Attachment
3
SECTION A. U.S. RESTRICTIONS ON IMPORTS OF OIL WHICH AFFECT
CANADA
Discussion
Present System of Controls
1. The present system of voluntary control of imports was instituted in
July 1957 with respect to crude oil and was extended in March 1958 to
certain petroleum products. The controls were framed in terms, not of
Canada or any other supplying country, but of importing companies and
U.S. areas. The quota of each importing company was fixed on a
historical basis, i.e., in relation to its past imports during a stated
period.
2. The rationale for the imposition of controls was that the level of oil
imports was such as to threaten to impair the national security. Section
7 of the Trade Agreements Extension Act of 19554 authorized the President to adjust the level
of imports in the event of such a finding.
Effect of Present Controls on Canadian
Production
3. So far as concerns Canadian oil, these import restrictions have not
yet become a limiting factor on imports, due in part to the effect of
the recession on expected demand. Nevertheless, under the present
program because of price considerations the trend of imports has been in
favor of Middle East and Far East oil sources to the detriment of [Page 582] Western Hemisphere sources.
Thus, while quotas under the voluntary system of firms which normally
import from Canada are currently 138,000 b/d (a figure substantially
below the high point of 209,000 b/d reached in April 1957 during the
Suez crisis), actual imports from Canada in CY 1958 are expected to
average 80–90,000 b/d.5
4. However, these restrictions can be expected to limit the import of
Canadian oil when and if demand increases above the allowables and, in
any case, may well have an important effect on the future development of
Canadian oil. The present permissible import levels would not be high
enough to stimulate exploration and development of Canadian
resources.
5. Canadians consider that the most economic and effective development of
their oil resources depends on assured access to their natural market in
the Northwestern and North Central United States. Canadians believe
their oil deserves, and should have, on security grounds, a preferential
position in the United States relative to other imported oil. They
regard the application of the U.S. import control system to importers
from Canada as a sign that Canada will not have such a position in the
U. S. market.
6. The prospect that the continuing need for U.S. quotas may affect
normal growth of the U.S. market for Canadian oil is one of the factors
in Canada’s current consideration of whether to provide an additional
outlet for Western Canadian crude through construction of pipelines to
the Montreal market. Such action by Canada would have the collateral
effect of curtailing the present substantial market for Venezuelan crude
in Eastern Canada, with detrimental effect on the development of
additional reserves in the Western Hemisphere outside of North
America.
Proposed Revision of Controls
7. The President’s Special Committee to Investigate Crude Oil Imports is
currently considering a revision of the present import control system.
What effects this revision will have on imports from Canada and the rest
of the Western Hemisphere will depend on the weight given to Canadian
and other Western Hemisphere resources in the interest of national
security.
Controls a Departure from Past NSC Policy
8. So far as applicable to Canada, the oil import restrictions represent
a departure from the policy adopted by the NSC in November 1953 (NSC
97/6, “A National Petroleum Program”)6 which
provided [Page 583] that the United
States should resist further restrictions on imports of Western
Hemisphere oil in order to insure maximum development and wartime
availability of Western Hemisphere resources, with the understanding
that continued scrutiny would be given to the volume of oil imports with
particular relation to any significant adverse effect on the development
of domestic resources.7 It should be noted that the President’s Special
Committee, in developing the import control program, did not approach
the problem from a Western Hemisphere or Canadian viewpoint but equated
national security with domestic production.
Considerations Largely Same for Canada
and Venezuela
9. While this discussion is directed primarily to Canada, in terms of the
national security Canada, Venezuela and other Western Hemisphere sources
should be given due consideration. Two factors peculiarly applicable to
Canada are:
- a.
- Pipelines may be used for the transmission of Canadian oil to
the United States.
- b.
- The Midwestern area of the United States bordering on Canada
(the so-called “northern tier” area) is a natural Canadian
market which cannot economically be supplied from other
sources.
Arguments for Eliminating or Reducing
Import Restrictions on Canadian Oil
10. a. Restrictions on the importation of Canadian oil are contradictory
to the long-standing plan of the United States and Canada to share their
resources in time of war on a continental rather than on a national
basis.
b. Increased Canadian and other Western Hemisphere oil resources, the
development of which U.S. import restrictions tend to inhibit, would be
essential in certain emergency situations as a supplement to U.S.
resources. For example, because petroleum and petroleum products are
expected to be limiting factors in the survival and recovery of the
United States in the event of an attack on the continental United
States, the immediate and continuing availability in neighboring
countries of maximum supplies would be in the interest of national
security.
c. Such increased resources would lessen the political leverage and
economic impact on Free World security of the denial or interruption of
Middle East oil. While preferences for the development of Western
Hemisphere (dollar) oil would adversely affect the import of non-dollar
oil from areas outside the Middle East (e.g., the Far East), in [Page 584] comparison with the adverse
impact which the import control program has on foreign oil development,
the effect of a preference for Canada and Venezuela would be small.
d. Although U.S. import quotas will not force Canada to provide access to
Montreal market for Western Canadian crude, such access would tend to
deny that market to Venezuela oil and thus adversely affect the
development of oil sources in Venezuela. The economic effect on
Venezuela of the loss of the Canadian market would be most serious and
it is likely that the United States would be blamed.
Arguments Against Eliminating or
Reducing Import Restrictions on Canadian Oil
11. a. A preference for Canadian oil imports would conflict with our
general policy of non-discrimination among country sources and might
create serious foreign relations difficulties, both in connection with
our trade policy and in the broad economic and political field. However,
special treatment of the imports of countries of a given area appears
not to violate our obligations under GATT when the exception is “necessary for the protection of
its (the United States’) essential security interests in time of war or
other emergency in international relations”. It must be admitted that,
were the exception applied to Canadian imports only, it is probable that
under GATT or under our bilateral trade
agreement with Venezuela such preferential treatment would be
challenged.
b. In view of the state-imposed controls on oil production in the United
States, the removal of all restrictions on oil imports from Canada would
tend to give to Canadian producers a preferred position, as against U.S.
producers, in the U.S. market.
Policy Guidance
| Alternative A |
Alternative B |
| 12. The interests of national security require that petroleum
resources readily available to our geographic areas be
encouraged to continue their development consistent with a
healthy and dynamic domestic industry. |
12. It is in the interest of national security to give
preference to imports of petroleum from Canada and other Western
Hemisphere countries in any system of import
restrictions. |
[Here follows a Department of the Interior table of “U.S. Crude Oil
Imports” for the years 1954–1958.]
