APPENDIX 2 LETTER TO HON. ARTHUR F. SAMPSON, ADMINISTRATOR, GSA, FROM ATTORNEY GENERAL EDWARD H. LEVI, RESPONDING TO A PRESIDENTIAL REQUEST UNDER SECTION 708 OF THE DEFENSE PRODUCTION ACT, FOR APPROVAL OF IMMUNITY FROM ANTITRUST LAWS AND THE FEDERAL TRADE COMMISSION ACT Hon. ARTHUR F. SAMPSON, DEPARTMENT OF JUSTICE, Washington, D.C., March 28, 1975. Administrator General Services Administration, DEAR MR. SAMPSON: This is in response to your letter of March 11, 1975 requesting my consultation and approval of a proposed Voluntary Agreement and Program under Section 708 of the Defense Production Act of 1950, as amended, 50 U.S.C. App. § 2158. The document you enclose, which was forwarded to you for approval by the sponsoring agency, the Federal Energy Administration, would allow certain U.S. oil companies to consult and cooperate with an International Energy Agency (IEA) established pursuant to an Agreement on an International Energy Program to which the United States is a party along with other members of the Organization for Economic Cooperation and Development. Section 708 of the Defense Production Act, as amended, would provide immunity from the antitrust laws and the Federal Trade Commission Act with respect to acts or omissions to act by participants in the Voluntary Agreement, and their designated affiliates, which are undertaken pursuant to the terms of the Agreement in order to implement the International Energy Program (IEP). Such acts, as limited and defined by Sections 5 and 6 of the Agreement, would include membership in standing groups, working parties and advisory committees established by the IEA, if the participant is requested to join such groups by that agency; furnishing of data and information, and consultation and planning in respect thereof in accordance with the IEP; consultation and planning to formulate and develop principles/plans to implement the international allocation of petroleum pursuant to the IEP; and action taken in implementation of approved principles/plans if notified by the Administrator of the Federal Energy Administration that emergency measures established in the IEP have been activated in accordance with the terms of the IEP. The Agreement also provides for membership in, and similar activities by, ancillary industry groups established by the U.S. Government. I should note in passing, however, that unlike those formed by the IEA, operations of these groups, if established by the State Department, would be governed by the provisions of the Federal Advisory Committee Act 5 U.S.C. App. I (1973 Supp.). If established by the Federal Energy Administration, they would also be subject to the special provisions of Section 17 of the Federal Energy Administration Act of 1974, 15 U.S.C.A. 776. In reviewing the Voluntary Agreement and Program, I must consider whether any adverse effects it may entail for the competitive free enterprise system outweigh the benefits it may provide to the national defense. As you are aware, Justice Department and Federal Trade Commission staffs participated actively in the many interagency consultations involved in the process of drafting this Agreement. As a result, the document incorporates procedures to ensure all practicable antitrust safeguards consistent with the fact that the principal industry bodies contemplated would be formed by and would work under an international agency, not an agency of the United States Government. I conclude, therefore, that in relation to the defense benefits offered, the possibility of adverse effects to competition from actions by oil companies under the Agreement would be minimized by rigorous application of these safeguards. Accordingly, I hereby give my approval to the proposed Voluntary Agreement and Program. In studying the proposed Agreement I have also considered whether it is in compliance with the terms of the Defense Production Act. This question is twofold: first, whether the Agreement will tend to "further the objectives of [the Defense Production] Act" and therefore qualify as a voluntary agreement providing for exemption from the antitrust laws and the Federal Trade Commission Act pursuant to Section 708 of the Act; and second, whether the procedures proposed to approve the Agreement and to request actions by the participants comport with the requirements of Section 708. On the first point, the objectives of the Act, which are set out in Section 2, as amended (50 U.S.C. App. § 2062), include "the development of preparedness programs" "in order to provide for the national defense and security." The IEP is conceived of as a means to reduce the vulnerability of this nation and its allies to a reduction in the general availability of foreign oil by minimizing the effects of a supply interruption. Such a plan clearly seems to fall within the scope of a "preparedness program," and because the plan is aimed at insuring adequate supplies of a commodity essential for the national defense of the United States and its allies, it is of course a program providing for the national defense and security. I conclude, therefore, that the Agreement, by furthering that international plan, furthers the objectives of the Act and would qualify as a voluntary agreement under Section 708 of the Act. The second question relates to the procedures by which the Agreement will be approved and the actions pursuant to it will be requested. Section 708 (a) of the Act authorizes the President to consult with representatives of private companies "with a view to