the Ambassador of Mexico, Hugo B. Margain, increased from $75
million to $100 million the amount of the existing 2-year exchange stabiliza-
tion agreement between the United States and Mexico, signed in December
1965. The agreement provides for reciprocal swap facilities which will enable
the financial authorities of either country to cooperate in the maintenance of
stable and orderly conditions in the exchange markets.
SURVEY OF U.S. DIRECT INVESTMENTS ABROAD
During 1967 the Department of Commerce started on a comprehensive survey
of American business investments in foreign countries to provide an accurate
account of the amount of such investments at the end of 1966, the net increase
in these investments during that year, the return on these investments, and
their significance for the balance of payments of the United States and the
foreign host countries. The data collected in the survey will establish a com-
prehensive statistical benchmark required for the accuracy of the statistical
series on direct investment, and related transactions in the U.S. balance-of-
payments accounts. The survey for 1966 is the latest in a series of similar sur-
veys which have been undertaken at irregular intervals in the past.
Since experience had shown that mandatory reporting is essential for satis-
factory results, the Commerce Department proposed to the National Advisory
Council that the survey be undertaken pursuant to the mandatory authority in
section 8 of the Bretton Woods Agreement Act. The two most recent surveys of
direct investment (1950 and 1957), were conducted under this authority.
To make this authority operative, action by the NAC is required pursuant to
Executive Order 10033. The Order provides that the National Advisory Council,
in consultation with the Director of the Bureau of the Budget, .shall determine
what information is essential to enable the U.S. Government to comply with
official requests from the International Monetary Fund : that the Director of
the Bureau of the Budget shall de.si.gnate the U.S. Government agency which
51
will collect the information, and that in the collection of information pursuant
to such designation, the authority conferred on the President by section 8
of the Bretton Woods Agreements Act to furnish such information, by sub-
poena or otherwise, may be exercised by certain Government agencies, includ-
ing the Department of Commerce.
On June 6, 1967, the National Advisory Council, after consultation with the
Director of the Bureau of the Budget, determined that the collection of data
for 19€6 on American direct investments abroad is essential, in order that the
U.S. Government may continue to comply with official requests from the Inter-
national Monetary Fund for balance-of-payments information.
In making this determination, the National Advisory Council examined the
nature and significance of U.S. direct investments abroad in the light of cur-
rent conditions in the U.S. balance of payments, and the nature of current
requests from the International Monetary Fund for information on the U.S.
balance of payments. In this connection, the NAC took into consideration the
following facts: Since 1957, the United States has had large and persistent
balance-of-payments deficits and has introduced certain measures to discourage
private capital outflow for the purpose of helping to hold the deficits within
reasonable limits. These measures include the voluntary restraint program of
the Department of Commerce, which applies to the direct investment operations
of U.S. firms abroad. In recent years there have been large increases in the
amount and complexity of these operations, and the direct investment activities
of U.S. business enterprises are now of such magnitude and affect so many
aspects of the U.S. balance of payments that adequate analysis requires a
considerable amount of Information on the details of the direct investment
operations, as well as data on the amounts invested. The information on the
U.S. balance of payments requested by the International Monetary Fund cov-
ers not only statistical data but also a broad range of inquiries into the major
aspects of our balance of payments. Inquiries associated with the aiuiual con-
sultations of the International :\Ionetary Fund with the ITnited States cover
among other things the nature and effects of private capital movements, an
evaluation of the use of voluntary restraints on various forms of U.S. invest-
ments abroad, and inquiry into other aspects of pi'ivate capital outflow.
United States Government,
August 13, 1974.
Memorandum
NAC Working Group.
To : NAC Working Group.
From : James A. Griffin, Chairman.
Subject: Commerce Department's Proposed Survey Forms for Outward Direct
Investment.
Attached for your comment and clearance is a revi.sed draft report to the
NAC. The Working Group did not review Form A of the Commerce proposed
questionnaire, which calls for information from and on the parent firms.
However, rather than have the Group meet again, I went over Form A with
George Kruer and we agreed that certain items should be treated as per the
attached on the basis of the Group's views on similar type questions in Form
B. These are only proposals for the approval of the Group however.
T have flagged some of the questions-- in Form A and Form B as "question-
able" because I did not feel that there was a clear consensus on these items.
In reporting to the NAC, however. I think we should, if possible, give them a
clear yes or no on all items so I would ask you to focus on these items again
and give me your views.
Also note that the draft memo states that the members of the Working
Group will pursue the question of the feasibility of seeking legislation within
their own agencies and in appropriate interagency forums.
Attachments.
NAC Working Group
Questions in Commerce Department's proposed form for Survey of U.S.
Direct Investment Abroad as of end-73 which .should be deleted or are ques-
tionable under Bretton Woods authority
52
Form A.
37^8, Income statement. Questionable.
49-51, Dividends received, interest received, interest paid. Delete.
53, Taxes, etc. Questionable.
54-55, Research and development. Delete.
58-61, Expenditures for property, plant and equipment, depletion and depre-
ciation. Questionable.
62-75, Petroleum and mining exploration and development expenditures.
Questionable.
76-125, Merchandise trade of U.S. reporter with foreigners other than foi'eign
affiliates of U.S. reporters. Questionable.
Form B.
23, Inventory valuation method. Delete.
30, Number of establishments affiliate operates. Delete.
31, Licensing agreements with U.S. reporter. Delete.
80, Total employment. Delete.
81, Employee compensation. Delete.
103-107, Property plant and equipment. Questionable.
120-122, Dividends received, interest received, interest paid. Delete.
124, Taxes, etc. Questionable.
125, Research and development. Delete.
128-138. Employment and employee compensation. Delete.
140-142, Sales in affiliate's country of location, exports to U.S.. exports to
other countries. Questionable.
143-152, Geographic breakdown of exports to other countries. Delete.
154-168, Breakdown by product of goods shipped to affiliate from U.S. Ques-
tionable.
170-179, Breakdown by product of goods shipped by affiliate to U.S. Delete.
180-181, Non-U.S. merchandise trade of foreign affiliate. Delete.
Draft
Memorandum to : Robert Watson. Executive Secretary, National Advisory
Council.
From : .Tames A. Griffin, Chairman, NAC Working Group on Foreign Invest-
ment Surveys.
The Working Group met on July 12 and August 6, 1974, to consider a re-
quest by the Commerce Department for NAC approval to imdertake a manda-
tory survey of U.S. direct investments abroad as of end-1973 under the author-
ity of the Bretton Woods Agreements Act.
The Bretton Woods Agreements Act authorizes the President (through any
agency he may designate) to require persons to furnish information which
he determines to be essential to comply with requests from the International
Monetary Fund for data under Article VIII of the Articles of Agreement of
the IMF. The relevant section of Article VIII is as follows :
SECTION 5. FURNIvSHING OF INFORMATION
(a) The Fund may require members to furnish it with such information as
it deems necessary for its operations. Including, as the minimum necessary for
the effective discharge of the Fund's duties, national data on the following
matters :
(i) Official holdings at home and abroad, of (1) gold, (2) foreign exchange.
(ii) Holdings at home and abroad by banking and financial agencies, of (1)
gold, (2) foreign exchange.
fiii) Production of gold.
(iv) Gold exports and imports according to countries of destination and
origin.
(v) Total exports and imports of merchandi.se, in terms of local currency
values, according to countries of destination and origin.
(vi) International balance of payments, including (1) trade in goods and
.services, (2) gold transaction, (3) known capital transactions and (4) other
items.
(vii) International investment position, i.e., investments within the terri-
53
tories of the member owner abroad and investment abroad owned by persons
in its territories so far as it is possible to furnisli this information.
(viii) National income.
(ix) Price indices, i.e., indices of commodity prices in wholesale and retail
markets and of export and import prices.
(x) Buying and selling rates for foreign currencies.
(xi) Exchange controls, i.e., a comprehensive statement of exchange controls
in effect at the time of assuming membership in the Fund and details of
subsequent changes as they occur.
(xii) Where official clearing arrangements exist, details of amounts awaiting
clearance in re.spect of "commercial and financial transactions, and of the length
of time during which such arrears have been outstanding.
(b) In requesting information the Fund shall take into consideration the
varying ability of members to furnish the data requested. Members shall be
under no obligation to furnish information in such detail that the affairs of
individuals or corporations are disclosed. Members undertake, however, to
furnish the desired information in as detailed and accurate a manner as is
practicable, and, so far as possible, to avoid mere estimates.
(c) The Fund may arrange to obtain further information by agreement
with members. It shall act as a centre for the collection and exchange of
information on monetary and financial problems, thus facilitating the prepara-
tion of studies designed to assist members in developing policies which further
the purposes of the Fund.
Executive Order 10033 charges the NAC with determining, after consulta-
tion with the director of 0MB, "what information is essential in order that
the U.S. Government may comply with ofiieial requests for information" from
the IMF or IBRD.
Although the IMF has not specifically requested that the U.S. furnish it with
updated data on its international investment position at this time. Article VIII
is considered a standing request for data which is reasonably accurate. Since
the last surveys of the U.S. inward and outward direct investment positions
were taken for the years 1959 and 1966 re.spectively. the Working Group consid-
ers that it is appropriate and desirable that surveys be undertaken in the
near future in order to assure that the U.S. data are reasonably accurate.
However, the IMF has never given any specific instructions on what infor-
mation it requires from the U.S. or the other member countries. Thus, it is
left to the judgment of each member as to how detailed the information
should be in order to comply with the standing request.
This lack of specificity in the terms of reference plus a growing desire for
more data on the part of the U.S. government has led to increasingly detailed
questionnaires in connection with U.S. direct investment abroad and some of
the information called for in the questionnaire form proposed to the Working
Group by the Commerce Department for the 1973 survey would be, in the view
of most members of the Group, difficult to justify under the Bretton Woods
authority.
Some members of the Group felt that the proposed questionnaire did not
go substantially beyond the 1966 survey in this respect and that the latter
should serve as a precedent and guide for this purpose. It was noted that
there was no indication from the reporting community that they considered
the 1966 survey in excess of what the Government could justifiably ask for.
Most of the Group, however, felt that the 1966 precedent was not particularly
meaningful. An important consideration^ here was the fact that the reporting
burden on the business community has increased in recent years and in the
next 6 months or so business firms will be undergoing a particularly heavy
reporting burden.^ In this kind of environment, concern was expressed that a
questionnaire of the kind proposed by the Commerce Department might pro-
voke a court challenge of the Government's authority under the Bretton Woods
Act and that in such event tlie Government's case might be somewhat tenuous.
Apart from the risk of a court challenge, it was noted that the Government
has an obligation to police itself and as.sure that its desire for data does not
exceed its actual authority.
1 In addition to filine under the proposed survey of outward direct investment, most
of these same firms will be filing special reports on : (a) their foreign currency holdings
under the Proxmire Amendment to the Par Value Modification Act, (b) foreign holdings
of U.S. securities under the Inouye-Culver legislation, and (c) line-of-business data to
the F.T.C.
54
One possible solution to the problem would be for the U.S. Executive Direc-
tor to the IMF to propose to the Fund Board that the Fund give more spe-
cific instructions on what data it requires. The Working Group recommends
that the NAC con.sider this possibility.
The Working Group unanimously agreed that the ideal solution to the prob-
lem would be for the Government to have new legislative authority for the
collection of all data relating to the balance of payments. There is a good
deal of information on the operations of multinational companies which, while
perhaps not necessary for the purposes of the IMF. is necessary to gain an
understanding of the effects of these companies' operations on U.S. employ-
ment, income, exports, imports, tax revenue, etc., subjects which have become
of increasing interest in recent years.
The new legislative authority would be similar in scope to the Inouye-Culver
legislation in authorizing a detailed survey of foreign investment in the
U.S. and would be on a continuing basis. The members of the Working Group
agreed to pursue the question of the feasibility of requesting such legi.slation
within their own agencies and in the appropriate inter-agency forum.
Most members of the Group, however, felt it would not be advisable to
defer any survey of U.S. direct investment abroad in anticipation of obtain-
ing such legislation, which would probably take at least a year to become
effective, since it has already been seven years since the last survey was
taken. Accordingly the Group reviewetl the survey form proposed by the
Commerce Department in the context of the foregoing considerations relating
to the Bretton Woods authority and concluded that some of the questions
should be deleted from the form. A copy of the form showing the deleted
items is attached.
Attachment.
NAC WORKERS GROUP GOVERNMENT INVESTMENT SURVEY, ATTENDANCE AT MEETING OF AUG. 6, 1974
Telephone
(government
Agency room No. code)
Treasury:
James A. Griffin, Chairman.. 5100 184-2386
Fred Cutler 5100 184-5143
Walther Lederer 5130 184-5681
DIrck Keyser 5130-D 184-8027
GaryG. Hufbauer... 5121 184-8784
John Cambon 5400 184-5177
Josef E. H§bert (NAC) 5037 184-2940
Commerce:
George R. Kruer _._ 608 (Tower BIdg.) 139-30703
Ida May Mantel... 616 (Tower BIdg.) 139-30646
John Bogumlll 618 (Tower BIdg.) 139-30687
Federal Reserve:
Guy Stevens 553 (Watergate 600) 147-3540
Sam Pizer 540 147-3780
0MB: David T. Hulett.. 10208-NEOB 103-4730
AID: J.de Melo 3889 101-21337
U.S. Department of Commerce,
Social and Economic Statistics Administration,
Bureau of Economic Analysis.
Washington, D.C., June 2Jf, 191Jf.
To : Fred Springborn, Executive Secretary, National Advisory Council on
International Monetary and Financial Policies.
From : George R. Kruer, Chief, International Investment Division.
Subject : Surveys of Business Investments Abroad and in the United States,
1973.
The Bureau of Economic Analysis, U.S. Department of Commerce, is prepar-
ing to conduct two surveys: (1) a survey of U.S. business investments abroad
in 1073. and (2) a -survey of foreign business investments in the U.S. in 1973.
Data collected in these surveys will provide a benchmark reference base for
the quarterly balance of payments series relating to direct investments. In
addition, the data to be collected are necessary in order to analyze the impact
of the operations of multinational companies on the balance of payments and
the domestic economies of the United States and foreign countries.
55
This Bureau collects quarterly balance of payments data on a mandatory
basis pursuant to a standing request to the U.S. Government from the Interna-
tional Monetary Fund (IMF) for balance of payments data. In order to main-
tain the accuracy of the sample surveys upon which the current balance of
payments data are based, it is necessary to conduct periodic benchmark sur-
veys. We are proposing that the filing of reports in these proposed benchmark
surveys be made mandatory pursuant to Section 8 of the Bretton Woods Agree-
ments Act (59 Stat., 22 U.S.C. 286f). In accordance with sections 2(b) and
2(c) of Executive Order 10033 of February 8, 1949 (14 F.R. 561), as amended,
the NAG is to determine what information is to be furnished to the IMF,
and the Director of the OfBce of Management and Budget (OMB) has the
power to determine which agencies should collect information required by
the IMF. The Department of Commerce is the federal executive agency which
collects the required data on direct investments and the Secretary of Com-
merce has assigned this responsibility to the Bureau of Economic Analysis.
We are requesting NAG concurrence that these surveys are necessary in
order to fulfill the U.S. Government's obligations to the IMF. If the NAG
concurs, then the OMB, to which requests are being made for approval of the
proposed report forms under the Federal Reports Act, can give approval to
the Department to conduct the surveys on a mandatory basis.
A typed copy of the proposed report form, excluding the industry classifica-
tion booklet, for the 1973 survey of U.S. business investments abroad is at-
tached. The last such survey, covering 1966, was approved on June 6, 1967 by
the NAG for collection on a mandatory basis. (See pages 64 and 65 of the
NAG annual report for fiscal year 1967 : NAG Staff Document No. 67-4, May
1, 1967; and NAG Action No. 67-171, June 6, 1967.)
The last survey of foreign business investments in the United States, cov-
ering 1959. was approved by the NAG for collection on a mandatory basis. (See
pages 23 and 24 of the NAG semi-annual report for the period January to
June 1960.) A copy of the proposed report form for the 1973 survey will be
sent to OMB and to the NAG within the next month.
U.S. Department of Commerce — Bxireau of Economic Analysis
Survey of U.S. Business Investments Abroad — 1973
I. introduction
A. Purpose
The Survey of U.S. Business Investments Abroad — 1973 is being conducted
by the Department of Commerce to obtain complete and accurate data on the
amount of direct business investments at the end of 1973, the net increase in
investments during the year, the return on these investments, and certain as-
l>ects of their operations which affect the U.S. and foreign economies. Direct
investment, as distinct from portfolio investment, refers to investment which
involves a significant influence in or a substantial element of control over
the management of a foreign business enterprise. For the purposes of this
survey, such influence or control is assumed to exist when the foreign business
enterprise is owned by a U.S. person to the extent of 10 percent or more.
The last suoli Survey was conducted for 1966.
The data collected in this Survey will be used in the formulation of Govern-
ment policy and will .serve as a base from which data collected in sample sur-
veys can be expanded to reliable total- estimates. These total estimates are
used in the compilation and analysis of the United States balance of payments.
B. Legal Basis
The filing of reports for this Survey is mandatory under Section 8 of the
Bretton Woods Agreement Act (59 Stat. 515. 22 U.S.C. 268f). In accordance
with sections 2(b) and 2(c) of Executive Order 10033 of February 8. 1949
(14 F.R. 561). as amended, the Director of the Office of Management and
Budget has designated the Department of Commerce as the federal executive
agency to collect the. required data, and the Secretary of Commerce has as-
signed this respon.sibility to the Bureau of Economic Analysis. This Survey
has been approved by the Office of Management and Budget under the Federal
Reports Act (Public Law No. 831. 77th Congress). All replies will be held in
.strictest confidence by the Bureau of Economic Analysis. Department of Com-
56
merce, under the provisions of section 4(b) of that Act and section 8(c) of
the Bretton Woods Agreements Act. Tlie information will be used exclusively
for statistical purposes and published only in such aggregates which preclude
the disclosure of data supplied by individual reporters. No reporter is required
or requested to submit a rely to any specific question on these forms, if, by
so doing, the security laws of a foreign country are violated.
II. GENERAL INSTRUCTIONS
A. Defiwi.tions
For the purposes of this Survey and any instructions or rulings issued here-
under, the following definitions are prescribed :
1. Person shall mean an individual, a corporation, a branch, a partnership,
an associated group, a joint-stock company, a trust, an estate, or other unin-
corporated organization.
2. Associated Group shall mean two or more U.S. persons who, by the appear-
ance of their actions, by agreement, or by an understanding, exercise their
voting privileges in a concerted manner to influence the management of a for-
eign business enterprise. The following are deemed to be associated groups:
(a) Members of the same family.
(b) A corporation and one or more of its officers or directors.
(c) Members of a syndicate or joint venture.
(d) A corporation and its domestic subsidiaries.
3. Business Enterprise shall mean any organization, branch, or venture which
exists for profit making purposes, and any real estate which is owned.
4. Branch shall include (a) the operations or activities conducted by an in-
corporated or unincorporated person in its own name in a different location,
but not through an incorporated entity, and (b) the foreign business of U.S.
mutual insurance companies.
5. Foreign Affiliate shall mean a foreign business enterprise which is direct-
ly and/or indirectly owned by a U.S. person to the extent of 10 percent or
more of its voting stock for an incorporated business enterprise or an equiva-
lent interest for an unincorporated business enterprise.
6. U.S. Reporter shall mean the U.S. person required to file a report in this
Survey.
7. Parent refers to (a) the U.S. Reporter holding a reportable direct owner-
ship interest in a foreign affiliate; (b) the U.S. Reporter filing a Form B
to report direct debt positions and transactions between himself and one of
Ills indirectly owned foreign affiliates: and (c) the foreign affiliate of the
U.S. Reporter which holds a direct ownership interest in another foreign affil-
iate of the U.S. Reporter.
8. United States shall refer to the 50 states of the United States ; the Dis-
trict of Columbia ; the Commonwealth of Puerto Rico ; the Panama Canal
Zone ; the U.S. Virgin Islands ; and all other territories and possessions of the
United States.
9. Foreign shall mean that which is situated outside the United States : be-
longing to, characteristic of, or under the jurisdiction of a country or political
entity other than the United States.
B. Who Must Report
1. Basic Requirement — A BE-10 report is required from every U.S. person
having a foreign affiliate, that is, every U.S. per.son having direct and/or indi-
rect ownership of at least 10 percent of the voting stock of on incorporated
foreign business enterprise, or an equivalent interest in an unincorporated
foreign business enterpri.se, at any time during the year ending December 31.
1973.
Reports are required even though the foreign business enterprise may have
been established, liquidated, sold, destroyed, or expropriated during the re-
porting period.
2. Other Requirements. — (a) Persons with beneficial interests: A IT.S. per-
son who owns a beneficial interest in a foreign affiliate shall report, whether
or not he is the owner of record, except as specifically provided lielow for
estates and trusts.
(b) Estates and trusts: The report filed for an estate or trust should be
filed bv the fiduciary and not by the beneficiary. Estates or trusts established
under the laws of the United States are subject to the requirements of this
Survey.
Estates or trusts actually created in the United States must report even
though the trust instrument provides that the trust shall be subject to the
laws of a foreign country.
(c) Business enterprise in the United States owned by a foreign person: A
business enterprise in the United States owned by a foreign person shall report
with respect to any foreign business enterprise it owns directly and/or indi-
rectly, to the extent of 10 percent or more^ but shall not report other property
of its foreign owner.
C. Exemptions and Exclusions
1. Type of property. — Property held exclusively for personal use, and not for
profit-making purposes, is exempt for purposes of this Survey. For example,
hunting lodges, homes, and automobiles for personal use are exempt.
2. Status of person. — A report need not be filetl by persons who are (1) citi-
zens of the United States who permanently reside in a foreign country, or (2)
U.S. residents who are officers or employees of foreign governments or interna-
tional (quasi-governmental) organizations and members of the immediate
families of such individuals, provided they are not citizens of the United
States.
3. Foreign nonprofit organizations. — Foreign religious bodies, charitable or-
ganizations, and other nonprofit organizations are not business enterprises and
therefore an ownership interest in these types of organizations by U.S. persons
is not reportable.
4. Partial exemption. Form A. — U.S. Reporters who are religious, charitable,
or other nonprofit organizations or who are individuals are required to file a
BE-10 report, but are exempt from filing the financial data section of Form A.
5. Total filing exemption. Form B. — If the foreign affiliate's total assets and
net sales or gross operating revenues excluding .sales taxes (items 73 and 74
of Form B) are eaeh less than .$250,000 (two hundred and fifty thousand dol-
lars) no Form B need be filed for the foreign affiliate. Value is to be deter-
mined based on the books of the foreign affiliate translated into U.S. dollars.
However, if a foreign affiliate owns another foreign affiliate for which a Form
B must be filed, then a Form B must also be filed for the foreign parent re-
gardless of the value of the foreign parent's assets or income. That is, all affil-
iates upward in a chain of o\^Tlership must be reported.
6. Partial reporting exemption. Form B. — If, for a given foreign affiliate,
the following four items are each less than ,$3,000,000 (three million dollars),
then the U.S. Reporter is exempt from completing Part lY, Financial Schedules
for the affiliate: (i) Total assets; (ii) net sales or gross operating revenues
excluding sales taxes: (iii) U.S. merchandise exports shipped to the affiliate:
and (iv) U.S. merchandise imports from the affiliate.
These four items are to be reported for each affiliate in Part III. Selected
Financial Data of the Foreign Affiliate, items 73. 74. 7?;. and 76. respectively.
Value is to be determined based on the books of the foreign affiliate translated
into U.S. dollars. However, if a foreign affiliate owns another foreign affiliate
for which a complete Form B must be filed, then a complete Form B must
also be filed for the foreign parent regardless of the value of the foreign
parent's assets, income or U.S. trade. That is. all affiliates upward in a chain
of ownership from an affiliate for which a complete report must be filed, must
file a complete report.
D. Coverage and Nvml)cr of Completed Forms Required
1. Form A. — A Form A should be filed by the U.S. Reporter covering the fully
consolidated U.S. domestic enterprise. Form A should be filed by the U.S. per-
son which is not owned, to the extent of more than 50 percent of its voting
rights, by any other TLS. person. CException: When a T^.S. business enterprise
is owned more than 50 percent by an individual, the report should be filed by
the business enterprise rather than the owning individual.) For corporate re-
porters, the fully consolidated domestic enterprise is defined to include the
domestic operations of every corporation which is resident in the United States
and is owned to the extent of more than 50 percent of its voting stock bv the
reporting U.S. corporation and its maioritv-owned U.S. corporations. Conso-
lidate every Domestic International Sales Corporation which is owned to the
58
extent of more than 50 percent of its voting stock. Do not consolidate data
for foreign affiliates on Form A.
2. Form B. — A U.S. person is required to file at least one Form B for each
foreign aflSliate, i.e., for each foreign business enterprise in which the U.S.
person owns directly and/or indirectly at least 10 percent of the voting stock
or an equivalent ownership interest. (To determine a U.S. person's percentage
of indirect voting ownership in a goven foreign business enterprise, multiply
first foreign business enterprise in the ownership chain by the succeeding direct
the initial direct voting ownership percentage held by the U.S. person in the
voting ownership percentages held by each intermediary foreign business en-
terprise in the ownership chain between the U.S. person and the given foreign
business enterprise.) All direct and indirect chains of ownership interests held
by a U.S. person in the given foreign business enterprise are summed to
determine whether the enterprise is a foreign aflSliate of the U.S. person for
purposes of reporting on Form B.
In cases where the i-ecord keeping system of the foreign affiliates makes
it impossible or extremely difficult to file a separate report for each foreign
affiliate, the U.S. Reporter should call this office (202-523-0632) for guidance.
Under these conditions, the U.S. Reporter may l)e given permission to file a
consolidated report for two or more affiliates, but only for those affiliates
which are in the same country and which are classified in the same industry.
Under no circumstances may a U.S. Reporter consolidate foreign affiliates
in different countries or in different industries. (See the "Industry Classifi-
cations' portion of the Indristrial Classifications and Export and Import Trade
Classifications booklet to determine whether the affiliates have the .same indus-
trial classification.)
U.S. Reporters who participate in other BEA direct investment surveys must
consolidate in the same manner for all foreign affiliate forms subsequently
filed with the Bureau of Economic Analy.sis. such as Forms BB-133, BE-577
and BE-578. In cases where current consolidation practices on these forms
do not conform to the above instructions, the U.S. Reporter is requested to
change the consolidation practices on Forms BE-133, BE-577 and BE-578.
When a form based upon the amended consolidation practice is submitted,
please bring it to this Bureau's attention when filing the form.
If two or more U.S. Rejtorters jointly own a foreign affiliate, directly or
indirectly, each U.S. Reporter must submit a Form B for the affiliate. Only
one of these forms must have Part III, Selected Financial Data of the Foreign
Affiliate and Part lY, Financial Schedules, completed. The Form B of the
U.S. Reporter having the highest percentage of ownership in the foreign affil-
iate should contain the complete data. Where the percentage is the same, the
U.S. Reporters must agree among themselves as to who will submit Parts
III and IV. If Parts III and IV are not submitted on a particular form, please
indicate in item 14 of the Identification Section which U.S. Reporter is filing
the data.
Multiple Form B's are required to be filed by the U.S. Reporter for a single
foreign affiliate to separately report :
(a) For each direct line of ownership in a foreign affiliate which is held
by the U.S. Reporter or a foreign affiliate of the U.S. Reporter: and
(b) For direct financial positions or transactions with the U.S. Reporter
when the foreign affiliate is indirectly owned by the If.S. Reporter.
Solid lines indicate owner.ship ; dotted lines indicate financial transactions.
In this situation, the following Form B's are required :
(a) One Form each for Affiliates A and B to .'•how direct ownership lines
1 and 3 by the U.S. Reporter.
(b) Three Forms of Affiliate C, one to show direct ownership line 5 by
Affiliate A, one to show direct owner.ship line 6 bv Affiliate B. and one to show
the direct financial transaction line 2 with the ILS. Reporter. (In the last case,
the U.S. Reporter is considered to be a "Parent" for the purpose of completing
that Form B even though he has no direct ownership interest in Affiliate C)
(c) Two Forms for Affiliate D. one to show direct ownership line 4 by the
U.S. Reporter, and one to show direct ownership line 7 l)y Affiliate B.
(d) One Form for Affiliate E to show direct ownership line S by Affiliate D.
59
A separate Form is not required for financial transaction line 9 because
this is a financial transaction between foreign affiliates having no direct
ownership relation to each other.
A separate Form is not required for (reverse) ownership line 10; the data
for this investment would be reflected on the Form for ownership line 5.
If multiple form are required from one U.S. Reporter for one foreign affil-
iate, only one of these forms should be completed in full, including Part III.
Selected Financial Data of the Foreign AflSliate and Part IV, Financial Sched-
ules. For the remaining forms, only Parts I and II need be completed. The
form completed in full should be the one which shows the highest percentage
of direct ownership interest. In item 14 of the Identification Section of the
additional forms, plea.se indicate which form includes the complete data.
E. Miscellaneous
1. Accounting records to he used. — In supplying the information required
in this Survey, data for corporations should be derived from the type of rec-
ords used to generate reports to stockholders. Reports for unincorporated
persons should be derived from equivalent records.
2. Reporting period. — If at all possible, reports should be submitted on a
calendar year basis for the year ending December 31, 1973. If this necessitates
the estimation of annual data based upon quarterly or monthly reports in order
to present the data on a calendar year ba.sis, or closer to a calendar year
basis, such estimates are acceptable.
3. Annual !^tockholdcr\s report. — U.S. Reporters are requested to submit, along
with their BE-10 report, a copy of their annual report to stockholders.
4. Required information not available. — All reasonable efforts should be
made to obtain information required for reporting. Every question on each
form should be answered except where U.S. Reporters are specifically exempt
from reporting certain Parts or items on the forms. When properties have
been expropriated or seized, the latest available information should be used.
Where only partial information is available, an appropriate indication should
be given.
5. Estimates. — If actual figures are not available supply estimates. When
data items requiring detailed breakdowns cannot be fully sub-divided, supply
totals and an estimated percentage breakdown.
6. "Specifir. — Certain data lines require that U.S. Reporters "specify" items
included in the total for such lines. In all such cases, the U.S. Reporter should
give the type and dollar amount of the items included in the line.
7. Space on form insufficient. — When space does not permit a full answer
to any question on the form, the information required should be submitted on
supplementary sheets appropriately labeled and referenced to the question and
the form's serial number.
8. Filing date. — Reports shall be filed within 60 days after publication of the
reporting requirements in the Federal Register.
9. A.ssi.'itance. — If there are any questions concerning the report, phone (202)
523-0623.
10. Numier of copies. — A single original copy shall be filed with this Bureau.
In addition, each U.S. Reporter should retain a copy of his report.
11. Where to send reports. — Mail all reports to International Investment Di-
vision BE-50 (SSB), Bureau of Economic Analysis. 1401 K Street. N.W. (Tow-
er Building), U.S. Department of Commerce, Washington, D.C. 20230.
III. INSTRr^CTIONS RELATING TO SPECIFIC PARTS OF THE FORM
A. U.S. Merchandise Export and. Import Data
1. Concepts and definitions. — (a) The phrase "Products of * * *" refers to
merchandise which has been produced (i.e. grown, extracted, processed, as-
sembled, or manufactured) by the entity named, or which has been changed
by the entity named in some manner which results in an increase in the value
of the merchandise. Merchandise which is shipped in essentially the same
condition as when purchased is not considered a product of the entity shipping
the merchandi.se. For example, if the U.S. Reporter assembles widgets from
parts purchased from others and ships the finished widgets to his foreign
affiliate, the value of widgets exported should be included in the column la-
beled "Products of U.S. Reporter (s) of this affiliate." If, however, the U.S.
60
Reporter purchases the parts in the United States and ships the parts to his
foi'eign affiliate for manufacture into widgets, the export value of the parts
should be considered "Products of others."
(b) The phrase "merchandise exports" or "merchandise imports" refers to
the physical movement of merchandise between the customs area of one coun-
try and the customs area of another country.
(c) Shipments "by" an entity are physical movements of merchandise by
that entity, whether or not the merchandise was charged to others by that
entity. For example, if the U.S. Reporter charged merchandise to his foreign
affiliate, but the merchandise was shipped by another U.S. person, the mer-
chandise is considered "shipped to this affiliate by other U.S. persons." Also in
cases where the merchandise is shipped by someone other than the U.S. Report-
er, even though the U.S. Reporter assists in placing the order, the merchan-
dise is considered merchandise shipped by others. (Note: Merchandise shipped
by an independent carrier or a freight forwarder at the expense of an entity
are classified as shipments "by" that entity.)
(d) Shipments "to" an entity are physical movements of merchandise to that
entity, regardless of who was actually charged for the merchandise or who
ultimately received title to it. For example, if the U.S. Reporter charges $100
worth of widgets to his Swiss affiliate Ivut actually ships the widgets to his
affiliate in France, the trade entry should be on the Form B of the French
affiliate only.
2. Valuation. — (a) Exports: U.S. merchandise exports should be valued f.a.s.
at the U.S. port of exportation. This includes all costs incurred up to the point
of loading the goods aboard the export carrier at the U.S. port of exportation,
including the selling price at the interior point of shipment (or cost if not
sold), packaging costs, inland freight, and insurance. The cost of loading and
all subsequent costs are excluded.
(b) Imports: U.S. merchandise imports should be valued at the actual
purchase-sale contract price agreed upon between the buyer and the seller,
adjusted to a f.o.b. foreign-port-of-exportation basis. This excludes U.S. import
duties, freight, and insurance from the foreign country to the U.S. port of
entry.
B. Emploiimrnt and EmpJoijcc Compensation Data
In addition to employment and employee compensation relating to current
operations, employment and employee compen.sation data in this section are to
be reported inclusive to those employees, and their associated compensation
costs, who are engaged in an activity, the value of which is capitalized.
1. Employtnent. — Total employment: Enter the equivalent to the average
number of full-time employees for the year. Part-time employees should be
included at the appropriate percentage of a full-time employee according to
the proportion of total time worked. Seasonal employees or employees hired or
employees hired or released during the year should also be included at the
appropriate percentage.
Total employment is then sub-divided into the following classifications :
(a) Production workers: Production workers are those employees who are
most directly connected with the actual carrying out of the activity of the
business being reported, up to and including working foremen, but excluding
otJier sui>ervisory employees. For mining, manufacturing, and farming they
woidd be those involved in the physical production or handling of goods : in
the trade and services industries they are the nonsupervisory employees en-
gaged in selling, distributing, or performing a service ; and in the construction
industry they are the working foremen, journeymen, mechanics apprentices,
laborers, etc., whether at the construction site or in shops or yards.
(b) Non-production workers: refers to all employees who are not production
workers. These are further divided into the four categories shown below.
1. Managerial employees. — are those employees who sjiend all or a majority
of their time in management activities (excluding working foremen and
managers of research and development work).
2. Researeli and development .^eieuti.'^ts and engineers. — are all persons en-
gaged in scientific or engineering research and development work, including
managers, at a level which requires a knowledge of physical or life sciences
or engineering or mathematics equivalent at least to that acquired through
completion of n four-year college course with a major in these fields, regard-
61
less of whether or not they actually held a college degree in the field (i.e.,
training may be either formal or by experience).
Research and development includes basic and applied research in the sciences
and in engineering, and design and development of prototypes and processes,
if the purpose of such activity is to do one or more of the following things :
1. Pursue a planned search for new knowledge whether or not the search
has reference to a specific application.
2. Apply existing knowledge to problems involved in the creation of a new
product or process, including work required to evaluate possible uses.
3. Apply exi.sting knowledge to problems involved in the improvement of a
present product or process.
Research and development includes the activities described above whether
assigned to separate research and development organizational units of the com-
pany or carried on by company laboratories and technical groups not part ot
a separate research and development organization.
3. Oth^r professional and teofmioal employees. — includes all professional em-
ployees, and technical employees above the working supervisory level, not
classified as "managerial employees" or "research and development scientists
and engineers." This category should include, for example, scientists, engineers,
accountants, lawyers, doctors, economists and other professionals not primarily
engaged in line management or research and development.
4. Other non-production workers.— all workers not included in the preceding
three categories.
2. Employee Compensation.— (a) Employee compensation: includes all pay-
ments to and all other costs incurred on behalf of, or for the benefit of, all
employees. Include cash payments, payments in kind, the cost of payment and
non-payment type fringe benefits, and the cost of employee benefit plans, both
those that are legally required and those that are voluntary.
(b) Wayes and salaries: refers to gross earnings of all employees before
deduction for employees" contributions to social insurance, withholding taxes,
group insurance premiums, union dues. etc. Include payment type fringe bene-
fits such as paid bonuses, dismissal pay, vacation and sick-leave pay, and com-
missions ; and the cash equivalent of wages and salaries paid in kind. Exclude
commissions paid to independent sales personnel who are not employees of the
affiliate being reported. For incorporated afiiliates, include salaries of oflScers ;
for unincorporated affiliates, exclude payments to proprietors or partners.
Payments in kind of wages and salaries should cover the actual cost to the
employer of goods and services furnished to the employee free of charge, or a.t
a markedly reduced cost, which are clearly and primarily of benefit to the
employees as consumers, such as free hou.sing and free food. Do not include
in wages and salaries outlays which benefit employers as well as employees
such as expenditures on amenities at places of work, employee training pro-
grams, and reimbursements for business expenses.
(c) Cost of employee benefit plans including both those that are legally
required and those that are voluntary. All payments for plans required under
law to be paid by the employer are included, such as employer contributions
to social insurance funds. Voluntary plans include all plans not specifically
required by law, whether initiated bv the employer or established as a result
of a collective bargaining contract. Included are employer payments for such
plans as group health and life insurance, private pension, supplemental unem-
ployment compensation, deferred profit sharing, etc. If the plans are financed
jointly by the employer, only the employer payments should be included.
(d) Other labor costs: refers to all other payments and costs incurred on
behalf of, or for the benefit of. all employees which are not included in wages
and salaries or in the cost of employee benefit plans. Include costs of vacation
and recreational facilities, employee training programs, in-house medical facili-
ties, parking lots, discounts on employees' purchases, operating losses on com-
pany-owned cafeterias, and similar costs.
INfr. TTATivrAx. First, tlio maior delotions are in the area of em-
plovment nnd oomnonpation : The iinmber of employees — talking
about multinational corporntions. Mr. Chairman — prodnction work-
ers, mana.o-erial nnd research and development employees with acrcrre-
erate payroll costs for both domestic parents and foreitrn affiliates.
56-957 O - 75 - 5
62
This has been cut out. Somehow I suppose this is considered, I say
this facetiously, subversive. Trade, references to trade, cut out, and
the vahie of the products imported to the U.S. parent from foreign
affiliates.
How can Congress make rational judgments on trade policy and
what needs to be done with the multinational corporations. American
multinational corporations, if they are not aware of the value of
the imports to I^.S. parents from foreign affiliates.
We have a continuing argument with multinational corporations
as to what this figure means. The products in the trade area exported
from the U.S. parent to its foreign affiliates and the affiliates local
sales and their exports to third countries, all cut out.
In the area of research and development, NiVC eliminated research
and development expenditures, domestic and foreign including fed-
erally funded R.&D. projects by the multinational parents.
For example, we think it is relevant to know how much American
multinational corporations are spending abroad in research and
development and how much they are spending domestically.
If, for example, they are spending an inordinate sum of money
abroad and relatively little at home, what does this portend for the
future of the American economy ? A terribly important and vital and
simple fact that Congress needs to know. Government needs to know,
and the people need to know.
For example, they eliminated new capital investment in domestic
plant and equipment, necessary to compare the firm's level of capital
investment at home and abroad.
One of the great arguments now goes on and I think in your open-
ing statement you made reference to it as we consider the whole tax
problem.
What kind of relief, if any. new relief, do American corporations
need, multinational and domestic?
If, for example, as we allege and I think rather well known and
maybe the figure is too conservative, what was it in 1973? Was it
$21 billion or thereabouts that American multinationals exported
abroad; $21 billion. Having done this the same corporations are
coming to Congress and to the American people and to the White
House, urging that they need a new kind of tax relief because they
don't have the money to spend in American domestic development.
We need to know these facts and our Government doesn't know.
Here they are, Government striking this from the list of questions.
How can Congress make this determination? It will be making
it in a dark room, and blindfolded in addition, because it won't know
the true facts.
Exploration and development expenditures for petroleum and
mining operations, including depletion allowances, both parents and
affiliates, domestic and foreign; these are stricken, too.
How can we make determinations about energy policy if we don't
know these fundamental facts? What kind of exploration is being
made? "\Aliat kind of development expenditures? How much of it is
being put abroad? How much in this country? If most of it, as I
suspect, is going abroad and too little here, how do we catch up to
what we all call the energy crisis? Is the only way to do it to make
63
the cost of eiicroy so high that in the process people can't and won't
buy it? Is this the answer?
Senator ^NIetcalf. The people have to buy energy, though.
]\Ir. Clatmax. I know they do.
Senator Metcalf. It is the most necessary thing in running a home
today, electricity. So the utilities have the last word. You go without
almost anything but food in order to pay for the increased cost of
energy.
]Mr. CEAY:\rAx. You see, you emphasize so succinctly the point I
am elaborately trying to make, but without the information of what
is happening, both in terms of American multinationals abroad and
at home in tlie energy field in terms of exploration and deyelopment.
how can we make rational decisions?
So what happens is that we are reduced to making totally political
decisions and political decisions more often than not are not yalid
decisions.
Finally, in terms of the items that are eliminated but are the
most important items — income statements and tax data for U.S.
parents, net sales or revenues, the Federal and State income taxes,
the sales tax and Government royalties paid, all of these that go to
the heart of any kind of a questionnaii-e — I don't know that it goes
to the heart, they are so limited, really, even these are so limited that
they may not get to the heart.
They may get to the intestines or some place in the proximity of
the heart, but not really to the core, but notwithstanding, I shouldn't
look a gift horse in the face.
They represent such an enormous advance that I should continue
to shout hurrah, if they become the fact in government circles which
they are not now.
So that is a long answer to your pertinent question, sir.
Senator Metcaef. Mr. dayman, the questionnaire that seemed to
be so important and significant to determine and ascertain the infor-
mation that we need had to go through the XAC. but did it have to
go through OMB. too. as a part of the reports?
INIr. Claymax. It is my understanding that after it goes to the
NAC it goes to 0MB. That is a third step. It goes through a very
elaborative sieve.
Senator ]Metcaef. That is what Mr. Eeinemer calls double jeop-
ardy.
Mr. Clatmax. In this case, triple. There are three levels.
Senator Metcaef. The questionnaire has a pretty difficult route to
overcome all of these obstacles that\are placed in its way so that we
can get the information.
INIr. dayman, I think one of the things that I gathered from your
statement that has presented a neAv outlook is we are concerned here
in the Congress and in the Government about the balance of pay-
ments and we try to have our exports balance our imports, and so
forth, but we are not concerned about jobs. This export of jobs that
you talk about is something that certainly we should have complete
and authoritative information on.
I really am not so worried about the balance of payments, Mr.
dayman, as I am worried about jobs for American citizens. I think
64
that probably that is the most important. I should have thought of
that a long time ago. I probably should have talked to you about it
a long time ago.
Mr. Clatmax. From our point of view, I will state the obvious.
I have said this before ; I will say it again, that without the job base,
America can't exist.
Senator Metcalf. We don't even know what we are doing.
Mr. Clatman. No country can. We are riding a rudderless ship in
this area. The main thing is, you will forgive me for kicking this
around still more, the amazing thing is that the issue that you raise
in your hearings broadened beyond just the agencies is about as im-
portant for decisionmaking of Congress itself as any that I can
think of, even though it sounds like arithmetic, mathematics — aca-
demic— and yet I am fearful that Congress doesn't comprehend this.
I want to compliment you, sir, for having this kind of perception
because you won't get headlines on this. Yet, there aren't very many
more important activities that any committee is being involved in.
Forgive me for putting it on this personal basis.
Senator Metcalf. If we had the information which you are talk-
ing about, especially from the multinational corporations, what do
you tliink we could do with it to increase and improve employment
opportunities ?
Mr. Clayman. You see, the information that we seek applies to
the entire operation of multinhtionals, international and domestic.
We see the American multinational, the world multinational as prob-
ably one of the most significant forces in modern economy.
"Wlien you consider that it has grown to a Goliath really in the
course of about 12 or 15 years at the most, 51^ million, we say, jobs
abroad, a loss of at least 1 million we say from 1966 to 1972. If this
goes along unabated, then it is going to change our entire society.
If this analysis, this very, very broad analysis, is solid, then ob-
taining information that substantiates wliat I am trying to say is
imperative to tlie T".S. Congress for its future action.
We feel that American multinationals need to be abated : else
they will consume our economy; else we will create a world force
that will not be for peace. I am generalizing now, but if you see it
in this perspective, the debate now is whetlier U.S. multinationals
are the third or the fourth productive force abroad in the world. Is
it the U.S., Russia and Japan? Or is it Japan and Russia? Then is it
U.S., Japan or Russia second? Or is it American multinationals
abroad third? Or are they fourth?
That is not a happy choice, whether it is third or fourth. If this
continues unabated, then we see this as supplementing a major part
of the American work force.
Then I think you ought to know more directly. Congress ought
to know more directly, and ff it knows more directly, perhaps it will
address itself with certitude. What is the tax set* up? Are we en-
couraging multinationals as we believe they are being encouraged
by a special kind of tax subsidy. Are they that important? Should
the flight abroad be encouraged?
If so, what does this do to our tax system and all the rest? This
is very much of a generalization, but it indicates the depth of our
concern.
e5
Senator Metcalf. I must apologfize to you, Mr. dayman. I
thought that perhaps you have been talking about this knowledgeably
for quite a while, but" I think this concept of the jobs we are export-
ing to get a balance of payments in dollars is a pretty-expensive way
for us to balance or to have a trade balance.
AVe should think about things other than dollars against dollars
and we should talk about jobs in America as against jobs that we
are sending abroad.
That is the most significant thing you have told me today. I knew
some of these other things.
Mr. Clatman. In fairness, let me make an observation, a quick
observation. The multinationals deny this vehemently. Each one of
them has spent hundreds of thousands of dollars on individual so-
called studies of their own. They deny this.
We think they are utterly wrong. Indeed, we suspect that there is
a great deal of"misre]u-esentation, but the important thing is some-
body has to find out the truth because if your allegations are correct,
we are in dire trouble and the only place is Congress, Government.
Senator ]Metcalf. If they deny it and their denial is based upon
facts that they can demonstrate, then there is no reason why we
shouldn't have this information about employment, and so forth, that
we have had in these questionnaires.
If your allegations are true, then we should know about it. Infor-
mation is the only thing we are after in this agency. If the infor-
mation we give is incomplete or indequate or deliberately false or
deliberately concealed, then our actions are not based upon sound
judgment.
I have other questions. We have witnesses and I was late. I would
hope that both you and your staff and my staff will continue this
dialog for a time because you have opened up some areas that I want
to continue to explore.
Mr. Clatmax. Thank you. Mr. Chairman; we appreciate your
interest.
Senator Metcalf. Thank you so much.
Counsel ?
INIr. Ryter. "NAHiat is your background before you became Secre-
tary-Treasurer, were you a researcher?
Mr. Claymax. For all my trade union career. I have been trying
to live down the fact that once upon a time I was a lawyer.
Senator INIetcalf. I have been trying to live down that once upon
a time I got a degree in economics.
]Mr. Claymax. So I confess no^v that once upon a time I was a
law^-er and became involved with the labor unions and later in ad-
ministrative functions within the labor movement.
INIr. Ryter. Are you aware of the research programs that go on
at the Department of Labor?
:\rr. Claymax. The what?
]Mr. Ryter. Research programs funded through the Department
of Labor?
