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LET ME ADD THAT THE DECISION BY THE MIDDLE EAST COUNTRIES TO
EXPAND THEIR OIL PRODUCT EXPORT POTENTIAL OCCURRED IN THE MID
1970'S WHEN IT SEEMED THAT EVERY ONE THOUGHT THAT OIL DEMAND
WOULD RISE INEXORABLY, REGARDLESS OF COST. THEY TOO ARE TAKING
INTO ACCOUNT THE NEW REALITIES OF THE MARKET PLACE AS EVIDENCED
BY THE RECENT DECISION OF SAUDI ARABIA TO POSTPONE INDEFINITELY
CONSTRUCTION OF TWO NEW REFINERIES WITH 325 THOUSAND BARRELS PER
DAY OF REFINERY CAPACITY.

GIVEN A SITUATION OF WORLD REFINERY OVERCAPACITY AND SLUGGISH
DEMAND, WHAT SHOULD BE THE APPROPRIATE U.S. RESPONSE?

AS YOU KNOW, THIS ADMINISTRATION SUPPORTS FREE TRADE. IN
PRINCIPLE, WE DO NOT BELIEVE THAT IT IS IN THE BEST INTERESTS OF
THE U.S. TO INSULATE ANY SECTOR OF THE U.S. MARKET FROM
INTERNATIONAL TRADE. EXPERIENCE HAS SHOWN THIS TO BE THE BEST
POLICY. RATHER THAN SEEKING TO PROTECT U.S. REFINERS FROM OIL
PRODUCT IMPORTS, WE ARE ENCOURAGING THE ELIMINATION OF TRADE
BARRIERS IN OTHER COUNTRIES TO ALLOW THE MARKET TO DICTATE THE
MOST EFFICIENT ABSORPTION OF OIL PRODUCT IMPORTS. WE DO NOT
BELIEVE THE CURRENT SITUATION JUSTIFIES IMPOSING ADDITIONAL
RESTRICTION ON FOREIGN IMPORTS. AS SECRETARY HERRINGTON HAS
STATED, "WE WILL NOT ALLOW DOMESTIC REFINERY CAPACITY TO GET SO
LOW THAT OUR SECURITY IS THREATENED, BUT WE MUST ALSO NOT DEPRIVE
THE AMERICAN CONSUMER OF THE BENEFITS THAT RESULT FROM FREE

COMPETITION AND LOWER PRICES."

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WE HAVE CARRIED THIS MESSAGE TO OUR PARTNERS IN THE ORGANIZATION
FOR ECONOMIC COOPERATION AND DEVELOPMENT AND WITHIN THE INTERNA-
TIONAL ENERGY AGENCY, IN MEETINGS BOTH HERE AND ABROAD. THEY ARE
LISTENING AND LOOKING TO US FOR LEADERSHIP IN THIS MATTER.

I MUST EMPHASIZE THAT IF, CONTRARY TO OUR BEST INTERESTS, THE
U.S. PURSUES PROTECTIONIST MEASURES ON OIL PRODUCT IMPORTS, OTHER

COUNTRIES ARE LIKELY TO ADOPT SIMILAR MEASURES, LEADING TO
GREATER INEFFICIENCIES AND INCREASED COST TO ALL CONSUMERS.
PROTECTIONIST PRESSURES ON PETROLEUM PRODUCTS BY THE U.S. AND
OTHER COUNTRIES COULD SPILL OVER TO TRADE IN OTHER PRODUCTS.

IN

WE BELIEVE THERE IS NO REASON FOR CURRENT ALARM BASED ON THE
TRENDS THAT ARE VISIBLE AT THIS TIME. TO BEGIN WITH, OUR LEVEL
OF DEPENDENCE ON OIL PRODUCT IMPORTS IS SIMPLY NOT THAT GREAT.
As I PREVIOUSLY NOTED, IN 1984 NET OIL PRODUCT IMPORTS ACCOUNTED
FOR ONLY 9 PERCENT OF OUR TOTAL OIL DEMAND WHILE GASOLINE IMPORTS
ACCOUNTED FOR ONLY 5 PERCENT OF OUR GASOLINE DEMAND. SECONDLY,
THE U.S. TRADITIONALLY IMPORTS PRODUCTS FROM MANY COUNTRIES.
1984 OIL PRODUCTS WERE OBTAINED FROM OVER 30 COUNTRIES. SUCH
DIVERSIFICATION PROMOTES NATIONAL SECURITY BY AVOIDING DEPENDENCE
ON A SMALL NUMBER OF UNSTABLE SOURCES. THIRD, WE HAVE SUBSTANTIAL
DOMESTIC REFINING CAPACITY WHICH IS ABOUT EQUAL TO CURRENT CONSUMP-
TION. FURTHER, IF THERE WERE A SEVERE INTERRUPTION, CRUDE WOULD
LIKELY BE IN SHORT SUPPLY RATHER THAN PRODUCT.

