The evidence therefore of a disinterested source conclusively shows that the contentions made and references drawn by Mr. Disney with respect to the competitive character of imports of crude oil and fuel oil are not in accord with all the facts.

IMPORTS OF PETROLEUM, NONCOMPETITIVE WITH DOMESTIC PRODUCTION

Some years ago, as a result of governmental encouragement and as a hedge against the day when our petroleum reserves might be depleted, American companies in an effort not to hinder or compete with but to foster American industry and employment were urged by our Government-the Wilson administration-to go into South America and Mexico and obtain oil lands and lease concessions." Today, as then, there is a deficient production of domestic asphalt and fuel-oilmaking petroleum throughout the entire eastern section of the United States. The entire amount of foreign crude oil from American-controlled foreign fields which entered the United States last year was utilized by some 18 or more refineries along the Atlantic Seaboard and Gulf coasts almost entirely for the manufacture of various grades of asphalt. The location of refineries utilizing heavy crude oil for fuel oil and asphalt are as follows: Everett, Mass.; Providence, R. I.; Long Island, City, N. Y.;.Warners, N. J.; Maurer, N. J.; Bayonne, N. J.; Philadelphia, Pa.; Baltimore, Md.; Norfolk, Va.; Sewalls Point, Va.; Charleston, S. C.; Savannah, Ga.; Brunswick, Ga.; Jacksonville, Fla.; 12 Tampa, Fla.; 12 Pensacola, Fla.; Baton Rouge, La.; Norco, La.; Destrahan, La.; Beaumont, Tex.; Port Neches, Tex.; Baytown, Tex.

Certainly these refineries and labor employed therein, as well as in the oil fields which supply them, must be counted as part of American industry and enterprise. To maintain employment and security, regularly constituted markets and the jobs of those employed must be continued and not destroyed as would be the case if the above refineries of the United States cannot continue to operate efficiently. If any refinery in the United States depending upon sales of asphalt and fuel oil for efficient operation should suddenly be unable to obtain required economical supplies of petroleum, regardless of the origin of the oil, such refinery would soon have to close, thereby throwing thousands out of employment-men engaged in production, refining, transportation, and marketing.

Substi.ution of light gasoline-making domestic crude oil for the fuel oil and asphaltic petroleum now imported would be both a serious economic and technological disaster. If a requirement were made causing all refineries to manufacture all oil production from domestic crude or surplus residues,13 most of them would shut down as was reported to the Treasury Department when an embargo was agitated.

If refineries cannot operate efficiently, the logical thing to do is not to operate at all. But even should some refineries utilize other petroleum, it is certain that consumers would not use fuel oil, asphalt, and road oil in the same volume. Failure of quality would result.44

Any failure of engineering acceptance or demand for asphalt is certainly not conducive to employment, nor can it be shown that such conditions could ever contribute to the relief of unemployment.

Any refinery oil supply, if not owned or controlled, is a matter of negotiation between vendee and vendor for particular quality of petroleum required. Those having flowing wells or large stored supplies of required crude oil would reap great benefit. In such case the advantage to labor is extremely limited and doubtful. Even in the distant future if any forced increase in new wells could be relied upon, the loss in delays and uncertainty of the present would far overbalance such problematical future labor demand.

Some may reason that by forcing the entire supply to come from California where petroleum exists similar to that imported,15 more tanker crews would be

The Democratie platform of 1912 laid the basis: "The consitutional rights of American citizens should protect them within our borders, and go with them throughout the world; and every American citizen is entitled to and must be given the full support of his Government, both for his property and for himself." 12 Storage only.

13 Out of some 18 or more refineries along the Atlantic and Gulf coasts, 7 were originally built to run heavy asphaltic oil.

14 Mr. A. J. Kraemer of the Bureau of Mines, 1934, reports that "available information seems to indicate that the aspects of this situation are partly economic and partly technologic; although it is not known conclusively that asphalts made from domestic crude oils, even in the most modern equipment, would be satisfactory for the requirements of all buyers."

13 "As a result of its review of facts, submitted from crude-oil producers east of California, as abstracted above, the committee has reached the conclusion that the possibility of substitution of domestic crudes for foreign crudes now being imported for the manufacture of asphalt products is limited to certain California crude oils." Hearings before the Committee on Ways and Means, May 18-21, 1936, p. 181.

employed, thereby aiding American shipping and seamen. Here the fallacy first apparent is "if" the assumption that eastern refineries can be made to buy California oil. (Only one company operating in the East has a west coast oil supply.) But if refineries on the east coast are forced to buy approximately 50,000,000 barrels of crude and fuel oil from the west coast, there are not enough coastwise tankers available to transport this required quantity of oil.16

However, should most of the Eastern refineries be forced to buy California crude oil, this substitution for imports would jump the price of heavy low-gravity California asphalt crude to unheard-of heights and would fast diminish the supply, thereby transferring the dangers and weakness of the East to the West. Would not American labor under such condition be discriminated against, and a minority group who need no help reap the unearned advantage?