Mr. Claymax. Xo; I am not aware of those in detail, but I suspect
my associates are. If they see fit to answer, please do.
Mr. Ryter. If I could direct just a few questions, I wonder if your
department is aware of the fact that a substantial amount of money
is about to be forfeited in the Department of Labor in the research
area just because of some of intransi<2;ence of the bureaucrats and the
laziness of the department? Are you aware of that?
]\fr. Claymax. I am not aware of it, but I suggest that specific
case that I gave you indicates that whatever they spend can't be
terribly fruitful if they are not prepared to ask the rational, reason-
able questions that the bureaucrats have recommended. And I can't
come to any other conclusion than that the leadership of those de-
partments that are involved in NAC, perhaps even the White House.
I don't know this, simply don't want these facts asked for.
Mr. Ryter. Is either one of the gentlemen at the table familiar
w^ith the treaty by which we have authorization to collect informa-
tion on the balance of payments? The Bretton-Woods Agreement?
Is either one of your counsel familiar with the Bretton-Woods
Agreement and the limitations of the collection of data?
Mr. Prosten. Let me take a crack at it. We don't see Bretton-
Woods as a limiting factor. There are certain things set out in
Bretton-Woods that are required — neither of us, by the way, enjoys
the status of being lawyers.
We can't hide that or claim it, but in looking through Bretton-
Woods we see nothing that specifically limits the types of data that
are being collected. There are certain minimnms that are set out for
the parties who are signatories to the agreement that they must pro-
duce in order to maintain the agreement.
We see nothing that sets a top line. We see a bottom line, but not
a top one.
Mr. Ryter. Can I ask, additionally, did you mean to suggest in
your testimony that the data that was collected previously in the
1966 survey was in excess of what was agreed upon as a basic mini-
mum in this more recent 1973 proposed survey?
Mr. Prosten. What we suggested in our testimony was that there
was more collected in 1966 than NAC was willing to allow last year.
Both 1966 and last year were subsequent to the Bretton-Woods
Agreement.
INIr. Ryter. Couldn't we ask that you put it in a further memo,
noting which was allowed in 1966, and which was not allowed in the
NAC proposal?
Mr. Briax Turner. I have already got that drawn up.
Mr. Ryter. I spent a great deal of time in the bureaucracy and
found it a little Ijit confusing that a national advisory committee
Avould act as an interagency function.
Could you clarify that? You say in your testimony that there is
a Cabinet level interagency committee, advisory committee, acting in
an administrative or bureaucratic function.
I was never aware that a Cabinet level committee, as one of the
abilities, and it wasn't an administrative ability, could function in
this capacity. Are you firm in your belief that this is a Cabinet level
committee that acted to cut this out?
Mr. Brian Titrner. I was in discussions with James Griffin, chair-
man of the working committee of NAC that dealt with this matter
back in October and November. The description Cabinet level, inter-
67
agency committee, was his. I believe he was certainly in a position
to know.
Senator Metcalf. If you would yield, let's have the names and
official designation of the members of the committee inserted in the
record immediately at this point.
[The information subsequently received follows :]
U.S. Department of Commerce,
The Assistant Secretary fob Economic Affairs,
Washington. D.C., August 12, 1975.
Hon. Lee Metcalf,
T'.S. Senate, Washington, D.C.
Dear Senator Metcalf : Pursuant to your request of August 6, 1975, I am sub-
mitting two lists of names for inclusion in your hearing record.
The first list comprises the members of the National Advisory Council on
International Monetary and Financial Policies. Please note that Secretary Mor-
ton was not Secretary of Commerce at the time the working group's deliberations
took place. Frederick B. Dent was the Secretary of Commerce at that time.
The list of NAG members is a follows :
Frederick B. Dent, Secretary. Department of Commerce ;
Henry A. Kissinger, Secretary, Department of State;
William E. Simon, Secretary, Department of the Treasury ;
Arthur F. Burns, Chairman, Federal Reserve Board ;
William J. Casey, President and Chairman, Export-Import Bank.
The following is a listing of the members of the "working group" :
Treasury Department: James A. Griffin. Chairman; Fred Cutler; Walther
Lederer ; Dirck Keyser ; Gary C. Hufbauer ; John Cambon ; Josef E. Herbert
(NAC) ; Dennis O'Connell.
Commerce Department : George R. Kruer ; Ida Mae Mantel ; John Bogumill ;
and Milton Berger.
Federal Reserve Board : Guy Stevens ; Sam Pizer.
Office of Management and Budget : David T. Hulett.
Agency for International Development : Norman Mosher ; J. de Melo.
Export-Import Bank : Steven B. Kahn.
Council of Economic Advisers : Laura Peterson.
Council on International Economic Policy : Sheliaghmichael Hewitt.
Sincerely, ^ ^ ^
James L. Pate,
Assistant Secretary for Economic Affairs.
Mr. Ryti<:r. I believe what you will find out is what you have
citation to is an ad hoc interagency committee which may not have
Cabinet level status and which really is not an advisory committee
as much as it is an interagency discussion committee for the purpose
of assuring that there is legislative authority to utilize this type of
questionnaire or to ask specific questions of this type.
Following on that, let me ask the question whether or not you are
suggesting that there is a (Tovernment policv of some sort to limit
the'amount of multinational information collected.
One of the good things about your testimony, the thing that T
really have to admire and speak out on, is that 99 percent of your
testimony was directed toward establishing the need for this infor-
mation by pointing out the great deal of uncertainty in analyzing
the effects of multinationals.
We just don't know the crround we are on. T think that far and
awav, you have establi.shed beyond a reasonable doubt there is a
need, a crying need for additional information of this sort.
Ts it vour feelino: that there is a coverup of some sort?
Mr. Clatman. I wouldn't use the word coverup. I don't know
68
motivations. I have to beliove, rationally, that when a committee
composed of top representatives of the various departments of Gov-
ernment turn down, in my jndo^ment willy-nilly important, impera-
tive questions to be asked of the American multinationals, shall I call
it an error of jndirment? Shall T call it somethinfj else?
Mr. Rtter. Let's make two different assumptions first. If it is de-
termined that this was an act of bureaucrats, for instance, an act of
GS-18s teams or whatever you want to call them, as opposed to an
act of schedule C's, would you distinojuish in your own mind differ-
ence in policy?
Mr. Clatmax. Of course there mi^ht be differences. T am assumincr.
and you have had more experience apparently in governmental agen-
cies and departments than have I, I am assumintr that the top of the
leadership certainly would be aware of actions of this nature and if
they are not. I suspect they are somewhat derelict in their diities. I
would think that these questions are relatively sensitive questions to
jrovemmental afrencies because I don't think they consider these in
the abstract or academically. They are there. They know what they
mean.
T am assuming that the secretaries of those various departments
are aware of that action. T would not consider this as a small activity
in any of these departments because if you, as you sure do, know the
power of multinational corporations and tlieir effective lobbving; ap-
paratus, T am sure that the decisions were made knowingly. I am
not sayine: maliciously.
Mr. Ryter. Are you sujr^estine: that in a sense there was contact
between the multinationals and this interagency task force?
Mr. Clatman. T am sorry.
Mr. Rtter. Are you suofsrestino; there is some sort of contact be-
tween the multinationals or representatives of the different multina-
tional firms? One of the thinofs that the minority
Senator Metcalf. Let him answer.
Mr. Ceatmax. No; if you are askinij me to allege that there is a
deep conspiracv, another Watergate, T am not prepared to do it. T
don't even know the principals involved personally. My associates
know some of them : I don't.
T am just prepared to say that this is more than passing strange.
Tf an issue of this importance escapes the scrutinv of the top leader-
ship of each of those departments and if it did, then T say it is also
commentary on the kind of direction those departments are getting.
Mr. Rtter. T think that is probably more relevant.
What is tlie current status? Ts it youi" understanding that there
has been further movement on this in the Department of Commerce?
ISIr. Ceatmax. T am afraid you will have to repeat it. T am getting
a muted sound from you.
Mr. Rtter. Ts it your understanding that there has been anv, or do
you have an understanding as to Avhether or not there has been any
further action on the part of the Department of Commerce to either
renew, revive the questions or the authoritv under which they are
seeking the survev?
Mr. Ceatmax. T am told by my associates that the BEA declined
to carry out the study after these important questions were elim-
inated because it wasn't worth the expenditure that it required. Tlie
information they would receive would be relatively worthless.
Mr. Ryter. The information coming to me this morninjj indicates
that the department may have individuals within the BEA who may
have requested the Secretary for additional legislative authority to
pursue this matter in statistical form.
In that case, that would indicate — just for the record, and T think
we can try to have that verified.
One final question: Have the industrial unions of the department
taken a stance against multinational investments?
Mr. Clatman. You don't know what you are asking for. You are
asking for a speech.
I will make it quick, but it can't be perfunctory. We have not been
against multinationals, per se, across the board. We have been for
rationalism of their operation. We have always had some small, for
many, many years, some small multinational operations abroad.
In its present form, it has gone wild. It is the expression that I
heard the other day, the rogue elephant in the last 12-15 years. It is
this unrationalized, uncontrolled pell-mell rush abroad which worries
us intensely.
For the foreseeable future, I think the American labor movement
will be heard often and loud on this issue.
Mr. Ryter. I think they should be and I think as the chairman
pointed out in your testimonv that the creation of the jobs in Amer-
ica today. I think it is one thing we can certainly join together on.
Thank you very much.
Senator INIetcalf. Mr. dayman, thank you for a most interesting,
educational testimony and, of course, your testimony is up to the
usual high level. You have probably inspired the committee to go
into other areas.
I am going to ask that your staff work with Mr. Reinemer and
have a little introductory statement of just what the industrial union
department does and how it was created, and the background of the
witness.
[The information referred to and subsequently supplied follows :]
Functions of the Industrial Union Department, AFL-CIO
The Industrial Union Department serves the AFL-CIO unions with member-
ship in the industrial sector of the American economy. Founded at the merger
of the former AFL and CIO. its affiliates now comprise 59 international unions
representing over six million workers. The department provides diversified
services to its affiliated unions in such fields as organizing, collective bargain-
ing, legislation, research, and occupational safety and health. Its officers are
President I. W. Abel, who is also president of the United Steelworkers of
America, and Secretary-Treasurer Jocob Clayman.
Jacob Clayman, Secretary-Treasurer, Industrial Union Department
.Jacob Clayman was born in Boston, Massachusetts. After spending his boy-
hood in Boston he moved to Niles, Ohio. He attended the Niles public .schools
and graduated from the town's high school in 1923.
He went to Oberlin College in Ohio and graduated in 1927. Following gradu-
ation from Oberlin he attended the University of Michigan l^aw School, taking
his law degree in 1930.
70
After being admitted to the Michigan Bar, Mr. Clayman practiced law in
Detroit. He then obtained employment with the federal government, later
leaving to become a member of the Ohio Bar and to practice in that state.
Both his interests and his law practice brought him into contact with the
labor movement, especially the new industrial trade unions in Ohio. In 1941
he was elected Representative from Trumbull County to the Ohio Legislature.
In 1943 he became general counsel to the Ohio State CIO.
Mr. Clayman was elected full-time secretary-treasurer of the Ohio State
CIO in 1948 and served in that post until the year of the AFL-CIO merger
in 1055. In that year he was named special assistant to the president of the
Amalgamated Clothing Workers in New York.
In 1958 he returned to Ohio where he took an active part in labor's success-
ful fight against a proposed "right-to-work" law. He then served the Ohio
State AFL-CIO as legislative representative before the State Legislature
and was associated in law practice with his brother, David, in Columbus. Ohio.
Early in 1960, Mr. Clayman was designated as the administrative director
of the Indu.strial Union Department, AFL-CIO. This department is the center
of the industrial unions within the AFL-CIO and counts its affiliation at ap-
proximately 7 million members. He was a member of the Federal Advisory
Council on Employment Security ; he was a trustee of the United Community
Funds and Councils of America, Inc., and w'as the founding president and is
now a vice president of Consumer Federation of America. He was also chair-
man of the National Civil Liberties Clearing House, and a member of the
Board of the Leadership Conference on Civil Rights. He was elected secretary-
treasurer of the Industrial Union Department, AFIv-CIO in September 1973.
Mr. Clayman has written many articles and pamphlets on the subject of un-
employment compen.sation. workmen's compensation and other kindred special
legislation.
Mr. Clayman. My apologies to the witnesses who are to follow, Mr.
Chairman. I have very poor terminal facilities and I have exempli-
fied it again. Thank yon.
Senator Metcalf. Yon don't have to apologize to anyone. Thank
you very much for coming.
[The prepared statement of Mr. Clayman follows:]
Prkpared Statement of Jacob Clayman, Secretary-Treasurer,
Industrial Union Department, AFT^CTO
Mr. Chairman and members of the subcommittee, my name is
Jacob Clavman. T am Secretarv-Treasurer of the Industrial TTnion
Depai'tment, AFI^CIO. The JrT> is a Department of the AFI^
CIO, with 59 affiliates that repiesent some six million working men
and women. The bulk of our activity is in the pursuit of programs
to enhance the jobs and working conditions of these union members,
although we also attempt to further their interests as consumers,
taxpayers and citizens.
As we understand it, the current hearings are to assess the suffi-
ciency of data on which government regulatory decisions are based,
and how the accuracy, adequacy and availability of this data might
be improved. We appreciate this chance to appear before your Sub-
committee and share with you our feelings on the inadequacies of
information flowing from governmental agencies.
We realize that the federal regulatory svstem is currently under
great attack. It would appear that the President of the United
States is fashioning a campaign to emasculate much of the good
that these agencies do accomplish. Clearly, there are some instances
of over-regulation. But all too frequently, there is too little regula-
tion.
71
Both of these situations flow from the fact that the Administra-
tion has stacked these ap;encies with people whose interests seem to
lie more with the entities they are supposed to regulate than with
the public they are supposed to protect.
We wish to call to your attention a variety of situations in which
we feel the government's performance in the field of data gathering
is totally inadequate. Since the executive departments have not seen
fit to compile the sorts of data that we feel are needed, it seems
appropriate to ask that the regulatory agencies try their hand at it.
Primarily we are concerned with the lack of hard data in regard
to employment. We do not mean the sorts of aggregate data about
how many people are working and how many people are collecting
unemploj'ment checks which the Department of Labor issues. Rather
we need figures indicating how^ and why people have become unem-
ployed; where work opportunities are climinishing or vanishing:
what industiies are suffering or are likely to suffer substantial non-
cyclical unemployment ; and various offshoots of such approaches to
recordkeeping.
It seems to us that economic data collection in this country is quite
unresponsive to some of the very obvious and most pressing neecls
of our citizens. In many cases where important data is collected it is
terribly out of date by "the time it is put into the hands of those who
need it to shape national policies.
If we review the economic issues that have achieved crisis status
in this country over the last decade or so, we find that in an amazing
number of cases, we were told that "nobody knows" the true serious-
ness of the problem or how to fashion solutions because there was
not sufficient information.
Clearly, it would be unreasonable for us to expect the iminediate
availability of data concerning every aspect of every contingency
that may occur in or to a country as vast and economically complex
as ours. But we feel there are certain areas which cry out for atten^
tion. We don't really care which agency or department does the data
collection, but we do care that it be collected, analyzed and quickly
made available to Congress and the public.
The sorts of data with which we are most concerned — because they
are so totally unavailable — are those that would give us a handle on
problems — ciirrent and potential — that affect jobs and employment.
Our example of what we're talking about was quite noticeable dur-
ing the fuel crisis. Despite the elaborate budgets of a host of agencies
and departments that collect data, nobody could find out how many
people were put out of work, or forced onto reduced workweeks, as
a result of this situation. The closest that we had to an answer
was based on what new applicants for unemployment insurance indi-
cated on their applications as the reason they thought they were now
unemployed. This approach was not only unscientific but imaccept-
able as a method of understanding the effects of then current eco-
nomic developments. It was based on the potentially subjective per-
ceptions of insurance applicants. Of course, the perceptions of those
who were ineligible for unemployment insurance were not counted
at all.
Parenthetically, it was equally disturbing that seemingly nobody.
72
in or out of government, could tell us how much petroleum was
available — either on top of or beneath the orround.
Both the jobs question bothered us the most, for it reminds us of
just how inadequate and anaemic our society's base of knowledge in
this area really is. It reminded us that for many years the labor
movement has been pleading for that kind of data — data that would
enable planners and policymakers to more successfully factor the
jobs and thus the welfare "of working people into their actions and
proposals.
The issue of jobs — job loss, job creation and the like — comes up
again and again as this country becomes aware of the growing im-
pact of multinational firms on "our economy. For a number of years
now we have felt that American jobs were being shipped abroad at
an alarming rate.
The multinational enterprises and their friends insist that we are
wrong — that, in fact, this process has created jobs in our economy.
We still think we're right, but desipte intense interest in the subject
on the part of many sectors there is no body of date that can be used
to prove or disprove our allegations.
Collecting reliable information and subsequently pursuing mean-
ingful economic analysis on foreign direct investment — both inward
and outward — is essential to the economic well being of this country.
The American people and the American Congress have a right to
this information.
Overseas production by the controlled foreign affiliates of U.S.
multinational firms is now 31/2 times larger than either U.S. imports
or exports; it now totals roughly $350 billion per year. Projecting
from the most recent Commercial Department estimates (made for
1970) , U.S. multinationals' overseas employment should not be over
514 million — just over the average imem'pJoyment in the United
States during the calendar year 1974.
In this rapidly changing situation, where multinationals expand
abroad as the domestic economy languishes. Congress has a duty
to see that all necessary information is collected and that the eco-
nomic analyses that depend on these statistics are responsibly car-
ried out. Study after study in this area is forced to conclude with an
apology for the tentativeiiess of its results — because the underlying
economic statistics are too weak to provide solid analytical conclu-
sions. We won't take up your time listing the various individuals
and organizations who have lamented our government's irresponsi-
bility in this area, but there are many respected experts who would
certainly welcome more responsible data gathering and analysis.
On outward direct investment by U.S. multinationals — an issue of
great concern to us and, we believe, to the Nation — the administra-
tion's recent record on data-gathering has been less than laudable.
In this regard, we would like to bring to the attention of this sub-
committee the dismal history of what happened when a responsible
agency of the Department of Commerce attempted to improve its
data collection on U.S. -based multinational firms.
The Bureau of Economic Analysis, Department of Commerce,
has responsibility for gathering and assembling primary economic
data on the foreign operations of IT.S. multinational firms. Their
73
last benchmark survey was conducted in 196G, and they publish
annual updated estimates on the basis of voluntary survey forms
sent out to a small sample of the known universe of American
multinational corporations.
As the multinationals' overseas activities increased, the Bureau
of Economic Analysis recognized that their previous benchmark
census had become "hopelessly outdated, and that the ranjre of in-
formation covered in the last benchmark was seriously inadequate
to deal with uro:ent analytic and policy needs.
In late 1972, the specialists at BEA be^an their own preliminary
analysis of topics that should be covered in such a study, and thev
devised draft survey forms to be sent out to U.S. multinational
parent corporations and their foreign affiliates.
When this process was completed, the proposed forms were sub-
mitted for approval to a Cabinet level interagency clearing com-
mittee, the- National Advisory Committee on International Mone-
tary and Financial Policy (N AC)— composed of representatives
from Treasury, Commerce," the Federal Reserve Board, the Export-
Import Bank", and the Department of State. The proposed bench-
mark survey was handled at the National Advisory Committee by
a working committee chaired by James Griffin of Treasury.
The proposed BEA survey would have expanded the scope of the
data collected in 1966 and in subsequent sample surveys. For the
first time they would have asked for detailed information on em-
ployment, skill levels, and employee compensation at home and
abroad ; on the cost and location of" research and development activ-
ities; on production by product line; on taxes paid into different
jurisdictions at home "and abroad; on transactions between parent
and affiliate; and on the treatment of domestic and foreign opera-
tions in the income statement of the parent firm.
This was not. in our view, an exhaustive list of what we needed
to know about I^.S. multinationals. It would have been far inferior
to data presently collected on comparable domestic activities. It
would, however, have represented a significant improvement over
the data on multinationals presently gathered by the Federal Gov-
ernment. It would have fulfilled iieeds recognized by all users of
data on multinational corporations, and the BEA understood it as
necessary for responsible analysis and rational policy evaluation.
The reception given to this vitally needed expansion of our
fundamental data base on multinational corporations was startlingly
negative. The NAC rejected every item on the survey form that
was not strictly related to balance of payments accounting — on
the interpretation that the Bretton-Woods enabling legislation al-
lows only balance of payments reporting. We call this a "strange
interpretation" because even the weak analytic data that had been
collected in 1966 — without any challenge "as to its legality — was
now ruled out of order. Everything having to do with research and
development, with the breakdown of production figures, with em-
ployment, skill levels and compensation, and even with trade be-
tween the multinational parent and its foreign affiliates — all that
and still more was cut out of the proposed survey by this Cabinet -
level interagency committee.
74
We find it hard to beliovo that such obstructive action, aj^ainst
the sound initiative of a hio;hly professional Federal ap:ency, could
represent anythinp: other than hirjh Administration policy. Some-
body up there doesn't want to know — or doesn't want the ]niblic
and the Conojress to know — the true facts about the multinational
corporations and their effects on the domestic economy. This scan-
dalous situation cannot be allowed to endure.
We think the record of failure to resj^onsibly provide the public
and the Cono;ress with accurate, up to date information on multi-
national investment speaks for itself.
At issue here is our ability to analyze* the makeup and operation
of the hu<re multinationalized sector of the U.S. economy v»hich,
to date, has been kept hidden from responsible economic and social
analysis. The Nixon-Ford Administration has blocked attempts at
monitorinjr the activities of T'.S. -based o-lol)al firms. The multina-
tional sector is too lar^e and potentially too damafjin^ a part of
the American economy to remain behind the veils of corporate
confidentiality. If rational policies that can strengthen the domestic
economy are to be implemented, we must have reliable data on the
multinational sector and its siofnificance in our economy. We must
place particular emphasis on the employment aspects of the ques-
tion.
But let us returii to what is seen as aii essentially domestic issue.
Tn the late lOGO's, this Nation belatedly beo-an to look into envi-
i-onmental quality — both on and off the job. From that time until
this very day — and, I guess it will be true for years to come —
spokesmen for industry have told everybody they could find that
even modest environmental standards would mean the closinp; of
many industrial facilities and the loss of untold thousands of jobs.
Despite industry's dire predictions, we've been unable to identify
any siofnificant number of plant closings in which safety, health
or environmental requirements were even alleged as reasons for the
action. And in those few cases where such causation was cited, we
were rarely able to verify the claim.
We believe that safety, health and environmental questions will
be with us for many years to come. We think that it is in the
national interest to study, as completely as possible, the impact to
date, as well as the potential future implications of such legislation
and standard-setting on jobs and employment. Only with solid in-
formation in hand will we be able to look at these serious problems
without being subjected to unverifiable polemics.
We've given you a few examples of areas where jolvrelated data
is needed and where presently available statistics are totally inade-
quate for national policv planning or response.
This inadequacy is not a recent discovery for us. For many years
\ye have sensed that the absence of data alonir these lines was pain-
fully apparent. We searched every conceivable agency, bureau, de-
i:>artment and what-have-you to try and find out what was happen-
ing to the jobs of our members and in other sectors of the econ-
omy as well. We were unable to locate any source that could tell
us such things as :
What sorts of industries are experiencino- employment declines
and why?
75
Have there been significant shifts in the traditional geojrrapliic
patterns of plant installations of jiiven industries or companies—
and why ? , , ^ -i ..
What identifiable patterns tended to surround the curtaihneut oi-
closing of facilities? . .
To be sure, we had some hypotheses about such situations. \\ e
assumed that the "conglomerization" of the T^.S. economy during
the 1960's was destructive of work opportunities. We assumed that
the tax incentives supplied bv certain of the States and the anti-
union attitudes that frequently characterize these same areas were
responsible for the destruction of historical employment opportu-
nities. . . . ,. „
We also wondered about the increasing "multinationalization ot
the U.S. economy. We wondered how many domestic employment
opportunities were being lost to a combination of the tax incentives
for job exportation provided by both our Government and host
governments and the availability in some countries of heavily co i-
trolled labor forces.
At any rate, in our own modest way we undertook to compile
a listing' of incidents of plant closings and curtailments. We sought
reports from unions affiliated with our organization, combed finan-
cial journals and other periodicals and cadged information from
wherever we could.
Such an approach, obviously, is not totally scientific and we rec-
ognize that it is far from perfect. But as far as we know, it's the
only ball game in town. National financial analysts, committees
of Congress and various government agencies frequently come to
us because they are interested in exploring one or more of the areas
addressed in our survey.
While we are always pleased to share the results of our work
with other investigators, we do so with great embarrassment about
the inadequacv of our data. Because of the make-shift ways in
which we collect it, we cannot be sure of how representative it is
of occurrences in the economy at large, nor can we be sure that
the sources we have used are correctly reporting the information
that we plagiarize from them.
As of the beginning of 1975, our system had been in operation
for four years. In that time span we had noted 1.701 situations in
which jobs were permanently lost. Almost 1,300 of these cases rep-
resented permanent plant closings, while another 400 represented
permanent curtailments. Xone of these instances involved short-
term layoffs caused by economic- fluctuations or other temporary
events. We did not receive complete information on every reported
situation but where we did, we discovered the following:
Less than 3 percent of the cases reflected claims that health, safe-
ty or environmental controls caused the action.
' Approximately 25 percent of the closings and curtailments were
related to the impact of foreign competition and they accounted
for some 32 percent of all jobs lost.
The average foreign competition related closing involved 370
jobs lost and the average such permanent curtailment involved 559
people.
76
Another major reason for closings involved domestic relocations,
most typically to low-wage, less urbanized areas. In these cases,
an average of 262 jobs were lost in closings and 298 m permanent
curtailments. .
When we expand the information covernig cases where we have
complete data to all of the situations of which we are aware, we
find that we can account for a loss of almost 500,000 jobs, of which
150,000 can be related to the pressure of foreign competition.
As I said earlier, we are aware of the very great limitations of this
data but at the same time we are frightened by what it seems to
suggest. Is it not the sort of data that this Congress and this Gov-
ernment should cause to be collected with precision so that it might
be at hand as the important economic issues of the day are con-
sidered? ....
Perhaps our data is not representative of what is going on m
the economy at large, but only a well-funded and skillfully imple-
mented study will be able to resolve that question.
Mr. Chairman, members of the Committee, we realize that we
may have deviated a bit from the precise topic of these hearings,
but feel that it is important to get on the record with our concern
in these areas. These items strike us as ones that contain informa-
tion which investors would need in order to deal in the stock mar-
ket more effectively. Perhaps it is information which could be most
readily collected by an agency such as the SEC.
We are not really too particular about who does the work, al-
though we would w^ant to mal^e sure that it was done competently.
As a nation we must put ourselves in the position to make rational
economic policy on the basis of information rather than guesses.
We must develop data that will alert us to potential employment
problems before they become fatal ailments.
The data collection advances by the independent regulatory agen-
cies (empowered by the Hart amendment to the Alaska Pipeline
Act and outlined in the model reporting requirements) are steps
toward more comprehensive reform of Federal data collection. In
the not so distant future, piecemeal reforms in Federal data collec-
tion will have to give w^ay to a more systematic, coordinated ap-
proach. To date, this lack of coordination in Federal data collection
has led to such things as: incompatible information series; major
gaps in the information that is collected; and inefficient and arti-
ficial barriers governing exchanges of collected information between
agencies.
While information gathering has increased in scope, the differ-
ent agencies too often gather their data on incompatible definitional
bases. This makes it difficult for analysts, both in and out of the
government, to compare related sets of data. For instance, our in-
formation on production, sales, employment, and wages, is collected
by industry according to the Standard Industrial Classification
(SIC's). But our import and export data are gathered according
to the substantially different categories of the Tariff Schedule of
the Ignited States (TSUS). As a result, the depth of import pene-
tration or export-related employment are often impossible to calcu-
late.
77
In addition to those definitional inconsistencies, there arc impor-
tant areas where data are inadequate oi- not collected at all. We've
mentioned a few of these this morning.
Alongside the missing information and the incompatible statis-
tics, we see a third problem area: a lack of imagination in using
existing data to derive additional needed data. One area that comes
to mind immediately involves the foreign operations of IT.S. global
corporations and their impact on domestic production and employ-
ment. One branch of the Federal Government, an agency of the
Commerce Department, has more or less adequate knowledge of tly
identity of U.S. multinational corporations; this information is
stored on computer tape. But the Commerce Department has no
current information on these firms' employment. The Labor Depart-
ment, on the other hand, through the Bureau of Labor Statistics,
has records of domestic employment patterns for the larger individ-
ual firms; and these records, too, are stored on computer tape.
It would be a relatively simple matter to run these two sets of
information against each other and thus discover at least the domes-
tic employment performance of TT.S. -based multinational corpora-
tions. Such a procedure would be inexpensive. It would require no
change in present reporting requirements, nor would it threaten
corporate confidentiality in any way. Yet, under present arrange-
ments, these two tapes cannot be bought together, and these impor-
tant questions remain unanswered.
A few such information gaps can be closed quickly by utilizing
currently gathered data. But in the longer run, our whole system
of data collection will require streamlining. By eliminating uimec-
essarily overlapping and duplicative reporting, we could have more
and better information, while significantly reducing the costs of
data collection and reporting.
Mutually consistent data bases must be established, and existing
information gaps must be closed, especially with regard to energy
and the overseas opei-ations of I^.S. multinational corporations.
We recognize, of course, that such an overhaul of the Federal
data gathering system is a long-term project. Yet the Congress can
take some steps toward that future consolidation and streamlining
without delay.
A first step would be an assessment of the present diverse pro-
grams of Federal data gathering. Wlrat questions are being asked,
and by which agencies? What are the rules governing interagency
exchanges of data? A comprehensive survey of present data col-
lection will be essential for arriving at a more coherent, less costly
system for the future. Such a necessary preliminary study could
well be carried out by the GAO or the Congressional Research
Service at the request of this Subcommittee.
Parallel to this exhaustive determination of what is now happen-
ing in Federal data collection, future reforms will require the
careful consideration of alternative approaches to more comprehen-
sive and coordinated data collection. There are many questions to be
addressed :
What are the most promising conceptual structures for organiz-
ing industry data on a common basis?
56-957 O - 75
78
What is the range of possibilities foi- facilitating interagency ex-
changes of information?
How do we establish standards of confidentiality and protect
against their abuse in such a comprehensive data system ?
As the Congress implements the many needed reforms of our in-
efficient data gathering system, these questions should be systemat-
ically explored and answered.
In closing, I would like to endorse an idea that appears in the
testimony of Dr. Abraham Briloff before the Senate Banking Com-
mittee on July 11, 1975. Dr. Briloff, a certified public accountant
and professor of accountancy at the City University of New York's
Baruch College, urged the creation of "a Corporate Accountability
Commission to assume the overarching responsibility of identifying
the total informational needs of our society " * * regarding our
corporate enterprise and to see how this information can be best
accumulated, digested and disseminated. Failing such a unitary
trust I can see the present segmented, limited scope and responsi-
bility as producing intensified conflicts within government, and an
inadequate and inefficient response to the fair informational require-
ments of our modern democratic society =!= * * one which requires
the delegation of enormous power and responsibility which, in turn,
demands a reciprocal measure of accountability to those who have
delegated the power."
Senator Metcai.f. We have a vote at 12 o'clock. We have a vote
at 1:15.
TESTIMONY OF JUNE ALLEN, NORTH ANNA ENVIRONMENTAL
COALITION, CHARLOTTESVILLE, VA.
The next witness is Mrs. June Allen.
Do you want to start testifying, INIrs. Allen, and have us recess
at 12 o'clock to 1:30; or do you want to wait until 1:30 to testify?
I am going to hear the witnesses today.
Mrs. Allen. I would like to do as much as I can. We would
like very much to depart Washington at 3 :30.
Senator Metcalf. Let's hear you until five lights come up, be-
cause I know you have some important testimony. I am delighted
to have you here.
Mrs. Allen. I am not sure I am up to competing with the con-
struction noise.
Senator Metcalf. I want to emphasize one of the things that
Mr. dayman said where he pointed out that less than 3 percent
of unemployment cases, permanent unemployment, resulted from
health, safety or environmental controls. T know you are going to
talk about that same sort of situation. I welcome you here. I am
delighted that you could come. I hope maybe we can complete our
testimonv before we have to recess.
Mrs. Allen. We will try. Thank you very much.
Can you hear me?
Senator Metcalf. I am sorry about the carpentry work. I came
to Washington some 20 years ago and tliey have been building or
79
rebuildiiifr or constructing or reconstructing everything ever since
I have been here, and I have no hope that everything will be fin-
ished before I leave. Thank you.
Mrs. Allen. I will try to speak above it. Please let me know
if you can't hear me. Thank you for your kind remarks.
My name is June Allen. I am most appreciative of your invita-
tion ^to testify as representative of the North Anna Environmental
Coalition.
By way of brief background, I would like to tell you that the
coalition 'was formed in" January 1973 by citizens of central Vir-
ginia who were concerned that despite the serious and still unsolved
problems of nuclear technology, and I am sure you know that chief
among those are untested and unreliable emergency core cooling
systems; lack of safe disposal for highly toxic radioactive wastes;
and genetic and carcinogenic risks from cumulative low level radia-
tion.
Despite this, plans were proceeding for one of the largest nuclear
plants in thejvorld, four reactors totaling 4000 megawatts, in Min-
eral, Va.
I have a map to show you that this is not just a matter of
academic interest because 'the North Anna plants are just 70
miles from Washington and 40 miles from Richmond. They are
right in central Virginia and Washington is in the radius of risk.
Senator Metcalf. You are going to leave that map so we can
put it in the record?
Mrs. Allen. Yes.
Every effort by the coalition on behalf of safety has met with hos-
tility from Federal and State decision-making bodies.
Of this quartet of 1,000-megawatt reactors. No. 1 is now 80 percent
complete and No. 2 is 55 percent complete. Construction permits
have been issued for reactors 3 and 4, and their excavations were
dug in 1973.
It is these excavations that put VEPCO's North Anna Power
Station on front pages here and abroad — for they revealed a major
fault zone cutting the ground directly beneath the nuclear site.
They forced the AEC and VEPCO to a disturbing but inescap
able conclusion about reactors 1 and 2: over half a billion dollars'
worth of complicated, temperamental, still-being-invented nuclear
technology had been placed not only near, but directly astride a
fault.
The North Anna fault is wet. clay filled, and surrounded by rock
so fractured that stress measurements are impossible. Independent"
geologists shake their heads and say, "Why take such a chance?''
I brought some photographs that I thought would dramatize
the situation for you, so you could see this scar or wound in thf
earth. This is the excavation for reactor 3. You can see the wet
fault and the rock bolts holding the highly fractured surface nearby
[A reproduction of the map and photograph referred to follows :]
80
I
81
_Ci>.
Torth Anna Reactcr urder ecns Inaction
loomB above '"ault vialbiC In excava-
tlcr for Re-'CtcT i
82
Mrs Allen. Then this photograph, a closer view of the fault
itself with the reactor No. 1 loominaj above it m the background.
Those pictures just returned from Tokyo. They were borrowed tor
a broadcast there where people are worried about the relation of
faults to nuclear reactors.
Responsible Congressmen must ask how such incredible siting
and construction could have been allowed in an industry and tech-
nology we are told is so carefully regulated.
Did the regulators fail to gather vital information, or, once gath-
ered, fail to act upon it?
Your committee has already posed two central questions:
One: How good is the data upon which regulatory decisions are
based ?
Two: How can it be improved?
These questions would seem to reflect a basic idealism and belief
that timely and accurate data must necessarily result in wise
decisions.
Coalition study and experience since 1973 suggest that you should
add— and carefully ask— the following questions in regard to in-
formation management by regulatory agencies:
One. Are there strong working assumptions that could cancel
out new scientific data or soft pedal substantial scientific ignorance?
The strong working assumptions in the North Anna case were
that nuclear power is highly desirable, and that geology is no
problem in the East. Thus, the easy approval for this giant site even
though both AEC safety evaluations— 1070 and 1972— carry the
statement: "Details regarding either local or regional (geological)
structures are very poorly known."
In 1974, an Atomic Safety and Licensing Board ruled the North
Anna site safe, despite the following admissions of ignorance by
the AEC staff, and I think the record will support these.
The extent of the faulting beneath the reactors is not known.
The extent of faulting beneath the dam and Lake Anna is not
known, and that is key, as I am sure you know, because the water
at artificial Lake Anna provides the cooling for the reactors, most
essential.
Accurate rock stress measurements are not known.
The date of last fault movement is not known.
The probability of fault lubrication is not known.
Mr. Turner. Mrs. Allen, I Avonder if you might say what indica-
tions there are with respect to lubrication?
Mrs. Allen. There is a phenomenon discovered in Colorado when
they were putting fluids into the earth and discovered that they
could reactivate faults and create their own earthquakes by adding
fluid.
So there is this possibility of increasing tlie load, of lubricating
the fault and causing a previously inactive fault to become active.
I believe the AEC seismologist stressed that this is not a func-
tion of age. One of the major arguments in defense of the site has
been that this is a very old fault, luit the possibility of reactivating
a fault by lubrication is not a function of age.
Going on, the competence of rock beneath units 1 and 2 is not
known.
83
Senator Metcalf. What is competence of rock?
Mrs. Allen. Simply how sturdy it is and whether it really is
unfractured enough to support the reactors in the way that they
need to be for the fragility— if that is the right word— of the
equipment that they contain.
Last, which sounds innocent enough, the relation of the North
Anna faulting to regional structures is not known. This seems to
be of most concern to geologists because if the North Anna fracture
is just a little crack, it is a small problem.
But if it is related to major geologic structures and there are two
that are of concern, one is called Neuschel's Lineament and the other
is called the 38th Parallel Fracture Zone. If there is a relation
between the North Anna fault and these then we may have major
geologic structures that should be explored and thought about.
Then, ironically, as a footnote, the American Nuclear Society
maintains that reactors are not sited in fault zones.
The coalition believes that were this site suddenly bare of $750
million worth of construction and its shattered rock to be viewed
by conscientious engineering geologists who were free of the work-
ing assumptions of the sixties, it would be rejected out of hand. See
attachment 1.^
Two. Is there resistance to any negative information which might
challenge the strong working assumptions?
I would like to make two corrections on this page, if I may, be-
fore proceeding.
In the second paragraph under the second question I would like
to delete AEC. Then seven lines beneatli that, six lines beneath that,
change the wording "of" to "in," but the wording "in" the AEC
safety evaluation shows, and then delete "regulatory agency."
Is that clear?
It appears from the North Anna case records, that from 1968
on, studies of the site revealed suspicious symptoms that the site
might be ailing with fault sickness : Extensive jointing, stability
problems, chloritic slick inside, collapse of the side walls of the
excavation.
What was the thinking in the site analysis branch where these
reports were read? Nothing happened.
We have some insight into the thinking regarding VEPCO's
Surry nuclear site on the James River near Newport News, Va.
Since 1945, there have been recurrent disturbing suggestions in the
geology literature of the nearby Hampton Roads fault — the latest
suggestion coming from offshore oil -investigation of February, 1974.
Independent geologists believe there is still not enough data to
deny the existence of this structure near the Surry plant, but the
wording in the AEC safety evaluation shows the need to view
available data in a particular way : "Because the Hampton Roads
fault would be in a critical position with respect to the site, much
attention was paid to the details of the applicant's argument that
the fault . , . does not exist."
Rewording tliat, it would seem to me to be saying, "Because
1 Seep. 110.
84
we don't want there to be a fault near Surry, we will pay attention
to those arguments that say it isn't there, and we will ignore those
o-eoloffists who postulate that it is there." , • .
*' Gomg on— incidentally, that statement in quotation marks is trom
the U.S. Geological Survey assessment of the Surry site.
Three Is sound, firsthand information desired? Is it actively
sought, even under crisis conditions, unless that crisis receives heavy
play in the press? . • ■ ^ i*.
Given North Anna's consultants reporting of suspicious fau't
symptoms culminating in acute collapse of reactor No. I's excavation
wall in 1970, one must ask why no AEC geologist visited the trou-
bled site in its February crisis. , .^.n -.^-n i ^ r
Records show an AEC inspector there on the 19th, 19(0, who duti-
fully reported the unstable strata m the rock bed (that) allowed the
lip of the excavation to slide in the hole. o T^• i v
Did that report ever reach the AEC project manager? Didn t
he then pick up the phone and discover that VEPCO's consultants
were flying in from Boston and were seriously considering faulting?
Perhaps this committee can find out.
Senator Metcalf. I don't know whether the committee can find
out, but as the previous witness indicated, there is a lot of informa-
tion that nobody gets around here. But I will direct our staif to try.
Mrs. Allen. 'Excellent. I do know that at least recently the pro-
cedure has been that information from the Atlanta AEC or now
NRC, inspection office does come to the project managers. So we
would assume that that same procedure was in effect in 1970. Thank
you.
The geologist who actually arrived on February 2-3 was not from
the AEC or the USGS. He was a professor from a local community
college, and he was there because it evidently is in the nature of all
geologists to take advantage of any excavation that ever appears
anywhere and go look.
These excavations were mammoth and it was a marvelous oppor-
tunity. They took a field trip and took students to look. So there
he was on February 23. And he couldn't believe what he seemed
to be seeing — a major fault in a nuclear reactor excavation.
Dr. Funkhouser sought permission from VEPCO's resident en-
gineer to return with expert colleagues. Dr. Goodwin, structural
geologist and chairman of the geology department at the College
of William and Mary, and a member of his faculty. Dr. Clement
confirmed Dr. Funkliouser's shocked diagnosis: a classic textbook
fault.
They photographed the fault, and used their slides with hundreds
of students from 1970 on — a fact which increases the mystery of
VEPCO and AEC ignorance of the structure. See attachment 2.^
Further, the three geologists testified to the AEC — they were
actually deposed on the fault in 1973 — that they called the fault
to the attention of VEPCO's resident engineer, expressing concern
as to whether this was a good thing to have in any kind of founda-
tion. But that was in 1970.
Somehow the information was lost during the ensuing 3 years of
continued construction, and somehow neither VEPCO nor the AEC
1 See p. 119.
85
knew anything of this diagnostic visit of three independent geolo-
gists just at the height of geological crisis and consultation among
the geologists of VEPCO's constructor, Stone & Webster. Truly
unaware of the infirm foundations were the press and the public.
Dr. Goodwin later told the press when they called him in 1973,
"Any fault is not a good place to build reactors. Chlorite is very
weak and weathers rapidly. We just don't know what the long-term
effect of water seepage in rock faults is."
Sadly, the last question that we think you must ask is: Is it pos-
sible that information submittal to regulatory agencies is an expen-
sive and tardy exercise to justify premade industry/agency deci-
sions rather than a genuine effort to find information upon which
to base decisions?
VEPCO's contract with North Anna constructor Stone & Webster
was signed in 1966 ; in 1967, the contract for North Anna unit 1 was
awarded to Westinghouse for $446 million. Not until 1968, as far
as we can discover^ were studies made of North Anna geology and
site feasibility.
By the time construction license hearings were actually held be-
fore an atomic safety and licensing board in November of 1970. And
you recall all of this crisis in the excavations was February 1970 —
by the time the hearings were held in November of 1970, millions
of dollars worth of momentum was rolling at the site. Steel liners
hid the faults in the excavations.
Only the naive public thought the hearings were actually held to
decide* whether or not to construct the nuclear station.
Nevertheless, the parties to the construction license hearings, par-
ticularly the AEC staff and VEPCO, had a responsibility to adduce
information on a kev construction issue — foundation conditions.
Neither VEPCO nor the AEC brought up the subject.
The Board asked no questions about site suitability.
This pattern of 1970 repeated itself in 1973 — even though during
the exact hours of the hearing on construction licenses for reactors
3 and 4, international experts were at the site, trying to decide what
to do about their severely faulted excavations.
Two such blatant instances of failure to adduce key information
ultimately became part of the basis for VEPCO's conviction in April
of this year of having submitted 12 material false statements on
North Anna faulting to the AEC.
The NRC conviction, however, came only as a result of persistent
citizen action and not because of regulatory or State insistence upon
integrity and completeness of information.
The State was a party to this action. The AEC had actually put
out an embarrassinglv sloppv investigation report vindicating
VEPCO in ]March of 1974. See attachment 3.^
The AEC staff also tried to help VEPCO out of its difficulty in
1973 by having their geologist send an affidavit to the Board pre-
dicting that an expensive study by Dames & INIoore would resolve
all site problems when it was published in August.
I brought it because it is such a marvelous piece of publication.
I thought you might be interested in taking a quick look at the
See p. 123.
86
photos that are in it and to realize that it has been almost totally
discredited by the AEC by many, many questions that followed
after this definitive report.
Senator Metcalf. Is that the only copy of that study that you
have ?
Mrs. Allen. That is the only one that I have, but I know that
the AEC has many.
Senator Metcalf. We will obtain another one.
Mrs. Allex. Very g^ood.
There is a little book mark in there that shows you a photo that
was available to them of reactor excavation 1.
But between tlie affidavit and the report came the coalition news
release. This was followed by a major story in the Washington Post
which surprised and embarrassed the Joint Committee on Atomic
Energy and probably had a significant effect upon the manner in
which the North Anna site and other sites were studied from then on.
As I said, many questions followed from this report rather than
its solving the problem, as had been predicted by the affidavit.
But we fear site selection study and reform come too late to have
any effect upon the health and safety of Virginians. Construction
goes on feverishly at this fractured site where even the design is
inadequate. The' Advisory Committee on Reactor Safeguards
(ACRS) said recently that reactors in the Piedmont and the Coastal
Plain should be designed against .20 g horizontal acceleration,
gravity. North Anna — in the Piedmont and on a fault — is designed
only against .12 g while Surry — in the Coastal Plain and subject
to liquefaction — is only designed against .15 g.
The concept of adequate seismic design is a questionable one —
especially in the light of AEC reports that many seismic shock
absorbers leak, and half — I think more than half, actually— the
seismic restraints at Surry cracked and had to be redesigned and
replaced.
It is our information that these same parts cracked at North
Anna and liave caused great delay and are now the subject of a
suit by VEPCO for $153 million against the manufacturers.
The seismic design statement bv the ACRS was a pleasant, if
late, surprise. Despite that body's admirable name — safeguards —
the impression is unmistakable that their major function is to lend
expensive and prestigious approval to the premade industry-agency
decisions referred to in question 4.
There is no evidence in their letters originally approving North
Anna and Surry construction that they were aware of or concerned
about serious foundation problems at both sites.
Further, minutes and other documents forced from their files
under the Freedom of Information Act are heavily censored, more
deletion than document.
Thanks to the efforts of our superb young lawyer. Professor Wil-
liam Rodgers, of Georgetown, there was a motion to compel ACRS
documents for the showcause hearing.
I think that the deletions are dramatic. You can see that the let-
ters, many of the letters regarding the Nortli Anna site, would have
a preliminary paragraph, "Dear John : Nice to hear from you," and
then the remainder of the thing would be totally blank.
87
I would in fairness say that in cliambers the board at the show-
cause hearino; did restore some of this material. But I think it is
significant for you to know the manner in which the material came
from the ACES.
Mr. Turner. INIrs. Allen, one other point right here, if this geo-
logical fault had been identified and admitted by the VEPCO and
NRC early on before the construction, could VEPCO have shifted
the plantsite to another location where such hazard might not have
been presented?
Mrs. Allen. That could have been suggested, I think, informally
by the State geologist and perhaps more formally by Dr. Paul
Roper that at least the plants could be moved off the fault.
Dr. Funkhouser said it looks as if they were sited right onto it.
They could have been moved 200 yards and then at least the reactors
themselves would not be sitting immediately on the fault so that as
they are now, they are subject to shear as well as shake. If they were
moved off the f ault,\ then there would be that much added safety
margin.
