35. Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

  • SUBJECT
    • Oil Import Policy—Report of the Cabinet Task Force

This memorandum will outline for you (a) the procedural aspects of Presidential handling of the report, (b) the timing thereof, and (c) the substance of its recommendations. Peter Flanigan wants to meet on Monday with you, Haldeman and Ehrlichman to talk about all three.2 Pete Vaky is preparing a separate memorandum on the Venezuelan problem.3 The Task Force report was over 400 pages, so I do not attach it; I do attach (Tab A)4 a summary by the CEA, if you want more detail than given below.

Procedural Timing

The report has now been completed and signed by Secretary Shultz. He will formally present it to the President on January 30. Flanigan now thinks that the President should make his decision on the issue within a month or so thereafter, having abandoned his earlier notion that the President should try to avoid this politically impossible decision altogether by turning it over to Congress.5 The new program might not go into effect, however, until January 1971. Flanigan envisages a two-year direction for the new program, to carry it past November 1972.

Flanigan sees no need for an NSC meeting on the subject, even for cosmetic reasons. Since the rationale for the continuation of controls will be national security, however, Flanigan feels that the President will want to say that you concur personally in his decision.

If the President will in fact want to refer to concurrence by his national security advisers, you might want to protect yourself by suggesting an NSC meeting to Flanigan. (Such a meeting would have to take place in late February or early March to fit Flanigan’s timetable.) [Page 88]All other statutory members of the NSC were members of the Shultz Task Force, so their views are already recorded—all of them essentially support the majority view. I took no substantive position during the Task Force deliberations and made sure that my name was not even listed among the “observers” who met with it. Our position is thus completely unprejudiced cosmetically.

After checking continuously with Larry Lynn and the regional operators, I did indicate to Shultz and the Task Force staff that we concurred with the national security and foreign policy sections of the report. This is relatively unimportant, however, since any contrary views on the security aspect at this point would represent a challenge to the known positions of the Secretaries of State and Defense.

Substance

As I have reported to you earlier, the majority (Shultz, Rogers, Laird, Kennedy, Lincoln) recommends that we henceforth regulate imports by setting tariffs at a level designed to permit the desired volume of imports instead of by setting quantitative limits (quotas), as has been done since 1959. This would produce more effective competition, benefitting consumers by perhaps $5 billion annually and helping to fight inflation; and would permit dismantling of the present elaborate administrative machinery, reducing the scope for pressure from vested domestic interests; and it would provide additional income to the Treasury. (Hickel and Stans prefer to keep the quota system, with some modifications.)6

The majority would set the tariff initially at a level designed to reduce domestic oil prices (now $3.30 a barrel) by about 10 percent and then in late 1971 reconsider further reductions. Secretary Shultz would prefer to make this a first step toward an eventual 25 percent reduction in the price, but all other majority signers want to leave open the decision on any further moves.

The program would eventually let in Canadian oil completely free of duty—a tremendous preference, since the duty would be about $1.45 per barrel out of a total price of $3—for national security reasons. (This exception would also apply to Mexico, but is much less important in oil terms because Mexico would remain a small supplier anyway.)

Other Western Hemisphere oil—primarily Venezuelan—would get a 20 cent preference over Eastern Hemisphere (Middle East, Iran, Indonesia, Nigeria) oil also on national security grounds. Most people think this is sufficient preference to ensure a large and growing share of our market for Venezuelan oil, but a few people (mainly ARA) question [Page 89]this, especially for the distant future, and it is clear that the Venezuelans will regard anything less than equal treatment with Canada—which this would clearly not represent—as unacceptable. (See Vaky memo.)

Finally, there would be a quantitative ceiling on Eastern Hemisphere oil to safeguard against the development of excessive reliance on these less secure areas. Such a limit could cause us problems with Iran and perhaps Indonesia.

From our standpoint, I think the following conclusions emerge:

1.
The overall program adequately protects the national security.
2.
An even more liberal program, as proposed by Shultz, would probably do so too; it would be difficult for you to argue that liberalization could go no further than recommended by the majority without threatening our national security.
3.
Our relations with Canada will benefit tremendously; they will get free access to our oil market, just what they want.
4.
There will be problems with Venezuela. Substantively, they will benefit greatly. Latin American sales to us, mainly Venezuelan, are estimated to rise from 1.5 million barrels daily now to 2.2 million in 1975, and they may be able to get higher prices because of their preferential tariff treatment. Cosmetically, they will be bitter about inequality of treatment with Canada. It would be impossible to give them duty-free entry, however, without either permitting a much higher level of total imports (politically unacceptable) or shutting out virtually all Eastern Hemisphere supply. If we had to provide equality, which would be hard to justify on security or domestic political grounds, it would be easier to cut back on the Canadian preference and raise problems in our relations with them.
5.
Eastern Hemisphere countries will not like the continuation of quotas against them and the tariff preferences for Canada and Venezuela, although they will be able to expand their sales to us to some extent. Iran and possibly Indonesia and Saudi Arabia may claim special treatment, which could be done—at some cost to the overall program and to our relations with others—by giving them favorable country quotas or preferential tariff treatment.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 367, Subject Files, Oil 1970. Confidential. Sent for information. Concurred in by Vaky and Saunders. A stamped notation on the memorandum reads: “HAK has seen. Jan 14, 1970.”
  2. See Document 38.
  3. Document 36.
  4. Printed as Document 33.
  5. See Document 28.
  6. See Document 34.