Memorandum by the Secretary of State to the President 1



  • Recommendations of the Interdepartmental Committee on Trade Agreements with respect to negotiations with Venezuela of a supplementary trade agreement.

There are attached recommendations of the Interdepartmental Committee on Trade Agreements with respect to negotiations with Venezuela of a trade agreement supplementary to the existing agreement which was signed on November 6, 1939.

The recommendations are in two parts. Under the first recommendation, your approval is sought for offers of duty concessions by the United States to Venezuela, and for requests of duty concessions from Venezuela to the United States, on the assumption that Venezuela will agree to negotiate on the basis of an offer by the United States of 10½ cents per barrel on all imports of crude petroleum, distillate fuel oil, and residual fuel oil. The rate of 10½ cents per barrel is for practical purposes in accordance with the “peril point” findings of the Tariff Commission.

In view of the probability that Venezuela will refuse to negotiate on the basis of 10½ cents per barrel, the Committee is also asking, under its second recommendation, for authority to reduce the duty below the peril point findings of the Tariff Commission on certain grades of these products. The authority requested under this second recommendation will not be used until serious efforts have been made to persuade the Venezuelans to negotiate on the 10½ cents per barrel basis, and such efforts have clearly failed.

The difficulties which have arisen in connection with the preparation for the negotiations with Venezuela under procedure set up under the Trade Agreements Extension Act of 1951 have already been discussed at the meeting of the National Security Council on March 6 [5], 1952. The circumstances surrounding this problem provide a clear illustration of the adverse effects on the trade agreements program of the peril point procedure which was set up by Congress in the Trade Agreements Extension Act of 1951. In my opinion, this procedure is both cumbersome and unnecessary to provide adequate safeguards to domestic industry.

I recommend that the recommendations of the Committee be approved.

Dean Acheson
[Page 1606]


Memorandum by the Chairman of the Interdepartmental Committee on Trade Agreements (Corse) to the President 2



  • United States Offers to and Requests of Venezuela in the Negotiation of Supplementary Trade Agreement with that Country.

On August 29, 1951 you approved negotiations with Venezuela for the purpose of arriving at a trade agreement supplementary to the existing agreement, which was signed on November 6, 1939. Since that time, preparations have gone forward for the purpose of engaging in these negotiations. As part of that preparation, and in accordance with Section 3 of the Trade Agreements Extension Act of 1951, the Tariff Commission reported to you on December 27, 1951 its findings as to the limit below which concessions could not be granted without causing or threatening serious injury to the domestic industry producing like or directly competitive products (popularly known as the peril point findings).

The findings of the Tariff Commission were unanimous except for a group of petroleum products.* Such petroleum products make up 90 percent of Venezuela’s exports to the United States, and a concession on them is a sine qua non to a supplementary agreement with Venezuela.

In their report on this group of petroleum products (for convenience, hereinafter described as Venezuelan oil), three of the Commissioners found that the peril point was the existing tariff quota arrangement (10½ cents per barrel or ¼ cents per gallon on a quantity equal to 5 percent of the total quantity of crude petroleum processed in refineries in continental United States during the preceding calendar year, and 21 cents per barrel on imports in excess of this quantity). The other three Commissioners found that a rate of 10½ cents per barrel on all imports would not result in serious injury being caused or threatened to the domestic industry. While one or more of the three Tariff Commissioners who found against the reduction of the existing tariff treatment felt that serious injury might be the immediate result of any such reduction, the principal point of difference betwen the two groups of Commissioners was the degree to which a threat of serious injury arising out of certain future contingencies was imminent or probable. Among the future contingencies weighed by the Commissioners [Page 1607] were (1) cessation of the war in Korea, (2) return of Iranian oil to the world supply, (3) curtailment of general mobilization programs, especially in the United States, and (4) a recession in the United States. For practical purposes, the peril point may be considered as 10½ cents per barrel on all imports.

Fairly conclusive evidence exists that the Venezuelan Government will not accept an offer of 10½ cents on all imports. Venezuelan high officials have indicated, in the strongest possible terms, that they will break off negotiations of the supplementary agreement, unless a concession going below the level of 10½ cents is offered, and that they will then proceed to terminate the existing trade agreement.

Faced with these circumstances, the Interdepartmental Committee on Trade Agreements, after the fullest consideration, asks that you approve the following two recommendations. In making these recommendations the Committee took full account of the statement made by you that the Trade Agreements Act would not be used to endanger domestic industry.