ISIr. Turner. But this would be before the construction started?
Mrs. Allen. Yes. It would be a matter of digging a different hole.
I would think so. Yes. Did I answer that adequately?
Senator Metcalf. It would still be, if you moved it how many
yards ?
Mrs. Allen. I think 200 yards. It would still be certainly in a
faulted area. There is no denying that.
Senator Metcalf. If you just moved it that far you would only
remove the shearing; you wouldn't remove the earthquake or shak-
ing of it.
Mrs. Allen. That is right; absolutely. The fact that they are in
Mineral, Va., should be a signal, because minerals precipitate out
along faults and we know that there is other faulting in that area.
Senator ]Metcai>f. The very name of the area should have been
a red flag to them.
Mrs. Allen. Right, but I think the area was chosen because of
proximity to cooling water possibilities and to the electric load
rather than with any worry about foundations.
Going back to the' available information, materials from the files
of the IT.S. Geological Survey, the USGS, were remarkably com-
plete. They were very cooperative in supplying information; con-
taining such remarks as "I would keep my fingers crossed and would
not want to live near North Anna,'' by one of the ITSGS men.
And another: "It is disturbing i:o' have four reactors cut by a
fault made up of clay gouge — that is the wet, soft material that is
in the fault — such a fault zone does represent a potential plain of
movement — all in all, I am not happy about the situation."
The misgivings quoted above, however, had no effect in 1974
against the expensive nuclear momentum that had been rolling at
North Anna since the I"^SGS visited the site in 1969 — but this was
just kind of a walk through the fields; there was no excavation at
that point — and declared VEPCO's geologic appraisal "adequate"
in 1970 — an appraisal, incidentally, which put the closest fault at
distance of 5 to 6 miles.
The strong working assumption was "nuclear plants are go," even
as the USGS readily admitted that geologic structures in the area
were "very poorly known" as were — and are — the causes of the
famous Charleston, S.C. earthquake.
Now there is a study grant from the AEC to the USGS to explore
the causes of the Charleston quake, which is pretty ex post facto
when you consider that one of the most risky nuclear situations in
the country is in South Carolina. This is the Barnwell reprocessing
plant which is going to be the scene of wastes coming from reactors
from many places to be stored and reprocessed in an area that is
more seismically at risk than Virginia.
They are studying it now. One of the USGS men told the coali-
tion that we have no handle on eastern geology, but— this is the point
that seems crucial to the concerns of this committee — no one ever
said "Wait a minute. Maybe we should get some more information
before we site nuclear plants all over the East. Do we really under-
stand seismicity in this part of the counti-y?
"Will reactor seismic design stand up against shake — let alone
against shear directly beneath the plant? What will our cooling
water impoundments do to the stability of the area?" We have added
13,000 acres of water, T believe.
Senator Metcalf. ;^^rs. Allen, that is five bells. That indicates I
only have 5 minutes to get over to a rollcall. I will, for the benefit
of the next witness, too, answer this rollcall, immediately return and
we will finish this hearing this morning.
We will run right straight through until all the witnesses testify.
If you will excuse me for a few minutes, I will be right back and
hear the rest of your testimony.
Mrs. Allen. I appreciate that very much.
[Brief recess.]
Senator Metcalf. The hearing will resume.
I see you were at the bottom of page 7.
Mrs. Allen. T will pick up there because you were kind enough
to maybe let me ask that question again because I think it is terribly
important.
The thing that seemed really crucial to us was that no one said
"Wait a minute, maybe we should get some more information be-
fore we site nuclear plant all over the East?" De we really under-
stand seismicity in this part of the country? Will reactor seismic
design stand up against shake, let alone shear, directly beneath the
plant? A^liat will our cooling water impoundments do to the sta-
bility of the area?
Senator INIetcalf. I think that is an awfully important question.
Some of the concerns that this committee and our last witness have
is we have inadequate information — but as your outline of testimony
and development, and so forth, you say we have the information and
nobody acted on it.
Mrs. Allex. Tn that particular site, yes: overall, no. In other
words, the USGS said we have no handle on eastern geology overall.
Senator Metcalf. Are we going to build nuclear sites on the San
Andreas fault ? When we find the fault, are we going to continue to
build? We had this information.
Mrs. Allen. Wliat you are asking is terribly significant. You
probably know that originally the ACRS gave tentative approval
to the. Bodega Bay Plant, which was only 300 yards from the San
Andreas Fault, and again the only reason that that plant did not
proceed was energetic citizen action against building near the San
Andreas Fault, which seems unfortunate when we have regidatory
people who should really be looking at that kind of problem.
Senator INIetcalf. I was fortunate enough to attend Stanford
University, and all over the campus are remnants of the old Stan-
ford University, the chapel, et cetera. It was all shaken doAvn by the
San Francisco earthquake. We know where that fault is. 1 am
afraid that if the procedure referred to in your testimony would be
carried out in California, they would build another nuclear plant
over there. I suppose it doesn't hurt to build a university on a fault.
The earthquake just shakes down buildings.
]Mrs. Allex. But here the risk is very great.
Senator Metcalf. The other testimony was we didn't have ade-
quate information and then all at once you come in. We are export-
ing jobs, and now you sfre telling us that we have known about this
situation, we have gone ahead and it is not jobs but lives that are
at stake.
Mrs. Allex. I am glad that you really see the serious implications
of this. That certainly is admitted, that lives are at stake.
One aside, because "you brought up the San Andreas Fault and
the San Francisco quake, we understand from the USGS that the
majority of damage and loss of life from the San Francisco quake
was due to liquefaction : that is. the buildings that were on soil that
liquefied, that became jelly with the quaking received the most
damage.
I mention that because liquefaction as opposed to, or perhaps in
addition to a fault, is the risk that we are aware of at the Surry site,
the other nuclear site in Virginia.
By the time the Xorth Anna fault scandal broke in 1973, it was
too late to ask these vital questions. Too much money had been spent
in combined geologic and nuclear ignorance, and nobody associated
with the project had any stomach for the possible answers.
Thus, the work of Dr. Eoper. an expert Piedmont geologist, who,
incidentally, I shoidd have said was a consultant to Dame & Moore,
who suggested that the reactors be moved off the fault and that
suspicious regional, emphasize regional, geologic structures be
checked out before any nuclear operation began, had to be suppressed.
Actually, the omission, the failure to submit the Roper report was
considered by the XRC Board to constitute a material false state-
ment. Better to risk a material false statement and an accident than
a bankrupt venture. [See attachment.^]
Economics triumphs handily over prudence. Agency supports
agency in early superficial approval of utilitv documents. Xo one
really worries about the hard questions or about looking at first-
hand information. And I emphasize that because it seems that these
approvals by the USGS and by Blume and Associates in San Fran-
cisco who were the consultants at that time to the AEC ; these ap-
provals were based upon looking at the utilities' documents. So they
Seep. 110.
90
didn't go back to the first sources. They simply approved what the
utility submitted. An NRC project manager told NAEC he was used
to having things mismapped and misrepresented. NRC's Director
of Regulation said : "We are used to optimistic stories from licensees
and we discount them."
But they don't discount them. When a major problem arises, the
NRC tells the utility to investigate itself. Wlien abnormal settling
was suspected at Surry in ]\Iay— and, incidentally, that report came
from a confidential informant; it did not come from the utility it-
self—VEPCO called back its constructor. Stone & Webster, whose
great need was to prove that what they had designed and built on
a "suspect"— and that was the NRC-AEC adjective for the site—
what they had built on the suspect site had retained its equilibrium.
The NRC required no disinterested consultant, instead, its staff
reported that VEPCO convinced us there was no problem.
For years, NRC accepted VEPCO's statement on North Anna
that faulting of rock at this site is neither known, nor is it sus-
pected. Once it did become undeniably suspected and painfully
known, VEPCO was allowed to return to those same consultants,
the very people who said the fault was not there at all, to return
to those same consultants now for them to prove that, although the
fault was there, it was ancient, benevolent, and harmless.
No objective opinion was required. It is almost impossible to
escape the conclusion that objective opinion, sound information,
represents a major threat to the nuclear industry. The seismic gam-
ble alone is considerable, and according to a minority opinion by Dr.
Okrent of the ACRS— this is a quotation from his letter:
* * * inadequacies in design and construction exist * * * it appears unlikely
that a plant could survive safely a large earthquake * * * earthquakes are
almost unique in their ability to fail each and every structure, system, compo-
nent, or instrument important or vital to safety.
I am sure that you gentlemen know that a fault obviously indi-
cates the position of a past earthquake and is a very likely spot for
a future earthquake.
Radiation risks are greatly increased by seismic uncertainties.
Radiation risks particularly for radioiodine to the thyroid are the
subject of warnings, even from nuclear proponents, enthusiasts like
Dr. Ralph Lapp.
I would like to submit quotations from Dr. Lapp, where he feels
that the AEC underestimates the radioiodine risk that they fail to
differentiate between the infant thyroid and the adult thyroid, and
that even he, as one of the most enthusiastic proponents of nuclear
technology, is concerned about the risk of radioiodine to the thyroid.
Senator JMetcalf. That information will be incorporated in the
record at this point.
]Mrs. Allen. Along with that, with the quotations from Dr. Lapp,
I would like to include work by Dr. Irving Lyon, who has done a
careful study of biological hazards and the AEC treatment of same
near the Point Beach Plant in Wisconsin.
He shows very disturbing levels of iodine in the milk in that area.
I would like to incorporate that in the record, if I may, please.
[The information referred to follows:]
91
Bxc«rpt. from papers by I». RALPH E. LAPP, atomic .clentl.t who eupporte
xxoTpMB iron. i> f j the UBe of nuclear energy...
"The Heart of the Fuclear OontroTerBy" (to Atomic Industrial Porum 11/73)
A» you all know, the ABC's accident yardstick has nine gradations
rangl^'from Class 1 or trivial accidents with no off-site consequences
to Class 9 or catastrophic events with serious potential off-aite con-
seqlIi5^»T.':fhe consequences of Class 1 throu^ Class 8 accidents are re-
qulred (by the ABC) to be estimated In the applicant's Environmental Im-
pact Statements, but Class 9 Is. excluded ^om BIS. Off-alte consequences
of Class 8 events are of little significance to health and safety beyond
the Low Population Zone (LPZ).
...I reexamined the technical basis for the ABO's definition of the
LPZ radius ... ^ ^pi^ieB^sT THATM RADIO ^IODOT RISK
...In my Investigation I discovered that the ABO has made no dlstlno-
tlon between the adult thyroid and that of the Infant. The Oonnonwealth
ofTennsylvania has to consider the most vulnerable segjnent of its popular,
tlon at risk, A 30 r«n Infant thyroid dose is postulated as a reason-
able amergenoy dose limit for iodlne-181 deposition from inhalation.
Using this line of reasoning, I came to the conclusion that the 4 to 5
miles stipulated by ACH3 (9/27/73 testimony before the Joint Conmlttee on
Atomic Energy) would very considerably underestimate the risk situation.
Uy own feeling about the lewbold Island case (denied by the ABO because
it would place reactors only 11 miles from Philadelphia) was that, if the
site were permitted, the reactor should be equipped with additional safe-
guards, i.e. stronger secondary containment and engineered release of acci-
dent related radioactivity.
For example, rather than wait for containment to be over-pressurized
and vent fission debris at low levd, it would be desirable to depreseurlse
throu^ controlled release throu^ a trap-etaok. A 100 meter stack i± a
potent mltigator of radiation dose jji the 0 to S mile zone around the re-
actor site.
...public attention is again centering on what the ABO used to call
the lEA— the maximum credible accident, now designated as a Class 9er.
I have deliberately invoked discussion of a Class 9^ accident in the
Instance of Kewbold Island to illustrate the problem of translating the
radlodine risk into terms understandable to the public.
The ABC does not have a rational siting policy for industry to follow
and depends more or less on an ad hoc applicant by applicant improvlsion.
Thus the ABO's stand on Kewbold Island must be regarded as a landmark de-
cision—In effect, saying to utilities "Come no closer to cities."
92
LAPP Excerpts Page 2
...The ASC'a failure to revise WASH-740 played right into the hands of
the nuclear opposition, allowing fearful extrapolation of reactor risk. In-
deed, the AEC even accentuated this problem by publication in July 1971 of
a Battelle Columbus Laboratories report ( BMI-1910 M EVALUATION OF THE AP-
PLICABILITY OP EXISTING DATA TO THE ANALYTICAL DESCRIPTION OF A NUCLEAR
REACTOR ACCIDENT-CORE MELTDOWN EVALUATION ) in which the statement
- "The 300-ran thyroid dose would be exceeded for distances up to
100 miles downwind from the reactor site" can be Isolated...
It is the community that takes tiie risk — but the risk assessment is
remote from the community...
A small community close to a reactor site is ill-equipped to second-
Judge the soundness of a nuclear risk assesament. Even the largest cities
lack the mechanism for appraising the risk. Certainly the comnunity is
justified in viewing corporate estimates of reactor risks,,, with a degree
of suspicion...
For a variety of reasons the Atomic Energy Conmiss ion's credibility
coefficient. . .so far as the public is concerned is still quite low,...
If the risk is very low, ^ could be argued that the plants cam be
sited anywhere and that no emergency plana are necessary. . .But ace idents
do happen — ^because men and mechanisms are fallible — and I think it is worth
while to contemplate the consequences of a nuclear accident. A Class 9
accident of major consequence reckoned in terms of loss of life and radia-
tion casualties could bligjht the nuclear industry...
"Public Assessment of Nuclear Risk" (to Joint Committee on Atomic Energy 1/22/";
...I think it is fair to say that opposition to nuclear power now con-
centrates on the following trio of hazards:
1. The danger of a nuclear accident, i.e. a pulsed release due
to meltdown and faulted containment.
2. Ultimate waste disposal of long-lived fission products and
aotinides, i.e. the Federal Repository.
3. Plutonium — both as a health hazard and as a weapon-threat.
...I 8h«J.l address rny testimony to risk assessment of a power reactor accidettt.
In particular, I shall be concerned with Class 9 accidents or those in which
sequential systems failures lead to the release through containment of serious
radioef fluents . . .
Fortunately, the industry has never experienced a Class 9 accJ
dent. But this fact cannot be used, as statistically significant. . .since the nv
ber of reactor years is too small. Power reactors are complex pieces of equip-
ment, and they do exhibit a record of abnormalities...
93
LAPP Excerpts Page 3
Huclear engineers have the option of adding mit igat Ing devicea to reactor
systems.. .
A tall stack, for example, represents a potential means of reduction
of near-site effluent dose in the event of an accident. ..the stack release
could effect a hvindred- or a thousand-fold dilution of the stack effluent as
coinpared to the low-level concentration that would otheirwlse characterize a
near-site point in the down-wind direction...
The dominant isotope of iodine is lodlne-131, an 8-day half-lived species.
A 3440 Uwt reactor, typical of the 1000 Mwe class, (size at North Anna and Surry)
would build up an Inventory of 86 million curies of iodine-131, or of the order
of 10 curies of activity per fuel pellet.
Such a reactor generates iodine-131 equivalent
to that produced by a 700 kiloton explosion
or 35 Kagasakl class weapons.
...I have suggested on two occasions that the AEG should recast its radio Iodine
criteria in terms of a lower dose to the Infant thyroid. Hy reasons are:
1. Data available since 1962 indicate that the Infant thyro id is
sensitive to relatively modest radiation doses. The Bravo
nuclear test. . .exposed Rongelap children to radiation hazards
terminating with evacuation from the island at a time 36 hours
after the Bravo shot. (March, 1954)
A total of 19 of 25 Marshallese children
under the age of 10 at the time of irradiation have exhibited
thyroid pathology and 16 have required surgery. Two Rongelapese
children exhibited growth retardation due to hypothyroidism...
2, ...Actual thyroid burdens for very young children would be 3 to 4
times that for the adult^thyroid when there is conmon exposure to
the same concentration of radiolodlne. . .The fetus in uteic Kould
be sensitive to radlodine uptake after thyroid function begins,
EtIEROENCY MEASURES: Commonitles planning emergency measures for nuclear
accidents need to establish radiation protective action guides, taking into
account the most vulnerable sector of the population. The guide considered by
some states contemplates evacuat ion when the infant thyroid dose would exceed
30 rem.
Bnergency action to minimize radiolodlne dosage could include (a) ad-
ministering potassium iodide (KI) tablets to block uptake of radlodine;
(b) use of protective masks; and (c) shelters. My impression is that many
states and conmunities could benefit from having available better estimates
of the raaiation hazards associated with reactor accidents. While they may be
told that the probability of a nuclear accident is very low, they are the
risto-takers. and they have responsibility for protecting the pub i ic health
and safety
56-957 O - 75 - 7
94
I /L V L a g. ^ ffo i
95
SOMB BIOLOGICAL HAZABD3
Of the
POUT BgAOH HUOLKAH POUH PLAW
II WI300I3IH*
By Irring Lyon**
The appearanoa of radloaotivlty in milk produoed In the
vlolnity of the POIUT BBACH HUGLBAR P0V/2R PLANT In Wisconsin (as
Indicated in State Badlologioal Reports) raises serious qpiostlons
for the residents of that state and others In the nation 1^0 con-
•ome these prodnots. The levels of radioactivity exceed those
permitted by the ABO.
In addition, according to a recent Report of ABC Inspec-
tions of the Point Beach Plant, there are a namber of problems con-
cerning the monitoring of radioactivity.
The parpoae of this Report is to examine more closely this
situation and its implications for public health and safety; and,
to assess whether or not it is possible to eliminate these hazards
in the fa tare.
BACKGROUITD INPORMATIONt
The roentgen, r, la a unit of radiation
defined in terms of the energy associated with X-rays or gamma-rays.
This enerQT, resulting in the ionization of air within a given vol-
ume. Is expressed in energy units, ergs, per cubic centimeter of air.
The roentgen may also be e^ressed as the q[uantity of X- or gaoraa-
radlatlon that will produce a unit of positive or negative electric
charge due to ionization of air molecules in 1 cubic centimeter of
air. Actually, the roentgen la too large for convenience in a num-
ber of applications. Therefore, a unit one thousandth as large,
the milliroentgen or mr, is often used.
This report la based on information supplied by
Gertrude Dixon of Stevens Point, Wisconsin, Head
of Research for the League Against Ihiolear Dan-
gers (LAND).
-1-
90
Irving loron •ani»d his lootorate In Physiology at the Uni-
versity of California, Berkeley, In 1952. Following a fel-
lowship for two years in the Department of Htatrltlon at the
Harvard School of Publlo Health, Dr. Lyon carried out re-
search In industry In a major city hospital and in aoadeola.
His ei5)erience Includes tioth undergraduate and graduate
teaching. Including medical school bio-chemistry and under-
graduate administrative work. He is the author of more than
3C technical reports in bio-ohemlstry and bio-physics pub-
lished in internationally-known journals. Dr. Lyon is a Pel-
low of the American Association for the Advancement of Science
and a member of other scholarly societies. He is a Consult-
ant to the Dairy Industry. Since 1963 he has been actively
involved in assessing the Biological and BnTlronmental Impact
of NUCLEAR POWER PLANTS.
The RAD - or Radiation Absorbed Dose - refers to the
amount of radiation actually absorbed by the body or various tis-
sues within it.
The REM - or Roentgen Equivalent in Man - provides a
means of relating the different energies of ionising radiations
to one another to determine and assess equivalent effects in the
human body.
In practice, the Roentgen, Had and Rem are commonly
taken to mean essentially the same thing. Thus, one thoussindth
of each of these units - mr, mlllirad (mraui) and millirem (mrem) -
is used interchangeably.
The biologioal si^iifioanoe of Radloiodlne, 1-131 (balf-
life of 8 days), Radiostrontium, 3r^90 (half-life, 28.6 years)
and Radiooesium, Gs-137 (half-life about 30 years) lies in the oar-
paujity of plants and animals - Including human beings - to take
them into their living substance where they may undergo radioactive
decay. During this process energy Is released. The potential
damage of these, and other Radionuclide^ is proportioned to the en-
ergy of decay absorbed by living cells and tissues.
Purthermore, Iodine - radioactive or not - is quickly
and strongly concentrated within the thyroid gland. Strontium,
whose chsmical properties closely resemble those of calcium, is
primarily concentrated in bone and other mineralised tissuea.
While ••slum, with oheoioal characteristics similar to those of
potassium, tends to distribute in the soft tissues (such as mus-
cle) of the body. It is clear, then, that 1-131, by localising
in the thyroid gland (especially in children) can cause tl^rroid
tumors as well as other thyroid problems. More si ©lif leant ly,
1-131 released into the atmosphere from Nuclear power Plants thro
their off-gas venting systons, along with other radioactive gases
-2-
97
(Krypton 85, Tritlated Water Vapor, Radloxenon, ato. ) may fall upon
grass i^ara oows graxa. Ingestion of this grass by cows la fol-
lowed by the appearance of 1-131 in milk, a qpalitatlTely and quan-
titatively Important food for children. In this way, ohlldren are
probably more prona to blologlaal harm and damage from 1-131 than
others in the population.
3r-90 oan substitute for oaloium in bone mineral. The
fairly rapid turnover of the soft, spongy bone bordering the marrow
oarity - especially of the long bones of the body - puts this radio-
nuclide into close proximity both to the maturing red and white
cells of the blood-containing sinuses and certain other types of
cells, involTed in imoune responses, which protect the body against
foreign and native toxic substances. As a result, these cells may
be damaged by radiated energy released by radioactive decay of the
nei^boring atoms of 3r-90. !Fhe body may subsequently show evi-
dence of leukemia and/or a variety of abnormalities in Imoune res-
ponses, some of which may become nianifest by increased allergic sen-
sitivity or by decreased resistance to certain oomniunlcable diseases.
Gs-137, because of its similarity to potassium, distrib-
utes itself throughout the soft tissue of the body. The release of
its radioactive decay energy therein may also give rise to cancers
and other disease conditions. Furthermore, 08-137 - as is true of
1-131 and 3r-90 - may undergo biological concentration of several
thousand- fold. This means that the flesh of fish, for example, may
show a concentration of 03-137 3300 times or more hi^er than the
concentration of Cs-137 in the water in i»rtiioh the fish swim. More-
over, the capacity of Cs-137 for binding to soil particles suggests,
as has been found, that it would be available for concentration in
food plants and vegetables.
The releases of radioactivity from Nuclear Power Plants
are established by the ABC* according to the cost and availability
of ecfulpment and instrumentation involved in normal radionuclide
holdup and release activities of the plant.
Up to 1972, the ABC "allowed" 80-100 pCI of 1-131 per liter
of milk. This concentration, assuming a dally consumption of 1 liter
of milk, would result In a cximulatlve thyroid dose (in children as the
most sensitive group In the population) of up to 525 mrem/ yesur, more
than 6 times an assumed average natural background radioactivity of
100 mrem/y«ar.
Sow SBBA, Saergy Research and Development Administration, and
HBC, Suclear Re^ilatory Commlssloni
but, for brevity, referred to throughout this report as
ABO, Atomic Snergy Oommission.
98
In 1972, the ITatlonal Academy of Science recontnended a
100-fold decrease In allowed releases. Applied to 1-131 in mlllt,
this would mean a concentration of about 1 pGl/liter, or, an an-
nual dose to the thyroid of a child of approximately 6 mrem.
AEC's Regalatory Guide 1.42, June 1973, Indicated that
the msnianni concentration of 1-131 in milt should be 2.4 pCl/liter
idiich corresponds to an exposure dose to the thyroid of a child of
15 mrenv^'year.
Uilk samples were collected at the Korneby Dairy, Mlsh-
loot, 5 miles from the POINT BEACH NUCLEAR FACILITY. This Dairy
is a milkshed which processes raw milk from approximately 70 farms
in Manitowoc County. Bach f»m contributes a daily average of
600 lbs. of milk (about 270 liters of milk). The samples were
found to contain radioactivity at levels between 5 and 10 pCl/
liter, corresponding to annual thyroid doses between 3D and 60
mrem. This is between 2 and 4 times the AEG recommended maxi-
mum annual thyroidal exposure.
Purthennore, the AEO's Regulatory Guides 1.42 and 4.3
recom-mend a detection limit for 1-131 in milk of 0.5 pGl/liter
at the time of sampling. Moreover, sampling for 1-131 must be
weekly. Wisconsin Electric 's 1-131 monitoring is carried out
by the Radiation Protection Section (HPS) of the Wisconsin De-
partment of Health and Social Services with instramentation ca-
pable of a lower detection limit of 5 pCl/llter. And the util-
ity apparently does not receive milk sample analyses more often
than once a year. Lawrence McDonnell, Wisconsin's nefw Chief of
EPS, has stated that analyses will be based upon the stricter de-
tection limits set by the AEC, but on a monthly, rather than a
weekly basis.
13 THE ABO PHOTBCTING THE PUBLIC?
The IBC is eager to point to their exolnsive responsi-
bility in the field of radiation/radioactivity, a responsibility
given over to them by Congress. However, even while touting
this exclusive control over natters radiological, recently reaf-
firmed by the United States Suprene Oourt following a challenge
by the State of Minnesota, the ABC is quick to shift its respon-
sibility for radioactive releases from Ntiolear Power Plants and
monitoring activities onto licensees, the utilities owning and op-
erating these plants, and/or state or other public agoncies. If
this constituted a responsible delegation of authority, such act ions
by the ABC oould indicate a primary oonceim for the public's radi-
ological health and safety. Unfortunately, the nnaber games and
word games played by the ABC suggest otherwise.
lh*t are soma of these games? The situation in Wlscoasln,
centering around the radioactivity released from Units 1 and 2 of
the POL»}T flSA'JH NUGLBaH PC'r^R STATION, seems to provide a good oasa
study in partial answer to this question.
A letter dated April 26, 1974 from James Q. Keppler, Re-
gional Director of the ABG's Directorate of Regulatory Operations
for Region III, to 3ol Bursteln, Senior Vice President of the Wls-
oonsin-Mlohigan Power Company » refers to an Inspection Report con-
ducted by L. R. Oreger of the Directorate. The Inspection was aa-
nounced ahead of time and took place March 6-8, March 28 and April
2-3, 1974. Althou^ Groger's name la typed in as The Principal
Inspector, the name J. A. Pagllaro is written In and the report is
dated April 23, 1974. Mr. Pagllaro was not accompanied hy any
other inspector or Directorate personnel and his report waa appar-
ently reviewed by himself, according to his ai^ature, April 23rd,
1974, as Senior environmental Scientist, Environmental and Special
Projects Section. ,
Mr. P»g3.1aro did not «xamlne "... the licensee's contract
laboratory personnel, equipment or procedures". But he noted sev-
eral findln!?3 in his inspection!
(1) The method of maintaining "... monitoring records was not
conducive to retrieval of date, ..." oonoemlng environ-
mental radiation and radloaotlvlty.
(2) There were "... several apparent incorrect entries ..."
of monitoring results presented in a previous report.
(3) There were "... several abnormal ... monitoring results
..." and "... no apparent follow-up action by the li-
censee ..."
(4) "... preventive maintenance procedures were discussed ..."
in connection with calibration of air sampling Instru-
mentation, including flow meters and vacuum gauges.
Apparently there is no formal program for the calibra-
tion and maintenance of monitoring devices^ In regard
to "in-house" monitoring, one can Justifiably raise ques-
tions about the propriety of a licensee monitoring it-
self where public health and safety are involved. If
the meters and gauges were being calibrated at the time
of the inspection. It Is obvious that air samples were
not then being collected or analyzed.
(5) 1-131 analyses In "... milk samples did not meet current
ABC guidance with respect to the detection limit ..."
Moreover, results were received annually and were not
thoroughly reviewed l:^ the licensee. It was suggested
that the utility look at ways to Improve the program for
sampling milk.
-5-
100
(6) Fish kill information was required to be reported only
if "si^ifioanf (without any definition of "aignifl-
cant**).
(7) Technical Specifications did not provide for control of
chemicals released into the environment through the re-
tention pond.
(8) The licensee had not carried out a detailed examination
or analysis of the "Non-Radiological Surveillance and
Bvaluation Program".
In a description of details included in the report, ac-
companying Mr. Keppler's letter, it was actaiowledged that "a form-
al program does not presently exist for periodic conduct of com-
prehensive audits of the environmental monitoring programs". With
uncalibrated monitoring equipment, devices for measuring radioac-
tivity in milk one-tenth as sensitive as required by the AEG, and
in the absence of the required comprehensive audits, how can the
ABC conclude that "... the licensee's radiological environmental
monitoring proeram conformed to the current regulatory require-
ments ..."?
AEQ 3TA1?DARD3! ONE SET FOR INDUSTRY - AMDTHSH FOB. THE PUBLIC?
Donald F. Knuth, Director of Regalatory Operations of the
AEC, in a letter to Senator William Proxmlre RB» 1-131 in Milk
in the Area Near the POINT BEACH NUCLEAR POWER STATION, dated Octo-
ber 15, 1974, stateaj "There is no evidence to indicate that the
Point Beach Plant has exceeded any regulatory limit for the release
of radioactive material to the environment". Yet, in the same let-
ter, Mr. Knuth notes that milk samples for 1-131 analyses are col-
lected monthly - not weekly as required by ABC; collections are
made at a milkshed 5 miles from the plant with no indication of
1-131 levels in milk samples from individual dairy farms nearer to
the plant. To appreciate what this could mean, consider the fol-
lowing possibilities. Some 70 farms contribute a daily averaew of
about 270 liters of milk to the mllkshed. The maximum concentra-
tion of 1-131 permitted by the AEG Is 2.4 picoouries (pGI or 1x10-
12 Gl, or a millionth of a millionth of a ourie) per liter. This
concentration could easily be reached and exceeded in the milk
pooled from the entire mllkshed if the concentration of 1-131 were
ten times hi^er than the ABC msLximum in milk from only 7 or 8
farms closest to the plant. Furthermore, althou^ the AEC reo-
omnends detection equipment with a sensitivity down to 0.5 pCl/
liter {ABC Regulatory Guides 1.42 and 4.3), the equipment avail-
able for determination of 1-131 In milk can only detect down to 5
pOi/liter. Thus, 4,9 pGl/llter would not be detected. In these
101
circumstances, the ISO's maximum allowed concentration of 1-131
in the pooled milk samples collected at the milkshed could be
reached and exceeded with contaminated milk from only 3 to 4
fsurms nearest the Plant. Moreover, because of its short half
life of 8 days, 1-131, at 5 pCi/llter of pooled milk, would not
be detected if milk samples were held for 24 hours before being
counted for their 1-131 content. Let us accept, for the mo-
ment, the AZO notion that a child consuming a liter of milk oon-
taininn- 2.4 pCi of 1-131 daily for a year would receive a cunu-
lative thyroidal exposure dose of 15 mrem. Then, under the con-
ditions described above, thyroidal exposures could be twice the
maximum acceptable to the lEG without any awareness of this by
those who were affected and without even the possibility of be-
ing alerted to this danger by milk sampling data. Taking this
kind of information into account, it is difficult to accept Mr.
Knuth's conclusion that "... we do not believe a significant risk
to the public has existed ..."
',VHY CO ABC ADMINIoTflATORj DISREGARD REPORTS FROM THSIR T5CHN 13.^1 STAFF?
In Ms letter to Senator Proxmire, Mr. Knuth suggests that
the applicable radiation protection ©aide is 80-100 pCi I-13l/liter of
milk. Assuming that a liter of milk Is consumed daily, this level of
radioactivity corresponds to an annual expoarare dose to the thyroid of
500 mrem. Mr. Kruth refers to this level at a time when he, as the
Director of Regulatory Operations, must know that the maximum concen-
tration of 1-131 in milk had previously been lowered to 2.4 pCi/liter,
corresponding to an annual tlyroldAldose of 15 mrem. ^parent ly, the
AEG does not consider other pathways for radionuclide entry Into the
hnman body. For Instance, radioactive gases, inolnding radioiodines,
could be inhaled. This means that there Is the possibility of Inter-
nal biological damage, even from the radio-active noble gases - Krypton
and Xenon - and from Tritiated (radio-active) Water Vapor.
As suggested above, the permitted annual exposure dose of
1-131 to the thyroid, 15 mrem, is itself open to serious question.
One would like to know the basis of the assumptions, and their val-
idity, used by the AEG to determine the apparent correspondence be-
tween a daily consumption of 1 liter of milk containing 2.4 pCi of
1-131 per liter and the annual dose of 15 mrem. How has it been de-
termined that this dose is tolerable, year after year? Obviously,
similar questions are pertinent for 3r-90 and Cb-137 in milk with re-
gard to their accumulation and effects (leukemias, oancera, etc.) in
bone and in the soft tissues of the body. Then, too, what about oth-
er radionuclides, not only in milk, but in other foods as well and In
drinking water?
102
The AEO olaima tb&t Ntiolear Power Plants do not cause ex-
posure doses to the surrouivilng population in ezoeas of 1 orem per
year. Yet it permits radionuclide releases corresponding to an
allowable e:q>osare of 5 mrva/yeaLr, presumably on an "as low as prao-
tioable" basis. Still, in seeming contradiction even to this "stan-
dard", the thyroid of a child is "permitted" on annual eaqposure of
15 mrsm. Ihat is the point of the A£C setting standards if these
are permitted to shift erer upward? If the technology of Nuclear
Power is constantly improTiag, aa industry spokesmen are continual-
ly fond of telling the public, why aren't these standards becoming
more, rather than less restrict iTe? If the technical specifica-
tions for radionuclide emissions from Nbclear Power Plants are being
ti^tened - as apparently claimed by the ABC - why isn't this reflect-
ed in lower "permitted" exposures? Vhy does the AEC's administrative
staff conclude that there is no cause for worry, when reports frosn its
technical staff clearly indicate repeated violations of AJSC standards,
non-oompliaoce with monitoring procedures and lack of sufficient sens-
itivity in detection instrumentation to give adequate warning of en-
vironmental radiomiolide levels? How oan the ABC issue ionediate de-
nials of danger to the public from raulioanclide releases in excess of
permitted levels when the ABC knows perfectly well that such state-
ments are meaningless, because -
(1) of the well-known delay of years or decades between subacute
or chronic exposure and subsequent appearance of leuksmias,
cancers and other radiation-induced conditions; and
(2) it is practically impossible to prove that a particular can-
cer or other condition was caused by radiation/radioactivity
rather than by some other non-radiological biological and/or
environmental insult.
It would appear that the ABC plays with numbers and with
words in order to hide from public view the real risks associated
with Atomic Power Plants. Vhen Congress gave the ABC preeminent
responsibility for radiation/radioactivity, did they also give that
agency freedom to sidestep their responsibility and pass It on to
others - such as the utilities and the atomic industry? It seems
reasonable to suppose that the ABC plays these games to promote
their plans to dot the United States countryside with these tech-
nologically underdeveloped, dangerously faulty and basically still
xmproven devices.
SBRIOUS GBtTERIC CDBSTIONS RAISED BY THE fflSCOXSIN SITUATION
Is there a aafe dose of radiation? 12D. Bven ABC (now the
Nuclear Resolatory Commission, HBC, and Energy Research snd De-
velopment Administration, ERU.) says "No level of exposure to
radiation oan be considered to be without risk" (U. 9. Atoaio
Energy Commission, Docket No. RM-50-2, Pablio Rulemaking Hear-
103
Ing on numerical Guides for Deslga Objectives aad Limiting Condi-
tions for Operation to Meet the Oriterlon "as Low as Practicable"
for Radioactive Material in Llght-Water-Gooled Nuclear Power Reac-
tors, February 20, 1974).
Zt Is natural background radiation safe? HO. This radiation,
which seema to be increasing due to human nuoleair activities, varies
between 80 and 100 railllrads (mr) per year. It is responsible for
up to 10;^ of con5:enital defects due to gene mutations; 10^ to 20^
of the Incidence rate of leukemlas; 10;* of all cancers, life-short-
ening and degradation of the quality of health because of Increases
In genetic diseases such as heart disease, diabetes, arthritis, etc.
(Llous Pauling, "Genetic and Somatic Effects of Hl^ Energy
Radiation", Bull, of the Atomic acientists. Sept. 1970 j Nat. Acad.
Soi., "The Bffeota on Populations of Bxposure to Low Levels of Ion-
ising Radiation, Advisory Comm. on Biol. Effects of Ionising Radia-
tions, Nov. 1972.) !
3. Is "low-level" radiation harmless? NO. The National Can-
cer Institute estimates that allergic children may develop leukemia
with any added radiation (Irwin D. J. Brosa, Director of Blostatla-
tica, Roswell Park Memorial Institute, "Protecting the Public
Ac^lnst the Bio-effects of Radiation", 1973). Furthermore, there
Is new evidence suggesting that prolonged exposure to low-level
radiation may be more harmful than periodic larger doses ("Nuclear
Fisaionj The Biological Peril", The New York Times, Kay 23, 1974).
In Australia a survey of medical statistics Indicated a cor-
relation between an annual Increase of 3 mr from 3r-90 and an In-
crease in the incidence of leukemia , (Bruce J. Brown, "Atmospheric
Nuclear Testing - A Survey of Medical Statistics In Australia",
Science and Public Affairs, February 1974).
An Increase in 3r-90 of only one plcocarie (pCl ) per liter of
allk, assuming a consumption of one liter of milk dally for a year,
may cause an increase of 1.29 Infant deaths per 100,000 births
(Lave, Lester B. , Lelnhardt, Samuel and Kaye, Martin B., July 1971,
Working Paper No. 19-70-1, Oarnegle Mellon University, Pittsburg,
Pa., "Low Level Radiation and United States Mortality"). And this
Increase In Sr-90 ooncentratlon in milk anounts to an annual dose
of only 2.3 mr.
4. Does Wisconsin milk present a danger to consumers? IT MAY.
Bau Claire milk. In 1973, contained an average of more than 10 pOl
of 3r-90 per liter, about twice the national average (U. 3. Envir-
onmental Protection Agency, "Radiation Data and Reports", 1973;
Radiation Protection Section, Wisconsin Department of Health and
Social Services, "Annual Radiation Monitoring Reports", 1973).
For 10 pCl Sr-90/liter, and one liter of milk per day, the annual
dose would be about 24.5 mr.
104
6. What is the radiation doae from Nticlear Power Plants?
Aooording to utilities, as low as 0.003 mr/yr. (Wisconsin
Electric Power Company, "Nnclesu* Power", 1972); according
to ABC, 1 mr/jrr. However, in Jnly 1973, the AEG anoonnoed
■n "as low as practicable" (ALAP) exposure from the nnolear
power industry of 5 mr/yr. (U. S. ABC, WA3H-1258, July 1973.)
But for skin and thyroid doses, 5 mr/yr was found to be too
low to be achieved technologically; therefore, the dose was
taiaed to the "practicable" level of 15 mr/yr. If this dose
was assumed to come from 1-131 to a child's thyroid gland, the
corresponding concentration of 1-131 in milk would be 2.4 pCi/liter
assuming a daily consumption of one liter of milk throu^iout the
year {U.S. ABC, Regjlatory Guide, 1.42, June 1973).
6« Are there food sources, other than milk, that can contrib-
ute to the annual radiation dose? YES. For 1-131, there may
be uptake from vegatablss approximately equal to that from milk
(Fed. Radiation Council, "Pathological Effects of Thyroid Irrad-
iation", Advisory Comm. Div. of Med. Sci., Sat. Acad. Sci,, Deo.
1966); Sr-90 may be present in milk and vegetables as well as in
the bones of fish and of other animals; G8-137 is found in the
flesh of fish and animals, and may show biological concentration
factors of 2D00 or more (CS. ABC, Docket ITo. RM-50-2, February
ao, 1974; Nat. Acad. Sci., Nov, 1972; Wis. Bleo. Power Co.,
PSAR); and all three of these radionuclides have been found in
milk (Wise. Dept. Health 4 Soc. 3erv. , July 1969 through June 1971).
Cheese may contain up to 7 times as much radioactivity as an equal
amount of milk, allowing for radionuclide half-iife and the age of
the cheese (Nat. Acad. Sci., Nov. 1972). Cranberries and soybeans
have als6 been shown to be sources of 3r-90 and Cs-137 (U.S. Dept.
HB^y, "Radiological Health Data, 1962 and 1963).
7. What are the relationships between rswiionuclide concentra-
tions and doses? For 1-131, the Federal Radiation Council's
"Radiation Protection Staide" (HPQ) suggests, for children, that
daily oonsuniption of a liter of milk for one year, containing
80 pCi I-13l/liter, would yield an annual dose to the thyroid of
500 mr. That is, 80 x 365 or 29,000 pCi*^ would yield a 500
mr-dose, or 58.4 pCi is equivalent to one mr annual dose - (Ltr.
from D. F. Knuth, Director Regional Operations, U. 3. AEG, to
Senator Villiam Proxmire, October 15, 1974). This concentration
dose relationship for 1-131 is also seen from the ABC limit of
15 mr/yr. thyroid dose, which corresponds to daily consumption
of one liter of milk containing the suggested maxinmm concentra-
tion of 2.4 pOi of 1-131 per liter (U. 3. ABC Regalatory Guide
1.42, June 1973). Thus, 2.4 pCi/liter would amount to 876 pCi
of I-13l/yr. which is equivalent to an annual thyroid dose of 15
mr or 58.4 pCi/mr (see Table 1). For 3r-90, the concentration/
dose relationship suggests an annual bone doss of 26 mr for a
-10-
105
ooacentration of 11.8 pGl/lit«r (U. 3. SPA, ORP/aiD 72-2,
June 1971). It appears that 158,5 pGi of 3r-90 Is •quiv-
alant to one mr annual dose (See Table II). The oorre«-
ponding relationship for Cs-lS? la 36,300 pCi/one ar annual
dose.
March 1975 .... LBAGUS AGAIUaT NU3LSAR DANiiBRS
Rt. 5, Box 171, St«7«a8 Point, T/lsconsln - 54481
-11-
106
Mrs. Allen. We already have this knowledge about radiation
risks. The NRC doesn't really need more data in that area. It needs
strong decisions.
Mr. Turner. One point. Mrs. Allen, who monitors the radiation ;
NRC? Do they have their people out there monitoring?
Mrs. Allen". No. the NRC does not monitor. This is a very com-
mon misconception. The public assumes that the AEC is monitoring
the radiation. "Wlien we approach the State agencies and ask them
about monitoring radiation, they say it is not up to us. That has
been preempted.
That is taken over by the AEC-NRC. When you approach the
NRC, their response is we have no personnel in Virginia. That is not
up to us. We set tlie standards. We make the rules of how much
is acceptable or is "as low «?is practicable" as is the phrase, but it is
up to the utility to do the monitoring.
So, again we have the utility monitoring itself. The actual radia-
tion risk is left to the integrity of the utility. This is an exceed-
ingly disturbing fact.
Senator Metcalf. Mrs. Allen, you are saying that there isn't any
public, independent agency that is monitoring radio activity or
radiation ?
Mrs. Allen. As I understand it. there are monthly collections by
the State agency.
Senator Metcalf. Spot checks?
Mrs. Allen. The State health department; yes. They check the
shellfish in the area near Surry and they check the milk. Then they
submit match samples to the AEC.
The last time that we talked with the health department, which
was admittedly some monhs ago, they had never received any
feedback on these matched samples from the AEC.
So the majority of radiation monitoring is left to the utility
itself. This is the extraordinary point that is made by Dr. Lyon. He
has researched this very carefully in the entire Wisconsin area,
and then shows how he has taken his findings back to the AEC and
tried to find out why proper iodine levels are not watched over
around this plant that is operating in Wisconsin.
The difficulty is trying to find out who is in charge. The levels
are set by the AEC, but the actual monitoring is done by the utilitv
itself.
The levels themselves should be a matter of great concern be-
cause they are only kept as low as practicable and that phrase
means the levels of radiation are what are practicable, technologi-
cally.
This does not mean what is desirable physiologically, Init what is
practicable technologically.
Secondly, major changes in that allowable amount of radiation
are brought about almost always by outside agitation, not by con-
cern about radiation risks within the NRC.
Senator Metcalf, Do any of these officials of the utilities live
there in or adjacent to this plant?
Mrs. Allen. I am sorry; I didn't hear tlie question.
107
Senator Metcalf. Do any of the officials of the utility live in or
adiacent to the plant? , ■ . ^^
Mrs. Allen. I am sure tliey mnst. The major executives of the
utility live in Richmond. I am sure they have to have people who
live near the plants. But this is part of the response always when
one raises this question of radioactive risk, is to say "we live near
there, too. Obviously, we are confident."'
Senator Metcalf. 'You live or die for our utility.
Mrs. Allen. That is rijjht. I would like to make one more point
on this whole problem of allowable amounts of radiation. A quiet
change has been made in the last few months that T think greatly
increases the risk.
In 1973, I believe the summer of 1973, the regulation was that
only 15 millirems per year were allowable per reactor site. So that
meant that if at North Anna you have four reactors running, those
have to run cleanly enough so that the total is 15 millirems.
That has been changed within the last few months so that the
15 millirem limits applies only per reactor. So it means now that
the larger site you live near, the greater the risk.
Senator Mercalf. This is four reactors?
Mi^. Allen. That is right.
Senator Metcalf. So it would be four times 15 millirems?
Mrs. Allen. Right.
Senator Metcalf. So you would have four times the allowable
limits?
Mrs. Allen. This is the way we read that. Yes. The question of
cumulative radiation always lias to be addressed if you get this 15
millirems steadily each year.
That is taken up in Dr. Lyon's paper.
Finally, to my last paragraph, to repeat, the NRC doesn't really
need more data". It seems to us to need strong decisions.
Enough information regarding nuclear risk and continued mal-
function— that is an area we could go into for hours, is the amount
of malfunction, component error, personnel error, that are happen-
ing every day — exists today to justify a prudent regulatory decision
to derate existing plans and delav future nuclear reactors.
According to the June 1975 Bulletin of the Atomic Scientists,
nuclear industry spokesmen, themselves, believe "that a full and
frank discussion of these issues" — these issues being the risks, the
costs, the wastes, the reliability — "a full discussion of these issues
would result in no further use of light-water fission reactors for
generating electricity."
The coalition hopes that the Avork of this committee, with its
very admirable concern for adequate and accurate information,
will lead to just such a full and frank discussion of nuclear tech-
nology.
And I thank you very much for your invitation and for the op-
portunity to appear before you and I would gladly answer any
questions if it didn't take too much of your next witness' time.
Senator Metcalf. Did you let that mapping — how far is it from
Washington?
108
Mrs. Allex. Seventy miles.
Senator Metcalf. You scared me to death.
Mrs. Allen. Good.
Senator Metcalf. I have no questions. I think you have raised a
most significant and important question that certainly this commit-
tee and other committees in the Concrress, includino; the Joint Com-
mittee on Atomic Energy, should investigate.
I know that every one of the members of this committee is going
to be concerned and interested and involved in investigation.
I don't have any further questions. I have a lot of future ques-
tions, but they are matters that my staff can investigate, but maybe
counsel has a question.
Mr, TtTtNER. I have two, Mr. Chairman. Could you give the com-
mittee the benefit of your knowledge with respect to present con-
ditions or events at North Anna and Surry that you feel bear out
your original claim and concern ?
Mrs. Allen. Yes, in terms of foundation conditions and the right
to look at fundations before the construction began.
As I said in my testimony, the AEC adjective for the liquefaction-
prone foundations at Surry was "suspect." We now know that there
has been some concern about differential settling at Surry and
that is currently under investigation.
I think that the NRC has not issued any report on that at the
moment and does not see it as a major problem. Xevertheless, the
settling beneath the Surry reactors is currently under study.
Mr. Turner. At North Anna, are there not preliminary indica-
tions of stress?
Mrs. Allen. Yes, at North Anna there is a real problem. Inci-
dentally, both Surry and the North Anna problems are being con-
sidered for some kind of enforcement action by the NRC, as I
understand it. But at North Anna, there has been extraordinary
settling beneath the pumphouse which has to do with the cooling
water for Units 1 and 2.
