The first trade agreement that was made with relation to petroleum was in 1939. At that time we had in the United States from domestic sources, a supply of petroleum equal to our demand, with a reserve producing capacity of about a million barrels.

The CHAIRMAN. That was in 1939?

Mr. BROWN. That was in 1939.

Following that, we did have an emergency that called upon the use of that excess capacity, and that was World War II. That excess proved a very helpful thing at that time, and did enable us to take up the slack that was brought on us by the interruption of transportation of foreign oil into this country.

Since 1939, when the first trade agreement was effective, we have gone off in our ability to meet our domestic demands, until last winter, a year ago, 1947-48, we came very near having a shortage of oil in this country, so much so that some people actually suffered and many were greatly concerned that they might suffer as a result of the shortage of oil.

Today, and for the last several years, our armed services have been dependent for a large part of their oil on two sources outside of the United States, one in the Middle East, which is controlled largely by two Moslem rulers, and that being very near the Russians and certainly far from our sources; and the other in South America, where it is under the control of one of the Latin-American governments that can, and has in the last year, as a matter of fact, changed overnight.

I simply mention that to illustrate the uncertainties of depending on a foreign source for our military requirements.

Some suggestion has been made that we might be benefited and protected through the relief causes that are provided in these agreements. I know Mr. Hull was very anxious that that protection be accorded us. We talked to him many times. That has not worked, and the vice is that there is no way of getting open testimony before the committee; and as a matter of fact it is by secret testimony that many of their actions are determined.

Resulting from the importation, as you have seen there, our domestic production has, within the last 3 months, lost almost 10 percent of its market. We have had to reduce our production within the United States something over 500,000 barrels.

I mention those things in the beginning, just to give you a little of the background, and if I may, I would like to ask Mr. Wirt Franklin to now appear. I will be here through the course of the testimony of the witnesses, who are here from different areas, and we will be glad to make all of the witnesses available for questions.

Senator CONNALLY. Mr. Chairmain, may I ask a question?

The CHAIRMAN. Senator Connally.

Senator CONNALLY. I would like to ask: How is the price of crude now?

Mr. BROWN. The price of crude now, I should say, averages around $2.60 or $2.65.

Senator CONNALLY. How does that compare with the price of crude back 2 or 3 years ago?

Mr. BROWN. It is much better. Since the war we have had a better price.

The CHAIRMAN. Senator Hoey?

Senator HOEY. What is it that accounts for that reduction in production?

Mr. BROWN. The imports that have come in have taken the market away from us, and there is just no market outlet for it. So we have sufferer a severe cut-back.

Senator MILLIKIN. Mr. Brown, in connection with the whole range of territory, it might be well to develop the higher costs of production both in labor and materials.

Mr. BROWN. Fine. We will do that as we go along, if we may. Mr. Wirt Franklin will testify now.

The CHAIRMAN. Mr. Franklin, you may be seated if you wish.

STATEMENT OF WIRT FRANKLIN, INDEPENDENT OIL OPERATOR, ARDMORE, OKLA.

Mr. FRANKLIN. Thank you, Senator. I believe I would prefer to stand.

My name is Wirt Franklin. I reside in Ardmore, Okla., and I have been a producer of oil for about 35 years.

I first came to Congress on this question of imports affecting the oil industry 19 years ago. That was shortly after the Colorado Springs so-called conservation congress, which was called by Mr. Mark Requa, on the authority of President Hoover, ostensibly to conserve the petroleum resources of the United States. It had been preceded by what I call false propaganda concerning our petroleum reserves for a period of 3 years, in articles in the newspapers, magazines, and other means of publicity, to show that this country was running out of oil. And unless some steps were taken to prevent it, we would soon be at the mercy of some foreign country with larger supplies.

It was even stated, at that conference, that our national security was involved.

So the Colorado Springs congress developed into a reservation congress, instead of a conservation congress, and it was proposed that we should shut up our petroleum reserves, stop development, stop exploration, leave the oil safe in the ground, undiscovered and undeveloped, and furnish our markets as far as possible with imported oil. I was at that congress representing, among others, the State of Oklahoma. I unhesitatingly and emphatically denounced such a policy, pointing out that our civilization was based upon oil, that the whole southwestern part of the United States would be laid waste and destroyed by such a policy, almost as much as if an invading army were to march across it; that the rest of the United States industrial activity would likewise suffer, because of the loss of purchasing power; that the army of technical men engaged in the petroleum industry with the know-how to discover and develop oil, would be dispersed, unless they wished to go to some foreign country

to work, and that if a national emergency did occur, and we should lose control of our ocean lanes, we would be completely helpless if we got into a war with a first-class power.

I stated then, and I repeat now, that the only safety this country has, the only security we have, is to at all times have developed a producing capacity within the continental borders of the United States to supply our requirements both for peace and war.

Now, I appear before you not so much because of the evil effects that these increasing imports may have upon the welfare of the small independent producer, although that is a very important factor; but because the most important thing is that if we rely upon these foreign sources of supply, and if the emergency happens, we will be helpless. Now, that has been illustrated in two world wars. You well recall that in the First World War British statesmen said, "The Allies floated to victory on a sea of oil." And who furnished it? The United States. And in the last World War we were unable to shift oil from the Gulf coast to the Atlantic seaboard. Even one tanker couldn't get through. And tankers were sunk in the mouth of the Mississippi River, which made necessary the construction of what has been called the Big Inch pipe line to transport the oil to the Atlantic seaboard from that southwestern country, so that convoys could take it safely to Europe for our armed forces.

