Special Message to the Congress on the Trade Agreement With Venezuela.

To the Congress of the United States:

On August 28, 1952, the United States signed an agreement with Venezuela which amends and supplements the Trade Agreement of 1939 between the two countries. In view of a special situation which arose in connection with this agreement, I am submitting the following statement to the Congress:

Subsection (a) of Section 3 of the Trade Agreements Extension Act of 1951 provides that before entering into negotiations for a trade agreement the President shall submit to the Tariff Commission a list of the articles to be considered for specific concessions and that upon receipt of such list "... the Commission shall make an investigation and report to the President the findings of the Commission with respect to each such article as to (1) the limit to which such modification, imposition, or continuance may be extended in order to carry out the purpose of such section 350 without causing or threatening serious injury to the domestic industry producing like or directly competitive articles; and (2) if increases in duties or additional import restrictions are required to avoid serious injury to the domestic industry producing like or directly competitive articles the minimum increases in duties or additional import restrictions required. Such report shall be made by the Commission to the President not later than 120 days after the receipt of such list by the Commission. No such foreign trade agreement shall be entered into until the Commission has made its report to the President or until the expiration of the 120-day period." The findings of the Tariff Commission under this subsection are popularly known as the "peril point" findings.

Under subsection (a) of Section 4, in case the President enters into a trade agreement which exceeds the so-called "peril point" findings of the Tariff Commission he shall within the 30 days "transmit to Congress a copy of such agreement together with a message accurately identifying the article with respect to which such limits or minimum requirements are not complied with, and stating his reasons for the action taken with respect to such article. If either the Senate or the House of Representatives, or both, are not in session at the time of such transmission, such agreement and message shall be filed with the Secretary of the Senate or the Clerk of the House of Representatives, or both, as the case may be."

Subsection (b) of Section 4 requires the Tariff Commission promptly after the President has transmitted such foreign trade agreement to Congress to "deposit with the Committee on Ways and Means of the House of Representatives, and the Committee on finance of the Senate, a copy of the portions of its report to the President dealing with the articles with respect to which such limits or minimum requirements are not complied with."

In preparation for the negotiations with the Government of Venezuela looking towards an agreement supplementary to the existing reciprocal trade agreement with that country of November 6, 1939, I submitted to the Tariff Commission a list of articles to be considered for specific concessions by the United States. In accordance with Section 3 of the Trade Agreements Extension Act of 1951, hereinabove set forth, the Tariff Commission reported to me on December 27, 1951, its findings with respect to each such article as to the limit below which concessions could not be granted without causing or threatening serious injury to the domestic industry producing like or directly competitive products. For a certain group of petroleum products¹ three of the Commissioners found that the peril point was the existing tariff quota arrangement (10½¢ per barrel or 1/4¢ per gallon on a quantity equal to 5 percent of the total quantity of crude petroleum processed in refineries in continental United States during the preceding calendar year and 21 cents per barrel, or ½ cents per gallon, in excess of this quantity). The other three Commissioners found that a rate of 10 1/2 cents per barrel on all imports would constitute the peril point.

¹Crude petroleum, topped crude petroleum, and fuel oil derived from petroleum (including fuel oil known as gas oil)--Paragraph 1733 Tariff Act of 1930 and Section 3422, Internal Revenue Code.

Although there are a number of legal issues involved on the question of whether there is or is not any peril point found within the requirements of section 3 of the statute by reason of the evenly-divided Commission, I nevertheless desire to inform the Congress of the action I have taken with respect to those petroleum products in the agreement.

The text of the supplementary trade agreement which I have concluded with the Government of Venezuela is attached. This agreement contains the following concession on Paragraph 1733 of the Tariff Act of 1930 and Section 3422 of the Internal Revenue Code: Thus, when the agreement enters into force, a rate of 5 1/4¢ per barrel will apply to imports into the United States of crude petroleum, topped crude petroleum and fuel oil derived from petroleum (including fuel oil known as gas oil) which is testing under 25 degrees A.P.I. (American Petroleum Institute Rating); the rate on those same products testing 25 degrees A.P.I. or more will be 10½¢ per barrel.

Tariff Act

of 1930

paragraph Description of Article Rate of Duty

1733 Petroleum, crude, fuel, or refined and all distillates obtained from petroleum,

including kerosene, benzine, naphtha, gasoline, paraffin, and paraffin oil,

not specially provided for (except petroleum jelly or petroleum, and

except mineral oil of medicinal grade) Free.

As compared to the 1939 agreement, Venezuela grants new or improved concessions on $154 million of imports from the United States in 1950; on $12 million of imports they are withdrawing the 1939 concessions; and on $6 million of imports the new agreement provides for higher Venezuelan rates than in the 1939 agreement. The trade coverage of the 1939 agreement as supplemented by the new agreement is $240 million or about 60 percent of total United States exports to Venezuela. Under the 1939 agreement, only 35 percent of our exports were covered. Among the important items receiving new or improved duty concessions are apples, pears, certain dried vegetables, rolled oats, wheat flour, barley malt, baby and dietetic foods, wrapping paper, laboratory and refractory glass products, galvanized iron sheets, enameled iron and steel manu-unassembled trucks and passenger cars, factures, builders' hardware, table flatware, motorcycles, aircraft and parts, trailers, radio and television receivers including parts, phonographs including combinations and parts, phonograph records, automatic refrigerators, scientific apparatus, hand tools, photographic products, office machinery, electric motors, pumps, numerous types of industrial machinery and apparatus and parts, generators and transformers. Among the products on which new bindings of duty-free treatment were granted by Venezuela are road building, textile and printing machinery; stoves, heaters and ovens, and parts for agricultural machinery. The agreement, as revised, covers 179 Venezuelan tariff items as compared with 88 in the 1939 agreement. It includes products of interest to practically every important group of United States exporters. Concessions by Venezuela have particular significance since that country has no balance of payment difficulties in purchasing from the dollar area.

