essential civil requirements in both normal times and times of emergency. Our country's consumption of petroleum has increased greatly since World War II and could not in my opinion be reduced substantially, even in war, without impairing the defense economy and creating hardship for our people. My office is responsible under section 232 of the Trade Expansion Act of 1962 for investigating whether imports threaten to impair the national security. The voluntary oil import control program of 1957 and the mandatory oil import control program of 1959 were in fact based on findings made by my predecessors. I will pause to say that those previous findings were based on very limited study and analysis insofar as we can find it in the file-nothing comparable to the study that has just been undertaken. Under section 6a of the Oil Import Proclamation of 1959 I have responsibility for surveillance of oil imports in respect of the national security. I now also have the job of policy direction and coordination of the program, in consultation with a committee composed of heads of the agencies most concerned with the program. I do intend to carry out the consultation with the Oil Policy Committee fully in connection with my responsibilities. The views of informed and professional groups, of industry and the public, and of the Congress also need to be sought on a continuing basis in connection with this important program. President Nixon recognized that it was necessary to examine our oil import program in order to rethink-I believe for the first time since 1959-the best ways to provide reasonable safeguards for our national security; and so to provide with minimum costs, maximum equity, and other desirable characteristics. Hence, the Cabinet Task Force on Oil Imports made studies on oil that are certainly unique in our Government's history and do provide an essential and most important basis for changes and improvements which all agree are needed-even though all do not agree on which matters need change or on the best ways to achieve changes. As you know, my personal views on any aspects of our oil import policies are in the record of the Cabinet task force report on the oil import question, based on the studies and discussions thus far. I am not, of course, committed to all the details of that report. But together with Secretaries Shultz, Rogers, Kennedy, and Laird, I do subscribe to the principal finding that the mechanism for control be changed from a quota system to a tariff system. I personally believe that a tariff system can be devised which is workable and will safeguard the national security as adequately as a quota system, at less cost to the consumer, with greater confidence on the part of the American public, and with an increased income to the Government, which is in the public interest, and all of these are in the public interest. I, of course, recognized that the transition would be difficult, would have to be on a progressive basis rather than a rapid, complete change in a short time, and that the timing would probably need to be adjusted from any initial estimates as we move forward. But if we don't start on needed changes, we will never make any progress at all on a situation about which there seems to be much public criticism and a general agreement that there is a need for improvement. The President on February 20 stated that there are areas of agreement concerning actions that can be taken immediately and that the Oil Policy Committee should consider both interim and long-term adjustments that will increase the effectiveness and enhance the equity of the oil import program. He also told the committee to go to work immediately, which we have. The President has established the basis for a new system for managing the oil import program which is already in operation even though all of us concerned recognize that it will be some time before we define the system in detail. That system will include a systematic information and analysis system as recommended by the task force. One of the problems of the task force was the lack of data and, even worse, conflicting data on key aspects of our problems. The President noted that all of his Cabinet task force agreed that a unique degree of security can be afforded by moving toward an integrated North American energy market and directed the Department of State to continue to examine this matter with Canada and Mexico, and to consult with other friends and allies. Obviously, my efforts and those of the Oil Policy Committee need to be carefully related to the efforts of the Department of State as we go forward with the President's enjoinder to consider adjustments in oil import policies that will increase the effectiveness and enhance the equity of the oil import program. I consider it to be my job, in consultation with the Oil Policy Committee, to press for greater effectiveness and equity in the system we have. I do have some personal guidelines about how to strive to carry out the mission the President assigned me, and how to work with the Oil Policy Committee: First, there must be a general system, to provide a framework within which we can operate the program. Whether we move to a tariff system or not, some changes are needed in the present system, which is no longer