What are we talking about? I wonder if you gentlemen realize that the oil and gas produced in the United States is 44 percent of all the metallic and nonmetallic mineral wealth produced in the United States.

In that connection, Mr. Chairman, I should like to introduce for the record a brief statement and tabulation on "Oil and Gas in the National Economy."

The CHAIRMAN. Very well.

(The statement and tabulation are as follows:)

OIL AND GAS IN THE NATIONAL ECONOMY

The important role of oil and gas in our national economy is revealed by the figures on the production of all minerals, both metallic and nonmetallic. From the development of our mineral sources, a large part of the income and wealth of the Nation is generated and flows out to every segment of American life.

According to information recently released by the United States Department of the Interior, the output of all minerals in the United States in 1948 was valued at 15.6 billion dollars. Of this total wealth created, over. 6.8 billion dollars or 44 percent came from crude petroleum, natural gas, and allied. petroleum products. In other words, without oil and gas the Nation's income from its natural resources would be cut almost in half.

Oil and gas development is important not only to the Nation as a whole but also to many of our States. In 20 States oil and gas is among the first three mineral resources in terms of value. The attached table shows the place that oil and gas have in the economy of these 20 States based on the year 1946, the latest year for which complete Government statistics are available.

Mineral production in 20 oil- and gas-producing States, 1946
[Figures in thousands of dollars]

Mr. FRANKLIN. It is important to the whole national economy that that industry be not destroyed or injured. It is important not only from the standpoint of national defense, but from the standpoint of the national economy.

Take oil out of the Southwest and rely upon imported oil, and the welfare of our people would go back 50 percent, and we would go back to the pastoral age, because oil supports such manufacturing industry as we have. And all of the industrial United States has the best markets in all the world among the people of the oil-producing States. That is a factor to be considered.

We thought that Congress had established an oil policy. When we came to Washington 19 years ago, we found that most of the Government officials here and many members of Congress had believed this propaganda about the exhaustion of our petroleum reserves; and still, after that, we built up this more than one million barrels of excess productive capacity, over the demands for oil. And it was that excess capacity, gentlement of this committee, which saved us in this last war.

And we must not let anything interfere with our doing that same thing again, due to the fact that we will need an increased supply. Because of larger consumption of our bombers and our defense forces, we will need an increased productive capacity over and above that amount needed for the domestic market, of two or three million barrels. Have it developed. Have it all ready. So that when the emergency occurs, if it does, we can call upon it to supply our armed

forces.

In 1932, the Congress, after extensive hearings before the Ways and Means Committee of the House, and this committee some of you gentlemen were present at those hearings, enacted an excise tax of a half cent a gallon or 21 cents a barrel on crude oil, fuel oil, gas oil, as well as 212 cents a gallon on gasoline, 4 cents a gallon on lubricating oil, 1 cent a pound on petroleum wax, and all other liquid derivatives, not specified, took the rate of crude oil.

That was a declaration of policy which has been consistently followed by the Congress, but has not been adhered to by the executive branch of the Government, as I will show.

Mr. Brown has already referred to the agreement with Venezuela, by which the tax on crude, top crude, and fuel was reduced 50 percent, and immediately thereafter imports increased.

The chart which Mr. Brown has given you shows clearly the effect of the tax. And the strange thing about it is that the opponents of this policy say that we ought to let it all come in so that the consumer would have cheap gasoline.

Look at your chart, and you will see that the highest prices for gasoline are at the times when there is more oil imported. That is history. So that argument doesn't work very well.

The best safeguard for the consumers of the United States is to have a free, really operating, competent, efficient domestic oil industry, with competition that will take care of the price.

In 1943 there was a further reversal of the congressional policy under the Reciprocal Trade Agreements Act.

Before I leave that Venezuela agreement, though, I want to call your attention to one thing: That when that was done a quota was established, under the Trade Agreements Act, that only an amount equal to 5 percent of the domestic refinery runs would be entitled to that reduction in tax, and if any more than the quota of 5 percent were imported, it would pay the full tax that had been enacted by Congress.

Now I see the President is asking for more money. There is considerable opposition to his general increase in the taxes over all. But why not restore the tax that Congress enacted and let this foreign oil that is imported into this country help to pay the expenses of the Government? Do you know that oil enters here and pays no tax whatever, while the oil industry throughout the United States is subjected to taxes too numerous to count, by the States and the different subdivisions of Government?

Is it not fair that this foreign oil pay something to support this Government when they expect the protection of this Government throughout the world in their operations, and get it? And get a lot of encouragement?

I just say that in passing. I think it ought to be restored. It will help to bring in some money to help pay the costs of Government.

In 1943, in the agreement with Mexico, the tax was reduced by 50 percent on kerosene, asphalt, and road oil, and the quota that had been in the Venezuelan agreement was removed. No quota.

Then in the Geneva agreement, of course, the same policy was carried through.

I neglected to say that as a result of the Colorado Springs conference the Independent Petroleum Association of America came into being to try to protect the domestic oil industry from extinction.