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Department of State bulletin (Volume v. 22, Apr- Jun 1950) online

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of heavy fuel oil. The latter product is needed in
the Eastern United States where its consumption
is particularly heavy. The total demand in the
area, for onshore purposes, foreign trade bunkers
and export, cannot normally be met economically
from domestic output in the East and Gulf Coast
areas. The National Petrolemn Council's Com-
mittee on Imports has pointed out that heavy fuel
oil imports are to a considerable extent offset by
offshore shipments, largely as bunkers. Without


Department of State Bulletin

imports of this particular product, it seems safe
to say, that the domestic price woukl increase sub-
stantially with consequent loss of markets to other
fuels and resultant cost increases for metropolitan
utilities, shippiiifr companies, and other major
consumers, notwithstanding the ability of some
to convert to other fuels.

The etfects of a substantial limitation of imports
would be felt by the American companies produc-
ing abroad and their stockliolders. A limitation
of imports to 5 percent of consumption would, for
example, reduce their sales which are about 90 per-
cent of total imports by about 360,000 barrels
daily, assuming a quota of 300,000 barrels com-
pared with an import level of 750,000 barrels daily.
Such a reduction would be about 5 times as great
as the amount affected by the present sterling area
restrictions which have occasioned so much recent
criticism. In addition, American export interests
whose foreign sales depend to a substantial degree
on the dollar income of oil producing countries
would also be adversely affected. The most im-
portant such case is Venezuela. Ninety percent
of Venezuela's foreign exchange is derived from
oil operations. Forty percent of Venezuela's pro-
duction is exported directly or indirectly to the
United States, principally by American compan-
ies. Venezuela is our fourth largest export market
and the second largest on a cash basis. Export
sales in 1948 and 1949 of a wide variety of goods
from many states were over 500 million dollars
in each year and substantially in excess of the value
of United States imports from Venezuela. It is
thus important to keep in mind that action against
American oil companies in Venezuela would have
additional repercussions in terms of lower sales of
the variety of things which other Americans cur-
rently sell to Venezuela.

Sterling-Dollar Oil Problem

The sterling-dollar oil problem is connected with
both of the topics to which I have referred. An
extension of the difficulties represented in the prob-
lem would have serious effects on American oil
production abroad. The fear has also been ex-
pressed that unless the problem is solved, Ameri-
can companies will be forced to sell more in the
United States, thus intensifying the import

The sterling-dollar oil problem develops out of
the following series of facts. Oil is one of the
principal imports of most foreign countries.
American companies normally supply 40-50 per-
cent of such imports and receive dollars for them.
Virtually all countries are short of dollars either
in an absolute sense or relative to soft currencies.
In the sterling area, for example, the gold and
dollar deficit in 1949 amoimted to 1.5 billion dol-
lars. The net deficit on oil account was about 45
percent of the total. Sterling oil, i.e., oil which
can be purchased for sterling, is becoming increas-

ingly available in sufficient quantities to permit
some substitution of it in the .sterling area and
third countries for their normal purchases of
dollar oil.

Sterling area import restrictions have jjlaced
limits on the amount of United States company oil
sales in sterling area markets while, in third coun-
tries, companies are not permitted to sell oil for
sterling because the British would have to convert
that sterling into dollars under the Anglo-Ameri-
can financial agreement of 1945. If sucli sales
were permitted, the British would be paying dol-
lars on behalf of third countries for imports of
American company oil. This they cannot afford.
American companies are, therefore, unable to com-
pete on the same currency terms with British com-
panies to maintain and exnand their sales abroad.

The need of the nondollar area to save dollars
is generally recognized. The central issue in tliis
sterling-dollar oil problem, therefore, is how and
to what extent dollar expenditures of the non-
dollar area for oil can be reduced without serious
injury to the commercial interests of American
companies and to any United States political and
strategic interests which may be involved.

The United States has recognized that balance-
of-payments difficulties may make it impossible for
a nation to import all of the dollar products it
might otherwise take, and the United States has
agreed that trade discrimination against dollar
products may be necessary to conserve a nation's
supply of dollars.

In the sterling-dollar oil case, it has been the
United States view that discrimination against
United States company oil is not justified in any
case where an equivalent dollar saving can be
achieved by adjustments in the operations of
United States oil companies.

British company oil is produced primarily not
in the United Kingdom or in the sterling area, but,
in third countries. Consequently, royalties, taxes,
and certain local costs are paid largely in dollars.
British companies are further dependent on im-
ports of certain supplies and equipment from the
dollar area. There is thus a substantial and un-
avoidable part of British production costs which is
incurred in dollars. This factor is the one which
may be the most important in finding a solution
making possible dollar saving to oil importing
countries without the necessity of a large displace-
ment of dollar oil in world markets.

