The Press WEDNESDAY, JANUARY 21, 1953. WORLD OIL

Press, Volume LXXXIX, Issue 26944, 21 January 1953, Page 6

The Press WEDNESDAY, JANUARY 21, 1953. WORLD OIL

Competitive business is regarded by Americans as one of the keys to their country’s amazing economic progress; consequently, more thoroughly than any other country, the United States has evolved antitrust legislation designed to preserve a competitive environment. Although Americans are proud of size in industry, they are extremely suspicious of any concentration of power. Indeed, largely for reasons associated with American commercial history, they are inclined to become emotional when monopolies and cartels are mentioned. These several factors are enough to guarantee intense American interest in the investigations into the affairs of major American oil companies which are alleged to be members of what is called a world oil monopoly. Unless persons in other countries who share this interest make allowances for the American attitude, they will be in danger of taking too seriously American extravagance in allegations and language. They ’must remember that there is a very wide gap between what is permissible in trade in the United States and what is accepted as , legitimate business practice in most other countries. This, indeed, is one difficulty the oil companies and other American firms encounter when they venture into business abroad.

Some months ago the oil companies were attacked on three fronts in the United States. A standing authority, the Federal Trade Commission, which has wide powers to seek out violations of anti-trust laws, published a report describing in considerable detail the way in which various segments of ttye international oil business are organised, as it alleged, to restrain trade and competition. A second arm of the United States Government pursued in the civil courts a complaint against the prices charged to the Economic Co-operation Administration for oil supplied to southern Europe. The administration held that the price of Middle East crude oil ought to be based on its cost; the companies based it in fact on the world market price, which follows the prices of the largest single producing and trading area—the American shore of the Gulf of Mexico. The suit was brought, by the Mutual Security Organisation as successor to the Economic Co-operation Administration. In the accepted American view and in American law, it is wrong for large companies to combine to agree on a price; and this is the imputation behind the Mutual Security Organisation’s claim for the return of some 67,000,000 dollars. A third arm of the United States Government, the Department of Justice, instituted criminal proceedings before a grand jury, the basis of this inquiry being particulars in the report of the Federal Trade Commission. British Companies

No British companies were concerned in the Mutual Security Administration’s case, because the agency and its predecessor purchased oil from dollar sources only. But one British company, the AngloIranian Oil Company, and one partly British company—an American corporation of the Shell group —were mentioned in the Federal Trade Commission’s report and the

grand jury inquiry. With five American companies they were accused of forming “the interna“tional oil cartel”. AU the major companies concerned in these accusations have denied any illegal action; and the British companies have since been virtually discharged from the grand jury inquiry. These proceedings relate exclusively to operations outside the United States on the part of American and foreign corporations; and in the case of the latter the inquiry raised important questions of international law and of the jurisdiction of American courts. The intention was to bring foreign companies into court in the United States, not to answer charges of cartel operations in the United States but outside its borders, and therefore outside the limits of its jurisdiction as generally understood. Some of the oil companies argued that if they produced all the documents they were asked to produce to the grand jury they would be offending against many foreign governments, whose interests would be damaged. The British Minister of Fuel and Power armed the British companies involved with letters supporting this contention. The judge then ordered the companies to show proof that the governments concerned were, in fact, refusing assent to the removal of documents from their countries. At thd resumed hearing in December the judge referred to a note which had been addressed to the State Department by Mr Eden, the British Foreign Secretary, and communicated by it to the court. Referring to the letter of the Minister of Fuel and Power, Mr Eden’s note said that it “ embraced a claim of sovereignty, “ in that it was addressed to British “subjects and organisations by Her “ Majesty’s Government in the “ exercise of their governmental “ authority and in the British public “ interest, including the economic, “strategic and political interests of “ Her Majesty’s Government ”, Though the ground on which he did so did not touch on the difficult and interesting questions of international law involved, the judge upheld the protest of Anglo-Iranian and quashed the subpoena against

President Truman’s Offer Proceedings against the other oil companies were postponed until early this year. The matter was revived a few days ago when President Truman conditionally offered to drop the grand jury investigations, provided that the companies agreed to produce for civil action the records demanded by subpoena of the grand jury. The companies rejected the President’s offer, but submitted a motion to the court to quash the investigation. The judge refused this; but he appeared to acknowledge that there are political implications in the whole business when he remarked that the further postponement which he ordered would give the old Administration “time to make up its mind “ what it wants to do, and the new “Administration time to consider if “it wants to act or not”. The Truman Administration recently showed some readiness to temporise on an issue about which it was quite firm before November’s election. The new Administration will face the facts that the investigation is proving embarrassing to the State and Defence Departments in several ways, notably in their attempts to work out a formula (involving co-opera-tion by United States companies) for solving the Persian oil dispute. Also, one of the basic tenets of United States foreign policy is to encourage, wherever possible, the investment of American capital in foreign lands for the development of strategic materials needed for United States defence. Further, commercial interests of the United States might be jeopardised by an indictment which might encourage other parties to agreements to invalidate them. The new Administration might well, therefore, seize on Mr Truman’s post-election “ conditional ” offer to drop the grand jury investigation as giving it a reason for dropping the whole thing. The new Administration would be cautious, however, in view of the almost pathological suspicion felt in> America about anything too big in the field of “big “ business ”.

Vulnerability of “ Bigness ” Their “bigness” does, inevitably, expose the oil companies to attacks. The kernel of the whole issue as it affects a very wide area of public interest—in the United States and beyond—is contained in the Federal Trade Commission’s report, which restates a well-known fact when it shows that seven oil groups, including those with British and Dutch associations, control a predominant part of the world’s oil production and marketing outside the United States and Russiandominated countries. Also, it is not contested that these groups have interlocking interests in some producing fields, and that tacit agreements for the division of trade have come into being in some areas. But undesirable as it may be considered for a large part of the world’s oil supply and marketing arrangements to be concentrated in a few hands, it is difficult to envisage any method for conducting it by a large number of small companies. Whatever is said against them by critics, noone can deny that the major oil companies have succeeded in supplying a world demand that has increased at a stupendous rate; and not even the Mutual Security Organisation (which claims that it has been overcharged to the tune of 67,000,000 dollars) claims that the oil companies have made excessive distributions to shareholders. Actually, the oil companies’ vast overseas expansion has been financed by ploughed-back profits at the oil companies themselves, and no-one claims that they have indulged in excessive capital investment. For instance, the group of American companies operating in Saudi Arabia spent the equivalent of more than £200,000,000 in the exploration and development of their property and the construction of their pipeline. The Iraq Petroleum Company, owned by British, Dutch, French, and American groups, recently spent £43,000,000 merely to build a new pipeline to the Mediterranean. Only outlays on this scale ensure the continuance of supplies to expanding world markets; and only an industry organised on this scale can provide them and accept the associated risks. Society as constituted in the free world may well dislike great concentrations of economic power; but in the case of the international oil industry society is forced to concede the advantages to it of such concentrations.