Wartime Non-Ferrous Metals Subsidies

[from East Bay Municipal Utility District v. United States Department of Commerce; No. 93-1715 (GK) (948 F. Supp. 78, 43 ERC 1918) (D.D.C. December 4, 1996)]

In response to the necessities of war, the War Production Board was given special authority and powers. Its broad mission was to direct the government's procurement and production efforts. The WPB was given the power to take all lawful steps to assure an adequate supply of materials essential to production for the defense effort. Prior to 1943, the WPB's powers included the ability to direct the Army or Navy to seize production facilities of plants that could supply necessary defense goods but either refused to do so or refused to do so at reasonable prices. After 1943, seizure was authorized only for those facilities unable to produce because of labor stoppages.

As part of the wartime regulatory scheme, the WPB ascertained zinc supply requirements. It also located zinc mines, investigated them, and then recommended them for federal funding available through the Reconstruction Finance or Metals Reserve Company. All funding recommendations had to be approved by the WPB and the Secretary of Commerce. As of November 1943, the RFC and MRC had approved fourteen mining projects to receive federal funds.

By the summer of 1942, the WPB recognized that the labor shortage in the western mining regions was acute. In September 1942, the War Manpower Commission issued an Employment Stabilization Order declaring all 12 western states critical labor areas. At the same time, all non-ferrous metal mining and related activities, as well as lumbering and logging, were deemed essential war production activities. No worker engaged in these activities was allowed to seek other employment without obtaining a "Certificate of Separation" from a representative of the United States Employment Service. An employer within the critical areas was prohibited from employing any worker who had been engaged in mining operations who did not have a Certificate of Separation. In August 1942, the WMC issued new regulations that allowed employees engaged in essential war production to change employment under certain conditions. Those employees were given a "Statement of Availability" to prove that they were authorized to change jobs. The U.S. Employment Service had the authority to sanction non-complying establishments by issuing "Statements of Availability" to all of their employees. Those employees could then leave the offending employer and seek new employment. However, the Order was deemed to be "completely ineffective," according to one government study which reviewed its history.

On October 8, 1942, the WPB issued an Order closing nonessential gold mines. After this Order, at least 1,600 men who had worked in gold mines were referred for employment in non-ferrous mines, although they were not obligated to take such employment. In 1942, local draft boards began granting occupational deferments for essential workers. In July 1943, the Director of the Selective Service System strongly encouraged local boards to grant deferments for workers in the non-ferrous mining industry in critical labor areas. If a worker left employment in an essential industry, his deferment would be revoked. The WMC also began requiring a minimum work week of 48 hours for all employees in western mines.

Labor regulation did not end there. Several priority systems relating to the labor supply were implemented, three of which are relevant here. First, beginning in June 1943, the WPB classified mines into four categories, depending on their importance to the war effort, their relative productivity, and their priority for recruiting new workers. Class I was the highest priority. Second, in 1945, the WPB established a system of "production urgency orders" for determining manpower priority ratings. Facilities were rated I through VII depending on the relative need for their product and the extent to which production was lagging. Urgency Rating I, for example, was reserved for projects such as the atomic bomb.

Third, in 1944, the WMC established a nationwide, uniform system for priority employment referrals. Seven categories were established. Regional, state, and area directors were authorized to assign ratings to work orders in categories two through seven, but only the Chairman of the National Manpower Priorities Committee could assign a Category 1 rating. The U.S. Employment Service was required strictly to adhere to these priority ratings when making worker referrals. Thus, a facility whose work orders carried a priority rating of Category 1 received referrals for needed workers before facilities in any other category.

To further direct production for the war effort, the Office of Production Management, the predecessor of the WPB, and, later, the WPB, worked with state governments to determine which mines in each state were active, producing mines. Those mines were issued serial numbers that enabled them to obtain priority assistance for supplies and equipment. The Mining Division of the WPB established field offices to implement these priority allocations. In addition, the government issued allocation orders that controlled the distribution of many materials. [At some time during the war] zinc allocation orders were issued under the direction of the WPB. A zinc producer could deliver zinc only on the presentation of an allocation certificate issued by the WPB, specifying the grades and amount that could be shipped. No person could accept delivery of zinc except as authorized by government regulation. A willful violation subjected the offender to a fine or imprisonment.

Price controls and subsidies were also implemented. Following the outbreak of the war in Europe, metal prices were unstable. The price of zinc rose from 5-1/2 cents per pound in January 1940 to 7-1/2 cents per pound in September 1940. In September 1940, the predecessor to the Office of Price Administration reached an agreement with the principal zinc producers informally freezing the price of zinc at 7-1/2 cents per pound. In October 1941, OPA raised the ceiling price to 8-1/2 cents per pound.

Production levels were still below those required to sustain the war effort. In January 1942, OPA and the WPB put into effect a Premium Price Plan. Under the Plan, each mine producing zinc prior to the war was assigned a "quota" reflecting its prewar production level. Mines which were not operating in 1941 and therefore had no prewar metal production level, were assigned a "zero quota." Producers were paid an established ceiling price of 8-1/2 cents per pound for all zinc produced up to their "quota" amount. All production over that quota was purchased at a premium price, initially 11 cents per pound. Under the Premium Price Plan, all zinc produced at zero quota mines was purchased directly by the MRC or by private entities, who were reimbursed by MRC at prevailing premium prices. This series of price supports encouraged the owners of previously unexploited zinc deposits (who would receive a zero quota) to open deposits and begin production.

