Once again, prospects seem to have brightened for a U.S. tax on foreign oil. President-elect Bill Clinton has hinted that he prefers an import levy to a gasoline tax increase. Yet an oil import fee represents no less a burden on taxpayers than a gasoline levy does.

An import fee on crude oil would raise the feedstock costs of refiners already struggling to comply with tough new air quality regulations. They would have to pass along the extra costs or go out of business; either way, product prices would rise. An import fee's economic effects thus would closely resemble those of a gasoline levy, spread over several products instead of one. The only advantage to the government would be camouflage: An oil import fee would be less recognizable as a tax on consumers than its gasoline counterpart.

Beyond that, the U.S. would have to complicate tariff administration with exemptions for Western Hemisphere crude suppliers such as Mexico and Venezuela. Such mandatory favoritism, combined with an import fee's inherent commercial effrontery, would invite retaliation from other oil exporters. And it would set a regrettable protectionist precedent in a world that needs more international trade, not less.

DEMOGRAPHIC PROBLEM

An oil import fee thus would hurt U.S. consumers, refiners, and trade relationships. In the past the proposition has suffered not just from these drawbacks but from American demography as well. Far more voters would suffer than would benefit from an oil import fee. That remains the case. Yet reemergence of the oil import fee issue may mean that the political calculus has changed.

Import fee support traditionally comes from outnumbered U.S. independent producers. They recognize that a new import tariff would raise prices of domestic crude. They say they need the lift as protection against the type of remotely induced price crash that ravaged so many producers in 1985-86.

To oppose an import fee is not in any way to scoff at the casualties independents have sustained or to question the contributions they make to national energy interests. An import fee's disadvantages simply overwhelm whatever benefits might flow to -what is, after all, just one part of the industry that delivers petroleum to market. What's more, hedging strategies make price risks increasingly manageable for producers savvy enough to use them. Availability of hedging mechanisms weakens the argument that producers can't function without price insurance underwritten by consumers.

SHIFT IN PERCEPTION

Fee supporters should recognize that the new hope they see for their cause results from a shift in perceptions about petroleum prices. In some political quarters it has become more important to effect absolute reductions in oil consumption than it is to assure consumers of the best fuel at the best price. To this way of thinking, cutting oil use is an end unto itself; costs don't matter. It's an extremist response to exaggerations about oil combustion's environmental effects. But no one would even be discussing an import fee if the anything-but-oil evangel was not turning official heads.

Will U.S. producers subscribe to an ideology patently antagonistic to their commodity in exchange for protection from foreign competition? Will they hurt their refining industry customers and oil product consumers for price insurance they shouldn't need? Do they really want the federal government to annul consumer interests, compromise trade, and sacrifice economic health for the sake of illusory environmental goals? An oil import fee has always been bad business. As a vehicle for thoughtless environmentalism, it can only get worse.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.

OIL IMPORT FEE STILL A BAD IDEA FOR THE U.S.

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