The Consul in Chargé at Beirut (Knabenshue) to the Secretary of State

No. 251

Sir: I have the honor to report that recently the Beirut Municipality declared a consumption tax on Gasoline and Benzine to be levied against Oil Companies operating in Beirut, where both the Standard Oil Company and the Vacuum Oil Company have agencies. After some investigation of the matter and discussion with the representatives of the American companies involved, I called upon the Acting High Commissioner and represented to him that the proposed tax as well as the increase in the Warehouse (Gas-khana) dues, which various municipalities were endeavoring to collect, were contrary [Page 930] to the immunities granted under the Capitulations as regards the former and the agreement between the Ambassadors at Constantinople and the Turkish Government as regards the latter. Mr. De Caix was in entire accord with my views on the subject, but stated that he was faced with a municipal crisis inasmuch as the members of the Municipality threatened to resign unless he permitted them to levy the proposed consumption tax. He stated that in view of the altered political status of this country, being as it was cut off from the former Turkish Empire, and the need of the municipalities for revenue to execute the work necessary for reconstruction and for the maintenance and improvement of the towns, and in view of the fact that upon the forthcoming abolition of the Capitulations, the Municipality will have the right to levy such taxes which, however, he stated, would be kept within reasonable bounds, he asked whether it would not be acceptable to the Oil companies to pay something to the municipalities, more or less, in anticipation of taxes that might be levied in future. In reply to his suggestion, I reminded him that before taxes of this character could be levied, the consent of the Capitulatory Powers must be secured. I, thereupon, suggested that he should have the subject of all new taxation, which they had attempted or might desire to levy against foreigners, carefully studied, and a proposal drawn up and sent to me, as Doyen of the Consular Corps, for ultimate transmission to our respective Governments for their consideration. He readily agreed to have this done. I, thereupon, asked him to inform the Municipality that the matter was now to be made the subject of diplomatic negotiations with the Powers, and that, in the meantime, no attempt be made to collect the tax, and that the Police Authorities, who were at that moment preventing the deliveries of oil, be instructed to permit the continuation of deliveries. Mr. De Caix promised to do this, and his order went into practical effect a few days afterwards.

I report these preliminary steps at the present time for the Department’s information, and will report again on the subject as soon as I receive the proposal of the Government, as above indicated.

I have [etc.]

Paul Knabenshue