Foreign Relations of the United States, 1949, The Far East: China, Volume IX

611.9331/4–749

Memorandum of Conversation, by Mr. John W. McBride of the Petroleum Division

[Washington,] April 7, 1949.

Participants:	Mr. J. R. Keany—Caltex
	Mr. H. F. Seitz, Mr. Tripp, Stanvac
	Mr. J. K. Evans, Shell
	Mr. Stull, OIT,14 Commerce
	Mr. Freeman, Mr. Magill—CA15
	Mr. Williams—NA16
	Mr. Brown—CP17
	Mr. Eakens,18 Mr. McBride—PED

Mr. Eakens indicated that the meeting was called for the purpose of informing the oil companies of the Department’s position with reference to the sale of petroleum products in North China and North Korea. He stated that the Department’s views regarding such sales were as follows:

1. The Department does not oppose the sale of petroleum products to Communist controlled North China.

2. The Department prefers, however, that such sales be restricted to the quantities that are required for minimum civilian consumption to avoid the danger of stockpiling or diversion for military uses.

3. Furthermore, the Department considers it preferable that such petroleum products as may move into the Communist controlled areas be handled by the companies directly, although it cannot officially acknowledge or promote this position. Direct sales have the advantage of providing better controls and more accurate information. They should also serve to improve the companies’ bargaining position so far as the reestablishment of relatively normal channels of business are concerned.

4. In the absence of any commercial airline operations in the area, the Department suggests that additional aviation gas not be shipped in and that sales be made only from existing stocks.

5. The Department suggests that the companies follow a restrictive policy with respect to any petroleum sales destined for North Korea. A limited trade with this area seems justified, however, since it may provide South Korea with some of the items that it needs very badly such as commercial fertilizers.

6. The Department is continuing its study of the lube oil problem but, in the absence of effective controls over exports from the United States, does not feel justified at the present time in requesting anything more than that the companies pursue a conservative policy.

Mr. Seitz observed that his company is not opposed to controls on the export of lube oils to areas where controls can be justified, but feels that putting lubes on the positive list would require a lot of unnecessary clerical work for shipments to “non-suspect” areas. Mr. Stull stated that lubricants probably are the most effective weapon under the control of the United States for winning a cold war, as well as a “shooting war”. Mr. Evans commented that spot controls were ineffective for such items as lubricants since the demand that is blocked in one area can readily be shifted to another uncontrolled market.

Mr. Williams pointed out that the United States’ objective in Korea included reuniting the northern and the southern sections and suggested that this goal might be furthered if the petroleum requirements for North Korea were channeled through Kosco, the oil companies’ distributing organization in South Korea. He felt that a three cornered trade through Hong Kong was much less desirable than direct trade between the two sections of Korea. In response to Mr. Eakens’ inquiry regarding possible limitations on the use of ECA¹⁹ funds for such objectives, Mr. Williams stated that an exchange of this sort would have the effect of reducing the total cost of the program, particularly if such items as fertilizer could be obtained, and that final control would rest with the Administrator.

Mr. Seitz wanted to know whether the oil companies should take the initiative in the distribution program. Mr. Brown indicated that it was the Department’s understanding that the Communists had already come to the companies to obtain additional supplies. This raised the question of coordination which was given only limited consideration. Although the details might need to be worked out, it was reasonably clear that the companies would be willing to allocate the minimum requirements for North China on an equitable basis among themselves.

Mr. Evans indicated that his company still had its full force of employees in Tientsin. Mr. Keany confirmed the fact that his company still has two representatives in Tientsin, and Mr. Seitz stated that Standard-Vacuum is ready and willing to send its representatives back to Tientsin as soon as the details can be arranged with the Communists.

Mr. Brown commented on the fact that the uncertainties about the whole situation made it difficult to chart a definite course and suggested that the companies would have to “feel their way” during the initial stages until the reestablishment of their distributing organizations, provided them with more information regarding Communist requirements.

With reference to the oil company stocks in Tientsin, Mr. Eakens urged that those currently held be released sparingly and that the policy with respect to replenishments be directed to the objective of maintaining the Communists’ dependence on the oil companies for continued supplies. He suggested that the companies use their 1948 sales as a rough measure of the upper limits for their 1949 distribution in the same areas.

14. Office of International Trade.
15. Fulton Freeman, Assistant Chief of the Division of Chinese Affairs, and Robert N. Magill, of the same Division.
16. John Z. Williams of the Division of Northeast Asian Affairs.
17. Stephen C. Brown of the Division of Commercial Policy.
18. Robert H. S. Eakens, Chief of the Petroleum Division.
19. Economic Cooperation Administration.