by totaling the refiner's local on-island demand with a United States mainland shipment quota based on actual 1965 shipments. These 3,539 bø represent a volume which was the subject matter of an "exchange agreement" between Gulf and Caribbean, Commonwealth, and Esso International. Having no refinery capability in Puerto Rico, Esso had contracted with Commonwealth for the latter to supply Esso with its on-island petroleum requirement. Due to the physical locations of the Caribbean and Commonwealth facilities in Puerto Rico, a further arrangement was arrived at whereby Caribbean would actually supply a part of Esso's requirements from its refinery and in exchange Commonwealth would furnish Caribbean a like amount of petroleum products for shipment by Gulf to the United States mainland. Gulf and Caribbean claim that they should be "credited" with these 3,539 bø towards their shipment quota as they shipped them from Puerto Rico. However, the Board allocated the volume to Commonwealth since it physically refined the product. The allocation of the 3,539 bø is an either/or proposition; hence Commonwealth's intervention. Plaintiffs, moreover, not only ask that the court declare defendants' ruling null and void but that it further order that plaintiffs be issued a license for the April 1968 - March 1969 and all succeeding allocation periods based on its on-island demand and shipment demand of the 3,539 bø plus an additional 1,503 bø under two similar "exchange agreements" (Commonwealth was also the refiner) as well as for 8,758 bø under a "processing agreement" it had with Commonwealth. Pursuant to this latter agreement a Gulf subsidiary in Venezuela sold crude oil to Commonwealth, another Gulf subsidiary transported the crude oil to Puerto Rico where Commonwealth refined it and then sold the same quantity of finished petroleum products to Gulf which shipped 8,758 bø of it to the United States mainland. Plaintiffs request the court to declare that their total base for import allocation be established at 47,511 bø (28,661 bø onisland demand, 5,050 bø refined and shipped by them, 5,042 bø as a result of "exchange agreements" and 8,758 bø from the "processing agreement") vice the 33,711 bø (28,661 plus 5,050) allowed by the Board. While plaintiffs requested the Board to validate its base as including the entire amounts of the "exchange" and "processing" agreements, they had actually only included the 3,539 bø in their April, 1968 - March 1969 allocation request.
The Board based its denial of Gulf and Caribbean's petition partly upon finding that the petitioners had not shown error on the part of the Administrator and partly upon its determination that the petitioners had not established a showing of "exceptional hardship" to a sufficient degree to require reversal of the Administrator's ruling.
The basic rational for the Administrator's ruling was that, when viewed against the economic considerations necessitating the Proclamation, the intent and understanding at the time of its promulgation was that the shipping base portion of the import allocation is to be determined by reference to manufacture (refining) and sale, and not to sale or shipment alone and that subsequent regulatory implementation and actual allocations have been consistent with this view. Plaintiffs contend that it was error for the Board to conclude that import allocation be made to the one who physically refines rather than to the one for whom the product is refined or who ships it. Plaintiffs assert that neither the Proclamation nor the Regulation support the Administrator or the Board. Moreover, plaintiffs contend that, in essence and substance, they are the "refiner" under the "exchange" and "processing" agreements and that they have presented a sufficient showing of "economic hardship" by adequately substantiating that the denial of the 3,539 bø allocation will result in an annual loss of profits of some $2,500,000.
The Board's decision reads in part as follows:
At the close of 1967 or early 1968 a policy decision was made to eliminate shipments of petroleum products from Puerto Rico to District V [western United States] and to limit such shipments to the other Districts [of the United States mainland] to the 1965 level (except for special arrangements tied to development of the Puerto Rican economy). The device chosen for making these restraints effective was a limit placed on the individual refiner in Puerto Rico, with penalty (in the form of loss of future allocation) to any who might breach its individual limit. There is no intimation in Proclamation or Regulations that these specific policy instruments were accompanied by another policy change - to break the tie between the requirement for foreign crude oil and refinery production.
The Board believes that the petitioner is correct in saying that the applicable Regulations contain no explicit requirement that a refiner produce in its own plant the product shipped in order to establish a base respecting shipment to Districts I-IV [eastern United States]. The Regulations are silent on the point, perhaps because the link to production was apparently understood and accepted since the inception of mandatory controls by all concerned, including the petitioner.