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little choice but to accept it. After all, they seem to have as few friends left as Taiwan, and the Arabs are getting stronger. The Arab leaders would not like to make peace with Israel, but they could afford to do so if they could show that they had forced America to shift its policy somewhat in their favor: no Arab who might oppose them could say that they had done more than these moderate leaders had done to restore lost Arab honor. And the conservative oil states would brandish the oil weapon just a bit to gain immunity from radical anti-Western Arab opinion.

NEW MYTHS FOR OLD

The careful welding of the oil weapon-specifically, the process of "nationalization"-has gradually shifted the politics of oil negotiation in the Middle East. If the producing nations no longer possess the great threat of expropriation (do what we say, or we will seize your holdings), then they will have lost their most effective advantage. As they become wholesale dealers instead of privileged concessionaires, they will find themselves forced to compete in what will begin to resemble a free market. The oil companies still will own 75 percent of the refineries in the non-Communist markets, as well as most of the port facilities, and so they will continue, albeit less directly, to determine price and regulate production in the international oil trade.

The Middle Eastern countries will also find themselves more concerned about the stability of Western economics. Earlier this year, for instance, Saudi Arabia agreed to buy 25 percent of Aramco for a price of about $1 billion. By so doing, it becomes a major partner in the combination of Western oil companies, and to some extent it will come to share similar interests. As the Middle Eastern governments acquire larger percentages in Western companies, they probably will invest their assets in Western banks and multinational corporations-not because they want to do so, but because they will lack sensible options. All this will take time to come to pass, but as it does the specter of an oil crisis will gradually diminish and fade. The specter will then be replaced by that of the refinery crisis. Suddenly no one will be talking about the lack of crude oil or the vindictive politics of the Arabs; instead, everybody will be saying that oil is plentiful but means nothing unless it can be refined into useful products, and that the environmental demands placed on these products (low sulphur content, etc.) require a new generation of refineries that will be extremely expensive to construct. This, in turn, will lead to the elaboration of another myth.

The major American oil companies have neglected to build refineries over the past few years because there hasn't as yet ben enough profit in the enterprise. In order to justify the expense of building a refinery, the oil companies require the long-term assurance of crude oil supplied at low prices. Refinery construction is expensive: a fair-size plant might cost about $100 million. The big companies have this kind of money. Standard Oil of California, for instance, added $120 million to its cash reserves in 1972, but it allocated none of this money to constructing new refineries in the United States. Until the Nixon Administration relaxed the quotas last spring, the long-term importing of crude oil was restricted, and so the companies had little crude as collateral with which to secure new refinery construction financing. At this moment, it costs well over $2 a barrel to bring Saudi oil into an American port (as opposed to a net production cost of 75 cents for a barrel of American oil), and so the energy crisis continues to be thought of as low crude-oil supplies rather than high oil cost.

When the tax-paid cost of Middle Eastern crude drops, the rush to build refineries in America will be on. As soon as that occurs, the last vestiges of popular illusions about the energy crisis will have disappeared. All the participants in the drama will remain as they were, but in a clearer light.

The independent oil man, the marginal, will be even more threatened and insecure than he has always been and may vanish altogether. The consumer will continue to pay more and more for the services it has always been very much worth the companies' while to provide him with anyway. The consumer had better get busy learning about prices and wondering why the oil companies sell gasoline wholesale at 21 cents a gallon when it cost them only 4 cents a gallon on the average to provide it. He had better start investigating pipeline and production costs, too, and had better find out what it costs the companies to get cil into the top end of the trans-Alaska pipeline and how much they will sell it for at the bottom end when it is finally built. The latest gasoline price hikes are an ominous harbinger of things to come.

The American government will continue to make the same mistake as the consumer: our Congressmen and Senators will continue to worry about supply and ignore cost. And the companies? They are not deeply concerned about Saudi Arabia, Iran, or the Middle East. They know the limitations of the Arab oil weapon, and are profoundly concerned about protecting their immense assets and safeguarding the accessibility of their assets. If money in the Middle East no longer comes easily to the oil companies, they will be happy to keep looking for it elsewhere. They recognize that it is good enough to have ridden the Arab carousel for more than a generation.

U.S. 1973 BALANCE-OF-TRADE FIGURES

The 1973 figures for the U.S. balance of trade show a slight surplus, but the basic balance is headed for the red in 1974.

[From the New York Times, Mar. 28, 1974]

SURPLUS IN U.S. TRADE SHRINKS BUT EXPORTS AGAIN EXCEEDED IMPORTS IN FEBRUARY

WASHINGTON, March 27-The United States trade surplus diminished again in February as higher oil prices more than offset some decline in the volume of oil imported, the Commerce Department reported today.

The surplus of exports over imports last month was $213.1-million, down from $643.8-million in January and $869.6-million in December. On the newly reported "C.I.F." basis of valuing imports-with insurance and freight costs added to the cost of the import itself—there was a trade deficit of $297-million last month.

