811.2553/1–2251

The Assistant Chief of the Petroleum Policy Staff (Moline) to the Counselor of the Embassy in Canada (Willoughby)

secret
official   informal

Dear Woody: We were told last week by the Canadian Desk that you were feeling neglected in the matter of information regarding the tariff quota on petroleum, and the general oil situation as it developed in connection with the termination of the Mexican Trade Agreement. This letter is for the purpose of summarizing the developments since mid-1950 and to give you for your own information some inkling of what may happen.

Last summer when the termination of the Mexican Trade Agreement was in prospect (and I suppose one would have to acknowledge that the pressure for restrictions on imports was a factor in the final decision to terminate as we did) a Subcommittee of the Petroleum Policy Committee examined the question of allocation or non-allocation of the quota. It was the decision of the Subcommittee, consisting of Commerce, Defense, Interior, and State, that it would be better not to allocate the quota. By and large the reasons were traditional which in the case of oil translated into the increasing importance of Middle [Page 1047] East shipments to the United States, the prospective importance of Canada which had no historical position in our oil import trade, and the greater administrative ease of operating without allocations.

At the same time, however, it was also recommended that if non-allocation should prove to be unacceptable for any important reason, the allocations should be on a basis which would be defensible and yet would favor the Western Hemisphere, and in particular take care of the prospective shipments from Canada. Reasoning of the latter sort led to the conclusion that the 1946–1949 period was the most representative of the several which were considered. Later consultation with Venezuela established that it was the only period having any pretext of representativeness which would have been acceptable to Venezuela.

Our ideas on non-allocation did not last long. When they were made known to Venezuela in September, if I recall correctly, the Venezuelan Government told us firmly that under no circumstances was non-allocation acceptable, and it was far from clear whether a return to the 1939 agreement would be satisfactory. Despite extensive discussion, and the presentation in detail of all the arguments we could think of, we were never able to change the Venezuelan view. The Venezuelans desired immediate renegotiation or the amending of its 1939 agreement in order to maintain the rates which had prevailed since 1943 under the Mexican agreement. The Trade Agreements Committee was firmly opposed to such amendment, not only because the bilateral negotiations conflicted with the US policy on bilaterals as it had been outlined to other countries, notably Switzerland, but also because it was feared that negotiations involving oil would seriously prejudice renewal of the Trade Agreements Act.

To make a long story short, Venezuela came very close to denouncing our trade agreement, and even today it is questionable how long it can be continued in effect unless we are prepared in the near future to give some firm undertaking regarding its amendment. In agreeing to continue the trade agreement in effect for a while1 Venezuela asked that 85 per cent of the quota (65 per cent Venezuela, and 20 per cent NWI) be allocated to Venezuelan oil. They referred to their original contention expressed in 1939 that they were entitled to 100 per cent of the low duty oil. They also referred to the allocations when the tariff quota was previously applicable when Venezuela and the NWI had 90 to 92 per cent of the quota. We countered these requests by reference to the 1946–1949 period which gives to Venezuela and the NWI a larger share of the imports than in any other recent period. [Page 1048] To whatever degree there is any discrimination in the selection of these years it falls on the imports from Kuwait and Saudi Arabia, whose oil moves to the US quite independently of the tariff in line with decisions of the companies concerned.

In addition, it was decided to limit the allocations to Venezuela and the NWI, lumping everybody else into an “all other” category. This selection not only reemphasized our concern with specifically providing for Venezuelan oil, but also took care of the oil of the only suppliers, excepting Iran, with whom we had trade agreements, and at the same time reserved 21 per cent of the quota within which Canada might compete. Iran, incidentally, waived her rights to a specific allocation. In passing, it might be noted that Canada, having its pipeline connection with Superior, Wisconsin, should be able to obtain a good share of the 21 per cent “all other” category.

Immediately after the declaration of a national emergency, Venezuela made it known that in its view there was no longer any reason why the US should long delay modifying the trade agreement. In view of its internal political situation which is acknowledged by the Embassy at Caracas and by ARA to provide a legitimate basis for the Venezuelan insistence on modification or termination of the agreement, it has been considered necessary to try and work something out which will keep the agreement in existence. Consequently, the Department has consulted with House leaders and two or three of the Senators regarding the effect on trade agreement renewal of amending the trade agreement with Venezuela in the near future. It has been decided that we should get a clean bill out of the House, where hearings start today, and thereafter make known to the Venezuelans our willingness to modify the existing agreement. Whether that willingness will be expressed in terms of an actual notice to negotiate as quickly as possible or whether it will be an indication which the Venezuelans can use publicly as an assurance to the Venezuelan public that something will be worked out later, I do not know.

The Trade Agreements Committee still has not approved negotiations with Venezuela or a public announcement which can be taken as an assurance of our willingness in this respect. We have kept them informed and will ask them for definite approval on a course of action strong enough to satisfy the Venezuelans as soon as we have a clean bill out of the House, and assuming that other Senators who are still to be consulted agree that positive action of the kind I have been describing will not increase the jeopardy to getting renewed trade agreements authority from the Senate.

The foregoing is a rambling account, I realize. In my haste to get something off to you, it also probably lacks many of the nice distinctions which have characterized our communications with Caracas, Torquay, and discussions within the Department on the subject. It is [Page 1049] reasonably accurate, however, and to an old hand with your commercial policy background, it will, I hope, be satisfactory and meaningful.

With best regards,

Sincerely,

Edwin G. Moline

The quota percentages were:

Venezuela 59. 4
N.W.I. 18. 7
All other 21. 9
100. 0

The preliminary estimate of quantity based on 10 months actual and 2 months estimated refinery runs is:

Venezuela 62,073,000 barrels
N.W.I. 19,541,000 "
All other 22,885,500 "

  1. In telegram 289 from Caracas, November 19, 1950, Chargé Sparks had stated in part: “I saw Reyna, Director Economic Policy Foreign Office, today at his request. He said in view political situation which has developed and resulting difficulty obtain decision terminate TA, Venezuelan Government accepts allocation 5 percent oil quota.” (411.3131/11–1950)