by the Director of the Office of Emergency Preparedness to be important to the national security, the Secretary may allocate imports of any such product or products manufactured in the Virgin Islands in excess of the limitation in the preceding sentence for such product or products, for such time and under such conditions as he may deem consistent with the purposes of this proclamation." 2. Section 3A is amended to read as follows:

"Commencing with the allocation period January 1, 1973, through December 31, 1973, the Secretary, with the concurrence of the Director of the Office of Emergency Preparedness, is authorized to make an interim allocation for any allocation period or portion thereof to any person who held an allocation of imports of crude oil and unfinished oils or of No. 2 fuel oil during the preceding allocation period. No such interim allocation shall exceed the like allocation held in such preceding allocation period by such person. However, the Secretary may adjust the allocation to any person limited by the previous sentence if such person would have been eligible for a larger allocation in 1973 under the regulations applicable during the allocation period commencing January 1, 1972. Any license issued under such interim allocation may be utilized for imports hereafter entering the United States prior to December 31, 1972, if authorized by the Secretary. Any allocation subsequently made to any person who receives an interim allocation pursuant to this section, shall be reduced by an amount equal to the interim allocation made pursuant to this section."

In witness whereof, I have hereunto set my hand this sixteenth day of December, in the year of our Lord nineteen hundred seventy-two and of the Independence of the United States of America the one hundred ninety-seventh.

RICHARD NIXON.

APPENDIX 2-C.-PRESIDENT'S STATEMENT OF FEBRUARY 20, 1970, RE

CABINET TASK FORCE ON OIL IMPORT POLICY

THE WHITE HOUSE

STATEMENT BY THE PRESIDENT

In March of last year I created a Cabinet Task Force, headed by the Secretary of Labor and including the Secretaries of State. Treasury, Defense, Interior and Commerce, and the Director of the Office of Emergency Preparedness, to study the Federal government's oil import policy. The Task Force Report— the first Cabinet-level study of the oil import quota system since its inception in 1959-was submitted to me by Chairman Shultz on February 9th.

Reasonable men can and will differ about the information, premises and conclusions contained in the report. None, however, can fail to be impressed by the depth and breadth of this study. The wide response from the oil industry and other interested parties, running to 10,000 pages of testimony, is evidence of the broad interest in this endeavor. I compliment all members of the Task Force and the staff for their devoted and discerning effort. Their report substantially increases our understanding of this complex problem.

It is not surprising that the members of the Task Force did not reach unanimous agreement on a set of recommendations. The conclusions reached by the Secretary of Commerce and the Secretary of Interior differ sharply from those reached by the remaining five members of the Task Force. Among the majority there is also a divergence of views with the Secretaries of State and Defense expressing particular concern over the implications of the Report's conclusions for the nation's security and our international relationships.

There are, however, areas of agreement concerning actions that can be taken immediately. All Task Force members agree on the need for a new management system to set policy for the oil import program. After considering the views set forth in the Report, I am directing the Director of the Office of Emergency Preparedness to chair an interdepartmental panel which will initially include the Secretaries of State, Treasury, Defense, Interior, and Commerce, the Attorney General and the Chairman of the Economic Advisors. While most day-to-day administrative functions will continue to be performed by the Oil Import Administration of the Department of Interior, the policy direction, coordination and surveillance of the program will be provided by the Director of the Office of Emergency Preparedness, acting with the advice of this permanent Oil Policy Committee.

All members also agree that a unique degree of security can be afforded by moving toward an integrated North American energy market. I have directed the Department of State to continue to examine with Canada measures looking toward a freer exchange of petroleum, natural gas and other energy resources between the two countries.

The State Department has already discussed informally with Mexico the possibility of entering into arrangements with that country on energy exchange and I am instructing the State Department to explore more fully the possibility of reaching an agreement with Mexico to this end.

While generally agreeing with the recommendations of the majority of the Task Force, the Secretary of State indicates a concern that changes in the oil import program might provoke adverse international reactions which could have a bearing on national security. He therefore conditions his agreement on consultations with other governments before any final decisions are reached. The Secretary of Defense also recommends that the security implications of the program proposed by the majority be brought to the attention of our allies and affected nations at the earliest possible moment.