In this day of serious unemployment, the diminution of supplies of asphaltfuel-oil-making crude oils is a growing menace to self-respecting occupation in the one activity that outstandingly employs the most unskilled workmen. The building of secondary and farm-to-market hard-surfaced highways demands asphalt as a binder. Unskilled labor can be and always is employed in enormous numbers in asphaltic-macadam construction. The President, in realization of this fact, puts an appropriation for such road building at the head of Budget estimates for relief appropriations.

Subtraction from the American supply of the heavy crude oils vitally essential to the manufacture of 50 percent of all our available asphalt at the present time

means

(1) Less asphalt for road building, or its

(2) Substitution by use of asphalt manufactured from the distant heavy crude oils of California, notoriously limited in supply.

Either calamity means increased cost and consequently higher price to our Government agencies and subdivisions. Higher price of asphalt binder will necessarily be reflected in reduced mileage of construction of roadways, with consequent reduction in self-respecting employment of those who need it most.

The thousands of those now employed in road making and repair will have to be given other things to do or be laid off. Road making of all construction activities employs the largest number of men per dollar spent. It is the men on this work whose working livelihood is threatened by the menacing seizure of American oil fields in Latin America which now supply this prime material for road making at the lowest price known in the world.

Average asphalt manufacturing yields (irrespective of suitability) of several domestic crude oils as compared with imported crude oil

ANALYSIS OF INDIVIDUAL TARIFF CONCESSIONS MADE TO VENEZUELA 17 Crude petroleum, topped crude petroleum, and fuel oil derived from petroleum including fuel oil known as gas oil (par. 1733). Internal Revenue Code 3451 Imports of crude petroleum and fuel oils are duty-free, but subject to an excise tax of one-haif cent a gallon.18 Under this agreement, the excise tax is 16 This oil cannot move east over the Rocky Mountains by pipe line. There are no lines and the geographical handicaps are too great. 17 State Department Release No. 571.

1 Imports of these products are exempt from the excise tax when imported either for supplies of ships in foreign trade and certain others, or for manufacturing in bond.

reduced from one-half cent to one-fourth cent a gallon on an annual amount of imports not in excess of 5 percent of the total quantity of crude petroleum processed in refineries in continental United States during the preceding calendar year. Any imports in excess of this quota will pay the one-half cent rate, which is bound against increase. The quota applies to the combined imports of crude petroleum, topped crude, and fuel oil including gas oil, that is, there is no separate quota for each of these commodities. With respect to the significance of the 5-percent quota arrangement, it may be noted that the total quantity of crude oil processed in the refineries in 1938 was 1,165,015,000 barrels, 5 percent of which is 58,251,000 barrels. The average annual imports of taxable crude and topped petroleum and fuel oil for the years 1933-38 were 34,569,000 barrels. The quota applies to total imports from all sources.

The United States share of the known world reserves of crude petroleum is somewhat less than 50 percent. On the other hand, this country produces slightly over 60 percent of the total world output notwithstanding the fact that the principal domestic fields are being operated under restrictions in order to avoid wasteful production.

Fuel oil (in one or more grades) is obtained from nearly all grades of crude petroleum and is produced in most refineries. Venezuelan crude is much heavier than the average domestic crude and yields principally heavy fuel oil and asphalt. Domestic crudes yield larger percentages of gasoline and kerosene, and superior grades of lubricating oil, the more valuable petroleum products. Fuel oil from domestic crudes consists chiefly of grades much lighter than imported fuel oil or fuel oil produced in this country from imported crude. The domestic demand for all grades of fuel oil, including both the heavy grades for ships' bunkers and industrial plants and the lighter grades for Diesel engines and residential heating, has been increasing. Production in the United States of heavy fuel oil from low-grade foreign crude and the importation of heavy fuel oil tend to reserve the high-grade domestic crudes for the production of the more valuable petroleum derivatives.

