Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

274. Memorandum of Conversation⁰

March 4, 1958.

SUBJECT

• Meeting of the Inter-Cabinet Committee on Crude Oil Imports¹

PARTICIPANTS

• Secretary of Commerce Weeks, Chairman
• Secretary of State Dulles
• Secretary of the Treasury Anderson
• Assistant Secretary of Labor
• Deputy Secretary of Defense Quarles
• Deputy Attorney General Walsh
• Under Secretary of Interior Chilson
• Assistant Attorney General Hansen
• Assistant Secretary of Commerce Mueller
• Major General Corulla, Department of Defense
• Captain Carson, Administrator of the Voluntary Program
• Gordon Gray, Director, Office of Defense Mobilization
• Ralph Fowler, Office of Defense Mobilization
• Herbert Hoover, Jr., Consultant
• Loftus Becker, Department of State

Chairman Weeks opened the meeting by generally reviewing the situation. He was followed by Captain Carson who gave a summary of his hearings.² A number of new importers were requesting quotas, but by reason of the fact that demand had not increased as anticipated, there was no room for them. While on the whole most of the companies were going along with the program, there were three importers that were very definitely out of line and this was having its effect on the willingness of other importers to continue to conform to the program. The situation in the domestic industry was very difficult. Oklahoma had dropped its production about 10% and Texas had dropped its production about 16% (9 days allowables). Louisiana had also restricted production. No restrictions had been imposed by California. Captain Carson thought that he could adjust the program if he had an additional 40,000 to 50,000 barrels a day to allocate. Chairman Weeks then posed the question as to whether any member of the Committee thought the voluntary plan would work. Secretary Dulles commented that the plan had been working reasonably well and that there were serious security problems involved in any alternative procedure. The thing that we should really do is to compare the voluntary plan with the alternatives. He recalled that the Department of Justice had indicated that there might be some method short of mandatory controls of bringing the recalcitrants into line, and he asked the representatives of Justice to discuss this point. Mr. Hansen noted that any mandatory controls would be extremely cumbersome. It would be necessary to afford objectors some type of a hearing procedure and this would involve a large administrative staff for which we had no funds available. Moreover, the objectors would probably file suits in court and in the meantime the benefits of the voluntary program would be lost. Mr. Quarles noted that the success of a program should be measured by how well it is doing as compared with alternatives. The voluntary program might be much better than any alternative. Secretary Dulles again commented that it is necessary to consider the degree to which the program is successful and the real question was how could it be made to work better. It is possible that some reasonable additional reductions would be consented to by Venezuela and Canada. At any rate, we were currently holding consultations with them on that point. The Committee should very seriously consider the difficulties of approaches other than a voluntary program, since it would lead to a degree of socialization of the industry. We have here domestic security interests and foreign security interests. Mandatory controls might well lead to controls over price. It is possible that some of the companies having existing allocations can move over for newcomers and this after all may be temporary, for there may be an upturn in demand and it may be possible to get along with the voluntary program. Chairman Weeks noted that there was an existing imbalance of imports and production by reason of the failure of any increase in demand to develop. The small importers may be squeezed out. Unless some action is taken, the extension of the Trade Agreements Act may well be defeated in Congress and we had been advised to that effect by the leaders. Mr. Gray again noted that there was an imbalance of imports and production because of a decrease in domestic demand. He suggested that the ratio be adjusted and that asphaltic crudes be exempted from the program so as to give Carson in the neighborhood of 80,000 barrels a day as distinguished from the 200,000 barrels a day that was being requested by the applicants. He commented that we cannot allow one company to destroy the entire system. The answer was some reasonable cutback. Mr. Hoover noted that there had not in fact been a large drop in domestic demand according to the latest Bureau of Mines figures, although there had been some drop over a period of time. Actually, the excess of production was not really due to excessive imports. Factors that would have to be considered were the great increase in use of natural gas; the fact that states other than Texas had not cut back production substantially. The fact that we have at present 110,000,000 barrels above working stocks was due in his opinion to many factors other than imports.

