B-206525 L/M, APR 6, 1982

B-206525 L/M, APR 6, 1982

DIGEST: 1. THE AGREEMENT ON AN INTERNATIONAL ENERGY PROGRAM, 27 U.S.T. 1685, EXPLICITLY REQUIRES THAT EACH PARTICIPATING COUNTRY HAVE READY AT ALL TIMES A PROGRAM OF CONTINGENT OIL DEMAND RESTRAINT AND PROVIDES FOR MONITORING OF THESE PROGRAMS ON A CONTINUING BASIS. NEVERTHELESS, UNDER THE FORMULA BY WHICH OIL WOULD BE SHARED INTERNATIONALLY BY THE COUNTRIES IN THE INTERNATIONAL ENERGY AGENCY, THE FAILURE OF A PARTICIPATING COUNTRY TO IMPLEMENT EFFECTIVE OIL DEMAND RESTRAINT MEASURES WOULD NOT AFFECT THE CALCULATIONS OF ALLOCATION RIGHTS AND OBLIGATIONS OF MEMBER COUNTRIES. THE PRIMARY CONSEQUENCES OF A PARTICIPATING COUNTRY'S NOT ACHIEVING THE REQUIRED OIL DEMAND REDUCTION WOULD BE FELT BY THAT COUNTRY ITSELF IN THE FORM OF AN AGGRAVATED DOMESTIC OIL SUPPLY SHORTFALL. 2. UNDER THE EMERGENCY MANAGEMENT MANUAL OF THE INTERNATIONAL ENERGY AGENCY THE REQUIRED DEGREE OF OIL DEMAND RESTRAINT (EITHER 7 PERCENT OR 10 PERCENT) IS DEEMED TO HAVE BEEN ACHIEVED BY EACH COUNTRY WITHIN 21 DAYS OF THE DECLARATION OF AN EMERGENCY, WHETHER OR NOT IT HAS IN FACT BEEN ATTAINED. THIS SHORT TIME FRAME VIRTUALLY DEMANDS THAT THE INSTRUMENTS FOR PETROLEUM DEMAND RESTRAINT IMPLEMENTATION BE IN PLACE ON A STANDBY BASIS IN ADVANCE OF THE EMERGENCY. THE ELEMENTS AND TYPES OF OIL DEMAND RESTRAINT MEASURES REST WITH THE INDIVIDUAL PARTICIPATING COUNTRIES, BUT THESE MEASURES MUST BE IN ADDITION TO THOSE THAT MAY HAVE BEEN IN EFFECT BEFORE THE EMERGENCY. 3. FAIR SHARING OF AVAILABLE OIL AMONG PETROLEUM COMPANIES OPERATING WITHIN A PARTICIPATING COUNTRY DURING AN INTERNATIONAL ENERGY EMERGENCY IS NOT AN EXPLICIT LEGAL REQUIREMENT OF THE AGREEMENT ON AN INTERNATIONAL ENERGY PROGRAM, 27 U.S.T. 1685, BUT IT IS SET FORTH AS AN OBJECTIVE OF THE PROGRAM DURING INTERNATIONAL OIL ALLOCATION. UNDER THE EMERGENCY MANAGEMENT MANUAL OF THE INTERNATIONAL ENERGY AGENCY, THE RESPONSIBILITY FOR ASSURING FAIR SHARING RESTS WITH THE INDIVIDUAL PARTICIPATING COUNTRIES. HOWEVER, REGARDLESS WHETHER FAIR SHARING IS LEGALLY REQUIRED, IT IS DOUBTFUL THAT THE EMERGENCY SHARING SYSTEM WOULD WORK WITHOUT A FAIR SHARING SYSTEM WITHIN THE UNITED STATES.

PHILIP R. SHARP, HOUSE OF REPRESENTATIVES:

IN YOUR LETTER DATED JANUARY 29, 1982, YOU INQUIRED WHETHER THE INTERNATIONAL ENERGY PROGRAM REQUIRES THE U. S. GOVERNMENT TO HAVE BOTH THE AUTHORITY TO INSTITUTE MECHANISMS (OTHER THAN PRICE) FOR DOMESTIC OIL DEMAND RESTRAINT AND FAIR SHARING OF OIL, AS WELL AS THE ACTUAL MEANS IN PLACE TO IMPLEMENT SUCH MECHANISMS ON SHORT NOTICE. YOU ALSO EXPRESSED INTEREST IN WHETHER THE SPIRIT, IF NOT THE LETTER, OF THE INTERNATIONAL ENERGY PROGRAM MIGHT CONTEMPLATE THESE ACTIONS. OTHER QUESTIONS POSED IN YOUR LETTER HAVE BEEN ADDRESSED UNDER SEPARATE COVER.