This problem developed during the past year.
The first important quantity of American oil af-
fected was in the case of Argentina where the
British undertook, in the Anglo-Argentine Agree-
ment signed in June 1949, to make available for
sterling payment virtually all of Argentina's im-
port requirements, about 40,000 barrels per day of
which had formerly been supplied by American
companies and which had represented about 42
percent of Argentina's oil imports. In November,
the British announced that they would have avail-

Apri'f 24, 1950


able in 1950 an additional 4,000,000 tons, or about
75,000 barrels daily of sterling oil surplus to the
marketing requirements of British companies as
they existed at that time and that effective Janu-
ary 1, 1950, in order to save dollars, this oil would
be substituted for an equivalent amount of oil
being purchased from American companies. The
effective date of this action was postponed to Feb-
ruary 15. Its effect was to eliminate all the fuel
oil formerly supplied to the sterling area by
American companies and y^ of the gasoline for-
merly supplied by them to the United Kingdom.
With additional displacements in other markets,
it is estimated that sterling oil has now displaced
about 135,000 barrels daily of dollar oil. This is
equivalent to about 9 percent of the total overseas
production of American companies.

This Government is seriously concerned not only
in regard to the current displacement but also in
regard to continuing and increasing displacement.
While time would be required for the construction
of facilities and large sums would be needed for
investment in these facilities, the extent of British
oil resources is such as to place no effective limit
on the amount of displacement of dollar oil in
foreign markets, so long as present exchange and
trade controls exist. The reason for our concern
regarding such displacement is suggested by my
earlier reference to the commercial, political, and
strategic value of American oil concessions and
facilities overseas.

We have been talking with the British since last
September regarding this problem with interrup-
tions to permit them or us to consider the other's
views, to prepare additional position papers, and,
in our case, to consult with various agencies of
government and the affected United States

In February, the British submitted proposals
involving substitution of up to 4 million tons of
United States company oil by British company oil
in the sterling area but providing the possibility
of additional sales by United States companies in
the sterling area and in third country markets
under certain conditions which would insure the
British against any dollar cost on account of such
additional sales. The United States, on March 29,
after carefully considering the British proposals,
presented a memorandum suggesting modifica-
tions of these proposals which, if accepted, would
provide a solution permitting dollar savings to
the British and the retention of outlets for Ameri-
can company oil. In essence, these modifications
suggest that American companies be permitted to
compete to sell oil for sterling in the sterling area
and in third markets to the extent that their own
oil has been displaced or would otherwise be dis-
placed by sterling oil. For such sales, they would
receive in dollars the average dollar cost of pro-
ducing an equivalent amount of sterling oil, and
the remaining sterling would have to be used for
certain types of expenditures in the sterling area.

It could not be accumulated in burdensome

It should be pointed out, however, that, while
the American companies would be expected to ad-
just their operations to reduce their dollar costs
on amounts sold under these proposals, they would
still receive dollars equivalent to 100 percent of
the value of their sales in the sterling area and
elsewhere not affected by displacement. Since 91
percent of the overseas production of United States
companies is not now affected by such displace-
ment, the adjustments which may be necessary
under the proposals currently relate to only some
9 percent of their overseas operations.

In our view, the proposal should go far to meet
the British problem, since, under it, they will save
the same amount of dollars as it would be possible
to save by substituting British company oil, that
is, approximately 50 million dollars, on an annual
basis and at the same time they would have as-
surance against indirect or eventual dollar drain
through the provisions with regard to sterling
accumulations. This approach is helpful to the
American companies, which have in general rec-
ognized the dollar difficulties of the British and
their possibilities of saving dollars on oil account.

Petroleum Policy Committee

The foregoing problems, as is true of many other
matters involving petroleum, require the collab-
oration of several different agencies of govern-
ment. It is my understanding that the committee
is interested in obtaining the views of the various
departments regarding the degree to which collab-
oration on petroleum problems is successful, and,
in particular, views regarding the petroleum
policy council pi'oposed in H. E. 6047.

We agree fully regarding the desirability, and,
in fact, the necessity, of attaining the objectives
given as the basis for the proposal to establish the
petroleum policy coimcil. We are also conscious
that the coordination among Departments and
the collaboration in regard to various problems is
not as effective as it might be. Nevertheless, the
Department questions whether it is necessary to
establish a separate petroleum policy council by
law to acliieve these aims. And the Department
doubts that it is advisable to do so.

On the point of necessity for such a council, it
seems to the Department that machinery already
exists within the Executive Branch for accom-
plishing substantially the same purposes as those
set out in the bill. Furthermore, this machinery
can be improved within existing executive author-
ity. It can be changed as experience indicates it
to be necessary. The agencies which would be rep-
resented on the proposed Petroleum Policy Coun-
cil are all included on both of the principal
interdepartmental petroleum committees which
are functioning today — one, the Interdepartmental
Petroleimi Committee mider the chairmanship of


Deparfmeni of State Bulletin

the Department of the Interior, the other, the In-
ternational Petroleum Policy Committee under
the chairmanship of the Depai'tment of State.
They are also represented on the temporary com-
mittees established from time to time to deal with
particular problems.

