levels of U.S. import control. The worst hypothesized case is one in which all Latin American oil is diverted to Europe and Japan, leaving the U.S. with nothing but its own and Canadian supplies. In the $2.50 case the U.S. would still be able to meet the resulting deficit with tolerable rationing, if the supply and demand forecasts in the report are reasonably accurate. The free world as a whole would be in poorer shape, since 2.5 MMb/d of U.S. production would not be developed at the lower price. But the free world deficit with or without U.S. import controls would be beyond the reach of tolerable rationing to rectify; and the 2.5 MMb/d of reduced U.S. production may be compared with 4.0 MMb/d (over one year only) that could be provided for themselves by friendly and allied nations with each 45 days additional storage outside the Western Hemisphere. (Sections 249-252 and Tables F-K, pp. 61-68.)

Of course, the forecasts on which these analyses are based are subject to inevitable uncertainties. The projections of Canadian production in particular are somewhat speculative at this time, a hazard that may or may not be fully offset by conservatism in the report's estimates of future Alaskan production. (Sections 228, 235.) For this reason the Task Force majority considered it important to devise a control system susceptible of phased-in adoption and monitoring to assure continuing balanced protection for the national security. The details of the recommended plan are summarized in paragraphs 426-437 of the report. The following brief discussion seeks to highlight its most important features and the reasons for them.

As the basic method of import control, the report recommends phased-in adoption of preferential tariffs with an Eastern Hemisphere security adjustment. This system is consistent with the governing statute as well as our international trade obligations. (Section 426.)

The preference and security-adjustment provisions recommended in the report are explicitly based on a security evaluation of particular sources of supply and are designed to establish firm safeguards for the national security. After a suitable transition period, and if common energy agreements can be arranged with these governments, Canadian and Mexican oil would be entirely exempt from the program. Oil from other Western Hemisphere sources would also be given a preference designed to neutralize the advantages of Eastern Hemisphere oil without exerting undue competitive pressure on U.S. production. If, contrary to the projections in the report, oil from the Eastern Hemisphere should threaten to exceed 10% of domestic demand, import licenses for this maximum ceiling on Eastern Hemisphere imports would be auctioned. In the worst possible case, available emergency measures could overcome denial of supplies of this magnitude. (Sections 335-338 & Table M, Section 427.)

Transition arrangements are recommended over a three-to-five year period to phase in the tariff system and phase out the "special deals"— unrelated to national security-of the quota system. The equilibrium tariff level would be a matter for decision by the new management system, which would be guided by a number of factors including in particular the evidence of recoverable reserves in North American "frontier areas." (Sections 339-343 & Tables N-P, Sections 425, 428-29.)

The management system itself would be revised to create an interdepartmental panel, under the chairmanship of the Director of the Office of Emergency Preparedness, to monitor developments under the revised program, to develop an improved data base for evaluation, and to provide a mechanism for policy adjustment if required by major variations from the report's projections. This should serve to emphasize and keep in focus the national security basis for the program. The interdepartmental panel would undertake another comprehensive review of the entire program no later than 1975. (Sections 344-48, 431. 437.) Supplementary views were stated by several members of the Task Force. (Section 425a.) The Secretary of State conditions his agreement with the Report on consultations with other governments. The Secretary of the Treasury favors a gradual process of tariff liberalization without specific predetermined objectives and subject to continuing management appraisol and control. The Secretary of Defense lists among the criteria that will guide his department's participation in the interdepartmental panel the requirement that domestic exploration be maintained at approximately current rates and that no reduction in reserves be allowed. In addition, he recommends prompt consultation with our allies and affected nations. The Chairman of the Task Force proposes the present adoption of a planning schedule designed to phase in an equilibrium torff level of approximately $1.00 per barrel over a thres- or five-year transition period.

The Separate Report prepared by the Secretaries of Interior and Commerce and the Chairman of the Federal Power Commission takes issue with the majority on a number of conclusions. (Pages 343-393.) The minority believe that a tariff system is neither workable nor desirable, that the majority report underestimates the dangers of foreign oil interruption and overestimates the future of the domestic industry, and that the existing program has been unjustly criticized. The minority recommends substantial changes in the administration of the present program. They would retain the quota system, expanding it by more than 100.000 barrels per day each year through 1974. They agree with the majority that another comprehensive review should be undertaken in the mid-1970's, but the minority would defer any extensive changes in the quota system until that time.

APPENDIX 2-E.-WHITE HOUSE PRESS CONFERENCE OF PETER FLANIGAN AND ROLAND HOMET, JR., RE CABINET TASK FORCE ON OIL IMPORT

THE WHITE HOUSE PRESS CONFERENCE OF PETER M. FLANIGAN, ASSISTANT TO THE PRESIDENT, AND ROLAND HOMET, JR., CHIEF COUNSEL, TASK FORCE, THE ROOSEVELT ROOM

At 10:47 A.M. E.S.T.