responsive to present-day needs. The system must be manageable, avoiding unnecessary complexity. The system should be flexible, and yet, while being flexible, should require a minimum of detailed decisions from the fallible judgment of government policymakers. The system should operate by decisions made on the basis of principles, rather than on the basis of special pleas on specific cases, which may generate suspicion of political pressures, special deals, or favoritism, or even as some people fear, of corruption. We need to make decisions on such problems as: (1) Canadian imports and a harmonized energy policy with Canada, (2) methods of relating imports more closely to refinery inputs, (3) foreign trade zones, and (4) petrochemicals and product imports, such as No. 2 oil. These are matters for adjustment in the short term, which can be tackled while international consultations and your hearings go forward, contributing to the basis for recommendations to the President by the Oil Policy Committee on needed major long-term adjustment which will increase the effectiveness and enhance the equity of the oil import program. The system as a whole must be based clearly on national security interests. Costs to the consumer must, of course, also be considered, but the consumer may be expected to bear a reasonable burden when such is necessary for national security. The system should be armored as much as possible against charges of inequity, which are bound to be leveled at any system of government controls. There is no way, in my view, by which we can avoid all charges of inequity, since people, businesses, and geographical areas are bound to be affected differently. Each sees the oil situation through his own glasses, all of them colored. The system should let the market forces work as naturally as possible, thereby minimizing the distortions of economic development that may result from controls. The system should provide as much as is possible an opportunity to hear the views of the public as well as of other interested parties. While we cannot generally hold hearings such as this present one, I hope that as a general rule it will be possible to give the public and interested parties an opportunity to express their views in writing on issues under consideration and on proposed changes in the system. The President has directed the Oil Policy Committee to review carefully the valuable information which will be obtained by your congressional hearings, gentlemen. Both because of the President's direction and because of my search for help in my heavy responsibilities, I welcome your hearings and assure you that I will give the most serious consideration to the information which those hearings provide. I think all of us here realize that if changes and improvements, even though the need was recognized, had been easy to make they would have been made before now. So, I, charged with my new responsibility and as chairman of this new committee, do have a very difficult task on which we ask both your help and your sympathy. Mr. Chairman, I have with me two members of my staff, and I ask if I may lean on them at times for help in details in attempting to answer questions? Mr. EDMONDSON. Do you want to have them join you there at the stand, General Lincoln? Mr. LINCOLN. If I may, I will ask them to bring another chair and just come up and sit at the table. Mr. EDMONDSON. Would you identify them for the record? Mr. LINCOLN. Mr. Joseph Lerner and Mr. Dudley Chapman. Mr. POLLOCK. Mr. Chairman, I wonder for the record if they could state their positions. Mr. LINCOLN. Mr. Joseph Lerner is a member of the national resources analysis center of my office and Mr. Dudley Chapman is a special assistant to me, putting all of his time on oil matters. Mr. EDMONDSON. May I ask further if either or both of the two associates have participated in the work of the task force? Mr. LINCOLN. Yes, both have participated. Mr. Lerner was one of the few principal staff officers that I had working on this problem for me, and Mr. Chapman was a member of the task force staff. In fact, he had the title of assistant counsel. Mr. EDMONDSON. Let me begin by addressing to you a general-type question suggested by the chairman of the full committee. You have stated in your testimony that national security is the central objective in this program; it is the reason for being and it is the principal concern of the new policy committee. Would you tell us how you define "national security" when you begin to use it as a yardstick to measure a program? Mr. LINCOLN. The definition-and I think a good one-is substantially in the law, and it has two related areas. First, we need-I am searching here for the language-we need to assure an adequate supply of oil for our country in the case of attack, threat of attack, or a blockade by any means. Secondly, and related, we need to assure that any policy or program we have does not so impair the industries involved that the health of the entire economy is thereby threatened. I am paraphrasing the law and I will ask that we may put the exact words of the law in the record, but I underline this last point because the intent of the law is clear; it is addressed to the health, the relationship of the health of the entire economy to