The proposed Petroleum Policy Council would,
therefore in essence, involve the same agencies
which work together today with no additional fac-
tor which would insure that the personnel in-
volved would work any more or less satisfactorily
in one committee than in the other. In the final
analysis, the principal factor in the success of any
departmental coordination is the ability and will-
ingness of the individuals concerned to work to-
gether with full consciousness of the problems
and responsibilities of the different agencies.

On the point of the advisability of establishing
such a council, there are two factors which make
us doubtful about the proposal. The first is based
on the possibility that the proposed Petroleum
Policy Council would be a supra agency imposed
on the various agencies and able to dictate courses
of action in regard to the various matters for
which particular departments have prime respon-
sibility and regarding which they would be ex-
Eected to have major interests and initiative. To
e more concrete, foreign petroleum policies are
dealt with by the Department of State within the
framework of this Government's foreign policy.
The Department of Interior, the National Military
Establishment, and other agencies have, and
should have, prime responsibility for particular
petroleum matters in the field of their general re-
sponsibilities. Admittedly, oil policies even when
they involve responsibilities of one agency to a
predominant degree, should not be formulated and
put into practice without concern for the related
interests of other agencies. But it is important
that the initiative and authority of particular
agencies not be jeopardized by the transfer of
policy decisions to an agency, such as the proposed
petroleum council, in which those departments
having predominant interests in particular ques-
tions could have a subordinate role in decisions
regarding them. We feel that such a situation
could result in a serious interference in the dis-
charge of an agency's general responsibilities.

Wo question also whetiier the mandatory re-
quirement that industry and State recommenda-
tions bo obtained on all questions of policy which
would aflect their respective interests would per-
mit prompt and effective determination of policy,
especially in cases when ([uick action might be

We believe, too, that the establishment of this
council would establish an unfortunate precedent
for the creation of other commodity councils lead-
ing to a multiplication of commodity agencies
M'ith authority overlapping that of existing de-
partment with a risk of confusion and waste of
personnel, which it is desirable to avoid.

The extensive study of the Hoover Commission
appears generally to support the points raised
above. The prospect of still another petroleum
unit with "experts, assistants, special agents, ex-
aminers, attorneys, and other employees or agen-
cies" is certainly inconsistent with the economy
objectives of the investigation's report. Further-
more, certain specific recommendations and obser-
vations were made in the report on Foreign Af-
fairs which merit careful attention in considering
the proposal under discussion. The Commission
noted that, "Each time the Congress creates a new
agency with the power to employ a specified in-
strument of foreign policy, it weakens the execu-
tive establishment as a whole." The Committee
concluded that, "Effective administration is not
achieved by establishing by legislation the precise
functions and membei'ship of coordinating and
advisory bodies within the executive branch. ' Al-
though a certain degree of flexibility could be
achieved in function and membership of the pro-
posed Council, the further observation of the Com-
mittee seems to be applicable that such machinery
"tends to obscure the responsibility for making
executive decisions, to make each of the bodies
acquire the aspects of a new agency, and to en-
courage other interdepartmental groups to seek
formal Congressional sanction."

You may be sure that the Department believes
earnestly in the desirability of better coordination
between Departments on petroleum questions and
will work wholeheartedly toward this objective
which we believe fully attainable within the frame-
work of existing authority.

April 24, J 950



The American People's Part In U.S. Foreign Policy

hy Edward TF. Barrett^ Assistant Secretary for Public Affairs'^

I would like to recall some facts about American
foreign policy with which you are already famil-
iar. I think that this is worth doing, because
I believe that it is only a continuing examination
of the obvious and the familiar that we arrive at
what is useful and new. Consider the atom : It
was familiar to us — or so we thought — for a long,
long time. But by dint of persistent study of a
familiar impasse — which was that the atom could
not be split — we finally came up with the discovery
that it could be split. And we split it.

I think that there is a real possibility that if we
keep on examining the familiar obstacles to peace
and security, someone may yet discover something
that no one else has noticed — a way to split them,
a way to overcome them.

A main source of our difficulties in seeking
world peace and security is the refusal of the
Soviet Union and its satellites to cooperate with
the free nations, and the insistence of the Soviet
Union in pursuing an expansionist, aggi'essive

The Berlin airlift showed us a possible way of
expanding the area of workable agreements with
the Soviet Union — that of giving the U.S.S.K.
no practicable alternative but to abide by its agree-
ments. It is a way, however, which can be pur-
sued only by the direct action of the United States
Government and other free governments working
together. It is not an approach to the solution
of East- West tensions which oifers opportunity
for direct action by the United States National
Commission or by Unesco itself.