It was originally reported as being expectable amount of settling.
Now in an AEC "report, dated July 8, NRC report, dated July 8,
it is reported that the amount of stress on the pipes there is beyond
that predicted and, therefore, is a problem that is having to be
studied further. So the condition of the site is still a problem, both
at the pumphouse and in the reactor excavations themselves.
Mr. Turner. Assuming there is an injunction against further nu-
clear operation of these two plants at" North Anna, what can be
done with them? There is a $1 billion plant there. What can be
done with it?
Mrs. Allen. I don't pretend to any great technological expertise,
but we do know that there was a nuclear plant by the name of
Patlifinder, which was converted from nuclear to coal, under the
guidance of the AEC, because it evidently was a problem in nuclear
operation itself.
Secondly, and perhaps of more significance in terms of how
things have changed between the 1960's when these plants were
planned and now is that the peak load demand in Virginia for the
109
year 1985 has dropped about 8,000 mco:a\Yatts, which is the equiva-
lent of ei^ht nuclear power plants.
So we really do not need the amount of nuclear technology that
was planned in the 60's for the 1970's and in the 1970's we are much
more aware of the kind or risks involved than we were in the 1960's.
Senator Metcalf. Thank you very much for calling this to our
attention.
Mrs. Allen. Thank you for your very courteous attention.
Senator Metcalf. I just can't tell you how concerned I know all
of us are going to be on the basis of the information that you have
presented here. I am just thinking of how we can best continue the
investigation.
I think that I will immediately call it to the attention of the
Joint Committee on Atomic Energy. I am certain that the people
on the Atomic Energy Committee are aware of the dangers of
nuclear construction oii geological faults. There m enough unknown
danger without going forward with these known things.
So thank you very much.
Mrs. Allen. You are very welcome. We commend your concern
and once again we thank you very much for the opportunity.
Senator Metcalf. I know that Mr. Turner and other members
of my staff, both on the majority and minority sides, will be in
comniunication with you. This is not the end of this investigation.
Mrs. Allen. Thank you, we will gladly share with you any of
our records or materials that we can; thank you again.
Senator Metcalf. Thank you very much.
[Other pertinent information referred to in the record follows:]
no
ATTACHMENT 1
CHRONOLOGY OF GEOLOGICAL CONCKRN AT TllE NORTH ANNA NUCLEAR V'OWER STATION
N'Al^C (Prepared by the North Anna Environmental Coalition)
1968 borings at North Anna site reveal chlorite seam;
"areas showing small movement noted" per 8/8/73
testimony of Joseph Fischer, geologist with Dames & Moore, Con-
sulting Engineero in the Applied Earth Sciences. (Note: Dr. John
FunlOiouser, geologist at John Tyler Community College, says "There's
a chlorite seam there because it's a fault.") DAILY PROGRESS 8/18/73
Jan. 15, 1969 Dames & Moore: REPORT SITE ENVIRONMENTAL STUDIES FOR
PROPOSED NORTH ANNA POV.ER STATION: "The site area is
extensively jointed. . .cross joint set is often found near contacts
between two rock types at the site... at times clay-filled as much as
2 inches. ..two sets of diagonal joints in direction of maximum shear..
..usually smooth with some clay filling, and are sliclcensided in
places. ..extensive but widely spaced..."
March 21, 1969 VEPCO ftpplies for Construction License for Units 1
8e 2; also for a facilities permit.
May 8, 1969 Dames & Koore: REPORT FOUNDATION STUDIES FOR PROPOSED
NORTH ANNA POWER STATION: "...our investigation re-
vealed occasional seams of weathered rock to significant depths below
the surface of relatively fresh rock. We do not expect these seams
to be tliick enough to affect mat performance .. .Honever, it^ i^ re c 011-
giendod that the rock exooaed at foundation level be carefully examined
by an experienced f;eoloyist . . .
"Available evidence suggests that stability problems may exist at
least in the south to southeast portions of the reactor cuts. Po-
tentially unfavorable joint and rock conditions have been observed
and could influence excavation stability..."
Several courses of action then suggested, with the following con-
clusion: "If this sequence is adopted, it will be neceasary for an
experienced enyjincering; geologist t£ thoroughly and continually in-
spect the excava>ion as it^ progresses."
Sept. 18, 1969 Letter from Peter Morris, Director,
AEC Division of Reactor Licensing, to VEPCO, asking
for more information regarding the known fault, k'A miles from the
North Anna site. "Have any earthquake epicenters been localized
along this fault?" Mr. Morris also asks if new Dames & Moore data
confirm previous seismic survey. (NAEC researcher could not find
VEPCO's reply, perhaps because of rather informal filing system.)
Feb. 23, 1970 visit to North Anna Unit 1 Excavation site by
Dr. John Funkhouaer, geologist with John Tyler
Community College, who identified fault visible because of chlorite
seam and mentioned fault to VEPCO personnel.
Feb. 27, 1970 visit to the Virginia Division of Mineral Resources
by Mr. John Briedis, Dames & Moore Project Geologist,
identified on VDMH Interview Record as also representing VErco and
Stone Sc Webster: "Mr. Uriedis brought 6 samples of rock raaterial»i
from the foundation of the nuclear power plant for our examination
and mineral identification. These 8um[)le8 included biotito granite-
NAKC NORTH ANNA ClIKON
111
OLOGY P\Gli, 2
gneiss, epidotizod biotitc, granite s.»eisB, and serpent iniy.ed chlo-
rite foliate witli abundnnt si ickennides. . .The cUlorite roclc, which
'^Zc^m in thin concordant beds within the country rock, forms alip
pinnoK 50° to the .a.E. tliat have caused the coliapBO of the side
wnlla of the excavation currently being made."
March 10, 1970 Heturn visit to VDMH by Mr. John Briedis. Interview
record entitled "MincraloRy of f;-.u).tod rockn which
had caused landslides." Report incomplete— "Because of a break-
down in X-ray equipment, we were only able to analyse one sample,
which was a chloritic slickcnside sample."
March 19. 1970 VDM« Report No. 553 with geolofiical analysis by
Dr. James L. Calver released to VE1>C0; references
made to "...weathered rock with slickenside: chlorite..."
March 25, 1970 Visit to North Anna Unit 1 Excavation site by
Dr. Bruce Goodwin, Chairman of Geology Department at
the College of William and Mary, at the invitation of Dr. John
Funkhouser, who wished to have a struttural geologist confirm his
fault determination at the site. So confirmed.
Mav 10 1970 Letter from VKPCO Vice-President Stanley Racone to
^ ' AEC Director of Reactor Licensing, Peter Morris,
describing progress at the North Anna site: Excavation for Unit 1
reactor containment complete .. .Unit 2 progressing. . .Placement of
porous concrete drain beds in excavations scheduled for mid-June. . .
Exposed wall cuts to be gunited. . .Reinforcing steel to be placed
in position in July ... (Note— Construction License Hearings still
6 months away)
AuKUst 25 1970 Letter from Ragone to Morris requesting exemption to
' proceed to be granted by Septerr.ber 15, 1970.
Cent 'i 1970 Letter from AEC Harold Price to Ragone: Exemption
' granted for installation of portions that are fin-
ished below grade level. "Granting of exemption shall have no
bearing on subsequent construction permit .. .Granting does not con-
stitute approval of type or adequacy of method of J-J^^^/^^"-
(NAEC note-Who is responsible for the quality control of woik
done during such a period?)
Nov 23-25, 1970.... Construction License Hearings on Units 1 & 2.
Nov. 25 ^J, ^^^^ researcher could find no discussion in the re-
cord of geological anomalies though Dames & Moore geologic Joseph
Fischer present. It appears that D & M printed studies -"^ into
the record without questioning by the Atomic f ^f ^J °^^^V'/™£^SES
Board. In the bound edition of TESTIMONY FROM APPLICANT o.lTNESSES
there is none from Fischer, though he is described in VLI>C0 s
PROKtiSSIUNAL QUALIFICATION OF WITNESSES.
March 1971 Construction License granted on Units 1 & 2 with
MoLc Safety and Licensing board commenting that the record
showed "no unresolved questions about radiological f^^fj-
(NAEC note-AEC Attorney Kartalia told NAEC on Aug 0. 1973 that
the fault is more « radiological problem tha» an environmental one.)
112
NAliC hOKTlt ANNA CHRONOLOGY l^AGli 3
Aug. 18, 1971 Dames & Mooro: RKPORT ENVIRONMENTAL STUDIiCS FOR
NOimi ANNA POWER STATION PKOW-SKD UNITS 3 & ^:
"Kock in the eite area i5 extensively jointed... a set (of joints)
trending approximately N 30° to 50° E and dipping approxinuite ly
50° SE often Hhovvs revcrKC shear movements. It is moat frequent
at or near hornblende Rneise contact .. .They are clay or chlorite
filled, smooth, and show movcmentfi up to 134 feet. . .Most shear
movement in hornblende gneiss, indicating hornblende gneiss lees
competent that gi-anite gneiss..."
Conclusion: "The site is apparently free of faulting and struc-
tural anomalies."
(NAEC recalls Mr. Fischer's stating at VEPCO's August 7, 1973
news conference that movement defined a fault.)
Oct. 1, 1971 Dames & Moore: REPORT FOUNDATION INVESTIGATION
NORTH ANNA POWER STATION PROi'OSED UNITS 3 & ^ :
"In view of extensive investigations made for Units 1 & 2, taking
and testing of undisturbed samples nrere kept to a minimum...
Parameters for 1 & 2 were evaluated and modified where necessary
for 3 & k...k7 additional borings made..." Boring logs show
several references to "highly fractured zones with chlorite
coating."
March 15, 1972 VEPCO ENVlKONMt;NTAL SUPPLEMENT- -Vol. I--Unitfl l~k:
"Surface mapping, boring data and the excavation
for Units 1 & 2 all indicate continuity of strata. . .faulting at
the site is neither knowi nor is it suspected. Site conditions
reveal that all safety Class I structures will be founded on hard
crystalline rock or on dense residual soil..."
Vol. II of the same ENVIRONMENTAL SUPPLEMENT lists among geologists
inteirviewed regarding Unite 3 & ^ Dr. Stephen Clement of the Col-
lege of V/illiam and Mary. It is important to note that Dr. Clement
accompanied Dr. Bruce Goodwin and Dr. John Funkhouser to the North
Anna site in March of 1970 when Dr. Funkhouser 's fault identifica-
tion in the Unit 1 excavation was confirmed.
Jan. 3 - April 28, 1973 Excavation for Unit 3; displacement noted.
March 9 -June 15, 1973 Excavation for Unit 4; displacement noted.
April 15, 1973 VEPCO staff geologist reported fault phenomenon.
April 2't, 1973 VEPCO initiated fault study.
April 30, 1975 Notarized letter from VEPCO's Ragone accompanying
FINAL SAFETY ANALYSIS REl'ORT ON UNITS 1 & 2 which states "Faulting
at this site is neither known nor ia it suspected."
May 7 - 10, 1973' •• .Construction License Hearings on Units 3 & 4; no
mention of geological problems to Atomic Safety & Licensing Board.
May 17i 1973 liccord of Construction License Hearings closed.
May 17, 1973 AEC received VEPCO's notice of fault at the site.
Aug. k, 1975. •>•.•. .North Anna Environmental Coalition informed the
public of the fault "running through all k exca-
vations" at the North Anna Power Station site.
113
KASC Chronolog/ Page 4
(llotej There is acme overlap in dates with the previous page because when page 3
was written, NAEC was unaware of the AEC affidavit of July 31, 1973. Other in-
formation i8 added in the interest of a more complete chronologyj
May 29, 1975 NAEC showed film at LouieaHigh School: "HOW SAFE ARE
AMERICA'S ATOMIC RilACTORS?" horth Anna worker in attend-
ance 1 escribed drilling through rock and hitting clay at the site and
wondei ed if such a situation represented an earthquake hazard.
July 24, 1973 NAEC received call from responsible Louisa citizen, con-
firming the major geological nature of problems at the
power station site, and urging NAEC to pursue inquiries with AEC and others.
July 25, 1973 WAEC called AEC Regulatory Staff Counsel who stated that a
fault had been discovered to run through "all four excava-
tions at the reactor site. (This fault is described in an AEC meaiorandua
dated June 21, 1973.)
Note: At this point, the public still has no knowledge
of the site problem; neither does the Atomic Safety
and Licensing Board who just 2 raonths earlier heard
Construction License testimony for Units 3^4.
July 31, 1973 The AEC Regulatory Staff submitted to the Atomic Safety and.
Licensing Board an affidavit from its geologist, A. T. Car-
done, stating that it is his opinion that the safety question raised by -•
the discovery of the fault can be resolved on the basis of VEPCO's report
to be submitted August 15, 1973.
August k, 1973 NAEC released the story of the fault to the press.
August 8, 1973 VEPCO held a major televised news conference in Richmond
at which Cardone's affidavit was read and where all but
one of a panel of geologists attested to the nuclear safety of the site.
(NAEC attended and questioned this assurance, based on zero AEC experience.).
August 22, 1973 NAEC asked the Atomic Safety and Licensing Board to reopen
Construction License Records on the 4 North Anaa Units and
to convene a public hearing in Louisa on the matter. NAEC also submitted evi-
dence in support of its contention that VEPCO bad not acted in good faith.
August 23, 1973 The Atomic Safety and Licensing Board asked VEPCO and the
AEC Regulatory Staff for "views on an appropriate mode of
dealing with the question" of the Cardone affidavit.
August 31, 1973 VEPCO replied that it had submitted its DAMES & MOORE re-
port wliich would allow the AEC Staff to "resolve any safety
questions involving geologic conditions at the site."
August 31, 1973 The AEC Staff replied that it was reviewing the D & M Report.
September k, 1973. • .NAEC wrote to Mr. Robert L. Ferguson, AEC Project Manager
for North Anna, to request an ASC investigation of the site
that would go far beyoad the Dames & Moore report to include disinterested
scientists who were expert in nuclear plant geological requirements.
September 5, 1973... NAEC wrote to AEC Regulatory Staff Counsel David Kartalia
to repeat the above request. NAEC also expressed shock that
the D 8c M report treated the poaaibility of increased seismicity from an
irapoundment with a 2-paragraph dismissal.
114
NABC Chronology Page 5
September 11, 1973-.NAEC sent a formal letter to the AEC Regulatory Staff re-
questing tb»t no construction liceaaea be granted for North
Anna Unite 3 & ^ until the Board had heard aad questioned expert witnesses
on the implications of the fault and until the Board had studied the results
of state and federal investigations; further, NAEC requested that VEPCO's
construction licenses for Units 1 & 2 be revoked for "material false state-
ments" about faulting at the site.
September 21, 1973.. Mr. Robert L. Ferguson, AEC Project Manager for North Anna,
sent VEPCO an 8-page "Request for Additional Information,"
including questions on ground water problems and the risks of increased
seismicity from an impoundment.
September 27, 1973..THE WASHINGTON POST published Hal Willard's story on the
North Anna fault: "The 'Devil' and the Reactor," which
cr -ated a furore in the Congressional Joint Comtnittee on Atomic Energy.
(>lr. Willard believes that without NAEC there would have been no AEC
inveetigatio* at North Anna.)
September 29, 1973.. Atomic Committee on Reactor Safeguards (ACRS) visited the
North Anna site.
October 17, 1973. ...The Atomic Energy Commission ordered VEPCO to show cause
why construction on its North Anna Units 1 & 2 should not
be stopped until completion of an AEC investigation of a geologic
fault at the site; AEC also requested an evidentiary hearing on geo-
logic faults in Units 3 & 4.
SoTJt 19 - Oct. 31 1973, and Jan. 17 - Feb. 27, 1974. ..AEC Inreetlgatlonof fault Info
Uoveiber 6, 1973 VEPCO requested a hearlngln response tc Show Caas* order
November 6, 1973 Meeting in Fredericksburg to orient new ASLB Chairman Parmakides
Hovember 26, 1973 HABC repeated request to AEC for independent investigation;
also asked no cement ing of excavations pending completion
of public hearings. , ^ „,.-,..* j
December 22, 1973 HAEC received ABC notice that Messrs. Parmakldes, Chanlett, and
Brigga given authority to rule on YSPCO's request for hearing.
December 29, 1973 BBC visit for fila re North Anna
January 24, 1974 HAEC filed petition to intervene in Show Cause Hearing:
llarch 20 -*Aprll 4, 1974... Show Cause Hearing in Louisa, Virginia
June 27, 1974 Show Caase Board ruled site safe
November 8, 1974 Show Cause ruling appealed to AiX: Appeals Board by HAEC
January 28, 1975 KA2C appeal denied , , , •■ » ,. „„+„»
JanuS 29/30. 1975... Hearing on Concealment issue of "-f ^^f ,^^,\f ^^^'^'^^^ .
IvTil 4. 1975 VEPCO convicted of 12 "material fUlse statanents
««r28/29 1975 Hearing to determine penalty; HHC recommends $60,000 fine
i U I975!! nLc fflea "Petition for Beview of a Decision of the Atomic
June 11, 1975 .^^^^ ^^ Licensing ^peal Board" with U. S. Court of Appeals
for the District of Columbia Circuit
115
NORTH ANNA ENVIRONMENTAL COALITION
j^ P.O. BOX 3951 (804)282-8817
PROGKSSS RiPORT NOVEMBER, l^'^ CHARLOTTESVILLE, VIR3INIA 22903
NABC COHtm^^^HjIiS WITH AND RESPONSES FRO^: (''°3) 832-3983 or {804)293-6039
VIRGINIA^TATE^GEACIES REGARDING PUBLIC S/vFETY
State Water Control Board (S*CB)
Relevant background information: Minute 5' — Amend nents to Water Quality StaiJ irda
adopted April 24, 1973:
A. All State waters shall be maintained at s ich quality as will permit all
reasonable, beneficial uses. .. including game fish...
B. All State waters shall be free fr.>m subst inces. . .which will interfere
directly or indirectly with reasonable, beneficial uses... or which are
inimical or harmful .. .Specif ic substar.ces to le controlled include . .toxic
substances. . .
SWCB "Notice of Hearing" on 401 Certificate for /EPCO's North Anna Nuclear Power
Station stated that such a certificate would be issued only after a review demon-
strates that VKPCO's discharge of treated cooling water...
3. will assure protection of put lie water supplies. . .protection of wildlife,
and allow recreational activitits in and on the water...
SWCB'e "Fact Sheet" of >lay 15, 1975 on VEPCO's 4ol Application to "discharge
treated cooling water into the r-sters of Virginia" stated that the receiving
■•ters in Lake ..nna are classified as Class III- A waters and are to be suitable
"for public or municipal water supply, secondary contact recreation,
propagation of aquatic life, and other beneficial uses..."
June 19, 1973 SWCB HEARING ON N.)RTH ANNAAtPCO 401 Certificate: NAEC
presented petition urging SWCB to act so as to insure that
effluent from NAPS would not be detrimental to Lake Anna; NAEC also raised
questions regarding radioactive ('toxic substances") and thermal pollution,
adequate monitoring, and VEPCO credibility in the light of the Surry fine.
Jun« 20, 1973 NAEC mailed request to SWCB and staff to reconsider its S/V)
abdication of radioactive pollutant responsibility to the AEC
and act to enforce AEC standards vithin Virginia.
Augi st 17, 1973 NAEC wrote SWCB Executive Secretary Eugene Jensen asking
delay in final balloting on 401 certificate for NAPS plus
reopening of June 19 hearing to consider important facts known but not
revealed by VEPCO at that time: the existence of a fault beneath all 4
reactors and the seepages of ground water through the chlorite seam therein.
Geologists had raised the possibility of ground water contamination resulting
from a reactor leak.
August 22 and 24 Telegram requests for delay and study to SWCB and Jensen.
August 29, 1973 Letter from Jensen to NAEC President William Warren stating
that after the Bo ird considered NAEC's letter, it voted to
grant the 401 Certificate which deals "solely with limitations on the dis-
charge of waste heat from the steam turbines "
NAEC Note: Compare this statement with SWCB'e "Notice of Hearing" and
"Fact Sheet" above.
X Prepared at the request of CONGRESS WATCHv a Nader organization in Washington, D.C.
116
NASC/STATE AGENCIES Page 2
September 6, 1973. •• .Letter from Jensen to Senator Dalton who had inquired on NAEC's
behalf regarding the 401 certificates. Rather than commenting
upon waste heat, Mr. Jensen writes: "The certificates approved the construction
and ope ration of Units 1 & 2 and the construction of Units 5 & '*•"
To Senator Dalton, he mailed the certificates, and Senator Dalton kindly forwarded
copieH to NAGC.
September 24, 1973. . .Letter from Jensen to Senator Dalton: "At the September 17-18
Board meeting the Attorney General's Office reported to the
Board that site characteristics of the VEPCO North Anna Power Station are in-
exorably linked to reactor safety and, therefore, are totally within the pur-
view of the Atomic Energy Commission..."
September 13 and October 1, 1975. . .further corresi>ondence from NAEC to SWCB asking
that they inform the Coalition regarding ultimate protection
of Virginia waters from toxic substances.
State Department of Smersency Services (SDKS)
Relevant background information: On page 13-3 of AEC's SAF OTY EVALUATION Of THE
NORTH ANNA POWER STATION UNITS 3 & 4, issued December 29, 1972, is a statement that
VEPCO will have an emergency plan for North Anna similar to that submitted for the
Surry Unit 1 & 2 Operating License that contains arrangements with Federal and State
authorities.
July 8, 1973 NAEC wrote to SDKS Director Thomas Credle, requesting a copy
of the Surry emergency plan; also requested information re-
garding Stale plans for handling highway acciaents involving radioactivity.
July 25, 1973 NAEC called SDES to inquire why letter had not been answered;
NAEC told that SDES awaiting copy of revised plan. NAEC
reitf-rated request for original referred to in 12/29/72 Evaluation.
July 26, 1973 Charles aawtelle of SDES feturi.ed NAEC call; discussion of
who has emergency responsibility — answer not clear--largely
VEPCO with SDES "coordinating." Knows nothing of personnel training.
August 3, 1973 bDES Director Credle called NAIX:; said that in evacuation local
government has responsibility, "supported by this office";
displ< ased because VEPCO originally left out local government; must be partner-
ship ith Health Departmeat people on nuclear problems, and Civil Defense on
movem. nt .
August 7, ^73 NAEC visited SDES office, spoke with Mr. Sawtelle who called
VEPCO regarding Surry plar requested by NAEC July 8; mailed
by VE CO to NAEC August 8, 1973
October 1, 1973 NAEC wrote Mr. Credle to inquire status of North Anna Emergency
t'lan in light of pending operating license hearing.
October 23 1973 NAEC repeated request for information.
Note: NAE; has never received wr -tten commijpicatio.n of aay klad from SDES.
(Bulletin — Nov. 12 — Radio just anrounced Credle'.s resigination to become
federal Disaster Assistance \dministrator. )
117
NASC/STATK AGENCIES Page 3
State Air Pollution Control Board (SAPCB)
October 1, 1973 NAGC wrote SAPCB to Inquire their role and responsibility in
protecting Virginia air from radioactive effluents.
October l8, 1973 SAPCB answer: "...the Bureau of Radiological Health of the
State Department of Health has for some time had a capability
in radiation surveillance. . .Our Board has no radiation monitoring equipment,
has no specialista trained in this field and does no day-to-day work in it.
The Health Department Bureau has such equipment and has the experts. W« re-
ceive its reports. Our staff meteorologist is working with one of the Bu-
reau's people on develo iment of one particular surveillance project for the
North Anna plant on milk We have no (radiation) standards. The State
Board of Health adopted regulations some time ago in compliance with Atomic
Energy Commission regulations."
State Department of Health
July 9, 1973 NAEC wrote Dr. M; I. Shanholtz, State Health Conmissioner, to
request descriptions of Surry and North Anna radiological
monitoring programs, training programs for radiological emergencies, names of
staff members involved in the foregoing, and names of liaison pei-sonnel between
Health Department and ViPCO/AEC.
July 25, 1973 NAEC called tc request answer to dbove letter.
July 27, 1973 Dr. Shaiiholtz's letter received; referred NAEC to Mr. Bryce
Schofield, Director of the Bureau of Industrial Hygiene,
Dr. Phillip Walton of tlie Medical College of Virginia Radiation Safety Office,
and sait? that Virginia .State Police would contact his department's Radiological
Health Ssction and Emergency Specialists throughout the state.
(Note: Vo descriptions of monitoring or training programs included.)
August 1, 1973 NAEC called MCV's Dr. Walton who said that plans to date have
nothing to do with North Anna; Dr. Walton is a physicist;
says that list of telepjxone numbers has recently been updated.
August 1, 197 5 NAEC called local state police who knew nothing of radiation
procedures; called Appomattox who gave the officer two
telephone numbers to call in the event of an emergency.
(Note: No knowledge of radioactive shipments of truck markings.)
October 1, 1973 NAEC wrote Dr. Shanholtz again for information regarding
Radiological monitoring at Surry and North Anna, emergency
training programs, namss of Emergency Specialists, credentials of B. Schofield.
October 5, 1973 Dr. Shanholtz sent none of the ppecific infomaation requested
but commented "we think our existing programs are sound."
State Corporation Commission (SCC)
Relevant background information: AEC's FINAJ, BNVI WNMliNTAL IMPACT STATEMENT, page
1-5, lists the State Corporation Commission ; s having granted VEPCO "certificates
of con^enienc^ and necessity' for North Anna Power Station in 1970.
October 1,8,1973 NAEC sent letters of incuiry to SCC re certificate status.
October 24, 1973 SCC attorney told NAEC neither letter ever received;
NAEC resent letters by certified mail.
118
hABC/STATE AGENCIES Page 4
£tate Corporation Commission (cont.)
November 11, 1973 NAEC received parti? 1 answer to questions posed in
letters of October J and <i; SCC's answer attached to
tnis report. Burden < f it s that cei tif icates were granted to VEPCO
b if ore environmental Jegisl. tion was v issed and that permission covered
a.l 4 units. NAEC plans to resubmit c, lestions which were not covered.
State liivision of Parks
Relevant background informetion: AEC's FINAL ENVIRONMENTAL IMPACT STATEMENT
on the North Anna Power Station, issued in December, 1972, contains letters
from this department raising questions about public safety at the planned Lake
Anna recreational facility.
October 1, 1973 Virginia Commission of Outdoor Recreation released news
story that ^million dollars of State money was about to
be spent to purchase shore-line property for a park at Lake Anna.
October 3, 1973 NAEC callerl Division of Parks to see if their safety
questions .o AEC had ever been answered: no, never.
October 9, 1973 NAEC wrote Division of Parks to inquire formally how
such land purchase could be justified without safety
assurances and with the know edge that a rural site had been chosen to
avoid large numbers of people that might be drawn to a park.
Oc ober l6, 1973 Parks Commissioner Bolen replied that park siting cri-
teria have nothing to do with VEPCO plant siting cri-
teria. Determinants are ecoi.omy, shoreline, and minimal drawdown.
October 23, 1973 NAEC issued news release objecting to the dangerous
illogic of the foregoing.
State Office of tlie Attorney Geneial
Since July 4, 1973, NAEC has been in varying degrees of communication with the
office of Andrew Miller, Virfjinia's Attorney General. *e asked his support
of our request for re-opened hearings on North Anna to enter the latter of the
fault. He deferred such action, pending the outcome of his requested investi-
gat on by the Virginia State Geologist.
Aft' r repeated requests tor information regarding State respansibi lity for
toxic substances, NASC received the attached letter which, as expected, stresses
AEC responsibility for all such radiological problems with the exception of
monitoring by the State Board of Health — from whom we have been unable to get
am specific monitoring information despite sex'eral attempts.
State Office of the Governor
The Governor has never answered any NAEC letter directly but delegates polite
non-committal answers to the Secretary of Commerce and Resources.
To date, reporters have been unable to get any response to Dr. Lapp's call that
thi- Governor appoint an inoependent commission to study the fault situation
at North Anna. '^
119
ATTACHMENT 2
CimOKOLOCY ?SU^y.D TO NORTH Jdrt:.\ PO',VKn STATIOn U:!1T ill EXCAVATION — FE3RUAnY-M;jlCn, l'J70
(Infornntlon t-ikon from /iKC Invest ipat ion matorliila unlouo othcrwico Indictted)
Mijor Porsor.r.n 1 Involved!
HK?!B)-3T h. '£::c.W::.:aV — Ll?-<pcn m:\ri between construction people, STO'rE & WESOTIIR, and
the VEPCO hcTidc^uartora. .,";^.-V:-;?CO" on the prcjoct...in ch.'irco at tho alto;
"I atto-nptod to stay abrc,-mt of vihnt w.s roirr or., both at the di-n snd Bt the
powerho-80." Official title: Kooident Eneinocr.
!
KOBER? J. KE^Y — STO>S & V/EBSTER ceoloRist on tho North Anna oito; responsible for
foundation invoBtleation and foundation approval.
J.)HH BKIEDIS— STO:CE & V7ESSTER ceolocist in Boston in 1970; in 196B had boon Project
Geoloeiet at IJorth Anna for D/JJES & UOORE.
DAVID P. LIcKITTRICK — STOrS & VfEBSTER load geotechnical engineer for Uorth Anna
project; based In Boston.
WILLUO.I F, SWIGER — STOiffi & V/E3STER civil engineer in Boston.
Significant Eventa:
Early February, 1970. . . .Eoclt elide and "precarious joint systcn" in Unit 1 excavation
. reported by Henry at Korth /aina to ircKittrick in Boston.
February 4, 1970 lIoKlttriclc informed Brlcdls of North Ajina problems.
Februaiy 5, 1970 Uc}:ittrick and Eriodis vicitcd tho Korth iVnna site.
I/anar craclcs noted by project personnel and KcKittrick at
Elov. 270...P.r ,".£ bolt anchorage retained although etccl hcf.rin^ rlntco unforr.od.
February 7, 1970 Drilling pattern laid out and shot in ftn effort to etabiliao
tho slopo; apparent following blasting that bench, Elev, 246,
could not be retained; drag line excavation to stable bedding piano.
Middle February, 1970. . .Clean-up operations and excavation of Lift # 3 reveal chlorJ_to
Ftbruar.\ fl I-IIO ... V.j.-fk, ACC .0,^. cT.ro u.1^. r>.+.<i """^^-b/* strj^ <^l.ck «\l.^tJ I: ? h ^IJ^'t. Ucr^clThMs
February 23, 1970 .'vislt to Unit 1 excavation by Dr. John i?\inkhouoor, goologiot jj.i.-i,.^
with John Tyler Ccir_iranity College; Dr. Funkhounor told his p<v
guide, VEPCO Resident Eiiglnoer Jiiglcnan, that he had a "vrry w\\a'.v\l ncolor.ic '['"'^''^i
feature" and asked per.-nlssion to "return with another geologist." ph,^ £»
HI?C,
(KAK note: ).tr. Sngloaan knew Dr. FunJ-Jiouser's profession. In tho light of the '^<'«"^'»
excavation difficulties and the iioston visits to consult thereon,
it would s^om a reaeon£>blo expectation that ho convoy Dr. Funkhousor's reaar>u3 to
Bite geologist Henry and visiting Boston Stone & Webster consultants.)
Febru.ary ZZ>^26, 1970....BrlediQ returns to Korth Anna to thoroughly map Unit 1.
February 2.5, 1970 Swlgor arrives from Boston for "In-depth field Invest Igot ion"
of tho nlido area; diocusood chlorite seam with Honry and
Brledlo 'in great detail"; alV ccnsldcr. posnlbllity o^ faulting but decide
chlorite zone foaturo does "net represent fault problem."
See article in Washington Post, Sept. 12, 1975, p.
120
KORTH A!nJA WIT ill CHHOIIOLOGY , Paeo 2
February 27, 1970 Briedln takes 6 rock oa-Dplon frcm Unit 1 to tho Ylrfilnla
DlviL'icn of Mineral .Heoourcos In Charlottonvlllo for rcinoral
idontlflcat Jon nnd comments on the orifrln of tho roolof;lc !it,r\icturr-n.
"...J.icsors. Coiiloy, Good, end Gathri(:ht orally advised Mr. John Briodio that
tho ollclconaldca, catacl;ir.tB and chlorite in tho rock saiplea from the site
presented to thoni for mineral identification nia;/ bo Indicative of a far.lt."
(per oworn staterr^ent of JaT.on L, Calver, Cotrmisalonor of Mineral Resourcoo
and State Geologist of Vlrf;lnia, mrido on llarch 10, 1574, in response to
Interrogatorief. of the IJorth /oina Knviron.'ncntal Coalition)
March 3, 1970 Henry writes tho following: "At thlo location the failure has
been controlled by, and io a o-.anifostat ion of, a blotltc rich
layer which hao heen altered to ch3 or'tc and severely weathered. . .Cour.try rock
Itrmodlatoly overly inf; tlio biotite bed appears to be somev/hat rr.ore siliceous than
tho G-urroundlnj; bedrock and contains scrao dlsso.Tilnatcd sulphldcu. . .3edi-ock im-
mediately under lylnc the biotite zone is a fresh coarse Grained granite pioias
rioh In orthoclase. ..The effects of a coiit inuat Ion of similar conditions throu£^
Unit JiZ should to considered prior to excavation."'
March 10, 1970 Bri'dis returns to TO:.^; Interview Record entitled "i:ineralo£y
of faulted rocks v/hich had caused landslides ."
March 11, 1970 Stone & V7ebster send VZPCO's Crutchflold 4 copies of internal
letter on Rock Support and Reinforce.-nent measures necessary in
North Anna Unit 1 "to aghlovp stabjlitv." Typical statement from the 3-pr.CG
letter: "Tho block of rock foi-med oy these cracks and tho chlorite soaTi is a
threat to therrcnv.xt ion and should be removed."
llarch 23, 1970 Dr. Funkhouner returns to North Anna Unit 1 excavation, bring-
infj Dr. Bruce Goodwin, Chairman of the Geology Department at
tho College of William and ilary, his colleasue Dr. Stephen Clement, and students
Donald O'Donahue and Joseph Terrell (the latter ncv; employed by VZPCO).
Dr. Gocdrin is confident that I'.r . TMrlp^iin's attr'ntlon was oallod to tho frjlt.
"\"e cor-sidnrod It a Inrco scale I'-iult at thr'-t t i:''-'. . .Vy'e mentioned tho extrerte
atiount of fracturing in the fault... V.'e mentioned that that is a beautiful ex-
anjilo of a fault. ..We were, all sort of pointing at it and running up at it and
grabbir^ samplea of it... I believe v/e expressed some concern as to whether this
was a good thing to have in any kind of foundation."
Dr. CleT.ont is positive that the fault v/as pointed out to Mr. SrnTleT.an. "I felt
• that he didn't want to talk about it. 1 had a feollng that he kind of v/ished we
v.'ould go away...l had a feeling th.t ho had a moderate knowledge of rock types...
I boliovo Goodvdn, JJVnkhouoor and I apoko about things like, 'Doesn't the
presence of that fault bother you in this project?' ... 1 think wo asked him a few
questions about engineering practices, about perhaps his rock bolting or stopping
the water ficv-' alonrthe fr.-.i] t. . .we assumed that geologists wore being consulted."
121
KORTil A,M:A U>;1T Hi CimOIIOLOGY Paco 3
Jiarch 20, 1970 (cont.)«»Dr. t\jn)chou£!er brlnca otructural froolocists to confirm foailt
dlacnoBlo of "unusual tooloRic foaturo" he vlowod r'eb. 2a, '70.
Dr. ?url:hou8er recallo asking '■''T. Eneleman If he realized that the feature waa
a major fault. "i.'r, >>;cltniandld not nco:n to havo much toiov/lodco of ^colory
oxoopt that he h^d r"r:rd of faults . ..v/e eanorly spoke of a fault In our ccn-
vorsat icns . . .the on(;inoor vlajbly cringed every time we mentioned the rord...
I asB-u-TJod that }io v.-ould Immediately report this to his super ioro and apparently
he did." (The next ooveral paf;cs of Dr. Funkhouser'o deposition are deleted
per hia request out of consideration of the current V2PC0 eT.ploiT.cnt of
his fonr.or otudont, Terrell.)
Donald O'Donohuo romcmtera Dr. Goodwin* saying to Encloman "That's a heautiful
fault you have there" and Engleman's replying "'.Vhat fault?" as though ho were
surprised to hoar fiDout it. Ho believes the fora-nan asked if there waa any
danger the fault would move. . .O'Donohuo reT.embers the discussion between
Go&d-.7in and Er.gleman because of the surprise in the man'o voice, 'it secnod
ridiculous to O'Donohuo that he wouldn't havo kno'.vn of the fault, or pho-.^ld
havo kr.ovm about it, since he was in charfro of ccnstruot ion.
L'r. KnfTlerr.nn recalls a "noticeable movement in the earth, and they took this
portion of the aide of the excavation off above tho chlorite seam. ..It waa
perhaps done shortly bt ''ore I got there."
(riAEC notes Mr. Englcn-.an was on duty at the site from Deco.Tber, 1969 through
September, 1970. Removal of material around the seam waa dono in
February, 1970.)
Regarding his ovm reactions, IMgleraan says "I don't know that had he mentioned
that there was a fault there whether it would havo bothered me cno way or the
other. I'm not a geologist and I'm still lir.zy on what a fault is inj'self."
Engleman can't recall any discussions with Stone & Webster site geologist
Henry, nor can ho rKCCTiber the purpose of tho Stone & "ebster Geologists'
visit's from Boston. He does not rcmeT.bcr who from VEPCO was involved in the
resolution of tho rock-slide problem, nor who from VSPCO approved tho geologists'
visits from tho Virginia colleges. ..Ho saw nothing "of sienificanoe in the aiscussion.
(NAEC note: In tho 35 double-spaced pages of Mr. Engloman's deposition to
tho Atomic Energy Conaiission, there are at least 41 instaECOs
of memory failure.)
Mr. Englcman was "ln_ charge of tho excavation site."
He reported to VEPCO'o J. B. Dlschingcr of tho Power Production Department.
Dischlngcr required no "poriodio written reports" from Englcman on the billion-
dollar Korth Anna project, and has signed a statement confirming that Englcman
made no report "ooncornlng ox^ireasod concerns by anyono regarding a geologic
fault at tho alto." V,'.«. Wills, Diuohlnger's superior, confirms the lack pg
any rocorda on suspected faulting at the Xorth liana site.
(VAEC notoi Incrodiblol}
122
NOilFH MMA BWmO^^IiE^iM. CQ'iXmiOH
19jO_cjiTiC^yhOG'fo:ij:f7^:'?AJi?_>Jvc^^^^^ chaiu.ottesville, Virginia 22903
RAiV;;;:>"i;;-T<ious cir£sTio::s f: hc:M?s ix j'ublic ■vi?n) /703)
P.O. BOX 3951 (S,0'i)2ii2-iibl7
:HAIU.0TTESVILLE, VIRGINIA 22903
(703) 032-3903 or (804)293-6039
1. If VEPCO did loicw of faulting find failed to report it, what trust can be
put in other YHPCO safety etatorncnts and actions?
2e If ViPCO did not know of faulting — so readily apparent to independent
Geologists — what trust can be put in VEPCO competence?
3. In the linht of wall collapse and multiple problems at the Unit 1
excavation site in 1970, how could VZVCO have failed to knov/ that
faulting was under consideration in connection v;ith the chlorite scaii?
4. Hovr could VEPCO's Resident aigineer have been oblivious to the iT.pli-
cationa of the rock-slide and the sudden ruoh of visiting consultants?
5. Is it possible that VK?CO»s Resident Engineer — v/ith 24 yesrs' experience-
could be ignorant of the tenn fault , a term fa-niliar to most laymen?
C. Is it believable in terms of sound business practice that TOPCO v.^ould
launch a bill icr.-dollar nuclear construction project in Louisa and not
havo a v/ritton report system with its representative at the site?
7. Who in the VSPCO hierarchy gave permission to proceed with the project
after VEPCO learned of the stability problems arising from the chlorite
seam?
8. V/as there consultation with the ASC'a North Ajina Project Manager?
9. WTiat was the extent of the .iSC's knowledge and reaponsiblity at the site
in 1970?
10. V/hy has the AEC's investigation of 1970 conditions surrounding site
knowledge been so grudging and slov/?
11. Why has the-.^EO put out a shoddy pioco of invest igat^ive work that
makes no attempt to derive conclusions from evidence?
12. V.Tiore can the public look for protection il" the AEC Regulatory Staff
assists utility deception?
.13.- Can the public look to the Advisory Coramitteo on Reactor Safeguards?
(Attached: CHRO!:OLOGY HKLA7FJ) ?0 NORTH vUINA POV/FJ? STATION UNIT rfl EXCAVATION:
KE3RU/UiY-MAliCH, 1970)
123
ATTACHMENT 3
For release on April 11, 1974
P.O. BOX 3951 (8O'))202-8ei7
CllARLOTTKGVILLE, VIKGIIJIA 22903
rAEC CALlj A7:0 U-V?:r.7I0ATI0?: PJCPOPT "FHAUgUL;xr (,03, 332-3903 or (UO'I) 293-6039
At a meotlnc today of the Advloory Conmittoe on Roaotor Safeijaards, the Korth
la Environmental Coalition charged the AEC with publishing a fraudulent roporto
Vho 2-paragraph "Sunmary of Faoto" in the CoT.-niao ion's Invest if^at ion Report ll.T,.) j/ij-/?^
of
alleeedly clears VEPCO/charges that tho utility toow or Ruanceteil fault Ini? at the
ITorth Anna Nuclear Power Station site in 1970 — 3 years before YEPCO reported tho
geologic anomaly to the AEG. \
Such a conclusion is spurious, says a Coalition spokesman. Kot only is it un-
supported by the body of tho report; it is given the lie by depositions collected by
the ABC's OToi investigators. V/illia-n P. Swlgcr, consulting engineer for VEPCO'o con-
structor, told ABO that faulting under tho Korth Anna dam was reported to VEPCO as
early as 1969. That was full,-* a year before the visit by acadeaio geologists v/hose
. ^ult diagnosis had prompted the original Coalition cheurgea.
The 3 Virginia professors of geology also gave depositions to the AIXJ stating that
in Uarch of 1970 they had clearly and dramatically identified the faulting in the
Unit 1 excavation to VEPCO's Resident Engineer, Mr. H. L. Engleman. Ur. Engleman \vas
"in charge" of the North Anna site and responsible for liaison with VEPCO's Richnond
headquarters o
Virginia's State Geologist has signed a sworn statement ihat a geologist representing
VEPCO's constructor was alerted to possible faulting by three staff lEOnibers of the
Virginia Division of JJinoral Rosouroos on February 27, 1970.
A "SLOPPY FRAUD"
"Not only is the report a fraud — it's a _9lo)2Ey fraud," cotTTOonted ono
v,oalition mo:abt>r, "coxpilcd in a picco-.-noal fashion." The invest Ig.it ion was supposedly
begun by the AICC in Aui^ist of 1973 when tho NAIOC first made its charges. "If you road
it carefully, you will see that 14 of the 23 pooi)lo quoted were hastily reached in lato
January ajid Kc'truary of 1974, after the Coalition complained about half-hoartod invosti-
(*ation efforts and blatant omission of tho Virginia Ulvioion of Mineral Kcsourcos.
Its absolution of \yA'CQ in unrelated to reality." (Soo attached NAEC CRITIQUE OF
AEC 11.7 EST IGAT 1011 s EVIDENCE VS. CONCUJSIONS. )
124
NAEC Critique of AEC Investigation: Evidence vs. Conclusions
Tho CAPITAi-IZSD STA??r.'o".NTS bolow aro taken directly frcx "Su-imary of Facta,"
pago 2 of tho jT;7rit!i"\t-. Inn Dppnrt of tho Diroctorato of Rof^il.itory Oporat lona (A2C)
on tho T.atter of VZr'CO'a oarly knowlooi^o of faulting; or BUDpcctcd faulting at tho
North Anna. Pov,-er Station. ?ho invootli-;.ition wao mido in roriponoo to char(;o3 by
tho Korth Anna Knvironjncntal Coalition that VrTPCO toiow of faulting at tho sito
least 03 oarly as 1970 but did not i-oport it to tho Atomic Enorcy Comniosion
until May of 1973. ,
Indented beneath tho CA?1?ALI2EI» C?ATE,ra<TS nro quotntionn from othor parts of
thj.t Bssio Invest! rat ion Rcnort. dcpoaitlona made to AEG counsel in its prepiirat ion,
or report a~JocTttea to tho Aib at an earlier d.ato. The Korth Anna Envlroraontal
Coalition believes that indented etatexcnta and quotations support K/iEC'a clalra that
/•'n'n "f:'j".T-^'-y of Facts" la not punrortod by cvidfir.co. Rather, in it tho AEC presents
tinsupportcd aimrioua conciuaiona wnich aro neither e^rplainod nor substantiated.
AK IKVESTIGATIGK, YWICH lUS nCLTOED /uN li:TSnROaiTION OP TKE PRIXCIP/aS COrCJP.NED ^Xii
OK a:? ex;'.l:i!;a?idx of au. ?EHTi:r2'r: records, has fouio) ko factu/J, evidekcs tfji.? notice
OP A FAULT V,-AS RECEIVED BY \TK;0 IN 1970.
"Dr. Gooav.'in (Chairnian of. Geology Department at College of V/illleai & i'ary)
Bald to tho construction man (VEPGO'o Resident Engineer H. L. Engleman) some-
thing about 'That's a beautiful fault you have there.' The reason O'Donohue
roT^crabers this is because this foreman said, 'V/hat fault?' as though ho were
surprised to hear about it." I«K. p.23
"They wore met by tho official (\'E?CO'e Englcnan) and they tainted to him about
• tho fault... Clement (Stephen C, Geology Professor at College of V.'illica &
I'ary) is sure they spoke about the fault and pointed it out and asked him if
ho weren't worried about it. ..He believes Goodv/in, Funkhousor, and ho spoke
about things like 'Doesn't the presence of that fault bother you in thla
project?' .. .He is positive that the fault was pointed out to the official."
I.R. p. 8
"They (Doctors Goodwin, Clement, Funkhouser) all readily agreed after an ex-
amination of the rock that there was a fault... they definitely pointed out to
Kngleman tho fault which they hud all agreed on.. .Engleman was almost incredu-
lous, yet he was hearing it frcm all threo.." I.R. p.7
IT lUS FOUNT) KO IICDICATIOK THAT GEOLOGISTS ETIPLOYED TO SURVEY THE SITE FOR VEPCO
IIAD COKCyjDED TF'vT A FAULT Wi\S PRESEKT, OR SUSPEGT?S) 0? BEiTG PRE5EKT. PRIOR TO
APRIL, 1973.
"On ."obruary 27, 1970, l-'cssra. Conlcy, Good f\rd Gathrlght (geologists for
•tho Virginia Division of I'.ineral Resources) orally advised ilr. John Brlodio
(geologist for Stono & V.'obster, VEPCO'a constructor) that tho p1 Ickrnr. iciea
presented to thorn for mineral idontlf IcutSon mn.y bo InJlcp.tlve of a f.-'-.iJt."
— 3/10/74 Gv/ora statcmsnt of Stnto Geologist
Willlnm P. Swigor, Stono & •ffcbstor consulting ongineor "observod a chlorite ceam.
no rocallod that thoy gave consideration to tho ro.tnlblo interpretation of th1i
fo-itxirfl an a fault (ho and Henry)." l-H. p. 14
125
Critique of Invostieation Roport.
Pace 2
WSi ""horc is (I omall fr.u It on the mapping on the north oido of the river which
is under the dam..,"
"A amall fault v/hich I ouppose you would classify as a c:c.olop;ic nr.omnly.
is that correct?"
J/S: "Yes."
"Waa the fault reported to VKPCO, to your knowledge?"