the national security, rather than the health of a particular industry or segments thereof. Mr. EDMONDSON. Would you identify the particular law from which you are quoting? Mr. CHAPMAN. This is the Trade Expansion Act of 1962, title 19 United States Code, section 1862. We were reading from it as reproduced in the task force report at page 159. Mr. EDMONDSON. In March of 1959, the director of the Office of Civil and Defense Mobilization, Leo Hoegh, in a memorandum to the President said the following: For the period 1954 to 1958, the domestic demand for petroleum products increased 15.5 percent while domestic crude oil reserves were increasing only 2.8 percent. This deterioration in the reserve demand ratio threatens an insufficiency in our domestic supply of petroleum for the requirements of an expanding industrial economy and, in turn, for the requirements of national security. There is a direct relationship between this decline and the fall off in exploratory drilling to which I referred to in my earlier memorandum. Clearly, the decline in exploratory drilling is itself related to the quantities and circumstances of crude and products importation from areas of very much greater proven reserves where production costs are very substantially lower than cost in this country. These considerations support the opinion which I expressed to you last week that an impairment of our national security is threatened by these imports. Do you find the situation today is basically different on this point from 1959? Mr. LINCOLN. Well, I would say that the situation and details have changed enormously, but I do not find anything basically different from the basic finding which is in effect that we need to have some controls over oil imports in order to avoid threatening to impair the national security of the United States. The problem is what method of controls and to what extent should the controls exist. There is no question, I am sure in anybody's mind here, but that oil imports are going to have to increase. I think that there is unanimous agreement on that. Mr. EDMONDSON. Are you talking about quantitatively or percentagewise? Mr. LINCOLN. I am talking about both percentagewise and quantity. I think we had agreement on that across our task force; it was a question of how they might be controlled during this increase. Mr. EDMONDSON. Would you tell us what the agreement in the task force is as to the amount that the percentage of imports should be increased? You say there is an across-the-board agreement? Mr. LINCOLN. I would say there was not unanimous agreement as to the extent that it would be necessary to increase oil imports, but there certainly was agreement that the oil situation is such we have to accept that an increasing proportion of the oil we use is going to come from external to the United States. Mr. EDMONDSON. You say there is general agreement that there must be increasing proportion of the oil consumed in the United States coming from sources outside of the United States? Mr. LINCOLN. External to the United States. Perhaps small; perhaps large Mr. HOSMER. Continental United States or all United States? Mr. HOSMER. Pardon? Mr. LINCOLN. From continental United States. There is a question on Alaska as to how much is going to come from Alaska. Mr. HOSMER. I suppose there is a supply up there that could be used for augmentation, if you are talking in terms of continental. Mr. EDMONDSON. Could you give us the range of agreement in the task force as to the amount of increase that should be anticipated in your view? Mr. LINCOLN. In the minority report it is suggested that the oil allowed to enter the United States increase 1 percent a year. And here let me defer to Mr. Lerner and ask if he can make a comment on this. Mr. LERNER. Well, the separate report recommended an increase at the rate of 1 percentage point in the 12.2 formula, which would have meant, for example, in 1970 additional imports of 100,000 barrels a day. There is a table in which this percentage is increased by 1 point a year, that is 1 percent a year, districts 1 through 4. The principal report ends up with anticipated import levels which are higher than the separate report recommended, depending on which particular tariff rate was adopted. So that in this sense, both of the reports, both the principal report and the separate report, would increase the proportionate level of imports in districts 1 through 4. Mr. EDMONDSON. Well, of course, it is a fact that since 1956 we have seen a steady increase in imports, both crude oil and residual fuel oil and other petroleum products in the United States. I think the statistics on that indicate an increase total increase between 1956 and 1969-in the area of 119 percent total imports. So we have been seeing imports increase in the United States rather steadily since 1956, and we have been seeing, I think clearly on the record, a steady increase in the percentage of our domestic demand that has been taken over by imports. I think the increase in domestic demand during the period 1956 to 1969 has been approximately 60 percent during the same period we have had an import increase of 119 percent. So there has been very clearly a steadily increasing bite of our domestic demand being taken over by these imports. |