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

290. Memorandum From the Secretary of the Council on Foreign Economic Policy (Cullen) to the Chairman of the Council (Randall)⁰

December 18, 1958.

SUBJECT

• CFEP 577—U.S. Restrictions on Imports of Oil Which Affect Canada¹

1. The question before the CFEP is whether any foreign economic policy reasons override the national security reasons outlined in the Planning Board paper with respect to giving preferential treatment to oil imports from Canada and Western Hemisphere countries. The Planning Board does not contest and assumes that oil imports must be restricted for national security reasons, this finding having been duly made and recently reaffirmed by the Director of OCDM pursuant to his authority under the Trade Agreements Extension Act.² The President’s Special Committee to Investigate Crude Oil Imports is now actively considering a revision of the present voluntary control system and has now decided, at least as a temporary measure, to impose mandatory quotas.

2. The burden of the Planning Board paper is that Canadian and Western Hemisphere oil should be given preferential treatment. Among the reasons for the conclusion are: (1) Canadian oil can be delivered to the United States by pipeline, unlike oil from other sources which would employ vulnerable sea transportation; (2) restrictions on Canadian oil would be contrary to the U.S.-Canadian plan to share resources in time of war; (3) Canada’s oil exports to the United States should be large enough to stimulate Canadian oil exploration and development; (4) failure to give preferential treatment may force Canada to build an east-west pipeline which would result in reducing its Venezuelan imports; and (5) the greater availability of Canadian and Western Hemisphere oil would reduce Free World reliance on Middle East oil.

3. The Planning Board recognizes that any discriminatory import treatment accorded Canadian and Western Hemisphere oil would be contrary to U.S. trade policy, but notes that special import action for national security reasons is authorized both by the GATT and by the Venezuelan bilateral trade agreement.

4. If the question before the CFEP were whether any oil import restrictions at all should be imposed for national security reasons, the problem would be much simpler. We could then take the position that the United States would be seriously affected from a foreign economic policy standpoint because this would be breaking ground for a new way to restrict trade. We could also urge that the cumulative effect of the imposition of oil quotas and the recent U.S. action in lead and zinc³ could result in the United States losing its world leadership in trade liberalization and the beginning of a backward movement towards more restrictive world trade practices. It could also be urged that the Middle East and Far East oil producing countries would be hurt economically, thus affecting their economic growth and stability and serving to undermine other U.S. economic actions to achieve this purpose. But the U.S. has already imposed voluntary quotas and is expected to impose mandatory quotas in the near future.

5. The question, therefore, is the effect on the United States from a foreign economic policy standpoint of preferential treatment for Canada and other Western Hemisphere countries.

6. Joe Rand and I are of the opinion that the granting of such preference is not by itself a factor of sufficient importance to disturb the conclusion reached by the Planning Board that preferential treatment is necessary for national security.

7. Our greatest concern, from a foreign economic policy standpoint, is that other countries will seek to justify their own special preferential treatment on national security or other grounds. If, however, the basis for Canadian and Western Hemisphere preference is explained, it will help to make it more palatable to GATT and the countries affected.

8. Recommendations: The CFEP should be encouraged to arrive at the following consensus:

[a.] Assuming that U.S. oil import quotas are necessary for our national security, the foreign economic policy implications of preferential treatment for Canadian and Western Hemisphere oil are not such as to override the national security reasons given by the Planning Board for such treatment.

b. Preferential treatment for Canadian and Western Hemisphere oil is of such importance to the foreign economic policy of the United States that it should be justified personally to representatives of affected countries and to the GATT by the President, and appropriate compensation offered (Mutual Security aid, etc.) and negotiated forthwith.

Paul H. Cullen⁴

0. Source: Eisenhower Library, CFEP Chairman Records, Staff Series, CFEP. Secret.
1. Attachment to Document 289.
2. Of 1955; see footnote 3, Document 286.
3. The United States participated in the international lead and zinc commodity meeting at Geneva, beginning November 6, 1958.
4. Printed from a copy that bears this typed signature.