526. Letter From the Director of the Office of Colombian-Venezuelan Affairs (Margolies) to the Ambassador to Venezuela (Bernbaum)1

Dear Mr. Ambassador:

SUBJECT

  • Oil Talks

The oil talks ended up relatively well under the circumstances due to the intervention of Tom Mann.

As I wrote to you before the talks opened,2 our positions had frozen into a basically negative stance and I was very worried that the US would have no position other than a generally negative one.

Fortunately your telegram3 arrived just at the right time and alerted Tom Mann to the serious political implications that were involved. He later said that when he saw your reference to the “black spot” in President Leoni’s speech, his antennae quivered and he felt that it was necessary for him to take an active interest in the talks.

His intervention introduced a degree of movement in our position, and at the luncheon on Thursday4 with Secretary Udall, the Secretary told the Venezuelan delegation that we were giving active consideration to the possibility of some preferential treatment for Venezuelan oil in our market as against oil from the Middle East. It turned out, however, that the Venezuelans insisted on receiving not merely better treatment than the Middle East but equal treatment with Canada. We then had rather sticky negotiations on the afternoon of Thursday and all day Friday in which the Venezuelans adopted a rather obdurate position in which they insisted that all discrimination between Venezuela and Canada had to be removed and furthermore that they wished to have a written assurance that the US Government agreed in principle with this position, even though we might not be clear as to how we might work it out technically. They stated that they were prepared to [Page 1094]remain indefinitely until we were in a position to give them such an assurance in writing.

The situation as I say looked rather grim with Interior and the E area both expressing the view that in asking too much the Venezuelans were likely to lose the opportunity to gain what appeared to us to be a substantial advantage in the situation.

This was the way the position rested until we met in Tom Mann’s office late Friday afternoon. Tom with his customary frankness and directness explained to them that the issues involved required extensive consultations on our part with the President, the Congress and with our domestic industry and with other countries involved. Therefore, it was not practicable to give them the type of written assurance they required. He would, however, give them his personal undertaking to see that the issue was fully explored, although he made it clear that he could not guarantee any satisfactory results. They were satisfied, therefore, with the minute which was drafted by Mr. Mann and the Minister of Mines which was sent to you under cover of Deptel 975.5

As Tom outlined the situation there appeared to be only two methods of fully satisfying the Venezuelan complaint that overland exemption6 was discriminatory.

One method, which the Venezuelans favored, was to award Venezuela a country quota. He said that this would in effect allow Venezuela to determine the amount of oil that we would receive and the price at which we would receive it. He said that it was politically impossible to work out a solution along these lines. He said that he had become involved in this type of question in connection with the coffee agreement and he was quite clear in his own mind that Congress would never tolerate an arrangement under which another country could dictate to the United States the price which it must pay for its imports of a specific commodity.

The Venezuelans demurred, sought to give assurances that any such power would be exercised by the Venezuelans with restraint, understanding, etc. Mr. Mann insisted, however, that it was hopeless to consider pursuing such a solution in the context of our political situation.

He said that the other possibility, and it seemed to him the only alternative, if the Venezuelans demands were to be met in full, was to set up some sort of Western Hemisphere licensing arrangement under [Page 1095]which oil imported from Canada would be subjected to a licensing arrangement comparable to that imposed on oil of Venezuelan origin with a preference to Western Hemisphere oil as against Middle East oil.

He said that this course of action was politically difficult for the United States and also, in his opinion, involved political risks for Venezuela. He noted that the Canadians were highly emotional on the subject of their oil exports to the United States. He said that he hoped that the Venezuelans would make it clear to the Canadians that they were the ones that insisted on our exploring such a solution, since he could well believe that the Canadians would not be pleased by this development. He noted that the arrangement would also involve a departure from our traditional policy of avoiding trade preferences which would stir up opposition at home and also might create problems with the Middle Eastern oil producing countries who also tended to become emotional about such issues. He asked whether the Venezuelan Government would make clear to the Middle East governments concerned that they had initiated this matter with us and would help to reconcile the Middle Eastern countries to this policy were it to be adopted by us.

Mr. Mann said that he had not, quite frankly, been fully informed of the Venezuelan feeling on the subject and President Johnson had not been informed of the matter at all up to the present. He said that he would take steps to see that the President was informed.

Mr. Mann said that in advancing the best solution he would not recommend it but would point out that it was apparently the only feasible answer to the Venezuelan complaint. He was unable to see how the matter would come out, depending on the consultations that were involved. The main thrust of his statement to the Venezuelans, however, was that this issue would be given serious and urgent consideration. It was on this basis that the Venezuelans left in a reasonably content frame of mind.

Speaking personally, I believe that it will be very difficult to put Venezuela and Canada on a completely equal footing. As a matter of fact the Venezuelans themselves recognize this and therefore suggested that the word “similar” rather than “equal” be used as identifying their position.

The new approach will of course require imposing licensing arrangements on Canadian oil and thereby introducing a form of frontier control between ourselves and Canada. As you know, we have been working over the past decades in efforts to limit such border controls and this will be a retrogressive step. It will undoubtedly give rise to considerable opposition both within this government and within Canada.

[Page 1096]

A favorable feature for anticipating some satisfactory solution lies in the fact that the domestic oil industry and the Department of Interior have not been satisfied with the rapid growth of Canadian oil imports to our market, and indeed the Canadian Government itself has been uneasy at the rate of growth which has been developing over the past year or so. At any rate we are starting this week to explore this subject in the Department on an urgent basis and talks with Canada should be held in the near future which should throw some light on how far we can get.

One of the subjects that arose from time to time during the talks was the possibility of a multilateral conference before our policy was finally firmed up. The Venezuelans thought it would be useful to have themselves, ourselves, and the Canadians around the table at the same time. It might be that the Mexicans, who also enjoy an overland exemption (which to be sure is of little economic importance) might have to be invited as well. The Interior Department seems for some reason very reluctant to arrange for multilateral talks. Mr. Mann left the question open for the time being.

I was encouraged by the fact that President Leoni in the message you sent up (Embtel 1255)7 indicated that he expected progress to be made “at least on some aspects of the problem” and would be satisfied with a solution which improved the Venezuelan position in our market and augmenting the amount of money realized by Venezuela for the sale of its oil, without insisting that the position of Venezuela should be placed on an exact parallel with that of Canada. I hope the Venezuelans will take a realistic view of the situation because I believe that the possibilities are that something quite favorable to them can be worked out provided they do not adopt as rigid position as they took prior to our meeting in Mr. Mann’s office.

With best regards,

Sincerely,

Daniel F. Margolies 8
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 17–2 US–VEN. Confidential; Official–Informal.
  2. Letter from Margolies to Bernbaum, March 9. (Ibid.)
  3. In telegram 1219 from Caracas, March 12, the Embassy reported on a speech before the Venezuelan Congress, March 11, in which Leoni criticized U.S. policy on oil imports: “The maintenance of this discriminatory regime is a black blot on existing relations between Venezuela and the United States.” (Ibid., POL 15–1 VEN)
  4. March 18.
  5. Dated March 19. (National Archives and Records Administration, RG 59, Central Files 1964–66, PET 17–2 VEN)
  6. On April 30, 1959, the Eisenhower administration proclaimed an “overland exemption” to the Mandatory Oil Import Program, thereby allowing Canada and Mexico to avoid restrictions that applied to other oil exporting countries. (24 Federal Register 3527)
  7. Dated March 22. (National Archives and Records Administration, RG 59, Central Files 1964–66, POL 1 VEN)
  8. Printed from a copy that bears this typed signature.