AS YOU KNOW, THE AGREEMENT ON AN INTERNATIONAL ENERGY PROGRAM (IEP), 27 U.S.T. 1685, T.I.A.S. NO. 8278, ENTERED INTO FORCE PROVISIONALLY ON NOVEMBER 18, 1974, AND INTO FORCE DEFINITIVELY ON JANUARY 19, 1976, WAS DESIGNED TO FACILITATE COORDINATED AND COOPERATIVE RESPONSES TO SHORT TERM PETROLEUM DISRUPTIONS AND LONG-TERM SUPPLY PROBLEMS. IT HAS NOW BEEN SIGNED BY 21 OIL CONSUMING COUNTRIES FN1 OF THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD), INCLUDING THE UNITED STATES. A MAJOR PURPOSE OF THE IEP IS TO PROVIDE FOR THE ALLOCATING AND SHARING OF AVAILABLE OIL AMONG PARTICIPATING COUNTRIES DURING AN INTERNATIONAL ENERGY EMERGENCY. BOTH DOMESTIC OIL DEMAND RESTRAINT AND FAIR SHARING OF OIL ARE ELEMENTS OF THIS EMERGENCY SHARING SYSTEM, WHICH IS ADMINISTERED THROUGH THE INTERNATIONAL ENERGY AGENCY (IEA), AN AUTONOMOUS ORGANIZATION OF THE OECD. THE IEA'S ACTIONS ARE DIRECTED BY A GOVERNING BOARD, COMPOSED OF DELEGATES FROM EACH PARTICIPATING COUNTRY. THE DETAILS OF THE EMERGENCY SHARING SYSTEM HAVE BEEN SET FORTH IN AN EMERGENCY MANAGEMENT MANUAL, WHICH HAS BEEN ADOPTED BY A DECISION OF THE GOVERNING BOARD. THIS MANUAL IS BINDING ON ALL SIGNATORY COUNTRIES BY VIRTUE OF ARTICLE 52, PARAGRAPH 1, OF THE IEP. 27 U.S.T. 1712. THUS BOTH THE IEP AND THE EMERGENCY MANAGEMENT MANUAL ADDRESS THE ISSUE OF UNITED STATES OBLIGATIONS WITH RESPECT TO THE EMERGENCY SHARING SYSTEM.

WITH RESPECT TO YOUR SPECIFIC QUESTIONS, WE CONCLUDE THAT THE IEP EXPLICITLY REQUIRES THAT EACH PARTICIPATING COUNTRY HAVE READY AT ALL TIMES A PROGRAM OF CONTINGENT OIL DEMAND RESTRAINT AND PROVIDES FOR MONITORING OF THESE PROGRAMS ON A CONTINUING BASIS. UNDER THE EMERGENCY MANAGEMENT MANUAL THE ELEMENTS AND TYPES OF OIL DEMAND RESTRAINT MEASURES REST WITH THE INDIVIDUAL PARTICIPATING COUNTRIES. IN ADDITION, UNDER THE EMERGENCY MANAGEMENT MANUAL THE REQUISITE DEGREE OF OIL DEMAND RESTRAINT (EITHER 7 PERCENT OR 10 PERCENT) IS DEEMED TO HAVE BEEN ACHIEVED BY EACH COUNTRY WITHIN 21 DAYS OF THE DECLARATION OF AN EMERGENCY, WHETHER OR NOT IT HAS IN FACT BEEN ATTAINED. THIS SHORT TIME FRAME VIRTUALLY DEMANDS THAT THE INSTRUMENTS FOR PETROLEUM DEMAND RESTRAINT IMPLEMENTATION BE IN PLACE ON A STANDBY BASIS IN ADVANCE OF THE EMERGENCY.

NEVERTHELESS, AS A MATTER OF PRACTICAL REALITY, UNDER THE FORMULA BY WHICH OIL WOULD BE SHARED INTERNATIONALLY BY THE IEA COUNTRIES, THE FAILURE OF A PARTICIPATING COUNTRY TO IMPLEMENT EFFECTIVE OIL DEMAND RESTRAINT MEASURES WOULD NOT AFFECT THE CALCULATIONS OF ALLOCATION RIGHTS AND OBLIGATIONS OF MEMBER COUNTRIES. THE PRIMARY CONSEQUENCES OF A PARTICIPATING COUNTRY'S NOT ACHIEVING THE REQUIRED OIL DEMAND REDUCTION WOULD BE FELT BY THAT COUNTRY ITSELF IN THE FORM OF AN AGGRAVATED DOMESTIC OIL SUPPLY SHORTFALL.