V7S: "It'B identiflod on the Geologic .-r.ap." -.S^viKer deposition; p.32,34
(KASC Koto: Said geologic rr.ap is in a Stone t 'Vcbnter report dated Fotraary 6, 1969.
Per Shovr Ctuso Kearinc testimony, /Jii'o first >mov7ledf,'e of faulting
under the Xorth Anna daa was tnc above quoted Sslgor deposition io/3l/75.
It has since been learned that there are at least 12^ fp.'jlts under the dsj,
2 going toward the reactors, none reported until lyvs.)
(2/70
"Did you consider at that*tinie the possibility that this might be a fault?"
J2J, "..John Bricdis and Bill Swiger — -.ve all gave it consideration. . .locking at the
chlrrjto ncvn, it's one of the first things that pjybcr-,' rould consider S3 n
fTfiOlcrrl.st..." __R. J. Henry deposition, p. 19
"Did you inform anyone else you were cona^dcrlrg faultlnfr?"
JBs "Probably ),'cKittricX." ' --John Briedis deposition, p. 42
IT HAS FOUICD KO EVIDKKCS THAT VSPCO SHOULD VATS INFKRKSD FROM AJTY STUDIES. OH PRIOR
PURVEYS OR C0:LMISSI03:ED GEOLOGISTS' REPORTS THAT A FAULT iTOiS PP.ESECT.
"The cite area is extensively Jointed. . .cross Joint set io often foiuad
neai' contacts between two rock types... tv/o sots of diagonal Joints in
direction of majcimua shear. . .si Ickonsllded in places..."
--Daines & lloore ?>.v. Studies l/l3/69, I.R. Ex. A
"Potentially unfavorablo rock arA Joint conditions have boon observed
and could influence excavation stability..."
— Danes & Uooro Fdn. Stud Irs 5/8/69, I.R. Ex. A
"Jpint sets... are cliay or chlorite filled, smooth, and show move:sent
up to one and one-half foet...lIost shear rr.ovpTirint in hornblende gneiss, in-
dicating hornblende gneiss less coi.potent than granite gneiss..."
— Damea i lloore Knv. f^tndjps S/lS/Vl, I.R. Ex.A
(IvAEC Koto: Vccording to D&ll's Joseph Fischer, movoTOnt doflneo a fault.)
"A nuir.bor of sniall shears have been encountered in borings taken at the
proposed sites of dikes, canals, juid the main diim. Those fn-.ilts have in-
variably boon partially or totally hoalod. . .Because of tho minor nature of
the faulting observed in tho borings, it is interpreted to represent the
normal sj.all-scalo tearing which typically occurs in aroaa of folded rocks...
mineralisation has been restricted to activity along tho very old, healed faults."
—Stone & Webster's Goologic Report — Da-na, Dikes. Cnnils
;:/6/o9
126
Geologic Report of the North Anna Nuclear Power Station, Virginia
By Paul J. Roper, Department of Geology, Lafayette College, Easton, Pa.
Reactor sites 3 and 4 were visited on May 22, 1973. The sites were in a fine-
to medium-grained moderately foliated felsic gneiss. The foliation was dipping
approximately 40° to the northeast. I was presented with the impression that
others considered these rocks as metasediments, and the moderately dipping
foliation to the north was interpreted as representing the limb of an antiform ;
the hinge of which was farther to the south.
My impression of these rocks and their structural relationships is quite dif-
ferent from those opinions previously mentioned. I would like to propose two
things: 1) that the rock is metaigneous rather than metasedimentary, 2) that
structurally these rocks are an igneous intrusion and have not been folded
into an antiform as suggested.
Several lines of evidence suggest that these rocks are metaigneous rather
than metasedimentary. First, the rock type is suggestive of igneous origin.
Compositionally, from hand sample identification, it appears to be composed
primarily of quartz, plagioclase and microcline. Practically no dark or hydrous
minerals were found in this rock at all. I did observe small patches of biotite
on an early foliation surface, but in terms of modal percent it must be a minor
constituent. Texturally, the rock was holocrystalline and medium-to fine-
grained. Compositionally, this would have to be a very unusual metasediment-
ary rock. The only metasediment with this type of composition would be in
the granulite facies of regional metamorphism. I know of no metasediments
of his high metamorphic facies found anywhere in this part of the Piedmont.
Furthermore, granulite rocks are usually much more intensely foliated than
these rocks. Secondly, this rock is unusually homogeneous. Most metasedi-
ments show a much more distinct compositional layering of quartzo feldspath-
ic and schistose units. Finally, there were no distinct signs of sheared-out or
refolded foliations typical of most of the metasediments found in the Appa-
lachians.
Assuming that this interpretation is correct, then I would also suggest that
the grain size would increase slightly to the south in the center of the pluton.
The medium- to fine-grained texture at this location is probably due, at least
in part, to chilling near the wall rock. I propose that the primary northeaster-
ly foliation S, is due to drag and shear along the wall rock as the pluton
intruded this region, and is not related to folding. Most metasediments in the
Piedmont are believed to be at least lower Paleozoic in age. They have also
been multiply deformed and abundant minor structures usually indicate this
relationship. However, there is a notable absence of refolded minor structures
in these rocks, which is very atypical of metasediments. Furthermore, the S,
foliation is totally anomalous with F, folding found anywhere in the Piedmont
except for the slate belt, and compositionally these rocks are very different. F,
folding in most of the Piedmont is isoclinal and often recumbent. This was
not the ca.se with the postulated fold in this area which appeared to be
open flexural-slip. Total lack of refolded foliations would classify that fold
as an F, old. A later crosscutting foliation was observed in sites 3 and 4.
I am not sure about the origin of this foliation at this time. It might be a
fracture cleavage due to gentle warping or folding of the pluton, or related
to some type of cooling phenomena or drag due to faulting. Ga.sh fractures
filled with quartz and/or pegmatite also occurred after S,, but their exact
significance was not determined during this reconnais.sance. A regional field
study would be necessary to determine its origin and significance.
Conclusions — The composition and lack of zenoliths suggest that this pluton
crystallized at relatively high temperatures at an intermediate depth below
the surface. I suspect that it is a hypersolvus granite. Additional field and
perographic studies should be able to verify this interpretation.
Post dating all foliations is a fault system that traverses across sites 3 and
4, and trends toward reactors 1 and 2. The existence of this fault cannot be
denied ! It is clearly indicated along the walls of pits 3 and 4. A schematic
drawing of the fault in the west wall of reactor site 3 is illustrated in figure 1.
The main fault consists of a gouge zone varying from 1-10 inches thick
with numerous slickensides. The gouge zone surrounds elongate lithoclasts
of felsic granite and sheared-out quartz veins up to four feet in length. Adja-
127
cent to the gouge zone is intensely cataclasticized granite and truncated quartz
veins, and quartz-filled gash fractures. Both the veins and gash fractures
■usually have a fracture cleavage associated with them. The fault plane dipped
moderately to the northeast approximating, but cutting across the dip of S,
foliation. The floor of reactor site 3 showed a very prominent subhorizontal
grooved or striated lineation in the catacla.stic rocks associated with the fault.
I have tentatively interpreted this lineation as representing the direction of
movement along the fault. The relationship of these lineations to the fault
plane is best exposed behind reactor 3 above the pit. If this interpretation is
correct then there is a substantial strike-slip component associated with the
net-slip of this fault. However, the low angle of dip (approximately 45-50° )
of the fault makes it very unlikely that it could be a strike-slip fault. Normal-
slip displacement of approximately 1/2 inch was observed within ten feet of the
main shear zone, but this offset probably only records the last movement along
the fault, which probably does not characterize the true movement along
this structure.
As indicated in Figure 1, both the hanging wall and the foot wall of the
fault zone are clearly exposed. The hanging wall has several additional sub-
parallel shear zones of lesser intensity ^han the main fault zone. In general,
these zones appear to decrease in intensity to the north as the distance from
the main fault is increased. These subparallel shears appear to be gently
curved and are suggestive of splays that bifurcate off the end of a fault.
Crosscutting the trend of the fault system, in the hanging wall, are a few
southwest dipping second order fractures. These intersecting shear surfaces
have resulted in the hanging wall being more intensively fractured than the
foot wall. The fracturing along the northern tip of the hanging wall and
foot wall adjacent to the fault has exposed the granite to deeper and more
intensive chemical weathering (saprolitization) than in adjacent areas (Fig.
2). This region will also be the site of intense chemical weathering in the
future and may result in an unstable base under the reactors. Unless this prob-
lem is dealt with it could be a source of constant trouble in future years. An
older surface was also observed in the foot wall of reactor site 3, but it was
not nearly as prominent or as intense as the main fault zone.
T^vo possible suggestions for improving the stability of this site are offered
in this report.
1. The reactor sites are located directly over the fault. Therefore, if the
reactor pits are deepened they will penetrate the upper lip of the hanging
wall and would rest on the foot wall, which probably would provide a more
stable foundation. (Fig. 3) Deepening of these pits would also be below the
incipient saprolite zone and therefore would be more resistant to chemical
weathering.
2. Moving the reactor sites to the south would have the same effect as
deepening the pits. (Fig. 4)
These suggestions are based upon the assumption that no additional faults
are present in the subsurface to the south of the present sites. The last sugges-
tion may have an added advantage if these rocks are a granite pluton as post-
ulated in this report. If this is the case, then by moving the sites to the south,
one would in effect be approaching the central mass of the pluton, which should
be less faulted and more stable.
Dating the timing of the last movement along the fault may be important
in order to determine the potential earthquake hazard of this area. Although
an exact dating of the last movement is practically impossible with present
technology (especially if movement has occurred in the last few tens of thou-
sands of years), it nevertheless may be possible to estimate approximately
when this movement occurred. This could be done by locating a site where
slumping saprolite due to creep truncates the fault. The most ideal location
for obtaining such a relationship would be along the side of a hill which is
known to have a thick layer of saprolite which is inten.selv weathered, pref-
erably to the G horizon of a soil. Such a material is unstable and subject to
creep down hill under the influence of gravity. Soil analysis can be made to
determine the shear strength of the soil, in this case mobilized saprolite. which
can then be eouated to the slone of the hill and influence of gravitv in order
to determine the approximate length of time that the saprolite took to move
a certain distance down hill. T rather doubt that this method would be effective
for more than a few hundreds or thousands of years. Ideally this relationship
128
should be obtained on the fault in question. However, if this is not possible
then other faults, especially major faults in the immediate area could pro-
vide suggestive evidence that would probably be related to this particular
fault. Although saprolite is abundant in this area, it is not as intensely weath-
ered as it is farther to the south. Therefore, this method may not be as easily
utilized in Virginia as it would be in the Carolinas or Georgia.
No detailed geologic mapping has been done in the vicinity of the North
Anna Nuclear Power Station. However, Neuschel (1970) has made a detailed
aeromagnetic and aeroradioactivity survey over 1050 sq. mi. of the Spotsyl-
vania area in Virginia, which includes the Contrary Creek quadrangle in which
this nuclear power station is located. Mafic rocks often contain significant
amounts of ferromagnetic minerals, and are clearly delineated by this type
of survey. Felsic rocks, on the other hand, such as granite, especially those
that have crystallized by the typical Bowen trend associated with relatively
high oxgen pressures, are usually deficient in iron-rich minerals. Therefore
they would not be clearly outlined by a magnetic studv. However, such felsic
rocks do concentrate radioactive minerals which can be picked up by an
aeroradioactive survey. Such a technique is useful in delineating map patterns
of granite plutons. By combining the techniques, supplemented by a field
check of rock types, Neuschel (1970) prepared a lithologic map of this region
which IS useful in interpreting the local geology, as well as the possible tec-
tonic significance of this area.
Earlier in this report, I presented field evidence suggesting that the rock
underlying the nuclear power site were igneous or metaigneous rather than
metasedimentary. Neuschel (1970, Fig. 4) arrived at the same conclusion from
^\l^rZ .^''^'"'^ •^"'^'''•'' """^ ^^^^ ""^^^^ of lithologies. However, Neuschel's
(lyru, ±ig 4) is a lithologic and not a geologic map. Nevertheless, his map
coupled with my visit to the nuclear power site can enhance further geologic
interpretation of the area. sfuiugn.
Neuschel (1970, Fig. 4) shows an elongate northeast trending bodv across
the southeastern corner of the Contrary Creek quadrangle, extending "into the
northwestern portion of the Partlow quadrangle, and the northeastern part
of the Buckner quadrangle (Fig. 5 of this text). The nuclear power station is
located approximately on the western side of this body about midway along
its lengt^i on the south side of the North Anna River. It should be noted that
the western side of this pluton is abnormally straight suggesting that it is
in fault contact with the adjacent hornblende gneiss. The southeastern margin
of the stock IS also unnaturally straight, suggesting a fault contact in that
region as well. I believe that the western border of this pluton represents the
taultthat^ underlies the four nuclear reactors. If this interpretation is correct
then the fault is about SVo miles long and extends under the reservoir How-
ever, Neuschel's aeroradioactivity map (1970, Fig. 3) shows a sharp flexure in
the sout^h western end of the stock, suggesting that the fault is only about
2 miles long^ The flexure is near the location of the power station and might
explain the bifurcating or splaying nature of the fault in that area. Nevertle-
1-^^' t^^//iult would still extend beneath the reservoir. The elongate configura-
tion of the pluton. and its bent northeastern terminus suggests that it was
intruded parallel to the regional strucure.
129
Figure 1 Cross section of west wall of reactor site J.
Plane of section is carved. Stippled area is
zone of incipient saprolitization at deeper level,
Hanging walJ
Footwall
Map view of reactor sites I--- shewing trend of fault
zone. Etippled area outlines approximate zone of
incipient saprolitization.
130
Hanging
wa.ll ^
f:„o^^''//
Figure 3 Deepening pit would result in base of reactor
lying on the footwall of the fault which would
probably be less fractured.
/itf /<!!•<»-//
t/An^l/f
Figure ^ Moving reactor sites tc the south would have
the same effect as deepening the pits
131
fo|.v;ni.
- El
'=^^. .C» . 3
^>v I ^fliSiSKillil i ^
V * • '^ ' "^tf ^;^ -^V^^vv:;} s?;^^^^;iv^J^ |i
u
132
References Cited
Neuschel, S. K., 1970, Correlaion of aeromagnetics and aeroradioactivity with
lithology in Spotsylvania area, Virginia : Geol. Soc. America Bull., v. 81, no
12, p. 3575-3582. '
133
June 3, 1975
Professor V/illiam Rodgera
Geoj':2etown University Law Center
600 i'ie'.v Jersey Avenue N.W.
Washington, D. C. 20001
Dear Professor Rodgers:
Docauoo some of my vlov;3 were not clearlv broup;ht out In the
adminir.trative tribunal hearing on May 28, 19V3 , It Is my undor-
ctandins that you would like ne to elaborate In more detail about
my fef.iings concerning a suitable study plan that v?ould enhance
tlie safety of the Horth Anna nuclear pov/er plant. Before I do
this, I think that it v;ould be worthv;hlle to enumerate a few
rear^ons i^hy the ilorth Anna plant should merit special consideration
for additional study. These are as \f ollovfs :
1. The- North Anna plant is one of the largest nuclear power plants
In the country.
2. It is located approximately 50-70 miles from the nation's capital.
3. A fault that "las experienced complete loss of cohesion lies
stratcb'lcally beieath all four reactors of this plant. For simpli-
city, I will ref r to this fault as the North Anna fault in this
report.
h. A zone known as Neuschol's lineament or the Fredericksburg
fault (Higgins et al. , 1973) Is a much larger structure, conceivably
up to 200-300 miles lon^, vrhich lies Junt a fev? miles to the east of
the plant. Some controversy still exists as to v.-hether or not this
zone is a fault. Hov/ever, Hlgglns ' testimony oayn that it is a
fault in the Frcdericksburs area of Virginia.
5. Onci of the most intense and active earthquake belts In the eastern
United States trends in an E-V7 direction across the structural f-rain
of the Appalachian mountain system. Althou;:;h there is some contro- ■
versy as to the 'i:eolos!;ic sifjnlf icance of thir, belt, it does lie to
the east, and parallels the trend, of the 3oth parallel fracture
zone, ^/hlch is known to exist In the midwe.otern part of the country.
It io feasible that this earthquake belt could be an eastern exten-
sion of the 33th parallel fracture zone. If this correlation is
correct, the 3Sth parallel fracture zone could be up to 600 miles
Ions; thus, one of the largest fault zones In the United States.
134
Professor Rodgers -2- June 3, 1975
6. Although earthquakes In the eastern United States are not as
frequent and generally not as lar^e as those in the v^estern part
of the country, they are knovm to affect much lartjer areas of
land in the eastern United States than in the v/estern part of
the country. Bollinser and Kopper (1971) indicate that eastern
earthquakes of comparable magnitude affect an area of about ten
times "larger than those in the western United States. Thus, it
is conceivable that earthquakes along the postulated 3Sth parallel
fracture zone could cause significant damage to at least the
foundations of the North Anna reactors that overlie the North Anna
fault, because the 38th parallel earthquake belt is just a few
miles to the soutli of the Jiorth Anna plant. Although I am not
familiar v;ith the details of hov; the reactors are designed, I have
been informed by Dames and Moore that the reactors are built to
vrithstand a considerable decree of vibratory motion from an earth-
quake. However, it is practically impossible to design any founda-
tion that could not be disrupted by shear if the North Anna fault
were reactivated by an earthquake.
The general relationship between these three faults 1) the
North Anna fault, 2) Neuschel's lineament or the Fredericksburg
fault, 3) the 33th parallel fracture v?ere made knov,-n to Dames and
Moore by me during the summer of 1973 in a couple of consulting
reports. In all fairness to Darnes and Moore it should be pointed
out that there was little or perhaps no possibility th?.t they '.■.•ere
or could have been aware of the potential large scale fault zones
that e.xlsted in this area before construction began on the North
Anna plant. After these relationships v.-ere pointed out to them,
Da;nes and Moore did make a reconnaissance geological sui'vcy around
the site. At the time of this writing I have not had the opportunity
to read this report, although Dames and Moore have verbally agreed
to send me a copy of the report in the near future. However, I have
read testimonies by Dames and Moore and by members of the U.S.G.S.
concerning this report. Because of my ovm experience in v;orklng in
the Appalachian Piedmont, I am well aware of the difficulties and
time Involved in producing a geologic map in this complex area.
From my limited knowledge of the work done by Dames and J-'oore ?.nd
from reading testimonies on this mapping program, I have no reason
not to believe that Dames and Moore made a sincere attempt to produce
a geologi map of the area around the plant in the time allowed, and
within the technical capabilities of their personnel. It is my
understanding that Dames and Moore have even referred to this work
as a reconnaissance study and do not claim that they can provide
definitive answers to the regional problems that could affect this
area. In fact I do not believe that it is within the ability of
any private company, with regards to the amount of time and manpower
that would be required, to adequately study these problems and
provide reasonable solutions to the potential tectonic hazards that
could influence this area.
y
135
Professor Rodgers ■ -3- June 3, 1975
Next I would like to direct attention to the magnitude of
the problem, why I think this area can be studied In (greater detail
at this time, hov; such a study should be approached, and the type
of ansv/ers that night be expected from such a study. It Is Impor-
tant to note that this entire araa of Vlrpjlnla has never been
studied except for a very crude reconnalsaance survey that had been
made In preparinr^ the 1928 geologic map of Virginia. This map is
extremely over-simplified and very much out of date. Geologlr^ts
have avoided studying this area because the geology Is very complex,
intense weathering of rocks, thick vegetation cover and lack of
significant relief to provide a reasonable amount of outcrop control.
However, several important developments have been made since the
1920*3 which now make it much more likely that this region could be
successfully studied in greater detail. First, much more Is known
about Appalachian geology. Second, new concepts in global tectonics
have provided us with a better understanding of how uhe Appalachian
system evolved through time, allovjing us to develop much more
realistic models of regional structures. Third, m.uch progre.ss has
been made in recent years concerning fabric analysis, strain fades,
poly-deformation and metamorphism, which are critical aspects to
any study anywhere in the Piedmont, Finally, Neuschel (1970)
published an aeromagnetic and aeroradloactivity survey of much of
this region which would serve as an invaluable guide to field
geologists mapping in this area with the restrictions with which
they would have to cope. These advances suggest that this area of
Virginia is nov/ in an ideal state for much more detailed mapoing,
and the potential environjTiental hazards of the area make such
geologic mapping almost mandatory. One point that I should like to
emphasize is that the geologists who become Involved in maopinr-
this area should be experienced in mapping techniques In the southern
Appalachians. This is important because mapping in this part of th.e
country is very different and much moi'e difficult than anywhere else
In the United States. Experienced personnel v/ould be able to produce^
more accurate maps in a shorter period of time.
In order to approach this problem adequately, it will be neces-
sary to do extensive regional geologic mapping. This would be
accomplished by mapping 7h minute quadrangles at a scale of l:2'l,000.
I would propose that mapping begin with the Contrary Creek quadrnngle
w)iere the North Anna plant is located. Additional quadrangles that
would include Neuschel 's lineament as well as quadrangles on either
side of this structure. would also be mapped. The trend of mapplns;
would parallel Neuschel 's llneair.ont and proceed to the southwest
where this lineament intersects the 33th parallel fracture zone
(i.e. the E-W trending earthquake belt). E^'-tensive mapping would
be necessary within and along the 38th parallel fracture zone because
this zone is very wide. The extent of mapping on either side of the
38th parallel fracture cannot be estimated at this time, and can only
be assessed as more information is obtained about its significance.
Because the nature of Neuschel 's lineament and the 38th parallel
earthquake belt are not known, it la not possible to estimate the
number of TH minute quadrangles that would have to be mapped in order
to provide satisfactory answers to "these problems.
136
Profoasoi' Rodgers -'4- June 3, 1975
Another point that should be clearly outlined at this time
Is th2 amount of time and effort that would be required to study
this area. As a rough estimate, an experienced peoloKist workini-:;
full time on a 7>i minute quadrangle would require at least one vear
to ooriplcte such a study. This aspumts that no unusually difficult
problems arise in the course of the investir:atlon. I personally
kno".; of some very skilled i-eolOf,ists that have worked as long as
oi^ht years on some quadransles, and still had not completed them.
Furthermore, any attempt to study a completely new area that is as
cocplex as this area will require at least several years of study
before any alGniflcant progress can be expected in understandir.s
the ideology.
I would like to e-nphaslse several points from the preceding
disv^.usolon on the mapping proitran. First, if any reasonably
useful answers arc {■join,-; to be derived from such an investigation,
it l3 imperative that an all-out effort be made to conduct this
prosram. Any half-heartt~<d attempt would be a waste of time and
money. Secondly, I think that it is obvious that such an Inves-
ti-atlon is a Ions term program that could easily last at least
ten-fifteen years even v?ith a si£;nificant number of ,^eolo--ists
worklHi-; on it. Therefore, in order to be of maximum usefulness
to the safety of the North Anna plant this pro?;ram should have
been started at least several years ago. This obviously has not
been done, so I would urge that such a program be initiated as
soon as possible t
In addition to the regional mapping proRi'an sujrjicstcd above
there sliould also be a lone term noophyslcal investlr.atlon that
should accompany this study. These should be of two typos. ?lrst,
some type of earthquake monitoring equipment should he installed
eltlier near the plant or In some way be associated with the 33th
parallel fracture zone. At least two or more types of equipment
should be used for maximum effectiveness. One type of study should
be ooismic, especially with regards to recording and analyzin?:
VpA's waves from raicroearthquakes. Although I am not aware of the
details that have been made aloni; these lines, I have been informed
by Dav.e3 and Xoore that some sophisticated seismic equipment has
been installed at the Nort.h Anna site. Other types of geophysical
studies such aa tilt meter recordlnss, radon quantities in v/ator,
water levels in wells, magnetics, etc. could also be employed in
obtalnlnc premonitory sijtnals of potential earthquakes. The nature
cf these studies and typo of equipment should be determined by a
geophysicist, and some need in modification for such studies ir.av
chai .^e as more is learned about the geolo.cjy of the area. Geophy-
sical studies should also be employed with the mapplnj; program in
order to determine in greater detail certain parameters of deep-
seated structures that cannot be adequately evaluated from surface
mapping alone.
The methods proposed in this report are the best techniques
that the geolosical sciences can offer at our present state of
tcohnolociical development. That does not mean that absolute answers
can be obtained for all of the questions that abound in this area.
13:
Professor Rodgers -5- June 3, 1075
However, it is certain that without these atudlea very little
could ever be accomplished In evaluating the real neoiop;lc hazards -
that we know exist in this area. Pro.n a i'.colopical point of view,
In order to Insure the maximum safety precautions of the North Anna
nuclear power plant and the people that live in the surrounding
area, I believe that at least these measures should be taken.
The proposed geologic studies in this report would first of
all provide us with the basic structural pattern and types of
rooks in the area. Such a prof^ram ■\fould also r^oviae us with a
ii.uc.i better understanding of what Neusoiiel's lineament and the
3oth parallel earthquake belt arc from both a structural and
re;;ional point of view. This type of information Is critical In
attomptlnis to interpret the p;colof;lc and environmental hazards of
fco-.;h re.cjional structures with regards to the Nortn Anna plant.
i-;..uely and Devine (197^1) point out that earthqualcos in the eastern
unik^od Staues ^;eneraily cannot bo related to definite c;eolov;ical
structures and therefore we have no way of Interpret in-:; why earth-
quake belts occur in this part of the country as they do. Tho
pror:ram proposed in this report would be the firr.t serious attempt
ti. r.oive these problems and could be of nreat value to other parts
of tho Appalachians with similar types of earthquake belts, ouch
.?s Charleston, S. C. and the Doston area in Massachusetts. Hadcly
und Devine (137'0 also indicate that most earthquakes in the eastern
Urdted States are relatively shallow (less than 7 irm) which supi.-^ests
t;-iat these critical 7-ones could bo readied by drilling. Eventually,
aoMo time in tlie future when these zones are better understood, it
mtKlit be possible to control the earthquake activity in these zones
by i'luid injections.
Tho next problem that I would like to discuss deals with tho
types of ardencies or institutions that would be most capable of
accompllshins the typo of pro^.ram outlined in this report. There
ar-j three types of Institutions that are capable of conducting,
Euc.i a projirajii. They are: 1) the U.S.G.3., 2) the Vir?;lnla Geol-
OG;ioal Survey, 3) a large department of geolor.y that grants a Ph.D.
d^-j^ree in one of the major Virsinla universities.
The U.3.G.S. and Virginia Geoloi-!;;lcal Survey both have the man
po'./ci', experienced personnel and equipment to undertake a prop;ram
of this magnitude. However, both of these a.^encics are, and have
be'Ni, corar;iltted to other lont];-term projects, and it is rather
ujilikely that either one could initiate a new prof^ram of this
nia,';nitude in this re,<5ion without considerable expense.
I believe that the third suR,^ostion, that of one of Virginia's
State Universities, is probably the best for several reasons. First,
muca of the experienced man power and technical equipment Is either
already available, or else any doficiencies that mlpht exist could
bo added to such departments in such a way that these ,r;roup3 could
du.)ip;n the selection of their staff and equipment specifically to
tnio and related problems. The faculty of such a department could
138
Professor Rodgers -6- June 3, 19713
act as valuable consultants to engineei-in!? firms, po-.ver conpanica
and the Atomic Energy Commission for similar types of problcrnc
related to nuclear pov/er plants all over the world. Third, much
of the mapping involved v/lth this problem would be accomplished by
graduate students ct considerably lower salaries than fully
employed professionals in state and federal surveys. Flrially,
the university involved in this project v;ould provide both ln'Ju':try
and covernment surveys v/ith an important source of highly-tralrr-.d
field and environmentally-oriented geologists, which is somethlns
that they both desperately need I
At the present time there is only one state university In the,
southeastern Unit-jd States that hac conducted large scale mapoin-
programs at the .-graduate level. Tnat university is the University
of North Carolina at Chapel Hill. However, their m?.opinc, programs
are academically orienT^ed and do not pertain to envirorur.ental
problems except by accident. The universities in Virginia h3.ve no
such program. Thus, it would be advantacreouo , n.^ juot to Virginia
and the North Anna problem, but to the entire si- ithcaatorn United
States to develop such a field-oriented onvironn. 'ntal geological
program v/here come of the professors would actually conduct field
studies along with their graduate students.
There are two universities in Virginia that I would recommend
for such a program. They are Virginia Polytechnic University and
the University of Virginia. Each university ))aii certain advantri-es
and disadvantages which I will attempt to evaluate. V.P.I, ha.-? the
advantage of having a well-developed and diversified department
which is very well equipped. It also has graduate students of high
quality who are capable of producing sophisticated theses and dis-
sertations. V.P.I, also has a very well equipped dsnartmsnt \;ith
regards to instruments needed In this kind of research. Thoir
academic staff is excellent.
However, there are some significant disadvantages with V.P.I.
First, they are not located very near to the North Anna re?7:ion
which would place some restrictions on the ease of acoessiblllty
to the problem area. Secondly, much of the staff at V.P.I. is
very specialized and most of them are not involved with field
studies or v/ork on environmental problems. The few faculty manbers
who are field-oriented are involved with other long range projects
and the North Anna project would probably only be of marginal
Interest to them. Kany, if not most, of the graduate students at
V.P.I, are involved with laboratory or non-field typos of problems
and competition to bring in more field-oriented studer;s would
probably be very keen.
The Univer3i,ty of Virginia has a couple of distinct advantages.
It la located very close to the proposed study area. The univorslty
has a department of environmental sciences, which theoretically
should be Ideally suited for this type of study. This second
139
Professor Rodgers -7- Juno 3, 1975
feature Is probably one of the most Important dlsadvantaj^es as
well as advantages of this department. The disadvantace l3 that
the department docc not have any hard-rock or land-type geoloclsta.
Moot of their staff i3 involved with ocoanocraphy , marine science,
high atnosjhere physics, and other technical cater^orlea that are
not even listed In the A.G.I, directory. This means that if this
department were to initiate ouch a procram they v.-ould have to add
at least five or six nev; staff members to the department. Thio
v.'ould be necessary in order to attract a high quality Rraduate
student to the university, as well as the need for the proper
stnff to conduct such rer^.-ional studies. The types of geolcp;l3t3
that would have to be added to this staff to provide a strong
Ph.D. program in hard-rock C'^olosy v/ould have to include:
1) structural geologist (field-oriented), 2) petrolOj':;ist (field-
oriented), 3) analytical gcochcmlst, ^J ) geophyslclst , 5) geochron-
olofrist, 6) p;eomorpholoslst. A great deal of technical equipment
would also be needed to support the r'esearch of these specialties.
Althoufih these are significant disadvanta.-Ties, they could also be
considered as advanta^';es in that a nev; pliase of the department
could bo tailor-made for a wide ranrre of environmental geolor^ical
problems. In the lor-:; run, such a department mlr:hc be able to be
mucii more efficient in providing the type of program outlined in
this report. The University of Virginia may have an unexpected
advanta.f^e as well with its program in marine g,eolof{;y. If the E-W
eovth'.'.ua'ce belt is part of the 38th parallel fracture, then I can
see no reaaon v;hy iTi should terminate at the coastal plain. It is ^
posrjlble tlvat this st:,"ucturo continues under the coastal plain and
continental shelf. If It could be traced through part of these
provinces then rceanos-ranhlc work along the Virginia coast may be
able to corrolai j this \;renl v;lth submarine canyons on the conti-
nental slope anc a tranr>form fault farther out to soa. If t=uch a
relationship c ^id be pi-o/en, i.e., that the 38th parallel fracture
Is a transform fault, then wo will have a much better idea about
the nature of this fault zone and hovr to treat it. It would also
be possible to then link the origin of this fault 'directly v;ith
mouels associated v/ith the global tectonic theory.
Finally, I have been asked to state my interest and availa-
bility vjith regards to a program that v/ould provide a remedy to
the j\'orth Anna problem. My Interests are as follows: I am very
ini;crestcd In the geology of this area, not only from an environ-
mi-ntal point of vlev:, hut an academic one as v.-ell. I believe that
any largo scale rescai'ch program in this area would make an impor-
tant contribution to Appalachian geology as well as to the North
Anna problem. At the present time I am looking for nev? professional
opportunities in either the academic or industrial world. I do have
several offer:-! from universities and industry and I am under
pressure to respond to those contracts within t!ie next couple of
weeks or so. Therefore, it is very possible that I vrill be leaving
Lafayette College this sumjner. I v/ould prefer to remain in the
academic profession if I can teach at the graduate level and
conduct research with well-qualified graduate students. Therefore,
140
Professor Rodgers -0- June 3, 1975
if a position were to be available at one of the universities
mentioned In this report, I vrould be very Interested in it,
especially if It involved the geology of the area and problems
discussed In this report.
HG^G^g""gs Cited
Bollinger, Q. A., and Hopper, M. Q., 1971, Vlrt-^lnla's tv/o
largest o/arthquakes - December 22, 1875 and May 31, 1897:
Dull. Seismo. Soc. Amer. , V. 61, No. k, p. 1033-1039.
Hadley, J. 3., and Devlne, J. P., 197^4, Selsmotectonic map
of the eastern United States: U.S.G.S., ICP-620, p. 1-7.
HlgGins, M. v;. , Fisher, G. V7. , Johnson, S. S. , and Zoltz, I.,
1973, Preliminary interpretation of an aerorr i;nt:tic map of
the crystalline rocl:3 of Virginia: Qeoi. Sol. America,
Abs. with Programs, IJortheastern Sec. Mtg. , Allontovm, Pa.,
V. 5, No. 2, p. 178.
Paul J. Roper
Assistant Professor
PJR:ey
141
Senator Metcalf. The next witness is Mr. Mark Silbergeld, and
another old friend from Consumers Union. We welcome you to the
committee. Even though it is 1 o'clock, you have just as much time
as you need and want, because your testimony is important.
TESTIMONY OF MARK SILBERGELD, ATTORNEY, CONSUMERS
UNION, WASHINGTON OFFICE
Mr. Silbergeld. Thank you, Mr. Chairman, I will submit my
full statement for the record.
Senator Metcalf. It will be printed.
56-957 O - 75
142
CONSUMERS UNION / A NONPROFIT ORGANIZATION / PUBLISHER OF CONSUMER REPORTS
Washington Office: 1714 MASSACHUSETTS AVENUE. WASHINGTON. D. C. 20036 / 202-785-1906
July 23, 1975
Honorable Lee Metcalf
Chairman
Subcommittee on Reports,
Accounting & Management
Committee on Government Operations
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
This Is to update a portion of my testimony of July 22
on Information management by regulatory agencies. Please enter
a copy of this letter Into the hearing record preceedlng my
prepared statement.
In my prepared testimony, which was originally scheduled for
delivery on June 25, 1975, and which was delivered to the
committee staff on June 23, I commented, concerning the Federal
Trade Commission's line of business program and the General
Accounting ©fflce's review thereof, that a number of key
Industries were too broadly defined for reporting purposes, so
that the government and the public would not be able to obtain
a very good economic picture of such key products as passenger
automobiles. My testimony of this past Tuesday reflected this
understanding.
Upon returning to my office after Tuesday's hearings, I was
pleased to learn that earlier this month the Commission's
submission to QAO of the new proposed Form LB for reporting year
19T* reflects my suggestions, previously submitted to the Commission
as a comment on proposed Form LB, with regard to passenger
automobile. The product category which previously lumped together
passenger automobiles, trucks, taxlcabs, and a variety of municipal
and highway maintenance equipment and military vehicles has now
been very neatly disaggregated by the Commission so that there Is
a separate category Including only passenger cars, passenger car
chases, and passenger car bodies. There are also separate
categories for trucks, for buses, for combat vehicles, for truck
trailers and for motor vehicle parts. These changes, which have
been approved by a vote of the FTC Commissioners, will greatly
improve the public understanding of these separate product Industries
when the 197^ line of business report Is prepared and released.
The Commissioners and the line of business program staff are to
commended for their responsiveness to our recommendations. Especlall;
National Office: 256 WASHINGTON STREET. MOUNT VERNON. NEW YORK 10550 / 914-664-6400
143
since this matter is highly technical and there la no great
popular credit to be garnered from making the suggested change. It
Is clear that the Commission acted out of Its concern for the
quality of Its data management program.
I hope that In the near future the Commission will adopt
additional changes of this sort In a few key areas, especially
prescription drugs, which I also recommended to the Commission
and which were not made for the 19 7 'I Form LB. The Improvement of
the automobile reporting categories certainly demonstrates that
the Commission has an open mind to constructive suggestions In
this regard.
It Is Interesting to note once again, representative of
your comments on Tuesday, that was a citizen organization, not
the QAO pursuant to Its review function, which helped to bring
about chemge. I believe that this matter should still be pursued
with QAO.
I want to thank you again for the opportunity to testify
on last Tuesday.
Sincerely yi
Nark Slltierg«id
Attorney
Washington Office
Honorable Lewis A. Engman
Dr. William F. Long
[The prepared statement of Mr. Silbergeld follows:]
144
Prepared Statement of Mark Silbergeld, Attorney,
Consumers Union, Washington Office
Mr. Chairman, Consumers Union ^ appreciates very much the
subcommittee's invitation to testify at these liearings on informa-
tion management by the federal independent regulatory agencies.
Information is the "key to our complex economy. It is used to tell
managers how to manage, investors where to invest, competitors and
potential competitors where to compete, government where there
are regulatory problems, economists how to analyze economic func-
tions and — in many instances — consumers how to shop. It is our ex-
perience that the more useful for these purposes information which
is collected by the government may be, the more likely it is that
both private interests and, often, the government will seek to kcc^:
that information from public disclosure.
The subcommittee has posed a series of twelve questions regard-
ing regulatory agency information, among them (1) what is the
quality of the infonnation collected, (2) how has the General Ac-
counting Office performed its responsilbilities in reviewing proposed
independent agency forms used to collect information systematically,
(3) how available is the information collected to the public, and
(4) do the collecting agencies help the public to find the collected
information from their files? While we cannot, quite obviously,
provide the subcommittee with complete and comprehensive an-
swers to these questions, we believe that the benefit of our experience
will assist the subcommittee in answering some of them.
We would like to focus our testimony on three agency informa-
tion programs. The first is the Federal Reserve System collection
of bank interest rates for various classes of consumer loans. The
second and third, which are interrelated, are the line-of-business
data collection programs of the Federal Trade Commission and the
Securities and Exchange Commission. The contrasts in these pro-
grams will illustrate our thesis that the better and more useful the
information, the more carefully it is kept from the public.
First, however, we believe that it is important to recognize that
information costs money. It costs the reporting business concerns
money to generate and report information to the collecting agencies.
And it costs the agencies money to collect, analyze and publish the
information.
On the other side of the coin, of course, there are often benefits
to be derived from the collection of information, and these may,
should — and hopefully will — substantially exceed the costs of col-
lection. The regulatory uses of the information should produce so-
cial and economic benefits to the public. These benefits may be
direct dollar benefits in regulated markets or they may overcome
1 Consumers Union is a nonprofit membership organization chartered in 1936 under the
laws of the State of New Yorlc to provide information, education and counsel about con-
sumer proods and services and the management of the family income. Consumers Union's
income is derived solely from the sale of Connumer Rcportx (maprazine and TV) and other
publications. Expenses of occasional public service efforts may be met. in part by non-
restrictive, noncommercial grants and fees. In addition to reports on Consumers Union's
own product testintr. Coni^umer Reports, with a circulation of almost 2 million, rejrularlv
carries articles on health, product safety, marketplace economics, and lejrislative, judicial
and regulatory actions which affect consumer welfare. Consumers Union's publications
carry no advertising and receive no commercial support.
145
the costs of not regulating those markets. Potential and actual com-
petitors and investors may be enabled to make more intelligent de-
cisions to allocate among capital markets. Congress may use the
information to write more effective laws. And consumers may use
the information to make more intelligent decisions in the market-
place.
However, since the collection and use of information is not a
"free ride,*' it is important to eliminate needless collection of infor-
mation, to eliminate unnecessary duplication of information col-
lection, and to improve the quality of information collection and
use. We hope that these purposes will be furthered by these hear-
ings.
FEDERAL RESERVE SYSTEM INTEREST RATE DATA
The recent experience of Consumers Union in attempting to ob-
tain information collected by the \Federal Reserve System on the
rates of interest which selected member banks charge for various
categories of consumer loans is illustrative of many of the points
we wish to make here today. The "Fed'' collects, each and every
month, from some 370 banks across the country, reports of the inter-
est rates charged on a variety of consumer installment loan cate-
gories. This information is, of course, available to any consumer
from the individual bank upon inquiry, since interest rates are the
means by which banks compete for loan customei'S and, in any
event, disclosure is required by the Federal Truth in Lending Act
prior to entering into the loan agreement.
However, an inquiry to each reporting bank in the local commu-
nity would have been necessary for a consumer who wanted to shop
for bank credit. It would obviously be us(?ful to find in one place
all of the rates for the reporting banks in a given community. The
Fed, however, until recently, only reported this information in
aggregate form, in their so-called "G.IO" survey. Therefore, in the
summer of 1973 the San Francisco Consumer Action Group, a par-
ticularly effective and resourceful consumer group serving the Bay
area, sought our assistance in obtaining the individual bank data
for use in a proposed consumers' guide to banking institutions.
We requested the Fed to give us access to the interest rate data
but without success. In September 1973, we were obliged to file
suit against the Board under the Freedom of Information Act. The
Fed's position was that this information was confidential because
the Board had assured the banks that it would be treated as such.
We argued that this information Avas not confidential (much of it
is advertised by banks, all of it is given to bank customers on an
individual basis), that the Board had not in fact assured the banks
of confidentiality with respect to this survey, and that under well-
established case law under the Freedom of Information Act, such
an assurance — even if given — would have no legal effect whatsoever.
The Fed filed with the court a number of affidavits from bankers
and Fed officials detailing the tragic and baleful consequences to the
banks and to the Fed itself if the interest rate information were
publicly disclosed. The "horribles" that were predicted included:
the destruction of the Fed's data-gathering capabilities; the sub-
146
mission to the Fed of inaccurate data by banks; a refusal by the
reporting banks to participate in the survey; competitive harm to
reporting banks; impairment of relationships between the banks and
their customers; and misleading of consumers by those who would
publish the information.
In making these blanket claims, predictions, and representations
to the court, the Board apparently played rather fast and loose with
the facts. First, the Board vigorously resisted our suit and made
these claims without even bothering to find out whether or not the
reporting banks did in fact consider this information confidential,
and if so, whether that confidential status extended to all or only
some of the information. Second, even if the Fed considered this
information to be confidential, and even if it was correct in that
determination, the Board was obligated under the Freedom of In-
formation Act to determine whether all or only some of the request-
ed information was confidential, and whether all or only some of
the banks considered it to be so, and to publicly disclose what was
not confidential. The Board did none of this but simply made a
blanket claim of confidentiality for all of it and for all banks. Third,
the Fed never indicated whether the few banks whose affidavits were
submitted were selected at random or not, but in view of the
striking similarity in wording of the affidavits and in view of
what subsequently transpired, we have the firm impression that the
Board made no effort to determine how the reporting banks actually
felt about disclosure but instead tried to create the impression that
the banks submitting affidavits were representative of the 870 banks
in the survey.
Most shocking, however, is the fact tliat in December 1978, the
Board conducted a special survey of banks participating in the G.IO
survey, inquiring as to whether the banks considered the interest
rate information with respect to credit card loans — one of the loan
categories at issue in the lawsuit — to be confidential. Of the 171
banks responding to this special survey, 73.7% stated that the
information was not confidential, a statistic that made an utter
mockery of the Board's position in the lawsuit, at least with respect
to the credit card loan category. Yet the Board never even revealed
to the court the existence of that special survey, much less its dra-
matic— and legally relevant — findings, and to this day has never
done so. We only learned of the existence of this survey in a dis-
cussion with Board officials on April 8, 1975, when we happened
to ask if any such surveys had ever been conducted.
In May 1974, the U.S". District Court held that nil of the infor-
mation that we had requested was in fact in the public domain, was
not confidential, and must be made publicly available by the Fed
under the Freedom of Information Act. The Board immediately
obtained a stay of that judgment pending appeal, and filed an ap-
peal. In November 1974^ the Court of Appeals remanded the case
to the District Court for further findings. In January 1975, after
having been held up by the Board for almost one and one-half
years, we offered to settle the case on the following basis: we would
agree to obtain the data on a prospective basis onlv (beginning with
the February reports), thus enabling the Board to "save face with the
147
banks to whom it claimed (contrary to fact) to have assured confi-
dentiality, and we would agree not to seek some of the data to
which, the District Court had ruled, the Freedom of Information
Act entitled us (but which was of less interest to consumers).
On February 19, 1975. we were informed by a Board official that
the Board had information that our magazine. Consumer Reports^
was publishing some of the interest rate information in its March
issue, that the Board viewed this matter with the gravest concern,
that Chairman Burns was "determined to get to the bottom of
this," and that the Board was requesting that Consumer Reports
refrain from publishing the information. We replied that it was
too late to stop publication of the information and that even if it
were not too late, that Consuiner Reports would feel an obligation
to its readers to publish it, particularly in a period of inflation,
high interest rates, and high unemployment, a period in which con-
sumers needed all of the help they coidd get. We subsequently were
informed that in view of these developments, the Board was break-
ing off settlement negotiations.
Several days later, the Washington Post brought to light the fact
that Chairman Burns had requested the FBI to conduct a criminal
investigation of the "apparent theft" of the information. This was
followed by Congressional inquiries into the matter, including cor-
respondence from Congressman Patman to Chairman Burns. As a
result of these revelations, the Board informed us on March 3, 1975
that it had authorized its staff "to determine from the member
banks of the Federal Keserve System voluntarily participating in
this G.IO survey the extent to which the interest rate data they
report on Form"835 may be generally available to the public." Note
that the Board decidecl to take this elementary step not before it
rejected our original request for information, not before it forced
us to bring suit, not before it submitted affidavits to support its
insistence that disclosure of this information would be calamitous
for the industry and for the Board, not before it took an appeal,
and not before' it tried to pressure Comum^r Report!^ to suppress
the information — but only after the most intense public embarrass-
ment and Congressional pressure had been brought to bear, and
after we had made it clear that we would go back to the District
Court to establish once again our legal right to the information.
The results of the Board's survey were given to us informally on
April 3, 1975, they have never been made public by the Board. And
with good reason, for they could hardly be more damaging to the
Board's position in this whole sorry affair. Of those banks with a
single interest rate for a particular consumer loan category, over
90% responded that none of the information reported to the Fed
was confidential. Even in the case of those banks which charged
customers varying interest rates for consumer loans, more than 50%
stated that none of the information was confidential. It also turned
out that despite all of the Board's predictions that disclosure would
cause large numbers of banks to drop out of the survey, only about
ten fewer banks had reported to the Fed after the public listings
of banks and rates in Consumer Reports than had reported before
the listings were published.
148
When the Board officials showed us the results of their own survey,
we assumed that this now-ancient controversy was finally at an end
and that the Board would now comply with our original information
request. We are buoyed in this conviction by the results of two small
surveys which we conducted ourselves, in which every bank sur-
veyed stated that the information was not confidential. We did not
count on the Board's tenacity, however, for their initial response
was that they would continue to withhold any of the interest rate
information which a bank deemed confidential— however unreason-
able that bank might be in view of the results of the Board's own
survey. It was only after we threatened to go back to court to obtain
all of the information, retrospective as well as prospective, that the
Board backed down and agreed to make all of the data public be-
ginning May 1, 1975.
This story, unfortunately, does not have a very happy ending.
First, Consumers Union incurred enormous expense to fight this 20-
month legal battle, expense which it can ill afford and which the
Fed refuses to pay. Second, and most tragic, the Fed employee who
gave Consumer Reports the information that the court, the banks,
and the Fed now concede is publicly available under the Freedom
of Information Act, was forced to resign from the Fed in the face
of a threat of criminal prosecution by the Justice Department.
