governments have shown themselves to be ready and able to adopt. Some oilexporting countries not only can, and some seem inclined to, resort to such practices; they also control our access to their oil. Insofar as safeguarding our ocean shipping is concerned, the Merchant Marine Act of 1970 should be used to the fullest, and strengthened if necessary, as the most constructive device, beneficial to the total national interest in every sense. In short, policies like that suggested in H.R. 8193 have no place, and would in fact impair, a strategy to ensure a strong U.S. merchant marine and dependable U.S. access to oil produced in other countries. I hope these answers are helpful to you and your colleagues in your assessment of the views I have communicated on behalf of our organization. I would be glad to discuss these matters further with your Committee, and to answer any additional questions for which you may seek answers. Sincerely yours, DAVID J. STEINBERG, Executive Director. P.S. Although your letter of February 26 did not ask for the names of the officers of our organization, I believe you will be interested in this information: Chairman: Dwayne O. Andreas, Chairman and Chief Executive Officer, Archer Daniels Midland Co., Decatur, Ill. General Counsel: Charles P. Taft, Attorney and member of the Cincinnati City Council, Cincinnati, Ohio. Executive Director: David J. Steinberg. [The following letter was subsequently received for inclusion in the record:] UNIVERSITY OF CALIFORNIA, BERKELEY, Hon. JAMES C. CORMAN, Committee on Ways and Means, DEAR CONGRESSMAN CORMAN: In the hearings on February 28, 1973 regarding foreign earnings, you asked whether the taxation of profits of foreign shipping subsidiaries should be taxed. Mr. Ross and I responded to the question to the effect that perhaps these shipping owners must be subsidized if the Congress wishes to encourage American ownership of ships since the world of shipping is essentially a taxless world. On reflection, I would like to qualify those comments. My remarks probably are more applicable to small independent operators. However, much of American owned shipping is owned by oil companies, steel companies etc. to ship their own crude raw materials. These ships are part of an integrated operation which may start with extraction of a natural resource and ends with a final product-steel or gasoline etc. These captive shippers are not really in competition with anyone. Their profitability is assured as part of the overall operation. Further their ownership is necessary to assure the flow of raw materials and is not really affected by day-to-day changes in shipping rates. I am not at all sure that there is any need to subsidize these operations at all. Since this may very well represent the bulk of U.S. owned shipping tonnage, a proper answer to your question is that there is probably no more reason to continue deferral for shipping income than for any other tax haven type income. The test should in any event be: What overwhelming U.S. policy justifies and requires a special subsidy and why should this subsidy take the form of a special tax treatment? Furthermore, since this income is generally not considered to have its source in any particular foreign country and since this income is generally not taxed elsewhere in the world, there is no problem of double taxation, and it would seem that this kind of income should not be taken into account for purposes of the foreign tax credit. In this way, foreign shipping income won't be available to absorb excess foreign tax credits from other countries or businesses. We would thus not encourage some countries, for example, the OPEO countries, to impose excess income taxes confident that these taxes will simply be reducing U.S. taxes on other foreign income (such as this shipping income). At the same time, the taxpayers in such cases will have more of a stake in resisting such tax increases-since then they would be opposing real additional tax liabilities-not just paying additional taxes to Saudia Arabia rather than the U.S. I hope these remarks will be helpful to you. LAWRENCE M. STONE, Professor of Law. [Whereupon, at 3:45 p.m., the subcommittee adjourned, subject to the call of the Chair.] ENERGY TRANSPORTATION SECURITY ACT OF 1974 WEDNESDAY, MARCH 6, 1974 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MERCHANT MARINE OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met, pursuant to call, at 10:15 a.m., in room 1334, Longworth Office Building, Hon. Frank M. Clark [chairman of the subcommittee] presiding. Mr. CLARK. Good morning. The Subcommittee on Merchant Marine will please come to order. We continue hearings on H.R. 8193, and similar bills, that would reserve a certain percentage of our oil imports to U.S. vessels. This morning the subcommittee looks forward to receiving the views of one of our major oil companies, the Gulf Oil Corp. of Pittsburgh, Pa. I understand that Mr. William Blackledge, executive vice president. of the Gulf Oil Trading Co., will appear on behalf of Gulf Oil. Mr. Blackledge, please come forward with your associates. However, before we proceed, I would like to enter into the record at