Offers by the United States which are described in Annex B,3 and the requests of Venezuela by the United States, which are described in Annex C.3 These offers and requests were prepared on the basis of an offer of 10½ cents on Venezuelan oil.
An offer going below 10½ cents on imports of certain grades of Venezuelan oil,§ other grades to be subject to the 10½ cent rate. Such authorization will be used only after serious efforts have failed to persuade the Venezuelans to negotiate on the basis of an offer of 10½ cents on all Venezuelan oil, and they have officially indicated their determination to terminate the existing trade agreement. The grant by the United States of such a concession would be made dependent upon obtaining concessions from Venezuela of widespread benefit to American exporters and of value commensurate to the value of concessions granted by the United States.

Recommendation 1:

None of the offers for which approval is requested in Recommendation 1 are in excess of the respective peril points. They consist of reductions in the existing import tax on crude petroleum, topped crude petroleum, gas oil, distillate fuel oil, residual fuel oil, kerosene and petroleum liquid asphalt. Bindings of existing tariffs would be offered on pig iron, granular or sponge iron, gasoline, naphtha, unfinished oils [Page 1608] except topped crude petroleum, lubricating oils, paraffin, and paraffin wax. Bindings of existing duty-free entry would be offered on iron ore and solid petroleum asphalt. The trade value of imports (direct and indirect) from Venezuela in 1951 of these products are given in Annex D.4 Although the petroleum products listed make up over 90 percent of the total value of present imports from Venezuela, it is expected that with the development of the iron ore resources of Venezuela, the concessions on iron ore, sponge iron and pig iron will be of increasing importance. The recommendation of the Trade Agreements Committee (the representative of the Mutual Security Agency being absent and not voting) is unanimous with regard to these offers.

The requests which the United States would make in return for an offer of 10½ cents on Venezuelan oil cover a wide range of products of interest to American export industries located in 37 States. Reductions in duty will be requested on such important products as iron and steel manufactures, fruits and vegetables, fruit juices, frozen chickens, eggs, vegetable oils, animal feeds, cheese, certain cotton and rayon textiles, certain paper and glass products, leather goods, whiskey, beverage syrups, and certain rubber manufactures.

Bindings of existing rates of duty will be requested on wheat flour, modified milk, rice, shoes, tinplate, aluminum manufactures, automobile chassis, agricultural implements, industrial machinery, office machines, motion picture films, biologicals and anti-biotics, and other pharmaceuticals and chemical products. Figures of exports from the United States to Venezuela of these request items are given in Annex D.

As part of the negotiations, Venezuela wishes to withdraw or modify upward certain concessions which are already in the existing agreement. They are prepared to substitute equivalent concessions for these withdrawals or modifications. The requests which are submitted for your approval include the response to Venezuelan requests on these withdrawal or modification items. For some items we are agreeing to their request, for others we are making counter-proposals which only in part meet the Venezuelan requests. Some of these counterproposals, such as the one on canned salmon and sardines and wheat flour will undoubtedly prove unacceptable in the first instance to the Venezuelans. Furthermore, some of our requests on other items will probably not be granted by Venezuela. It is contemplated, therefore, that the concessions which Venezuela will finally agree to grant will be somewhat changed in detail from the list of requests in Annex C. Your approval of the entire results of the negotiations including the specific concessions offered by Venezuela will be requested before the United States accepts them definitively.

[Page 1609]

Recommendation 2:

There are two formal dissents, those of the Tariff Commission and Department of Labor members, to Recommendation 2 of the Committee. Written dissent of the Tariff Commission member,5 in accordance with Executive Order No. 10082, is attached6 hereto immediately following this memorandum. The Department of Labor member concurs in this statement of dissent of the Tariff Commission member. One agency, the Mutual Security Agency, was not represented at the meeting of the Committee when this recommendation was approved. The other six agencies represented on the Committee voted in favor of the recommendation.

The Committee members were unanimous in believing that every effort should be made to persuade the Venezuelans that it would be in their interest to negotiate on the basis of a 10½ cent offer on the crucial petroleum products, and that the authority to exceed a peril point should not be utilized unless it was absolutely essential in order to obtain an agreement. Before arriving at their decision, the various consequences which might result from action by the President to exceed a peril point were carefully weighed against the other national interests, including the security interest, which might be jeopardized by failure to conclude an agreement with Venezuela because of unwillingness on the part of the United States to exceed a peril point.

