Last October the public expressed itself as against encouraging U.S. companies to operate overseas (50% to 26%). If the public's wishes were carried out, it would mean all multinational companies would be foreign, a conclusion not all who answered may have thought their way through to. Some education on international trade seems to be needed.

How widespread fears are of foreign "takeovers" was not measured; but another probable effect of foreign companies building plants here was: impact on American jobs. By a margin of six to one, Americans see foreign companies operating here as bringing more jobs to Americans, undoubtedly the main reason for favoring such operations.

There has been speculation to the effect that when large American companies have operations abroad they sometimes make agreements with other countries that are in conflict with U.S. foreign policy and not always in the best interests of the United States. Most of these large companies have denied this, and say they do not do anything that conflicts with U.S. foreign policy. What do you think is likely to be true--that American companies operating abroad put their own interests above those of the United States, or that they place the interest of the United States first? Put their interests above those of the U.S., 66 percent; Place interests of U.S. first. 20 percent and Don't know, 14 percent.

There has been interest expressed recently by some foreign companies in building plants here in the United States. For example, a German automobile company might want to build a plant here to make its cars here instead of making them in Germany and shipping them here for sale. Generally speaking, do you think it should be our government's policy to encourage foreign companies having operations in the United States or to discourage them? Encourage, 50 percent; Discourage, 39 percent ; and Don't know, 10 percent.

If more foreign companies did have operations in this country, do you think it would mean more jobs for Americans than there now are, or fewer jobs, or don't you think it would have any effect on the number of jobs for Americans? More, 60 percent; Fewer, 10 percent; No effect, 20 percent; and Don't know, 10 percent.

THE PETROLEUM INDUSTRY-A BACKGROUND

I should like to introduce into the Record a series of articles which indicate that in spite of the oil embargo in the Middle East and in spite of massive expropriation, oil companies are still more than willing to invest in the Middle

East.

[From the Washington Post, Jan. 3, 1974]

MULTIBILLION-DOLLAR TAX BENEFIT SEEN FOR BIG OIL FIRMS
(By Morton Mintz)

The big international oil companies are getting multibillion-dollar tax breaks as a result of the unexpected sharp increases in the price of foreign oil, a public interest tax law firm said yesterday.

The companies pay royalties, taxes or both to Middle Eastern countries mainly, for the privilege of extracting petroleum from state-owned lands.

In the past, some of the Arab countries have helped out the oil companies with U.S. tax collectors by defining the charges as the firms desired--and they could do so again, Thomas F. Field of Tax Analysts and Advocates said in a telephone interview.

Under Internal Revenue Service rulings dating back to the late 1940s, the companies have been permitted to use the royalties as dollar-for-dollar offsets against their taxes in the United States. That is, if a firm paid $1 million in royalties abroad it would be allowed to pay $1 million less in taxes here.

At the same time, the tax laws allow taxes paid to other countries by all cor porations also to be credited against American taxes.

The significance of the rulings and of the laws as they apply to the international oil companies increased enormously on Dec. 23, when the principal petroleum-producing countries in the Persian Gulf increased royalties and taxes by $3.95 per barrel-from $3.05 to $7.

The "posted" price, an artificial figure used as a basis for figuring royalties and taxes, increased to $11.65 a barrel, compared with $3.01 before the outbreak of hostilities with Israel in October. Production costs are about 12 cents a barrel. The tax benefits to the oil companies cannot be precisely estimated because of many unknowns and because their effect is complicated by other special tax provisions for the oil industry, said Field, a former Treasury Department adviser-attorney in the Office of Legislative Counsel.

But he calculated that the companies in 1974 would have to pay at least $3 billion in federal taxes if the royalties and taxes paid to the oil kingdoms were to be treated as state income taxes are treated: as deductible business expenses.

Field's calculation was made in cooperation with other former Treasury specialists.

Martin Lobel, formerly an oil industry specialist for Sen. William Proxmire (D-Wis.), recalled that a big reason for giving the oil companies tax breaks was that domestic exploration, development and refinery construction were supposed to be stimulated. But he said the reverse has happened: the stimulus has been much more effective abroad than in the United States.

Now that Arab countries have embargoed shipments to the United States and may raise prices even more, the rationale for allowing foreign tax credits to the oil companies operating in the Persian Gulf becomes highly questionable, Lobel said in an interview.

