Miller files, lot 53 D 26, “Venezuela”

Memorandum by the Assistant Secretary of State for Inter-American Affairs ( Miller ) to the Secretary of State 1

confidential

Subject:

  • Department of Justice Cartel Proceedings

I mentioned briefly to Mr. Bruce this morning the problem which has been created for us in Latin America as a result of the cartel proceedings being commenced against the oil companies by the Department of Justice. In my opinion there is nothing that has happened since I have been in my present position which has done more harm to American investment abroad than the announcement of these proceedings. Mr. Bruce suggested that I bring to your attention the following excerpt from a recent letter2 from Ambassador Fletcher Warren in Caracas:

“The most unfavorable development not only in August but for months to come was the publication by the Senate’s Committee on Small Business of the so-called cartel report.3 This made mad every oil man of any importance in Venezuela. It seemed to them that their honesty and integrity had been placed in question. They felt that they [Page 1634] had been working for Uncle Sam in Venezuela and working successfully. They had set an example for relations between oil companies and national Governments. They were advancing the national defense of the United States. Despite all this, Uncle Sam had let them down by the publication of old information in such a way as to subject them to embarrassment, to cause them unforeseeable difficulties with the Venezuelan authorities. Furthermore, they felt that the report played right into the hands of the Commies and the nationalists, and that we will not hear the last of the report for years. I must say, looking at the situation from the vantage point of the Embassy, I am inclined to agree largely with the oil men. It is certain that the Embassy’s work will be made more difficult and that we may be embarrassed by the report at the most inopportune times.”

I subscribe wholeheartedly to the above. Mr. Hewittson, Director for Latin American operations of Standard Oil (New Jersey), was in to see me yesterday on another matter and expressed dismay over these proceedings since they go to the very heart of the oil companies’ relationship with the Venezuelan Government. This relationship, which has been worked out over a period of years, is based upon an allocation to the Venezuelan Government of 50 percent of the net profits of the companies. Naturally the amount of profit depends upon the prices which the companies realize on oil sales, so that when the United States Government officially alleges that oil prices are noncompetitive the whole basis of the oil companies’ position in Venezuela is called into question. One of the Venezuelan cabinet officers recently stated to an official of our Embassy that although the Venezuelan Government was entirely satisfied with the present arrangement, nevertheless the political pressures generated by the commencement of the proceedings would undoubtedly require members of the Venezuelan Government as politicians to agitate for revision of the arrangements with the oil companies.

It is unnecessary to point out to you that the trend for nationalization of private property is getting stronger in Latin America. The entire mining industry in Bolivia is in imminent jeopardy of being taken over. The Brazilian Congress has amended the legislation to create the Government oil monopoly Petrobras in such a way as to eliminate any provision for even minority foreign participation in any oil venture. The copper companies have a serious problem in Chile. In both Argentina and Guatemala, foreign investments are in difficulty and in the latter a far-reaching agrarian reform law has just been passed. In the background is the case of Anglo-Iranian4 and the Mexican expropriation of oil properties in 19375 which is advertised by the Mexicans as having been successful even though experts believe otherwise.

[Page 1635]

We have recently successfully concluded negotiations with Venezuela for the modification of our trade agreement and as you know we have had to use our authority to breach the peril point on the rate of duty for petroleum imports. It would be consistent with our efforts in this regard to do whatever is possible to minimize future adverse repercussions for American investment abroad from the cartel proceedings.6

  1. Drafted by Mr. Miller.
  2. Not identified.
  3. Apparent reference to The International Petroleum Cartel; staff report to the Federal Trade Commission submitted to the Sub-committee on Monopoly of the Senate Select Committee on Small Business (Washington, Aug. 22, 1952).
  4. For documentation on the nationalization of the Anglo-Iranian Oil Company in Iran in 1951, see volume x .
  5. For documentation on this subject, see Foreign Relations, 1938, vol. v, pp. 720 ff.
  6. In a letter to Ambassador Warren discussing the oil cartel proceedings, dated Jan. 16, 1953, Deputy Assistant Secretary Mann stated that at its meeting on Jan. 9, the NSC had approved and the President had concurred in the recommendations of the Departments of State and Defense to terminate, on the grounds of national security, the criminal action against the oil companies and instead to appoint a Cabinet commission to consider the institution of a civil suit. Mr. Mann also stated that “wc in ARA will continue to follow this matter closely and to do all within our power to prevent the continuance of a criminal suit with its attendant publicity and unfortunate repercussions in Venezuela.” (MannWoodward files, lot 57 D 634, “Venezuela”) For additional documentation on the applicability of U.S. antitrust legislation to international oil companies, see volume i .