This is clearly an instance in which the information collected by
the regulatory "agency is useful to the public in making market-
place decisions. And it is clearly an instance in which the regulatory
agency went to great lengths to keep the disaggregated data from
the public
FTC AND SEC LINE-GF-BUSINESS PROGRAMS
Two seemingly related regulatory agency information programs
of interest to the subcommittee's inquiry are the line-of-business
programs at the Securities and Exchange Commission and the Fed-
eral Trade Commission. These illustrate well that where the infor-
mation is more accurate and, thus, more useful, it is less available to
the public.
The Securities and Exchange Commission for a number of years
has required the nation's larger registered corporations to include,
in their Forms 10-K, which are available to the public, so-called
"line of business" information. According to the SEC's instructions
for completion of Form 10-K, this information is to include for
each line of business for each of the past five fiscal years, the ap-
proximate amount or percentage of (i) total sales and revenues, and
(ii) income or loss before income taxes and extraordinary items, if
the line of business for either of the last two fiscal years constituted
a major factor in the company's business operations.^ Product line
sales and revenues and income or loss figures hardly give a picture
of a corporation or an industry, of course, but when aggregated
1 Defined as constituting (a) 10 percent or more of total sales and revenues, or (b) 10
percent or more before income taxes and extraordinary items computed without deduc-
tion of loss resnltinp from operations of any line of business, or (c) a loss which
equjillert or exceeded 10 percent of the previous item "(b)". provided that of total sales
and revenues did not exceed $50 million during either of the last two fiscal years, the
percentages specified above shall be 15 percent instead of 10 percent.
149
amon^ the leadincj firms in a particular product-defined industry
such information is essential for use by industrial economists, actual
or potential antitrust plaintiifs (including the government), stock
market analysts, corporate investment analysts, and so forth. There-
fore, if this information as collected by SEC is reliable, timely and
available, substantial and beneficial use would almost certainly be
made of it.
However, there are some substantial Catch-22's. First, the report-
ing firm itself decides which and how many products are included
in a given line of business. Thus, when the Federal Trade Commis-
sion's staff a few years ago studied the Forms 10-K for nineteen
corporations, it found that "[wjhereas the average number of lines-
of -business per company [as reported on 10-Ks] was five, the aver-
age number of corporate divisions was 31." Further, the FTC staff
discovered, "Many of the so-called lines of business of the largest
corporations encompassed operatio\is in as many as 40 different 4-
digit [SIC] industries.
Thus, according to the FTC, corporations were not reporting (and
do not report) lines of business v\hich corresponded with product
markets, but were reporting very broad lines of business, sometimes
as broadly groups as "Consumer Products'', which minimized the
usefulness of the 10-K data.
Additionally, since each firm defined its own reporting lines of
business, there was no comparability between firms, so that econo-
mists and others cannot use the data to construct a picture of any
given industry's structure or profits.
Further, while the nature of the changes must be generally de-
scribed in the 10-K, a firm is free, from one reporting year to the
next, to change various products from one line-of-business to an-
other, so that if it has an incentive to do so, it may render its own
product line performance not comparable from one year to the next.
Both because of the lack of comparability within and between
firms and because of the lack of other relevant data — such as adver-
tising expenditures, research and development expenditures, and the
like — FTC in the early 1970s determined to undertake its own "line-
of-business'' reporting program, despite a previous experience in
which the announced intention to study the economic performance
of the nation's top 100 manufacturing corporations had resulted in
an FTC appropriations rider prohibiting such a study. After the
1973 Hart Amendment to the Alaska Pipeline Act was passed, re-
lieving FTC from some two-and-one-half years of resistance to the
Line of Business program from the Office of Management and
Budget the program was soon submitted to the General Accounting
Office under the new procedures for clearance of independent agency
data and cleared by 0MB for use by the FTC. I will have a few
words about that 0MB clearance process in a few moments.
The line-of-business program which the Federal Trade Commis-
sion is now in the process of instituting ^ is a substantial improve-
ment over the so-called line-of-business program at the SEC, with
regard to the quality of the data. Plowever, needless to say, the im-
' The effort to collect the data from several firms has been hampered by litigation
initiated by those firms.
p
proved quality and usefulness of the data has resulteu m lesser
public availability of the data, pursuant to both the FTC's initial
rules on public disclosure and subsequent Congressional enactment
of a rider on the FTC's fiscal year 1975 appropriations act. Thus,
the public has its choice between fully disclosed data of very
limited use at SEC and undisclosed data of very great potential
use at FTC. Nevertheless, the aggregated data which FTC eventu-
ally will release on an annual basis, industry by industry, will be a
tremendous improvement over the data contained on SEC Form
The FTC data itself is more extensive than the SEC data. In
addition to the sales and revenue and income or loss data by "prod-
uct line", FTC Form L-B calls for disclosure of such additional
items as material costs, labor costs, gross margins, media advertis-
ing expenditures, other selling expenses, general administrative
expenses, total assets and various asset and capitalization data. All
of this information is being collected by FTC-defined product cate-
gories which will be roughly comparable from firm to firm ^ and
will be disclosed on the FTC-defined aggregate product industry
basis annually.
From our point of view, the biggest disappointment regarding
the FTC data — in addition to the non-disclosure to tlie public of
individual firm data — is that FTC has defined several key indus-
tries over-inclusively, so that what we will be able to learn about
them from Line-of-Business reports will not be adequate. For
example, FTC's product line reporting category for passenger auto-
mobiles will include, in addition, ambulances, amphibian motor
vehicles, powered brooms (i.e., street sweepers), armored cars, fire
department motor vehicles, street flushers, hearses, motor buses,
trucks, personnel carriers, reconnaisance cars, i^oad oilers, taxicabs,
and virtually all parts used in the assembly of automobiles or as
auto replacement parts. It is clear that neither FTC nor the public
will have a clear statistical picture of the very important passenger
automobile manufacturing industry from the FTC line-of-business
report on this product category.
One of the arguments used to justify the use of such a broad
category is the accounting costs involved in keeping and reporting
data on a narrower basis. In the case of passenger automobiles in
particular, however, this argument seems ill-founded. First, as is
true of all cost-based objections to Form L-B, claims of cost have
not been supported by sound cost justifications which would meet
general financial accounting standards. Second, in this particular
category which includes passenger automobiles, there are many
kinds of vehicles which can be factored out because separate and
very specific data must be kept on them for government contract
accounting purposes. Fnally, due both to the lack of objection cost
data and to the difficult v of measuring benefits which would accrue
from the data quality improvement, even a demonstration of sub-
1 Up to 15 percent "contamination" of the data by inclusion of information on different
but operationally-related prodncts will be permitted : this is not desirable but is better
**." c^r"2' ^^'^^^ "''^ available. For example, a plant which manufactures 15% newsprint
and So% paperboard may report all of the data on that plant as paperboard. If the
product mix were l6%-84%, separate reporting categories would be required.
151
stantially increased accountino; costs does not necessarily demon-
strate a justification for use of the less expensive broader product
category. Even if it would be substantially more costly to use the
narrower than the broader category, it is quite possible that the
benefits would justify this, but we are dealing in benefits such as
improved capital investment decisions and improved decisions to
enter new markets which are virtually impossible to quantify.
Therefore, agency decisions as to how much more cost is justified
or how much more cost is too much cost is a matter both of judg-
ment and of policy, not a matter solely of cost accounting.
The same is true in such other important product categories of
current or continuing economic concern as fuels, fresh meat, and
ethical drugs. We called GAO's attention to this problem in our
April, 1974 comments to GAO in connection with the Comptroller
General's review of the proposed Form L-B.^ The GAO, in its sub-
sequent approval of Form L-B, p^id a great deal of attention to
the question of the costs to the reporting companies which would
result from the issuance of orders to file Forms L-B — a question
which the Hart Amendment requires GAO to address. The GAO
did not mention at all, however, the increased usefulness of the
data which would result from an improved definition of a few key
product categories — although GAO is also required by the Hart
amendment to address the question of whether the form in Avhich
the regulatory agency proposes to collect the data will maximize
its usefulness to the' public. Since it is clearly an issue of great
public interest whether the Federal agencies, the Congress and
the public have good or not very good data on the economic per-
formance of such key industries as automobiles, meat processing,
drugs, and energy, we must judge GAO deficient in its performance
by reason of its failing to address this important issue after it was
raised both in written comments and at a meeting between GAO
staff and consumer representatives.
We have also called FTC's attention to this problem in our May,
1975 comments on proposed revisions in Form L-B, but the Bureau
of Economics staff is unable to tell us what changes, if any, will
result.
Our conclusions regarding the two line of business programs can
be stated as these. The SEC progi-am is not very useful but it is
very available to the public. The FTC program would be very
useful if the information were available, but it is not available
except in aggregate, industry-wide form. However, the FTC in-
formation, even though only disclosed in the aggregate, is better
than any information presently available, from the SEC or any
other public source.
Mr. Chairman, we have presented a look at only three govern-
ment information systems this morning. We have had experience
with other government information systems, both at regulatory
agencies and within the executive branch. While there are, obviously,
types of information which are systematically made public much
more readily than the FRB interest rate data or the FTC line of
1 A copy of these comments was submitted for the record.
152
Business data/ our other experiences nonetheless generally com-
port with the aforestated conclusion that the information's avail-
ability to the public, where the agency has discretion to make dis-
closure, is likely to be inversely proportional to the quality and
usefulness of the data. ( End of prepared statement, )
Mr. SiLBERGFXD. I must warn you that frequently my summaries
run as long or longer than my prepared statement. I will try to min-
imize the amount of time that I require today.
Consumers Union, as you may know, has long been involved in the
question of agency-collected information. When the Freedom of In-
formation Act was enacted and became law, we filed one of the first
suits in the country in order to obtain hearing aid data from the
Veterans Administration, which they refused to disclose even though
it would have given shoppers for hearing aids a tremendous amount
of useful information in shopping for the best product at the best
price.
About 2 years ago now, I guess it was, we successfully — and this
is one of the few instances I know in which this has happened — got
the temporary emergency court of appeals to rule unlawful the Cost
of Living Council's regulations under the Hathaway Amendment,
which dealt with the form in which they were required to collect and
disclose information on tier T reporting firms.
We have, and I have personally, spent a great deal of time watch-
dogging the Federal Trade Commission's line of business program.
And. as everybody knows from recent TV and newspaper stories,
we were involved in the reporting of "secret" public information.
The Federal Board has created that new category.
We now have "secret" public information with regard to interest
rates. Chairman Burns was so outraged that the public could get
from consumer reports what they could get by walking into any
bank, that he called in the FBI to find out who made this public
information public.
Our experience with all of this boils down to what I suppose I
would call Silbergeld's law, except that there is an old rule of trade-
mark law that says you can't trademark something that is obvious,
and that law is that the more useful the information is to the public,
the less likely it is to be available to the public.
Senator Metcalf. We will add that to our collection of law.
Mr. Sii.BERGEi.D. I think that goes right along with the three rules
of law that you enunciated at the beginning of the session this morn-
ing, Mr. Chairman.
To illustrate this, I would like to briefly look at three experiences,
first the Federal Reserve Board interest rate experience, and then a
comparison of the Federal Trade Commission and Securities and
Exchange Commission line of business program.
The last two provide an interesting contrast, which illustrates our
point all too well.
At the same time, I would note that of course it costs money to
1 For example, the FTC public disclosure regulations provide for disclosure of much of
the information contained in the closed files of law enforcement investigations under-
taken by FTC. even though such information at least arguably is exempt from disclosure
under the Freedom of Information Act.
153
collect data. Data is not a free ride. It costs money to run the
Government agencies or the Government agency segments that de-
sign the questionnaires, process the returns, see that they are prop-
erly completed, and then analyzed the returns and make the infor-
mation public. And it costs additional money for the reporting firms
to provide the information.
Therefore, we ought to make sure that the information we are
collecting is useful, is not duplicated and is — this is most important,
I believe — used with the maximum efficiency, including the assurance
that it is collected in a form which permits maximum use by the public
and the Congress.
That doesn't happen very often. I will give you a good example
when we get the FTC line-of-business program.
The Federal Reserve experience was very interesting because, as I
have said, the information that we sought from the Federal Reserve
Board and wliich we had to go to court to obtain is something that
you, as a customer, of a bank or a prospective customer of a bank can
get by walking in and asking how much you would have to pay for a
particular type of loan.
Indeed, the Federal Truth in Lending Act says that before they
conclude or enter into a loan agreement with a customer, they must
provide that interest rate information in a disclosure form which
meets the requirements of the Fed's regulation Z.
The Fed collects interest rate information for various categories
of consumer loans from a sampling of, I believe it is 370 banks
around the country.
This information, of course, would be most useful to consumers
in the cities where there are two or more banks in the reporting
sample.
The San Francisco Action Group a couple of years ago decided
that they would take advantage of the potential usefulness of this,
seek the information so that they could provide consumers who were
shopping for credit with a booklet on this information for the Bay
area.
They sought our help and we requested the information from the
Fed. We Avere told that this information once it was collected was
confidential because the banks which submit the information consider
it confidential.
So we filed the Freedom of Information suit. The Fed continued
to make, throughout the litigation, a blanket claim of confidentiality
for all of the data for all of the banks. Unknown to us and unknown
to the court until late in the litigating game was a secret Fed sur-
vey, showing that 73.7 percent of the banks who responded to the
Fed questionnaire on this question did not consider the information
confidential.
We accidentally learned of this in settlement discussions with the
Federal Reserve Board staff.
In May of 1974, we obtained a favorable judgment from the U.S.
District Court and the Fed immediately appealed.
In February of 1975, while the case was pending before the Court
of Appeals, there was leaked to Consumer Reports the data that we
were seeking in court. After some discussion among the legal staff
154
outside counsel with the journalists at the magazine, we decided that
this information was public and we were entitled to use it and we
determined to go ahead and use it.
When Chairman Burns found out that this public information was
going to be published and made available to the public, he called in
the FBI. It was only after at least two, and I believe three, it may
have been as many as four Congressional subcommittees, demanded
to know why somebody was being investigated for making public
information that was already public in its uncollected form did the
board back down and finally agree that beginning with the data for
May 1975, this information will be made available on a regular
basis.
Throughout this process the Fed claimed, and I think this is im-
portant, Mr. Chairman, because it is a claim that comes up every
time it is suggested that information collected or to be collected by a
regulatory agency should be made public, the Fed claimed that dis-
closure without result in a discontinuance of the fine, voluntary co-
operation which they had had from the reporting banks.
We hear that everytime it is suggested that data from a regulatory
data program be made public.
Only 10 of the 370 reporting banks have discontinued their volun-
tary cooperation.
Senator Metcalf. Were those 10 the largest banks ?
Mr. SiLBERGELD. I dou't kuow who they are. I can try to find that
information for the record. I would add that that is without any
effort to our knowledge of the Fed to seek to enforce the requests
for information.
Senator Metcalf. I will ask Mr. Reinemer if we can find out who
those 10 were.^
Mr. SiLBERGELD. The other interesting thing, of course, is that the
assumption is that the information can only be obtained if it is
voluntary.
Senator Metcalf. If it is just 10 of the medium-sized or smaller
banks, it would seem to make very little difference. If the largest
banks in the country are willing to vohniteer this information, it
would seem that we should require it from every bank.
Mr. SiLBERGELD. I would think so. I would also emphasize your
word "require," Mr. Chairman, because it seems to me while the
Government puts a great deal of einphasis on cooperation that the
public has a great deal more confidence in information which is re-
quired under some penalty of law for the filing of incorrect data.
This may not necessarily be the program, but I am always puzzled
when agencies complain that they will have to use process. Yes; I
understand that there may be a period in which there is litigation to
resist the collection of the data on the ground that it is going to be
made public.
Senator INIetcalf. I am not going to argue with you about that.
But I want to say that sometimes this committee has written to
sorne of the largest corporations, some of the largest banks in the
United States and has had voluntary cooperation. And we rely on
that and appreciate it and go forward with some of the other investi-
gations regarding corporations that don't comply.
1 See p. 209.
156
INIr. SiLBERGELD. I ajTi'ee. INIy problem is where there is resistance
and the committee would rather use an assurance of confidentiality,
not the committee but the agency would rather use the assurance of
confidentiality than a subpena, even though the information should
be made public.
The sad upshot of this is that not only did we have to spend 2
years in litigation to make public information that everybody thinks
should be made public.
Senator Metcaijp. But some of the leadership that we have seen in
disclosure of the information has come from voluntary disclosure of
a handful of corporations. I remember INIobil gave us some informa-
tion as to its stockholders. The First National City Bank was the
first one that disclosed its investment portfolio. After that we had
disclosures from others.
So I want to give full credit to these people who came in and said
we want to have disclosure; we wknt to volunteer and we want to
participate.
Mr. SiLBERGELD. We have had that experience just recently also. In
February, late January or February, we sent a questionnaire to the
largest airlines, asking for their information on information about
the use of credit cards, and on discounts to travel agencies.
All but one of the airlines replied that they couldn't give us the
specific information. ]\Iany of them claimed because it was, it was
confidential, business information, and so forth.
TWA had no problem. Sent it right to us. If TWA could volun-
tarily provide that, it not only disproves it all, but it was very reas-
suring to find that somebody was not just falling back on the old
stock, boilerplate reply to every request for information that comes
in.
We were very pleased to see that we could get that information
voluntarily without having to go through the CAB.
Senator" INIetcalf. Maybe, as a result of that leadership, or at least
the volunteers, we will get other information from other airlines
because they will just say, look, if TWA provided this, so can North-
west.
I want at this time to give full credit to these public-spirited
leaders who have volunteered the information and haven't hidden
behind all of these stereotyped and boilerplate things that you are
talking about.
Mr. SiLBERGELD. It is refreshing when we see it.
The line-of-business programs are interesting because we have two
supposedly similar programs run by two different agencies. We can-
not only contrast the information but also contrast the availability
of the information as a function of its accuracy and usefulness.
The SEC requires disclosure annually, by registered corporations
over a certain size, of so-called line of business information. The in-
teresting thing about the SEC's requirement is that it permits the
reporting companies to define their own lines so that within a line
of business you may have such a jumble of different products which
are not substitutable or not in competition with each other, so that
even if you just look at one company's products you don't know
what the data reallv relates to.
156
When you try to take that information and compare it with the
information from companies that are in competition in various lines
of business with that company, it becomes completely incomparable
because they may have put the same competing product into two
different SEC line of business reporting categories.
Furthermore, the SEC permits the company, provided it explains
what it is doing, to change the reporting category for any given
product from one year to the next. So that this year's and last year's
reporting category will not necessarily contain the same products for
purposes of comparison.
When you take both of these variables, what it means is that the
SEC's line of business program really isn't very useful if you want
to compare this year with last, or if you want to compare company
A with company B with regard to specific products or product cate-
gories.
As a matter of fact, when the FTC was developing its line of
business program, its Bureau of Economic staff did a study. They
found that, in a sampling of large SEC reporting firms, the firms
averaged 31 corporate divisions, but only 5 different reporting line
of business categories for the SEC requirement purposes; that some
of the lines that were reported as a single line of business to the
SEC annually had as many as 40 separate four-digit SIC standard
industrial classification categories.
This meant, of course, that that information was completely useless
for industrial analysis. I would add I think it made the information
pretty useless as far as investors are concerned, too, and certainly as
far as stockholders are concerned if they want to know if the com-
pany is holding onto losing operations.
Nevertheless, the finding was that there were as many as 40 sep-
arate four-digit SIC categories in a single so-called line of business.
The FTC program defines categories much more narrowly ; that is,
it seldom has more than — it is never broader except for the nonman-
ufacturing categories such as mining and agriculture than a three-
digit SIC group and frequently within a three-digit group the FTC
will, from the three-digit category, break out one, two, or three re-
lated four-digit SIC categories in which it has a special industrial
analysis interest and define that as a separate line of business for
reporting purposes.
So the information to be obtained from the FTC program is very
much more defined in terms of products which compete with each
other in the marketplace.
It is therefore much more useful. Needless to say, if we apply the
law which I suggest, it should not be very difficult to determine that
the SEC information is fully available to the public while the FTC
information, because it is so much more useful and reliable is not
available to the public and will not be available to the public except
in aggregate form by industry-wide category.
So that we will never know if we see five or six, say, companies
in a reporting category how the profits, the costs, the advertising
to sales ratios break down by leading firms versus the smallest firm
that is reporting to the FTC." Because the information is much better,
the information is not public.
157
That is partly because the FTC decided they would have to pro-
ceed on that basis. When they bep:an this program, the program was
extremely politically sensitive. I believe you were around, INIr. Chair-
man, back in the 1960's when Rand Dixon was Chairman and the
Commission sought to do a study on the 100 largest corporations.
Congress attached a rider to the Commission's appropriations bill
and ordered them not to do it. The Commission was w^ell aware of
that when they designed the present line of business program.
They themselves decided for whatever reasons, but I am sure that
was in the back of their minds, if not in the front of their minds,
that it would be impolitic to both seek this information and seek to
make it public. Sure enough, the House Appropriations Committee
attached a rider to the FTC's fiscal 1975 appropriations, which as-
sured that the Commission's own understanding of the political
situation became a matter of law.
So we won't know it because the data is too good. I must say I
have some complaints about the data and I also have some com-
plaints about GAO.
The data will allow up to 15 percent contamination at the estab-
lishment level. If a company has a plant that is making two non-
competing but industrially related products, made out of the same
manufacturing process, the same equipment, but which don't com-
pete with each other, such as newsprint and paperboard used in
construction, if a company is making paperboard at its plant, at a
particular plant, and 15 percent of the plant production is in news-
print, the byproduct, they can report it all as paperboard.
That will' result in some substantial contamination; but it is still a
lot better than what we have.
The thing that really bothers me about it is a few key reporting
categories. Presumably' you would say the FTC is now going to have
a line of business program in which they define the reporting cate-
gories and they don't let the companies change it from year to year
and they are really going to get the goods, now we can tell what is
going oil in the automobile industry. Right? Wrong.
The passenger automobile which is probably the singlemost im-
portant industrial product in our economy is going to be reported
to the FTC in a reporting category which also includes, and I will
read from my prepared testimony here, "ambulances, amphibian
motor vehicles, powered brooms — that is, street sweepers, annored
cars, fire department motor vehicles, street flushere. hearses, motor
buses, trucks, personnel carriers, reconnaissance cars, road oilers,
taxicabs. and virtually all parts used in the assembly of automobiles
or as auto replacement parts." '
That is how much we are going to know about the competition and
the other information that is going to be collected on the passenger
automobile.
Senator Metcalf. Do all of the automobile manufacturers make
all of those various exotic sort of vehicles?
]Mr. SiLBERGKLD. I dou't kuow if American does. The three largest
domestic manufacturers certainly do or virtually all of them. If
See updating letter from Mr. Silbergeld preceding his testimony, p. 142.
158
they don't make all of them, they make some of the other things in
the category that I didn't include, and it involves a lot more military
vehicle type of equipment.
The distressing thing is, and I note that it is one of the questions
posed by the committee, how is GAO perfonning? Pursuant to the
Alaska pipeline provisions, GAO first reviewed the form L-B in
early 1974, Mr. Chairman. One of the things that they did in
reviewing it was to call a meeting with a group of consumers. GAO
wanted consumer criticism and comments on FTC's first report of
the proposed form L-B.
Senator ]\Ietcai.f. "W^io was the first one to discover that the right-
of-way was illegal and too broad ?
Mr. SiLBERGELD. I am sorry?
Senator JNIetcalf. In the Alaska Pipeline case, of course, some-
body came up with the discovery along the line that the right-of-way
granted by the Secretary of Interior was illegal. It was a right-of-
way for pipelines that was narrower than the one that was granted.
Who was the first one to discover that?
Mr. SiLBERGELD. I dou't kuOW.
Senator Metcalf. Did GAO discover it?
]Mr. SiLBERGELD. I dou't think so. I am quite certain not.
Senator Metcalf. The Department of Interior didn't know about
it. I just wonder. There was an environmental suit and the court
quite properly held that Congress passed a law and said you were
allowed to have a right-of-way of a certain width, and all of these
people screamed to high heaven that they couldn't exist with such a
right-of-way, but that was the law and the court quite properly
issued an injunction.
But nobody discovered it for a long, long time. The laAv provided
that we were granting a right-of-way.
JNIr. SiLBERGELD. This is another instance of that because the law
witli regard to reports that have to go through GAO has two pro-
visions in it. One thing they are supposed to review for is the cost
and the burden to the reporting companies.
The other thing that they are supposed to review for is whether
the data is being collected in a form which makes it maximize its
usefulness to the public and the Congress.
GAO spent a great deal of time, in their report to the FTC, on
the question of cost to burden. They spent no time in response to our
comments to them about the definition of the passenger automobile
reporting category or several other categories even though each one
of these is their responsibility.
That is most interesting because we are still stuck with what is
going to be completely inadequate reporting category definition for
passenger automobiles.
On the question of costs in which GAO spent most of its time in
reviewing the form I^B for the FTC, we had a situation where they
were being told by the FTC that it would cost about $10,000 per
reporting company.
That was their initial estimate. It was upped several times; FTC
was told by the companies that it would cost hundreds of thousands
and some companies said for them millions of dollars for reporting.
159
Now we see GAO, haviiif^ spent all of its review effort on cost that,
for those 228 companies that have so far reported to the FTC for the
first line of business report instead of going to court and seeking
an injunction, that the average cost per reporting firai. in the face
of the FTC's $10,000 estimate and the firm's estimates in the hun-
dreds of thousands or millions of dollars, was $56,000 per reporting
firm.
If the FTC was off initially by a factor of five or six, then the
companies were off by a factor of several thousand.
I think that does not reflect well, Mr. Chairman, on GAO's per-
formances of its responsibilities, although they should rightly be
concerned about cost and burden. Of course, I have the advantage
of hindsight, but nevertheless as it turns out, the company's claims
were greatly exaggerated, and while GAO spent all of their effort on
that question, they completely ignored the question of whether the
information was being collected inYhe most useful form. We got no
GAO input on that. I would like to see, and perhaps this Committee
can make its views known to some redress of the balance, so the
GAO pays as much attention to the question of whether Congress
and the public can use the information; or best use it in the form
collected as to the question of reporting burden.
"\ye see reporting burden exaggerated every time we seek informa-
tion through the Federal Government. They should become ac-
customed to that.
We see on the other hand consumers saying we aren't — I'm going
to pick up ]Mr. dayman's theme — We aren't going to get the in-
formation in the form we need it if you let the questionnaire go
through like this.
You have to be more demanding from the reporting firms.
That concludes my summary, ISIr. Chairman.
Senator ]Metcalf." The entire statement has been included in the
report.
Mr. Rytkr. I appreciate very much your testimony. It is very fine
and tracked a lot of areas that I think need to have a lot more
public hearine; that we have had in the past.
As a member of Consumers Union myself, I am appreciative that
you do come up here and testify and let the Congress know what is
happening.
I certainly don't think, and it is not meant in any sort of forward
way, but vou asked the question in the beginning of your testimony,
which was who should absorb the cost burden? It is a question that
I think the minority would be interested in finding out what your
expert opinion should be.
If we do have an average cost at an aggravated SIC level of
$56,000 per firm under this line of business reporting, who should be
made to take the burden?
Mr. SiLBERGELD. The public should, because the purpose of the in-
formation is to benefit the public. We pay for it in two ways: for
the costs that are incurred at the FTC, and the GAO, we pay for it m
our tax dollars.
The costs incurred due to the burden on the reporting company,
we pay for that in the cost of goods.
160
Mr. Ryter. So you feel we should have a reimbursable system ?
]\Ir. SiLBERGELD. No. I am perfectly happy to have it passed along;
the way it is now because the people who are supposed to be bene-
fiting from the tangible and intangible benefits of such a collection
program are the people who purchase those particular goods.
But the thing that bothers me about all of the discussions about
costs is we always talk about it in terms of a flat number of dollars.
We seldom discuss it in terms of its impact upon the total price
or upon the reporting corporation's total revenues.
I had an interesting experience a few years ago. I was upon the
Hill to testify on Senator Proxmire's Fair Credit Billing Act.
Tagged on as a title toward the end of that bill were some amend-
ments to the Truth in Lending Act.
We had a roll call and Senator Proxmire and minority members
went out to vote. Some of us were standing in the hall. The credit
council for a large department store, which has its own credit card
system approached me.
He said, "We are with you all the way on the Fair Credit Billing
things, but for Lord's sake, don't support these Truth in Lending
amendments because it means that everybody who uses a computer
to manage their credit system will have to reprogram, and that is
going to cost us X millions dollars."'
I said "Jack, that is great. How many accounts do you have?"
I did a little simple division. It came out to be a one-time charge
of 19 cents per account to substantially improve the Truth in Lend-
ing disclosure information.
So when we talk about $56,000 or any other figure, I would like to
see it not only as a dollar amount, because that can sound very big,
but I would like to see it as a percentage of corporate revenues and
I would like to see it as a projected cost impact on the cost of the
products.
Mr. Ryter. Are you endorsing the basic democratic ideal of just
asking the public whether they want this service and are they will-
ing to pay this price for the service.
Mr. SiLBERGELD. Ycs, but wc liave some other problems when you
get down to talking about cost/benefit. It is very easy to measure
costs. Those are direct. Many of the benefits are intangible. As has
been said many times, what kind of dollar value do you put on a
person's being able to run and play tennis instead of having to walk
with a cane?
Or a family not having a father or a mother still alive when the
children are young.
Mr. Ryter. But you do recognize the interface, the involvement,
the requirement or the necessity for the consumer to OK this and
say I want this service.
Mr. SiLBERGELD. The problem is when you try to do a cost-bene-
fit analysis, to reduce everything to dollars, you "frequently have left
out most of the benefits and you have also decided that society can't
make any social decisions by passing laws, that Congress is only to
act in our own economic interest.
So while they are useful, there are limitations on the use. I see
limitations on the use of the cost-benefit analyses and only one of
them has difficulty of measuring the benefits.
161
Senator IMetcalf. My very distinguished predecessor in the United
States Senate was James E. INIurray.
I^lr. SiLBERCxELD. I worked at the FTC with Senator Murray's son.
Senator IMetcalf. One of the things that he was concerned about
and interested in was small business, as you remember. He was
Chairman of the Small Business Committee. During World War IT,
there was a blizzard, almost, of demands for governmental reports,
from the Office of Price Administration, and so forth. So he was
the author of the Federal Reports Act of 1942 because he was con-
cerned about the costs of gathering all of this information.
I think that was a concern that was justified. But we do have to
act on information and we do have to send out the questionnaires.
We do have to have information-gathering to allow us to pass regu-
latory laws, tax laws, everything else that the Congress is involved
in. ,
But what I was interested in was your discussion about the use-
fulness of the information-gathering. We asked these people to
provide us some information about passenger cars, to use your ex-
ample. They lump a lot of other vehicles in there that makes it
absolutely without any use or any value to us who are concerned
about passenger cars "and not concerned about street sweepers or
armored vehicles.
]Mr. SiLBERGELD. I would sav that that 4-digit reporting cate-
gory—which was not the FTC's but the 0:\IB's, because it writes the
standardization manual— is a tribute to the lobbying power of the
automobile manufacturers at 0MB.
I realize that every time you split out another reporting category,
you increase the cost" both to the reporting company and to the FTC.
I think there are a few key industries in which the potential bene-
fits of having specific information are so tremendous that you would
just have a tremendous cost -benefit ratio if you decided it on that
basis.
Senator Metcalf. We always get back to O^IG, who either de-
stroys the value of the categories or refuses to allow the question-
naires.
Thank you.
Mr. SiLBERGELD. I would like some day to have the appropriate
committee or subcommittees to hold hearings on the SIC manual
product definitions and their effect upon Federal reporting pro-
grams. I think that would be a most fruitful area of inquiry.
Senator Metcalf. Thank you so much for coming. Thank you for
your patience in waiting. Thank yt>u for the information you have
"given us, your experience with working with the Consumers Union,
and trying to use some of these information-gathering programs that
w^e have established and haven't quite worked.
INIr. SiiJiERGELD. Thank you.
Senator Metcalf. We will be in recess now until Thursday, July
24. We will resume at 10 o'clock in this room.
[TVHiereupon, at 1 :30 p.m., the subcommittee recessed, to recon-
vene at 10 a.m., Thursday, July 24, 1975.]
INFORMATION MANAGEMENT BY FEDERAL
REGULATORY AGENCIES
THURSDAY, JULY 24, 1975
U.S. Senate,
Subcommittee on Reports, Accounting, and Management
OF the Committee on Government Operations,
\ Washington, D.C.
The subcommittee met at 10 a.m., pursuant to recess, in Room
1318, Dirksen Senate Office Building, Senator Lee Metcalf (chair-
man of the subcommittee) presiding;.
Present : Senator Metcalf.
Also present: Vic Reinemer, staff director; E. Winslow Turner,
chief counsel; Jeanne A. McNaughton, chief clerk; Lyle Ryter,
minority counsel; John B. Chesson III, counsel, and Gerald Sturges,
professional staff member.
Senator Metcalf. The subcommittee will be in order.
Today we resume hearings on information management. Our
witnesses today have a formidable record of books and articles,
dealing in part with information management. I hope they will cast
modesty aside, and tell the subcommittee which of their reading
materials should be on our bedside reading tables. Our witness list
says we will hear from Mark Green, director, and Irene Till, econo-
mist, of the Corporate Accountability Research Group.
Neither of them are here yet, so w^e wall hear from our third
witness. Professor Mark Xadel, from Cornell ITniversity.
We are delighted to hear from you. You have a prepared state-
ment. You may proceed in your own way.
STATEMENT OF MARK V. NADEL, ASSISTANT PROFESSOR OF
GOVERNMENT, CORNELL UNIVERSITY
Mr. Nadel. Thank you very much, Mr. Chairman. I am pleased
to be here testifying on this important subject. I do have a pre-
pared statement and will try to summarize that as I go along.
The collection and dissemination of information is a vital prob-
lem, and particularly these days as we talk more and more about
deregulation and the possibility of deregulation in certain areas
now administered by the agencies, that it should be noted this Avill
only work if there is a free flow of information, if even stiffer re-
quirements for information are put upon industries now regulated.
The free exchange of information as agencies currently dischai-ge
their mandate is crucial for two reasons: First, free flow of infor-
(163)
164
mation is essential if the agencies are to be lield acconntable for
their actions.
Secondly, information is essential if the a<rency is ojonig to get
back more information. That is, when we talk about information
flow, the agencies disseminate information, make their proposals
known, and it is particularly important that these proposals be
known as widely as possible so that moi-e information comes back
to the agencies so they can discharge their responsibilities.
While it is sometimes objected that posing more strenuous in-
formation requirements on the agencies is costly and time-consum-
ing, it should also be pointed out that such requirements might also
enable the agencies to reach better decisions.
There are two areas of information management I want to ad-
dress myself to this morning. The first is the obligation, and I want
to stress that word "obligation", of the agencies to solicit comments
from the public.
The second area is the substance of the information. So the first
is who the target is and the second is what that target information
is.
At least since Sir Francis Bacon we have realized that knowledge
is power. And nowhere is that more evident than in the regulatory
process.
The literature of law and political science is well documented by
allegations of regulatory agencies captured by the industries they
have set out to regulate. No small part of that is due to information.
T would not set out a thesis that agencies are corrupt. Rather,
when you get a one-sided information process, it is almost inevi-
table that the kind of policies you get reflect that information
process. So it is essential that that information process be balanced;
thanks to the chairman himself and such measures as the Federal
Advisory Committee Act and the Freedom of Information Act,
regulatory actions are not nearly as clothed in secrecy as they used
to be. The situation has certainly improved.
I would like to suggest we need an even more basic reorientation
of the information process and regulatory agencies. ^'Vliat I would
suggest is just for agencies to sit back and wait for information to
come in, is insufficient because it relegates the agencies to being
simply neutral judges. We have gone away from the early concep-
tion of the progressive era where agencies themselves were sup-
posed to be aggressive promoters of the nublic interest.
Rather, now they sit back and weigh the public interest on the
one hand and the interest of industry on the other hand. If no in-
formation is coming in pertinent to the wider public and consumer
interest, then naturally more narrow interests will prevail. Sitting
back and waiting for information to come in is not enough. The
agencies have to reach out and grab it.
I will give one example. On July 15, The New York Times car-
ried a notice of an action pending by the Interstate Commerce
Commission. The ICC proposed some regulations regarding buses,
regulations pertaining to baggage, security, the condition' of bus
stations, and so on.
The point of this sounds good, but the notice appeared in just
165
maybe 2 column inclies, buried on pa<Tc 20, of The Times. It is
not really The Times' fault. Less lofty publications similarly bui-ied
the story.
The question is: Who is to blame? Certainly not The Times. Even
if we could blame The Times or the media, there isn't aliything
that Congress can really do about that.
We do have a free press and you can't impose upon the free press
a requirement to brandish the Federal Register on page one.
I would argue that it is a positive obligation of the regulatory
agencies themselves to make known to a much wider public such
proposed rules. In this case certainly Greyhound and Contiiiental,
Trailways, and other interests, paid close attention to the pro-
posed rides, as they should, and they can respond.
But how many bus riders respond ? How many members of the
public would even know of this and other regulations? How do we
surmount this problem? \
I think there are several rather simple ways. In the case of
something like regulations pertaining to buses or other modes of
transportation, it could be required, for example, that these pro-
posed rules be posted in a prominent place in such transportation
terminals. For 60 days during the notification period, with every
bus ticket you could "require that a leaflet be given out listing the
proposed regulations.
Or for airline regulations, if the CAB is proposing certain
changes in security, for baggage, for example, or reservation sys-
tems, or relief from overbooking and so on, such proposed rules
ought to be placed in the back seat compartment of all airplanes
for a period of 60 days. It would be very simple.
The point is, if the agencies were really serious about getting
this information to the public, it could be 'gotten. The point is, it
does not have to be gotten to the entire public.
The problem is not to alert every household in the ITnited States
of such regulations, but rather, what is most important, is to alert
that portion of the public which is the consuming public, the con-
sumers of the services.
To some extent this is done in other areas, the areas other than
ndemaking proceedings. It is meritorious that, even after much
prodding, the ICC finally requires moving companies now that
when the estimator comes around certain ICC information has to
be given to the customer, and to prove that information has been
given, the customer now must sign a form indicating receipt of
such information.
I would respectfully urge that this general principle could be
applied also to rulemaking proceedings, and also to a wider range
of nonrulemaking proceedings engaged in by the deregulatory
agencies. That suggestion deals with reaching out at the target
population.
Senator Metcalf. I know in your statement you suggest that
maybe the utilities should be included in some of the FTC regu-
lations and so forth.
It has been my observation that the utilities have so many propa-
ganda materials, so much propaganda material in their envelopes.
56-957 O - 75
166
as antistrip mining pitches and so forth, that they could not—
they would have to pay an increased postal rate to take care ot
vour proposal. , . , ^-
Mr. Nadel. Well, I would suggest, Senator, that rather than the
propaganda which the taxpayer, the customer pays for anyway, it
might be
Senator Metcalf. If we could raise the question
Mr. Nadel. Knowing of your interest in utilities, I should have
mentioned that in my oral argument as well. Certainly I think-
that some of the bulk could be taken out of those mailings by
removing some of that propaganda and by putting m regulaory
notices.
This, of course, would pertain more to the
Senator Metcalf. It would at least go to the people involved and
concerned about regulatory measures to be considered.
Mr. Nadel. Yes. I think that the important principle here is to
reach out to the relevant customer.
In the case of utilities, of course, it is in fact all households. In
the case of airline regulations, it is people that fly.
I would like to emphasize something I put in the written state-
ment, and that is that it is not necessary to reach everyone. Maybe
more than half of the public flies. It is not necessary to reach half
the public. The point is that over a period of 30 or 60 days you
can reach a pretty representative sample of the traveling public,
and you get a reasonably representative outpouring of views.
You may not get an outpouring of views, but the point is the
agency will have tried. If people don't want to respond, you can't
force people to be good citizens, but you have to provide the oppor-
tunity for them to exercise their rights and obligations as citizens.
That is an important principle to apply to the regulatory process,
no matter how much we ultimately deregulate.
I would like to turn to the second area of information that I
mentioned. The question of what information is solicited. Our regu-
latory process works pretty much on the notion that it is sufficient
to get submissions from interested parties, and by doing so you
will get all the information you need to make an informed regu-
latory decision. The idea being that the impact of the decisions will
be best known by the interested parties themselves. And in many,
and even most cases, this may be sufficient.
But in some areas of regulation, particularly new technological
areas, the whole area of telecommunications, the area of nuclear
energy, the impacts may not be known, and certainly not known
definitively, to the interested parties themselves.
And in these areas the probleiTi is not only reaching out to
parties who may be affected, but trying to find out what the effect
will be, even beyond what the interested parties themselves may
perceive.
There may be unperceived effects, in other words. I have recently
been involved in a group doing research on the FCC — the Federal
Communications Commission. There are a couple of examples that
show that even in a well-intended regulatory process, there have
been problems.
107
For example, recently there has exploded upon the FCC an enor-
mous problem in citizens' band radio. From the last fiscal year to
the current fiscal year, applications for citizens' band have quad-
rupled, and the growth curve is just going up more and more
rapidly. It is incredible.
If you look at these curves, they just shoot straight up, in almost
a straight vertical direction. There have been great problems be-
yond merely the growth in applications. There have been problems
of interference of unauthorized use. Enormous problems of unli-
censed use. Transmitters, as all electronic devices, are getting
cheaper and cheaper and more and more people can buy them.
People are using them in an unauthorized fashion, interfering with
radio, television, and other mobile systems. There is even a reported
incident of someone receiving a citizen band message on their
electric range, when their neighl^or had a particularly souped-up
unit.
What does this have to do with information managem.ent? Very
simply, that the FCC, when it promulgated the most relevant
citizens' band regulations in 1958, did not foresee these problems.
I would argue that a well-done technology assessment or political
analysis should have enabled them to foresee some of these problems.
Enough was known at that time, and certainly is known more re-
cently in the areas of market analysis and the whole area of po-
litical economy, to realize if you put out a unit that any citizen
can use for $100 or less, that pretty soon you are going to have
real problems.
The point is it didn't occur to them. And they did not have the
capacity to do that kind of analysis. And they still do not have
that kind of capacity.
Now they do have an Office of Plans and Policies, but it has a
very small funding — a little more than $1 million for the current
fiscal year. It is really inadequate to the task.
Another example from the FCC, more recently in 1974, the FCC,
in its docket 18262, approved a revolutionary new mobile telephone
service, gave the approval to set aside the frequency for it and
Bell Telephone may go ahead and set it up.
It is a kind of service which would enable hundreds of thousands
of people in every large city to have their own portable telephone.
First in their cars, but ultimately a carryaround unit.
This may sound like Dick Tracy science-fiction stuff, but the
technology is there. It is a question of whether it is economically
feasible. It is probably not far off.
The problem with this is that no one asked the American people
in any realistic or reasonable form whether they thought it would
be a good idea to have a multibillion dollar investment, and even
though the investment would come from the private sector, it is
an investment of social resources. No one asked if they thought it
would haA'e been a good idea to have everyone on an instant leash
with a telephone hanging from their belt. The people may think
it is a great idea.
But the point is, no one asked. It was a properly done decision ;
it took 7 years ; it wasn't hush-hush ; it wasn't rushed through by
168
any means. However, there was very little opportunity for any kind
of informed public debate.
And also within the FCC, again, the considerations they looked
at were only the considerations of the interested parties, of Bell,
Motorola, of the competing land mobile services. The ultimate social
outcome was not addressed.
Well, the point I want to leave with you is that with a little
more effort, information can be gathered and disseminated. Congress
now has an Office of Technology Assessment, and getting more of
that information on the congressional front is important.
I would respectfully suggest that in certain areas agencies them-
selves be required either to do in-house or contract for a technology
assessment, and that assessment should be made part of the pro-
posed rule in the Federal Kegister and disseminated in the ways I
outlined earlier.
In that way you can get a better idea of what the impacts may
be. You can never know them definitively, but more information is
certainly better.
Second, you can have a better chance of alerting people who
might be affected by the areas of new technology.
In summary, regulatory agencies must be l^eyond being merely
blank, passive slates for information. Agencies must go out and
aggressively do all that is possible to solicit opinions about the
need for and likely consequences of new administrative rules.
The only alternatives are shortsighted measures and capture by
those agencies that can dominate tlie flow of information to the
policymakers.
That concludes my statement.
Senator Metcalf. Thank you very much for your statement. I
know that you skipped, and it will be printed in the record in its
entirety.
[The prepared statement of Mr. Nadel follows :]
Prepared Statement of Mark V. Nadel, Assistant Professor or
Government, Cornell T^niversity
I am pleased to have the opportunity to testify on the problem of
information management by independent regulatory commissions.
The collection and dissemination of information is a problem of
vital importance for the regulatory commissions and for the public.
The free exchange of information by agencies is crucial for two
reasons. First, a free flow of information from agencies to the
public is essential if citizens arc to have any chance of holding-
agencies accountable for their actions. Second, the effective dis-
semination of information from the agency is essential if the
regulatory agency itself is going to get back information it needs
to discharge its own responsibilities in the public interest. Thus,
while it has been suggested that greater public participation in
regulatory agency decision making would increase the time and
cost of decisions, it should also be noted that it might lead to
better decisions as well.
There are two related areas of information management that I
169
want to discuss. The first is the obligation of the reguhitory agencies
to elicit comments and participation from the public as well as
from regulated businesses. Second is the substance of the information
that agencies ought to get. These topics concern, respectively, the de-
termination of who is aifected by regulatory decisions and what the
impacts of those decisions are.
At least since Sir Francis Bacon we have realized that knowledge
is power and nowhere is that more apparent than in the regulatory
process. The well known phenomenon of the regulatory agency
"captured" by the industries it is supposed to regulate is usually
due, in no small part, to the virtual monopoly of information held
by major regulated industries. They not only possess infoi-mation
needed by agencies, but they are also what political scientists call
the most "attentive constituencies" of the agencies. That is, regu-
lated industries pay attention to what agencies are doing and the
public rarely knows what is goin^ on. It is easier to act in accord
with the interests of those who are watching you than those who
are not — and regulatory agencies often take this path of least re-
sistance. Thus, in order to break this cycle it is imperative to bring
about greater public involvement in agency decision making.
Thanks to such measures as the Federal Advisory Committee
Act and the Freedom of Information Act, regulatory actions are
not nearly as cloistered and insulated as they once were. Positive
strides have certainly been made, but there is still some distance
to go. Before we settle for piecemeal efforts at better public in-
formation programs, I would like to suggest that we really need
a basic reorientation in the whole approach to the responsibilities
of agencies in this regard. The definition of what constitutes an
open as opposed to a closed door proceeding must be changed. The
agencies should be something more than mere passive recipients of
information.
Just sitting back and waiting for information to come in rele-
gates the agencies to, at best, being neutral judges balancing the
interests of regulated industries on the one hand equally with the
broader public and consumer interest on the other. Since they hear
from the former and not from the latter, it is no wonder that the
charge of capture by industry is often raised.
Let us look at one example. On July 15, The Neto York Times
carried a story noting that the Interstate Commerce Commission
had proposed regulations designed to improve interstate bus service.
The new rules related to schedule information, baggage security,
standards for bus stations, and reserved seating. After decades of
service ranging from substandard to terrible, one wonders what
took the ICC so long — but better late than never. The point to be
noted, however, is that this little item appeared on page 20. While
the Times may not be the bus riders' favorite paper, it should be
noted that the notice was similarly buried in less lofty publications
as well. In accord with administrative law, the ICC solicited com-
ments and will even go beyond that requirement by holding hear-
ings in selected cities with interested consumers having a chance
to testify. The plan of having regional hearings is certainly meri-
torious— but how many consumers will know about them? In fact,
170
consumer input will be, as usual, very minimal. That is the real
crux of the problem. ., -i-. o ttti -i .^
And who is to blame? Who has the responsibility? While the
Timss and other papers mio^ht be faulted for not ^ivm^ proposed
rules more coveratre, it is not entirely reasonable to expect the
newspapers to give prominent coverage to every administrative
rule making procedure. In any case, there is nothing that Congress
can do about that particular aspect of the problem. But the re-
sponsibility ultimately rests with the regulatory agency. It is a
positive responsibility of the agencies to notify the public of pro-
posed rules that would affect them.
