are testifying Mr. McCloy's people-indicating that that is totally consistent with the committee's intent, the authors' intent.

There are some who say, well, every time a new issue is raised that there is a new amendment. Well, that is not particularly unique in the legislative process and we don't consider it unique in this process. But it should be clear that the overall thrust, the overall objective of this legislation has not varied and we do not intend to vary it, and that is the whole question of the 16 possibly 18 major oil companies using their cash, their assets, their stocks, their securities, for the purpose of buying much of American industry and the grand rush in that direction that we have experienced in recent months and years.

Having made that opening statement and not wanting to detract from the time of the witnesses, Mr. McCloy, we will be very happy to hear from you at this point.

Mr. McCLOY. Thank you, Mr. Chairman.

Senator METZENBAUM. Mr. McCloy, you have a rather lengthy statement and I think that in the interest of making your testimony most valuable to the committee and giving the committee the opportunity to explore with you some of the areas, it would be helpful to us if you felt comfortable in summarizing your testimony and then we will put the entire statement in the record.

Mr. McCLOY. In the interest of brevity, I have attempted to do that and I do have a summary of my statement. In the first place, I think I rather overdid the statement of my so-called qualifications-I can just eliminate those.

Senator METZENBAUM. We who serve in the political arena, we never think that one overdoes his statement on qualifications.

Mr. McCLOY. But at any rate, I don't go back to the ameba.

Senator METZENBAUM. You have had a very distinguished career and we recognize you for that.

Mr. McCLOY. Then, another thing as I indicated, I would like to have for the record, I can put my longer statement into the record. Senator METZENBAUM. The entire statement will be included in the record.

STATEMENT OF JOHN J. McCLOY, ATTORNEY

Mr. McCLOY. In my formal statement I pointed out that I am rather confining myself to the international field, rather than the domestic field. That doesn't mean, as I say that I think that with respect to the domestic field that I think that the legislation is well designed, but I don't want to be thought as having approved that, because I don't; but I have, by reason of my experience, rather concentrated on the international, rather than the domestic. I do appreciate very much the opportunity you have given me to appear before you, and express my views from my governmental and from my private experience, particularly as it relates to the oil industry.

I would like, however, to try to summarize this rather longer statement that I made, and I believe I won't overimpose on you with respect to time.

My first exposure to our dependence on a steady flow of oil was during World War II. This country then had a very well-defined energy policy based on our substantial domestic production to a very large degree. This has been built up over the years, and with the aid

of vigorous exploration and a number of incentives, it has become more than a self-sufficient energy source.

I think it is very interesting now to recall that up until 1948, we were exporters of oil-that the war intervened and that demands on our production were greatly increased. Due in large part to the discernment of President Franklin Roosevelt, the attention of our Government was directed to our need for a solid position in the great reserves of the Middle East. We had largely oiled the war as the saying went. Our oil was more accessible to ourselves and our allies than from any other source.

As the heavy drains on our reserves began to be realized, the significance of the Middle East reserves to our future and that of the free world became increasingly apparent. President Roosevelt went to great effort to establish good relations with the rulers of the producing countries, particularly Saudi Arabia. The result was that our companies did assume a significant presence in the production of oil from these great reserves, and there began an extensive relationship with the countries of the Arabian peninsula, and in the Middle East, generally, which has persisted in spite of many vicissitudes and political developments in respect of the Middle East, until today.

The continued flow of oil at reasonable prices was a critical factor in the rehabilitation of Europe and in the reconstruction following the devastations of World War II. I have often felt that this joint. contribution of the oil companies and the governments has been lost. sight of since the advent of our shortages. Subsequent Presidents, notably President Kennedy, continued this constructive and farseeing policy in the development and productivity of the Middle East reserves.

Even though our Government policies in the Middle East did not always please the Arab-producing countries, our relations have remained generally friendly and very valuable to them and to us, until this day. The benefits we have derived from these countries have enhanced our security and the progress of our economy as well as that of our allies, during the whole postwar rehabilitation period.

