528. Telegram From the Embassy in Venezuela to the Department of State 1

542. Following summary conversation between Secretary Rusk, President Leoni and others Nov 14 is based on uncleared memcom is FYI Noforn and subject to revision upon review:

Part I: U.S. Petroleum Restrictions

President Leoni said petroleum income central to Venezuela’s economy and Venezuela would not be concerned if U.S. import restrictions were just and non-discriminatory. He recalled when matter arose during President Eisenhower’s administration latter had agreed necessity of just solution to problem on basis hemisphere preference.2 Subsequently President Kennedy had acknowledged agreement called for along hemisphere preference lines.3 To date no progress has taken place. Meantime Venezuela’s income from petroleum has been decreasing at same time balance of trade with U.S. turning disadvantageously against Venezuela and now is at unfavorable rate of over $300 million annually. President said further drain taking place through reliance on Venezuelan credits by American firms rather than through use dollar funds or credits. He said U.S. announcement continuation existing oil import policy without solution Venezuela problem could create serious difficulties.

Secretary responded that he hoped GOV understands U.S. faces many problems with its many trading partners in all parts free world. U.S. desires see Venezuela maximize its income but our producers also have income problems. Difficulties arise from close trading relations rather than from ignorance respective problems. The Secretary added that U.S. would consider what could be done to help Venezuela but he did not know whether what we could do would be acceptable. The [Page 1100]important thing was that efforts to find a reasonably acceptable solution will be continued. Minister Mines Perez Guerrero expounded on petroleum restriction along lines already well known in Washington. He described negotiations and impasse due Venezuela’s inability after considerable study to accept “Solomon” proposal4 and U.S. inability go along with compromise solution of two ticket system which represented a considerable watering down of Venezuela’s counter proposal. He also complained against suits instituted by U.S. Treasury against U.S. petroleum firms attempting to comply with Venezuelan pricing policies. I explained this due practice of some firms in paying Venezuelan taxes on basis prices higher than these actually realized to prevent later tax recovery suits by the GOV thereby reducing taxes due to USG.

President Leoni then invited former Minister Mines Dr. Juan Pablo Perez Alfonso to discuss subject. Perez Alfonso said last year’s trade deficit with U.S. totalled $344 million figure which represented 5 percent gross national product. He referred also to fact that U.S. direct investment in Venezuela is 70 percent of total foreign investment in country and that U.S. interests derive 23 percent return on investment. He admitted surplus in all-over trade balance but emphasized declining markets in other areas and difficulties with countries with which GOV has favorable trade balances.

Secretary then asked Minister Perez Guerrero given difficulties that solution he had in mind. Dr. Perez said that at one time in talks with Secretary Udall two-ticket proposal had been made and hemisphere preference system also suggested. Now U.S. had decided neither approach to problem is feasible. Venezuela he said has no clean-cut answer but takes view that since oil import restrictions are authored by U.S. an adjustment should be offered by U.S. He confirmed in later talk with me that revival Solomon proposal would not be satisfactory. Secretary responded by saying U.S. and GOV should keep in close touch. Although not expert in this field, Secretary said he would take matter up with President Johnson and Secretary Udall. He said he could not guarantee an acceptable solution but would report on matter and perhaps in end something could be worked out.

Comment:

Secretary requests one more review of problem be made to see if something can be done to break impasse, even though such review will probably involve postponement proclamation. Results review should then be communicated to GOV prior issuance proclamation. This will fulfill his commitment to President Leoni to look at the problem again.

Bernbaum
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 15 US. Confidential; Immediate. Repeated to Rio de Janeiro. Passed to the White House.
  2. On March 10, 1959, President Eisenhower signed Proclamation 3279 instituting the Mandatory Oil Import Program. (24 Federal Register 1781) The same day Eisenhower released the following statement: “The United States recognizes, of course, that within the larger sphere of free world security, we, in common with Canada and with the other American Republics, have a joint interest in hemisphere defense. Informal conversations with Canada and Venezuela looking toward a coordinated approach to the problem of oil as it relates to this matter of common concern have already begun.” (Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1959, pp. 240–241)
  3. On February 20, 1963, after 2 days of discussion in Washington, Presidents Kennedy and Betancourt issued a joint statement, including an agreement “that a strong and healthy petroleum industry is essential to Venezuela’s prosperity, to the achievement of the goals set by the Alliance for Progress and for the security of the Hemisphere as a whole.” (Ibid., , pp. 187–188)
  4. Reference is evidently to the proposal outlined in Document 527.