this point a New York Times article of February 22, 1974, to the effect that the big oil companies are cutting back imports of crude oil to the United States. [The New York Times article referred to follows:] [From the New York Times, Feb. 22, 1974] BIG OIL CONCERNS ARE CUTTING BACK IMPORTS OF CRUDE Deliberate Scarcity Laid to Unhappiness Over U.S. Allocation Program SUPPLIES HELD FALLING Move Pares Fuel Available for Gasoline Refining and for Home Heating (By Michael C. Jensen) Special to The New York Times WASHINGTON, Feb. 21-Some of the nation's major oil companies are deliberately reducing their imports of crude oil because they are unhappy with the Government's allocation program for crude, according to Administration sources close to the energy situation. As a result, the refining of gasoline and fuel oil for use by motorists, home owners and businesses in the United States is being held below anticipated levels. Under the crude oil allocation program, initiated several weeks ago, many of the nation's refiners are required to share their crude oil with competitors who have less oil. The decline in imports is particularly critical because a lack of crude oil is blamed for much of the current gasoline shortage. Sharp Decline in Imports Imports of crude oil, already depressed by the Arab oil embargo against the United States have dropped sharply in recent weeks. "One major company told me Tuesday that it had quit importing altogether," said an Administration source. "They said: 'the hell with it. It's not worth it.'" The Federal Energy Office also is not happy with the allocation program, which was ordered by Congress. In fact, William E. Simon, chief of the Federal Energy Office, earlier this week called on Congress to cancel the program, and warned that it could result in a holdback in imports. The American Petroleum Institute announced today that the daily average of crude oil imports had fallen in the last two weeks from an earlier level of about 2.8 million barrels a day, to about 1.9 million barrels a day, a decline of more than 30 per cent. There are 42 gallons in a barrel. Mobil Course Uncertain Part of the decline was attributed to an effort by Canada to retain more of her crude oil. Much of it, however, was laid to "disincentives" provided by the Government's allocation program. Rawleigh Warner Jr., chairman of the Mobil Oil Corporation, the nation's second largest oil company, declined to comment on whether Mobil was cutting back imports. But he conceded that oil companies have an incentive to use their foreign crude oil in offshore refineries, rather than bringing it into the United States. "To the extent that large refineries may have used their crude oil outside the United States, less crude oil is being imported into the United States to the detriment of the American consumer,” he said. Under the Government program, Mobil has been ordered to sell more than 4 million barrels of crude oil to competitors during the three-month period at began Feb. 1. Some companies have argued that if they continue to buy high-priced imported oil, which they are then forced to sell at a lower price, reflecting a mix of imported and domestic oil, they will lose money on such transactions. Some companies also say they are opposed to selling crude oil to large competitors such as Texaco, which has been allocated 1.6 million barrels under the Government's program. A week ago the Gulf Oil Corporation filed suit in United States district court against Mr. Simon, challenging the validity of the allocation program. Z. D. Bonner, executive vice president of Gulf, later said the program would cause less gasoline to be made. He called it a "major disincentive for anyone who has access to foreign crude oil to import it." "Why should we import it, take the risks, get the oil over here, and simply turn it over to somebody else?" he asked. A spokesman for the Phillips Petroleum Company, which has been ordered to sell nearly 4 million barrels of crude oil to competitors under the allocation program, said there was little doubt that it would reduce imports. "It hasn't affected us yet, because we have already contracted for the first three months," he said. "But we certainly aren't going to be hunting for foreign crude like we would have." Oil Kept Outside U.S. The Phillips spokesman also alleged that "several very large companies” were keeping their foreign crude oil outside the United States, instead of using it in their domestic refineries. "We all recognize that the Arab embargo of crude oil shipments to the United States will have the effect of reducing refinery runs in this country to something less than 100 per cent," he added. "But it is beyond our belief that there is not more than 76 per cent of our refining capacity available." The Federal Energy Office has set 76 per cent as the overall average for domestic refinery capacity that can be utilized if crude oil supplies are evenly distributed to the nation's refineries. In addition to diverting crude oil to Europe and Japan, some major oil companies are channeling increasing amounts of their crude oil to their refineries in the Caribbean, according to one industry source. |