appears that distribution does not include toll enriched material. I think in the foreign distribution case, where Congress has been so concerned about retaining control over materials being distributed to foreign countries, that we must necessarily interpret the word "distribute" in section 54 as including toll enriched material.

Representative PRICE. Mr. Hosmer, do you have any questions on this proposed amendment to 41 b.?

Representative HOSMER. Yes.

Mr. Bloch, when this requirement was placed in the law, I believe the desire was that the President have at least an annual idea of what the production would be of this very important item and that the head of State thereby would be personally cognizant of the accounting and control of the enriched material.

Now in the context of this nonproliferation treaty and all of the caution with which the United States has approached the matter of material getting into unwanted hands, the present dispute over article III of the proposed treaty, inspection and accounting for all this type of material, wouldn't the elimination of this personal requirement of the President be interpreted as more or less of a shrugging off of this kind of cautious attitude and more or less accepting it as a routine type of material that is not to be dignified by Presidential attention? Mr. BLOCH. It would appear, Mr. Hosmer, that the original intention of this provision was to insure that the military requirements for special nuclear material would be met during a period when materials were scarce. This situation does not exist today. There are controls with respect to the amount of production through the normal budgetary process and through the congressional authorization process. I do not believe that this would indicate any change in our attitude with respect to the need for safeguarding these materials, but would simply recognize that there has been quite a change in the situation as far as supply and requirements are concerned since the 1954 act was passed.

We do have authority, the Private Ownership Act, to enter into longterm contracts for the supply of material. Under this authority, we to some extent, you might say, effectively can commit the President to an annual determination for production to meet those commitments. It is to some extent a conflict; on the one hand a long-term authority to make material available, and on the other hand a requirement that there would be an annual determination as to production.

BURDEN ON PRESIDENT OF ANNUAL DETERMINATION

Representative HOSMER. I do not really gather that. It seems to me whatever contracts you have out are factored into the annual decision as to what your production is going to be.

Now you speak in your prepared text of the burden on the President of making this decision. In your extemporaneous remarks you alluded to possibly a burden on the AEC, which is actually what you are trying to get rid of. Now would you discuss how great a burden this is on the President, how great a burden it is on the AEC, and, third, if you are going to have to decide your budget and have to determine how much production you have anyway, what, if any, complications and additional problems does this requirement place upon you?

Mr. BLOCH. As far as the burden on the President, it does require that he annually review and sign a production directive. It does require that he periodically authorize allocations for material that would be available under sections 53 and 54.

The burden on the Commission

Representative HOSMER. Wait a minute now. The President does not go out to Germantown. Somebody goes to the White House. How long does it take to talk to him about this allocation, this piece of paper that you prepare for his signature so that he knows what he is signing?

Mr. BLOCH. I don't know, Mr. Hosmer. I don't know how much deliberation he would go through before signing it.

Representative HOSMER. Well, you speak of the burden. I am trying to find out what the burden is that we are going to take off these heavily loaded shoulders, and also to determine whether it is a burden that should be borne. You haven't given us much feel for that.

Mr. BLOCH. I think the question is whether it is really a meaningful thing in the light of today's circumstances and in the light of the legislation that has been passed which permits long-term commitments, which recognizes that enriched uranium is in adequate supply and is being produced and is an important material so far as nuclear power is concerned. I cannot argue that review and signing a document annually is a great burden. I think it is a question of whether it is any longer a useful or meaningful exercise.

Representative HOSMER. Maybe as a citizen of the United States I would like to know that my President has his fingers on this thing and not some anonymous bureaucrat, as the expression goes, who is unknown and functioning in the back corridors of large buildings. Mr. BLOCH. I think the fingers are on it through the annual budgetary process. They are on it by Congress, because we come up here annually and ask for authorization, for funds to operate our plants. As part of that, we lay out the requirements, what they are for, what we want to produce and why. The fingers are on it as far as the executive department is concerned, because the determination as to what is required for weapon stockpile needs is made at the highest levels. So there is control. This does not indicate any diminution of control. I do not think that, as far as control is concerned, that any control over our actions or over production is being diminished or eliminated.