Commimist policies, however, are by no means

' An address made before the National Commission for
UNESCO at Washington on Apr. 13, 1050, and released to the
press on the same date.

the only obstacle between us and our goal of put-
ting the United Nations Charter into fuller

Lack of Unity

There is not enough unity within the non-Com-
mmiist world. This world includes a gi-oup of
strong, democratic nations which are pulling to-
gether; others which are weaker and less con-
vinced of the need to bear down in a common
cause ; and still others with hardly better than a
neutral attitude toward the struggle between the
advocates of a totalitarian way of life and the
advocates of a free, democratic way of life. There
are many non-Communist countries so burdened
with domestic and regional difficulties that the
issue of a totalitarian versus a free world society
seems very remote. They do not realize that they
are part of the battleground on which the struggle
for the allegiance of man is going forward.

Even among the leading nations of the free
world, we still do not have nearly the unity of
purpose and action which is needed.

We must come to closer agreement on policies
and programs for the solution of world problems
and mobilize more ])ower in carrying them out.
We must work together to increase mutual under-
standing with the "marginal" countries — those not
yet convinced of their own stake in the world
contest between oppression and freedom — and
convince them that their own good lies on the side
of freedom. In the words of Prime Minister
Nehru, we must convince these other nations that
democracy is the way of life that will "deliver the
goods, both materially and spiritually." And we
must make them understand the accompanying


Department of State Bulletin

need for them to collaborate in establishing a
democratic world society.

Hei-e lies a gvont opportunity for the National
Commission and for Unesco — that of winninij; tiie
informed sui)port of the American and of other
peoples and mobilizing their support more eli'ec-
tively behind policies and programs whicli can
bring peace and security nearer. If we are to get
where we all want to get in carrying out the pur-
poses of the United ^(ations, the member nations
must have the backing of their peoples. To get
that backing, and the necessary determination to
make the United Nations succeed, requires a mass
education program which will tax the abilities of
governments, of international agencies, and of
private organizations put together. We must face
the fact that the United Nations and its aims still
seem remote to most of the world's peoples. The
United Nations has hardly begun to reach them
in terms of their own dailj^ lives. We must all
work together to establish that vital contact be-
tween the United Nations and the peoples of the
world. I would like to comment on some ways in
which the United States is approaching these
needs and some new trends which we are develop-
ing in our methods of working.

Affirmative Program for Free World

Such actions as in the Berlin blockade and aid
to Turkej' and Gi'eece are intended to remove im-
mediate threats to peace and to contain and pre-
vent the development of other threats, thus
prolonging the "breathing space"' in which to
solidify security and international cooperation.

We are also joining in activities of an entirely
different order. These measures, as in our sup-
port of the United Nations, and our cooperation
with other countries as in the European Recovery
Program and in Point 4, are not a reply to Com-
munist policies and propaganda but an affirma-
tive i^rogi-am offered to the free world. The
success of this program of construction will ulti-
mately put a fatal crimp in Communist schemes
of ruling the world, but that will be a byproduct;
that is not the single objective of what we are
doing. If the Soviet bloc should miraculously
alter overnight into free, democratic, cooperative
nations, we should not change what we are doing,
except to expand our cooperation and our aid to
include them also. Indeed, we have already made
that offer, in good faith, only to see the Iron Cur-
tain pinned down more anxiously. This is an
important fact for us to keep in mind and to im-
press on the rest of the world. We are doing what
we are doing in order to preserve a climate of free-
dom and opportunity in tlie world for others and
for ourselves. We are convinced that the only way
to keep that climate is by building a new kind of
world society, democratic in spirit and practice.

We want the American people and all other
peoples of the non-Communist world to catch the
vision of themselves as the fellow citizens of a

April 24, 1950

truly free world, cooperating with each other in
peace and friendship. In the United Nations, we
already have the organization througii which to
carry out the affairs of that kind of world. If
wo succeed in establishing that kind of world—
and wo sliall succeed— totalitarianism will be by-
passed and left to collapse far behind the line of
battle against the true enemies of man — disease,
poverty, ignorance, and injustice. With increased
understanding of the reasons for our policies and
the nature of our goals, the American people will
act with miity to support them.

It is equally imperative to give other peoples
a better understanding of the United States and
for us to have better understanding of them. This
is the reason for the world-wide information pro-
grams which we conduct through the radio Voice
of America, our wireless information services, our
exchange of persons, and other cultural exchange
progi-ams. We are going among other peoples
and bringing many of them here so that they may
get to know us as we really are, and we may get
to know them. Out of this kind of mutual un-
derstanding, grows mutual trust and a greater
capacity to work together.

Online LibraryUnited States. Dept. of State. Office of Public CoDepartment of State bulletin (Volume v. 22, Apr- Jun 1950) → online text (page 28 of 116)