Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

254. Memorandum for the Files, by M. Robert Rutherford of the Fuels Division, Office of International Trade and Resources¹

Washington, May 3, 1957.

SUBJECT

• Meeting of Working Group with Mr. Gray, Director of ODM, on the Subject of Oil Imports, May 3, 1957

Mr. Gray called a meeting of an informal working group on oil imports late on the afternoon of Friday, May 3. This meeting was attended by Messrs. Kendall and Gresham of ODM; Messrs. Jordan and Miller of the Office of Oil and Gas of Interior, and Mr. Rutherford of FSD, State.

Mr. Gray stated that he sees his task as different from that of Dr. Flemming. Dr. Flemming had attempted to implement import restrictions on a voluntary basis; Mr. Gray is merely going to determine if restrictions can be effected on a voluntary basis. He believes that this determination can be made in a relatively short period of time—perhaps several weeks. He will then be in position to advise the President whether, in his opinion, import restrictions—if found necessary by the President—could be worked on a voluntary basis.

Mr. Gray intends to protect several basic principles which have already been established as desirable:

1. To avoid discriminating against any country or region by name.

2. To protect Canada as a source of supply.

3. To prefer Venezuela and the Caribbean over the Middle East.

4. To exclude District V (in effect this takes care of Canada).

5. In considering individual companies, to give consideration to historic patterns as well as to recognize the need to make room for new importers.

Mr. Gray is going to meet with Mr. Wood and Mr. Vaughey of the Independent Petroleum Association of America next Thursday, May 16. At that meeting he will be going to carry forward the line of action suggested during the course of the meeting of the Advisory Committee on April 24, i.e., to find out from the Independents how much “give” there might be in the 1954 ratio, and to do this prior to consultation with the individual importing companies in the direction of seeking commitments for reductions in importing plans. Mr. Gray concedes that the import issue is a domestic political question.

Mr. Gray understands that Messrs. Wood and Vaughey have implied—or possibly have stated in so many words—that they would be willing to see the 1954 formula liberalized to the extent of two percentage points. Mr. Gray hopes that they will confirm such a concession to him. He realizes that he may have misunderstood and that, possibly, Messrs. Wood and Vaughey were talking in terms of 2/10 of a percentage point. Mr. Gray recalled that Mr. Hoover had referred to the figure recorded for the first quarter of 1956 for total imports into Districts I to IV from all sources, 11.41 per cent, and Mr. Hoover’s observation that that figure might be taken to supplant the 1954 ratio, 11.26 per cent; these figures differ by about 2/10 of a percentage point.

Mr. Gray observes that the Congressional opinion to which he has been exposed during the past several weeks has emphasized that the trend in imports is more important than the maintenance of a static ratio. In other words, it is more important that imports do not zoom upward; it would be agreeable if they increased at a moderate proportionate rate.

Mr. Gray also observed that President Eisenhower has expressed himself as not wishing to be in the position of having been responsible for a general round of price increases—which would almost certainly come about as a result of another increase in crude prices, if imports are in fact held back to the 1954 ratio.

Mr. Gray asked for the reaction of the group to his proposal. Messrs. Jordan, Miller and Rutherford expressed themselves in rather enthusiastic terms to the effect that a liberalization of the 1954 formula at this time by two percentage points would represent a very substantial achievement; firstly, it would represent a breaking of the “sanctity” of the fixed 1954 ratio; secondly, it would represent quantitatively an amount to play with (roughly, an addition of 20 per cent) which might make possible once again to bring actual imports into line with the “desirable” ratio. If the importers can see that they are faced with a growing rather than a fixed ratio, they will be much more eager to hold imports back to the required level.

Mr. Gray inquired whether the group felt that residual should be included; the group replied in the negative. Mr. Gray inquired whether it would be advantageous to calculate imports against a consumption base, as for instance refinery runs, rather than a production base. The group observed that this had in fact been the recommendation of the industry task force last Fall, and that it would have the distinct advantage of providing a base which would itself be growing proportionately (albeit at a small rate).

Mr. Gray asked the group to work out for next week some calculations which would take the above ideas into consideration. Additionally, he suggested that an attempt be made to utilize the quantities represented by the additional two percentage points to first take care of the current importers who did not have a substantial 1954 record.

1. Source: Department of State, Central Files, 411.006/5–357. Confidential.