Now this, at first glance, appears an impossible requirement.
After all, we are all affected, at least tangentially, by most regula-
tory actions. To alert all citizens to all rule making proceedings is
admittedly an impossible and even futile task. But just because
rule making affects everyone does not mean that you have to notify
everyone in order to have meaningful participation. Rather, all an
agency really needs to do is to target in on that segment of the
public that "is most actively interested in a particular regulated
activity at a particular time.
For "the ICC proposal I mentioned before, the Commission should
order that the proposal be posted at every major but terminal in
the country, or ICC leaflets could be given with each ticket pur-
chased. These could have a form for comments and a post-paid
return envelope. Such a proposal would then reach the bus riding
pi^iblic — those consumers who it is most important to contact. Or,
for example, if the Civil Aeronautics Board has a proposed rule
relating to air fares or service, the Board could order that it be
included in the inflight airline magazines or put in seat back
pockets as a separate leaflet. Similarly, pending Federal Power
Commission rules could be included in electric company bills.
These proposals do not apply only to proposed rules, but can
also be applied to the complete run of activity regulated by the
independent agencies. Indeed, some progress has already been made
in this regard. At long last, the ICC requires that moving com-
panies notifv prospective customers of their complaint records and
settlement times as well as the movers' legal obligations in regard
to pick up and delivery delays and so on. The FCC requires that
broadcast licensees notify audiences of pending license renewal
proceedings. This is all to the good, but the principle ought to be
extended and the response of consumers ought to be greatly
facilitated.
In short, the independent regulatory agencies, and other agencies
using rule making procedures must go beyond merely "encourag-
ing-' public participation and go out and actively solicit partici-
pation. Furthermore, in the formal record of anv rule making
proceeding the efforts taken to identify and notify the affected
public should be stated. Inherent in this more aoorressive approach
would also be reforms to make a more active citizen participation
a reality. Along these lines, several measures have been extensively
proposed elsewhere. For example, in 1972, the Administrative Con-
ference of the ITnited States recommended that charges for tran-
171
scripts be larg^ely absorbed by the afjencies themselves, that inineces-
sary duplicate filino; requirements be avoided, and that assistance
be provided in making information available. In its overall theme
of shiftin<T the burden of information dissemination from the in-
terested participant to the administrative agency, the Administra-
tive Conference was certainly on the right track. Indeed, it is abso-
lutely outrageous for an agency supposedly regulating in the public
interest to charge the public full commercial rates for transcripts
as has been the case traditionally.
The idea of agencies as active solicitors of information is ad-
dressed not only to the question of icho is solicited, but also con-
cerns what information is solicited. From the standpoint of making
sound policy, the problem of not soliciting the participation of a
wide number of people is that potential consequences of regulatory
decisions might not be known. T|ie underlying philosophy of our
political system assumes that citizens, individually and collectively,
are the best judges of their own interest; if you want to know the
impacts of a decision just make sure that everyone who might be
affected has a chance to make their views knoAvn. For most routine
decisions, this principle is sufficient. However, there are decisions,
particularly in areas involving new technological developments,
where informed self interest is not sufficient. In these areas, the
impacts are not immediately apparent. The problem in such a situa-
tion is not that an agency hears only from regulated interests but
that no one has the answers readily at hand.
In doing research on some recent FCC decisions, I have en-
countered some examples that illustrate this problem. For example,
take the case of the Citizens Radio Service — the private two-way
radios commonly known as citizens' band and readily available to
all citizens for a varietv of personal and business purposes. In
1958 the FCC, in Docket #11994, took some frequencies in the
amateur radio band and reallocated them to citizens' band. Subse-
quently, the FCC made some adjustments to the frequency assign-
ments for citizens' band, but in 1969, the Commission denied peti-
tions for rule making looking to a reallocation of frequencies from
several other services to citizens' band. So far, all this is unexcep-
tional. The problem, however, is that by all accounts chaos has
begun to reign in the citizens' band area — the largest service
administered by the Commission. Citizens' band has experienced
phenomenal and unexpected growth because of the ease of entry
into the service (obtaining a $20 permit which is rarely denied)
and the proliferation of inexpensive radio devices ($40-$100 will
put you in operation). Citizens' band applications received by the
FCC increased by almost 200% in fiscal year 1975 from fiscal year
1974. The FCC is absolutely swamped with a rapidlv accelerating
rate of applications. There are more than two million licensees,
but some estimates place the total number of actual users closer
to seven million since a large number of CB operators never obtain
permits from the FCC — and the chances of getting caught for this
violation are very very slim. Although strict adherence to citizens'
band FCC regulations would alleviate most problems, the system
is now burdened with such problems as souped up transmitters
172
causing significant interference with a variety of electronic devices
including television, radio and even telephones and electric ranges.
There is also indiscriminate calling, long range bouncing signals
causing interference with distant CB transmissions, and use by
truckers and others to evade laAv enforcement.
What does all this have to do with information management?
Simply that the record shows that the FCC did not anticipate any
of these problems— problems that a reasonably thorough analysis
should have foreseen. It appears that the only thing considered was
the relative social utility of CB-related hobbies (radio directed
model aircraft) and ham radio. The FCC simply lacked the capacity
to assess the impact of its decision. The parties that would later
be adversely affected by the citizens' band decision (such as some
television viewers, business mobile radio users, and legitimate citi-
zens' band users themselves) did not realize the impacts to come.
That job should have been the Commission's. Yet, the FCC, apart
from a small Plans and Policies office, had and has no capacity to
gather and disseminate information of that kind. It should be em-
phasized that this is not an example of a powerful industry simply
overwhelming the FCC with data, such as often happens in rela-
tionships between AT&T and the FCC. This is simply a case of a
well intentioned decision leading to a present state of near chaos
because of the lack of even the most basic information gathering-
capacity. Citizens' band is a particularly good example of this
problem because the problems that have arisen really should not
have been too difficult to foresee if the FCC had the legislative
mandate and capacity to assess the future impact of the frequency
allocation.
The basic problem is that the rule making procedures in the FCC
and the other agencies require that the agencies only need to con-
sider materials submitted by interested parties. This runs the risk
of agencies either being overwhelmed by dominant industries or of
crucial considerations which are neglected altogether.
Another FCC decision in the mobile radio/telephone area illus-
trates the informational problem in even greater depth. In Docket
#18262, the FCC has reallocated a major chunk of the present
UHF spectrum to land mol^ile communications, the major part of
which is going to a revolutionai-y new mobile telephone system. In
the rule making proceeding, whieli took almost seven years, hundreds
of submissions were filed and all the major affected industries were
heard. But the truly amazing thing is that apparently no one in
the Commission seriously addressed the question of whether the
American public would w-ant to underwrite a technology that ulti-
mately promises to allow everyone to carry around his own tele-
phone— and be located by the underlying computer system. Now,
most Americans may be "thrilled by this notion^ — but the point is
that they had little chance to know^ what was going on. Furthei--
luore, the potential implications of this decision (involving such
issues as rights of privacy, transportation, and ambient radiation
levels) were not considered. Indeed, even the relationship of this
decision to the problem of citizens' band was not formally consid-
ered. This is especially curious since the spectrum that was reallo-
173
cated was also well suited for providino; additional citizens' band
service. Thus citizens who mi^ht have had an interest in participat-
ing had they known about the potential implications or citizens'
band service, never knew that a closely related decision directly
aflfecting their interests was being considered.
I do not mean to suggest that the FCC did tilings in a surrepti-
tious manner, or that the substance of the decision was not in the
public interest. The point is that we still do not have a firm basis
for knowing whether that decision was the best that could have
been made because the relevant information does not exist.
With a little bit more effort, that information can be gathered
and can be disseminated. I would respectively suggest that agencies
be required to do assessments of the broader impact of their de-
cisions. Congress now has an Office of Technology Assessment^ to
deal with major technological changes. Either through that office,
through their own contracting,\ or through in-house analysis,
agencies would vastly improve their informational base by assessing
the impact of their proposed rules — before those rules became final-
ized in an order. Furthermore, such an impact statement should
itself be part of the proposed rule as printed in the Federal Register
and other outlets such as I suggested previously. Tlius, the affected
public would be in a far better position to know which federal
actions post a potential impact. In effect, what I am proposing is
a technology assessment statement somewhat like an environmental
impact statement. The proposed regulatory impact statement, how-
ever, would apply more to long range and even indirect social and
economic impact and would deal with technologies normally not
covered by current requirements — such as the immensely important
area of computer and telecommunications technology. The agencies
could then identify impacts and reach out to those affected by the
impacts.
In summary, regulatory agencies must go beyond being passive
blank slates for information. Some rule making proceedings have
such a great potential impact that agencies must go out and
aggressively do all that is reasonably possible to solicit opinion
about the "need for and likely consequences of new administrative
I'ules — information that comes in equal measure from the public
and from expert sources. The only alternatives are short-sighted
measures and capture by those industries that can dominate the
flow of information to policy makers.
Senator Metcalf. You commented on the fact that the origin of
these regulatory agencies as they^ were originally set out was that
they — the agency itself and the staff — woidd represent the public
interest. And now they have grown to be almost a court. One of
these days some of these regulators, one or two of them, are going
to put on a robe and a wig and really act as a court.
The point, however, is that many of these big questions have be-
come adversary cases. So, I have suggested, and others have sug-
gested, that we recognize this change and we have a consumer
counsel come in and repi-esent one side in that adversary position.
As you point out, many of the people that come in, special
groups, are represented by counsel. And we have an inadequate staff
on the part of the regulators.
174
So wouldn't yoii agree that we should now acknowledge that the
big regulatory commissions are holding these hearings on an ad-
versary basis rather than on the basis on which they were originally
created ?
Mr. Nadel. Yes, Senator. The problem is that the adversary basis
now tends to be adversarial only between the affected industrv
interests, and the consumer as an adversary in such proceedings is
usually not recognized.
I would certainly favor the public counsel proposal. In fact, the
FCC itself toyed with the idea briefly, and for some reason dropped
it around 1971. That would be an essential process. It is too bad
that the concept of the agencies changed. Originally they were
supposed to be very independent agencies that would lend their
technical expertise. That has changed. So far the adversarial na-
ture would probably have to be recognized now.
Senator Metcalf. Well, some of that is the fault of the Con-
gress, or the fault of the various legislators who appropriate monev
for the State commissions. But we have not appropriated enough
money to the commissions for them to have staff and auditors and
counsel to do their jobs. A^Hioever is at fault, it has grown into
that other direction of the Commission just sitting there, as I am
sitting here todav, hearing testimony, and then making a decision,
ratlier than sending the staff out, being militant and aggressive, in
trying to do some regulating.
Mr. Nadee. There is enough blame to apportion all around. And
past presidents certainlv have their share, as long as the agencies
are considered as repositories for people on the patronage list, and
not agencies as a whole, but the top level, the commissioners, there
is always going to be a maximum limit as to how good the regula-
torv process can be.
Senator Metcaef. Of course, we are here talking about infor-
mation gathering. But there is a drive all over America, sponsored
by the administration, to get rid of some of these regulatory
agencies. Perhaps we should. But what would replace them ? Do
you have any idea?
Mr. Nadee. Well. I think you have to be careful in talkinof about
Sfetting rid of regulatory agencies. There are differences between
the agencies. I would go along with another witness this morninir.
Mark Green. I would say there is a difference between agencies
that regulate in health and safety and those that set rates.
The crucial concept is one of choice. That is why information is
so vital and, therefore, why the topic is important to today's hear-
ings. There are some areas where all vou have to do is let the
market prevail, as long as the consumer has information.
For example, if we were to deregulate air fares and simplv let
them be subject to the competitive process, at the same time there
would still have to be consumer information given on such areas
as overbookincfs, as baggage claims, and so on, information that
will allow the consumer to make a choice when in fact there was
a choice.
If there are three airlines flvinp- across the country, give the con-
sumer information on their records.
175
There are some areas where fjivinp; information is not enough.
Areas such as druo; safety, food safety. If you were to ^ive every
consumer in the country reprints of 20 scientific monog:raphs of
tests on food additives, that would do no ^ood, because the laymen
simply cannot understand them.
There is simply no realistic process of choice in those areas.
In some fashion the market would shake it out, is what some
conservative economists would say. But that is unacceptable in the
kind of political system we have evolved.
I do think some dere<?nlation is certainly in order. There is no
reason now for such agencies as the ICC or the CAB to substitute
their own determination of what the market requires for the con-
sumer determination of what the market requires
Also, deregulation would be a great step toward political account-
ability, "^'ou have several less functions for which you want to hold
the Government accountable. Perhaps we could concentrate our
efforts more on the areas which are absolutely vital, such as occu-
pational safety, health and safety, and so on.
Senator Metcalf. Of course, we have regulatory agencies in the
monopoly area, the Federal Power Commission and the Federal
Communications Commission, and so forth, who don't have to
undergo some of the competition that they have over in the airlines,
for example.
And how are we going to gather, if the regulatory commission
couldn't do it, how are we going to gather the information so that
the consumer will be adequately represented? It is a rather com-
plex question on a nuclear energy plant, for example. What are
the costs and where should they be distributed?
Mr. Nadel. It is an enormously complex problem. One of the
first problems is how you define a monopoly. For a long time A.T.
& T. said everything thev did was a natural monopoly. AYhen they
objected to the Carterphone interconnect decision, they said the
equipment, the long lines, the local service, is a natural monopoly.
They were eventually disillusioned of that notion. Electric service
in a locality, telephone service in a locality, these are all natural
monopolies. The question is how to get information.
I think some redistribution of resources. Perhaps if you spent
less Government resources setting the minute terms of service on
trucking routes, on rail routes, on inland water routes, and so,
minute things which are no business of the Government anymore
and simply don't work, those resources could be transferred over to
hire some'more economists and auditors for the Federal Communi-
cations Commission to in fact see what the financial picture of
A.T & T. is.
I know enough about the Government, the budgeting process to
know that may be an unlikely process.
But the point is the resources could be mustered if the political
will were there.
There are too many resources of money and talented manpower
going to essentially fruitless areas now, and not enough going into
areas w^here you really do need government information that is not
forthcoming,' information on what really should be a rate base of
A.T. & T. Information on what our natural gas reserves really are.
It is really outrageous that for so long as we were so totally
dependent on the oil industry for information on reserves. The
situation is slowly being rectified, but no small part of where we
are today I think is due to relying on privately supplied infor-
mation.
This is not to impugn on anyone's integrity either. When you ask
a self-interested person to supply information which will have
enormous bearing on their financial self interests, you are just not
going to get good information, no way.
So I think in those areas where you really need government in-
formation, resources should be directed. It is well worth the cost.
Senator Metcalf. Thank you. Counsel?
Mr. Turner. Professor, you mentioned deregulation in the area
of rates which might be effective. You indicated that the consumer
should be the one to determine what he would pay for the service.
Now, how would you protect the consumer from the service car-
rier determining what the consumer is going to pay for the service
in the deregulated scenario that you mentioned?
Mr. Nadel. That is a real problem. At the very least this would,
of course, have to be coupled with vigorous antitrust enforcement.
But we have had competitive routes and we might be able to do
something about overt-collusion, setting terms of those routes.
On other areas, on less traveled routes, in the airline sector —
Allegheny, New England Air and so on — there is a real problem.
I will admit that.
And the consumer might in fact end up paying more.
Mr. Turner. Let's take the antitrust suggestion that you have
made. It has been 10 years before the Department of Justice got
to trial on the IBM case up in New York. And it may be 10 more
years before they finish the trial.
Mr. Nadel. At least.
Mr. Turner. Now, when I was in the Antitrust Division in 1957,
I was on the General Motors Bus Case. That case went on 11
years before it was settled. Not tried. We never got to trial on the
case. And I can go on and on and show examples of important anti-
trust litigation projecting on through the years before the con-
sumer is finally given any kind of relief.
So, I am merely exploring — and we did explore it in the regu-
latory reform hearings, last year, and I presume they will be ex-
plored subsequently in the fall — how effective is the role of the
Antitrust Division in protecting the consumer in a deregulated market.
Maybe you could help us in finding that. Is this not a real prob-
lem, and do you see any relief?
Mr. Nadel. It is certainly a real problem, even with the best of
the will in the antitrust process, it is, of course, slow.
It, unfortunately, has not been without its partisan political
overtones. The problem as I see it, sir, is if the regulatory process
as presently constituted was working, Avas working Avell, and effi-
ciently, there would be no question about deregulating. You simply
would not deregulate because of the very problems that you men-
tioned, the potential for collusion and slowness and inefficiency of
the antitrust litigation process itself.
177
But the point is that that process is not working. In fact, par-
ticularly in the areas regulated by the Interstate Commerce Com-
mission, you are getting great inefficiencies. Although I am not an
economist, the economic literature I have read seems to be unani-
mous in holding there are vast inefficiencies in the transportation
regulatory process.
Wliat i am suggesting is the alternative may not be optimal in
the best of all possible worlds. You do have the potential for col-
lusion and legal and illegal collusion. You still might be better off
with certain kinds of deregulation in the right area. Particularly
when you get down to minutia, and perhaps the real task analysis
is to find out which areas you want to deregulate. In a free market
you would be very hard pressed to get worse service from inter-
state movers than you get now.
I just can't see how the consumer would be worse off if you
allowed free competition rates \with interstate movers, or you
allowed free competition in rates on the major trunk-airline routes.
The question is raised that the interstate routes subsidize the
smaller cities. Maybe it is time to address the question of whether
people flying from New York to Los Angeles should subsidize
people flying between Washington and Ithaca.
It may be great for me, but I am not sure it is an ethical
principle.
The point is, the present system is not doing a very efficient job,
particularly in areas of transportation.
Mr. Turner. You will agree with me that the antitrust approach
is not doing a very good job either?
Mr. Nadel. I will.
Mr. Turner. Somewhere in between you have to find a way to
permit competition and yet protect the consumer from the highest
rate or the lowest rate. You can put people out of business by
charging low rates.
Mr. Nadel. That is right. You would want to protect the people
of the efficient, small business. You would not want predatory pric-
ing practices that would later lead to higher rates.
If you look at the economic health of much of the industry,
dividing up the business has not exactly been a successful goal of
the agencies. The airlines are not in very good financial shape,
despite their protective regulation by the CAB.
I need say nothing, of course, about rail service, particularly
passenger rail service.
Mr. Turner. I have no further -.questions, Mr. Chairman.
Mr. Ryter. Professor, I enjoyed your testimony very much. Do
you have any comment in the area of Congress' first attempt to
collect information as a rider or amendment to the Alaskan pipeline
bill last year?
Mr. Nadel. Yes, I am. I think that was a very timely and im-
portant contribution, and one which, of course, it should be added
just barely passed as well.
So when we talk about spreading the blame around, there was
not exactly unanimous will in Congress to get that kind of infor-
mation. But having passed it, it is quite good. One certainly hopes
it survives the court challenges.
178
Mr. Ryter. Are yoii familiar with any of the studies of the cost
of this?
Mr. Nadel. No, sir, I am not. , ., . p
Mr. Eyter. I think we had testimony earher this week that ot
the 228 companies that have complied thus far, the average cost
has been something in the range of $56,000 per company.
Mr. Nadel. Well, the question in such a cost breakdown is what
they are attributing to the cost, and also the question of whether
it is a one-time cost or a continuing cost. That is, there may be a
fairly high cost in setting up the categorization of information
and determining where their business fits in the three-digit code,
but once that expense is undertaken, the cost of continual monitor-
ing might be considerably lower.
I think we would have to know whether it is a one-time cost or
annual cost.
Mr. Ryter. Do you have a basic familiarity with the objections
raised by the corporations along the lines of requiring— asking
how they are to allocate these costs, where they are to obtain in-
formation that they didn't collect in this form at all?
Mr. Nadel. Well* first of all, it is not altogether clear that they
don't collect the information at all. They may not collect it in
forms that are readily retrievable for governmental use, but there
is a real question of how hard is it to get?
Again, it reverts back to what they are counting in those cost
estimates.
Mr. Ryter. I assume you have some corporate accounting back-
ground ?
Mr. Nadel. No, no professional background.
Mr, Ryter. One of the questions we asked the witness, the earlier
witnesses this week, was where they w^oiild place the allocation of
costs. Would it be distributed directly to the corporation, would the
corporation be forced to assume the burden of this one-time startup
and continuation of the cost, or should the taxpayer be asked to
comment on it in one form or the other? Wliat was your feeling on
that?
Mr. Nadel. I would say it should be shared in the way these
things are usually shared, as a deductible business expense. It is a
cost of doing business.
I would also comment that we talk about the cost. There is also
some costs in not doing this as well, assuming the purposes of the
legislation were valid, those purposes being to enable more efficient
regulation and more efficient monitoring of some of the giant cor-
porations.
So that there is some cost in not having information as well, costs
which are allocated usually on the consumer and on society in
general.
Furthermore, these are not mom and pop stores we are talking
about. These are all fairly large corporations; $50,000 or $60,000
expenses for General Motors does not strike me as extremely odious,
even given the lagging car sales.
We are talking about companies with many divisions. It is very
important for society to know of the lines of business and the rela-
tive profit rates and so on.
179
This is an important bit of public policy. These are not small
companies without sufficient resources.
Mr. Rtter. This leads me to my final question, and this has to do
with consciousness being raised in f^eneral about the regulatory agen-
cies about the effects of some of the decisions. You spoke about con-
sumer consciousness and raising consciousness of the agencies by
asking in some form or another or requiring a study to reveal
something.
This is constructive and I think that is why Congress has gone in
the direction of having an Office of Technology. If you were — just
posing a. hypothetical situation — if the consuming public today were
asked as to whether or not they felt bands should be allocated, citizen
bands, or certain frequencies for this purpose, the purpose of a port-
able telephone, and in your own mind, I think, and other people's
mind, there is a notion that this is a fE;ivolous enterprise
Mr. Nadel. I did not mean to imply it is frivolous. I think it has
a very useful function.
My objection was that the problem with it should have been fore-
seen so that those important functions could be discharged without
difficulty. I think there is a place for it.
INIr. Ryter. What do you think the consumer representative would
say if he was to take a poll of the American public as to whether or
not they wanted the portable telephone?
]Mr. Nadel. Probably yes, but I think that — and I am not saying
it should be no. I am "not saying the portable telephone or the
citizens' band is frivolous. The portable telephone has a lot of very
positive uses, in terms of crime prevention and safety.
If people had phones in their cars, they could get in touch with
emergency services faster. There are a lot of positive features. But
negative features should not be assessed only. Positive features
should be assessed also so we can find out ways to maximize them.
This is in no way intended to suggest that the State should stifle
technology. That is a common misunderstanding of technology
assessment.
While it is more sensational to focus on the negative, there are
positive features as well.
Mr. Rtit.r. I quite agree with you there are positive and negative
aspects of technology assessment. Don't you feel that people strongly
pushing technology assessment, feel the results of that assessment
are going to cast extreme doubt on the allocation of costs in favor
of some sort of social arbitrator mechanism, where a decision is
made on behalf of the population. as a w^hole as to what areas new
resources are going into?
Mr. Nadel. I have some sympathy with that objection, but you
must remember what I was talking about, and I am not sure how
far I want to carry it beyond what I was talking about, were areas
already under a regulatory mandate, areas where you need Govern-
ment action to allow the technology, where in the case of portable
telephones you had to make frequencies available. It wasn't just
flying up there. They had to take away several UHF channels. As
long as you have to take the Government action, you should at least
view some of the impacts.
180
Now, whether on other areas of technology currently not regu-
lated we would want to do tliis, take tlie risk of social arbitrator, I
am not sure.
"^Vliile my sympathy is yes, I am very cognizant of the problems
of trying to ram one person's tastes down another. But at the very
least, I think the externalities of this, the effects on people that may
not be consuming the technology, that these effects be widely known.
If widespread citizens' band, for example, starts to cause wide-
spread interference with television, then I would say yes, the in-
terests of the 90 or 95 percent of the people who don't have citizens'
band are going to have to prevail. Rut you need information to
decide whose interests are going to prevail.
Mr. Ryter. I appreciate your testimony. You have given us some
A^ery suggestive suggestions that might lead to something further.
Thank you very much.
Senator Metcalf. Thank you very much for your appearance
here, for your testimony, for your help. We are pleased to have your
ideas on the record.
Now we will go back to the first witness. Director Mark Green of
the Corporate Accountability Research Group, and the group's
economist, Irene Till. Miss Till was assistant to the Antitrust Sub-
committee staff of Senator Hart and long was concerned and inter-
ested in this particular area. So we are pleased to have you both
with us.
Mr. Turner. I would like to welcome Miss Till, since she and I
worked together on the Antitrust Subcommittee imder Senator
Estes Kefauver, and we both were involved, among other things,
with the drug investigation and the legislation.
Both of us worked directly with Dr. John Blair, who was, in my
opinion, one of the finest economists we have ever had here on the
staff of the Senate.
I am delighted that we are together again and we can share your
views.
Senator Metcai.f. Thank you very much. I certainly concur with
your accolade to Dr. Blair and Miss Till. If you have a prepared
statement, go ahead.
TESTIMONY OF MARK GREEN, DIRECTOR, CORPORATE ACCOUNT-
ABILITY RESEARCH GROUP, WASHINGTON, D.C., ACCOMPANIED
BY IRENE TILL, ECONOMIST
Mr. Greex. Thank you. This seems more of a reunion than testi-
mony.
INIiss Till and myself will just summarize our prepared statement,
which will be submitted in its entirety for the record.
We appreciate the opportunity to speak here today on a subject
which rarely makes the business pages, not to mention the front
pages, as it certainly should — the subject of corporate disclosure.
It is an area that Adam Smith himself posed as a cornerstone of
competitive capitalism. He assumed, as many still assume, that an
adequate information flow to the consumer is necessary for con-
sumer sovereignty to work; is necessary for capital markets to ade-
ISl
quately allocate the money in onr society ; and is necessary for in-
vestors to know where to invest and what to avoid, for governments
to know where there is monopoly power and where it does not ap-
pear.
Yet, corporations have enacted a rendition of hide-and-seek when
it comes to disclosure of important data. They have, in my view,
deployed a service of spurious arguments to frustrate adequate dis-
closure to the sectors I talked about — government, investor and
consumers.
First, many business spokesmen stretch the concept of trade
secrets as far as some administrations have stressed the concept of
national security, to cover what it was not intended to cover. Each
have a legitimate aim if narrowly proscribed.
I cannot understand, for example, why a profit and loss statement
by subsidiaries should not be made public. Such information such as
market share information is not a patent, a process, a customer list.
Yet, often that talisman of "trade secrets" is invoked to shield cor-
porations from external scrutiny.
Second, corporations will frequently cite the fetching phrase,
"right to privacy." It is especially important in a society with our
Constitution that individual human beings, composed of blood and
bones, not have their privacy invaded arbitrarily by government.
But to apply tliat concept to corporate institutions, which are often
private governments in terms of their impact on citizens, is an insult
both to language and law. in my view.
Instead, if wo would have a Freedom of Information Act. with
exceptions, which apply to the government, we may want to think
by analogy of a Freedom of Information Act, with exceptions, to
apply to business.
Secrecy in this area is both bad policy and bad democracy.
In his first inaugural address, President Theodore Roosevelt said:
"Artificial bodies "such as corporations, depending on statutory law
for their existence or privileges, should be subject to proper goveni-
ment. All supervision, and full and accurate information as to their
operations, should be made public at reasonable levels." Three-quar-
ters of a century later we are still struggling to achieve this very
sensible goal.
It is perhaps predictable that business entities at times would
desire secrecy about their activities, but what is far more troubling
is when government becomes an acquiescing agent for such business.
Yet, it is true. Instead of government being a countervailing force
to corporate secrecy, much Federal policy actively collaborates to
keep from the public necessary information. And by government,
include both Congress and the agencies.
To take Congress, when the Supreme Court in 1961 ruled in the
/St. Regis Paper case that the Federal Trade Commission could in-
deed see Census Bureau manufacturing data by firm name. Con-
gress quickly overruled the decision.
In 1968. when the Bureau of Economics and the Federal Trade
Commission proposed a firm study to analyze the extent of impact
of mergers and intercorporate relations, the Congress again forbade
it. The two appropriations committees would not appropriate money
56-957 O - 75
182
for it and even attached a rider to the bill that year forbidding that
any money be spent that year on such a study. Said an economist
involved : "Because of the influence of powerful and special interest
groups and the problem of congressional appropriations which were
responsible for the fact that what promised to be the most important
and revealing study ever attempted concerning American business
was never completed."
Even today, INIr. Chairman, I understand at 2 o'clock there is an
executive session at which Senator Hruska is going to introduce an
amendment to end the line of business reporting now being at-
tempted by the FTC.
It is not an easy program to implement or define. It is being moved
against legally by the potential, responding companies in courts in
New York and Delaware, but it is an effort well worth taking. Yet,
there is a risk now that history may repeat itself and it may be
quashed legislatively, as it is attempting to go forward admin-
istratively.
Also, the Federal agencies, which Professor Nadel has so well
described in previous testimony, have proven even less responsive
than Congress. It is hardly original to say that the agencies can
often be satellites of the regulatees, though I think it is true.
For example, why has not the Civil Aeronautics Board ever made
a serious or successful attempt to compel the Air Transport Associa-
tion or ATA, the world cartel, to disclose more information about
what they do and how they arrive at the prices they come to? "\^'liy
have not the Federal Communications Commission insisted on both
more investigation regarding A.T.&T. and disclosure of that infor-
mation? Now finally decades later there is a serious study of
A.T.&T., but it is founded on the guarantee of confidentiality,
which is certainly not required by an agency which has its own
subpoena power and can demand information.
Why has not the Federal Trade Commission required disclosures
of the kind that are finally now inadA^ertently coming out about
domestic and foreign slush funds to domestic politicians and foreign
agents for illegal purposes, which they can do under section 6 of
their Act ? Such activities could be considered unfair trade practices
since they competitively disadvantage an honest and ethical iDusiness-
man, if he or she doesn't want to participate in such illegal activities.
We all, of course, have our own personal experiences about how
agencies can frustrate information requests.
I recently was studying Washington law firms and asked the
FCC for a survey they took of such firms, about whether they
would provide pro bono service, that is, legal services for free, to
community groups before the FCC. The Commission refused my
request. Six years ago, when we began this study, we attempted to
interview some attorneys at the Federal Trade Commission involv-
ing the perennial Geritol case — a request I thought that was rather
unextraordinary. Yet the full Commission voted 3 to 2 to reject our
request. I don't want to understate what I think was the importance
of that study, but I thought that a full Commission vote was a
waste of Government manpower. Finally, a congressional hearing
had to be convened and we eventually got access.
183
For years the antitrust division of the Department of Justice
would give secret clearances to business firms who solicited opinions,
whether or not they would be sued based on a projected pattern of
behavior, and we requested such information because we thought if
entities outside the Justice Department were getting information, we
should also have a right to that information. We were refused. We
finally filed suit which provoked the Justice Department to make
public their business review procedures and such letters.
We all have such examples, those who work in the area of cor-
porate accountability, and often they are quite depressing. They as
well involve agencies utilizing confidentiality to again shield their
regulatees from greater public disclosure, again collaborating to
frustrate citizen access.
Senator Metcalf. Mr. Green, I wonder if I may interrupt?
For quite a while I have had a quprum call on the lights. I
thought perhaps I could outwait them. Recently, however, when
they make that motion to send the Sergeant at Arms around to
arrest the Senators who have not reported, they have demanded a
roll call.
I suspect right now they didn't get a quorum this second time
around, and I better go over and answer a roll call.
[Brief recess.]
Senator Metcalf. The subcommittee will resume.
I appreciate your courtesy in allowing me to go over and vote.
Now we will pick up where you left off, if you can find it.
Mr. Green. At this time I would like to turn over the testimony to
Irene Till, who will discuss the issues of confidentiality and aggre-
gate reporting, especially as they relate to the SEC and the FTC.
JNIiss Till. INIr. Chairman, one of the big problems, I think, is the
fact that much of the data collected by the Federal Government is
available only in the form of aggregate statistics. That is very fine
if one has a' macroeconomic bent and is interested in the flow of
investment and the general state of the economy and wants to make
predictions about what is going to happen in the future with respect
to employment and so forth.
But if" one is interested in the microeconomics questions: what is
the state of competition in the industry? Who are the leading firms?
What is their sliare of the market? What are their price policies?
Wliat are their profits on particular products? One, of course, is
lost. You get none of that kind of information.
Winn Turner referred a minute ago to the drug investigation.
When we started we had nothing more than hunches as to what
exists in the prescription drug history. We recognized the fact that
there were a lot of companies selling the same products, so we de-
duced that there must be an enormous amount of buying and selling
behind the scenes.
We also realized that patents must be very important in that
industry. We read Value Line and other periodicals of that sort and
we discovered that if you were a sensible investor, you would put
money in the drug industry. It was not until the subpoenas were
issued, and we received information on their bulk purchases and
sales of drugs that we learned that most of the companies, of course,
184
don't make the stuff they selh They buy the bulk and simply tablet
it and bottle it.
Senator INIetcalf. Wait a minute.
Would you, to an uninformed layman, explain that statement?
They don't make the materials they sell, the dru^ companies don't?
Miss Till. No. Usually for almost every druo; there is only one
or two, or at the most, three companies, that supply everybody in
the country. And you buy the bulk, and, of course we discovered
you could buy it extremely
Senator IMetcalf. And then you run it through a machine and it
comes out in tablets and so forth?
]\Iiss Till. That is right. And you put a brand name on it and you
can make a 10,000 percent or more profit on the prices charged. We,
of course, could not get costs of production on this stuff. What we
had to use was the price at which they purchased their bulk, added
their tableting and bottling costs, and then looked at their prices as
compared with these costs.
Senator Metcalf. How can we find that out, who makes the bulk
drugs and who sells them ?
Miss Till. Well, if we had a good line of business reporting sys-
tem, we would have that.
Senator Metcalf. Well, we don't have. So how can we find out?
Miss Till. How can we find it out now?
Senator Metcalf. Yes.
Miss Till. In the case of medicinal chemicals, it just happens
that the Tariff Commission, now the International Trade Commis-
sion, puts out an annual booklet on medicinal chemicals and at the
back of it, for many, the actual manufacturers are listed.. At the
time we were working on the drug industry for the Kefauver com-
mittee back in 19,59, there was a good deal of information thus
supplied.
After tlie hearings started, however, there was less informa-
tion published. There was also bulk prices that were published by
the Oil, Paint, and Drug Reporter. As soon as the hearings began,
many of those prices also disappeared from the publication.
So as one inquires more deeply in an industry, the data often
tend to disappear before your eyes. In addition, we also got copies
of their patent licensing agreements which were very revealing.
You may recall that Francis Brown, who had once been alien
property custodian, managing the properties of seized German firms,
left his post in the Government to become president of Schering
when it was sold to U.S. investors.
He was on the stand and the Senator was commenting upon the
restrictive provisions in the licensing agreements of the Schering
company.
For example, the Schering licenses to its licensees, provided that
no licensee could sell products in anything except in final packaged
form, which meant the package the druggist got. This meant tliat
no bulk would be available to the small companies the major sources
of competition in the industry.
Senator Metcalf. ^^Hiat would this involve? One hundred cap-
sules ?
1185
Miss Till. No, it is in powder form in groat, big containers.
Senator Metcalf. I understand.
JNIiss Till. At the time we referred to the restrictive provisions.
Francis Brown replied that no such restrictive provisions existed.
It just happened that we had copies of the patent licensing agree-
ments which had subpoenaed from his company and we read the
section to him. He then modified his statement.
As an industrial economist in the Antitrust Division and FTC and
with the Senate Antitrust Subcommittee, I have also found that as
soon as you begin to ask pertinent questions about the state of the
competition in our industry, you are up against a blank wall. You
can get a pretty good idea from an enormous amount of research
work but little hard data.
In many industries, as you probably know, there are marketing
survey firms that collect the most detailed sales information which
the companies buy at very high prices. It is awfully hard to get
access to that.
When I was in HEW a couple of years ago, we discovered that
XIH had subscribed to what w\as then the Gosselin survey, which
provides this type of information. It now has another name as a
result of merger and is called the National Prescription Audit of
IMS.
We asked NIH for access to this information. Here we were in
Social Security Administration at the time, asking a sister agency if
we could look at the reports. They explained to us that they could
not be made available to anyone because they had contracted with the
seller to keep it confidential.
Senator Metcalf. Now, are you saying that a Government agency
subscribed to a report and could not reveal it to anybody?
Miss Till. That is the position they took. They" took it for quite
a long time until it became rather old material, and then reluctantly
we were able to get access to it.
Senator Metcalf. It was obsolescent?
Miss Till. It was historical.
Senator INIetcalf. Or obsolete.
]\Iiss Till. Turning now to data collection by Government agen-
cies, since the 1940's we have had a most highly centralized control
over tlie questionnaires that go out. OlNTB's Standard Form 83,
which GAO also uses now, asks the question. "Does your agency
pledge confidentailty?" meaning. "Are you going to release any in-
formation by company name?" To make it even clearer, there is a
note appended that if the agency Ivas not made a very specific answer
to confidentiality, it should supply an extra sheet detailing in full
what the situation is.
As a result, maintenance of confidentiality in Government agencies
is just an accepted Avay of life. No one ever thinks of revealing the
information by company name but only in aggregate statistics. And
strangely enough, this exists even though the agency may have man-
datory powers.
For example, we were trying to get information out of the Tariff
Commission 10 vears ago. The Tariff Commission told us solemnly
186
they were gettinir those data thvoii^fh vohintai\v cooperation, and
consequently, they would lose their sources of information if they
divulired anything:.
Xow they take the position there is a 1930 act upon which they
rely for the collection of data. But they still promise in all their
forms that there will be no sales information released by company.
The Bureau of Klines informed us that they collect everythinir on
a voluntary basis, and they promise confidentiality. Even where an
ao-ency has mandatory powers with penalties provided in its act, it
is still very reluctant. For example, you probably are aware that
there is a tremendous battle efoine: on now with respect to the FTC's
corporate pattern survey. This project, which has recently been sent
over to the GAO. proposes collection of some information on a plant
basis as well as other data. The FTC also proposes to release the
information on a company basis after 4 or 5 years from publication.
Census is takinir the position that this may jeopardize their col-
lection of similar data which they irather on a mandatory basis.
They argue that if there is massive refusal on the pai-t of corpora-
tions to submit the data, they do not have the staff to handle en-
forcement of the act.
Actually, althouirh the financial penalty is verv sliirht. T think it
is SlOO if you fail to file, there is also a 60-day jail sentence.
Xow, whether Census feels that the latter is an unacceptable kind
of penalty, it is currently raisinir a terrific furor, and T understand
the GAO is extremely sympathetic to the Census position.
Senator Mf.tcalf. Xow, wait a minute. There is a 60-day jail
sentence. A whole lot of people from this administration, the Repub-
lican administration, have been sentenced to jail. They <ro to a
country club sort of resort in Pennsylvania. Ts there anyone that
served any of these 60-day terms over at Lorton or in the District
Jail or any of those places ?
Miss Till. T have never heard of it. Senator, althouirh I erather if
one is residine: in Allenwood, he is sflad to leave that prison, too.
Senator ^Ietcalf. T suppose that people that say, "Well, I could
do that sentence standin<r on my head," they can do it up there in
Pennsylvania, but T don't know whether they could do it in some
of the other District jails where different types of criminals are in-
carcerated.
Miss Till. Well, T suppose that if businessmen were really sent to
jail, we would have to construct a number of country clubs probably
all over the country. [Lauirhter.]
Seiuitor ^Ietcau. I have been concerned about the riffht of privacy.
If you will remember in the omnibus crime control bill we provided
vou had a no-knock provision, and drurr people, especially in en-
forcement, broke into people's homes in the middle of tlie nieht.
Sometimes they didn't know where they were supposed to go and
broke into the wrong homes.
But the corporations, it seems to me. have had a greater right of
privacy than the individuals. We have given the corporations under
the 14:th amendment, which was supposed to free the slaves and free
the corporations, a right of privacy that we don't give to individuals.
Isn't that correct ?
187
Miss Till. I think it is true. And the stranp;e part of it is that tliey
have been successful in getting away with it.
I want to spend a few minutes now on the SEC itself. The SEC
was pretty smart at the very outset. It has always taken the position
that its questionnaires need not be submitted for clearance to the
Bureau of the Budget or O^NIB. because they are engaged in enforce-
ment activities.
Xow. the FTC was not quite so adroit. There was a long period
when even their enforcement questionnaires relating to violations of
section 5 of the FTC Act or section T of the Clayton Act. were sub-
mitted to 0MB, which spent weeks in considering them and often
turned them down. SEC has avoided this probleni. There are only
two or three questionnaires of a general sort which they actually
submit to 0MB. and now to GAO under the Trans-Alaska Pipeline
Act. \
They do submit copies of all questionnaires they are sending out
and the agency has them on file.
SEC now gets reports from over 10,000 companies, 10,000-plus.
It should be noted, however, that not all of the big ones are in-
cluded, because if they don't sell stock on the stock exchanges or
over the counter, they don't have to report to SEC. And no one
knows how many big privately held firms exist in the country. There
are all kinds of guesses.
The FTC for its quarterly financial reports gets data from some of
these companies in its sample. But. of course, it is controlled also by
the confidentiality rule, so that it can't even release the names. I am
told that Deeriiig-Milliken, reportedly the largest textile manu-
facturer in the world, is totally private. Timex is also.
The large foreign drug firms are. There is now a tendency ap-
parentlv for many companies to "go private," as the phrase is to go
back to" a situation whei'e they have less than 300 shareholders. Under
SEC rules, they can escape making any reports.
The SEC. of course, has always taken the position that it is ex-
clusively concerned with the disclosure in the interests of the
investor.
And the investor, of course, is a very small segment of our society.
According to the Department of Commerce, 10 percent of the
families in the country get 71 percent of the dividend income. So
far as most of the population is concerned, only a few are investors.
Senator Metcalf. Miss Till, I am sorry, but we will have to recess
at this time.
[The prepared statement of ;Mar.k Green and Irene Till follows:]
Prepared Statement or INIark Green and Irene Till,
Corporate Accountability Research Group
Many of America's great problems flash painfully onto our TV
sets and collective consciousness each day. One dilemma, however,
hardly makes it onto the business pages not to even mention the
front" pages. It is the dilemma of corporate disclosures. Our giant
corporations are private governments affecting the quality and cost
of life for millions, yet they are often tighter than clams about their
188
activities. This is both bad policy and bad democracy. In his first
inaugural address. President Theodore Roosevelt posed the problem
well. "Artificial bodies such as corporations depending on statutory
law for their existence or privileges should be subject to proper
governmental supervision, and full and accurate information as to
their operations should be made public at reasonable levels." Three-
quarters of a century later, we are still struggling to achieve this
very sensible goal.
Federal agencies collect vast amounts of detailed information from
private corporations, but very little of it is made available to the
public on a company basis. Most of the information is published in
the form of aggregate statistics, effectively cloaking the identity and
submissions of individual companies. Thus, though the public pays
the bill for the gathering and collation of such information, it gains
little knowledge about the specific activities of the corporations
themselves.
In most cases the government agency is committed to confidential
treatment of the data even before the project gets off the ground.
The Federal Reports Act of 1940 requires all questionnaires going to
10 or more firms to be cleared through the Office of Management
and Budget, or, under recent legislation, through the General Ac-
counting Office. OlNIB's Standard Form 83, also now used by GAO,
requires the agency to answer the question : "Does your agency pledge
confidentiality?" The accompanying instruction emphasizes the im-
portance of this question by stating that "if the nature and extent
of confidentiality to be accorded inclividual returns is not clear from
the form or transmittal letter, this should be explained in the Sup-
porting Statement."
As of March 31, 1975. OMB's computer system showed a total of
2,149 questionnaires regularly going to 115 million business firms.
According to that agency, confidentiality has been pledged for over
98% of the applications for clearance. Tlie GAO has no computerized
system, but processes its applications for clearance on a manual basis.
Of the estimated 200 "repetitive" questionnaires (those sent out reg-
ularly by agencies) since 1974, the GAO has no figures available on
commitments to confidentiality.
Confidentiality prevails whether or not the agency has manda-
tory authority to collect the data. For example, the International
Trade Commission ^ states on its forms sent to chemical firms that
collection is authorized under Section 332 of the Tariff, as amended.
Despite tliis asserted authority to compel the production of data, the
Commission very solicitously and unnecessarily adds the following:
"Information reported will not be published iii such a manner as to
disclose the operations of individual producers. Persons who have
access to individual company information are subject to penalties for
unauthorized disclosure."
The Commission is so scrupulous in this regard that even submitted
data are not published where a firm has a monopoly of the product
or where there is concentration by two or three companies. Its de-
fense of needy monopolists is grounded in this inventive rationale:
Formerly the Tariff Commission.
189
a knowledgeable person might be able to estimate accurately the
data submitted by the individual companies.
In response to our inquiry, the Director of the U.S. Bureau of
Mines stated in a letter of April 3, 1975 that all of its information
is secured on a voluntary basis with a promise of confidentiality. Its
questionnaire form entitled "Capacity of Petroleum Kefineries, for
example, is prominently marked "INDIVIDUAL COMPANY
DATA— CONFIDENTIAL and states: "Unless authorization is
granted in the section above the signature, the data furnished in this
report will be treated in confidence by the Department of Interior,
except that they may be disclosed to Federal defense agencies, or to
the Congress lipon official request for appropriate purposes." One
can guess how many times this authorization occurs above the sig-
natures of the officials of the major oil companies.
Within the federal bureauracy, the Securities and Exchange Com-
mission is undoubtedly the most important source of information on
the specific operation of the mass of companies doing business in the
U.S. Currently, there are 10,586 companies regularly reporting to the
SEC.
Though the SEC has successfully resisted clearance of its forms
through the OMR, the Commission's data programs have fallen over
other hurdles, some self-imposed. For example, the statutes under
which the SEC operates make numerous references to the protection
of the public as well as the protection of investors. Yet the SEC has
seen fit to confine its protection to the latter— a group which largely
includes the more affluent in our society. According to the Depart-
ment of Commerce, in 1971 one percent of U.S. families — those with
incomes in excess of $200,000 annually — accounted for 47 percent of
dividend income. Ten percent — those with incomes over $50,000 —
accounted for 71 percent of dividend income.
The investment community has changed in recent years to accom-
modate the growth of institutional investors in the stock market.
SEC Commissioner A. A. Sommer, Jr. recently informed this Sub-
committee that trading in securities on the New York Stock Ex-
change "has become concentrated among institutional investors to
the extent of 70 percent, where 10 years ago institutional activity
amounted to about 30 percent." No doubt these institutions scrutinize
with care the individual company data released by the SEC, but
they also have available a variety of other sources of information, in-
cluding paid professionals, to assist in the determination of invest-
ment policy. Under these circumstances, it would seem that the SEC
could expand its horizon to include its greater statutory function —
the protection of the public.
Consider, for example, its cavalier handling of line of business
reporting. Here is an area of significant importance to the general
public and to public agencies fighting the monopoly problem. Profits
and losses by product line can provide impressive clues about the
absence of competition or presence of oligopoly power, the exist-
ence of administered pricing, cross-subsidization of products in con-
glomerate operations, and the areas where other bottlenecks to
competition exist. But instead of insisting on such disclosure, the
SEC pallidly permits the firms to write their own tickets for their
190
breakdowns of products. The result has been chaos with firms
unsurprisingly, choosing product categories which work to conceal
rather than to disclose information on their lines of business.