Among the possible consequences which might result from action which exceeds the peril point are (1) extreme congressional criticism which might take the form of a congressional Act withdrawing the authority of the President to give effect to the oil concessions negotiated with Venezuela under the Trade Agreements Act, as amended; (2) the enactment by Congress of restrictive legislation on petroleum imports either through a separate bill or through the inclusion of additional crippling amendments when the Trade Agreements Act comes up for consideration next year (it will be recalled that efforts to restrict imports of petroleum products to 5 percent of domestic production failed passage by the Senate by only one vote in 1949); and (3) crippling amendments of a general nature to the Trade Agreements Act which would further reduce the effectiveness of the program.

A particularly difficult situation which will also arise if the peril point on Venezuelan oil is exceeded is that the report of the Tariff Commission on these products must under the Trade Agreements Extension Act of 1951 be submitted to the Ways and Means and Finance Committees with the result that they undoubtedly will become public. Opponents of the trade agreements program will be able to quote [Page 1610] statements from the report which will carry a false sense of factual objectivity, when actually the statements reflect personal judgments. For example, two of the three Commissioners who found that the existing tariff quota arrangement was the peril point stated categorically, “Our report clearly shows that we based our findings and recommendations on what actually did happen in 1949, what is happening right now, and what is most likely, if not quite certain, to happen again in the near future unless the present taxes and quotas are retained …”.ǁ Actually, it is extremely doubtful that the domestic oil industry suffered any serious injury in 1949 as result of imports. As a matter of record, the Tariff Commission, by a vote of 4 to 2 on May 3, 1949, decided that the situation was not serious enough even to order an investigation in connection with an application on February 15, 1949, by the independent oil producers for escape clause action. The present situation to which the two Commissioners referred in the quotation in the context of possible serious injury was a temporary cutback of “allowables” (the amount of oil that is permitted to be produced within a given month) in Texas in November and December, 1951, and January 1, 1952. Prior to these months the Texas conservation authorities had indicated to the Department of State that Texas production was in excess of sound conservation practice and that they were permitting such production only because of the Iranian situation. Texas allowables were increased in February and reached an all time peak in March 1952.

It is also unfortunate that the Tariff Commissioners engaged in a controversy with regard to their record on escape clause actions. This controversy was generally irrelevant to the problem at hand, but would probably become public as part of the report.

On the other hand, inability to arrive at an agreement with Venezuela because of unwillingness to exceed a peril point finding by the Tariff Commission would bring in jeopardy certain national interests, including security interests, of the United States. The Venezuelan market is of importance to United States exporters of a large range of products. It is one of the few markets where United States exports are not limited because of balance-of-payments difficulties. During the hearings held by the Committee for Reciprocity Information on this negotiation over 160 United States export interests either filed briefs or presented oral testimony. These exporters came from many sections of the United States. In general, the request was that their market in Venezuela be protected and stabilized both by the obtaining of tariff concessions from Venezuela and by the granting of concessions on Venezuela oil. Since it is probable that the [Page 1611] Venezuelans will terminate the existing trade agreement if negotiations of a supplementary agreement are unsuccessful, they would be unprotected against increases in the Venezuelan tariff treatment of their products. At present there is strong pressure being put on the Venezuelan Government to increase the tariff protection for many domestic Venezuelan industries.

The security interests in the United States in arriving at an agreement with Venezuela are of such importance that the Department of State, following a recommendation by the Trade Agreements Committee, asked the judgment of the National Security Council in order that such interests might properly be weighed by you in making your decision with respect to tariff concessions on petroleum. The recommendations which were adopted by the Security Council are given in Annex E.7 Among the security considerations are (1) the possibility that the Venezuelans will delay or limit the granting of new concessions for petroleum exploration and production which are required in order to have sufficient resources in the Western Hemisphere in event of total mobilization, (2) the existing relationship between the Venezuelan Government and the oil companies is being used to provide a pattern for stabilizing relations between oil companies and governments in other parts of the world—the Venezuelan Government may change such relationship in order to recover loss of revenue resulting from an increase in United States tariffs on petroleum, (3) the general strengthening of nationalistic elements advocating nationalization of the oil industry in Venezuela, and (4) the general weakening of relations between Venezuela and the United States which are important because of Venezuela’s strategic location and possession of certain strategic resources such as iron ore.

