Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

411.3131/2–2952

Memorandum by the Secretary of State to the Executive Secretary of the National Security Council (Lay)¹

secret

Washington, February 29, 1952.

Subject:

• The National Security Interest in Successful Trade Agreement Negotiations with Venezuela

There is transmitted herewith for circulation to the National Security Council, with the request that it be scheduled for consideration at the Council’s meeting on Wednesday, March 5, 1952, a memorandum relating to the national security element in current trade-agreement negotiations with Venezuela.

The question as to the tariff concession on petroleum which should be offered by the United States in current trade agreement negotiations with Venezuela is now being considered by the interdepartmental Trade Agreements, Committee, which will make its recommendations directly to the President. Members of the Committee feel, however, that an important factor to be weighed by the President in making his decision is the extent to which the United States has a national security interest in Venezuelan petroleum, and that this national security element is a matter on which the President may wish advice from the National Security Council.

Accordingly the attached memorandum for consideration by the Council relates solely to the importance of the national security element as a factor to be weighed by the President in making his decision with respect to the tariff concession on petroleum and does not request consideration or approval by the Council as to what that concession should be in the light of all the factors involved.

Dean Acheson

[Annex]

Paper Prepared in the Department of State²

secret

The National Security Interest in Successful Trade Agreement Negotiations With Venezuela

problem

To evaluate the national security interest of the United States in successful trade-agreement negotiations with Venezuela.

discussion

1. Upon termination of the trade agreement with Mexico on January 1, 1951, the tariff on certain petroleum products imported into the United States^* increased from 10½ cents per barrel, applicable to all imports, to a tariff quota arrangement under which annual imports in excess of a specified quantity^† were made dutiable at 21 cents per barrel. This was the customs treatment originally provided for in the 1939 trade agreement with Venezuela.

2. On request of the Venezuelan Government, the United States agreed to negotiate a supplementary trade agreement with Venezuela under which a reduction in the present tariff on these petroleum products would be considered.

3. As required by the Trade Agreement Extension Act of 1951, the Tariff Commission reported a “peril point” finding on the petroleum tariff to the President on December 28, 1951. The Tariff Commission was evenly divided in its vote. Three Commissioners found that the existing customs treatment, i.e. the present tariff quota arrangement, was the peril point. The other three Commissioners found that a rate of 10½ cents on all imports would not result in injury being caused or threatened to the domestic industry. For all practical purposes, therefore, the “peril point” is 10½ cents on all imports. The findings of all the Commissioners were based on the prospective threat to domestic industry posed by possible future contingencies (e.g. return of Iran to world oil trade) rather than an immediate threat under existing conditions of trade.

4. Fairly conclusive evidence exists that the Venezuelan Government will not accept an offer of 10½ cents on all imports, that it will break off negotiations of the supplementary agreement unless a concession going below that level is offered, and that it will then proceed to terminate the existing trade agreement. Although it is proposed to use every effort to persuade the Venezuelans that it is in their interest to agree to negotiate on the basis of an offer of no less than 10½ cents on all imports of petroleum, such efforts may be unsuccessful.

5. Successful conclusion of a supplementary trade agreement with Venezuela, therefore, may entail the granting by the United States of a tariff concession on petroleum which would go below the “peril point” for petroleum found by the Tariff Commission. The President is legally authorized to make such a concession, if he reports the reasons to Congress. Also, if such a concession were qualified to prevent any threat to domestic industry posed by possible future contingencies, he could properly make the concession without departing from his commitment to Congress that he will not administer the Trade Agreements program so as to endanger a domestic industry. Nevertheless, there would be strong criticism from domestic petroleum and coal interests which could easily cause a setback to the trade agreements program as a whole. It is important, therefore, to determine whether our national security interest in maintaining satisfactory trade agreement relationships with Venezuela is an important element to be weighed by the President in reaching his decision.

6. The national security elements to be considered are as follows:

a. An adequate supply of Venezuelan oil is vital in event of total mobilization in the United States. NSC 97/2³ concludes, on the basis of PAD–185, that total supply of petroleum available to the free world, (including Venezuelan production from existing concessions) will fall short of requirements by 1,300,000 b/d^‡ (barrels per day) during the first six months of a war commencing on July 1, 1952, and by 600,000 b/d in 1955. A more recent and lower estimate of Venezuela’s productive capacity from existing concessions indicates even greater deficiencies during this period. The granting of new concessions by Venezuela would help fill this deficit. Although substantial progress has been made towards securing such new concessions, the Venezuelan Government has suspended action on concession applications already filed pending the outcome of the trade agreement negotiations. Failure to reach a satisfactory agreement with the United States, reinforcing existing political opposition to the granting of new concessions, might result in the cancellation or at least the curtailment of new concessions.

b. Venezuela is an outstanding example to the rest of the world of cooperation between foreign investors and the government for their mutual benefit. The danger of nationalization of the oil industry in Venezuela is not critical. However, popular sentiment for such action is present in Venezuela. Deterioration of relations as a result of failure to conclude a trade agreement would undoubtedly strengthen such sentiment. Retention of foreign oil production in the hands of private American companies to the fullest possible extent better serves our security interest in oil than does national ownership of oil resources.

c. The terms of the existing tax provisions between Venezuela and the oil companies provide that the Government shall receive at least 50% of the profits. This pattern is being used as a basis for stabilizing relations between oil companies and other governments, particularly in the Middle East. If no new trade agreement is agreed to and the existing trade agreement is terminated, Venezuela will undoubtedly insist on renegotiating the existing contracts in order to recover loss of revenue resulting from an increase in United States tariff on petroleum.

d. Because of its geographical location and because of the availability of other strategic materials such as iron ore, there is a collateral security interest in maintaining the best possible relations with Venezuela.

recommendation

7. That the National Security Council (a) affirm the importance to the national security of our petroleum arrangements in Venezuela and (b) recommend to the President that this national security interest be given full weight in determining the tariff concession on oil which might be offered to Venezuela consistently with the principles and policies governing the administration of the Reciprocal Trade Agreements Program.⁴

1. Forwarded to the National Security Council for consideration at its meeting on Mar. 5, 1952, under cover of a memorandum by Mr. Lay, dated Feb. 29, 1952, not printed.
2. No drafting information appears on the source text; presumably drafted by Chairman of the Interdepartmental Committee on Trade Agreements Carl D. Corse.
3. Crude petroleum, topped crude, residual fuel oil and distillate fuel oil. In general, United States tariff rates apply equally to imports from all foreign sources except countries under Soviet domination. [Footnote in the source text.]
4. A quantity equal to 5% of crude petroleum processed in refineries in the continental United States in the preceding calendar year. [Footnote in the source text.]
3. NSC 97/2, entitled “A National Petroleum Program,” was approved by President Truman on Dec. 13, 1951; for text, see Foreign Relations, 1951, vol. i, p. 978.
4. Assuming the loss of Middle Eastern and Southeastern Asian oil. [Footnote in the source text.]
4. The NSC at its 113th meeting on Mar. 5, 1952, adopted the recommendation in paragraph 7 and subsequently submitted it to the President for consideration. (NSC Action No. 616)