The IRS, under State Department pressure, agreed in the late 1940s to treat royalties as taxes and did so with a series of private letter rulings, tax lawyer Field said. The argument made at the time by the companies was that royalties, no matter what they were called, were truly taxes. A public ruling to this effect was issued by the IRS about 20 years ago.

Field said the IRS is empowered to order a fact-finding investigation into the extent to which the royalties are used for the same governmental purposes as taxes. The agency is also empowered to modify the ruling.

The IRS is technically free to cancel the ruling altogether. Such an effort would be vulnerable to a legal attack by the oil companies on the grounds that the ruling had acquired the force of law, Field said.

The artificial nature of "posted" prices for crude set off a clash between the IRS and the American firms operating in the Persian Gulf in the 1960s, when the agency filed a $1 billion tax lien-the largest in history-against them.

The firms were understood to include Gulf, which has a joint venture with British Petroleum in Kuwait, and the owners of the Arabian-American Oil Co. (ARAMCO): Mobil, Standard of California, Standard of New Jersey (Exxon) and Texaco.

The IRS contended the $1 billion was owed because the companies had computed the oil depletion allowance, then 272 percent, on inflated "posted" prices rather than on actual market prices.

Field told a congressional joint economic subcommittee two years ago that the IRS settled for 50 cents on the dollar. The agency says it is not permitted to discuss such negotiations involving any taxpayer.

In a related matter, Sen. Proxmire has been unable for four years to get the IRS to act on his request that it revoke a ruling which, Field says, has benefited only the owners of ARAMCO and BP's partner in Kuwait, Gulf.

The ruling, issued in 1956, made an exception to a 1954 regulation that prohibits corporations with a subsidiary enjoying a depletion allowance to pass the subsidiary's savings through to stockholders. The savings from the ruling are unknown.

Proxmire in February, 1970, asked the IRS to revoke the ruling on the grounds that it was inconsistent with the regulations. "A study has been initiated," the agency replied in April, 1970.

In September, 1971, Proxmire asked for a status report. The study is under "active consideration," Assistant Commissioner Haroid Swartz replied two months later. "Every effort is being made to bring the study to an early conclusion."

In 1972, Gulf paid the lowest rate of federal taxes on net income before taxes, 1.2 per cent. Mobil paid 1.3 per cent, Exxon 6.5, Texaco 1.7, and Standard of California, 2.05.

[From the Wall Street Journal, Feb. 19, 1974]

OCCIDENTAL PETROLEUM TO STUDY FEASIBILITY $500 MILLION LIBYA GASPROCESSING PLANT

(By Barth Healey)

Occidental Petroleum Corp. is planning a feasibility study for a $500 million natural-gas processing plant in Libya, it was learned in Tripoli.

Occidental officials in Los Angeles said the company didn't have any plans at present to build such a facility, but it said it was studying ways to utilize its gas in the North African state.

The utilization is being considered even as Libya is thinking of cutting crude oil production to prop its high auction prices of as much as $20 a barrel. Evidently, some earlier buyers of this crude have been having second thoughts about the bloated price.

And the expansion planning comes, too, only a week after Libya nationalized the remaining operations there of three U.S. oil companies.

Occidental wasn't affected by the latest take-over; it agreed to a 51% nationalization last year. To the contrary, only a few days earlier, Occidental had signed a production-sharing agreement with Libya that will entitle it to search for oil over about 11 million Libyan acres.

As learned in Tripoli, Occidental's study of a $500 million gas-processing facility is contingent on progress in building a planned $50 million methanol plant in Libya. This smaller plant would consume an average 50 million cubic feet of gas a day.

Both the larger plant and the methanol facility, however, couldn't fully utilize the enormous gas reserves that Occidental is believed to have on its Concession 103 in Libya. Gas from this field, together with gas from neighboring Concession 100 at Bu-Attifel, operated by Agip S.p.A. of Italy, is currently being reinjected into oil structures below ground.

This reinjection, being done at high pressures and at considerable expense, will permit an 80% recovery rate of crude oil from Occidental concessions, about double the normal recovery rate in Libya, it was believed.

Under the oil-production-sharing agreement announced earlier this month, the first exploration pact signed by Libya since the 1969 revolution. Occidental will get 19% of any oil found, free of taxes in Libya. Libya would take the rest. An oil lawyer outside of Occidental said the overall terms are roughly parallel with the company's previous agreement, which gives the government 51% of all oil produced on earlier concessions and gives the company 49%, subject to taxation.