IMPORTS SHOW GAIN

Both exports and imports were at record levels in February, and there was no sign of an end to the extraordinary export boom that has lasted for more than a year. At $7.61-billion, exports were up 7 per cent from January.

But imports grew even more last month. Of the increase of $925.2-million, or 14 per cent, about $300-million was attributable to oil. Total imports in February were $7.39-billion.

The total value of imports of petroleum and petroleum products has risen from $758.7-million in October to $1.53-billion in February, or almost exactly double. In the same period the volume imported fell from 211.4 million barrels in October to 164.2 million barrels in February, chiefly because of the Arab oil embargo.

Secretary of Commerce Frederick B. Dent has said that last year's trade surplus may turn into a deficit this year because of the oil price problem.

MEANY STRESSES U.S. NEEDS

WASHINGTON, March 27 (AP)—The president of the A.F.L.-C.I.O., George Meany, told the Senate Finance Committee today that the United States needed a trade policy that would put United States interests above all others.

He described the House-passed trade reform bill, generally supported by the Nixon Administration, as totally obsolete and urged the committee to abandon it in favor of a bill that would reflect the realities of today's world.

Mr. Meany said the United States was already in a recession even while "the American people are the victims of a rampant inflation which in part has been brought on by this Administration's misapplication of present foreign trade and investment policies."

"The achievement of the $1.7-billion 1973 trade surplus, about which the Administration is so boastful, came at the expense of the consumer," the labor leader asserted.

"Much of the gain in the trade accounts was the result of heavy exports of farm goods and critical raw materials. And it was exports of these commodities

30-229-74-pt. 428

which caused sharp domestic shortages and brought on the rapid acceleration of inflation," he added.

Mr. Meany said the American trade surplus last year is a dangerous illusion since imports continue to flood the United States market, wiping out jobs and industries.

But the most disturbing aspect, he said, is that America is exporting sophisticated technology that is used abroad to create jobs to maufacture products that will compete with American goods.

Mr. Meany said Congress should repeal some of the tax breaks that provide incentives for multinational corporations to do business outside the United States. He said United States corporate profits from foreign operations were taxed last year at an effective rate of five per cent.

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U.S. HAD SURPLUS IN '73 PAYMENTS, FIRST IN 14 YEARS

WASHINGTON-Aided by more black ink in the fourth quarter, the U.S. in 1973 registered the first yearly surplus in its "basic" balance of payments since it started collecting the figures in 1960.

The $1.21 billion surplus reported by the Commerce Department is a vast improvement from 1972's $9.84 billion deficit in this key statistic and illustrates how swiftly a turnaround has occurred in the nation's financial accounts with the rest of the world.

Government analysts yesterday warned that a big splash back into the red could occur just as swiftly this year, however. This well could happen, these analysts say, if the U.S. doesn't gain trade-off concessions from major oilexporting countries for the large supplies of expensive crude oil expected to be shipped here now that the Arab embargo has been lifted. Unless these exporters are encouraged to invest a good portion of their U.S.-generated oil receipts in American goods and services, this country's payments position will deteriorate rapidly, the analysts say.

The surplus in the basic payments position contrasts with deficits reported earlier using two other measures of the payments balance. On the "official reserve transactions" basis, the U.S. recorded a $5.29 billion deficit last year, and on the "net liquidity" measure, a $7.79 billion deficit was registered.

But the basic balance figure is considered by many analysts to be the best guide for determining the trend in U.S. international payments because shortterm capital flows, which can often be quite volatile, aren't included in it.

The basic balance reflects trade, government grants, long-term corporate investments and a few other key ingredients. The official-reserves basis, on the other hand, mainly measures dollars accumulated by foreign central banks through exchange-market operations. And the "net liquidity" measurement counts nearly all the net flow of dollars to or from foreigners in private as well as governmental transactions.

The $24 million fourth quarter surplus in the basic balance was much smaller than the $2.55 billion surplus of the third quarter, which was the first quarterly surplus since 1969. A $1.56 billion deficit was posted in the 1972 final quarter.

The surplus last quarter was trimmed primarily by a $1.73 billion deficit in long-term private capital flows, which offset big gains in the merchandise trade balance and the U.S. "services" account, which covers such things as travel and tourism. The capital deficit reflected a rise in U.S. direct investment abroad, a decline in foreign direct investments here and an increased net outflow in other net long-term private capital transactions, the Commerce Department said.

The fourth quarter merchandise trade balance was a $1.36 billion surplus, up from a $612 million surplus in the third quarter. The "services" account showed a surplus of $2.61 billion, up from a $1.54 billion surplus in the previous quarter.