Accordingly, I direct the Secretary if State to continue our consultations on petroleum matters with Venezuela and our other Latin American suppliers, who have proven to be secure and dependable sources of oil during the crises we have experienced since the Second World War.

The State Department will also review with producing nations of the Eastern Hempishere and with our NATO allies and Japan the findings and recommendations of the Report. I further direct the Secretary of Defense to join in these discussions when they include our NATO allies and Japan.

The Congress properly has a vital interest in this program which affects every area of our country and many facets of our economy. Committees of both the House of Representatives and the Senate have indicated interest in holding hearings on the oil import program and any recommended changes in it. I expect that much additional valuable information will result from these Congressional hearings, and I direct the Oil Policy Committee to carefully review all such information.

I expect the Oil Policy Committee to consider both interim and long-term adjustments that will increase the effectiveness and enhance the equity of the oil import program. While major long-term adjustments must necessarily await the outcome of discussions with Canada, Mexico, Venezuela and other allies and affected nations, as well as the information developed in the proposed Congressional hearings, I will direct the new Committee to begin its work immediately. An Executive Order for this purpose will be issued shortly.

APPENDIX 2-D.-WHITE HOUSE PRESS RELEASE OF FEBRUARY 20, 1970, "SUMMARY GUIDE TO TASK FORCE REPORT ON OIL IMPORT CONTROL"

THE WHITE HOUSE

SUMMARY GUIDE TO TASK FORCE REPORT ON OIL IMPORT CONTROL

Since 1959 oil imports have been subject to mandatory quota restrictions under a statute authorizing the President to limit imports that threaten to impair the national security. (See Part I, Sections 106-113, 117-130 for a detailed description of the statutory framework and the existing program.) The principal results have been these: (a) The delivered price of domestic crude oil within the U.S. is higher than the delivered price of foreign crude (Section 202, n. 1); (b) long-term domestic exploration and production are forecast to be higher than they would be at world market prices (Section 228 and Appendix D); (c) to that extent, the U.S. is less dependent on foreign oil than it might otherwise be (Table C, p. 41).

The quota program has been administered over the past decade with a combination of rigidity and special exceptions which together have brought the program under increasing criticism. (See generally Part III, Sections 302-321). Valuable import rights have had to be allocated by government officials among rival segments of the industry, with distorting effects on market structure and competition. Last March the President created a Cabinet Task Force to conduct the first comprehensive review of oil import controls since the inception of the program (Sections 101-105, 107). This is a summary of the majority's final reports to the President.

The governing statute authorizes import controls for the purpose of protecting the national security in two senses: (a) the protection of military and essential civilian demand against reasonably possible foreign supply interruptions that could not be overcome by feasble replacement steps in an amergency; and (b) the prevention of damage to domestic industry from excessive imports that would so weaken the national economy as to impair the national security. The question before the President, in the language of the statute, is whether and to what extent and for what time oil import restrictions should be considered "necessary . so that such imports will not so threaten to impair the national security."

Taking the present program as a form of insurance against actual or threatened foreign supply interruptions, the report seeks in the first instance to assess (a) the cost of the premium for insuring against the risk, (b) the nature and likelihood of significant interruptions in imports, (c) the degree by which imports would change if import controls were relaxed, abandoned, or continued in their present form, (d) the loss of investment and employment occasioned by increased imports, (e) the balance of payments implications of increased imports, (f) the sources of imports under various policy assumptions, (g) the alternative means of meeting or insuring against a supply deficit, and (h) the consequences of various significant import interruptions.

The "cost" of the existing program is made up of approximately $3.0-$3.5 billion per year of transfer payments from one sector of the economy to another plus efficiency losses in production and transportation of about $1.5-2.0 billion per year, including losses caused by "market-demand prorationing" as practiced by the principal producing states. (Sections 207–208).

The risks to security for which these costs are incurred do not in the main concern any danger to the functioning of the nation's armed forces. Incremental military demand in a conventional war would be relatively minor as compared with the World War II experience, because our military establishment is now maintained at closer to wartime levels. There is some risk of tanker destruction by a hostile superpower, although this would be less likely to affect shipments within the Western Hemisphere and there is some question of whether such a naval engagement could continue for more than a few months without being settled or escalated. At all events both the probability and severity of wartime risks are considered to be subsumed within the risks of politically inspired export interruptions. (Sections 220-224).