encouraging the making by such persons with the approval by the President of voluntary agreements and programs. . ." In turn, Section 708(b) grants antitrust exemption with respect to any act or omission to act by the parties to the agreement "if requested by the President pursuant to a voluntary agreement or program approved under subsection (a) and found by the President to be in the public interest as contributing to the national defense..." In practice, however, the voluntary agreements made in the past, and the proposed Agreement, have uniformly been drafted by the sponsoring government agency, perhaps amended after consultation with industry representatives, and finally presented to the President's delegate for approval. And, in earlier voluntary agreements the only statutory request to act made by the President's delegate was the request to particular members of industry to become participants in the agreement, each act pursuant to the agreement being considered as having been requested by the request to participate therein. This has always been the way that the Act has been interpreted and administered by the Executive Branch. Moreover, the Small Business Mobilization Law, 56 Stat. 357 (1942), which had a similar voluntary agreement provision on which Section 708 is based, was interpreted by the Executive Branch in a like manner. Congress has apparently assented to this administrative interpretation. In the face of the large number of DPA voluntary agreements drafted and carried forward in this manner, Congress has amended Section 708 a number of times since 1950 without indicating any changes in the procedures to be used for future agreements. I would conclude therefore that the procedures for adoption of the proposed Agreement and those contemplated for requesting actions thereunder are within the requirements of Section 708 so as to confer exemption from the effects of the antitrust laws and the Federal Trade Commission Act with respect to actions under the Agreement. The foregoing review would appear to answer the request in your letter of March 11, 1975 for my views as to whether your approval of the proposed Agreement and Program obviates any need on your part for further approvals or requests with respect to subsequent action which may be undertaken in implementation of the Agreement. In specific response, I would advise that once you have given statutory approval to the agreement, you need only address to each industry member presently or in the future proposed as a participant a single request to enter the Agreements and participate in it in accordance with its terms. This is not to say that your responsibility necessarily ends there; since Section 708 (d) authorizes you to withdraw any request or finding you have made. you will of course wish to continue to monitor operations under the Agreement. particularly from the viewpoint of your priority and allocation responsibilities under the Defense Production Act and as set forth in Executive Order 10480. In your letter of March 11, 1975 and a later lettter of March 19, 1975 you have forwarded for my approval lists of members of the industry, with designated affiliates, which you have received from the Federal Energy Administration and to whom it is proposed that you have address requests to enter the Agreement and participate thereunder. This is in compliance with Section 708 (c) of the Act, which requires that the President's delegate consult with the Attorney General and with the Chairman of the Federal Trade Commission not less than 10 days before making any request or finding and that he obtain the approval of the Attorney General to any request before making the request. Section 9 of the proposed Agreement outlines procedures for an oil company to become a participant. It notes that a request for participation is to be made to a company, "together with such of its affiliates as it may have previously designated. In compliance with this, companies to be requested to participate in the Agreement have already furnished lists of designated affiliates. Review of these lists, a few of them quite voluminous, has given us some concern. It may be that in haste to effectuate the Agreement and get the IEA industry bodies organized some misapprehension has arisen among some of the oil companies contacted as to what affiliates should be designated. I do not believe that the opportunity for antitrust immunity should extend, so far as a participating company is concerned, to virtually every worldwide affiliate it effectively controls. In effect, this approach was followed in the past with respect to operations under the Foreign Petroleum Supply Voluntary Agreement. In contrast, I believe that immunity should be much more limited and controlled. I am prepared to approve requests to act covering only such affiliated companies of a parent as to which there are substantial grounds to believe its participation is reasonably necessary to operations under the Agreement as presently foreseen. Holding these views, I think it incumbent upon the sponsoring agency to screen the lists of designated affiliates forwarded to it as to be able to assure the General Services Administration and the Attorney General in forwarding these lists for a request to act that each affiliate so listed meets the criterion set forth above. The sponsoring agency should also ascertain and transmit information on the percentage of stock ownership or degree of effective control a company holds over each designated affiliate so