Occidental's current production share in Libya is about 365,000 barrels of oil a day.

Overall, Libya's share of all production on its land has grown to about 1.3 million barrels a day from 213,500 in 1971, but much of it is subject to dispute. Last week, for instance, the government took over the remaining Libyan portions of Texaco Inc., Standard Oil Co. of California and Atlantic Richfield Co. but the companies are expected to continue challenging, as they did when 51% of their enterprises were taken over last year.

Libya staged an auction Dec. 19 to sell some of its newly acquired oil, and the fuel drew huge bids. Crude oil to which the government had clear title went for $20 a barrel. Crude under legal shadow because of contested nationalizations went for $16 a barrel. Persian Gulf crude oil, by contrast, carries a posted price of $11.95 a barrel.

Since the auction, however, some of the 22 corporate buyers of the fuel have been backing out, Libyan government and company oil executives said. The names of the withdrawing bidders couldn't be learned, but it was believed that some potential U.S. buyers were still interested. It was believed that other buyers were reluctant to pay the inflated prices in light of speculation that the Arab oil curtailment might be eased soon.

Libyan officials said they would be prepared to cut production if need be to keep buyer interest at a high level, and so, too, the price. Unlike Saudi Arabia, Libya is adamantly opposed to letting oil prices retreat from their recent highs. But obviously market pressure was building for lower quotes. Kuwait, according to an Associated Press dispatch, postponed announcing the results of its latest auction amid reports that the highest price offered was $9 a barrel.

[From the Jan. 5 issue]

GOING TO THE SOURCE-FUEL-SHORT U.S. FIRMS ARE EYEING ARAB LANDS AS SITES FOR FACTORIES

(By Urban C. Lehner)

Many U.S. corporations, unable to get enough fuel for their factories, are planning to build factories where the fuel is-in the Mid-east.

"We decided that you have to move industry to the gas rather than the gas to industry," says Charles W. Robinson, president of Marcona Corp. of San Francisco. Marcona heads a consortium planning to build a $500 million steel mill in Al Jubayl, Saudi Arabia, in partnership with the Saudi government.

Others are laying plans for production of everything from automobiles to fertilizer in Arab lands, particularly Saudi Arabia. A U.S. government official says that since last spring the State Department has seen 30 proposals for jointventure projects in the Mideast. (The Arab governments insist that any projects be jointly owned.)

Given the delicate political situation in the Mideast, however, few companies are eager to discuss their plans. Walter Wriston, chairman of New York's First National Citicorp., sloughs off inquiries about a luncheon hosted at which business leaders reportedly discussed the topic. Kaiser Aluminum & Chemical Corp. of Oakland, 38%-owned by Kaiser Industries Corp., responds to rumors about its plans by saying it has looked at the possibilities "from time to time" on a "purely exploratory" basis.

Nevertheless, talks with executives indicate it's only a matter of time before American factories begin dotting the desert. "Everybody and his brother is racing over trying to put a deal together," says the chairman of one large petrochemical concern. "Now it's simply a question of finding congenial matches."

THE LURE IS OBVIOUS

For oil and gas guzzlers like the U.S. petrochemical, steel, aluminum and fertilizer industries, the lure is obvious; an assured supply of energy. Saudi Arabia, for example, "flares" or burns off about two billion cubic feet of natural gas each day. Almost all that gas could be recovered for industrial use at very low cost, industry and government officials agree.

For the Arab countries themselves, the lure is instant industralization. Sheik Ahmed Zaki al-Yamani, the Saudi oil minister, spread the message during his recent U.S. tour: Saudi Arabia wants to build "substitute industries" against the day when oil reserves are depleted or new sources of energy found.

"We want American companies to establish themselves here as our partners," Mr. Yamani said at one press conference. "We aren't interested in foreign capital. We're interested in one, your technology, and two, your markets."

Businessmen are well aware that Mideast ventures may be fraught with perils. Unpredictable Arab behavior, like the current embargo, is one risk. Distraught anti-Arab American shareholders are another. From a strictly economic point of view, the tiny populations of Arab countries (Iraq has only 9.7 million people; Saudi Arabia, 7.7 million) mean small labor forces and markets. "We get lots of risks and absolutely no guarantees," one executive says.

