Page One. Page Two. Paragraph 1 Although ferrochrome imports have been steadily rising, Simmons fails to mention that the domestic American

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1 FACTUAL ANALYSIS OF LETTER DATED 26 JULY 1974 FROM R.P. SIMMONS TO HONORABLE H. JOHN HEINZ, III Page One paragraph 1: no comment, paragraph 2: no comment. Paragraph 3: This is misleading. Although it is difficult to accurately ascertain the motives of Allegheny Ludlum in pursuing so strongly the defeat of S.1868, it is clear that: a. A.L. is the largest consumer/importer of Rhodesian ferrochrome in the United States, b. UNIVEX, the Rhodesian trade monopoly, has established expecially low prices for ferrochrome bought by U.S. companies in order to continue the foreign currency flow and moral support which the Byrd Amendment has given them. c. The actual significance of Rhodesian ferrochrome to the overall U.S. Steel Industry is not very great. In 1972, U.S companies imported 11,835 tons of Rhodesian high carbon ferrochrome, or 6.2% of the amount they consumed, while they imported 3,578 tons of low carbon ferrochrome from Rhodesia, or 2.9% of consumption. In 1973, Rhodesian high carbon ferrochrome represented 18.2% of steel industry consumption and Rhodesian low carbon ferrochrome 10.8%. For the first five months of 1974, Rhodes ian imports accounted for 6.6% of the steel industry's consumption of high carbon ferrochrome, and 2.2% of their consumption of low carbon ferrochrome. Consequently, it cannot be assumed - as paragraph three does - that the loss of Rhodesian low and high carbon ferrochrome (2.2% and 6.6% of this year's respective consumptions) would have a significant effect on market ferrochrome prices. Except, of course, for those companies which are getting a special deal from UNIVEX. Page Two Paragraph 1 Although ferrochrome imports have been steadily rising, Simmons fails to mention that the domestic American

2 -2- industry has the capacity to meet our national ferrochrome needs. Between 1971 and 1972, the domestic ferrochrome^tndustry increased its^production of "High carbon ferrochrome (which Rhodesia specializes ihv by 2Q.2fe. The following year, 1973, these industries agath increased production to' an all time high of j>34, 102 tons, or 38.1% over The result has been a 77.1% increase of domestic high carbon ferrochrome production since Total domestic ferrochrome production (of all types) for the first five months of 1974 has kept pace with previous increases, and has reached a JLe^eJL of 177,198 tons (or 425, 275 tons annualized). These increases in domestic ferrochrome production and particularly the increase in domestic high carbon ferrochrome production - are important for the following reasons: a. Rhodesia's importance to the American Stainless Steel industry is as a supplier of high carbon ferrochrome, one of three types of ferrochrome. 90.8% of Rhodesia's ferrochrome sales to the U.S. last year was high carbon ferrochrome. Ib. ' The American steel industry, which responds to a cyclical demand for steel products, is presently at the tip of a steel boom. As the steel boom passes, the demand for steel, stainless steel, and hence ferrochrome and high carbon ferrochrome, will also decline. American ferrochrome producers have increased their production capacities for high carbon ferrochrome 77.1% in the past two years to 234,102 tons: the highest in U,S, history. They can increase production even further, as they have done in the first five months of When the steel boom passes, the American ferrochrome industry, which has been increasing its production without any significant supply of chrome ore from Rhodesia,* will have the capacity on hand to produce more than the steel industry's requirements of high carbon ferrochrome. Dependence on foreign ferrochrome producers for high carbon ferrochrome should, therefore, decrease over the next eighteen months, as the tip of the steel boom passes. Unless, of course, some domestic 4.8% of metallurgical chromite consumed by the ferrochrome industry in 1973 came from Rhodesia. and 4.4% for January - June of 1974.