February 20, 1970.

Mr. ZEIGLER. As you know, on March 26, the President announced the formation of a Cabinet level task force to conduct a review of the oil import quota system. This report was delivered to the President on the 9th by the Chairman of the task force, Secretary Shultz.

Peter Flanigan, the Assistant to the President, has been the White House liaison with the task force, and is here to discuss the report and the President's statement with you this morning.

Mr. Flanigan.

Mr. FLANIGAN. I understand from Ron that you ladies and gentlemen got the report and the summary guide and the President's statement at 10:00. I further understand from Ron that that is ample time for you to have assimilated all the information in it and we don't have to discuss it as to the content.

This is the first Cabinet-level study of the oil import system in ten years. The complexity of the problem is indicated by the complexity of this report, which has been almost a year in the making. I am sure you will be struck, when you have a chance to look at it, as I was, by the comparison of this study to the studies that were made in 1955 and 1957, which were included in this report in Appendix C.

The basis of any limitation on the importation of oil into the country is the National security. The qualifications for that were last set out in the Trade Extension Act of 1962. Those qualifications are: One, we must protect the essential supplies necessary for our civilian and military use; and, two, we must protect the domestic industry from harm which would be so significant as to weaken the entire economy in a way that would affect adversely the National security. In the early 1950's, when Middle Eastern oil began to flow in increasing volume, some of it came into this country. By 1955, it was coming in in amounts that gave great concern then to the people who were watching this National security interest.

Starting in 1957, an effort was made to limit that flow of imports on a voluntary basis. That did not work, and in 1959, a mandatory limitation of imports by the quota system was imposed. Since that time, this quota system has been managed by the Oil Import Administration in the Interior Department.

Last March, the President asked his Oil Import Quota Task Force to look at the entire problem, to determine the extent of the problem, whether the quota system was the best way of managing and meeting the problem, how it was working, and could it be improved.

As Ron says, a week ago Monday, the President received this report. He was impressed obviously, as you will be when you have a chance to read it all, by the care that was taken in looking at the various aspects of the problem.

He was also impressed by the fact that in approaching or trying to come to different approaches to the solution, that there were sharply divergent views among the seven task force members. Two of them, Secretary Stans and Secretary Hickel, recommended that the current system be kept and improved. The majority-five members-have a general recommendation of very far-reaching significance. Yet, among those five, there is no unanimity of view. In fact, each of the five has a different viewpoint within the general suggestion that there be a tariff system.

The Secretary of State recommends that before any action is taken, consultation he had with the affected foreign countries. The Secretary of Defense recommends that we discuss with our allies the implications of this report, because

while our National security is affected by the oil available to us to the extent that our National security is shared by the common security of ourselves and our allies, we have to take into account the oil that would be available to them under a certain defined crisis.

There were, however, common recommendations among the seven members of the task force. The President has suggested, as you can see in his statement, that these common suggestions be implemented immediately.

They are, that a management system to provide for the direction and the coordination and the surveillance of our oil imports for the development of any new policies regarding oil import limitations be put in the hands of an Oil Policy Committee, to be headed by the Director of the Office of Emergency Preparedness.

In addition, he notes that all seven members of the task force recommend that we approach our neighbors in the North American Continent in an effort to create a common energy resources policy, and he directs the Secretary of State to begin discussions to see if that can be brought about.

He also directs, as is suggested by the Secretary of State and the Secretary of Defense, that they enter into discussions as to the implications of the recommendations in the report with our allies and with the other affected nations. Finally, he notes that, as might have been expected, the Congress has a certain interest in this problem. In fact, you all probably saw there was a bill introduced yesterday in the Senate. Several committees of both Houses have indicated an interest in having hearings on this subject, and no doubt there will be some additional information developed during the course of those hearings.

In a matter of this significance and this importance it is proper that the President proceed with care and deliberation. It is important that particularly where the National Security is concerned, the Secretary of State and the Secretary of Defense agree that each move is appropriate.

You will note that the President, in his statement, instructs the Oil Policy Committee and the Director of the Office of Emergency Preparedness, to begin its work immediately. In that way, presumably, when issues are resolved, steps can be taken one at a time. That means that it is not necessary that all issues be resolved before anything is done.

You might have noted that the Department of Interior, at the beginning of this year, extended the oil import quotas for six months. To the extent that nothing has happened when that period approaches, they can be extended again for another interim period.

This provides the Administration with the flexibility necessary to move when they are satisfied that all the care and study that is necessary to take whatever move the President believes is appropriate after having received from the Oil Policy Committee and from further study of this document the information necessary for him to make the decision.