At the recommendation of the WPB and OPA, the Premium Price Plan was expanded, effective January 1, 1943. This Plan provided for an additional subsidy above the 11 cents per pound previously authorized. The WPB and OPA were authorized to assign special quotas, with additional subsidies, to producers who would not otherwise receive adequate revenue to maintain needed production. The "B" quota authorized an additional subsidy of 5-1/2 cents per pound; the "C" quota, 8-1/2 cents per pound.

The Premium Price Plan expired on June 30, 1946, but was reenacted by Congress, retroactively, and extended to June 30, 1947. In addition, a new class of premiums was established to encourage exploration. The RFC administered this revived Premium Price Plan.

[from United States v. Iron Mountain Mines, Inc.; No. CIV-S-91-768 DFL JFM (987 F. Supp. 1277) (E.D. Cal. October 28, 1997)]

After the United States entered World War II, President Roosevelt created a number of federal agencies to organize domestic industry for wartime production. In January 1942, the War Production Board was established to exercise general direction over the government's production and procurement efforts. [see Executive Order No. 9040, 7 Fed.Reg. 527 (1942)]. The War Production Board, along with its predecessor the Office of Production Management, promptly put into place the Premium Price Plan to enhance production of war related items, including metals. One of the purposes of the Premium Price Plan was to "expand output of copper, lead and zinc" — metals deemed necessary to the war effort — by subsidizing the excavation of those metals so that it would be profitable for privately-owned mines to develop marginal veins of ore. Under the Premium Price Plan, all mines were assigned a quota reflecting their pre-war production levels of copper, lead, and zinc. The mines were then paid the subsidized premium price for all copper, lead, and zinc production over their quota.

The Quota Committee, which was composed of members of the War Production Board and the Office of Production Management, established the subsidy, or premium price, to be paid to the privately-owned mines. The premium price the Quota Committee initially set for copper was 17 cents per pound and for zinc was 11 cents per pound. The Quota Committee revised those prices in early 1943 to encourage additional production by privately-owned mines. From 1943 onward, in addition to the previously authorized subsidies called the "A" quota, the Quota Committee could assign a "B" quota, providing an additional 2 3/4 cents per pound, and a "C" quota, providing another 2 3/4 cents per pound on top of the "B" quota amount. As to zinc mining, the supplemental "B" and "C" quotas were paid based on the size of the mine; as to copper mining, however, the decision whether to pay the supplemental quotas was made on a case-by-case basis. None of the quotas were for fixed production goals; they were open-ended.

Under the Premium Price Plan, the mines could sell the metals at the subsidized price to the Metals Reserve Company, a corporation created by the federal government to procure metals necessary to the military effort. Alternatively, the mines could sell the metals to other private entities, such as smelters, and the Metals Reserve Company would reimburse the private buyers for the cost of the subsidy. The subsidized sale had to be approved by the federal government which used this approval power to channel the metals toward the highest priority use.

Most mines during World War II had difficulty finding and retaining a sufficient number of qualified employees to operate the Mine. The War Manpower Commission was established in April 1942 to respond to such labor shortages in industries critical to the war effort, [see Exec. Order No. 9139, 7 Fed.Reg. 2919 (1942)]. To address the problem in the mining industry, the War Manpower Commission issued an Employment Stabilization Order, providing that a worker from a non-ferrous mine could only seek other employment after obtaining a "Certificate of Separation" from the United States Employment Service. [see 7 Fed.Reg. 7131 (1942)]. In October 1942, the War Production Board also ordered that all nonessential gold mines be closed, freeing additional miners for non-ferrous metal mining. And beginning in June 1943, the War Production Board, at the request of the War Manpower Commission and the United States Employment Service, classified mines into four categories, depending on their importance to the war effort and their relative productivity. The purpose of this classification system was to assist in placing workers in those mines in the highest priority category, although workers were never required to seek employment at high-priority mines. Conversely, the mines were never required to hire or fire a particular worker. In addition to United States Employment Service placements, the Selective Service and local draft boards granted deferments from military service for workers in industries deemed to be essential, such as mining. The Selective Service also released approximately 4,500 men from the Enlisted Reserve Corp to work in copper and zinc mines.

Wage rates, work weeks, and other employment conditions were regulated during World War II on a nation-wide basis by the National War Labor Board. Whenever an employer wanted to adjust the wage for a particular job, the employer was required to submit an "Application for Approval of a Voluntary Wage or Salary Rate Adjustment" to the National War Labor Board. Moreover, if an employer was not in compliance with the National War Labor Board wage rates and employment conditions, the employer could be sanctioned. During the War, the federal government was particularly vigilant to ferret out health and safety violations for fear that such violations could lead to interruptions in metal production.

There were a number of other federal programs that were instituted to assist private industry in meeting wartime demands. For example, the War Production Board allocated scarce but necessary equipment and supplies to mining companies. These other federal programs included improvements to access roads used by mining companies and their employees. Under the Federal Highway Act and the Defense Highway Act of 1941, the Public Roads Administration reimbursed funds expended by mining companies and local cities and counties to improve and surface these access roads and highways.

The Premium Price Plan expired after one extension on June 30, 1947. On September 14, 1946, the federal government instituted the Exploration Premium Program to encourage the development of new sources of copper, lead, and zinc. Hundreds of mines qualified for and received funds under this post-war program.