ON THE OTHER HAND, FAIR SHARING OF OIL IS NOT AN EXPLICIT LEGAL REQUIREMENT OF THE IEP, BUT IT IS SET FORTH AS AN OBJECTIVE OF THE PROGRAM DURING INTERNATIONAL OIL ALLOCATION. UNDER THE EMERGENCY MANAGEMENT MANUAL THE RESPONSIBILITY FOR ASSURING FAIR SHARING LIKEWISE RESTS WITH THE INDIVIDUAL PARTICIPATING COUNTRIES. HOWEVER, REGARDLESS WHETHER FAIR SHARING IS LEGALLY REQUIRED, IT IS DOUBTFUL THAT THE EMERGENCY SHARING SYSTEM WOULD WORK WITHOUT A FAIR SHARING SYSTEM WITHIN THE UNITED STATES.

DEMAND RESTRAINT

ARTICLE 5, PARAGRAPH 1 OF THE IEP, 27 U.S.T. 1693, PROVIDES:

"EACH PARTICIPATING COUNTRY SHALL AT ALL TIMES HAVE READY A PROGRAM OF CONTINGENT OIL DEMAND RESTRAINT MEASURES ENABLING IT TO REDUCE ITS RATE OF FINAL CONSUMPTION IN ACCORDANCE WITH CHAPTER IV WHICH INCLUDES ARTICLES 12-24 AND RELATES TO THE ACTIVATION OF THE INTERNATIONAL ALLOCATION SYSTEM."

THUS THE DEMAND RESTRAINT PROVISIONS OF THE IEP ARE COUCHED IN MANDATORY TERMS, AND ARTICLE 12 OF THE IEP EXPLICITLY SO CHARACTERIZES THEM. 27 U.S.T. 1697. HOWEVER, AS DISCUSSED BELOW, FAILURE OF A GIVEN COUNTRY TO IMPLEMENT DEMAND RESTRAINT MEASURES WOULD HAVE NO IMPACT ON ITS ALLOCATION RIGHTS IN THE EVENT OF AN EMERGENCY.

THE REQUIRED CONTINGENT CAPABILITY FOR OIL DEMAND REDUCTION IS SET FORTH PRIMARILY IN ARTICLES 13 AND 14 OF THE IEP. ARTICLE 13, 27 U.S.T. 1697, PROVIDES:

"WHENEVER THE GROUP FN2 SUSTAINS OR CAN REASONABLY BE EXPECTED TO SUSTAIN A REDUCTION IN THE DAILY RATE OF ITS OIL SUPPLIES AT LEAST EQUAL TO 7 PERCENT OF THE AVERAGE DAILY RATE OF ITS FINAL CONSUMPTION FN3 DURING THE BASE PERIOD, FN4 EACH PARTICIPATING COUNTRY SHALL IMPLEMENT DEMAND RESTRAINT MEASURES SUFFICIENT TO REDUCE ITS FINAL CONSUMPTION BY AN AMOUNT EQUAL TO 7 PERCENT OF ITS FINAL CONSUMPTION DURING THE BASE PERIOD, AND ALLOCATION OF AVAILABLE OIL AMONG THE PARTICIPATING COUNTRIES SHALL TAKE PLACE ***."

ARTICLE 14 SIMILARLY PROVIDES FOR MANDATORY OIL DEMAND RESTRAINT OF 10 PERCENT BY EACH PARTICIPATING COUNTRY WHENEVER THE GROUP OIL SHORTFALL IS AT LEAST EQUAL TO 12 PERCENT. 27 U.S.T. 1697.

UNDER THE EMERGENCY MANAGEMENT MANUAL, PARTICIPATING COUNTRIES HAVE FLEXIBILITY IN THEIR CHOICE OF MEASURES TO BE USED TO REACH MANDATED OIL DEMAND RESTRAINT, BUT THESE MEASURES MUST BE IN ADDITION TO THOSE THAT MAY HAVE BEEN IN EFFECT BEFORE THE EMERGENCY.

IN RECOGNITION OF THE SIGNIFICANCE AND IMPORTANCE OF CONTINGENT OIL DEMAND RESTRAINT CAPABILITY, THE IEP CONTAINS SPECIFIC PROVISIONS FOR MONITORING. ARTICLE 5, 27 U.S.T. 1693, PROVIDES, IN PART:

"THE STANDING GROUP ON EMERGENCY QUESTIONS FN5 SHALL, ON A CONTINUING BASIS, REVIEW AND ASSESS:

- EACH PARTICIPATING COUNTRY'S PROGRAM OF DEMAND RESTRAINT MEASURES,

- THE EFFECTIVENESS OF MEASURES ACTUALLY TAKEN BY EACH PARTICIPATING COUNTRY.

"THE STANDING GROUP ON EMERGENCY QUESTIONS SHALL REPORT TO THE MANAGEMENT COMMITTEE, WHICH SHALL MAKE PROPOSALS, AS APPROPRIATE, TO THE GOVERNING BOARD. THE GOVERNING BOARD MAY, ACTING BY MAJORITY, ADOPT RECOMMENDATIONS TO PARTICIPATING COUNTRIES."

