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STATEMENTS

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PROCEEDINGS

Digest of testimony-

February 5_-

February 6

February 7-

February 12

February 13

February 14.

February 19

February 20.

February 21.

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DIGEST OF TESTIMONY

TUESDAY, FEBRUARY 5, 1957

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Opening statement by Senator Joseph C. OMahoney, presiding.

Noted the presence of representatives of Executive Departments of State, Justice, and Interior, and the Director of the Office of Defense Mobilization.

The Subcommittee on Antitrust and Monopoly of the Judiciary Committee, “in cooperation with the Senate Committee on Interstate and Foreign Commerce and the Senate Committee on Interior and Insular Affairs, all of whom have jurisdiction over various phases of the petroleum industry, has assembled to confer with representatives of the executive branch of the Government about the details of the plan by which this Government is attempting to aid its Western European allies by substituting petroleum and petroleum products for the flow from the Middle East which has been suspended by the blockade of the Suez Canal."

Although deliveries from this country to Europe have been stepped up, "the unfortunate fact is that the shortage in Europe has not been satisfactorily supplied."

The committee and Members of Congress have received numerous complaints about the increased cost of petroleum products.

The first step toward a program to meet the oil emergency "was taken on October 12, 1956, when President Eisenhower submitted to Director Flemming (of 'ODM) a memorandum directing the latter to summon representatives of the National Petroleum Council to confer with certain Cabinet officers for consideration" of the plan of action under the voluntary agreement relating to foreign petroleum supply, dated August 10, 1956.

On October 19, 1956, Assistant Secretary of the Interior Wormser sent a letter to Walter S. Hallanan, Chairman of the National Petroleum Council, requesting the Council to make a study of tanker transportation and confer with representatives of the Office of Oil and Gas in the Department of the Interior and with the Maritime Administration in the Department of Commerce.

"On December 11, 1956, Mr. Flemming, Director of Defense Mobilization, held a press conference and issued a release in which he announced that he had requested the 15 oil companies comprising the Middle East Emergency Committee 'to participate in an amended plan of action under the voluntary agreement relating to the foreign petroleum supply.'” These 15 companies may be properly designated as the largest in the world. The assets of all 15, excluding duplication, amount to $20,162,034,000, as of 1955.” Listed the companies together with their assets, gross and net income.

These companies are interested not only in production of oil around the world but also in the production, the refining, and the distribution of oil products and gasoline in the United States. Many independent companies feel that "what the big companies do has an immediate and vital effect upon their own operations.

There is a provision in the Trade Agreement Extension Act of 1955 which states that "whenever the Director of the Office of Defense Mobilization has reason to believe that any article is being imported into the United States in such quantities as to threaten to impair the national security, he shall so advise the President and if the President agrees that there is reason for such belief, the President shall cause an immediate investigation to be made to determine the facts.” If the President finds the imports threatening to impair the national security, "he shall take such action as he deems necessary.

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This authority has not been exercised, but instead there has been a voluntary agreement that imports shall not exceed a percentage of imports for 1954.

The independents have asserted that increased imports said to be coming from Latin America and elsewhere have affected their operations.

Senator O'Mahoney said that of “the 15 members of the original Committee, the largest company is the Standard Oil Company of New Jersey. It is a member of the Committee not only in its own right but also as the owner of 95 percent of the Creole Petroleum Corp., which operates in Latin America and which also is 1 of the 15. Not only is that the fact but Standard of New Jersey is a 30-percent owner of the ArabianAmerican Oil Co. and with Socony Mobil Oil Co. a 50-percent owner in Standard Vacuum Oil Co., both Arabian-American Oil and Standard Vacuum Oil being also members of the Middle East Committee. Socony Mobil sits on the Committee as a corporation, as do all the others, in its own right and as a part owner of two other members of the Committee. The Gulf Oil Co., third in size, as computed by its assets, is associated with the Anglo-Iranian Petroleum Co. in operation in Kuwait, a sheikdom in the Arabian Peninsula. The Anglo-Iranian Corp., as an organization, has been controlled through stock ownership by the British Government. It owns 23.75 percent interest in Iraq Petroleum Co. and in that company Standard Oil of New Jersey and Socony Vacuum Oil Co. also own 23.75 percent stock interest."

"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 amemded, to carry out a policy which this Government is undertaking for purposes of national defense.” ***

Seemingly, "the Department of Justice interpreted the Defense Production Act as being one under which his (the Attorney General's] 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." The intent of Congress "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.”

The Federal Trade Commission and the Attorney General were to be consulted in drafting agreements and the Attorney General was to review them from time to time. If he found any effects detrimental to competition he was 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, the independent refiner in the United States, as well as the consumer.

There are other angles of the operation of the oil industry that justify domestic public interest. “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.”

Senator Wiley set forth different categories into which inquiries he had received would fall: "(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?”

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Senator Kefauver commented that the hearings would cover "a matter of tremendous concern to the American people, and to our friends in Western Europe.” That "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.

Senator O'Mahoney said it may turn out that his conception of the central issue might not be correct, and that other Senators might feel other questions are more important.

Senator Neely, commenting on the power and influence of the oil
industry, said that the "oil lobby appears to be more powerful than the
President, the Congress, and the people.” Cited examples.
Statement of Arthur S. Flemming, Director, Office of Defense Mobilization;

accompanied by Felix E. Wormser, Assistant Secretary of the Interior,
and Hugh A. Stewart, Director of the Office of Oil and Gas, Depart-

ment of the Interior Introductory statement. Remarks will be directed "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.