Secretary Anderson commented that the basic authority given to the President by Congress under Section 7³ related to the national security. He had to determine whether the domestic industry was reasonably healthy in the sense that there was sufficient discovery and production so that our reserves did not decline in terms of the number of years that they would be available. He recognized that there were security interests involved also in our relations with Canada and Venezuela and the Middle East. It was necessary to recognize that the number of producing companies would increase and the number of importers would increase. In the light of this the major concern of the big companies was that there was a certain point at which they could not cut their profits in the national interest unless they were forced to do so by some type of mandatory control. On the other hand, the companies well recognized that a voluntary plan was flexible and they had no desire for statutory controls. A number of the smaller refiners in the United States were closing down. If we were to have a form of mandatory control, the industry would prefer an executive order to a statute. Secretary Dulles reverted to the point of what could be done to add teeth to the voluntary program. Mr. Walsh, commenting first on Secretary Anderson’s statement, said that mandatory control through executive order was even more difficult than legislation. Money would be needed to administer such a program. In reply to Secretary Dulles, Mr. Walsh suggested application of the Buy American Act⁴ to those companies which failed to comply with the voluntary program. In effect, they would not be eligible to sell oil to the government. It was noted that such a sanction might be avoided if the companies were able to segregate imported from domestic oil, but it was felt that it would be rather difficult for them to do so. Secretary Anderson inquired whether it would be possible to forbid such companies from shipping their oil in interstate commerce, but it was pointed out that this could only be done through legislation. Judge Hansen said that the Department of Justice had a memorandum⁵ indicating how the Buy American Act could be applied in this instance. The memorandum was premised upon the theory that it would be most inconvenient for the companies to segregate imported from domestic oil. There was then a general discussion of this suggestion on the part of Justice, and it was agreed that Justice’s memorandum would be distributed to those Departments which made large purchases of petroleum products such as Defense, Post Office and GSA. At Secretary Quarles’ suggestion, those Departments would study the feasibility of applying this sanction so as to put some teeth into the voluntary program.

The meeting then turned to the question of whether the voluntary program would be adjusted to conform to the ratios between imports and production or demand recommended initially by the Committee, or whether any change in those ratios was required. It appeared to be the consensus of opinion that these ratios had been very carefully worked out and that there was no reason to change them at this time. Mr. Gray raised the question of products such as unfinished gasoline and residual oil or topped crude. After some discussion, Mr. Gray undertook to have the situation with respect to these items considered by his Committee after he had received figures on categories of imports from Treasury. Some consideration was given to the problem of new importers who trade their allocations with large importers in exchange for crude located in the interior of the country and split with the large importer the resulting price advantage. It was pointed out that this was basically a refining problem. Some consideration was given to the suggestion that allocations should be based on refinery capacity but it was noted that this would greatly advantage the large refiners.

At the conclusion of the meeting it was agreed that further study would be given to reducing the total allocation under the voluntary programs so as (a) to make the ratio between imports and production conform to the 12% previously determined by the Committee to be necessary in the interests of national security, and (b) to give some reasonable allocation to new importers. In order to do these things it would be necessary to cut back existing allocations by some reasonable percentage. Study would be given to the feasibility of using the Buy American Act to bring recalcitrants under the voluntary program into line.

0. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 64 D 199. Confidential. Drafted by Becker.

1. On February 20, Weeks telephoned Dulles to inform him about the meeting and urged that he attend. According to a transcript made in Dulles’ office, the conversation went as follows:

   “W said on March 4 (2:45 p.m.) there will be a meeting of the Oil Comm and they may take some fateful decisions and the Sec may want to consider being there. The decisions may involve whether or not we have mandatory controls.” (Eisenhower Library, Dulles Papers, General Telephone Conversations)

2. At the recommendation of two reports of the Special Committee To Investigate Crude Oil Imports, July 29 and December 12, 1957, the Voluntary Oil Import Program went into effect with respect to purchases in states east of the Rocky Mountains on July 29, 1957, and was extended to the remaining states on December 24, 1957. The program was carried out under provisions of the Trade Agreements Extension Act of 1955 (69 Stat. 162) and was administered by the Department of the Interior. Carson’s hearings were apparently on the program.
3. Section 7 of the Trade Extension Act of 1955. (69 Stat. 162)
4. The Buy American Act, enacted March 3, 1933, stipulated that in all but limited cases only unmanufactured articles, materials, and supplies mined or produced in the United States and only manufactured articles, materials, and supplies made in the United States could be acquired by the government for public use. (47 Stat. 1520)
5. Not found.