. . . . . . .
Upon examination the proposition proves to be more ambitious than my
telegram represented and to call also “for the manufacture of material
used in time of peace”, which can only mean structural steel for
building materials, rails and so forth. The proposal purports to be the
result of an invitation from the Brazilian Government and the contract
reveals that Vickers-Armstrong is to be granted a monopoly for
fifty-five years, which the Government will finance. When the works are
completed they will be leased to the constructors, although they will
revert to the Government at the expiration of the lease. Raw and
finished material can be imported from Great Britain without the payment
of customs duties, which under the plea of being utilized in connection
with the plants of Brazil, could cover many articles used in this
country, which Vickers-Armstrong would not manufacture here.
The acceptance of the proposal of Messrs. Vickers-Armstrong would close
the open door to many foreign products because in order to meet the
interest which the Government would pay upon the investment it would be
forced to place orders with the British concessionaires.
The contract provides that disputes between the contractors and the
Government shall be settled by arbitration and the resulting concessions
shall be tried in England and shall be subject to, and regulated and
affected by, the order of the British Supreme Court.
The history of this proposal should be studied in connection with that of
the Itabira Iron Ore Company, a British enterprise with head offices at
London, incorporated by Rothschild, Baring Brothers
[Page 207]
and Sir Ernest Cassel, which some time ago
purchased the “Conceição” and “Esmeril” deposits of iron ore in the
State of Minas Geraes for about $600,000. This group also controls to a
large extent the Victoria and Minas Railway which leads from the mines
to the sea coast at Victoria in the State of Espirito Santo, north of
Rio de Janeiro. These iron deposits, which are of excellent quality, are
situated at Itabira de Matto Dentro, are estimated at 99,000,000 cubic
meters and capable of producing 296,000,000 tons of ore.
The presentation of the Vickers-Armstrong proposition at this time is
directly due to the presence of the Bunsen Mission in Brazil.10 Sir Maurice
de Bunsen asked the Foreign Minister to receive Mr. H. J. Lynch, the
representative of Davidson, Pullen & Company, the Rio de Janeiro
representative of Vickers, Ltd., together with Mr. Edwin Hime of F. H.
Walters Company, the local representatives of Sir W. G. Armstrong,
Whitworth & Company. A few days subsequently and while the Bunsen
Mission was still in Brazil these gentlemen presented the draft
contract.
This action should be accepted as a conclusive proof of the commercial
and industrial purpose which animated that mission and of the intensity,
directness and persistence of the present Brazilian drive, not only to
secure a fair share for Britain of Brazilian commercial business but to
establish monopolies, which as in the case of the monopoly of the
Western Telegraph Company would jeopardize the commercial opportunities
of other nations. This feature of the matter is one which the Department
will not fail to observe and which is based on an objectionable
principle, which is of far-reaching and threatening importance to those
of our iron and steel manufacturers who together with the manufacturers
who use those materials in construction works wish to hold the place to
which they are entitled in the Brazilian and South American market.
[Enclosure]
Draft Contract between the Brazilian Government
and Vickers-Armstrong of England
Draft of a preliminary agreement made between the
Brazilian Government (hereinafter called the Government), party of
the first part, and Messrs. W. G. Armstrong, Whitworth & Co.,
Ltd., and Vickers, Ltd., (hereinafter called the contractors), party
of the second part.
Clause I
The contractors obligate themselves to undertake, in conformity with
the Government’s views, the construction and subsequent exploitation
[Page 208]
of an arsenal to be
constructed on the most modern plans possible, the Government to
grant all necessary concessions for the manufacture of arms and
ammunition, the manufacture of iron and steel plates, etc.,
shipbuilding of all sorts, construction of aeroplanes, and the
manufacture of all material for military needs, granting the
contractors full liberty to accept any and all work for private
parties; the Government undertaking the obligation to place with the
contractors orders for everything which it may require that may be
manufactured by the contractors, also to cede all the lands
necessary for the construction of the arsenal and to grant all
possible concessions for the exploitation of the iron and steel
industries.
Clause II
The Government shall deliver to the contractors sufficient and proper
lands for the erection of the arsenal and for the other purposes
designated in this contract.