Discussing the amendment to the Defense Production Act referred to by Senator O'Mahoney, Mr. Flemming said that following the section dealing with voluntary agreements being limited to military procurement, the amendment states these exemptions also apply "to acts and omissions to acts requested by the President or his duly authorized delegate pursuant to voluntary agreements or programs which were duly approved under this section before the enactment of the Defense Production Act Amendments of 1955."

The basic voluntary agreement relating to the oil industry was in effect prior to enactment of the amendment of 1955.

Pursuant to requirements of the Defense Production Act, the Attorney General has "certified that the interests of national defense were such as to make it possible for him to approve the agreement, even though he recognized, as all of us do, that, of course, there is a calculated risk involved as far as the antitrust policy of the Congress and of the Government is concerned.” Mr. Flemming concurs in this belief.

Certification was made prior to present crisis.

Original voluntary agreement, "as amended in accordance with the suggestions of the Attorney General,” dated May 8, 1956. (There were no amendments after this date.)

Document held in his hand "was an agreement recommended by the Department of the Interior, and was in effect-I mean a basic plan of this kind was in effect prior to the passage of the Defense Production Act of 1955. As a result of the passage of those amendments, it became necessary for the Attorney General under the law, to review this basic voluntary agreement relating to foreign petroleum supply. He did review it. He consulted with the Director of Defense Mobilization."

The Attorney General "presented to the Department of the Interior certain amendments which he felt should be made. We consulted with the Department of the Interior, with the Attorney General, and we finally arrived at an agreement as to those amendments. The amendments were incorporated in the basic agreement, and after they were incorporated in the basic agreement the Attorney General made the certification required by law.

May 8 agreement was formulated by Interior, Office of Defense Mobilization and the Attorney General, although “responsbilitity for originating any matter in this particular area was, of course, the responsibility of the Department of the Interior."

Basic document on voluntary agreements was dated May 1, 1953, amended April 15, 1954, and again May 8, 1956.

One "type of amendment” suggested by the Attorney General was that outside of emergency situations the committee should be chaired by & Government official instead of a representative of industry, and some work of Committee should be carried on by Government officials instead of employees of oil companies.

Plan of action development begun in August 1956.

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Page 15 In approving the August 10 plan the Attorney General approved of an

industry representative serving as Chairman of MEEC, "but the overall Committee that is brought into existence by this May 8, 1956, document

must be chaired by a Government official.” 16 Interior will explain why the Attoreny General approved of an industry

member serving as Chairman and Attorney General will “be in a position to indicate why he felt that those practical operating considerations should control, as far as putting the Middle East plan into operation is concerned."

When the Attorney General reviewed plan of action under which MEEC was set up "he had in mind indentically the same objectives that he had in mind in suggesting the amendments to the May 8, 1956, document, and I am sure that he or his representatives would be in a position to testify that they feel that they built into the Middle East Emergency Committee provisions designed to achieve those objectives

and which they believe will achieve those objectives." 18 Executive Order 10480 makes ODM responsible for "approving agree

ments in the interest of national defense,” with other agencies authorized to make recommendations. Order of responsibility for oil agreements

listed. 19 In connection with the plan of action, the Government had before it

recommendations from Interior, Defense, and State. As previously indicated, the Attorney General concluded after consultation that the benefits to the national defense of the plan of action outweigh its possible

adverse effects upon the competitive free-enterprise system." 20

Voluntary agreement is best way "under existing law to deal with the kind of situation that confronts us as far as the Middle East is concerned.”

Amended Defense Production Act provides best method for dealing with the situation "unless the Government wants to get much more deeply into the operation of the oil industry than it has ever been.It should be kept in mind it is a voluntary agreement. There is no "carte blanche delegation of authority to this committee." It cannot act alone--can only recommend to the Government. If the recommended steps to be taken are approved by the Government "and carried out by the members of the Committee, then of course under the law they

are immune from prosecution under the antitrust law." 20

If the Attorney General had refused certification re the voluntary agreement relating to oil supplies the agreement would have lapsed "and there would be no authority under existing law to bring such

voluntary agreement into existence.” 22 The Attorney General and his representatives began participating in

discussions involving the plan of action in late July. Formal exchange of

letters authorizing plan was on August 10. 23 Did not have with him all dates, etc., of communications issued to oil

companies regarding oil imports---did not think it would be gone into "at this time."

Presidential Advisory Committee on Energy, Supplies, and Resources had recommended that oil imports be related to domestic production in proportionate relationship to 1954 levels, and urged companies to accept on voluntary basis. If they did not, the committee felt Government should consider what action“could or should be taken."

This Resources Committee had also recommended that the question of proportionate relationship should be reviewed from time to time.

Did not recommend that imports he held at 1954 levels, so, as domestic production went up, so did imports. He had not reached an agreement with the oil companies on this plan but some "indicated a willingness to

follow the suggestion made by the Government." 25

Believes Standard of New Jersey cooperated in this area.

The independents have been cooperative and willing to let the Government work out a voluntary plan. Only when they felt industry response was insufficient did they file a petition under section 7 of Trade Agreements Act. Public hearings were held in response to that petition.

Action on the petition was suspended after the Suez crisis, to be resumed when things settled down again.

Dr. Flemming believes they have authority over refining operations but not over production of crude.

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