Memorandum by the Acting Deputy Director of the Office of North and West Coast Affairs (Krieg) to the Assistant Secretary of State for Inter-American Affairs (Miller)
Subject: Oil Imports; Your Meeting with Speaker Rayburn.
You and Mr. Winthrop Brown, ITP,1 have an appointment to see Speaker Sam Rayburn at noon today. Mr. Brown is on the Hill in connection with the ITO hearings and will meet you at the Speaker’s office.
The subject for discussion is the movement in Congress sponsored by independent oil producers, coal producers and railroads drastically to curtail imports of foreign petroleum. The alleged justification for the proposal is the cutback in Texas production which has reduced the State’s revenue, plus the fact that successive coal strikes and increases in coal prices have caused a very considerable increase in the use of residual fuel oil on the Eastern seaboard thereby diminishing the market for coal.
The Administration has consistently opposed restrictions on petroleum imports because it has not been convinced that independent oil producers are actually suffering substantial economic losses and that [Page 948] the switch from coal to oil reflects not only the economic advantages of using oil but also the chaotic conditions in the coal industry.
In spite of the strong case which we have presented and in spite of the damage to the Venezuelan economy which severe restrictions on oil imports would cause, the movement in favor of restrictions seems to have been gaining ground in recent weeks due principally to the activities of Senators and Representatives from coal states. On April 20 officers of the Department met with Representative J. M. Combs (D–Texas) who informed them that he had just returned from Texas and was convinced that something would have to be done to bring the import situation under control in order to prevent the defeat of Congressional supporters of the Administration’s foreign policy in the coming elections. He admitted that much of the blame placed on imports was unwarranted and felt that the problem was largely psychological, arising from the fact that rightly or wrongly people thought imports were responsible for their troubles. He urged the Department’s representatives to suggest some positive action in regard to oil imports so as to quiet the fears of domestic producers.
After careful consideration, the Department has concluded that the most effective means available to us to obtain the psychological effect desired by Rep. Combs without appreciably damaging either American overseas petroleum interests or the economies of foreign countries would be to announce the approaching termination of the Mexican Trade Agreement. This step had been decided upon some months ago because of the continued violations by the Mexicans of the Agreement but was deferred at the request of Ambassador Donnelly because of the unfortunate effect he felt this action would have in Venezuela. It was decided, however, when the Ambassador was last in Washington that if the danger of legislative action to restrict oil imports appeared imminent and the Department felt the denunciation of the Mexican Agreement might help prevent such action, he agreed that this step should be taken and promised to prepare the Venezuelans for it. He has reiterated that same view in recent telegrams to the Department and in telephone conversations with me. I have promised Ambassador Donnelly to notify him immediately when the Department decides to go ahead with the termination of the Mexican Agreement.
It is suggested that you discuss briefly with the Speaker the problem of petroleum imports, emphasizing the Department’s view that they do not constitute a menace to the oil industry in Texas since recent increases in imports have been almost entirely of residual fuel oil which is not competitive with the Texas production. You might mention that representatives of the major importers promised the Keough [Page 949] Committee2 that imports for the first half of 1950 would average approximately 750,000 b/d. This promise has not been fulfilled to date because the coal strike created a very serious threat of fuel shortages on the East coast. In order to keep their generators running, several large public utilities, including Consolidated Edison in New York, made an emergency conversion from coal to oil. As a result, imports for March, instead of declining substantially, will probably be about 885,000 b/d.
We have been informed by representatives of the industry, however, that this was due entirely to the emergency situation and that imports will be drastically reduced in May and June.
In spite of these considerations, the Department realizes that Senators and Representatives from coal and oil regions are under severe pressure from their constituents, and we therefore propose to proceed at once with the termination of the Mexican Trade Agreement. This will have the effect of doubling the internal revenue tax on all petroleum (crude, fuel oil and gas oil) imported in excess of 5% of domestic refinery throughput for last year. This means that the tax will be doubled on about half of our current imports. In addition, duties will be raised on imports of tomatoes which have recently been imported from Mexico in large quantities and which have caused considerable concern in Texas.
The Department is extremely anxious to learn the Speaker’s views on this proposed move. We would like therefore to have his judgment as to the strength of the movement to restrict petroleum imports and the chances that the denunciation of the Mexican Trade Agreement will make it possible for Administration supporters to prevent restrictive action in this session. In brief, you should try to convince the Speaker that the Department is sincerely interested in the welfare of our important domestic industries as well as the welfare of foreign peoples, that we are anxious to do all we can to assist our friends in Congress in their electoral problems and that we hope for his support and assistance in preventing any action by Congress which would be contrary to our international commitments and our basic foreign trade policies, and which would result in great hardship for friendly foreign countries and cause a drastic decline in American exports.3
- Mr. Brown was Director of the Office of International Trade Policy.↩
- Representative Eugene J. Keogh of New York was Chairman of the Subcommittee on Oil of the House Small Business Committee.↩
- In telegram 382 to Mexico City, May 5, the Department stated in part: “… Dept believes joint termination, effective July 1, helpful in preventing adoption legis providing more stringent control petroleum imports than tariff quota provisions Venez TA. Informed of proposal by Miller, Speaker Rayburn today suggested prompt action.” (411.1231/4–1450)↩