Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

4. Memorandum From Darwin M. Bell of the Department of Labor to Secretary of Labor Shultz¹

Washington, April 1, 1969.

• SUBJECT
  • Oil Import Program

The attached background information² may be helpful to you in your role as Chairman of the Cabinet Committee on Oil Imports. It is largely what we prepared or collected in the course of our involvement over the past several years in various aspects of the oil program, particularly the potential employment impact of changes affecting petro-chemical production in the United States.

The basic questions which have been, or are being, raised about the program concern the effect of both the level and range of products under control upon the total national security. It is now ten years since import controls were imposed to avoid “deleterious effects upon adequate exploration and the development of additional reserves which could only be generated by a healthy domestic production industry.” The quantity of imports permitted to enter the area east of the Rockies is currently set at 12.2 percent of estimated annual domestic output for the year—should this level be raised or lowered, maintained more rigidly than at present, or should the entire import control program be dropped?

Imports of oil produced in Canada and Mexico enter the U.S. outside the quota system if they are delivered across the border by pipeline. Substantial increases in imports from Canada, both by pipeline and as part of the quota, have “weakened” the quota system and have also raised some problems about the volume imported from other countries, particularly Venezuela. Should the “overland exemption” be continued, and if so, should the system be expanded to cover other Western Hemisphere sources like Venezuela?

When the control program was established in 1959,³ U.S. petro-chemical companies had adequate supplies of low cost feedstocks as by-products of domestic refining operations. Increased refinery efficiency has reduced relative feedstock availability, demand has increased, and U.S. companies are feeling increasing competition from foreign producers who have access to lower cost foreign oil feedstocks. In 1966 the petrochemical companies were given limited access to imported crude oil within the program, but they claim their share (less than 1 percentage point of the 12.2 percent) is not sufficient for them to continue to compete successfully in world markets. Should the domestic petrochemical companies be assigned a larger share of the quota or is it possible and desirable, as the industry has suggested, to establish a system which would completely segregate and decontrol oil imports for use as feedstocks from controlled imports to be used for energy purposes? Is there any potential for obtaining support from the petrochemical companies for the American Selling Price System package, negotiated as a supplementary agreement during the Kennedy Round, in exchange for greater availability of low-cost feedstocks? The supplementary agreement provided that if the U.S. shifted its import valuation system for certain chemicals from the American Selling Price System to the usual foreign value basis, the Europeans and Japan would make additional concessions on U.S. chemical exports as well as reducing certain non-tariff barriers.

New England has chronically had a tight supply situation for oil, the major source of energy for heating homes in the area. Various makeshift solutions have been applied in emergency situations, such as allocating part of the Department of Defense quota last year, but a more permanent solution seems required. What is the demand situation for petroleum products likely to be in New England over the next several years and what can be done to meet this demand?

The Secretary of Interior, in accordance with a Presidential Proclamation of 1965,⁴ has authority over the movement of foreign oil into foreign trade zones; authority has been granted to import oil for use in a petrochemical complex in Puerto Rico, but has been denied for zones in Michigan and Louisiana, and is the key issue with respect to the proposed zone at Machiasport, Maine. Under what conditions should allocations be granted to either refineries or petrochemical operations in foreign trade zones and how should the allocations be related to the total import control program?

Attachments:

1. Highlights of the oil import control program.

2. A statement of the Background of the Mandatory Oil Import Program outlining the history leading to the imposition of controls in 1959.

3. A statement on petrochemicals detailing the problems of raw materials for that industry and the potential impact of various solutions on the oil import program and our balance of payments.

4. An economic argument against oil import controls submitted by Professor F. Fisher, MIT, to the Senate Finance Committee in October 1967.

5. Astatement of the position of the U.S. petrochemical industry submitted to the Senate Finance Committee by Union Carbide Corporation.

1. Source: National Archives, RG 174, Records of Secretary of Labor George P. Shultz, 1969–1970, Subject Files, Box 63, Cabinet Committee on Oil Imports. No classification marking.
2. All attachments are attached but not printed.
3. On March 10, 1959, President Eisenhower issued Proclamation 3279 establishing the Mandatory Oil Import Program, which imposed restrictions on the amounts of imported crude oil, unfinished petroleum oils, and finished petroleum products and gave preferential treatment to oil imports from Canada, Mexico, and, somewhat later, Venezuela. The resulting quota system was administered by the Department of the Interior. See Public Papers: Eisenhower, 1959, pp. 240–241. Proclamation 3279, “Adjusting imports of petroleum and petroleum products into the United States,” is published in the Federal Register. (24 Fed. Reg. 1781)
4. See Foreign Relations, 1964–1968, volume XXXI, South and Central America; Mexico, Document 530.