as to provide assurance that the parent is in a position to speak for its affiliate. I am loathe to withhold approval of the oil companies and their affiliates until such a screening process has been completed. I am well aware that there is pressing need for full activation of the IEP. This requires speedy completion of U.S. legal requirements and early organization of the industry working bodies to assist in implementing the program. At the same time, however, my responsibility will not permit me to issue an unconditional approval for the participation of all affiliates of these companies at this time. I have concluded that the best resolution of this problem is to provide approval of the proposed requests with respect to the parent companies. With respect to their designated affiliates, however, I am approving the requests for a period of thirty days from the date of this letter. The Federal Energy Administration, after reinvestigation of each such designated affiliate, is to furnish me with respect to each such affiliate (1) written assurance that to the best of FEA's information and belief, there are substantial grounds to believe the affiliate's participation is reasonably necessary to operations under the agreement as presently foreseen, and (2) information on ownership or control of the affiliate by the parent company. We have already begun staff consultations with the Federal Energy Administration to effectuate this. Acceptance of your request to act will convey the full antitrust immunity to the parent. It will further provide full antitrust immunity to all designated affiliates for a period of thirty days. Following provision of the required information by the Federal Energy Administration, I will advise you promptly which affiliates will then be approved by me. In accordance with the foregoing, I am approving unconditionally consultation and cooperation with IEA by the companies whose names are underscored on the attached list. I am giving approval to consultation and cooperation by the other firms on the list for a period of thirty days. I am mindful that in the thirty-day period following the date of this letter some time will be consumed in fulfilling the remaining legal requirements under the Act, in action by the IEA to select companies for its working groups, and in organizing those groups. Thus, it is highly unlikely that in this period any actions will be undertaken by the designated affiliates as to which the question of antitrust immunity would yet arise. Sincerely, EDWARD H. LEVI, VOLUNTARY AGREEMENT AND PROGRAM 1. NEED FOR AN AGREEMENT The oil embargo of 1973 and the marked increase in world oil prices which occurred almost simultaneously severely disrupted the economies of most importing nations and strained their political, strategic, and economic relationships. Inadequate cooperation among the industrialized countries resulted in unilateral efforts on the part of many to obtain supplies of oil. The United States Government and certain other members of the Organization for Economic Cooperation and Development (OECD), based on the need demonstrated by that experience, have undertaken to achieve a coordinated approach to decrease their dependence on foreign oil, and to reduce the strategic and economic vulnerability which such dependence can cause. The United States Government and such other governments have decided that their best interests lie in taking steps, such as developing an effective international oil allocation plan, to minimize the effects of a supply interruption and to assure that the exigencies of extreme shortage do not unduly disrupt national economies or the world petroleum market. In this connection, the President of the United States has determined that, with respect to this country's national security and defense programs and the related programs of certain other members of the OECD, should any substantial reduction in world petroleum supplies occur, it would directly impair United States defense mobilization efforts. In addition, failure to ensure that the remaining supplies were allocated rationally and fairly among the major consuming nations would have an adverse impact on U.S. national security and defense mobilization efforts. In view of the foregoing, the President has determined that the United States must be prepared to cooperate with other nations in the distribution of available supplies on a rational and equitable basis, in order to utilize them with maximum efficiency during any future supply interruption, thus minimizing the impact of any interruption on the economy and security of the United States. As part of a policy to reduce their dependence on foreign oil and to obtain the greatest utility of supplies during an oil emergency, the United States and certain other OECD members have signed an Agreement on an International Energy Program (IEP), pursuant to which an International Energy Agency (IEA) has been established as an autonomous institution within the OECD. It is a premise of the IEP Agreement that consultation and cooperation between oil companies and the IEA is essential to the effective functioning of the IEP, and thus to the solution of economic, strategic and national security problems facing oil importing nations. Accordingly, the President of the United States has requested that this Voluntary Agreement and Program be entered into and that the participating oil companies undertake the actions contemplated hereby in order to further the objectives of the IEP and to implement the related policies and procedures of the IEA, on the grounds that such participation and action would be in the public interest as contributing to the national defense of the United States. 