Mr. MCLELLAN. Well, I think, Mr. Chairman, that our first step, and the one that Senator Long is expressing himself completely on, is that as a beginner we have to be sure we are all working with the same numbers and understand what they mean.

Senator HARTKE. Let's short circuit that. The fact remains that the United States is inextricably related to every other country; if we have a surplus, and they have a deficit, they are in trouble.

Mr. MCLELLAN. You are on payments now?

Senator HARTKE. Yes, on the balance of payments. And whenever we correct our situation to make it easier for them to get out of their problems, or to avoid devaluing their currency, the net result is all we do is shift the recession and difficulty from one nation to another. That is what led to this austerity diet we are trying to fumble through at the present time, and the difficulty is it produces 41/2 million unemployed people here in the United States.

Mr. MCLELLAN. When I was a small boy in Nebraska, Mr. Chairman, we recognized in marble games if one kid had all of the marbles there wasn't any more game.

Senator HARTKE. That is right. But, the net result of this is that it is saying to the United States we are going to continue to have an affluent society at the expense of putting about 5 percent of our people out of work continually. That is what it amounts to.

I am not asking you to agree, but it seems the Government is saying that those who are in society are going to live better, because we are going to make some live worse. I don't ask you to comment on that. I just hope you can straighten up this reporting system, that, at least, would be some help.

What do you think can be done in regard to exports, as far as the business community is concerned? Do you believe more can be done in this field?

Mr. MCLELLAN. Yes, sir, I do, Mr. Chairman. I mentioned before we are spending relatively small amounts on, from the Government's point of view, export expansion. We think more can be done. We think more can be done to get more U.S. companies involved in export activities and we intend to continue that effort.

Senator HARTKE. Do you think we ought to have more foreign commercial officers?

Mr. MCLELLAN. I think there is a good argument for more of them. Senator HARTKE. You think that would be helpful?

Mr. MCLELLAN. Yes, sir.

Senator HARTKE. Do you believe that promotion policies with respect to these foreign commercial service officers should be changed? Mr. MCLELLAN. Are you talking about sales promotion here? Senator HARTKE. Yes.

Mr. MCLELLAN. Or career promotions?

Senator HARTKE. I am talking about career promotions as a means of improving our sales promotion efforts.

Mr. MCLELLAN. I see. Gentlemen, I do. And this again I think helps to put it into perspective for a moment. Coming out of World War II, when there was no pressure on us to go out and do our best job in selling American products, in fact it was the contrary, we had gold reserves, we had economic strength, and the governmental commercial

economic people really had no pressure on their services to go out and do much about it.

That has changed. We have come to this competitive point we talked out earlier in the hearing and there is a great need today for governmental support abroad of the American businessman trying to do more business overseas.

Senator HARTKE. Can you relate that to what other countries are doing in relation to their promotions with their officers?

Mr. MCLELLAN. Yes; I can. Britain recently published the so-called Duncan Report, a three-man commission headed by a gentleman named Duncan, to improve the character of the British Foreign Service in terms of commercial developments.

In that report they are making the point that that has to be the No. 1 call on the British Foreign Service.

Senator HARTKE. Can you supply a copy of that Duncan Report for the committee?

Mr. MCLELLAN. What I can do, Mr. Chairman, if not a copy, I can give you a summary of the report that I think would give you what

you want.1

Senator HARTKE. We have a new government over there. Maybe they would be glad to share it with us.

Mr. MCLELLAN. I think they would.

Senator HARTKE. What about import quotas generally? Are you in a position where you can express an opinion on this? Are you generally in favor or opposed to them?

Mr. MCLELLAN. Mr. Chairman, I don't think you can be for or against quotas. I think you have to be for that which is in the best interest of the United States.

Senator HARTKE. That is a safe answer.

Mr. MCLELLAN. Thank you very much.

Senator HART. Senator Hartke and I will try that out in the next couple of weeks.

Senator HARTKE. You are familiar with the 1962 Trade Act?
Mr. MCLELLAN. Yes; sir, I am.

Senator HARTKE. Trade Expansion Act.

Mr. MCLELLAN. Trade Expansion Act of 1962 is the present statute. Senator HARTKE. It offered great hope and produced nothing except propaganda victories. But it has an adjustment assistance section of which I have been very critical, and it was, generally speaking, unused. Mr. MCLELLAN. That is right.