But businessmen also realize the risks may be necessary if machines are to keep running and petroleum-based products are to keep rolling off the line. One large chemicals and fibers company, Hercules Inc. of Wilmington, says it has no current plans for Arab ventures, but a spokesman adds: "If you look back historically, petrochemical plants have always been built near the wellheads. And right now, most of the wellheads are on that sandy strip between Casablanca and Afghanistan."

If nothing else, foreign competition may force U.S. companies to act. A FrenchJapanese steelmaking venture in Saudi Arabia was announced recently, and a few days ago the British government sent a mission to Saudi Arabia to discuss aiding economic development there in exchange for guaranteed oil supplies.

There is even a theory among some businessmen that with Arab industrialization will come economic and political changes. "As the Arabs become buyers of raw materials and sellers of finished products, they'll be enmeshed in the global economy," says Marcona's Mr. Robinson. "That will greatly reduce the risk of the kind of unilateral action we see today."

ONE CAR FOR 117.3 PEOPLE

As a result of all this, Arab economic prospects look rosier than ever. Rodger P. Davies, deputy assistant secretary of state, told a congressional subcommittee in November that "the Persian Gulf has the potential in economic terms to be the fastest growing area in the world." General Motors Corp. says it's discussing building an auto-assembly plant in Saudi Arabia-not for energy reasons, but to serve what it thinks will be a growing market. A GM spokesman excitedly rattles off statistics showing that in Saudi Arabia there is only one passenger car for every 117.3 people, compared with one for every 2.5 in the U.S.

Some executives contend that with low-cost Arab energy, it could be feasible even to produce goods without indigenous Arab markets. Marcona, for example. sees Japan as the primary market for its made-in-Arabia steel. But Marcona's Mr. Robinson also claims it will be able to ship semifinished steel to the West Coast of the U.S. more cheaply than American makers can even from mills west of the Mississippi.

As they scramble to digest the economics of Mideast ventures, some companies are also having to relearn their ways of doing business in order to deal with Arab counterparts. Recalls a public-relations man for a company that closed a tentative agreement in Saudi Arabia last year: "It was during prayer time or some religious holidy. It's a 40-hour trip over there, and the day after our people got there the Saudis had this prayer thing and went off for two weeks. And our people just sat there waiting for them to get back."

[Reproduced by Congressional Research Service, Library of Congress, With Permission of Copyright Claimant]]

THE ARABIAN FANTASY

A DISSENTING VIEW OF THE OIL CRISIS

(By Christopher T. Rand)

Christopher T. Rand is a Middle East specialist who has worked for Standard Oil of California and Occidental Petroleum. He has translated Arabic and Persian materials for the U.S. Department of Commerce, and is now writing a book entitled Oil and the Moslem East.

The present calamity of the oil or energy crisis has become widely accepted as an article of the popular faith. Everybody talks about the crisis as if it were the implacable nemesis from which no man can escape, and if everybody says so (not only the major oil companies, but also the environmentalists, the U.S. government, and the citizen unable to heat his house), then it must be true. What other misfortune could possibly explain the higher prices for gasoline and the sudden shortage of winter fuel? Does not the United States possess vast natural resources and an incomparable genius for capital formation and technological invention? If so, how else could it have been ensnared in the present crisis unless through the machinations of sly and resentful Arabs?

For the past few years, the major oil companies have spent considerable sums of money advertising a vision of the apocalypse. The October war between some Arabs and all Israelis seemed to testify to the truth of this vision. The embargoes placed on Arab oil shipments to the United States and the Netherlands, together with unilateral price raises and threats of reduced production, provoked a further outpouring of oil industry bulletins announcing the approach of an energy crisis akin to the millennial scourge of Huns from the Asiatic steppes. The bulletins have been confirmed by the proper authorities in Washington, and they have been amplified in the hollow echo chamber of the national press.

The official broadcasts resolve into variations of what might be called the Arabian fantasy. The editorial writers-unchallenged but not encouraged by company spokesmen-explain that the Arab states (principally Saudi Arabia, Kuwait, Libya, Iraq, and Iran 1), control the bulk of the world's proven oil re

1 Although Iran is not properly an Arab country, on the reasonable ground that Iranians don't understand Arabic and show little interest in anything Arabian, the producers of the Arabian fantasy find it convenient to refer to the Middle East as a geographical and political unity.