OIL IMPORT CONTROLS TUESDAY, MARCH 10, 1970 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MINES AND MINING OF THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, Washington, D.C. The subcommittee met, pursuant to call, at 10 a.m., in room 1324, Longworth House Office Building, the Honorable Éd Edmondson (chairman of the subcommittee), presiding. Mr. EDMONDSON. The subcommittee will come to order. Today begins our second day of hearings on oil import controls. We have two witnesses scheduled for today, the Deputy Assistant Secretary for Resources in the Department of Commerce, the Honorable Stanley Nehmer, and the Assistant Secretary for Mineral Resources of the Department of the Interior, the Honorable Hollis M. Dole. It is our hope we can hear both of them this morning. We are going to make a real effort to do it. Our first witness will be Secretary Nehmer. STATEMENT OF HON. STANLEY NEHMER, DEPUTY ASSISTANT SECRETARY FOR RESOURCES, DEPARTMENT OF COMMERCE; ACCOMPANIED BY WINGFIELD CHAMBERLAIN, DIRECTOR, PETROLEUM AND COAL DIVISION; AND CHARLES HERMAN, DEPUTY DIRECTOR, PETROLEUM AND COAL DIVISION Mr. EDMONDSON. Secretary Nehmer, would you identify those of your staff who are here with you this morning and also supply for us, if you would, biographical sketches not only for yourself but also for the people who participate with you. Without objection, those sketches will be made a part of the record following the testimony. Secretary NEHMER. Thank you, Mr. Chairman. I am Stanley Nehmer, Deputy Assistant Secretary for Resources. I am accompanied by Wingfield Chamberlain, who is the director of the Petroleum and Coal Division of the Department of Commerce, and Charles Herman, who is the deputy director of the Petroleum and Coal Division. Mr. Chairman and members of the committee, I am pleased to have the opportunity to appear before you this morning as you consider various aspects of the question of oil import controls. As you know, this subject has recently been explored in a most thorough fashion by a Cabinet task force appointed by President Nixon last March. The President released the report of the task force on February 20 of this year and it is now a matter of public record. In addition, the material submitted by various interested parties for the record of the task force itself is open to the public, and we are now in a situation where a tremendous volume of material has been prepared which focuses on virtually every aspect of oil import policy and of the oil import program. The members of the task force held a variety of views on various questions that came before them and these views, in all of their diversity, are set out in the report of the task force and in the separate report filed by Secretary Hickel, Secretary Stans, and Chairman Nassikas. The views of the Commerce Department are embodied in the separate report which appears on pages 343 to 393 in the volume. released on February 20. The most important item discussed at length in the separate report is the recommendation of the task force report that a tariff mechanism be substituted for the quota system which has been in effect since 1959. The separate report disagrees with the recommendation for a tariff system for reasons which are detailed on pages 348 to 352 of the report. I might read from the summary of the eight points cited in the separate report commenting on the effects of a tariff as a mechanism to control oil imports. The separate report states: In essence, a tariff on oil imports would: 1. Introduce or magnify instability and uncertainty; 2. Generate serious international problems, economic and political; 3. Introduce inequities greater than those inherent in a quota system; 4. Eliminate "pass-through" of lower prices to consumers; 5. Seriously impair the position of small independent refiners. These objections are valid regardless of the tariff level. In addition, there are further serious objections to a tariff fixed at a rate designed to reduce significantly the price of oil. Such a development through a tariff would: 6. Jeopardize the national security; 7. Cause major investment losses to American producers, reduce employment, reduce State revenues, and damage the economies of a number of States; 8. Reduce seriously the available supply of natural gas or increase its price. The separate report states that a major change in the quota approach of the oil import program is "neither desirable nor timely" in view of the lack of adequate data on reserves in Alaska and the Canadian Arctic or on costs of developing and marketing the production from these reserves. We have recommended that we should await the efforts of the next 3 or 4 years in order to have the basic information on which to formulate a long-range program. The separate report disagrees with the critics of the present oil import quota program. The program has worked effectively over the past 10 years. Such criticism of it as may be appropriate relates not to the program but to the unevenness of policy guidance and administration. These are matters of relative detail, and should not be confused with the basic substantive success of the program. Our review of the entire oil situation did, however, lead us to conclude that some increase in oil imports is appropriate and that better policy guidance for the oil import program should be supplied by an improved administrative structure. To this end, an alternative to the tariff plan was proposed in some detail in the separate report. The 14 points proposed for the alternative plan will be found on pages 358 to 368. President Nixon, in releasing the task force report and the separate report on February 20, took an essential first step recommended by both reports. He established the Oil Policy Committee. Secretary of Commerce Stans is one of the members of the new committee. The President established this management mechanism to provide policy direction, coordination, and surveillance of the program. He indicated his expectation that the committee would: "Consider both interim and long-term adjustments that will increase the effectiveness and enhance the equity of the oil import program." The President said further that "the Congress properly has a vital interest in this program. ***" He had directed the Oil Policy Committee