WE RECOGNIZE THAT A "RECOMMENDATION" OF THE GOVERNING BOARD, AS CONTRASTED WITH A "DECISION," IS NOT BINDING ON PARTICIPATING COUNTRIES. SEE ARTICLE 52, PARAGRAPH 2, OF THE IEP, 27 U.S.T. 1712. NEVERTHELESS, THE FAILURE OF A PARTICIPATING COUNTRY TO HAVE AN EFFECTIVE CONTINGENT OIL DEMAND RESTRAINT PROGRAM COULD VIOLATE ITS COMMITMENT UNDER ARTICLE 66 OF THE IEP, 27 U.S.T. 1719, AS WELL AS THE DEMAND RESTRAINT PROVISIONS REFERRED TO EARLIER. ARTICLE 66 PROVIDES:

"EACH PARTICIPATING COUNTRY SHALL TAKE THE NECESSARY MEASURES, INCLUDING ANY NECESSARY LEGISLATIVE MEASURES, TO IMPLEMENT THIS AGREEMENT AND DECISIONS TAKEN BY THE GOVERNING BOARD."

NEVERTHELESS, AS A MATTER OF PRACTICAL REALITY, THE FAILURE OF A PARTICIPATING COUNTRY TO IMPLEMENT EFFECTIVE CONTINGENT OIL DEMAND RESTRAINT MEASURES WOULD NOT AFFECT THE CALCULATIONS OF ALLOCATION RIGHTS AND OBLIGATIONS OF MEMBER COUNTRIES DURING AN INTERNATIONAL OIL ALLOCATION. ARTICLE 7 OF THE IEP, 27 U.S.T. 1694, PROVIDES THAT:

"WHEN ALLOCATION OF OIL IS CARRIED OUT ***, EACH PARTICIPATING COUNTRY SHALL HAVE A SUPPLY RIGHT EQUAL TO ITS PERMISSIBLE CONSUMPTION LESS ITS EMERGENCY RESERVE DRAWDOWN OBLIGATION.

"THE TERM 'PERMISSIBLE CONSUMPTION' MEANS THE AVERAGE DAILY RATE OF FINAL CONSUMPTION ALLOWED WHEN EMERGENCY DEMAND RESTRAINT AT THE APPLICABLE LEVEL HAS BEEN ACTIVATED; POSSIBLE FURTHER VOLUNTARY DEMAND RESTRAINT BY ANY PARTICIPATING COUNTRY SHALL NOT AFFECT ITS ALLOCATION RIGHT OR OBLIGATION. ***"

THE EMERGENCY MANAGEMENT MANUAL, WHICH SUPPLEMENTS THIS LANGUAGE, PROVIDES THAT THE DEMAND RESTRAINT OBLIGATION IS DEEMED TO BE FULFILLED IN EACH PARTICIPATING COUNTRY WITHIN 21 DAYS AFTER A FINDING THAT THE OIL SUPPLY SHORTFALL IS SUFFICIENT TO TRIGGER THE ACTIVATION OF THE INTERNATIONAL OIL ALLOCATION SYSTEM. THIS IS SO REGARDLESS OF WHETHER THE ACTUAL LEVEL OF DEMAND RESTRAINT IS HIGHER OR LOWER IN ANY PARTICIPATING COUNTRY.

THE EFFECT OF THESE PROVISIONS IS TO RENDER THE "MANDATORY" CONTINGENT OIL DEMAND RESTRAINT REQUIREMENTS OF THE IEP AND THE EMERGENCY MANAGEMENT MANUAL SELF-ENFORCING FROM THE PERSPECTIVE OF THE IEA PARTICIPATING COUNTRIES AS A GROUP. THAT IS, IF A PARTICIPATING COUNTRY FAILS TO ACHIEVE THE REQUIRED DOMESTIC OIL DEMAND RESTRAINT DURING AN INTERNATIONAL ENERGY EMERGENCY, IT WILL NOT AS A CONSEQUENCE RECEIVE ANY MORE OR LESS OIL IN THE INTERNATIONAL ALLOCATION PROCESS THAN IT WOULD HAD IT FULLY ACHIEVED THE REQUIRED DOMESTIC OIL DEMAND REDUCTION, REGARDLESS OF THE ADDITIONAL ADVERSE IMPACT ON ITS DOMESTIC ECONOMY. NEITHER WILL ITS ALLOCATION OBLIGATION BE REDUCED IF THE CALCULATIONS INDICATE IT HAS AN OBLIGATION TO SUPPLY OIL TO OTHER MEMBER COUNTRIES. ACHIEVEMENT OR NON- ACHIEVEMENT OF THE REQUIRED DOMESTIC DEMAND RESTRAINT IS A NEUTRAL FACT IN THE CALCULATION OF ALLOCATION RIGHTS AND OBLIGATIONS AND IN THE IMPLEMENTATION OF INTERNATIONAL ALLOCATION, BECAUSE EACH COUNTRY WILL BE DEEMED TO HAVE FULFILLED ITS OBLIGATION WHETHER OR NOT IT ACTUALLY HAS. THUS NO PARTICIPATING COUNTRY WILL BENEFIT VIS-A-VIS THE OTHER MEMBERS BY FAILING TO CONSCIENTIOUSLY IMPLEMENT EFFECTIVE DOMESTIC OIL DEMAND RESTRAINT MEASURES.

