589. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Secretary of State1

SUBJECT

  • Probable Impact of Restricting Imports of Venezuela’s Crude Oil

With reference to the meeting on July 8 of the Special Committee to Investigate Crude Oil Imports, there are certain factors involving Latin America in general and Venezuela in particular which I would urge that you consider.

Our Ambassador to Venezuela is seriously concerned, as I am, with the repercussions in Venezuela which might result from the imposition of restrictions on U.S. imports of Venezuela’s crude oil. The Venezuelan Government might be prompted in retaliation to limit imports of merchandise from the U.S.; or inclined to intervene in the petroleum and iron ore industries to the extent of placing controls of its own on production or exports; and/or might take measures inimical to other established U.S. business concerns. There is little doubt, in any case, that a decision to restrict would impose a strain upon relations between Venezuela and the U.S., especially because of the percentage of Venezuelan fiscal revenues derived from the petroleum industry.

U.S. private, direct investment in Venezuela, currently estimated at more than $3 billion, is greater than in any other foreign country except Canada. A large proportion of it is in petroleum; since last fall U.S. companies, including a number of smaller producers, have paid to the Venezuelan Government almost three-quarters of a billion dollars in initial fees for new oil concessions. In addition to investment in petroleum, U.S. private companies are developing Venezuela’s vast deposits of iron ore, and last year Venezuela was the second leading foreign supplier of iron ore to the U.S. Any limitation of U.S. imports of Venezuela’s crude oil might, as already mentioned, lead to retaliation against U.S. interests and jeopardize the satisfactory conditions which U.S. investors have lately been enjoying in that country. Such retaliation was threatened in May 1955 by President Pérez Jiménez when it appeared that restrictions were imminent.

Venezuela accepts foreign participation in its economic development, imposing no restrictions on foreign exchange or the transfer of [Page 1157] capital abroad. The success it has had with its free enterprise economic policies constitutes a model for the rest of Latin America and is one of our most effective arguments against the extension of ultranationalism, state controls and protectionist philosophy. In cooperation with U.S. petroleum companies, the Venezuelan Government in 1943 initiated the policy of the fifty-fifty split of profits between the oil companies and the government. This concept has now become accepted in most of the oil producing countries. Restrictions imposed on U.S. imports of Venezuela’s crude oil might result in increased government intervention in business and industry and a readjustment of the fifty-fifty concept, to the detriment of private enterprise not only in Venezuela but conceivably elsewhere in Latin America.

Venezuela is the largest single market in Latin America for U.S. exports of goods and services. In 1956, Venezuela’s merchandise imports from the U.S. amounted to $648 million and services were estimated at an additional $500 million, for a total of almost $1.2 billion. As a result of Venezuela’s rapid economic development, its demand for U.S. imports has increased by 3,000 per cent in the past two decades, resulting in a substantial increase in business for U.S. manufacturers, farmers, shippers and exporters in all regions of the U.S. The imposition of restrictions on Venezuela’s exports of crude oil to the U.S. would not only inhibit Venezuela’s ability to finance dollar imports but might also affect its future willingness to rely so heavily upon one source of goods.

There is every indication that if Canada should continue to be exempted from restrictions that may be applied to Venezuela, great resentment would arise, making our relations with that country much more difficult. Since Canada and Venezuela have in the past both been exempted from voluntary limitations, I believe the two countries should receive equal treatment in the future. Most of the reasons advanced to justify special treatment for Canada apply also to Venezuela, which is a more important supplier of crude oil to the U.S.

One further point concerns me more than any of the foregoing. We will be going to Buenos Aires in August to attend the Economic Conference of the American States. Over the years we have stood for reduction of trade barriers, membership in GATT and the proposed ITO,2 encouragement of private investment, etc. Such measures as the proposed new taxes on imported lead and zinc and the sale of our surplus cotton, have already irked the Latin Americans and made our professions of economic policy appear less than [Page 1158] consistent with our practice. Restrictions on oil imports would lend further substance to Venezuelan and other Latin American criticism on that score, thereby weakening our position at Buenos Aires by that much more.

If some limitation on imports of Venezuela’s crude oil proves to be unavoidable, I believe efforts should be made to consult in advance with the Venezuelan Government in an effort to reach an understanding. However, I do not believe we should place ourselves in the position of suggesting to the Venezuelan Government that it impose controls on exports.

  1. Source: Department of State, Central Files, 411.316/7–657. Confidential. Drafted by Bartch, Snow, and Rosenson.
  2. Reference is to the International Trade Organization, originally proposed in 1947 but not established. Its purpose was to reduce trade barriers.