Two things here stand out. The rise of world residual demand of 92 million barrels (11 million in the United States) was substantial and even above the average annual rate of growth, indicates substantial market opportunities, especially in western Europe. Secondly, as a practical matter of world trade, the Venezuelan and Netherlands West Indies refinery production is badly out of balance with present-day oil demands. As between adjusting the refinery output and working serious injury to the United States coal industry, railroads, and labor, the former would seem to be the more desirable. Venezuela will take her oil elsewhere Dr. Carlos Mendoza, president of Banco Central (Federal Reserve System of Venezuela), states that if Venezuela cannot export as much oil to the United States she will export it elsewhere, and take her exhange, now mainly in dollars, in other currencies." There is no danger in doing this, he states, because the Venezuelan bolivar is probably the hardest monetary unit in the world today with the possible exception of the Swiss franc. Also by the natural laws of international trade, Venezuela would buy less from the United States and more from other countries if her United States sales were reduced. It is of interest here that the total exports by Venezuela to the United States in 1951 of $323.6 million (Department of Commerce) amounted to but 23.7 percent of the total 1951 exports of Venezuela to all countries, $1,363 million." Yet Venezuela's imports from the United States of $456 million in 1951 (Department of Commerce) constituted 65 percent of her total imports of $706 million." They were correspondingly high in 1952. The only plausible explanation here is that whereas Venezuela has been successful in selling her products for lollars in many world markets outside the United States, she seems to prefer American goods when she comes to buy. Of course, if she sells to soft-currency countries without dollar exchange, this would no longer be possible. However, for those who advocate free trade princples, there should be no objection in her doing this. Of interest here is Argentina's offer to purchase the oil. In a news release of April 24, 1953, the Journal of Commerce (New York) states: "Argentine Ambassador Maj. Carlos Domingueb said Argentina is ready to buy more Venezuelan petroleum if the United States restricts its oil imports. "He said Argentina might be in position to purchase a great part, if not all, of the Venezuelan oil which would be rejected by the United States under import restriction bills now pending in Congress. He said on instructions from his Government, he is ready to begin important conversations with the Venezuelan Government to increase commercial and cultural relations beween the two countries." The substance of the matter would appear to be that crude petroleum and petroleum products are probably very much like wheat on the world markets. If one particular source of sales is cut off, the seller immediately affected does not go out of business. Rather his supplies are merged with world supplies and the lost sales thereby largely shared with all the world suppliers. Venezuela should here be favorably situated. The two major international oil companies, which largely control Venezuela's output, are among the leaders in the closely knit group of seven international oil companies which exercise major control over world oil reserves, production, transportation, distribution, and markets." Furthermore, distances from Venezuela to the major world markets are comparatively favorable. Concern for American industry Perhaps the real concern here is not with Venezuela but the health of our own American industry, our steel mills, automobile plants, cement plants, electrical industry, food processors, etc. The Venezuelan Chamber of Commerce in communications to United States industries asking them to protest quotas on oil does not stress so much the loss of business to Venezuela, but rather the injury such quotas might do to American companies now exporting to Venezuela. (See appendix.) "New York Herald Tribune, Monday, April 13, 1953, p. 50. 45 Balance of Payments Yearbook, 1952, International Monetary Fund. 46 Id. The International Petroleum Cartel Staff Report, Federal Trade Commission, August The Honorable Walter Bedell Smith, Under Secretary of State, also places quite some stress on the effect of Venezuelan oil exports on our home industry. To quote: 48 "To our friends in Venezuela oil exports to the United States spell dollars that are spent on purchases in the United States. The purchases are very important to the Venezuelans, and incidentally, quite important to us. For instance, Venezuela bought from us in 1952 over $200 million worth of machinery and vehicles, and about $78 million worth of metals and manufactured products. They also buy other items in substantial quantities-foodstuffs, textile fibers, and chemicals. The full list is long. Their purchases in 1952 totaled about a half-billion dollars. "The Venezuelans earn this half-billion almost entirely from oil operations. "In fact, Venezuela buys in nearly every one of the 48 States. All of us, in other words, benefited in some fashion or other." Sacrifices should be equitably distributed Mr. Smith added that American business has responded to demands on it with unselfishness and devotion. There are limits to the burdens industries are willing to assume (even when capable of them) if they are imposed with the grossest inequalities. State Department releases make no mention of the enormous losses coal has taken in recent years or of the type of competition foreign oil forces upon it, nor does it give