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

263. Memorandum of a Conversation, Department of State, Washington, July 19, 1957¹

Washington, July 19, 1957

SUBJECT

• Meeting of the Cabinet Committee on Limitation of Oil Imports

PARTICIPANTS

• Secretary of Commerce Weeks
• Secretary of State Dulles
• Secretary of the Treasury Humphrey
• Secretary of the Treasury Designate Anderson
• Secretary of Labor Mitchell
• Secretary of the Interior Seaton
• Deputy Attorney General Rogers
• Assistant Attorney General Hansen
• Gerald Morgan, Special Counsel to the President
• Secretary of the Air Force Quarles
• Walter Wallace, Administrative Assistant to Sec. Mitchell
• Fredrick Mueller, Assistant Secretary of Commerce
• Dr. Flemming
• Dillon Anderson, Consultant
• Herbert Hoover, Jr., Consultant
• Loftus Becker, The Legal Adviser

The meeting opened with a brief discussion on procedure. At the suggestion of Secretary Humphrey, the committee proceeded at once to consider the alternate recommendations to be made by the committee. It was pointed out by Chairman Weeks that the alternative methods of limiting imports were:

(1) by a tariff adjustment

(2) by imposing country quotas

(3) by imposing company quotas either on a voluntary or mandatory basis, and

(4) by imposing a limited level of imports and allowing the companies to fight it out as to which obtained its share thereof by analogy to action that had previously been taken in the agricultural field.

Secretary Weeks pointed out that there were serious difficulties with a tariff control because of the low price of Middle East oil. The tariff would have to be very high in order to discourage the importation of oil from that area. A country quota created grave foreign policy difficulties. On the whole, the company quota method, initially voluntarily and mandatory if necessary, seemed to be the best approach although he wanted an examination of the possibility of imposing only a level of imports.

Mr. Rogers spoke briefly on the legality of the first three methods of regulation. He felt that the company quota system would be satisfactory on a mandatory basis if it were not unreasonably discriminatory as respects any company, but he did feel that it would be necessary to give each of the importers a day in court. There was some discussion as to whether and to what extent this requirement would delay the imposition of mandatory controls. Mr. Rogers ultimately expressed the view that the delay would not have to be too long since some of the companies might waive a hearing and the facts to be ascertained were not extremely complicated.

Secretary Humphrey expressed the view that it would be unnecessary at this time to make a final determination of what had to be done in order to impose mandatory controls. He felt that we could try the voluntary controls and thought that the companies wanted to avoid the trouble involved in mandatory controls, so that the voluntary system would work for a couple of years, so long as there was not unreasonable discrimination in the system of voluntary controls. He pointed out that although there were some differences, a voluntary system of controls had been in effect prior to Suez and that it had broken down only as a result of Suez. Secretary Humphrey was strongly of the view that the decision should be made as to voluntary controls without detailed examination of mandatory controls, the latter to be considered if and when a voluntary system broke down.

Secretary Mitchell raised several questions with particular reference to the relationship of this program and national security. He asked whether or not the decrease in exploratory drilling that had occurred during the last six months was due to local factors rather than to increased imports. He questioned whether some of the decrease in exploration was due to the fact that smaller companies could not afford exploratory drilling at present day costs. Even the larger companies were pressed by such costs. He also raised a question as to the approach of the paper in pointing out a decrease in exploratory drilling during the last six months, while during the past ten years there had been an upward trend in exploratory drilling.

During the course of this discussion, Secretary Humphrey expressed the view that the national security determination was based on expectation of what would happen with respect to exploratory drilling. He was assured that such drilling domestically would decrease in the foreseeable future and this did pose a threat to our national security. It was perhaps true that some of this decrease was inevitable and that ultimately we would have to allow more imports, but that was a question that could be faced in reviewing the program.

Secretary Mitchell also pointed out that the price of oil was above the index for prices generally. He suggested further that if we were to take this action with respect to oil imports, there would be a demand that similar type of action be taken in the mineral fields and with respect to fish. It was the sense of the meeting that these other industries were distinguishable.

