13. Memorandum From Victor A. Mack of the Department of the Treasury to the Executive Director of the Cabinet Task Force on Oil Import Control (Areeda)1

  • SUBJECT
    • Treasury Comments on Task Force Staff Paper X–1, “Oil Import Issues”2

Attached are Treasury comments on certain of the 49 items in Task Force staff paper X–1.

We have prepared a separate statement on item 29, dealing with various aspects of the balance-of-payments impact of additional oil imports.3

In summary:

1.
We feel the staff analysis tends to understate the security problem, takes too sanguine a view of available emergency oil sources, brushes too lightly over the rationing problem, stresses only the unfavorable aspects of the present system or a substitute control system, tends to argue much more strongly for an unrestricted imports policy than prudence would suggest, and has not accorded proper importance to the extremely adverse impact on our trade and balance-of-payments accounts of an unrestricted imports policy.
2.
The severe adverse trade and balance-of payments impacts involved in a policy of unrestricted oil imports cannot be ignored by the Task Force.
3.
Treasury would not consider the Task Force has recommended to the President a policy in the national interest, if such policy requires us to be so dependent on foreign sources for our crude oil supplies as to require us to import two-thirds of these supplies by the mid-eighties.
4.
As the staff correctly points out (item 10b), it does not seem sensible for us to furnish a secure oil source to our allies, while alone bearing the full cost of assuring such security. Therefore, we would want to recommend to the President that it should be a cornerstone of U.S. policy to have all countries who wish to share our oil in an emergency share also the year-to-year expense of assuring a secure supply.
5.
To the extent we must rely on imports for our oil supply, we see convincing security arguments for maximizing the amounts coming from Canada and Latin America. While we realize some premium may have to be paid for some of this oil, we wish to hold this to the minimum necessary to obtain a guaranteed supply from these sources.
6.
We are opposed to an unrestricted oil imports policy, but we would not be opposed to a drastic revision of the present policy so long as the basic national interest would be well served. We feel that the national interest might best be served by some form of combined tariff and quota arrangement. Briefly, we feel such a system would enable us to obtain the oil we need from the foreign sources we prefer at prices which would involve no or minimum premium payments above the world market price, which would insure some savings for U.S. consumers and, at the same time, would not be so disruptive of our domestic oil industry as to inhibit domestic exploration and drilling for crude oil and would not put an unacceptable burden on our trade and balance-of-payments accounts.

Attachment

STATEMENT BY THE TREASURY TO THE CABINET TASK FORCE ON OIL IMPORT CONTROL

(Comments on “Oil Import Issues” Item No. 29)

The Treasury disagrees with the staff argument that the Task Force is required, under the rules of the game, to ignore the extremely adverse impact on the U.S. balance of payments of adopting a policy of unrestricted oil imports. Even if the indicated impact were less substantial, we feel that the high priority assigned balance-of-payments [Page 47]consideration in official policy decisions would make such consideration essential. And we feel that a $3 billion adverse annual impact by 1980 growing to over $5 billion by 1985—representing an incremental adverse impact over the situations that are estimated to prevail if an import-restricting system similar in effect to the present were to be in effect—of $1.8 billion in 1980 and $3.4 billion in 1985—cannot be brushed aside as “secondary” or non-basic.

The balance-of-payments analysis in the Oil Import Issues paper is unacceptably vague. We do not accept certain aspects of the methodology used in Task Force paper A–18, in particular allowing an extended time period beyond 12 months for the eventual re-expenditure in the U.S. of dollars paid out by the U.S. for additional crude oil imports. Attached is our revised review of Task Force paper A–18 and a table showing our estimates of the various trade and payments impacts involved.4

As this attached table shows, for every million barrels of additional oil imports per day, our import bill would rise by $730 million per year (at $2 per barrel, delivered cost). Since we will be importing over 6 million barrels more per day in 1980 than in 1970, this will bring our incremental import bill up by at least $4.5 billion; by 1985, it is expected to rise by $7.7 billion above the 1970 level. Netting out repatriated income and reasonable additional U.S. earnings generated by these increased expenditures, and taking account of the import rise which would occur even with the present controls, the overall net additional adverse balance-of-payments impact would be almost $2 billion in 1980 and almost $3½ billion in 1985. These are important magnitudes. They cannot be diminished by saying that if Canada holds our dollars, it’s all right. Or that if we borrow the money back from other countries, we can lower the adverse impact.

The balance-of-payments impact cannot be ignored. Unrestricted imports would place a heavy burden on our trade and payments accounts.

Not only is it true that “it is after 1975 that we would see the larger impact of abandoning import controls today.” We should also look beyond 1980, when, with an unrestricted oil imports policy, we would be, according to the Task Force staff (and many respondents), 50 percent dependent upon foreign oil (compared with about 20 percent today). How long before we are 66 percent dependent upon foreign oil? Available figures would indicate that we would reach this degree of dependency, with an unrestricted oil imports policy, shortly after 1985.

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The Treasury does not believe the Task Force should feel itself bound to determine our oil import policy solely on national security grounds. We feel the Task Force is now charged with coming up with an oil import policy designed to be in the national interest. We must insist that, over and above any security arguments, there are other vital economic interests of the United States which must be served by any new policy the Task Force sees fit to recommend. Because of the very large import and adverse overall balance-of-payments impacts involved, we are seeking solutions which go beyond security interests to protect our international economic interests. We would not be satisfied with a more secure system which involved a similar adverse impact on our trade and payments accounts as would be involved in an unrestricted oil imports policy.

  1. Source: National Archives, RG 220, Records of the Cabinet Task Force on Oil Import Control, Box 32, Agency Comments on Draft Report, Treasury Department Comments on X–1, Item No. 29. Limited Official Use.
  2. See Document 15.
  3. Printed below. None of the other attachments is printed.
  4. Not printed.