THE PRIMARY CONSEQUENCES OF A PARTICIPATING COUNTRY'S NOT ACHIEVING THE REQUIRED OIL DEMAND REDUCTION WILL BE FELT BY THAT COUNTRY ITSELF. ITS DOMESTIC OIL SUPPLY SHORTFALL WILL BE EFFECTIVELY UP TO 7 PERCENT OR 10 PERCENT GREATER THAN THAT OF OTHER MEMBER COUNTRIES WHICH HAVE REDUCED DEMAND, YET FOR ALLOCATION PURPOSES THIS DIFFERENCE WILL NOT BE TAKEN INTO ACCOUNT. THIS MAY SERVE TO AGGRAVATE A GIVEN COUNTRY'S DOMESTIC OIL SUPPLY SITUATION AND EXASPERATE ITS OIL CONSUMERS, PARTICULARLY IF THE COUNTRY IS REQUIRED BY THE IEA EMERGENCY SHARING SYSTEM TO DIVERT OR SHIP OIL SUPPLIES TO OTHER MEMBER COUNTRIES, DESPITE THE FACT THAT THE OIL MAY BE VERY MUCH NEEDED DOMESTICALLY.

ANOTHER SIGNIFICANT FACTOR ABOUT THE OIL DEMAND RESTRAINT OBLIGATION IS THE SHORT TIME FRAME WITHIN WHICH THE REQUIRED REDUCTION IS TO BE ACHIEVED. UNDER THE EMERGENCY MANAGEMENT MANUAL, THE REQUISITE DEGREE OF OIL DEMAND RESTRAINT IS DEEMED TO HAVE BEEN ACHIEVED BY EACH PARTICIPATING COUNTRY WITHIN 21 DAYS AFTER A POSITIVE FINDING BY THE IEA THAT THE OIL SUPPLY SHORTFALL IS SUFFICIENT TO TRIGGER THE ACTIVATION OF THE INTERNATIONAL ALLOCATION SYSTEM, WHETHER OR NOT THE REQUIRED DEMAND REDUCTION HAS IN FACT BEEN ATTAINED. TWENTY-ONE DAYS IS TOO SHORT OF A PERIOD TO ENACT LEGISLATION, HIRE AND TRAIN PROFESSIONAL STAFF, AND IMPLEMENT DEMAND RESTRAINT MEASURES FOR AN ECONOMY THE SIZE OF THE UNITED STATES WITH OIL CONSUMPTION THE SIZE OF THAT WITHIN THE UNITED STATES. THEREFORE, REALISTICALLY, THE INSTRUMENTS FOR PETROLEUM DEMAND RESTRAINT IMPLEMENTATION WOULD HAVE TO BE IN PLACE ON A STANDBY BASIS AS CONTEMPLATED BY ARTICLE 5, PARAGRAPH 1 OF THE IEP, IN ADVANCE OF THE EMERGENCY IF THE REQUIRED DEMAND REDUCTION WERE TO BE ATTAINED WITHIN THE 21-DAY TIME FRAME SET FORTH IN THE EMERGENCY MANAGEMENT MANUAL.

FAIR SHARING

AS YOU KNOW, IN THE CONTEXT OF THE IEP AND ITS EMERGENCY SHARING SYSTEM, FAIR SHARING REFERS TO THE DISTRIBUTION OF AVAILABLE OIL AMONG PETROLEUM COMPANIES OPERATING WITHIN ANY ONE PARTICIPATING COUNTRY SO THAT NO ONE PETROLEUM COMPANY IS DISPROPORTIONATELY PENALIZED OR BENEFITED DUE TO ITS AUTHORIZED ACTIONS TAKEN TO IMPLEMENT THE IEA EMERGENCY SHARING SYSTEM. SUCH FAIR SHARING AMONG OIL COMPANIES IS NOT A LEGAL REQUIREMENT OF THE IEP, YET IT IS ONE OF THE OBJECTIVES IN IMPLEMENTING INTERNATIONAL ALLOCATION. PARAGRAPHS 3 AND 4 OF ARTICLE 9 OF THE IEP, 27 U.S.T. 1696, PROVIDE:

"INSOFAR AS POSSIBLE, NORMAL CHANNELS OF SUPPLY WILL BE MAINTAINED AS WELL AS THE NORMAL SUPPLY PROPORTIONS BETWEEN CRUDE OIL AND PRODUCTS AND AMONG DIFFERENT CATEGORIES OF CRUDE OIL AND PRODUCTS.