3 -3 stainless steel producers continue with a special arrangement to obtain low cost Rhodesian ferrochrome in violation of the U.N. Sanctions. Paragraph 2: Global supplies of chrome ore are not at present critically short, and our nation is not vitally short of chromium. As noted above, domestic production of ferrochrome (alternatively known as chromium) has been increasing rapidly to keep pace with the cyclical steel boom. Similarly, alternative foreign sources of ferrochrome exist and are rapidly increasing, if the domestic industry became unable to keep pace with the requirements of the steel industry. There are at least a dozen major non-rhodesian producers of ferrochrome which we have imported from over the past several years. These are: Japan. Until Rhodesia began dumping high carbon ferrochrome on the U.S. market in 1972, Japan was the largest external source of ferrochrome to the U.S. steel industry. They have supplied us with over 17,000 tons of ferrochrome in the past three years. Finland. The second largest exporter of high carbon ferrochrome to the U.S. prior to the lifting of the Rhodesian Sanctions. Since then, they have been pushed to third, having sold the U.S. over 26,000 tons of high carbon ferrochrome in the past three years. South Africa. For some time the largest exporter of low carbon ferrochrome to the U.S., has also been a significant source of high carbon ferrochrome They ranked third before Rhodesian chromium became available, and for the first five months of this year, have been the largest foreign supplier of high carbon ferrochrome to the U.S. stainless steel industry. Over the past three years, South Africa has supplied the U.S. with over 95,000 tons of high carbon ferrochrome. West Germany has continued to be a significant foreign source of high carbon ferrochrome ranking fourth before the Sanctions were lifted.

4 .4- Yugoslavia. Another significant source of high carbon ferrochrome which has increased its sales to the U.S. over the past year. Indeed, in the first five months of this year, Yugoslavia has sold the U.S. more than it did throughout Brazil. Perhaps the nation most anxious to increase high carbon ferrochrome sales to the U.S., the Brazilians have increased exports of high carbon ferrochrmoe to the U.S. steadily over the past five years, until last year they became our fourth largest foreign source. Sweden. Prior to the Byrd Amendment, Sweden was the third largest foreign supplier of high carbon ferrochrome to the U.S. and has continued a steady supply. There are many other potentially major foreign sources of high carbon ferrochrome, such as Spain, Norway, India, Turkey, and Belgium,all of which are significant producers and have exported high carbon ferrochrome to the U.S. in the past. The additional comments made in this paragraph about the automotive catlytic converter and other environmental control devices are both theatrical and misleading. The catalytic converters which are required by the Clean Air Act of 1970, will be installed on some nine million automobiles this year and next, according to the Environmental Protection Agency. Each converter is encased in a low grade stainless steel housing weighing approximately 25 pounds. Consequently, the total amount of low grade stainless steel required for catalytic converters will be roughly 112,500 tons. Since low grade stainless steel is composed of roughly 10% chromium, the amount of chromium required by the automobile catalytic converters will be roughly slightly over 11,250 tons or 3.7% of the tons of chromium content in ferrochrome for No where near the major market impact implied by Paragraph 2. paragraph 3: Ferrochrome is used principally in the production of specialty steels, the most important of which are stainless and tool steels. U.S. consumption of these steels has been following the cyclical pattern of the

5 5- steel industry for some time. Following closely has been U.S. production of specialty steels and U.S. production of ferrochromiums. Between 1971 and 1974, the United States has been on the upward side of a steel boom, and consequently domestic stainless and tool steels have been increasingly produced. Some of these specialty steel companies have secured special relationships with UNIVEX, the Rhodesian trade monopoly, and through it supplies of below-market-cost ferrochrome. These special deals with Rhodesia have worked to the detriment of the American ferrochrome industry, which has, as we have seen above, increased its production of ferrochrome by 77% since The charts provided by Simmons are confusing and/or innacurate. The chart entitled, for example, "Chromium Consumption-Production-Imports" does not reflect ferrochrome consumption, production and imports. (It lists U.S. chromium consumption for 1973 as 650 million pounds or 325,000 tons, while the U.S. Bureau of Mines lists U.S. ferrochromium consumption for 1973 as 491,073 tons and high carbon ferrochrome consumption as 253,077. Similarly, if the chart refers to chrome content of ferrochrome or metallurgical grade chromite, it is inaccurate.) The domestic ferrochrome industry undeniably must struggle to compete with imports and in February of this year, the Environmental Protection Agency relaxed the ferrochrome industry's emmission regulations in order to assist it in doing just that. At the same time, however, they will never be able to compete with Rhodesia's UNIVEX, which can set its ferrochrome prices at any level necessary to insure a share of the U.S. market. NOTE: The allegation that South African ferrochrome contains some Rhodesian chrome ore is completely without foundation. U.S. Bureau of Mines officials investigated this charge just two months ago and concluded that it was untrue. Besides which, South Africa has large deposits of metallurgical chromite from which to draw. page Three Paragraph 1: There is no question but that the American ferrochrome industry has the capacity to supply all, or nearly all, of the stainless steel industry's requirements for ferrochrome. As we saw earlier, this will