The United States leads the world in the production and consumption of petroleum products. This country is also important both as an importer and an exporter of crude petroleum and petroleum products. The domestic industry has been on an export basis for many years. In 1938, imports of crude petroleum amounted to 26,048,000 barrels as compared with exports of 77,272,000 barrels. Imports in that year of fuel oil of all grades (including tax-free entries for use in ships' bunkers) amounted to 26,165,000 barrels 19 as compared with exports of 43,832,000 barrels. Venezuela is the most important supplier of United States imports of crude petroleum, accounting for 85 percent of the total in 1937 and 90 percent in 1938. Imports of fuel oil are supplied almost entirely by the Netherlands West Indies, but most of the fuel oil refined in the Netherlands West Indies is produced from Venezuelan crude.

ALLOCATION OF TARIFF QUOTA ON CRUDE PETROLEUM AND FUEL OIL DECEMBER 12, 1939 20

The President signed a proclamation on December 12, 1939, allocating for the period from December 16, 1939, to December 31, 1940, inclusive, among countries of supply, the quantity of crude petroleum and fuel oil entitled to a reduction in the rate of import tax under the trade agreement with Venezuela signed on November 6, 1939. The agreement provides for a reduction in the import tax on crude petroleum, topped crude petroleum, and fuel oil derived from petroleum, including fuel oil known as gas oil, from one-half cent to one-quarter cent per gallon on an annual quota of imports not in excess of 5 percent of the total quantity of crude petroleum processed in refineries in the continental United States during the preceding calendar year. For the remainder of the present calendar year during which the agreement will be in force, a tariff quota equal to one-twelfth of this amount is provided. Imports above these amounts are dutiable at one-half cent per gallon.

Under the terms of the proclamation, the shares of the total imports of such petroleum and fuel oil entitled to a reduction in the rate of import tax are allocated among countries of export on the basis of the proportions of the total imports for consumption in the United States supplied during the first 10 months of 1939,

19 The figure for imports includes 18,231,000 barrels of tax-free fuel oil for use in ships' bunkers and 682,000 barrels entering free under bond for manufacture and export. 20 State Department release No. 675.

the latest period for which statistics are available. The following allocations of the tariff quota are set forth in the proclamation:

United States of Venezuela

Kingdom of the Netherlands (including its overseas territory)

Republic of Colombia.

Other foreign countries..

Percent

71. 9

20. 3

4. 0

3. 8

The domestic petroleum industry and the Venezuelan trade agreement Concession to Venezuela on petroleum.-By the terms of the trade agreement concluded with Venezuela, effective December 16, 1939, the import excise tax on crude petroleum, topped crude, and fuel oil was reduced from one-half cent to one-fourth cent per gallon, equivalent to 10% cents per barrel. In order to safeguard the domestic petroleum industry the quantity of crude petroleum, topped crude, and fuel oil which may enter the United States at the reduced rate may not exceed 5 percent of the total quantity of crude petroleum processed in refineries in the continental United States during the preceding calendar year, as ascertained by the Secretary of the Interior. This 5-percent annual quota established by the trade agreement is approximately equal to the ratio between imports and domestic production of these oils following the levying in 1932 of the one-halfcent-per-gallon excise tax and the present time. All imports in excess of the established annual quota are subject to the full one-half-cent-per-gallon excise tax. The concession on petroleum granted to Venezuela constitutes the most important consideration granted to that country. United States imports from Venezuela consist chiefly of crude petroleum, topped crude, and fuel oil. On the other hand, Venezuela granted concessions benefiting American farm and factory products which made up 36 percent of our total exports to Venezuela in 1938. Among the more important American products on which reductions in duty were obtained by the United States are cigarettes, lumber, furniture, and fresh and canned fruits.

Imports of crude petroleum, topped crude, and fuel oil are small in comparison with domestic production and exports. The total quantity of imports in 1938 of taxable crude and fuel oil amounted to 29,700,000 barrels compared with exports of 121,100,000 barrels and domestic production of 1,660,000,000 barrels. This does not include 22,500,000 barrels exempt from excise tax used for supplies of ships in foreign trade, and entered in bond for refining and reexport. In other words, United States imports of these oils constituted only 2 percent of total domestic production for 1938. On the export side, shipments of these same oils to foreign countries during 1938 constituted 7 percent of domestic production and were more than 300 percent greater than imports.

Petroleum industry benefits from trade agreements. It is significant to note that whereas a concession on petroleum has been granted in only 1 agreement-the moderate reduction in the excise tax which was granted to Venezuela--concessions expanding opportunities in foreign markets in which our domestic petroleum industry can sell its products have been obtained in 12 agreements. Five countries reduced the duties on petroleum products, 4 countries bound the rate of duty against increase, 2 countries bound petroleum products on the free list, and 1 country bound the rate of duty and increased the quota. Examples of the various petroleum products affected by more favorable export opportunities obtained through trade agreements are gasoline, lubricating oil, petroleum residues for heating, benzine and benzol, lubricating greases, kerosene, and various petroleum oils and greases.