"WHEN ALLOCATION TAKES PLACE, AN OBJECTIVE OF THE PROGRAM SHALL BE THAT AVAILABLE CRUDE OIL AND PRODUCTS SHALL, INSOFAR AS POSSIBLE, BE SHARED WITHIN THE REFINING AND DISTRIBUTING INDUSTRIES AS WELL AS BETWEEN REFINING AND DISTRIBUTING COMPANIES IN ACCORDANCE WITH HISTORICAL SUPPLY PATTERNS." THUS LACK OF AN EXPLICIT LEGAL REQUIREMENT DOES NOT NECESSARILY REFLECT THAT FAIR SHARING IS NOT VITAL TO THE VIABILITY OF THE EMERGENCY SHARING SYSTEM.

THE EMERGENCY MANAGEMENT MANUAL PLACES RESPONSIBILITY FOR FAIR SHARING OR CORRECTION OF IMBALANCES BETWEEN COMPANIES ON MEMBER GOVERNMENTS OUT OF RECOGNITION OF THE DIFFERENCES AMONG MEMBER GOVERNMENTS WITH RESPECT TO ANTITRUST LAWS AND COMPETITION. THUS TO THE EXTENT THAT FAIR SHARING IS TO BE ASSURED AMONG COMPANIES, IT IS THE RESPONSIBILITY OF THE INDIVIDUAL GOVERNMENTS OF PARTICIPATING COUNTRIES. REALISTICALLY, REGARDLESS WHETHER FAIR SHARING IS LEGALLY REQUIRED, IT IS DOUBTFUL THAT THE EXISTING IEA PROGRAM FOR INTERNATIONAL ALLOCATION OF OIL DURING AN EMERGENCY WOULD WORK WITHOUT FAIR SHARING.

THE EMERGENCY SHARING SYSTEM IS BASED ON THE PREMISE OF ACTIVE, VOLUNTARY PARTICIPATION BY THE INTERNATIONAL OIL COMPANIES OF IEA MEMBER COUNTRIES IN THE INTERNATIONAL ALLOCATION PROCESS. DURING EMERGENCIES THEIR WIDESPREAD NETWORKS OF FACILITIES AND THEIR ESTABLISHED ORGANIZATIONAL COMPETENCE AND EXPERIENCE IN THE INTERNATIONAL LOGISTICS OF OIL MOVEMENT ARE CRUCIAL TO THE EFFECTIVENESS OF THE SYSTEM. IT WAS PLANNED THAT THE GOVERNMENT AND THE OIL COMPANIES WOULD WORK TOGETHER IN A SPIRIT OF CONSTRUCTIVE COOPERATION. SEE, E.G., "INTERNATIONAL ENERGY PROGRAM," HEARING BEFORE SENATE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, 93D CONG., 2D SESS. 14 (NOV. 26, 1974) AND "U. S. POLICY AND THE INTERNATIONAL ENERGY AGENCY," HEARINGS BEFORE THE SUBCOMMITTEES ON INTERNATIONAL ORGANIZATIONS AND MOVEMENTS AND ON FOREIGN ECONOMIC POLICY, HOUSE COMMITTEE ON FOREIGN AFFAIRS, 93D CONG., 2D SESS. 43-59 (DEC. 18-19, 1974). CONSEQUENTLY, MOST MEMBER GOVERNMENTS HAVE NOT, AS A MATTER OF POLICY, ATTEMPTED TO DUPLICATE THE EXTENSIVE FACILITIES OR EXPERTISE OF THE INTERNATIONAL OIL COMPANIES.

THIS EXPECTATION OF OIL COMPANY VOLUNTARY PARTICIPATION IN AND IMPLEMENTATION OF THE INTERNATIONAL ALLOCATION PROCESS WAS WOVEN INTO THE FABRIC OF THE EMERGENCY SHARING SYSTEM. FOR EXAMPLE, THREE TYPES OF TRANSACTIONS ARE CONTEMPLATED IN IMPLEMENTING THE EXISTING IEA SYSTEM OF INTERNATIONAL OIL ALLOCATION, TWO OF WHICH ARE VOLUNTARY ON THE PART OF THE INTERNATIONAL OIL COMPANIES. AFTER THE IEA CALCULATES EACH PARTICIPATING NATION'S ALLOCATION RIGHT OR ALLOCATION OBLIGATION BY A FORMULA SET FORTH IN PRINCIPLE IN THE IEP AND DETAILED IN THE EMERGENCY MANAGEMENT MANUAL, THE THREE TYPES OF TRANSACTIONS ARE SUCCESSIVELY PHASED INTO THE ALLOCATION PROCESS DEPENDING ON THE SERIOUSNESS OF THE EMERGENCY.