I would be happy to answer any questions you might have.

Question. It has been printed quite extensively that the majority wound up with a recommendation that would produce a domestic price of about 30 cents lower than at present, in other words, about $3 a barrel.

I wonder if you could point to the place where the majority recommendation of domestic prices is most clearly delineated?

Mr. FLANIGAN. Yes, I will. I would suggest that you might find, for those of you who would want to read this in bits and pieces rather than all at one sitting, it helpful to read first Part IV, which runs from Page 121 to Page 139. That summarizes the findings and states the conclusions and states the supplementary views, that is, the differing views, of the four members of the majority. Particularly, you might read the last eight pages of that.

At the same time, you should read the so-called separate report, which is the minority report, which runs from Page 334 to Page 368. A summary of that is in the first two pages. So that lets you read 12 pages if you want summaries and 45 pages if you want a slightly expanded summary, and then you can read it all. Question. Where, in that recommendation, do you find the price?

Mr. FLANIGAN. You don't find a price. You find a suggestion of a tariff of $1.35. If you put it in, and it would only be put in the recommendations after consultation with our allies, after consultation with other affected nations, as recommended by the Secretary of State and the Secretary of Defense, it would result in what is considered to be a wellhead price for gas for sweet crude in Louisiana of $3.00.

Question. Why do you need another study? You seem to be saying you need to study the whole thing.

Mr. FLANIGAN. No, we are not going to restudy the whole thing.

Question. I don't understand what this Oil Policy Committee is supposed to do and why you have to wait for all these hearings and the rest of this stuff. This has been the most exhaustive study, and as far as I understand it, the only serious study that has ever been done.

Mr. FLANIGAN. Because the result of this study suggested, one, that there be created this management system, and two, the results of this study is the recommendation that before anything is done, we have discussions with Canada regarding the common energy policy, and Mexico, and that we have discussions with our allies and other affected nations.

Question. Is it correct to assume, then, from the tenor of the President's statement, that what we are going to do pending completion of these studies, pending completion of discussions with our allies, pending completion of negotiations with the Canadians, Mexicans, Venezuelans and the Latin Americans, is that we are going to retain the present quota system as it now stands for awhile?

Mr. FLANIGAN. That is correct.

Question. For how long?

Mr. FLANIGAN. That is what is recommended by this study.

Question. By the minority?

Mr. FLANIGAN. No, it is recommended by the Secretary of Defense and the Secretary of State, who are included in the majority.

Question. For how long?

Mr. FLANIGAN. That will, of course, depend on the outcome of those negotiations and the other information developed by the Oil Policy Committee, as it does its work.

Question. Will it be literally years before this goes into effect? It could very probably be years before this could go into effect, or it could never go into effect?

Mr. FLANIGAN. It would depend on what progress we were able to make with Canada and what responses we get from our allies in NATO and Japan and the other affected nations.

Question. If the majority proposal were accepted on Western Hemisphere imports, other than Canada and Mexico, from which Number 2 heating oil is taken in the Northeast, do you know what impact that would have on consumer prices? Mr. FLANIGAN. Mr. Homet is staff counsel to the staff of the Oil Import Task Force, and he is here, and I would like to ask him to answer that question.

Mr. HOMET. The majority recommendations would have an effect, a lowering effect, on the price of crude oil in this country. The dominent influence on product prices is the price of crude oil to assume a competitive refinery industry. So that to the extent that the entire system would lead to lower crude oil prices, they should also result in lower prices for products generally.

Question. Have there been any studies made as to how much these recommendations would lower the price of gasoline here?

Mr. FLANIGAN. I would like to make one comment, if I may. When we talk about "these recommendations," the recommendations are the recommendations of the members of the task force, and those recommendations include that before anything is done, the steps the President has initiated be carried out. If they are carried out, if the allies and the affected nations find that this is something that does not so seriously affect them that we have to consider it as a matter of our own National security, if we are able to enter into the kind of common energy policy that we feel is necessary as suggested by the majority as well as the minority, then there is a suggestion that we take certain other steps.

It is those steps that we are talking about. It is not a recommendation that we do something now. The recommendation as to what we do now is what the President has suggested.

Question. I am aware of that. I am simply asking what those recommendations would achieve in the price of gasoline if they were finally put into effect?

Mr. FLANIGAN. If we assume the recommendation in this case that would finally be put into effect, it is not the recommendation, for instance, of the Chairman who suggests going eventually, starting now on a path, and not having any interruptions, that we go to a tariff of $1, but rather go to a tariff of a total of $1.45, what would the effect on a gallon of gasoline do.

Mr. HOMET. If you assume a 30 cent reduction in the present price of crude oil, that is 30 cents a barrel and there are 42 gallons in a barrel.