A conglomerate like Coca-Cola, for example, has only one de-
clared line of business-"the manufacture and sale of beverages.
In fact they sit astride not only the soft drink industry but also
frozen orange and other frozen juices, tea, coffee roasting and sales,
and even water conversion systems. Pfizer, Inc., a major manu-
facturer and supplier of prescription drugs, conceals information
on this important line of products by lumping it ma category ot
'^Phannaceutical and Heolth Products^ along with diagnostic
products, bone and joint prostheses and dental products including
"artificial teeth and dental supplies." Bulk antibiotics are included
in ''Chemical Products,'' which also contain dairy and bre\yery
specialty products as well as "food acidulants, food preservatives,
antitoxidants, sequestrans, coagulants, cleaning and metal plating.
There is no breakdown of data within these product categories.
The dominant function of the SEC's collection of information is
the detection of misrepresentation and fraud in the marketing of
securities. Registered firms, those making public offerings of stock,
must file reports ; all other companies, irrespective of their size and
industry importance, whose stock is privately held and not offered
to the public, do not report. Yet consumers buy their products and
have an equal stake in both, irrespective of type of ownership.
They are entitled to know who these companies are, the nature of
their operations, the size and return on their investment in the
conduct of their business. Nine years ago a Fortune article entitled
"There's Plenty of Privacy Left in Private Enterprise'' suggested
there were at least a score of private industrial firms which qualified
for listing in the 500 largest corporations in this country. Such
companies include Deering-Milliken, said to be the world's largest
textile manufacturer, Timex and foreicrn-owned drug firms as Ciba,
Hoffman-LaRoche, Geigy, Organon. But if you ask i\\Q SEC for
such information, they neither know nor are even interested.
And this particular device for achieving corporate secrecy ap-
pears to be growing. Under SEC regulations for over-the-counter
sales, firms with more than $1 million in assets and over 500 share-
holders must submit financial information to the SEC. By reducing
shareholders below 500, companies are relieved of this obligation.
This growing trend — referred to by Commissioner Sommer as a
"disquieting fad" — is achieved by "squeeze-out mergers," "reverse
splits" of stock, or making tender offers for stock purchases slightly
above depressed market prices.
There are also deficiencies in SEC's administrative practices.
Essential to a full and accurate reporting program is careful scru-
tiny and analyses of the returns submitted. But the Commission
frankly admits that its staff review is confined to an examination
of whether, on its face, the information submitted appears inac-
curate or misleading. If pressed further, agency officials acknowledge
that little time is spent on the larjre, well-established corporations;
that real effort is focused upon firms which liave been in trouble
with the agency in the past or where there is reason to suspect the
191
possibility of falsification. The SEC inquiry into United Brands,
for example, was precipitated by the company president's suicide
from his New York office window— hardly a method to rely upon
for determining which companies should be scrutinized more care-
fully. Illegal corporate campaign contributions did not surface
with SEC's hurried search for discrepancies in reported informa-
tion. It had to await the Watergate investigation.
Nor has the SEC used its statutory powers to impose effective
order in accounting practices. From the very beginning it has relied
upon the accounting profession to do the job for it. It was not until
1972 that the Council of the American Institute of Certified Public
Accomitants issued a report recommending the formation of a
Financial Accounting Standards Board to establish accounting
principles. SEC endorsed this proposal and stated it would con-
tinue its policy "looking to the private sector in establishing and
improving accounting principles and standards.'' This has meant
the continued use of the medley of "generally accepted accounting
principles" which make for great disparity in accounting results.
Whether the accounting principles currently in use are generally
acceptable or not, the real need is for simplification and as much
uniformity as can be reasonably achieved. But instead of meeting
this problem directly, the SEC has ordered more footnote expla-
nations accompanying financial statements. The net result has been
a decorative embellishment of financial statements with complicated
footnotes written, according to SEC Commissioner Sommer, "to
obscure rather than illuminate the facts about the issues."
There are also glaring omissions in reporting. The problem of
beneficial ownership has been already studied by this subcommittee
in considerable detail. Another loophole is SEC's permission to omit
the names of subsidiaries if, in the aggregate, they would not con-
stitute a "substantial subsidiary." And a substantial subsidiary
is defined as one whose assets or operating revenues exceed 15 per-
cent of those of the parent and its subsidiaries on a consolidated
basis. As giant firms have increased in size, largely through mergers,
especially the conglomerate movement in the late 1960s, this ex-
emption has become significant. Exxon, for example, reported total
sales and operating revenues of $45 billion in 1974; the 15 percent
cut-off for reporting purposes amounts to nearly $7 billion.
This secrecy applies especially to a company's foreign operations.
The 10-K instructions specifically exempt, except for financial data,
all reporting with respect to any foreign subsidiary "to the extent
that the required disclosure would be detrimental to the registrant."
Names of the foreign subsidiaries are to be filed on a confidential
basis with the Commission, but the "significant subsidiary" rules can
be invoked to nullify this requirement.
SEC officials assert that little of the information received from
corporations is accorded confidential treatment. Under its regula-
tions, the Division of Corporation Finance has authority to "grant
applications for confidential treatment of contract provisions."
According to an associate director of that division, such applica-
tions are granted only where the information submitted is imma-
102
terial to the interests of investors. Access to the requests made and
those granted or denied, however, are sealed from public view.
Confidential treatment may also be accorded to "material other
than contract provisions" where the Commission specifically ap-
proves. Similarly, information or documents obtained in the course
of an investigation are deemed confidential unless the Commission
authorizes disclosure. The Ernst & Ernst report on Northrup, for
example, w^as filed early in 1975 with the SEC. But disclosure had
to wait until the release of the report by Senator Church's Multi-
national Subcommittee in mid-June during hearings on the North-
rup case. Finally, all information "classified by an appropriate
department or agency of the United States in the interests of na-
tional defense or foreign policy" is barred from disclosure. As you
know, there has been frequent complaint of the over-classification
of documents within the govei-nment; the SEC exercises no inde-
pendent authority or oversight over such materials submitted by
other agencies.
Reporting firms are themselves granted great leeway in report-
ing under 10-K instructions. For example, competitive conditions
and the firm's own competitive position in the industry are to be
disclosed "if known or reasonably available to the registrant." "If
a material part of the business is dependent upon a single customer
or customers" that should be revealed. But if it involves contractual
arrangements, the chances are that it is submitted under the pro-
vision for confidential treatment. Such discretionary language as
"known or reasonably available" and "where material to an under-
standing of the registrant's business" is scattered throughout the
10-K instructions, and provides escape hatches in the event that
the agency goes beyond a superficial scrutiny of the return and
makes intensive inquiry into the affairs of the companv. In general,
an essential ingredient of a good questionnaire is clearcut speci-
ficity of the information requested with little opportunitv for dis-
cretion to be exercised by the respondent.
The Federal Trade Commission raises a different set of problems.
Here is an agency set up in 1915 for the deliberate purpose of
securing corporate disclosure. Section 6 of the FTC Act empowers
it to "investigate the organization, business, conduct, practices and
management" of private corporations and report its findings to the
public. In its early days the Commission ably fulfilled this func-
tion, but it was soon crippled by adverse court decisions, poor
appointments of commissioners, and the numbing consequence of a
foliating bureaucracy.
Not the least of its problems has been the requirement, since the
passage of the Federal Reports Act, of clearance of its economic
inquiries through 0MB, and previously the Bureau of the Budget.
An important function of the FTC'has been the publication of
the Quarterly Financial Report providing aggregate data — by in-
dustries—on sales, profits per dollar of sales, profits on stockhold-
ers' equity and other financial information. Until a few years ago
the SEC collected the data on registered firms while FTC collected
for nonregistered companies. The SEC, however, uninterested in
193
the project, did nothing to enforce responses from some of the
largest registered companies. After prolonged negotiation, the en-
tire function was lodged in the P'TC. None of this company data,
of course, has ever been made public; it has been governed by a
commitment to confidentiality. Even the legal and economic staff of
the Commission itself, needing the data for case^york and economic
reports, have been marred from access.
As a result, efforts were made within the Commission to insti-
tute a line of business program outside of the QFR work. The first
major attempt was made in the early sixties, and immediately ran
into trouble with OMB's predecessor, the Bureau of the Budget.
The agency's Business Advisory Council, to which it was submit-
ted for advice, organized a national protest by business. Not only
did the Commission fail to secure clearance; the Congress struck
out all funds for this purpose from -its budget, and ordered the
agency to use no available money it might have for this work.
By the late 1960's, the race toward industry conglomeration was
rapidly eroding the utility of the aggregate statistics published in
the QFR. While firms were still specialized in their operations, the
industry data were useful. But firms had diversified their opera-
tions across a number of industries. In the QFR reports, the entire
activities of the conglomerate firm have been assigned to the in-
dustry category where its largest sales occur; in some instances
such sales were only ten or fifteen percent of total sales. Increas-
ingly, much of the published data became of little value.
This fact, plus the SEC's feeble accomplishment on product re-
porting, spurred the FTC's current effort to revive the line of
business program. In order to secure clearance from OMB. then
in command, a commitment to confidentiality had to be made — a
concession which settled only one of the Commission's growing
number of problems. The OMB's Business Advisory Council again
moved quickly to thwart the effort. Hearings were held and repre-
sentatives of the country's largest firms argued, among other things,
that such a program would damage our "basic competitive sys-
tem," that it was a first step "to completely regulate the economy,"
that information on market shares constitutes "trade secrets," that
companies don't have such information anyhow, and so on. One
argument related to the possibility of leaks within the FTC of the
information collected. In defensive response, the Commission then
committed itself to insulate the data from all parts of itself except
for the Division of Financial Reports, which liandled the data.
With the passage of the rider to the Trans-Alaska Pipeline Act
in 1973, supervision shifted from OMB to GAO. In March 1974 the
FTC submitted its project to. GAO which at that time lacked —
and still lacks, according to an FTC official — a staff competent to
evaluate the intricate and complex type of economic survey this
represented. Reluctantly it was cleared by GAO with a statement
"recognizing that the initial information will be reliable and may
be misleading." Several of the country's leading firms then moved
to their next line of resistance — resort to the courts. Alcoa, GE.
GM, Goodrich, International Paper, Owens-Illinois and Union
194
Carbide are involved in the New York case where the district court
refused to enjoin the Commission. In Delaware, where the decision
favored the plaintiffs in a comparable case, the companies included
A. O. Smith, Inland Steel, Northwest Industries, Oscar Mayer,
Merck, Goodyear, and Thomas J. Lipton. As you are undoubtedly
aware, much of the enerfjies of the Commission are absorbed with
this litigation.
According to recent count, about 225 companies — out of a total
of 345 receiving the line of business form — have filed returns. It is
particularly unfortunate that the confidentiality commitment pre-
vents their examination by the regular economic and legal staff of
the Commission. Such examination would serve three purposes: (1)
their knowledge and skills could be utilized for careful scrutiny
of the submissions for discrepancies and errors; (2) access would
increase their own knowledge of corporations and enhance their
usefulness in the Commission, and (3) their input would be helpful
in improving the kinds of questions asked in a complicated endeavor
of this kind.
Instead, what has happened? The data now go directly to the
Division of Financial Reports for quick scanning and then are
fed into the computer. The great value of the survey — in providing
detailed line of business information by individual companies —
remains cloaked in secrecy.
No doubt there is valid ground for criticism of the survey itself;
the agency itself recognizes this by revisions in its proposed form
for the collection of the 1974 data. The point is that one learns in
the doing; increasing knowledare will improve the kinds and frame
of the questions asked. Rut the clearance process l:)y an outside
agency discourages this kind of approach.
It does not seem possible for a supervisory agency to avoid policv
making. Under the new law, GAO cannot, as did 0MB, second-
guess the FTC's determination that the information sought it rea-
sonably necessary in the performance of its duties. Nor can it delay
interminably the rendering of an opinion.
Still, there are obstacles it can erect. Take, for example, the revival
of the Corporate Pattern Survey submitted by FTC to the GAO
in early 1975. This survey involves details on ownership of the
1000 largest corporations and value of shipments by product class.
The FTC proposes the collection of such data every' five years, with
publication of the individual company data four years later. By this
time the information is basically historical but useful for assessment
of changes that have occurred. This program is in a state of sus-
pension at the moment. The Bureau of the Census contends that it
would imperil its own data collection. Though the Census program
is mandatory, it argues that it lacks the staff for enforcement in the
event of mass refusal by corporations to supply data. The GAO is
impressed Avith this argument and has expressed great reservations
as to whether FTC should proceed.
The Census position is a little difficult to understand. It is not at
all certain that a corporate sit-down strike will occur. If it should, a
strong-willed Census should be able to cope with the problem. Its
195
law provides minimum pecuniary penalties ($100 per violation), but
also a jail sentence for 60 days. If imagined disasters can be used to
stifle corporate disclosure — with GAO playing a leading role in the
pressuring game — then corporate disclosure becomes the exception
rather than the rule. A rescue operation for the FTC program may
well depend upon the interest and expressed concern of members of
Congress. It would be unfortunate if this case should set a new prece-
dent within the Government for the presentation of corporate
secrecy.
[Wliereupon, at 11 :45 a.m., the subcommittee recessed, subject to
the call of the Chair.]
APPENDIX
(197)
JIM LAWING
HOUSE OF
REPRESENTATIVES
Government Operations Subcommittee
On Reports , Accounting & Management
161 Russell —
Senate Office Buildina
Washington, D.C. 20510
Dear Committee Members and Staff
In Senator Metcalf s remarks of June 10, he sets
out a dozen specific questions which the information management
hearings will attempt to answer. Three specific
questions are of special concern to me as a lawyer
representing the Kansas Civil Liberties Union's efforts
in upcoming hearings involving the Wolf Creek nuclear
power generator which has been applied for jointly
by the Kansas Gas & Electric Company of Wichita and
the Kansas City Power & Light Company.
The three questions which Senator Metcalf stated
are reproduced below as follows:
Third. Is the information available
only on an aggregated industry basis?
If so, how can an agency and the users
ascertain that aggregates and averages
are correct if they do not see indivi-
dual company data on which the
aggregate information is based?
Fifty. How often is the basic data
regarding company operations, management,
assets, liabilities, capitalization, and
control collected? Should information
now collected only as a part of occasional
"benchmark surveys" be availa±>le on a
more regular basis?
Ninth. What do the agencies do to help
guide the public to information in their
files? How can th^ose procedures — or
publications — be improved? Is inaccurate
or outdated data flagged?
(109)
200
To begin with, the following comments are not
intended to be derogatory of the Nuclear Regulatory
Commission because that body has only recently come
into its own, and can hardly be given fair treatment
if judged by previous actions of the Atomic Energy
Commission. Nonetheless, several things have already
been noted by members of the public who are trying
to learn what is involved in the nuclear power plant
proposals and who are trying to keep an open mind as
to the merits of the application. For the record,
the Kansas Civil Liberties Union has never and has
no intention of ever taking a position for or against
nuclear power per se. Our presence in these hearings
is designed only to make certain that the principals of
due process are followed.
However, it struck me initially that it is hard
for due process to exist in a situation where notice
of proposed hearings is issued to the public almost
a year before the draft environmental impact statement
is ever filed. The problem principally is that if one
does not choose to intervene within a short period
after publication of the notice, that party has no right
to intervene later when the full information that might
be obtained from the environmental impact statement
becomes available. This forces parties who might want
to litigate to make the choice of intervening now and
waiting for the later environmental impact statement or
hoping that the environmental impact statement will
answer all of one's concerns so that intervention is
unnecessary. That should not be the way that a
regulatory agency is allowed to proceed.
Furthermore, the environmental impact statement
should be filed at the same time as the notice of
public hearings in order to give members of the public
an initial working paper for their guidance in assessing
the information collected by the agency.
An example of the need for information that should be
contained in an environmental impact statement
involves question number Five set forth by Senator Metcalf.
The "basic data regarding company operations" in the
nuclear fuel management of the proposed generating plant
certainly includes knowing whether or not the applicants
will actually have an adequate supply of uraniiom. Some
people have stated to me that the current stockpiles of
uranium are not likely to meet the demands of the
201
fifty-five nuclear generating plants that are currently
in use, and that should all of the proposed plants be
built, bringing the total number up to about 2 80, it
will be impossible to meet the uranium requirements of
each and every one of those operations. Therefore, it
would be important for the public to know something about
the contracts which the applicants have signed with
companies which might or might not be in a position to
supply the necessary uranium. Yet, in the specific
case involving the proposed Wolf Creek generator, those
who have tried to discover these contracts have been
told that it is a matter of only private concern and not
properly to be considered by the NRC. Whether the NRC
itself will sustain that position is unknown at the
present, but guidance from the Congress in support of
the public's right to know whethex or not the proposed
contracts are actually enforceable from a practical
standpoint would no doubt assist the Commission
considerably and would point it in the direction of
coming down on the public's side of the question.
Furthermore, the amount of uranium available to the
industry in general and the amount of capitalization
of utilities in general cannot be depended upon to reflect
the specific ability of applicants in Nuclear Regulatory
Commission proceedings. Maybe Consolidated Edison has
good contracts and an ample cash flow in financial reserves;
but the question is, does the Kansas Gas & Electric Company
have these qualities. The Commission itself and the public
must be able to obtain the individual company data in the
proceedings so that we can make an informed decision as
to whether or not to intervene and so that the Commission
itself can make the best decision on whether or not to
grant the application.
The question about how the public can get the
necessary information from an agency's files cries for
a wise answer. For years, the Atomic Energy Commission
kept the public from learning about nuclear power and
especially, nuclear problems. Anything that did not cast
the technology in its best light was suppressed. Therefore,
not only does the Nuclear Regulatory Commission have the
usual problem of communicating large amounts of technical
data gathered from diverse sources to its own personnel
as well as the public, it has a rather bad history of
doing exactly the opposite which must be overcome. For
this reason, the Sxobcommittee probably should go out of
its way to develop an affirmative action program for the
-3-
202
NRC to make sure that Senator Metcalf s formulation of
question number Nine is answered by responsive legislation^^
that gives clear guidance to the NRC.
Each of the additional nine questions have ramifica-
tions on the problems of nuclear regulation and nuclear
proliferation, but sufficient answers to the three points
I have raised would go a long way toward overcoming many
of the bad effects of nearly three decades which have
dressed atomic energy and nuclear technology in Madison
Avenue packaging techniques. A full and complete legisla-
tive dealing with these three questions will help ensure
that the other nine are answered by the same standard of
legislative diligence. It is my hope that all of the
senators approach these grave questions which Senator
Metcalf has raised with both open minds and a full
understanding of the awesome ramifications of nuclear
technology so that -our children's children will be able
to pursue the good life within the framework of our
constitution and those absolute values, based on humanism,
which has been the beacon for eight generations of
Americans.
Very truly, yours
/Jim Lawing 0
July 11, 1975 //
203
The Concentration of
Economic Power
by Marklcy Roberts
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Giant corporations dominate the American economy
and the decisions of big business — on U.S. operations
and on foreign operations — vitally affect the nation's
prosperity and the jobs and incomes of millions of
Americans.
Far too often there is no public accountability for
these important decisions — no way for workers, con-
sumers, regulatory agencies or even the elected pub-
lic policymakers to get essential information on the
structure and operations of big business.
Unfortunately, in their public financial statements.
U.S. corporations often conceal far more than they
reveal. Too often, basic cost, price, profit and invest-
ment data are hidden. There is little detailed infor-
mation on the structure, ownership, and operations of
America's giant business and financial institutions and
their interlocking relationships. These economic giants
far too often can avoid effective public regulation be-
cause Congress, government regulatory agencies and
the general public — including representatives of con-
sumers and workers — simply cannot get adequate de-
tailed information.
nomiU 1,1 the AfL-ClO Depart-
The Structure and operations of the U.S. economy
are enormous. With a 1975 population of about 215
million people, the United States has a labor force of
95 million, including about 8 million people officially
unemployed and 2 million men and women in the
armed forces. There are 81 million workers in non-
agricultural industries, including 14 million in federal,
state and local government, and 3.5 million workers
in agriculture.
Manufacturing, with 19 million workers, is the big-
gest source of private, non-agricultural employment.
Wholesale and retail trade provides 17 million jobs,
and services 14 million jobs. Contract construction
accounts for about 4 million jobs; finance, insurance,
and real estate provide another 4 million, with just
less than 700,000 employed in mining.
Union membership is strong among workers in
manufacturing, contract construction, mining, trans-
portationj communications and government. There is
^ relatively low unionization in the service industries,
wholesale and retail trade, agriculture and finance,
insurance and real estate.
Big business is a small part of the total U.S. busi-
ness population. The nation has more than 1 1 million
AFL-CIO AMERICAN FEDERATIONIST
204
firms — 1.5 million business corporations, 6 million
independently owned and operated proprietorships
and 800,000 partnersliips, plus another 3 million firms
engaged in agriculture, forestry and fisheries.
Corporations get about 85 percent of all business
receipts, so it's obvious that most proprietorships and
partnerships are "small business." So are most corpo-
rations. About 85 percent of all business firms had
receipts of less than $100,000 in 1967 — three-fourths
got less than $50,000 and half got less than $10,000.
The overwhelming majority of the 1 1 million
firms — 97 percent — are "small business," with busi-
ness receipts under $1 million a year, according to a
recent Senate Small Business Committee report. The
biggest "small business" would employ no more than
60 workers, the report says, and most have fewer —
only one or two hired workers or even none. There
are only 300,000 "large firms" with business receipts
greater than $1 million.
More than half of the 1 1 million business firms are
in services or retail trade — including very small busi-
ness firms like beauty parlors or "mom and pop"
stores. Another I million firms are in finance, insur-
ance, and real estate. Contract construction has had
more than 800,000 firms in boom times, but during
a recession many of them simply go out of business.
The nation's 400,000 manufacturing firms account
for less than 4 percent of all business enterprises, but
this 4 percent accounts for 40 percent of all business
receipts. And these manufacturing firms have a very
high degree of concentration. The Federal Trade
Commission reports 3,300 manufacturing corporations
with assets of $10 million or more, including 730 cor-
porations with assets of $100 million or more and
120 corporations with assets of $1 billion or more.
A very small number of manufacturing corpora-
tions—the top 100 — get about 50 percent of all prof-
its in manufacturing. The top 200 get 70 percent and
the top 500 get 80 percent.
These top "Fortune 500" industrial corporations are
the ones most people think of when discussing eco-
nomic concentration. These corporate giants had total
1973 assets of more than $500 billion, sales of more
than $600 billion, profits of almost $40 billion and
employed more than 15 million workers, more than
75 percent of all workers in manufacturing. Eight
of the world's 10 biggest industrial companies are
U.S. -based multinational corporations.
In addition to the top 500 industrial giants — led by
General Motors, Exxon and Ford — Fortune Magazine
also lists the top 50 companies in banking, life insur-
ance, diversified financial operations, retailing, trans-
portation, and utilities — another 300 business enter-
prises.
The top 50 banks— led by Bank of America, First
National City Bank, and Chase Manhattan — had 1973
assets of $460 billion, after-tax income of $2.5 bil-
lion, and employed more than 430,000 workers.
Of the 14,000 private commercial banks in the
nation, about 3,000 are affiliated with bank-holding
companies. The 10 biggest banks hold 25 percent of
all bank assets and the 100 biggest banks hold more
than 50 percent of all bank assets. A 1968 staff report
by the House Banking Committee revealed that the
49 biggest banks hold 5 percent leverage control in
more than 5,000 major corporations and hold 8,000
interlocking directorships in more than 6,500 major
business corporations. These banks also control bil-
lions in trust fund dollars, including pension funds.
There is a very high degree of "concentration of
stockholdings in a whole range of companies — en-
ergy, manufacturing, transportation, communications
and retail trade — among a handful of New York
bank trust departments," according to a 1973 report
of the Senate Government Operations Committee.
And the concentration of economic power is still
further increased by these big banks owning large
blocks of stock in each other.
The top 50 life insurance companies — led by Pru-
dential, Metropolitan of New York, and Equitable —
had assets of $205 billion, net income of $1 billion
and employed 410,000 workers. The top 50 diversi-
fied financial companies had assets of $125 billion,
net income of $2 billion, and employed 350,000
workers.
The top 50 retailing companies — led by Sears Roe-
buck, Safeway and A & P — had assets of $45 billion,
net income of $2 billion, and employed 2.7 million
workers.
The top 50 transportation companies — led by
United Air Lines, Penn Central and Trans World
Airlines — had assets of $48 billion, net income of
$860 million, and employed 1 million workers. Penn
Central, $4 billion in assets and $2 billion in oper-
ating revenues, was running a $170 million loss in
1973.
The top 50 utilities — led by American Telephone &
Telegraph, Consolidated Edison of New York, and
Pacific Gas & Electric — had 1973 assets of $180 bil-
lion, net incomes of $7 billion, and employed 1.3
million workers.
In addition to "aggregate concentration" of corpo-
rate assets, corporate profits and employment by cor-
porate giants, the U.S. economy is marked also by a
high degree of "market concentration" in many indus-
tries— a concentration of production, shipments and
sales of the top four companies in a particular indus-
try. This is what economists call "oligopoly" or com-
petition among the few. This kind of "competition"
often results in anti-competitive "administered pric-
ing" with joint action, sometimes in violation of the
antitrust laws, and almost always results in raising
prices above competitive levels. The Federal Trade
Commission has estimated that U.S. consumers pay
as much as an extra $80 to $100 billion each year —
out of total purchases of $900 billion — in higher
prices because of this monopoly power.
Highly concentrated industries — where the top four
companies produce 50 percent or more of total indus-
try output — account for one-third of total manufac-
205
How The Four Biggest Firms Dominate Various Industry Groups
pe,ce„.
■ Percent of 1967 Industry Output by 4 Largest Firms
0 ~ 50 100
Cigarettes
^\ ^, ^, ^^* ^, ^, ^, ^, ; ^
Distilled Liquor
i iiiiiiiii
Cans
i i i i i i i P ~ r
Glass Containers
A A A A A A
Food Flavoring
4 4 4 4 4 4 4 - w .
Autos and Parts
'•^•"•^•'- '^9* *^tl* *'i^#'* *^^ '^•^ *^^ ''^•* '^t'
Photo Equipment
€t $> © © €t- © © e- © *>
Aircraft Parts
7^ ?^ vK ;?( vK 7( ?( 7^ 7< ?r
Source. U.S. Bureau ol Ihe Census and
"Economic Concenlralion," by John Bla.r
turing. These highly concentrated industries include
autos (General Motors, Ford, Chrysler and American
Motors), primary metals (U.S. Steel, Bethlehem,
Armco, and Aluminum Company of America), chem-
icals (DuPont, Union Carbide, Dow and Monsanto),
and electrical machinery (led by General Electric and
Westinghouse).
Another one-third of all manufacturing takes place
in "moderately concentrated" industries where the top
four companies produce 25 to 50 percent of the indus-
try output. The final one-third of all manufacturing
takes place in relatively unconcentrated industries —
but even in these industries the average share of indus-
try output held by the top four companies in each
industry was more than 15 percent.
The available information on economic concentra-
tion and its effects is skimpy and sometimes open to a
variety of interpretations. Nevertheless, it is clear that
a very high degree of economic concentration exists in
the U.S. economy.
No simple answer can explain how all this eco-
nomic concentration came about. In part, big cor-
porations are the result of self-generated internal
growth and the technological imperatives of mass pro-
duction, which in turn depend on expanding mass
markets and widely distributed mass buying power.
Advertising is another part of the explanation, par-
ticularly in consumer goods industries.
"Mergers, more than any single economics factor,
explain the existing structure of the industrial sector
of the United States economy," says Willard F.
Mueller, economics professor at the University of
Wisconsin and former chief economist at the Fed-
eral Trade Commission. "Most contemporary big
businesses owe their relative size to merger-accelerated
growth, and current levels of concentration in many
industries are directly linked to one or more of the
merger movements that have swept through American
industry."
The first big merger wave from 1897 to 1905 in-
volved consolidations of thousands of previously com-
peting firms into "trusts" or giant holding companies.
Some 2,800 mergers took place during these years,
producing such enduring corporate giants as U.S.
Steel organized by J. P. Morgan and Standard Oil of
New Jersey organized by John D. Rockefeller. Many
other giants of American industry like General Elec-
tric, General Motors, DuPont and American Tobacco
were formed from consolidations of hundreds of com-
peting companies.
"There can be little doubt that one of the driving
forces behind the formation of many of these con-
solidations was the desire to eliminate competition,"
says John Blair, now a professor at the University of
South Florida and formerly chief economist for the
Senate Subcommittee on Antitrust and Monopoly.
The second big round came in the late 1920s when
more than 4,600 mergers took place. This time the
food industry and food distribution were added to the
iron and steel and machinery as major areas of con-
AFL-CIO AMERICAN FEDERATIONIST
206
centration. General Foods and retail food chains like
A&P, Safeway and Kroger were organized during
these years. Then, as now, investment bankers and
financiers played a key role in stimulating merger
activity.
The third big merger movement started in the late
1950s and sharply accelerated in the 1960s, reached
a record 4,500 mergers in 1969. The years 1965
through 1972 saw some 19,000 mergers. A new twist
of this third merger movement was the conglomerate
pattern of acquisitions of companies totally unrelated
to the product lines of the acquiring company. In pre-
vious merger movements, the pattern was elimination
of competition (horizontal mergers) or integration
backwards and forward as in a steel mill acquiring
an iron ore company and a steel fabricating company
(vertical mergers).
But the conglomerate merger movement brought to-
gether companies operating in many different indus-
tries and in many different markets and in many
different countries. Textron was one of the early con-
glomerates. International Telephone & Telegraph is a
multinational conglomerate of extraordinary size and
complexity. Much of ITT's merger and acquisition
program was handled by the Wall Street investment
banking firm of Lazard Freres & Co. In a 1971 study
of ITT and four other major conglomerates, a staff
report of the House Judiciary Subcommittee on Anti-
trust concluded that "In view of the large income
derived from merger transactions, it is evident that
the major investment banking firms have been sub-
stantial contributors to the magnitude of the merger
wave."
One effect of conglomerate mergers is to raise
"aggregate concentration" rather than "market con-
centration" in the U.S. economy. The antitrust laws
are fairly explicit in restraining horizontal or vertical
integration within an industry, but much less so on
conglomerate mergers which pull together non-com-
peting business firms.
Economists don'f understand the conglomerate
urge. "In the case of the large conglomerate, our
theory of the firm is clearly inadequate to enable us
to understand its nature or predict its performance —
more or less necessary prerequisites for advice to
policymakers — though the combined trends in con-
centration and growth of conglomerates into concen-
trated markets is sufficient cause for concern," says
James W. McKie, a Vanderbilt University economics
professor writing in a National Bureau of Economic
Research survey of industrial organization. The re-
cessions of 1969-70 and 1974-75 did more to slow
down conglomerate mergers than any effective anti-
trust regulation.
The big U.S. -based multinational corporations op-
erate through 10,000 subsidiaries and foreign affiliates
all over the world with no effective regulation. These
multinational corporations — including almost all of
the "Fortune 500" industrial firms and the top 50
banks — are aggressively expanding their foreign op-
erations, often making profitable deals directly with
communist governments. For many of them, foreign
earnings make up more than 50 percent of total in-
come. So they juggle foreign and U.S. production and
profits to avoid U.S. taxes.
The multinationals export production and jobs of
American workers. They export capital and technol-
ogy developed in the United States at the expense of
the American taxpayer. U.S. multinational expansion
overseas, often in the newest technological industries,
slows U.S. economic growth and cuts job opportuni-
ties at home. This is eroding the nation's industrial
base, and the shutdowns on U.S. plants — as pro-
duction and jobs are shifted abroad — are undermining
the strength of large and small communities through-
out America.
Congress failed to act in 1974 on the AFL-CIC-
supported trade legislation to deal with these prob-
lems, but the problems won't go away.
"Explosive growth by acquisition by our largest
corporations has resulted in changes that confront the
public with a situation where the American economy
will be dominated by virtually self-contained eco-
nomic domains," the House antitrust staff report
warned, with the possibility that "the American econ-
omy will be dominated by a few hundred business
suzerainties under whose influence a multitude of
The Cumulative Total of
Corporate Mergers, 1963-1973
(In Manufacturing and Mining)
1963 64 65 66 67 68
Source Federal Trade Commssio
70 71 72 73
207
ASSETS
AT&T
The Top 10 U.S. Corporations
How They Ranked in Assets, Sales, Profits and Employment in 1973
SALES Sb.lhons 5
Bank of America
' Manhattan Bank
Federal National Mortgage
J.P, Morgan & Co.
General Motors
Manufacturers Hanover Bank
Chemical Bank
General Motors
Standard Oil Calif,
Sears Roebuck
■ _
''■^f^!J;L?-:L? ^.^. ^''^P'-OYEEs
[^|# H 1^ ly 1^ I] [General Motors
f#[#|#[#|i AT&T
\W I ^ I ^ I ^ I f Ford Motor Co.
f gf ' '''
WW J Sears Roebuck
W|# I General Electric
|#|J I IBM
# ■ Chrysler
!#[€ I Woolworth
l#ir I I I I ~ Western Electric
P
i
small, weak, quasi-independent coqjorations will be
permitted a subordinate and supplemental role."
This pictures does not bother such "avant garde"
social critics as John Kenneth Galbraith who sees "the
highest level of development" in such corporate giants
as General Motors, General Electric and IBM. In this,
Galbraith echoes the big business view of romantic
glorification of swashbuckling "captains of industry."
One unfortunate result of this willing acceptance of
big business concentration of economic power — which
Galbraith would like to socialize — is a too-easy rejec-
tion of antitrust policy or regulation as a national pur-
pose and a rejection of business competition as an
essential part of American economic life to benefit
consumers and to achieve economic progress.
Persistent critics of Galbraith's theories include Pro-
fessor Mueller and Professor Walter Adams of Michi-
gan State University. They argue that Galbraith's
"new industrial state" is based on a false "technologi-
cal imperative," on a wrong assumption that "bigness"
is the result of technology requirements for large-scale
production, invention and innovation. In fact, they
point out, careful studies on this subject show that
productive efficiency, invention and innovation slow
down in big corporations and in highly concentrated
industries.
There is, therefore, a strong economic argument
for government policy on economic concentration —
in addition to the basic social and political need to
control and, wherever possible, to prevent gigantic
concentrations of business power which can under-
mine democratic institutions.
No simple summary of U.S. policy or economic
concentration is possible — and the results are some-
m"'
wt
what ambiguous. Although "aggregate concentration"
has increased, the situation in "market concentration"
is less clear. The twists and turnings of antitrust pol-
icy in U.S. history don't paint a clear picture.
In 1890, passage of the Sherman Act made it
illegal to "monopolize trade" and Congress also out-
lawed all "combination or conspiracy in restraint of
trade." In 1911 the Supreme Court broke up the
Standard Oil trust and the tobacco trust, but set forth
a "rule of reason" that only unreasonable restraints on
trade were illegal. This seriously weakened all sub-
sequent antitrust policy.
In 1914 Congress passed the Clayton Act to out-
law specific anti-competitive actions like price dis-
crimination and interlocking directorates. Also in
1914 Congress set up the Federal Trade Commission
to fight anti-competitive, monopolistic practices of
U.S. corporations. And in 1950 the Celler-Kefauver
Antimerger Act stopped horizontal mergers by acqui-
sitions or purchase of assets.
One source of continuing ambivalence in the na-
tion's approach to antitrust policy is the difference
between "structure-oriented" experts who say the
mere possession of concentrated, monopolistic power
is wrong and should be broken up and the "action-
oriented" experts who say that only illegal conduct is
wrong and should be stopped.
Either way, it's important to have the facts — and,
unfortunately, accurate information on the structure,
conduct and performance of the big banks and cor-
porations is woefully lacking. The massive studies and
reports of the Temporary National Economic Com-
mission of the New Deal era are far out of date.
The Senate Small Business Committee headed by
AFL-CIO AMERICAN FEDERATIONIST
208
Sen. Gaylord Nelson (D-Wis.) has spotlighted the
role of giant corporations in agribusiness, energy and
natural resources, and the need for more informative
corporate reporting.
Public hearings by the Senate Antitrust Subcom-
mittee headed by the late Sen. Estes Kefauver (D-
Tenn.) and more recently by Sen. Philip Hart (D-
Mich.) have divulged important industry information.
And Senate Government Operations Committee stud-
ies pushed by Sen. Lee Metcalf (D-Mont.) and Sen.
Edmund Muskie (D-Maine) have revealed the extra-
ordinarily high concentration and control of the na-
tion's biggest corporations in the top six New York
City "superbanks." But much more information is
needed on the ownership and on the domestic and
foreign operations of the big banks and big corpo-
rations.
Workers have a direct interest in getting more in-
formation about the corporations with which they
bargain. Annual corporation financial reports don't
give enough information and it's difficult to bargain
effectively with subsidiaries of big corporations. Fi-
nancial information on subsidiary companies is hidden
in consolidated financial reports of conglomerates. And
U.S.-based multinational firms can export technology,
production and jobs to their foreign subsidiaries be-
fore unions can find out what's going on.
The big, muhi-product, multi-market, multinational
corporations don't want to reveal line-of-product sales,
cost, price and profit data. They want to keep the
secrecy barrier which protects them from criticism and
regulation.
Much more adequate public disclosure of basic eco-
nomic information is needed. The quarterly line-of-
business reports now required of the top 345 manu-
facturing corporations by the Federal Trade Commis-
sion are only a small step in the right direction.
Also aimed in the right direction are the model
corporate disclosure regulations proposed by a federal
interagency committee to get detailed information on
corporate structure, voting stock ownership, interlock-
ing corporate directorships, and many other aspects of
the structure and operations of big corporations.
The AFL-CIO has called on Congress for a compre-
hensive investigation of the structure of the U.S. econ-
omy, the role of mergers and acquisitions at home and
abroad in increasing economic concentration, the in-
terlocking relationships among the giant corporations
and banks, their control of key parts of the U.S. econ-
omy, their effects on prices, income distribution,
America's position in the world economy and the im-
pact of these tremendous aggregations of economic
power on democratic institutions.
Without adequate information, economic policy-
making is seriously handicapped. Accurate, timely,
comprehensive information i^ an essential check on
concentrated economic power. "Sunlight is the best
disinfectant" was the advice from Supreme Court
Justice Louis D. Brandeis, an early opponent of ex-
cessive business power.
How One Big Bank Controls
Other Major Corporations
Leverage Control Stock Ownership
and Interlocking Directorates*
Reprinted from May 1975
AFL-CIO AMERICAN FEDERATIONIST
209
(Staff Note. — According to the most recent information at the Federal Re-
serve System, 30 commercial banks did not participate in the July, 1975 Monthly
Interest Rate Survey. Half of these banks (18) are among the .'JOO largest banks
(according to deposits) ranked in Moody's Bank & Finance Manual (as of
Dec. 31, 1974). The largest of these 18. Security Pacific National Bank of Los
Angeles, was ranked No. 10 in size. The next largest, Wachovia Bank and Trust,
N.A.. of Winston Salem, N.C., ranked 29th.)
Board of Governors,
OF THE Federal Reserve System,
Washington, B.C., September 16, 1975.
Mr. Victor Reinemer,
Staff Director, Subcommittee on Reports, Accminting and Management, Com-
mittee on Government Operations, U.S. Senate, Washington, B.C.
Dear Mr. Reinemer: Pursuant to your request of September 10, 1975, please
find enclosed a list of those commercial banks that participated in the Board of
Governors' Monthly Interest Rate Survey for the month of November 1974, and
that failed to so participate for the month of July 1975, the latest survey period
for which results are available. Also enclosed is a list of seven commercial banks
that reported rates on consumer installment loans for the November 1974 survey
period, and that failed to report such rates for the July 1975 survey. These
seven banks do, however, continue to participate with respect to other portions
of the survey.
It should be noted that all of the banks listed on the attached schedules may
not have permanently discontinued their voluntary participation in the Board's
Monthly Interest Rate Survey as a result of the Board's decision to release indi-
vidual bank data, since some of the listed banks may, for some other reason,
have failed to respond to the July 1975 survey.
If I can be of any further assistance to the Subcommittee in this matter, please
feel free to contact me.
Sincerely yours,
Kenneth A. Guenther,
Assistant to the Board.
Enclosures.
Banks which voluntarily parti<yipated in the Board of Governors' November 1974
monthly interest rate survey but not in the July 1975 survey
Bank Name City and State
Maplewood Bank & Trust Co Maplewood, N.J.
Hempstead Bank Hempstead, N.Y.
Security National Bank Hempstead, N.Y.
Hazelton National Bank Hazelton. Pa.
Central National Bank Cleveland, Ohio
Dollar Savings & Trust Co Youngstown, Ohio
American National Bank of Md Silver Spring, Md.
Wachovia Bank & Trust Co., N. A Winston Salem, N.C.
South Carolina National Bank Charleston, S.C.
Bankers Trust of South Carolina Columbia, S.C.
Fort Lauderdale National Bank Fort Lauderdale, Fla.
St. Petersburg Bank and Trust Co St. Petersburg, Fla.
Exchange National Bank of Tampa ^ Tampa, Fla.
Fulton National Bank of Atlanta Atlanta, Ga.
Citizens and Southern National Bank Savannah, Ga.
First National Bank of Commerce New Orleans, La.
LaSalle National Bank Chicago, 111.
Union National Bank & Trust Co Joliet, 111.
Peoples Bank & Trust Co Cedar Rapids, Iowa
Council Bluffs Savings Bank Council Bluffs, Iowa
First National Bank of Dubuque Dubuque, Iowa
City National Bank of Detroit Detroit. Mich.
Detroit Bank & Trust Co Detroit, Mich.
First National Bank in Mount Clemens Mount Clemens, Mich.
Citizens National Bank & Trust Co Baytown. Tex.
Security Pacific National Bank Los Angeles, Calif.
Great Western National Bank Portland, Oreg.
First Security Bank of Utah Ogden, Utah
Valley National Bank of Arizona Phoenix, Ariz.
210
Banks which reported consumer installment rates for the Board of Governors'
November 1974 monthly interest rate survey but not for July 1915 survey
Bank Name City and State
First Agricultural Bank of Berkshire Pittsfielcl, Mass.
New Jersey Bank, N. A Clifton, N.J.
North Carolina National Bank Charlotte, N.C.
Society National Bank of Cleveland Cleveland. Ohio
Ohio Citizens Trust Co Toledo, Ohio
Provident National Bank Bryn Mawr, Pa.
First <& Merchants National Bank Richmond, Va.
[From The Washington Post, Sept. 12, 1975]
Vepco Fined $60,000 for A-Plant Fault
(By Hal Willard)
The strongest penalties ever imposed on the nuclear power industry were levied
yesterday against the Virginia Electric and I'ower Co. for violations in connection
with construction of its four-reactor plant over a geologic fault in Louisa
County.
The Atomic Safety and Licensing Board fined Vepco $60,000, the maximum
allowed by law, and set up stringent conditions that the company must meet to
maintain a nuclear license for its North Anna plant.
Vepco characterized the decision yesterday as "novel" and said the company
"expects to appeal."
In the history of the use of nuclear energy only nine civil penalties have been
levied against power companies. Vepco has received three of them. No other
company has received more than one.
"In view of the licensee's high rate of ciyil penalties," the ASLB said, ". . . the
staff (of the Nuclear Regulatory Commission) is requested to evaluate the li-
censee's performance in depth to determine whether additional monitoring . . .
is needed beyond that employed in the routine follow ups to violations and
infractions."
Vepco was convicted of making 12 "material false statements" to the NRC in
reference to the geologic fault. In essence, they were that Vepco said there were
no faults at the North Anna site and none were su.spected. All parties, including
Vepco, now agree the fault exists.
The law says a fine of $r),(X)0 is the maximum that may be imposed for such a
violation : 12 violations equals $60,000.
Three conditions were imposed with the fine :
The chief executive officer of Vepco shall issue "a statement of policy express-
ing the strong commitment" of Vepco to "fully discharge all of its responsibilities,
duties and obligations" under the Atomic Energy Act and NRC rules and reg-
ulations . . ." The ASLB also said it wants Vepco to state that it understands the
need for NRC evaluation of all safety matters. This must be issued within 30
days.
Vepco "shall prepare a management evaluation and analysis of its entire cur-
rent organizational structure from the point of view of its effectiveness in im-
plementing the statement of policy required above." The ASLB said it wants to
make sure Vepco has the "management characteristics needed to provide the
necessary confidence in the ability" of Vepco to implement is statement of
policy. ,
Vepco "shall analyze and report on its contract policy with those contractors'
it hires for projects requiring permits or licenses from the NRC. "The intent of
the board is to assure that contractors employed by the licensee are committed
and clear as to their obligations and responsibilities . . ."
The geological conditions at the North Anna site were investigated by Vepco
consultants in 1968 and 1969. They said they found no fault. An outside geologist
found the fault in 1970 and Vepco's consultants confirmed the fault in May, 1973.
Vepco said yesterday : "Naturally, we are disappointed because, as all parties
agreed, the statements made by Vepco were believed to be true at the time they
were made. There was never any intent to mislead or deceive anyone."
211
The VSLB addressed itself to that point : If Vepco "were permitted to avoid
responsibility because its agents or its independent contractors failed to inform
it of material information, it could thwart the purpose" of the Atomic Eueiry
Act which includes protecting "the health and safety of the public."
All nuclear power plants are designed to withstand earthquakes. However,
none have been subjected to an earthquake so the design isn't proven. It is feared
that if the design failed, lethal amounts of radioactivity might be released from
a nuclear plant.
The presence of a geologic fault means the earth has moved at some prior
time— and the likelihood is greater that it will move again there as opposed to a
location that has always been stable. ,, , , .i. *
Previous official government actions have declared the North Anna site safe
under the NRC criteria, which stipulates that geologic evidence show the earth
has been stable for at least 3r,.()00 years. The North Anna site, most geologists
aereed at hearings there, has been stable for millions of years. v •,*. ^
However, most also said that nuclear power plants should not be built on
"^Thf 'iSv loS'sVeSon is the culmination of efforts by a citizens' enviroi.
mentalist group the North Anna Environmental Coalition, that brought the
SSstence .ff the fault to public attention in August, 1973, and has pushed for
"^: e?:i"nSSSmrbrought the original charges ofmaking material
falsfstrtemenJs against Vepco, citing 19 violations. The NRC staff agreed on
^'^^S^Zd^pcIISTSstSice SXfault to the NRC in May, 1973 The late
Dr John F nkl ouser, a professor of geology at John Tyler Community Co ege
hi ChesteiYa disco ered the fault in February, 1970, and said in ^ deposition
to the NRC that he reported his findings to the Vepco engineer Herbert Engel-
™ En.'^'lnuu/Il'stmtd at a hearing that he didn't remember being tolcl^ and Vepco
officious tettt Hi ha he never reported the Funkhouser discovery to the company.
The truthf 1 ess and completeness of information provided by tbe Jiower c^m-
„aii es to the NRC "goes to the very heart of the regulatory process, the safet
boa -d said The NRC depends on "quality assurance" programs withm each
power cSmpanv to back up its own inspections in an effort to guarantee safet.v^
^ n it^stafe neiit yesterday, Vepco said "if ultimately the company is required
to m the fi^, it would be excluded as an expense for rate-making Purposes ^
Cmipanv officials originally had testified at a safety board hearing that an>
fines would be charged to rate paying customers, but the Virginia Corporation
Commission said fines must be paid out of profits. ^ , -n, T^^^mnkiflP^ nnd
The safetv board's report was signed by chairman John B. Farmak ides anrt
John f'. Woif. The third member, Lester Kornblith, Jr., filed ^'^^"l^""^,;^'^;!;"^"
ing In part," and declaring that he felt there were only four material false state-
ments, but that one was so blatant it should carry a $(;nOOO fine.
O
MG CO,
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