NEED FOR SEPARATE ACCOUNTING FOR SPECIAL NUCLEAR MATERIAL IN THE HANDS OF AEC CONTRACTORS

Representative HOSMER. Then, the AEC is not going to have any less burden if this provision is eliminated from the law; is that right? Mr. BLOCH. One possible improvement, which is some reduction in burden and perhaps more of a decrease in burden to contractors than AEC, itself, is that we would no longer need to account separately for the material that is distributed under the allocation and material that is made available by AEC.

Representative HOSMER. Is there implied authority by the elimination of 41b?

Mr. HENNESSEY. The need for accounting separately for material that had been allocated by the President and material that AEC was distributing to its own contractors for government use would be eliminated, if there were no longer any allocation by the President. Representative HOSMER. You say that the separation of accounting procedures is implicit in 41 b.?

Mr. HENNESSEY. I think the fact that 41 b. requires the President to determine how much material can be distributed imposes a responsibility on AEC to see that we do not in fact distribute more than that.

Mr. TROSTEN. Are you suggesting, Mr. Hennessey, that unless section 41 b. is amended as you suggest, that the Commission will not be able to institute this system of allowing its licensees and contractors to commingle their material? You will recall the chairman's question earlier in the hearing on this point.

Mr. HENNESSEY. I suppose there are other ways that you can_account for the material other than the system that we now have. But I think we would need some system, whether it permitted intermingling and provided for a different method of accounting, or otherwise, we would need some system under which we could fulfill our responsibility of staying within the allocation.

Representative HOSMER. Thank you, Mr. Chairman.

Representative PRICE. Mr. Conway, do you have any questions on this point?

TRANSFER REQUIRED TO BE PURSUANT TO AGREEMENT FOR COOPERATION

Mr. CONWAY. No. But I think AEC would want to make the point that section 54 which now exists and would continue to exist, requires that distribution of these materials to foreign governments must be under an agreement for cooperation. That agreement for cooperation would have to be submitted to the Joint Committee. There would be clearly a review by the Congress and the committee.

Also, 2 years ago when we were considering the Private Ownership Act, and last year when we considered the toll enrichment criteria, it was clearly understood AEC would set up a system whereby the Joint Committee would review production capabilities and distribution plans annually to make sure we had adequate material to make available to the domestic market as well for meeting our military commitments.

I think those are additional points the record ought to reflect.
Representative PRICE. Mr. Trosten?

Mr. TROSTEN. How do you propose to keep the industry informed as to the amount of material that will be available or the amount of capacity that will be available through the toll enrichment route, which will be analogous to the Presidential determination of availability of material under sections 53 and 54? Do you propose to have such a system so that industry will have some knowledge of this in a formal sense?

Mr. BLOCH. Well, as Mr. Conway mentioned, we would be making an annual report to the Congress, which included a forecast of the requirements in the context of our capacity to produce. This information would be available and give industry an opportunity to judge the extent to which capacity was available or not.

We have also, as you know, declassified our production capacity for enriched uranium, which again gives industry a knowledge as to what our capability is. This is pretty easily matched against estimates of requirements based on nuclear power forecasts.

PROVISION OF TOLL ENRICHMENT SERVICES TO EURATOM

Representative PRICE. Now we will go to the proposed amendment to the Euratom Cooperation Act of 1958. Do you currently intend to provide toll enriching for Euratom joint program projects? If so, what will be the economic effect on the United States?

Mr. BLOCH. Could I have Mr. Kratzer speak to that, Mr. Chairman? Representative PRICE. Yes.

Mr. KRATZER. Mr. Chairman, there are three joint program projects under our joint reactor program with Euratom. Two of these projects are obtaining their material under the deferred payment program which was an original part of the joint program. While we do intend, if this legislation is passed, to offer these projects the option to switch to toll enriching, my guess is that they will not do so. The deferred payment plan has certain economic advantages for them, as was intended, and switching to the toll enriching would require a conversion of their current arrangement to a cash basis rather than deferred payment basis which they are now on.