Senator HARTKE. Are we doing anything to change that?

Mr. MCLELLAN. Yes; as a matter of fact we are, we think we are. Your reference to the historical fact is certainly correct.

You appreciate I am sure that the adjustment assistance portion of the bill provides for adjustment assistance on the one hand to labor that has been found injured by imports, and on the other hand it applies to adjustment assistance to companies that have been injured.

Until recently there had been no cases-maybe there was one case sometime back. But until recently there had been no cases, no findings of injury for adjustment assistance. In the past year there have been I think two cases of injury finding for labor-this would have been

1 The summary appears on p. 56.

in 1969-and recently there have been I think three industry findings of injury, the barber chair industry, the glass industry I think and the piano industry, as I recall.

Once the Tariff Commission finds the industry has been injured, then the companies may apply for certification of injury. It is my responsibility to certify them as having been injured: That is after the industry finding by the Tariff Commission.

We, then, through an operating unit within my area of responsibility investigate the adjustment that this company can make reasonably to adjust away from the injury that they have experienced-a new area of the business; or new methods, more efficient ways of operating, what have you. We work with them to develop that.

And then we help them find funds to help them in their efforts. They can get funds for technical assistance; they can get funds from the Economic Development Administration, if it is part of the original problem. More often they will get funds from SBA, small business loans, to help them in their adjustment process.

We have the first company case just coming through now, that has gone the full route.

Senator HARTKE. Indiana is one of the biggest steel producing States in the Union. We are getting bigger every day. But there is this question of imports of steel which have been verp sharp and rapid in proportion to domestic consumption.

The voluntary restrictions have been in effect now for a little over 2 years. What is your judgment as to what will occur with the extension of the voluntary agreement? Will it be extended? Should it be?

Mr. MCLELLAN. My own view is that it has been a very effective device, and I am sure that the industry by and large does want to extend it. I think there may be a need for some corrections in that.

As you know, while it served the overall purpose of bringing down the total tonnages there have been some problems in it where it hasn't served the purpose on high-value low-weight products————— Senator HARTKE. The so-called mix.

Mr. MCLELLAN. That is right, the mix is off somewhat. But with that qualification I think the agreement has been a good one. It would seem to me a continuation of it would be in the interest of the industry and the country.

Senator HARTKE. Sometime ago there was discussion concerning the imposing of controls on exports of scrap steel. Has anything been done on that lately?

Mr. MCLELLAN. I am the person responsible for this action, so I can respond to that very readily. The steel scrap situation has become critical, going back over the last 2 years; we are exporting now at the rate of about 11 million tons of scrap a year, as against a 5-year average of 6.7 millions tons I think it is.

What happened really was that the price, the composite price on bundled scrap, had risen to a high of $46 and some cents per ton in March of this year, but has fallen off appreciably now. We are down to about $38 a ton.

So we have gotten a drop in the price which is roughly what you would have tried to get by applying controls in the first case. So as I see it at this point in time, the case for putting on controls doesn't really exist.

I think the key point here, Mr. Chairman, is that it is a very delicate price-demand situation. We must monitor it very carefully, because it is conceivable as steel consumption picks up in the third quarter, perhaps we might have a problem on our hands that could justify control action.

Senator HARTKE. What about coal?

Mr. MCLELLAN. Coal is a very serious problem. This is presently being handled for the most part in the Energy Subcommittee of the New Domestic Council under the chairmanship of that is the subcommittee is under the chairmanship of Dr. McCracken of the Council of Economic Advisers; the subcommittee is looking at the total energy situation, including coal.

From where I sit, coal is a problem, because we have something like 200 mines shut down on wildcat strikes. Our coal production is being severely curtailed and our coal stocks are very low, particularly of the high-grade metallurgical coal for the steel industry.

There is a big foreign market on this type of coal, and has been. Coal, both as a general fuel and more specifically as a metallurgical process resource, is a serious problem.

Senator HARTKE. Isn't there a possibility that our domestic steel mills may be closed because of unavailability of coal?

Mr. MCLELLAN. I couldn't honestly answer that. I don't know. Senator HARTKE. I wish you would check. I understand some of them are down to less than 3 weeks supply of coal.

Mr. MCLELLAN. The reserves are very low. I am aware of that.
Senator HARTKE. And the exports continue to be very high.