- A TYPE 1 TRANSACTION IS WHERE THE 47 IEA REPORTING OIL COMPANIES (21 U. S. AND 26 FOREIGN COMPANIES) VOLUNTARILY REARRANGE THEIR OWN INDIVIDUAL SUPPLY SCHEDULES TO SATISFY COUNTRY ALLOCATION RIGHTS AND ALLOCATION OBLIGATIONS BY APPROPRIATE REDIRECTION OF OIL WITHIN EACH'S OWN SUPPLY AND DISTRIBUTION SYSTEM. IT IS ESSENTIALLY A CONTINUATION OF NORMAL COMMERCIAL TRANSACTIONS BY THE OIL INDUSTRY, BUT WITH AN EYE TOWARDS SATISFYING MEMBER COUNTRY ALLOCATION RIGHTS AND ALLOCATION OBLIGATIONS.

- A TYPE 2 TRANSACTION IS ALSO A VOLUNTARY COMPANY TRANSACTION, BUT ONE FACILITATED THROUGH THE AUSPICES OF THE IEA. VOLUNTARY OIL COMPANY OFFERS TO SELL OIL ARE SUBMITTED TO THE IEA, WHICH ALSO RECEIVES OTHER VOLUNTARY OIL COMPANY OFFERS TO BUY OIL. THE IEA ATTEMPTS TO MATCH THESE VOLUNTARY OFFERS TO RESULT IN A TRANSACTION WHICH WILL HELP SATISFY COUNTRY ALLOCATION RIGHTS AND ALLOCATION OBLIGATIONS.

- A TYPE 3 TRANSACTION IS NOT VOLUNTARY BUT IS IMPOSED BY DIRECTION OF THE IEA THROUGH THE MEMBER GOVERNMENTS. MEMBER GOVERNMENTS WITH ALLOCATION OBLIGATIONS (OR MEMBERS WITH JURISDICTION OVER PARTICULAR OIL COMPANIES) MUST ORDER A COMPANY OR COMPANIES TO SHIP OIL TO COUNTRIES WITH ALLOCATION RIGHTS. A TYPE 3 TRANSACTION WOULD ONLY BE INITIATED IF THE VOLUNTARY TYPE 1 AND 2 TRANSACTIONS PROVE TO BE INADEQUATE MEANS OF SATISFYING COUNTRY ALLOCATION RIGHTS OR OBLIGATIONS.

TYPE 1 AND 2 TRANSACTIONS, BOTH OF WHICH ARE VOLUNTARY, ARE EXPECTED TO TAKE CARE OF THE VAST MAJORITY OF COUNTRY ALLOCATION RIGHTS AND OBLIGATIONS. ONLY IN THE EVENT OF REMAINING ALLOCATION IMBALANCES WOULD A TYPE 3 MANDATORY ALLOCATION TRANSACTION OCCUR.

HOWEVER, THESE PROPORTIONS COULD BECOME DRAMATICALLY REVERSED IF DISINCENTIVES WERE TO DEVELOP IN THE SYSTEM WHICH SERVE TO DETER VOLUNTARY REALLOCATION ON THE PART OF THE OIL COMPANIES. THE ABSENCE OF ASSURED FAIR SHARING OF AVAILABLE OIL AMONG PETROLEUM COMPANIES OPERATING WITHIN INDIVIDUAL PARTICIPATING COUNTRIES WOULD BE PRECISELY SUCH A DISINCENTIVE. FEW COMPANIES WOULD LIKELY VOLUNTEER TO DIVERT SHIPMENTS OF OIL DESTINED FOR THEIR CUSTOMERS IN COUNTRY A TO ANOTHER IEA MEMBER COUNTRY, IF, BY DOING SO, (1) THEY WOULD NOT BE ABLE TO SUPPLY THEIR OWN CUSTOMER CONTRACTS IN COUNTRY A, AND (2) A COMPETITOR OIL COMPANY IN COUNTRY A, WHO DID NOT VOLUNTEER TO DIVERT OIL SHIPMENTS TO OTHER COUNTRIES, WOULD BE ABLE TO CONTINUE TO SATISFY ITS NORMAL CUSTOMERS AND PERHAPS OBTAIN A COMPETITIVE EDGE WITH RESPECT TO THE NORMAL CUSTOMERS OF OTHER COMPANIES. VOLUNTARY COMPANY PARTICIPATION IN THE IMPLEMENTATION OF THE EMERGENCY SHARING SYSTEM WOULD, THEREFORE, LIKELY BE MINIMAL OR NONEXISTENT IN THESE CIRCUMSTANCES.