6 -6- even more true in the coming months as we reach the down slope of the current steel boom. There is also no question that the domestic ferrochrome industry can meet these demands without the use of Rhodesian chrome ore/ as they have been since UNIVEX stopped selling chrome ore to the U.S. last year. Indeed, while the U.S. ferrochrome industry has been increasing its production of high carbon ferrochrome by 30% a year, they have been buying an increasingly smaller amount of chrome ore from Rhodesia. Instead, they have turned to the largest producer of chrome ore in the world, the Soviet Union,and other major suppliers such as South Africa, Turkey, Philippines, Pakistan, and Malagasy. All of these countries produce metallurgical grade chromite, and each of them has exported substantial quantities to the U.S. The Bureau of Mines breakdown for 1972 and 1973 is as follows: TONS OF U.S. IMPORTS OF METALLURGICAL CHROMITE Iran Malagasy Pakistan Philippines Rhodesia South Africa Turkey USSR Paragraph 2: 14,000 13,000 27,000 9,000 65, ,000 56, ,000 22,000 43,000 34,000 83, ,000 If the Turkish ore "is limited" neither their production levels nor the amounts which they increasingly export to the U.S. show it. If South African ore is too costly to import, why did more ferrochrome producers buy it than Rhodesian chrome ore? It is important to bear in mind that Rhodesia is not an important source of chrome ore or of ferrochrome to our economy. Rather, it is important to a small number of stainless steel companies who have arranged a deal with UNIVEX. If the embargo had been resumed on Rhodesia as of January 1st of this year, we would have lost:

7 -7 2.2% of 6.6% of 4.0% of 4.5% of grade 2.8% of 3.7% of chromite; consumption of low carbon ferrochrome; consumption of high carbon ferrochrome; consumption of all ferrochromes; consumption of metallurgical consumption of all grades of chrome ore; imports of all grades of chrome ore. None of these figures - which are taken from the peak period of a steel boom when supplies should be tightest - suggest that Southern Rhodesia is in any way important to our economy. In fact, they illustrate just how insignificant it is as a source of ferrochrome or chrome ore/ except to those few companies which have made special deals with UNIVEX. Page Four paragraph 1: The paragraph has no logical foundation whatever. Mandatory economic sanctions are a vehicle, short of the use of force, which is available to the Security Council of the United Nations to deal with a situation presenting a threat to international peace and security. They have been used only once in the history of the U.N., and with the full support of the United States. Saying "to be for the embargo, one must be for embargoes for several other countries or one might be accused of speaking 'with forked tongue,'" is like saying "if we declare war on one country, then we should declare war on every country." This is, naturally, ridiculous. Every U.S. Secretary of State since the Kennedy Administration has supported the Sanctions because they are seen as a viable tool of U.S. foreign policy. There is not contradiction in that. No more than the fact that our foreign policy towards Britain and China is different. Paragraph 2: There is little substantiation for this allegation. The Sanctions Committee of the U.N. Security Council - which has the responsibility for monitoring the application of the Rhodesian embargo - has repeatedly investigated such charges and has repeatedly concluded that although they may be occasionally occurring, in a few cases, it is not substantial. Moreover, the U.S. Justice and Treasury Departments have investigated charges of this nature and would

8 -8- have authority to prosecute such violations of Sanctions. Under any circumstances, if Simraons has knowledge of such trans-shipments of Rhodesian chrome of ferrochrome, he would have an obligation to report that to the nearest U.S. Attorney who could prosecute anyone sneaking around the Sanctions and have the Courts confiscate the illegal imports. Paragraph 3: Paragraph 4: Little comment is required here, except that there are substitutes for stainless steel such as bronze, copper, titanium, ceramics, plastics, glass, etc. Otherwise, the paragraph is largely extraneous. No comment, Extraneous to issue. Page Five Paragraph 1: Paragraph 2: It is clear that if violations of the Sanctions are occurring, the U.S. Government could do a great deal to diminish them. By violating the Sanctions ourselves, we have set an example for most of the rest of the industrialized world that we will violate our treaty obligations as well as our foreign policy interests for the sake of a few steel companies. In so doing, we have lost the ability to morally coerce other nations to adhere to the Sanctions and have in fact encouraged them to follow our lead. As a permanent member of the U.N. Security Council and its Sanctions Committee, as well as a great industrial power, there is much the U.S. could do to prevent any such leaks in the Rhodesian embargo from occurring. No comment. Extraneous to issue.