The decision of the Committee with regard to Recommendation 2 was not arrived at easily. While all agencies recognized fully the security importance of the domestic oil industry, no agency except the Tariff Commission felt that a concession going below a peril point on the controversial petroleum items would cause or threaten serious injury to the domestic industry. While acknowledging that a concession below the peril point might be granted in a fashion which would not cause or threaten serious injury to the domestic industry, the Department of Labor joined the Tariff Commission in finding (a) that it was not established that the absence of authority to pierce the peril point would in fact endanger the outcome of the negotiations, or (b) that failure would likely be followed by developments significantly adverse to our national security and other interests. The decision of the members of other agencies rested basically on whether the domestic risks [Page 1612] which, to a large extent are political, were greater or less than the possible jeopardy of the national interest of the United States, including particularly the security interest.

The concession which it is recommended be offered, if essential to reach agreement with Venezuela, is one which, without quota limitation, goes below the peril point of 10½ cents only on imports of crude petroleum, distillate fuel oil and residual fuel oil of gravity less than 25 degrees API (American Petroleum Institute rating). On imports of products of gravity 25 degrees or higher API, the offer would be 10½ cents, without quota. From 25 to 30 percent of the total imports of oil from Venezuela are of gravity less than 25 degrees API. The lower than 10½ cent rate would, therefore, apply primarily to residual fuel oil and a small part of crude oil imports. Practically all of the crude oil production in the United States is of a gravity 25 degrees or higher. In recent years, there has been a definite decrease in the percentage of residual fuel oil recovered from domestic and foreign crude oils processed at United States refineries and the deficiency in residual fuel oil supply has been met by imports. Accordingly, the proposed concession below the peril point would not have a materially direct effect on the domestic oil producing industry, and would tend to equalize the competitive effect of imported oil on domestic refineries.

Its principal effect would be with respect to the domestic bituminous coal industry which has always been opposed to imports. Here, however, evidence exists that the impact would be small. According to evidence submitted during the hearings before the Committee for Reciprocity Information, residual fuel oil is competitive with bituminous coal mainly in those Atlantic Coast utilities producing gas and electricity which are equipped to burn either fuel. In this industry, the use of bituminous coal has increased by almost 40 million tons between 1940 and 1950, whereas the use of residual fuel oil increased only 15 million tons (in bituminous coal equivalents). The use of all other sources of energy (e.g. gas) by this industry increased during the same period by over 50 million tons (bituminous coal equivalents). In all other uses where residual fuel oil and bituminous coal might come into competition as a source of energy, such as in railroads, space heating and miscellaneous industrial uses, the situation either is the same as occurred in the utilities field or is that any decrease in use of bituminous coal is primarily because of increased use of sources of energy other than residual fuel oil. Despite the economic fact that direct competition of residual fuel oil with bituminous coal is much smaller than would be indicated by the total imports of residual fuel oil, and that the difficulties of the bituminous coal industry are not due primarily to such competition, there probably would be protests that the concession recommended by the Committee was aimed directly at [Page 1613] the coal industry. In answer to these protests, it would be necessary to point out the economic facts in justification of the position that no serious injury is being caused or threatened to the domestic bituminous coal industry by the concession.

It is the belief of certain members of the Committee who are the best qualified to judge, that a concession based on the above degrees of gravity would be more acceptable to the domestic petroleum industry than other possible types of concessions which would go below the peril point.

As is customary, the final results of the negotiations, both the concessions granted and obtained by the United States will be subject to approval by you before signature of the agreement.

Your approval of the two recommendations by the Interdepartmental Committee on Trade Agreements is hereby requested.8

Carl D. Corse
  1. Drafted by Mr. Corse.
  2. Drafted by Carl Corse.
  3. Crude petroleum, topped crude petroleum, residual fuel oil and distillate fuel oil. [Footnote in the source text.]
  4. See Annex A for a history of the tariff treatment of these products. [Footnote in the source text; Annex A is not printed.]
  5. Not printed.
  6. Not printed.
  7. Annex C also includes the additional requests which will be made of Venezuela if it is found essential to utilize the authority asked for in Recommendation 2. [Footnote in the source text.]
  8. A rate of 5¼ cents per barrel on all imports of crude petroleum, distillate fuel oil and residual fuel oil (for technical reasons topped crude is excluded) of less than 25° API (American Petroleum Institute rating); a rate of 10½ cents per barrel on all imports of these products of 25° or greater API. [Footnote in the source text.]
  9. Not printed.
  10. Lynn R. Edminster.
  11. Not printed.
  12. Page 2, Supplementary Statement by Commissioners Brossard and Gregg, dated January 10, 1952. [Footnote in the source text.]
  13. Not printed.
  14. President Truman approved these recommendations on Mar. 17, 1952.