any recognition to the preferential and protective treatment oil has received in the domestic markets, whereas coal has been largely left to fend for itself as best it can in the face of foreign oil inroads. Effect of the 5 percent residual quote on the United States From what has been said, it would appear that the effect of the proposed 5 percent quota on exports by American firms to Venezuela would be small. First, there is every reason to believe that the reduction in residual shipments to the United States will quickly be absorbed by sales to other nations and the steady annual growth of world oil consumption. A shift in refinery yields apparently would accelerate this. Secondly, Venezuela, as previously indicated, now obtains the preponderance of her foreign exchange from sales of her petroleum, petroleum products, etc., to other nations, yet confines the purchase of two-thirds of her purchases to the United States. Even her Scotch whisky, a favorite drink in Venezuela, is primarily reshipped through the United States. Better commercial service has been given as a partial reason. Preference for American goods and price is no doubt another. United States global purchases (and to some extent "aid") have provided other nations with the dollars with which to buy Venezuelan petroleum products and this in turn provides Venezuela with the dollars to buy here. All factors considered, there does not seem to be any reason to believe that the 5 percent quota on residual will appreciably affect this country's sales to Venezuela. In any event, the maximum amount here involved of $169 million represents substantially less than one-tenth of 1 percent of this Nation's gross national product currently running at some $350 billion annually. The coal and rail'industries and their employees also buy on the home market So far the argument has ignored the fact that coal companies themselves buy supplies, that coal miners, too, buy food and housing and motorcars, and the same thing may be said of several big railroads which lean very heavily on coal. It is safe to say that for every dollar spent on the purchase of coal on the east coast, more cents remain in the American economy than is the case for a dollar spent on oil in Venezuela. From a theoretical standpoint, a dollar spent for coal on the east coast is actually a dollar better spent insofar as the United States economy is concerned, than one spent for foreign oil as the doctrine of "comparative advantages" favors coal. There are no advantages, even theoretical, to turning large coal areas of Pennsylvania, West Virginia, and eastern Kentucky back to the wilderness and reorienting the local population to a livelihood in Detroit. Conclusion From the facts I have reviewed, there is no reason to believe that the quota of 5 percent on residual fuel-oil imports which coal proposes, will have any 48 Address, April 27, 1953, release No. 214. significant effect on the disposition of Venezuela's petroleum. At the worst, it might require a better adjustment of South American refinery production to world oil demands which in the end should improve Venezuela's already strong trade position. The hurt done to the American industry by the residual oil imports largely comes to rest on the domestic-coal industry, although the downgrading now forced on domestic oil certainly works injury on this industry. It also forces a maladjustment of prices to many classes of oil consumers. In the plea of the State Department for the retention of unlimited imports of residual fuel oil, there is no evidence of anything but a very superficial weighing of all the facts and circumstances, particularly as they bear on coal. There has been gross inequity as between coal and oil, in the exposure of the markets of each to the impact of foreign-oil imports. Residual-oil imports can only continue by the uneconomic downgrading of foreign crude oil. This is no foundation upon which to justify the strangulation of coal in its vital east-coast markets. APPENDIX TABLE 1.-Postwar economic effects of foreign residual oil imports, 1946-52 1 Based on 4.167 barrels of residual oil≈ 1 ton of bituminous coal, Bituminous Coal Annual, 1952, p. 162. TABLE 1.-Postwar economic effects of foreign residual oil imports, 1946-52— Continued This Ratio (percent) of total compensation to total operating revenues (class I roads). ICC Monthly Comment, Jan. 14, 1953. In 1950 for each dollar of revenue from bituminous coal, 71 cents went for out-of-pocket costs (wages and other costs) while for all commodities this figure was 64 cents per dollar of revenue. indicates that the ratio of compensation to revenue for bituminois coal is not far different than that for all traffic generally. If anything, the compensation per dollar of bituminous coal revenue may be understated when using the overall average. January to October 1952. Source: Columns (2), (6) and (9), U. S. Bureau of Mines. Column (12), Bureau of Labor Statistics. Column (16), Bituminous Coal Annual, 1952, p. 108 and proposed table for 1953 annual, Bituminous Coal Institute, basic figures from Bureau of Mines. Column (19), ICC, total bituminous coal freight revenue divided by tons originated. TABLE 2.-United States monthly production of bituminous coal, 1946–53 TABLE 3.-Production of bituminous coal in Pennsylvania, 1946–53 TABLE 4.-West Virginia monthly production of bituminous coal, 1946-53 TABLE 5.-Monthly carloadings' at bituminous coal mines in the United States, 1 Totals are actual figures. Monthly figures computed by dividing monthly tonnage by average tons per car for the year. * Preliminary. NOTE.-Unit figures may not add to totals because of rounding. |