Of these the most serious concerns the possibility of renewed regional hostilities or a "group boycott" involving the oil-rich Arab states in the Middle East and North Africa. There are factors of self-interest at work in this region to limit the duration of any such supply interruption, but the risk of a prolonged and wide-scale denial of oil from the Arab states cannot be written off. The Task Force Report adopts such a hypothetical denial as its model for analyzing the implications of a supply interruption. (Sections 214–219, 225).

To appraise the effect of import controls on domestic production and hence on the level of imports the Task Force hypothesized three domestic price levels for a representative crude oil at the wellhead: $3.30 per barrel (present controls); $2.50 (substantially relaxed controls); and $2.00 (no controls). It is projected that in the short term the abandonment of controls would lead to increased production and reduced imports, as present "market-demand prorationing" restraints on efficient production would become pointless; the excess capacity thus released for production would more than offset the decline in high-cost "stripper well" production. By 1975 production would decline in both the $2.50 and $2.00 cases, but by relatively small volumes. The significant effects would be felt by 1980: a 4.0 million barrels per day (MMb/d) decline in the $2.00 case and 2.5 MMb/d decline in the $2.50 case. Imports as a percentage of demand would have to increase even at current prices, and by 1980 could amount to about 27% of demand-rising to 42% in the $2.50 case and 51% in the $2.00 case. No attempt was made to project levels of production on imports beyond 1980. (Sections 226-228 & Table C, p. 41.)

Employment in the domestic industry would decline at world prices by somewhat more than the industry has experienced over the past decade: at $2.50 price, the decline would roughly match the 1957-1967 rate of about 7,000 jobs a year. (Total employment in oil and gas production is less than 300,000). Profits for many companies would of course be smaller at the lower price until a new equilibrium output level was reached. Some investment in leases and facilities would be lost, and future "rents" (lease bonuses, taxes, and royalties) would be reduced. Localized dislocations could be quite severe and certain segments of the industry would undoubtedly be injured, with consequent loss of state and local revenues. Given the mobility of investment and employment in the economy as a whole, however, the weakening of the national economy-the statutory criterion-would not be severe. (Sections 230-231).

There would be little short-run impact on our balance of payments. Incremental imports attributable to the relaxation of import controls would become significant only after 1975. The overall 1980 balance of payments position will be affected by numerous factors not now predictable; other important considerations must in any event be weighed in devising an oil import policy. (Section 232 & Appendix H.)

The sources of imports are of course more subject to management by way of preference arrangements if import controls are retained than if they are abandoned. At world market prices about 40% of all imports-or 20% of domestic demand-would come from Arab sources. At an intermediate level of import controls the bulk of U.S. imports could be drawn from Western Hemisphere sources, restricting imports from the Eastern Hemisphere to 10% or less of U.S. demand. (Sections 235-237 & Tables D-1 to D-3).

In addition to these relatively secure sources of production. the U.S. in an emergency could expand available supplies by: (a) drawing down inventories, (b) bringing available excess capacity into production, and (c) stimulating emergency production increases. It could also reduce consumption by means of rationing. While none of these emergency steps would be easy or comfortable, their availability must be considered in the statutory framework of national security; the report also subjects its conclusions to a sensitivity analysis to preclude excessive reliance on possibly optimistic estimates of the volumes of oil that could be replaced by these measures. (Sections 239-242, 252a.)

The report further considers certain pre-crisis investment possibilities for increasing the supply of domestic oil that could be made available in an emergency. These possibilities include conventional and underground storage, subsidization of synthetic sources-chiefly shale and coal-of crude oil, and development of standby reserves. While estimated costs compare favorably with the costs of present import controls, further study is needed and is recommended in the report. (Sections 245-247 & Appendix J).

Taking anticipated normal and emergency production from U.S. and other secure sources, the report analyzes the effects of a 1980 cessation of all shipments from (a) all Arab countries and (b) all Arab countries plus Iran, at three