Little Industry Enthusiasm for New Tax : Collapse of Oil Prices Fuels Proposals for Import Tariffs
The recent collapse of oil prices has given new life to proposals for a U.S. tariff on imported oil. But, despite the prospect that the tariff would enable hard-pressed domestic producers to raise prices, too, there is little industry enthusiasm for the new tax.
Even the trade association for the small, independent U.S. producers that would stand to benefit from a tariff on imported oil remains opposed to the tax, though the Independent Petroleum Assn. of America admits that some of its members sharply disagree.
Political leaders, watching the price of oil plummet by nearly 50% in the past nine weeks, have resurrected the idea of an oil-import tariff as a source of up to $18 billion in tax revenue to help trim the huge federal budget deficit.
President Reagan, who has steadfastly opposed an import fee, indicated for the first time Tuesday that he was now willing to consider it.
The greater an oil company’s reliance on imported oil, the stronger its opposition to the legislation. Mobil, for instance, is the U.S. refiner most dependent on foreign oil and has been fighting an import tariff in newspaper advertisements. But Arco, headquartered in Los Angeles, gets more than 90% of its oil from U.S. fields and has so far shied away from taking a position--weighing its dislike of government meddling against the potential competitive benefits of an import tariff. And in Wichita Falls, Tex., many of the 1,000 hard-pressed members of the North Texas Oil and Gas Assn. are telling the association’s executive vice president, Tom Haywood, that a fee on imported oil would let them raise prices, too, and help stem a financial crisis.
“It’s mainly the big multinationals that oppose it,” Haywood said.
Various proposals have called for tariffs on imported crude oil of $5 to $10 per barrel. About 32% of the 15.7 million barrels of oil used daily in this country last year came from other countries. A $10-per-barrel fee could thus raise $18 billion a year.
There is broad agreement that the price of domestically produced oil would inevitably rise by $10 per barrel as well to meet the import price--a boon to the 15,000 independent domestic producers that have been battered by the price slide.
Analysts say such a tariff probably wouldn’t have any dramatic financial implications for the major producers and refiners one way or the other. There would be no sharp falloff in demand for oil, for example.
Instead, the American Petroleum Institute cites the same objections as other opponents of the tariff: It would force consumers and industries to pay more for oil, increasing inflation and putting U.S. manufacturers at a disadvantage with foreign competitors that would be buying cheaper oil to run their factories and make their products.
The trade association says an import tax of $8 per barrel would raise gasoline, heating oil and diesel fuel an average of 19 cents a gallon. Mobil says the reduced economic activity that would result from a $10-a-barrel tax could export 500,000 jobs, while inflation climbs 1% to 2%. Thus, the long-term economic slowdown would also mean less demand for oil products.
Many of those arguments ignore the dramatic price decline that has already occurred, proponents say. A $10 fee on top of today’s spot prices of about $16 per barrel of crude would leave prices well below the $30 per barrel that oil was costing as recently as late November--hardly fuel for inflation.
Analyst Henry DeNero of McKinsey & Co. said the concern about the international competitiveness of U.S. industry is largely a “smoke screen” because, with the exception of chemicals, the most energy-intensive U.S. industries, such as steel, aren’t competitive to begin with.
Besides the tax revenue that a tariff would produce, one effect that has special appeal to those concerned about future oil shortages is that the extra revenue for domestic producers would tend to encourage new drilling and exploration.
The price decline that began in 1981 has already removed much of the financial incentive for oil exploration, and the number of working oil rigs here and abroad has fallen sharply. In theory, the extra money that an import tariff would funnel toward domestic producers could be invested in finding new sources of oil. But there is considerable skepticism that producers would use the money that way--and a widespread belief that a new version of a “windfall profits” tax would be slapped on the domestic producers to prevent them from making a profit from the artificially high price.
“There would be a howl of protest over that,” said analyst John Curti of Birr, Wilson & Co., San Francisco. “Any big benefits to the oil industry would be taxed away . . . unless there was some way to ensure that some of that windfall would be put back in the ground.”