So I suspect that these two projects will not change.

A third project, the KRB project in Germany, has obtained its initial core under the barter agreement, and this of course is very similar in its effect to toll enrichment. I believe that when their initial core is consumed and they need additional material they probably will obtain it under toll enrichment.

ECONOMIC EFFECTS OF PROVIDING TOLL ENRICHMENT TO EURATOM

Now the economic effect of providing material abroad on the basis of toll enrichment rather than on the basis of direct sale, as we have in the past, of course will depend in part on where the feed material is obtained. From the standpoint of U.S. Government revenues, these will drop. Roughly speaking, for slightly enriched material of the type that is used in neuclear reactors, the feed component constitutes about half of the cost and the enrichment services component constitutes the remainder.

So that when a project receives its material on a toll-enrichment basis, the Government revenues will be cut in about half. Whether or not this represents a similar reduction in total U.S. revenues, of course, will depend on whether the feed material is obtained here or abroad. This is something that is going to be rather hard to predict. In the case of the one joint program project that I believe will switch to toll enrichment, this will probably means something like $1 million or $2 million per year in the feed component, as far as Govenment revenues are concerned.

We have estimated that if all of the existing Euratom power projects, both those within the joint program and those outside the program, switch to toll enrichment as a result of this legislation, then the reduction in Government revenues for the two coming fiscal years would be $18 million. But I am quite confident that this won't occur,

that there will not be the wholesale conversion of these projects to toll enrichment on a quick time schedule.

But in the long run, as I indicated, the effect on Government revenues is that we receive only about half. Of course, our costs are correspondingly reduced. We don't have to procure the feed material. The effect on total U.S. foreign exchange revenues is very unpredictable. But I think we should say in this context that a counterbalancing effect is that toll enrichment does represent a more attractive way of procuring enriched uranium for other countries. We have always felt that, and I think this continues to be the case. So that I believe that there will be additional sales of enriched uranium or of enrichment services, as a result of having switched to toll enrichment, that will tend to increase our revenues in the long run.

PURCHASE BY AEC OF PLUTONIUM OR U-233 PRODUCED THROUGH

USE OF TOLL-ENRICHED MATERIAL

Representative PRICE. Could the AEC purchase plutonium or U-233 produced through the use of toll enriched material delivered to Euratom?

Mr. KRATZER. We have a special arrangement, again as part of the joint program that does permit us to purchase the plutonium produced in the joint program. We do not purchase any plutonium produced outside of the joint program. So, for these three reactors which are within the joint program we can purchase the plutonium.

Mr. TROSTEN. You say you can, even if you were to toll enrich? Mr. KRATZER. We can now.

I have to say that I don't think we have reached a final decision on the question of whether, if there were conversion to toll enrichment, the specific legislation that authorized us to purchase the plutonium would override the legislation, the general legislation, that limits purchases of plutonium to that provided from uranium which is purchased or leased from the United States.

Mr. TROSTEN. Don't you think we should decide this point now? In the case of domestic licensees and individual foreign nations, if the U-235 is furnished by the toll enriching route, the AEC cannot purchase the plutonium produced through use of such material.

Mr. KRATZER. That is right.

Mr. TROSTEN. So this point should be cleared up, I think.

Mr. CONWAY. Mr. Trosten's point is that under section 54 of the act, AEC can't agree to purchase plutonium produced through use of toll-enriched material. On the other hand there is no prohibition against the United States purchasing such plutonium under section 55 of the act.

Mr. KRATZER. I understood it in that context. I have no hesitation in saying that I do not think that we would want to be committed to purchase the plutonium for any project that is converted to a toll enrichment. I think we have no hesitation in making that.

Mr. BLOCH. That is right. We would not want to be under obligation to buy back the plutonium.