Memorandum of Conversation, by the Chief of the Petroleum Division (Loftus)

Participants: NWC—Mr. Flack
PED—Mr. Loftus
Mr. John J. McCloy

Mr. McCloy,65 who has resumed the practice of law, was calling on the Department in behalf of his client, the Pantepec Oil Company. Pantepec, after careful consideration, had decided to make payment to the Venezuelan Government of the amount due by it under the terms of Decree Law No. 112 of December 31, 1945 (the so-called Excess Profits Tax) but to accompany the payment with a formal protest of the decree law in question. Mr. McCloy hoped that Pantepec would enjoy the support of the State Department in connection with the filing of this protest. He had talked briefly with the Secretary and Mr. Braden and was referred to NWC and PED.

Mr. McCloy asked us to examine and comment on two draft documents which he had prepared. One was a proposed formal protest to accompany the payment of the tax; the other was a draft letter from the Pantepec Oil Company to the Secretary of State elaborating in great detail the historical background and the basis for Pantepec’s contention that the decree law worked an inequity in its case.

The draft protest consisted of two parts. In the first place there was a series of flat statements, unsupported by evidence, to the effect [Page 1338] that the decree law was unconstitutional, discriminatory, retroactive, and in other ways improper. The second part contained a recital of the particular inequities which the application of the law would work in the case of Pantepec, even if the law were constitutional and just. With respect to the first part of the protest, Mr. McCloy was informed that the Department would be unable to associate itself with such sweeping indictments of a law enacted by another Government, since the law on its face was not discriminatory or violative of any established rights of American oil companies in Venezuela. At the time that the law was enacted we had expressed our concern to the Venezuelan Government emphasizing that the abrupt and unannounced enactment of a law which, while general and nondiscriminatory on its face would in fact weigh heavily upon American oil companies, could not foster any confidence in the genuineness of the Junta Government’s assurance that it did not propose to molest the oil companies or in any way to impose special burdens upon them beyond the provisions of the law of 1943. Furthermore, it was pointed out to the Venezuelan Government that such arbitrary and abrupt action might have the effect of discouraging further capital inputs which would be needed to maintain Venezuela’s oil position in the face of the strong competition that might be anticipated from other lower cost oil producing areas. We did not feel that there was any basis upon which the United States Government could then or now go beyond the foregoing statements in commenting upon Decree Law No. 112.

There was extensive discussion of the text of Mr. McCloy’s draft letter to the Secretary of State, the principal general point in the Department’s views to Mr. McCloy being that the letter could and should be briefer and less controversial.

One particular argument which was elaborated lengthily in several passages in the draft letter ran as follows:

The Government of the United States participated in the negotiations leading up to the enactment of the petroleum law of 1943; the State Department had urged upon American oil companies that they conform their concession contracts to the terms of that law; the companies had done so in the belief that they would enjoy the strong support of the United States Government against any demands more excessive than those written into the text of the 1943 law; and therefore the State Department was obliged strongly to associate itself with any representations by private American oil interests against actions by the Venezuelan Government resulting in treatment less favorable than that contemplated by the 1943 law.

Mr. McCloy was advised that no purpose would be served by the presentation of this argument since the Department could not accept its conclusion under any circumstances.

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It was agreed that Mr. McCloy would consider the comments and suggestions that had been made to him and would submit a revised copy of the two documents for further comment before finalizing them. After consideration of the revised documents the Department would try to indicate to Mr. McCloy on behalf of his client the character and extent of the support it might be prepared to give through the Embassy at Caracas to the Pantepec protest.

  1. John J. McCloy, formerly Assistant Secretary of War.