In turn, the proceeds of oil production have been applied in a substantial degree to the development of the economy of the producing countries, frequently taking the form of joint ventures with others including the producing countries. These have involved the production of oil, the development of a so-called downstream operation flowing from the production of oil and, in other cases, programs only indirectly, if at all, related to oil or even energy. There are a number of these projects-I know of one, for example, in the Middle East area which is a totally agricultural project-very big one, an enormous one that requires a great outlay of funds, but it doesn't remotely relate to the production of oil as such, except as part of the licensing process and part of the concession granting process, the producing country has urged the American companies and other companies to engage in an agricultural project with a neighbor to insure their food situation will be taken care of.

Senator METZENBAUM. But as you know, as I indicated by my opening statement, that would not be prohibited under this legislation.

Mr. McCLOY. I am not at all sure that you caught the language; indeed, I am quite certain that the language that I have thus far seen doesn't meet the situation as I see it; wouldn't meet that situation, but there are many others.

Senator METZENBAUM. But, Mr. Jackson, I believe, has met with the staff counsel and the staff counsel has indicated that we have no intention to preclude that kind of activity and that if the language presently doesn't cover it, which we think it does, but if it doesn't, we would be receptive to having your law firm suggest such appropriate language as you think is needed.

Mr. McCLOY. I can understand that, Senator, but I warn you against just stating an intent if the language in any way goes out-casts doubt. Senator METZENBAUM. We wouldn't do it by just by stating intentwe would have to clarify the language and we are receptive to using, discussing with you, such suggested language.

Mr. McCLOY. Shall I go on?

Senator METZENBAUM. Of course.

Mr. McCLOY. Not only American oil companies, but foreign oil companies as well have been engaged in these ventures, and today they are in active competition with each other in participation of such ventures. As the sensibilities of the local sovereignties have developed, the producing countries have demanded participation in the ventures while seeking investment on the part of the oil companies to help to defray their costs and share the risks. In short, joint ventures have become a definite and effective pattern of overseas oil operations.

Let me now turn to S. 1246. I made a mistake when I referred to the original bill-I think, perhaps in this case I did, but I said there that the original bill would have completely prohibited oil acquisitions, whether in the course of joint ventures or otherwise, by major U.S. oil producers and their subsidiaries of control of any company wherever located, having assets in excess of $100 million. It may have been, in the original bill, there was a phrase "in commerce"-I think that was dropped out as we came along so I may be mistaken when I said the original bill.

When the crippling effect of the restrictions came to be realized, a series of proposed amendments was hurriedly put forward to cure the, what I think, were the obvious defects of the bill, and I think they have all failed to do so, thus far. The proposed amendments establishing affirmative defenses and those attempting to alleviate extraterritorial concerns by the application of certain rather vague references to international law are quite inadequate. The great impediment which the bill's basic prohibition imposes on the ability of American oil companies and their subsidiaries to compete for participation in overseas joint ventures still remains.

There is nothing sinister about joint ventures. They are a wellestablished mechanism in various industries where capital requirements are large-and in the petroleum industry those requirements typically involve billions of dollars for each undertaking."

Senator METZENBAUM. Mr. McCloy, do you mind if I ask you a question?

Mr. McCLOY. Not at all, by all means go ahead.

Senator METZENBAUM. I want to come to your other points before I finish and be assured of the fact that I have no intention of keeping

you from doing anything but that-but you talked about joint ventures. You are actually addressing yourself, are you not, to initial joint ventures? To putting together a new project in the North Sea; putting together a new program in Saudi Arabia; putting together a new project in some other country, with China for example. These are new projects, and as I have said at the inception and continue to repeat, we have no intent to stop any oil company from going into any new venture; and there will be language that we would be receptive. to studying-we think the bill already does that, but if it doesn't, Mr. Brever has met with Mr. Jackson and has indicated to him that that is the intent of the committee. Am I correct about that, Mr. Jackson? Mr. JACKSON. Yes, sir; he did.

Mr. McCLOY. Well, I just repeat that I don't think that the present language is cures this defect. Now, it may be that there is some language that can be devised that will cure this defect.