THE ABSENCE OF TYPE 1 AND TYPE 2 VOLUNTARY TRANSACTIONS WOULD MEAN THAT ALL OF THE INTERNATIONAL REALLOCATION OF OIL TO SATISFY MEMBER COUNTRY ALLOCATION RIGHTS AND ALLOCATION OBLIGATIONS WOULD HAVE TO BE INDIVIDUALLY MANDATED BY MEMBER GOVERNMENTS. NEITHER THE IEA NOR MEMBER GOVERNMENTS ARE LIKELY TO HAVE SUFFICIENT PROFESSIONAL STAFF, EXPERTISE AND RESOURCES TO STUDY AND ORDER ALL THE NECESSARY REALLOCATION TRANSACTIONS DURING AN INTERNATIONAL ENERGY EMERGENCY.

THE DESIGNERS OF THE EMERGENCY SHARING SYSTEM, BY BUILDING COMPANY VOLUNTARISM INTO THE SYSTEM, HOPED TO OBVIATE THE NEED FOR GOVERNMENTS TO DUPLICATE THE RESOURCES OF THE INTERNATIONAL OIL COMPANIES AS WELL AS MINIMIZE GOVERNMENT INTERVENTION IN THE PRIVATE INTERNATIONAL PETROLEUM MARKET. SEE, E.G., "INTERNATIONAL ENERGY PROGRAM," SUPRA, AND "U. S. POLICY AND THE INTERNATIONAL ENERGY AGENCY," SUPRA. THE ABSENCE OF EFFECTIVE FAIR SHARING PROGRAMS WITHIN MEMBER COUNTRIES WOULD CONFLICT WITH THESE OBJECTIVES AND WOULD TEND TO UNDERMINE THE WHOLE EMERGENCY SHARING SYSTEM. THE SYSTEM COULD WELL FAIL DUE TO THE UNINTENDED MASSIVE QUANTITY AND COMPLEXITY OF DECISIONS AND RESPONSIBILITIES PLACED UPON THE IEA AND MEMBER GOVERNMENTS WITHIN SEVERE TIME CONSTRAINTS AND CRISIS CONDITIONS.

IN ADDITION, WITH SPECIFIC REFERENCE TO THE UNITED STATES, A FAIR SHARING SYSTEM AMONG COMPANIES OPERATING WITHIN THE UNITED STATES IS PARTICULARLY CRUCIAL TO THE EMERGENCY SHARING SYSTEM. FIVE OF THE SEVEN LARGEST INTERNATIONAL OIL COMPANIES ARE AMERICAN (EXXON, GULF, MOBIL, SOCAL, AND TEXACO), AND 21 OF THE 47 IEA REPORTING COMPANIES ARE AMERICAN COMPANIES. IF THESE AMERICAN COMPANIES DID NOT ACTIVELY VOLUNTEER AND PARTICIPATE IN THE IMPLEMENTATION OF THE EMERGENCY SHARING SYSTEM, THE VOLUNTARY ASPECT OF THE SYSTEM WOULD LIKELY COLLAPSE.

THEREFORE, EVEN THOUGH FAIR SHARING MAY NOT BE A LEGAL REQUIREMENT OF THE IEP, IT IS DOUBTFUL THAT THE IEA EMERGENCY SHARING SYSTEM WOULD WORK WITHOUT EFFECTIVE FAIR SHARING SYSTEMS WITHIN INDIVIDUAL PARTICIPATING COUNTRIES.

FN1 AUSTRALIA, AUSTRIA, BELGIUM, CANADA, DENMARK, GREECE, IRELAND, ITALY, JAPAN, LUXEMBOURG, NETHERLANDS, NEW ZEALAND, NORWAY, PORTUGAL, SPAIN, SWEDEN, SWITZERLAND, TURKEY, UNITED KINGDOM, UNITED STATES AND WEST GERMANY.

FN2 ALL 21 MEMBER COUNTRIES TAKEN AS A WHOLE. SEE ARTICLE 1, PARAGRAPH 3, OF THE IEP, 27 U.S.T. 1691.

FN3 "THE TERM 'FINAL CONSUMPTION' MEANS TOTAL DOMESTIC CONSUMPTION OF ALL FINISHED PETROLEUM PRODUCTS." ARTICLE 7, PARAGRAPH 8, OF THE IEP, 27 U.S.T. 1695.

FN4 "THE TERM 'BASE PERIOD' MEANS THE MOST RECENT FOUR QUARTERS WITH A DELAY OF ONE QUARTER NECESSARY TO COLLECT INFORMATION." ARTICLE 18, PARAGRAPH 1, OF THE IEP, 27 U.S.T. 1698.

FN5 THE STANDING GROUP ON EMERGENCY QUESTIONS IS COMPOSED OF ONE OR MORE REPRESENTATIVES OF THE GOVERNMENT OF EACH PARTICIPATING COUNTRY, AND PERFORMS AN ADVISORY ROLE WITH RESPECT TO THE EMERGENCY SHARING SYSTEM. SEE ARTICLES 54 AND 55 OF THE IEP, U.S.T. 1713.