The Government will also deliver to the contractors all Government
arsenals and ships, etc., which are suitable to the fulfillment of
the ends of this contract, as well as any additional lands, shops,
machinery or other material necessary to the proper fulfillment of
the said contract, all of which to be free from taxes and to be so
held in trust by the contractors during the life of this
contract.
Clause III
The Government shall guarantee the contractors all necessary
facilities for the rapid and economical construction of the arsenal.
For this purpose the Government shall disappropriate waters,
quarries, rights-of-way, and other holdings which may become
necessary.
Clause IV
Everything which relates to this contract shall be considered as
belonging to the Federal Government, and as such subject to the same
burdens and obligations, and shall enjoy the same advantages,
exemptions and privileges as are peculiar to Government property and
undertakings.
With the exception of the stamp tax, the contractors shall be exempt
from all taxes or imposts of whatsoever nature, at present in force
or which may be enacted, and all material and diverse objects
imported by them, for the execution of the work as undertaken, in
accordance with certificates signed by the Fiscal Commission, shall
be exempt from all import duties and charges, including the tax of
2% gold for the conservation of the port.
[Page 209]
Clause V
Work shall be begun immediately upon the signature of a definitive
contract and shall be completed with the greatest possible
urgency.
Clause VI
- 1.
- The Government shall make monthly payments to cover the
certified expenditures on the work undertaken in Clause I until
the conclusion of said work.
- 2.
- Such payments shall be made in Government gold bonds, freely
negotiable, bearing interest at 5% per annum, to be amortized in
55 years from date of first payment.
- 3.
- The amount of interest during the first five years from the
date of the first delivery of bonds, shall be paid in similar
bonds and after that period, shall be paid in specie.
- 4.
- When payments are made in bonds the total of each monthly
payment shall be increased by a sum, according to quotations,
equal to the discount on Brazilian Government 5% Bonds of 1913
in the London market on the last day of the month preceding that
in which such bonds are delivered. Example: If the sum total of
the monthly payment should be … 70,000 pounds and the 1913 Loan
be quoted at 70, the Government will deliver bonds to the amount
of 100,000 pounds.
- 5.
- Bonds issued for the payment of this contract shall constitute
a separate and distinct issue, free from all Brazilian
taxation.
- 6.
- The Government may make payments in Treasury gold notes during
the period of construction, provided such notes bear a
declaration that they will be converted into regular bonds on or
before the termination of the period of five years, to count
from the date of first payment.
- 7.
- The delivery of all such bonds or Treasury notes shall be made
to the contractors in England and the Government shall pay the
cost of all stamps thereon.
Clause VII
Upon the completion of the work undertaken in Clause I the
contractors shall take the same under lease from the Government, for
a term of fifty-five years, to count from the first payment, for an
annual rental equal to the amount of interest at 5% to be paid by
the Government, in accordance with the stipulation in Clause VI,
paragraph 2.
At the end of the sixth year, after the date of the first payment,
the contractors shall pay an additional amount of ½% per annum,
[Page 210]
as a reserve fund for the
amortization of the total amount of bonds issued. This rental and
the reserve fund shall be paid semi-annually in London to the
financial representatives of the Government, fourteen days in
advance of the due date for the payment of the interest on the
bonds. The reserve fund, to be accumulated at the rate of ½% per
annum, shall be invested semi-annually in the purchase of bonds when
below par, or by lot when at par or above par.
Clause VIII
The contractors shall have complete control of all work in the shops,
docks, etc., and of the repair and construction work as stipulated
in Clause I, during the full term of the lease. Upon the termination
of said lease, and when all amounts due to the contractors shall
have been paid, all of the property, in a perfect state of
conservation shall revert to the Government without any indemnity
whatsoever. Should the Government not desire to take over the
management, this contract may be extended for a further fixed period
of time, subject to such modifications as may be agreed upon.
Clause IX
The contractors may undertake and execute orders for the repair and
construction of merchant and private vessels, and participate in any
subsidies and other concessions granted to stimulate maritime
construction as a national industry, whether such be granted by the
Federal or State Governments. The contractors shall also enjoy the
same rights relative to the importation of material, machinery,
etc., etc., as are enjoyed by private establishments in Brazil. The
contractors may also under-take other work for which their equipment
may be adequate.
Clause X
The arrangements set forth in Clause IX shall be subject to the
condition that all Government work shall have preference over all
other work.