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FINALLY, IF CONSTRAINTS WERE PLACED ON OIL PRODUCT IMPORTS, THIS WOULD BE AN INTERVENTION BY THE U.S. GOVERNMENT INTO THE MARKETPLACE. FURTHER, WE WOULD NEED TO IMPORT MORE CRUDE OIL TO PRODUCE THE ADDITIONAL PRODUCTS NEEDED. SINCE PERSIAN GULF PRODUCERS HOLD A SIGNIFICANT PROPORTION OF SHUT-IN CRUDE OIL PRODUCTION, MUCH OF THE ADDITIONAL CRUDE OIL IMPORTS WOULD PROBABLY HAVE TO COME FROM THESE SOURCES. ABOUT 97% OF OUR OIL PRODUCT IMPORTS COME FROM NON-PERSIAN GULF SOURCES, ANY CONSTRAINTS ON OIL PRODUCT IMPORTS WOULD PROBABLY REDUCE SUPPLIES FROM THESE SOURCES, LEADING TO THE ANOMALOUS SITUATION OF THE U.S. INCREASING ITS DIRECT DEPENDENCE FOR OIL SUPPLIES ON PERSIAN GULF SOURCES.

ADDITIONALLY, SINCE

SUCH A SUBSTITUTION OF ADDITIONAL CRUDE IMPORTS FROM THE PERSIAN GULF FOR OIL PRODUCT IMPORTS FROM NON-PERSIAN GULF SOURCES WOULD NOT ENHANCE U.S. SECURITY.

BEFORE CLOSING, I WOULD LIKE TO COMMENT BRIEFLY ON WHAT IS BEING DONE TO CONTINUE TO MONITOR THE IMPACT OF WORLD OIL MARKET CONDITIONS ON THE U.S. REFINING INDUSTRY. THE DEPARTMENT OF ENERGY IN JUNE OF LAST YEAR REQUESTED THAT THE NATIONAL PETROLEUM COUNCIL, UNDERTAKE A STUDY OF THE FACTORS AFFECTING THE DOMESTIC REFINING INDUSTRY IN THE 1985-1990 TIMEFRAME. AMONG THE ISSUES TO BE ADDRESSED ARE THE CURRENT AND FUTURE IMPACT OF OIL PRODUCT IMPORTS. THIS STUDY IS EXPECTED TO BE COMPLETED BY YEAR END.

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ADDITIONALLY, THE DEPARTMENT IS CURRENTLY WORKING TO EXTEND

ANALYSIS OF CURRENT AND FUTURE CONDITIONS IN THE DOMESTIC

REFINING INDUSTRY.

THE STUDY ALSO WILL ESTIMATE THE ECONOMIC

COSTS AND BENEFITS OF A PROTECTIVE MEASURE, SUCH AS AN INCREASED TARIFF ON IMPORTED PETROLEUM PRODUCTS. THE STUDY IS SCHEDULED TO BE COMPLETED IN JUNE. WE WILL SUBMIT A COPY OF THE STUDY AS SOON AS IT IS COMPLETED.

THE DEPARTMENT IS ALSO PARTICIPATING IN A STUDY OF THE TRADE
ASPECTS OF OIL PRODUCT AND PETROCHEMICAL IMPORTS. THIS IS AN
INTERAGENCY STUDY BEING LED BY THE OFFICE OF THE U.S TRADE
REPRESENTATIVE. THE PURPOSE OF THIS STUDY IS TO INCREASE OUR
UNDERSTANDING OF WHAT IS HAPPENING AND WHY. IN ADDITION, I
UNDERSTAND THAT THE INTERNATIONAL TRADE COMMISSION HAS RECENTLY
COMPLETED A STUDY AT THE REQUEST OF CONGRESSMAN GIBBONS AND
OTHERS ON THE POTENTIAL IMPACT OF FOREIGN GOVERNMENTS' POLICIES
OF PRICING NATURAL RESOURCES TO THEIR DOMESTIC INDUSTRIAL USERS
AT PRICES BELOW THE EXPORT SELLING PRICE OF THE NATURAL
RESOURCES.

AS I UNDERSTAND IT, THE PRIMARY PURPOSE OF THE ITC STUDY WAS TO EVALUATE WHETHER IMPORTS OF PRODUCTS, INCLUDING OIL PRODUCTS,

WHICH HAVE BEEN PRODUCED FROM PRICE- CONTROLLED NATURAL RESOURCES CONFERS A COMPETITIVE, AND POSSIBLY UNFAIR, ADVANTAGE TO THE

EXPORTER WHEN COMPARED TO THE COST OF PRODUCTION OF THAT PRODUCT IN THE U.S.

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WHILE THESE STUDIES WILL PROVE INFORMATIVE AND WILL HELP US
CONTINUE TO MONITOR THE IMPACT OF PETROLEUM PRODUCT IMPORTS ON
THE U.S. REFINERY INDUSTRY, I WANT TO POINT OUT THAT IT IS
INDUSTRY'S RESPONSIBILITY TO PRESENT ITS CASE IF IT BELIEVES THAT
UNFAIR TRADE PRACTICES ARE INVOLVED. IF U.S. REFINERS BELIEVE
THAT UNFAIR TRADE PRACTICES ARE INVOLVED IN THE PARTICULAR
SITUATION OF THE EXPORT OF OIL PRODUCTS TO THE U.S., I URGE THAT
THEY PRESENT THEIR ARGUMENTS TO THE APPROPRIATE AGENCIES OF THE
U.S. GOVERNMENT AS SOON AS POSSIBLE SO THAT WE MAY REVIEW THE

EVIDENCE.

THIS CONCLUDES MY TESTIMONY, I WOULD BE HAPPY TO ANSWER ANY
QUESTIONS YOU MAY HAVE.