Switzerland granted a concession on petroleum residues for heating purposes, benzine and benzol for motors. Swiss imports of these products from the United States increased, respectively, between 1935, the preagreement year, and 1938 from $35,000 to $1,361,000; from $1,039,000 to $2,077,000. Sweden granted a concession on gasoline and that country increased its imports of gasoline between 1934, the preagreement year, and 1938 from $3,051,000 to $7,071,000. The Netherlands guaranteed not to change the duty-free status of lubricating oil. Its imports from the United States between the preagreement year 1935 and 1938 increased from $840,000 to $1,125,000. Canada, our most important foreign market for petroleum products, reduced the duty on lubricating oils, engine distillates, and gasoline. Imports from the United States by Canada of these products increased respectively between the preagreement year 1935 and 1938 from $2,605,000 to $3,122,000; from $7,000 to $71,000; from $1,501,000 to $5,219,000. The petroleum industry's most important and profitable market is, of course, the home market. There are certain benefits shared by the domestic petroleum

industry derived from the trade-agreements program which, though less tangible are nevertheless real. Such benefits flow from an improved domestic market. Imports and exports mean more work for all the people employed in transportation: railroads, busses, trucks, ships, and in merchandising, stores, markets, insurance companies, as well as more work for the people engaged in the manufacture of the great variety of commodities that are bought and sold. Such activity at home strengthens and increases purchasing power all along the line and creates expanded markets at home for petroleum products.

Prices that our domestic petroleum industry has received for its products have been highest during periods when foreign trade-imports and exports—has moved in large volume. In such periods domestic industrial activity has been brisk and in addition to higher prices, the petroleum industry has experienced greater demands for its products.21

CONCLUSION

1. The present tariff disguised as an excise tax on imported crude petroleum (heavy asphaltic) and fuel oil runs counter to national policy, and is passed on to the American consumer.

2. The import tax on crude oil which falls only on heavy asphaltic crude is added to the cost and price of asphalt; the passed-on tax in the form of increased asphalt price is paid by the Federal Government, by States, counties, and cities and the State highway departments have been forced thereby and continue to be forced to materially decrease the mileage of improved roads.

3. The tax on crude and fuel oil is passed on to consumers, primarily lifting the cost of bunker fuel oil by more than the amount of the tax and with the constantly growing demand is creating a serious scarcity of this product along the Atlantic coast to the detriment of the United States Navy and the American merchant marine.

4. The existing tariff or excise tax on imported crude and fuel oil is in effect a tax upon government itself.

The CHAIRMAN. I desire also to insert in the record a statement submitted to the committee by Mr. J. D. Battle, executive secretary, National Coal Association.

STATEMENT SUBMITTED TO THE SENATE FINANCE COMMITTEE, MARCH 4, 1940, BY J. D. BATTLE, EXECUTIVE SECRETARY, NATIONAL COAL ASSOCIATION, IN OPPOSITION TO HOUSE JOINT RESOLUTION 407

The bituminous coal industry, speaking through the National Coal Association, opposes the proposal to extend for a further term of years the delegation by the Congress to the Executive of authority to alter tariff rates and excise taxes on imports through the device of so-called reciprocal trade agreements.

We believe that the original delegation of this authority by Congress was most unwise, that the exercise of this authority by the executive branch of the Government has been in many instances detrimental, and that the expiration of this authority this coming June, as was originally specified, would be a blessing. We most respectively submit that to sanction the negotiation of international trade agreements which alter tariffs and taxes and which become binding upon the United States without any express approval of Congress or any ratification by the Senate, as is the constitutional requirement with respect to treaties between this Government and any other government, violates both the letter and the spirit of our form of representative constitutional Government.

The interest and concern of the coal industry in the reciprocal trade-agreements program and policy and the present proposal for its continuance is both general and specific.

Our industry has a large stake in the future of this country and its social and economic progress and prosperity. Our industry supplies at least half the Nation's fuel and energy requirements, an indispensable half. Our industry is the largest employer of labor in the United States except for the railroads. More than half a million men are directly dependent upon coal mining for their livelihood and at least twice as many more are directly dependent. Our industry has a capital investment in excess of $3,000,000,000 and an annual cash turn-over in the neighborhood of $1,000,000,000, and in addition provides the railroads with more than a fifth of their freight revenues.

21 See Cong. Record, Feb. 23, 1940, p. 2961, Extension of Remarks of Hon, John E. Rankin.