Secretary Dulles then reviewed the various methods in the light of foreign policy considerations. He pointed out that one basic factor here was the fact that Middle East oil was cheaper and this had a direct impact upon the domestic market and exploratory drilling. Because of the cheapness of Middle East oil, control by tariff would involve far too much of an increase in the tariff. With respect to the proposal that a quota be imposed on countries, the Secretary pointed out the gravity of any such measure in particular relation to our relations with Canada and Venezuela, as well as the Middle East. He regarded that method of regulation as wholly unsuitable in the light of foreign policy considerations. Secretary Dulles also felt that similar foreign policy considerations would not permit us to merely set a level of imports and allow the companies to fight it out as to how this was to be divided up. Such a system might also work out inequitably as among companies, but he felt also that this would merely mean a flood of Middle East oil.

Secretary Dulles thought that the most feasible method of regulation at this time was a voluntary limitation on the basis of company quotas which, in his view, should be clearly qualified to take care of hardship cases. There was then a brief discussion as to whether or not the proposal with respect to Tidewater was unduly harsh on that company, in view of the fact that they had built a large new refinery. Mr. Hoover expressed the view that this might be taken care of by phasing additional imports for Tidewater over a period of time. He did not feel that Tidewater should be permitted to jump from some 22 to 84 in one step. He envisaged increasing Tidewater to 60 or perhaps 80 over this period of time.

Dr. Flemming pointed out that the plan as announced would not include the tables identifying the quotas of the respective companies. He suggested that if there were to be any exceptions or qualifications on the ground of hardship, as, for example, in the case of Tidewater, it would be better to put them into the plan at this time. After some discussion, however, it was felt more desirable to put the plan into operation and then to permit adjustment for hardship cases if such existed.

At this point in the meeting Mr. Hoover circulated to some of the participants and read a revised proposal respecting the treatment of Areas I–IV and Area V. The substance of this change was that there would be some cutback in the Area V program for the last half of 1957 although, as Mr. Hoover pointed out, this cutback would not be serious because in that area importers would be permitted to fill the gap between domestic supply and demand. Secretary Dulles expressed some concern at this because of the delicacy of our relationship with the new Canadian government and indicated that he would take this aspect of the plan under advisement.

Secretary Quarles raised a question as to whether or not there was adequate connection between the proposed limitation program and the national security. He was primarily concerned with the fact that while the plan was being put into effect in order to induce additional domestic exploration, there was no requirement to that effect in the plan as drafted, nor were the quotas related to additional exploration. In this connection it was pointed out that the national security portion of the draft had been rewritten to bring out more clearly the relationship between the limitation program and the national security. It was also pointed out that in consideration of various types of limitation thought had been given to relating quotas to exploratory drilling, but this proved impracticable because some of the companies having large exploratory programs were not importers.

After some further discussion, it was moved by Secretary Humphrey and seconded by Secretary Dulles that the program of voluntary limitation of oil imports be approved in principle, subject to revision of the wording and also subject to revision in detail, and this motion was carried unanimously. Thereupon, Secretary Humphrey and Secretary Dulles left the meeting.

It was further agreed that the draft plan would be revised over the weekend and another meeting would be had on Monday, July 22.

A question was raised as to whether the plan would be discussed in advance with the companies. Mr. Rogers pointed out that the President could not give antitrust immunity under this plan and that discussions between companies on it would be subject to very grave question. He felt that the only contact there should be was that between government and individual companies, and opposed the idea of having such contact in advance. Mr. Becker pointed out that this would occur in due course in the light of the provision for hardship cases, and it would perhaps be preferable to put the plan into effect and then have individual companies approach the government. Mr. Rogers agreed with this approach.

A further question was raised as to whether the plan would be accompanied by an opinion of the Attorney General. Mr. Rogers was unwilling to do this on the antitrust aspects, but did agree to have prepared a memorandum which could be released in conjunction with the plan, pointing out the scope of the President’s power under Section 7. It was the sense of the meeting that this would be helpful because it would indicate to the companies that the possibility of mandatory limitation was a very real one.

Mr. Becker pointed out that the Secretary of State desired that after the plan had been finalized there be a reasonable period, on the order of 48 hours, in order to permit the State Department to discuss this matter in advance with governments such as Canada and Venezuela. Secretary Weeks agreed with this proposal but suggested that he be reminded of it at the next meeting.

Following the meeting, Mr. Becker made some minor drafting suggestions to Mr. Dillon Anderson.

1. Source: Department of State, Central Files, 411.006/7–1957. Top Secret. Drafted by Becker.