to review carefully all information developed in these and other congressional hearings on this important subject, and I know this will be done. I will be pleased to attempt to answer any questions, Mr. Chairman, and members of the committee, you may have and want to assure you of our willingness and desire to assist the committee in any way possible in its consideration of the oil import question. Thank you very much. (The biographical sketches follow :) STANLEY NEHMER Date and place of birth: December 8, 1920, New York, N.Y. Legal residence: 9007 Kirkdale Road, Bethesda, Md. 20034. Marital status: Married. Two children, Sheryl (at Syracuse University), Jonathan (at Walter Johnson High School). Education: City College of New York, B.S.S. degree, 1941. Columbia University, M.A. degree, 1942. Post-graduate study, George Washington and American Universities. Military service: Army-assigned to Office of Strategic Services, July 1943 to November 1945. Received Army Commendation Ribbon. Present position: Deputy Assistant Secretary of Commerce for Resources since September 7, 1965. Experience prior to appointment to present position: Deputy Director and then Director, Office of International Resources, Department of State, 1961-65. Senior Economist, International Bank for Reconstruction and Development, 1957-61. Economist, Department of State, 1945-57. Office of Strategic Services, 1942-45. Faculty, City College of New York, 1941-42. Chairman, Interagency Textile Administrative Committee; Management-Labor Textile Advisory Committee; Importers' Textile Advisory Committee; Exporters' Textile Advisory Committee. Member, Oil Import Appeals Board. Honors and professional affiliations: Commendable Service Award, Department of State, 1965. Superior Honor Award, Department of State, 1964. Secretary of Commerce's Certificate of Appreciation, 1967. WINGFIELD CHAMBERLAIN Date and place of birth: September 6, 1919, Baltimore, Md. Legal residence: 3180 Holmes Run Road, Falls Church, Va. 22042. Marital status: Married, no children. Education: Mercer University, Macon, Georgia, A.B. degree, 1941. Columbia University, M.S. degree (Graduate School of Business) 1942. Harvard University, M.A. degree (Graduate School of Economics) 1948. Military service: None. Classified 4-F during World War II because of congenital visual defects. Present position: Director, Petroleum and Coal Division, Business and Defense Services; Administration, U.S. Department of Commerce since April 1969. Experience prior to appointment to present position: Deputy Director, Petroleum and Coal Division of BDSA, October 1967-March 1969. Acting Director, Petroleum and Coal Division, July 1967-September 1967. Staff assistant to 46-365-708 the Commerce Member of the Oil Import Appeals Board, 4 years during the period 1962 through 1968. Commodity Industry Specialist, Mineral Fuels, BDSA, February 1962-June 1967. Economist, hard rock minerals, Department of State, June 1959-January 1962. Economist and Statistician, hard rock minerals, U.S. Department of the Interior, 1951-1959. Economist, war agencies, 1942–46. Teaching experience: Part time, University of Maryland Off Campus Program, 1955. Part time, George Washington University, 1953-54. Full time, Hofstra College, Hempstead, Long Island, 1949-51. Suffolk University, Boston, Massachusetts, 1946-47. Honors, academic and Federal Government: Outstanding Performance Rating for 1968, and again for 1969, Department of Commerce. Quality Increase, 1967, Department of Commerce. Graduated Summa Cum Laude, Mercer University. Member of Beta Gamma Sigma, Honorary Scholastic Fraternity, Columbia University. CHARLES BAME HERMAN Date and place of birth: June 12, 1928, Sewickley, Pa. Legal residence: 11201 Willowbrook Drive, Potomac, Md. 20854. Marital status: Married, four children. Education: Bucknell University-B.S. Chemical Engineering, 1950, Carnegie Institute of Technology-M.S. Chemical Engineering, 1952. Present position: Deputy Director of Petroleum and Coal Division, Commerce Department, since August 18, 1969. Staff Assistant to Commerce Department Member of Oil Import Appeals Board. Experience prior to present position: Union Carbide Corporation, 1966 to 1969, New York, N.Y.-Manager, Petroleum Purchases (responsible for purchases of petroleum raw materials, standard petroleum products and certain petrochemicals). Union Carbibe Corporation, 1960 to 1966, New York, N.Y.-Purchasing Agent, Petroleum Products. Esso Standard Oil, New York, N.Y., 1955 to 1960-Marketing Technical Service Engineer. Esso Standard Oil, Baton Rouge, La., 1951 to 1955-Refinery Technical Service Engineer. Pittsburgh Coke & Chemical, Neville Island, Pa., 1950 to 1951-Pilot Plant Engineer. Mr. EDMONDSON. Thank you very much, Mr. Secretary, for your testimony. I would like to ask you to comment, if you would for a minute or two, on each of the major points that you have made with regard to the effect of the tariff on oil imports, on page 2 of your statement. In what way do you believe a tariff on oil imports would introduce or magnify instability and uncertainty? Secretary NEHMER. Mr. Chairman, in effect, summarizing from the point that we have laid out in the report, insofar as the instability and uncertainty which would be introduced or magnified. I think it is fair to say that any factor which tended to raise the delivered cost of oil from a particular source would reduce imports and any factor reducing delivered cost would tend to inflate imports. We are concerned about the uncertainty that would result, for example, from time lags between export and import. With a tariff that would be adjustable, as the proposal for a tariff is, the cargo could be shipped out when the rate was at one level and received when the rate was at another level. And it could be, if the changed rate had been known in advance, the cargo might or might not have been shipped. We think that this is a chaotic situation that could very well result from the variable tariff structure that has been proposed in the majority report. Mr. EDMONDSON. Do you foresee any impact upon capital investment in the domestic oil industry as a result of a tariff on oil imports? Secretary NEHMER. Yes, sir; we foresee that since the tariff is a very imperfect instrument to control quantitatively the volume of |