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.
[Annex]
Memorandum by the Chairman of the
Interdepartmental Committee on Trade Agreements (Corse) to the
President
2
secret
Washington, March 14,
1952.
Subject:
- 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.
- (1)
- 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.‡
- (2)
- 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