[From the Journal of Commerce, Mar. 14, 1974]

U.S. PLANS CLOSE WATCH ON JAPAN EXPORT DRIVE
(By A. E. Cullison)

TOKYO. It is considered by the United States Department of Commerce that it is too early to determine whether the latest Japanese export drive might cause another very serious imbalance for America in trading with Japan this year, but Washington definitely will be watching the situation extremely carefully over the next few weeks and months.

This was revealed today by U.S. Undersecretary of Commerce John K. Tabor in a meeting with newsmen in the American Embassy in Tokyo. Mr. Tabor told the press the U.S. definitely did not want another huge trade deficit with the Japanese.

"The United States is indeed most encouraged," he said, by the results of the year 1973 in which the deficit balance of the U.S. in its trade with Japan was reduced from an annual total of $4.2 billion to $1.3 billion."

He explained that this improvement in the situation "involves much greater access to the Japanese market for American exporters." The undersecretary added that while the Commerce Department is encouraged, "nevertheless the $1.3 billion is still a big deficit and we want very much to see a continuation of the direction and the momentum of the past year."

ARRIVED MONDAY

Mr. Tabor arrived in Japan on Monday and is expected to leave for Taiwan tomorrow to attend the official opening of another American trade center. His stay in the Japanese capital coincided with a prediction by leading trading house executives and manufacturers that Japan's current export drive in 1974 will bring the nation's exports this year to something between $50 billion and $52 billion.

These figures are considerably higher than the official estimates released earlier by the Ministry of International Trade and Industry (MITI). The government's official expectation is that the nation's exports will total no more than $48 billion for the year.

"With close consultation with our friends in Japan," the Commerce undersecretary said, "we hope that the overall problems both in trade and fiscal affairs and security matters will always proceed on a multilateral basis and in the spirit of cooperation rather than in the spirit of autarchy or go it alone or begger thy neighbor spirit."

He told the press Washington hoped that the U.S. could avoid a repetition of the experiences of 1971 and 1972 when the Japanese pushed their exports to the American market to the extent that a $4.2 billion annual surplus was built up for Japan.

BASIC REACTION CITED

Speaking of the problems of such a surplus, the Commerce undersecretary commented: "The basic Washington reaction is that so long as the necessary effort by the Japanese to continue to export is consistent with the principles of techniques which were used in 1973, namely that there was an equal receptivity to the exports from America into Japan of both consumers goods, investment opportunities and capital goods sales, that this does not raise any great concern in America."

He explained that, based upon his conversations while he has been in Japan this trip, he does not expect to see such a deficit developing for the U.S.

"It is too early to say, and I think to a large degree it will depend upon the degree to which American imports are received here and this includes a retention of the diminished barriers that now exist and, as we have earlier indicated, a further reduction of barriers," Mr. Tabor said.

He admitted it is quite possible the trade figure for both countries can be a healthy one. But he added that Washington will watch the situation with great interest in the months to come.

Mr. Tabor emphasized that "it is possible that a figure which will be healthy from the American viewpoint can be urged and we will be watching closely over the weeks and months ahead to assure that."

MONEY SHIFTS CITED

Speaking of the recent up and down changes in the relative values of the Japanese yen and the American dollar, the Commerce undersecretary told the newsmen that the Nixon Administration does not want to see the yen decline too much in value because of the trading position edge this might well give Japan in the U.S. market.

"It has been an essential part of United States policy since President Nixon's, I think, very old and realistic policy of devaluing the dollar, not to have it artificially support any of our competitors in the export field," he commented. "Therefore, the present floating arrangement of both the dollar and the yen is, I think, in the best interest of realistic trade policies."

Mr. Tabor declined to say what the proper exchange rate for the dollar should be in terms of the Japanese currency, but he suggested that the general range of the present time is realistic. The yen-dollar rate is around 280 yen to the Ameri can dollar.

CONCERN OVER YEN VALUE

He said he delivered the *** Japanese might have some concern if the rate of the yen decreases in the sense that it goes over 300 or 302 yen to the dollar because it could create the possiblity of the kind of competitive devaluation that the U.S. does not think is in the best interest of all trading countries.

"We think such competitive devaluations are not a healthy development,” he said. "We think that perhaps the Japanese would recognize this could expose them to an unhealthy situation," Mr. Tabor added.

Although he avoided commenting on the point, it was explained to the U.S. undersecretary of Commerce that only recently a prominent Japanese trading house had predicted a deficit for the U.S. in trading with Japan this year of $3.3 billion, he did warn that there has to be reciprocal opportunities for America to export to Japan and to enjoy investment opportunities in Japan.

[From the Wall Street Journal, Mar. 28, 1974]

TRADE SURPLUS SLASHED IN MONTH BY OIL IMPORTS

U.S. BLAMES JUMP OF 22 PERCENT IN COSTS OF PETROLEUM FOR PLUNGE
IN FEBRUARY

WASHINGTON.-The nation's soaring oil-import bill bit deeply into the U.S. trade surplus in February, helping shrink it to a third of the January level.

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