Clause XI
The Government shall guarantee to the contractors the construction of
a determined number of gross tons of steam or motor vessels per
annum and also the repairing of all Brazilian men-of-war and other
Government ships. The construction and repair of said ships shall be
effected, always when possible, in the yards established by virtue
of this contract. In case of construction in the yards of the
contractors in England or elsewhere, the Government shall grant
permission for said transfer.
[Page 211]
Clause XII
- 1.
- Aside from the capital employed in the construction of the
works enumerated in Clause I, the contractors shall provide a
large sum to cover cost of material, provisions, combustibles,
salaries, etc., the total of which cannot at present be
determined. It is convenient to maintain the capital of
construction (which shall be known as initial capital) separate
and distinct from the capital secondarily mentioned (which shall
be known as working capital).
- 2.
- Should the returns on all Government and outside work
entrusted to the contractors not be sufficient to enable them
(after the payment of salaries, wages, insurance, renewals and
other expenses necessary to the maintenance and efficient
working of the establishment) to pay the rental and reserve fund
per annum—that is to say 5½% on the initial capital and a
further 15% on the working capital—the Government shall pay to
the contractors, in money, the amount of the yearly
deficit.
Clause XIII
- 1.
- The Government may, at any time after the completion of the
works enumerated in Clause I, upon six months’ previous notice,
annul the lease referred to in Clause VII, subject to the
following terms and conditions:
- 2.
- By repaying to the contractors its working capital plus
interest at 5% per annum together with any additional expense
which they may have incurred or for which they may have rendered
themselves liable, and by giving to the contractors a complete
and full acquittance of all resultant claims or demands.
- 3.
- By assuming responsibility for all contracts made by the
contractors, either in England or Brazil.
- 4.
- And, if necessary, by making agreements with the holders of
the bonds or Treasury notes referred to in Clause VI and
representing the initial capital.
Clause XIV
The contractors, during the period of lease referred to in Clause
VII, will have preference for the construction of any other arsenals
including fortifications with necessary armament, munitions, and
magazines necessary for their defence, and for the fortifications,
munitions and magazines of Rio de Janeiro or any other locality and
also for the barracks, hospitals and quarters for the civil and
military staffs of said arsenals and fortifications.
[Page 212]
Clause XV
All of the works contemplated in this contract shall be executed in
accordance with such plans and specifications as may be agreed
upon.
The cost of the works shall be the actual cost to the contractors,
plus an amount equal to 15% thereof, in order to insure to the
contractors a commission, or profit, on the execution and completion
of the works.
The contractors shall submit, for the Government’s approval, an
estimate of the cost of the works, as they progress, which estimate
shall be agreed upon between the Government and the contractors as a
working basis.
If the real cost of the works, after their termination, exceeds the
estimated cost agreed upon, the constructors will not receive any
commission or profit on the amount by which said cost exceeds the
estimated cost.
If, on the other hand, the real cost of the works, after their
termination, is less than the estimated cost agreed upon, the
contractors will receive, from the Government, sum in excess of the
calculated commission equal to one-half of the amount of economy
effected.
It is evident that this condition is a guarantee that the work will
be executed with the greatest despatch and economy and will also be
a guarantee to the Government that it will not have to pay more than
is necessary for the proper execution of the work.
The English Government has made many contracts on this basis and,
with the difficulties and confusion peculiar to present conditions,
cannot conceive of another plan which so well protects the interests
of the Brazilian Government.
Clause XVI
If any doubt or misunderstanding should arise between the Government
and the contractors relative to their rights and obligations as
stipulated in any of the clauses of this contract, such doubt or
misunderstanding shall, in due time and at the request of one of the
parties, be submitted to and decided by two arbiters (one appointed
by the Government and the other appointed by the contractors)
together with a third party who shall be selected by the two already
appointed, but before they shall have assumed their duties. The
submission of their written judgment, at the request of one of the
parties, shall be equivalent to an embargo or finding by any of the
departments of H.B.M. Supreme Court of Justice, and the resultant
concession or concessions shall be tried in England and be subject
to, regulated and affected by all of the appeals, consequences
[Page 213]
and effects of an
arbitration made by order of said Supreme Court. In case the two
arbiters cannot agree upon the nomination of the third, said third
arbiter will be chosen by a Committee of the British Admiralty.