Mr. MCLELLAN. In fact we are not meeting the export market. There could be more shipped than there is now. So it is a production problem. Our interest is in doing what they can to protect the mines and to increase the production.

Senator HARTKE. What about walnut log export?

Mr. MCLELLAN. You are aware of the short supply control problem. These are the hardest decisions we have to make.

Senator HARTKE. That is what you are there for.

Mr. MCLELLAN. And the arguments on the walnut log question have been in abundance, very profound, somewhat confusing, on both sides. The problem is really that you have got two walnut log situations in the United States as you know.

In the Appalachian region by and large we have the wild walnut log growing. These logs, they tell me, by and large, go into the sawed walnut lumber business. This is in contrast to the walnut logs in the Midwest to go to the veneer market.

The problem is in the higher quality midwestern log and the veneer market. Export controls to prohibit or control export of the logsI might add there is a control on logs now, as you know, with no quotas; it is a surveillence device to monitor and get statistics on the total shipments. If you put a quota on logs, then you are denying the Appalachian farmer who relies on the export market for the shipment of his logs in lumber, and if you don't put a control on you face the problem that we are consuming 50 percent more than we can bring into production every year, which ultimately has an impact on the high quality veneer furniture economic chain. We have not made a decision on this yet.

Senator HARTKE. You will keep us advised.
Mr. MCLELLAN. Yes, sir, we will.

Senator HARTKE. Senator Long?

Senator LONG. I would just like to say I think you have made a good witness, Mr. McLellan. I think you have responded very well to what we have asked you here today and I will enthusiastically vote for your confirmation.

Mr. MCLELLAN. Thank you, Senator.

Senator HARTKE. Let me say to you I want to add my congratulations on your selection and say to you it looks very good. Thank you for your time this morning. You have some hard decisions to work on. That is why we have very competent men in these tough spots, to make the hard decisions.

Mr. MCLELLAN. Thank you, Mr. Chairman. I appreciate that. Senator HARTKE. We are glad you are there to help make them. Are there any other witnesses? If not we will adjourn.

(Whereupon, at 10:55 a.m., the subcommittee was adjourned.)

(A summary of the Duncan Report referred to by Senator Hartke follows:)

CHAPTER I.-THE ROLE OF OVERSEAS REPRESENTATION IN THE CONDUCT OF BRITISH FOREIGN POLICY

COSTS

Overseas representation absorbs a tiny proportion of British Government expenditure, almost exactly 1 per cent of the total-but it is a significant user of foreign exchange. The identifiable costs of overseas representation, as the Committee has understood the term (í.e., including not only the operations of our representatives abroad but also those of the offices directly concerned with their work at home), amount to £105.8 million. The detailed composition of this figure is set out in Annex C. The broad item of "Support of External Policies" is shown in the Estimates 1968-69 (Comnd. 3583/1968) as costing £2,704 million; but the great bulk of this is spent on Defence and the next largest element in the total is Aid. Overseas representation comes third. However, the last does account for some 10 per cent (£50 million) of Government foreign exchange expenditure. Foreign Governments and international organisations are estimated to spend a roughly equivalent sum in foreign exchange to maintain their official representation in Britain.1

2. The conventional definition of expenditure on “Overseas Representation" covers the Diplomatic Service Vote (£47 million) plus the supporting costs borne on the votes of the Foreign and Commonwealth Office and other Government Departments. We came to the conclusion that this was too restrictive a definition; it would, for instance, exlude the Board of Trade's export promotion activity overseas. Our own view is that all activities financed out of public funds which are concerned with the conduct of British external relations, other than by the deployment of force (military means) or by means of financial subsidies to foreign Governments (aid), belong within the scope of the Committee's enquiry. The two exceptions noted in the last sentence cover most of the work done by the Ministry of Defence and the Ministry of Overseas Development, though not all of it. There is a representational function performed by the Defence Attachés and by officials in diplomatic Posts overseas whose business is the administration of British aid policies. The latter is a comparatively new task which involves over 50 officials in a whole-time capacity (and others part-time) and is to be distinguished from the work done by the much larger number of British technicians and advisers who are engaged on particular aid projects and technical assistance overseas. We think of external relations in this broad sense as including the communication of British views and ideas and the exertion of British

1 All cost figures in this Report, unless otherwise stated, are from 1968-69 estimates. Future cost figures are at constant (1968) prices.