In 1950 United States imports from Venezuela of crude petroleum and residual fuel oil amounted to $288 million or about 90 percent of our total imports from Venezuela. It is estimated that the 1950 value of trade on which the United States granted improved customs treatment is about $175 million, of which practically all was crude petroleum and residual fuel oil. New concessions of potential value to Venezuela consisted of the binding of existing duty-free entry for iron ore, deposits of which are now being developed.

The new agreement also amends and supplements some of the general provisions of the 1939 agreement. The principal changes are a substantial strengthening of the quota provision so as to safeguard more adequately the value of the reciprocal tariff concessions, an additional reciprocal undertaking with regard to customs formalities, and the inclusion of the standard escape clause in event serious injury should be caused or threatened to domestic industry as a result of the agreement.

With regard to the concession on crude petroleum, topped crude and fuel oil derived from petroleum, it would have been possible under the authority of the Trade Agreements Act to reduce the excise tax provided for in Section 3422 of the Internal Revenue Code to 5 1/4¢ per barrel. The majority of the representatives of private business urged during the hearings held both by the Tariff Commission and by the Committee for Reciprocity Information that such a concession be made to Venezuela. I have agreed to a concession of 5 1/4 ¢ per barrel on imports of some of these kinds of petroleum products, namely, those which test under 25 degrees A.P.I. A rate of 10 1/2¢ per barrel, a treatment which was in effect from 1943 through 1950 under the Mexican Trade Agreement, is provided for under the new agreement for petroleum products testing 25 degrees or more A.P.I., which constitute the greater part of United States imports of crude oil. Experience during 1943-50 indicates that imports at 10 1/2¢ will undoubtedly prove no deterrent to drilling and development programs now under way in the United States.

Most of the crude oil produced in the United States has a specific gravity of 25 degrees A.P.I. or higher. The national average is about 35 degrees A.P.I. for example, less than one percent of the crude oil produced in West Texas is below 25 degrees A.P.I. Most of the heavier crude oils in the United States are produced in the Rocky Mountain area, in California and in some of the Gulf Coast area.

About one-third of the Venezuelan crude oil production has a gravity of less than 25 degrees A.P.I. Nearly all of the low-gravity oil is shipped to the refineries on the islands of Aruba and Curacao.

Only the asphalt crudes, some of the topped crude, and the residual fuel oil will pay the lower excise tax. Generally, imports of these heavier crude oils sell in markets different from those in which domestic lowgravity oils sell. Furthermore, the lower gravity oils have a lower value in the market than the higher gravity petroleum products. It is believed appropriate, therefore, that these commodities of less worth should be dutiable at a lower specific rate and that the more valuable oils should pay a higher rate.

The imported oils which would pay the lower tax are among those which are in relatively short supply in the United States and generally throughout the world. It is not expected that the lower tax applicable to such oils will cause an undue increase in imports above the quantity which otherwise might be imported. It would appear, accordingly, that the lower tax on residual fuel oil would not serve to disturb the relationship which now exists in the United States between this fuel and other sources of heat and energy.

One major use of residual fuel oil is for ship bunkering; oil for this purpose traditionally has been imported free into the United States. The residual fuel oil subject to import tax is utilized mainly in gas and electric power plants, in smelters, mines, and manufacturing industries, and, to a lesser degree, as heating oil in industrial plants. Most of these users are located along the East Coast.

For the most part, these fuel-burning installations, particularly the power plants, are convertible, using either coal or residual fuel oil depending upon which is cheaper at a given time. In recent years coal has been cheaper. Coal is also more available, because residual fuel oil is in tight world supply, and because the percentage of residual fuel oil to total output of United States refineries is constantly decreasing as emphasis shifts to distilling larger amounts of the higher and more valuable fractions, such as gasoline. Therefore, the percentage of convertible plants using coal has increased steadily since 1949, until now most of the east Coast power plants are using coal rather than residual fuel oil. The reduction in excise tax on residual fuel oil in the present agreement is not expected to be sufficient to change this long-term trend. In reviewing this situation in its peril point findings, the various Tariff Commission members, too, concluded that it offered no valid deterrent to a reduction in the import tax on petroleum.

The conclusion of the supplementary trade agreement is recognition by both the United States and Venezuela of a common interest in the expansion of trade. Venezuela is one of the largest markets for a wide range of United States export products. The United States provides an important and established market for Venezuelan oil, this representing, in turn, an essential supplement to domestic United States production. The United States will also provide a market for other Venezuelan natural resources, such as iron ore, which are needed in this country. The agreement, therefore, will be of economic benefit to both countries. It is, moreover, of vital security importance in view of the strategic nature of some of the products included within its terms.

HARRY S. TRUMAN