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We have, therefore, on the record, a complex combination of American oil companies which are partners with the British Government, with the Iranian Government and with one another, in developing the oil of the Middle East.

They sit upon this committee, some of them having satellites, as it were, also sitting on the committee, so that some of these larger companies have a preponderant voting power on the committee which, naturally, raises questions as to how the operation is to be successfully carried on.


The mere recitation of the commingling of foreign political and American private authority engaged in the exploitation of the petroleum deposits of the Middle East raises the central question at issue in these hearings, namely, whether such a group of oil companies is qualified to be chosen by the Government of the United States, under the Defense Production Act of 1950, as amended, to carry out a policy which this Government is undertaking for purposes of national defense.

It is clear from the report of the Attorney General that the Department of Justice interpreted the Defense Production Act as being one under which his approval to the granting of immunity for any violation of the antitrust laws could be given only to any agreement or program which the Office of Defense Mobilization deems would be required for the defense of the United States. It is also obvious that the purpose of the Congress, both from the language of the acts and of the reports thereon, was to safeguard every voluntary agreement from any loophole by which those participating in it could take any action detrimental to competition, as protected by the antitrust laws. The voluntary agreements authorized by the Defense Production Act, as amended in 1955, were strictly limited to equipment by and for the military.

Both the Attorney General and the Federal Trade Commission were to be consulted in the drafting of the agreements and the Attorney General was required to review all agreements and programs from time to time and, if he should find adverse effects on the competitive free-enterprise system outweighed the benefits of the agreement or program to the national defense”—and that phrase is quoted from the law-he was directed to withdraw his approval.

When, therefore, protests are received by this committee, when complaints are made of price increases, and when, as is the case here, the members of the Middle East Emergency Committee include corporations which have already been sued by the Federal Government for allegedly participating in illegal foreign cartels, it becomes the obvious duty of this committee, as well as other committees of the Congress, to scrutinize carefully the formulation, the procedures, and the effect of the plan. This will be necessary if improvements can be made not only to deliver oil to our allies but to deal fairly with the independent producer and the independent refiner in the United States, as well as the consumer.

The public-land States have vast producing areas and the States derive a royalty income for public education from the development of oil. There is thus a domestic public interest in the manner in which

this voluntary plan is to be executed. The message of Governor Price Daniel, of Texas, to his legislature yesterday was a clear challenge to some of the members of the Middle East Emergency Committee, indicating that they were more concerned about refining in the United States their surplus stock of crude oil than they were in carrying out the Government's plan of shipping crude oil to our European allies. Obviously, this is a matter which must be examined. Legislation may be needed. Finally, of course, everybody will agree that as objectionable as price fixing is when carried on by the Government, it would be far worse if carried on by private operators.

Our first witness this morning is Mr. Arthur S. Flemming, the Director of Defense Mobilization, to be followed by Assistant Secretary of the Interior Felix E. Wormser and Mr. Hugh A. Stewart, Director of the Office of Oil and Gas of the Department of Interior.

We are placing Mr. Flemming first because he has an engagement later in the week, on the day we had planned to call him, and inasmuch as under the Defense Production Act the Office over which he is presiding so efficiently has a great deal to do, we thought it would be proper to have him lead off.

Now, before you proceed, Mr. Flemming, I want to know whether any of the other members of the committees have any comments to make at this time.

Senator WILEY, Mr. Chairman. Senator O’MATIONEY. Senator Wiley. Senator Wiley. I want to compliment you on a very fine statement of the general issue. In order to get the subject down to earth, I want to say that I have here just 4 or 5 different headings which come within what might be called the interrogations of the people who have written me.

1. Why have the oil companies not sent the planned amount of oil to Europe?

2. Why have the oil companies, nevertheless, raised the price of oil to Europe?

3. Why have the oil companies raised domestic prices also?

4. In spite of this price rise, why has very little more oil been produced, despite huge oil inventories?

I would say that answers to these questions, which the common man is asking, are not only basic to our friendly relations with Europe but basic to the relation of these vast oil companies to the American public. That is all I have to say.

Senator O'MAHONEY. Thank you, Senator Wiley.
Senator Kefauver, chairman of the subcommittee.

Senator KEFAUVER. Mr. Chairman, I want to congratulate you upon getting this hearing started. It is a matter of tremendous concern to the American people, and to our friends in Western Europe.

I think there is no subject that has been more discussed, or in which more interest has been shown by Members of the House and the Senate, than the problems raised by this inquiry. I think that Senator O'Mahoney and the members of the three committees sitting here should be very proud that well-prepared hearings are being started as soon as they are, and I am sure they will be informative to the public and helpful to the Government, also.

Thank you, Mr. Chairman.
Senator DIRKSEN. Mr. Chairman.

Senator O'MAHONEY. Senator Dirksen.

Senator DIRKSEN. Mr. Chairman, I have 1 or 2 questions. I notice on page 4 of your statement you say

the central question at issue in these hearingswill be the qualifications of these companies.

Now, are the witnesses this morning going to limit themselves to the sole question of the qualifications of the companies?

Senator O'MAHONEY. Oh, no; no limitation has been placed upon the witnesses.

Senator DIRKSEN. I am only thinking in terms of the kind of questions to be asked, because if we discuss competition and supply and procedures, and then go into the qualifications of the committee, we get pretty well all over the lot. I did not know; I just wanted to know in what direction we are heading.

Senator O'MAHONEY. It was the planning of the committee to have these witnesses testify now, in order to show the background of the hearing, and how the cooperation between the committees was worked out before Congress had assembled; how they worked together. Senator DIRKSEN. Yes.