2. WHAT THIS AGREEMENT DOES This is a Voluntary Agreement and Program under Section 708 of the Defense Production Act of 1950, as amended (64 Stat. 818). It provides immunity from the antitrust laws and the Federal Trade Commission Act with respect to acts or omissions to act by participants, and such of its affiliates as it may have designated in accordance with Section 9, in order to implement the objectives of the IEP. This Voluntary Agreement and Program contemplates that such acts by the participants will include (i) the membership of participants in standing groups, working parties, advisory bodies or other bodies established at the request of the IEA or the U.S. Government for the purpose of implementing the IEP, (ii) consultations, planning, and individual and joint actions which participants may take to implement the international allocation of petroleum pursuant to the IEP, and (iii) the furnishing by participants of data and information, and consultations and planning in respect thereof, in accordance with the IEP, all as included within the scope of Sections 5 and 6 of this Agreement. This Agreement does not contemplate acts which affect the production, refining, transportation, or the marketing of petroleum within the United States except such acts which are reasonably in accordance with the provisions of the IEP or priniciples/plans approved pursuant to Section 6 of this Agreement. Any acts pursuant to this Agreement remain subject to all applicable United States laws and regulations (other than the antitrust laws and the Federal Trade Commission Act), including but not limited to regulations pursuant to the Emergency Petroleum Act or any successor statute. 3. DEFINITION FOR PURPOSES OF THIS AGREEMENT (a) "Oil Companies" means international companies, national companies, integrated and non-integrated companies, and other entities which play a significant role in the petroleum industry. (b) "Administrator" means the Administrator of the Federal Energy Administration. (c) "Petroleum" means (A) Crude oil (B) Natural gas liquids and other liquids produced in association with crude oil or natural gas (C) Refined petroleum products, including but not limited to gasoline, kerosene, distillates, residual fuel oil, refined lubricating oil, and liquefied petroleum gases (D) Blending agents and additives used in conjunction with crude oil and refined petroleum products (d) "United States" when used in the geographical sense means the several states, the District of Columbia, Puerto Rico, and the territories and possessions of the United States. In addition, the term shall include those areas which are not a part of the United States but which are under the jurisdiction of the United States for the exploration and production of petroleum and other petroleum-related activities. (e) "International Energy Agency" (IEA) means the International Energy Agency established by Decision of the Council of the OECD, dated November 15, 1974. (f) "International Energy Program" (IEP) means the program established pursuant to the Agreement on an International Energy Program signed at Paris on November 18, 1974, and adopted by the Decision of the Governing Board of the International Energy Agency on the same date, as it may be amended in accordance with its terms. 4. INTERNATIONAL ENERGY PROGRAM (IEP) This Agreement facilitates implementation of the pertinent provisions of the Agreement Establishing an International Energy Program. The text of the IEP Agreement is attached hereto as an appendix. It is understood that the U.S. Government does not view this Agreement and Program as in any way affecting the rights and obligations of the United States as a party to the IEP. 5. MEETINGS AND CONSULTATION (a) Upon the invitation of the IEA and with the approval of the Administrator and the Attorney General, any participant herein may accept membership in any advisory body, working party, or other group established at the request of or by the IEA. In addition, subject to the approval of the Attorney General, any participant to this Agreement may accept membership in any advisory body, working party or other group established by the Administrator or the Secretary of State with respect to the IEP provided that any such group shall be chaired by a full time employee of the U.S. Government who shall control the agendas for all meetings of such group. The Administrator shall give notice to the Chairman of the Federal Trade Commission of each participant's membership in any group pursuant to this subsection. (b) Each participant to this Agreement may as a member of a group established as provided in subsection 5(a) advise and consult with the IEA or the U.S. Government or with other members of such group, at meetings held in accordance with subsection 5(c), with respect to any aspect of the IEP, including the development and recommendation to the IEA of emergency measures and programs and plans subsidiary thereto, to be implemented pursuant to Section 6. Each participant may individually advise and consult with the IEA or the U.S. Government with respect to all such matters. Each participant may furnish and exchange information and data, including confidential and proprietary information or data, in order to implement the IEP or principles/plans approved pur53-813-75———5 |