Senator METZEMBAUM. In accordance with our intent. So I just want to make it clear to you that we are not changing our intent, but if we have to change some words, we are prepared to do that in order to achieve that.

Mr. McCLOY. Well, you understand, Senator, if the intent or if the record shows what the intent is and that the language of the statute is a little different, it is going to proliferate some litigation, and that is the thing that I am afraid of.

Senator METZENBAUM. As I repeated, we have no intention of just putting some language in and talking about intent or just talking about it here in this record. We are prepared to change whatever language we have to, from a statutory standpoint.

Mr. McCLOY. I understand.

It is not surprising that in the past foreign joint ventures by American companies for oil exploration and production have been encouraged by our Government, which has deemed them to be consistent with the antitrust laws. Preeminent among these were-and I refer to the Aramco situation under which I gather there has been a specific exemption made. There may be other situations such as the Aramco that maybe have not come to your attention, but preeminent among the intent of the U.S. Government to cooperate with the development of resources in the Middle East were the Iranian consortium and the Aramco partnership. As I indicate, there may be others around the world.

The committee, I believe, if it is not already aware, it should be aware of the critical significance of these joint ventures in the production of oil from foreign sources. I understand, and I just want to give this figure, during the first half of this year the free world's crude oil production, excluding that of the United States and Saudi Arabia, averaged approximately 30 million barrels a day, of which 15 million barels were produced by government oil companies operating directly in various countries. There were 14 million barrels which were produced by various kinds of joint ventures, including private oil and industrial companies, and only 1 million barrels were produced by private companies working alone.

In addition, my information is that heavy oil or tar sand production is largely conducted by joint venture operations which involved both Government and private companies. I am also advised that of

natural gas production, there were nine plants, of the nine, five were developed by joint ventures involving private oil companies and, of course, the pattern is very clearly designed for China.

As I say, this bill, however, as presently drafted, even with the provisions of affirmative defenses, and I think this is one of the vices which ostensibly would permit such ventures where they would have "the likely effect" of "substantially" promoting energy, presents a very heavy and debilitating barrier to particiaption by American companies and their subsidiaries in this normal and frequently neces sary shared approach to the production of energy. The affirmative defenses would clearly shift the entire burden of proof onto the venturing company to show that the "likely" effect of the joint venture would be to "substantially" promote energy development. How would you go about proving this, the shift of the entire burden onto the American company to prove that the likely effect of it would be to substantially promote energy? There is no such shift of burden of proof, as I know it, in any other antitrust law. It is quite the other way around.

This would be a burden that would be placed upon the company at the outset and, suppose the only likely effect, would be to maintain production. Certainly this language is perfectly inadequate-completely inadequate to meet the problem that I see in this overseas production.

No foreign producing company is likely to entertain American participation in its joint ventures if it has to face the delays and uncertainties presented by possible Justice Department objections, interpretations, or conditions regarding the joint venture. You wouldn't have an official of the Department of Justice determine whether or not there was a likely enhancement of the production of oil; most surely this would be the case where the validity of the transaction depended on the ex post facto course of litigation where some judge might make this interpretation. There will always be companies, it must be borne in mind, or agencies based in England, Germany, France, Japan--and perhaps eventually in the Soviet Union-all of which will stand ready, able, and willing to partake in such joint ventures. They will be subject to no such uncertainties and probable delays as would be presented by this bill, even in its amended form.

On the contrary, they will be, in the greatest probability, affirmatively aided by the active and vigorous support of their respective

governments.

The bill's affirmative defense certainly will not relieve the major U.S. oil companies and their foreign subsidiaries from restrictions which will severely hinder, if not prevent their ability to compete with foreign oil companies for participation in the development of foreign energy resources through joint ventures.

I think that you will agree that this shift of the burden of proof is a tremendously significant factor and if the major companies are prevented from joining these undertakings which require massive infusions of capital, the enforced sidelining of the larger companies would make it impossible for the smaller companies to take part in the ventures. I think this a very important thing for the committee to bear in mind-that if you don't have these large oil companies con