893.6363/11–2249
Memorandum of Conversation, by Mr. Stephen C. Brown of the Office of Chinese Affairs
| Participants: | Caltex Oil Company—Messrs. Kavanaugh and Hansen Standard-Vacuum Oil Company—Messrs. Mays and Seitz |
| FE—Mr. Merchant | |
| CA—Mr. Sprouse | |
| CA—Mr. Barnett63 | |
| CA—Magill | |
| PED—Mr. Koplowitz64 |
On November 15, 1949 the above-named representatives of the oil companies called at the Department at Mr. Merchant’s request to discuss problems relating to the shipment of petroleum products to China.
Mr. Merchant outlined to them on a confidential basis our present policy of allowing Communist China to obtain quantities of petroleum sufficient to meet the needs of their civilian economy. He also informed them of our acceptance of the British proposal65 for joint UK-US-Netherlands control of such supplies to the Chinese Communists through informal arrangements with the major British, American and Dutch companies.
[Page 1032]The company representatives showed great interest in this proposal and requested an explanation of how it was to be implemented. It was pointed out in reply that (1) the agreement implied an agreement of the three governments on the total quantities which it would be appropriate to permit, (2) that coordination of company shipments within this framework would have to be effected by the governments, who would exchange information on Chinese stocks and imports, (3) that control of shipments from non-U.S. sources could not be effected through licensing controls, and the governments will have to rely largely on industry cooperation. The company representatives showed great concern that licensing policy for petroleum shipments from this country should not undercut the position of the companies who would have to bear the main burden of restricting shipments. They were informed that we were well aware of this.
They raised the further question whether there was any danger that the British or Dutch Governments might discriminate against them, permitting their British and Dutch competitors to ship while restricting the shipments of American companies. It was pointed out to them that the U.K. and the Netherlands, like the U.S., would have to rely on company cooperation since they do not have license control of offshore shipments; that the proposed system envisaged no license control of offshore shipments; and that discrimination of that kind, if attempted, would provide a proper ground for complaint.
Some discussion of the possibility of supplies from other sources resulted in the conclusion that effective working agreements with the major U.S., British and Dutch companies would make it impossible for the Chinese Communists to obtain significant quantities from any source other than Russia. The company representatives were of the opinion that the Russian supply would not be an important threat over any period of time.
The question was then put, whether the major companies would normally ship anything but lubricants from the U.S. to China. The company representatives indicated that only lubricants would be shipped from the U.S. Any quotas for lubricant shipments from this country should therefore reflect normal civilian requirements.
Another question was raised concerning the normal share of independents in the China petroleum picture. The consensus was that their share normally was about 5 percent, with the Chinese Petroleum Company (Govt.) accounting for about 10 percent more.
Company representatives indicated that total refining capacity of the Hulutao and Shanghai plants of CPC was about 10,000 bbls. per day; the Kaohsiung refinery, on Taiwan, would contribute about 15,000 bbls. additional if it came under Communist control. The [Page 1033] Hulutao and Shanghai plants are topping plants only; the Kaohsiung plant is better equipped, but the consensus was that none was likely to produce a full range of high-grade products. The total of 25,000 bbls. per day would take care of the major share of China’s present minimum needs of bulk products, according to Standard representatives.
The opinion was concurred in that in view of Communist policy the best the companies could hope for was that they would be permitted to continue to import c.i.f. and sell bulk products ex-terminal. At present the Communist authorities control the distribution of motor gasoline. The foreign companies control about 75 percent of total bulk tank facilities in China, but might lose control of them if they attempted to shut off oil shipments completely. There was some hesitancy on the part of the company representatives to say just to what extent they would be able to obtain accurate end-use information; it was generally agreed that they could give us fairly accurate information about the end-use of products distributed by themselves, or for the account of the Communist regime through the company distribution facilities; but they felt they would probably be unable to provide information of much value about the end-use of drum and package products sold to the Communists for their own distribution and use.
The companies were asked to furnish, separately, their best estimates of China’s requirements for normal civilian consumption, on two bases: (1) On the assumption that the existing industrial economy would be operated at the normal level, and (2) On the basis of the presently foreseeable level of operation. It was explained that this information was needed in order to arrive at figures for use in discussing with the British and Dutch what level of total shipments the concept “normal civilian requirements” implied. Figures based on the two different assumptions would be useful in arriving at an idea of the spread between the present level of consumption and potential civilian requirements.
The company representatives agreed to do this. The Standard-Vacuum representatives expressed the view that the really effective check on petroleum shipments was the limited foreign exchange at the disposal of the Communists, and felt that there was no need to fear excessive shipments for some time to come.
A company representative inquired whether, pending working out of the general arrangements under discussion, the Department would object to negotiations with Chinese Communist authorities which might lead to particular deals. He was told that there was no objection but that it was assumed the Department would be informed generally regarding the progress of any such talks and regarding the terms of any contract likely to be concluded.