Senator O'MAHONEY. They will tell us, no doubt, what steps were taken by each of them individually in organizing the plan and setting it up. "Then we will have witnesses representing the complainants. We will expect many of the 15 majors to send their representatives and lay all the cards on the table. It may be that my interpretation of what the central issue is may not be correct, and other Senators may feel that other questions are more important than that, but that was the way I saw it and that is why I stated it that way. Senator Neely?

Senator NEELY. Mr. Chairman, when Chief Justice Earl Warren was the Governor of California, he made this remark about Artie Samish, the State's most influential lobbyist:

When it comes to matters affecting his clients, he is more powerful than the Governor.

Governor Warren was a frank man. This committee should be equally frank. When it comes to matters affecting the profits and selfinterest of the major oil companies, the oil lobby appears to be more powerful than the President, the Congress, and the people. Examples of this power are numerous. Let me briefly bring to your attention a few.

In May 1955, the Senate passed the Reciprocal Trade Agreements Act after the most solemn assurances from the administration that, if the major oil companies did not voluntarily take action, the President would act immediately, in the interest of our national security and our domestic economy, to restrict oil imports to their 1954 levei. What then happened is a matter of record. În complete disregard of the President, the Congress, and thousands of Americans who were being impoverished by the flood of foreign oil imports, the major oil companies increased their importations. And no action was taken against them.

Another example: On January 10, 1957, the President, in his state of the Union message to Congress, said:

The national interest must take precedence over temporary advantages which may be secured by particular groups at the expense of all the people. In this regard I call on leaders in business and labor to think well on their responsibility to the American people. * * * Business in its pricing policies should avoid unnecessary price increases * * *

The major oil companies responded to this appeal of the President of the United States by promptly raising the price of gasoline at a time when their storage tanks were filled to capacity. But no action was taken against them at that time, nor has it been taken since.

Now, as a final example: With the closing of the Suez Canal, it became a part of our foreign policy to try to supply Western Europe with its desperately needed fuel requirements. On January 26, 1957, the administration publicly appealed to the major oil companies to increase their shipments of emergency oil. One week later, the administration abjectly stated, "There has been no response” to this plea. Yet no action against the oil companies has been taken and apparently none is contemplated at this time.

During my 34 years in the Congress few, if any, of its countless hearings have been as important as the one which we begin here today. The issue before us is whether the major oil companies have become a supergovernment above the law, disdainful of the public welfare. In the circumstances, vigorous, comprehensive, remedial action should be taken without a moment's delay.

Senator O’MAHONEY. Are there any other members of the committee who wish to make comments?

(No response.)



Mr. FLEMMING. Mr. Chairman, members of the committees that are represented here this morning, I can assure you that I am very happy, as Director of the Office of Defense Mobilization, to appear before this committee and to be of whatever assistance I can in connection with the inquiry that you are making into the effect of the Middle East oil situation and the steps which have been taken to meet them.

Now, it is my understanding that Assistant Secretary Wormser, representing the Department of the Interior, is prepared to give a detailed report on the importance of Middle East oil to Western Europe, and also on the operation of the mechanism adopted to meet the shortage resulting from the stoppage of the Suez Canal, as well as the loss of the pipelines from Iraq, the Iraq pipeline.

Under these circumstances, I will direct my remarks principally to the responsibilities of the various agencies under the statutory authority upon which the program is based, and the procedure followed by those agencies in putting the program into effect.

When Congress enacted the Defense Production Act of 1950, providing the President with various powers to be used to promote the national defense, it included, in section 708, the authority to encourage voluntary agreements by private groups, and to extend antitrust im

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munity to participants in those agreements requested by the Government and found to be in the public interest as contributing to the national defense.

The statute requires that the Attorney General's approval be obtained on each agreement.

As the members of the committee appreciate, this important national-defense tool has been retained in the law by successive extensions of the act. When the Defense Production Act was being considered by both the Senate Banking and Currency Committee and the House Banking and Currency Committee, in 1955, particular attention and consideration was given to this section 708, dealing with the question of voluntary agreements.

I appeared before both committees, and in both connections a rather searching inquiry was made into the operations that had taken place under this particular section, and into contemplated operations under the section.

The question was very frankly raised by members of the committees as to whether or not we needed to retain section 708 in the Defense Production Act. The executive branch took the position that it was still needed.

As a result of the discussion, however, the committees recommended some rather substantial amendments to section 708, and those amendments were approved by the Congress, and, of course, in connection with the present problem we have proceeded under section 708 as amended.

Mr. Chairman, I would like at this point just simply to read the amendment to section 708 that was adopted by the Congress in extending the Defense Production Act in 1955.

This proviso was added : Provided, however, That after the enactment of the Defense Production Act Amendments of 1955, the exemption from the prohibitions of the antitrust laws and the Federal Trade Commission Act of the United States shall apply only, one, to acts and omissions to act requested by the President or his duly authorized delegate pursuant to duly approved voluntary agreements or programs relating solely to the exchange between actual or prospective contractors of technical or other information, production techniques and patents or patent rights relating to equipment used primarily by or for the military which is being procured by the Department of Defense or any department thereof, and the exchange of materials, equipment, and personnel to be used in the production of such equipment.

That, Mr. Chairman, is the amendment to which you referred in your opening statement.

But then the amendment goes on to say:
And, two,

Or in the second place to acts and omissions to acts requested by the President or his duly authorized delegate pursuant to voluntary agreement or programs which were duly approved under this section before the enactment of the Defense Production Act Amendments of 1955.

And the basic voluntary agreement relative to the oil industry was included in this particular part of the amendment. That is, it was in effect prior to the enactment of the Defense Production Act Amendments of 1955.

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