The High Commissioner at Constantinople (Bristol) to the Secretary of State

No. 447

Sir: I have the honor to enclose herewith copy of “Special Report No. 1”, dated 23 of August, 1921, marked confidential, prepared by Mr. Julian E. Gillespie, Assistant Trade Commissioner of this High Commission.

It is known that in this part of the world the different nationalities have made every possible endeavor to open up trade with the Caucasus States as well as with Soviet Russia. In general, it is known that such attempts have practically resulted in failure of any [Page 779] considerable accomplishment. In some cases attempts were a complete failure.

The British Government completed a trade agreement which practically amounted to the recognition of the Soviet Russian Government and, if all reports are correct, British trade has profited little or nothing by this agreement. So far as trade through South Russia is concerned the British have failed.

The Italians have made a special effort to open up trade and have given particular attention to the Caucasus. Thus far they have not been very successful in their efforts, though they appear to have done more than any other nationality. The Germans and Swedes are also doing some business in the Caucasus.

From the best information obtainable it would seem that in these efforts of the different nationalities to open up trade with Soviet Russia and with the Caucasus there was a great deal of profiteering. Thus, the Caucasus Republics when they formed a trade union for foreign trade turned to Americans for assistance. Before this some gold had been brought from the Caucasus by the Italians, but it was utilized to pay for Italian goods and money was made on the gold transaction as well as upon the transaction in merchandise. The proposition made by Mr. Day is to utilize the gold obtained as a revolving credit for the establishment of a flow of trade between the Caucasus and the outside world.

This proposition of Mr. Day’s seems to me to be a businesslike proposition that may open up trade based upon business principles without profiterring where the negotiations of trade conventions and other schemes have failed.

It has always been my opinion that the first steps in the reconstruction of Russia would be obtainable by establishing trade relations through private institutions based upon business principles and conducted in a fair way without graft or profiteering. I have felt that our American business men would probably be the first to accomplish this end, especially when they were backed by our Government, which consistently has stood out for certain well-established political and economic principles being recognized by Soviet Russia and the other Soviet Governments established in Russia.

The first step taken by Mr. Day to establish trade with the Caucasus Republics has been successful. If the contracts for concessions made by him with the representatives of these Caucasus Republics are lived up to, it seems to me that a big step will have been made in bringing about a reformed policy in these Soviet Governments, and this start may lead to a steady development of these three Republics into some form of recognizable governments by other countries.

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It must be remembered that in the past contracts similar to these have proved to be of little or no value and have generally been repudiated by Soviet representatives who have violated all old-established rules in regard to contracts and economic dealings. In spite of this, it must be remembered that if a change does come in their methods of dealing, there must be someone that will be the first to recognize this change and to prove it. It may be that Mr. Day has struck the psychological moment. For the sake of the benefits to American interests and particularly for the beginning of reconstruction of some part of the old Russian Empire, it is to be hoped that Mr. Day will succeed.

In carrying out the Department’s policy as I understand it, Mr. Day should receive the sympathy and encouragement of our Government so long as he follows the policy that we demand of a government in Russia which is a government of the people, by the people, and for the people and that such a government shall recognize the old-established principles of property rights.

I have [etc.]

Mark L. Bristol

Special Report by the Assistant Trade Commissioner at Constantinople (Gillespie)

No. 1

american penetration in the caucasus and south russia

I have the honor to report the consummation of a contract between Henry Mason Day and the Autonomous Soviet Communist Republics of Azerbaidjan, Georgia and Armenia, whereby Mr. Day becomes virtually the fiscal agent and Minister of foreign trade for the Union of Foreign Trade between the three above-mentioned Caucasian Republics. The contract names Mr. Day as the Trustee for the above-mentioned countries and gives him, as the Representative of these countries, the control of all commodities to be exported, and makes him the purchasing agent for these countries. The signing of the above-mentioned agreement means that the United States controls and dominates the commercial activities and the economic resources of one of the richest territories in the Near East. In addition to being appointed the Trustee for the Union of Foreign Trade of Azerbaidjan, Georgia and Armenia, Mr. Day has been given the oil rights, lumber concession, licorice root and tobacco monopolies for the Caucasus.

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On August 6th, Mr. Day left Constantinople on an American destroyer, accompanied by two representatives of the Union of Foreign Trade for Azerbaidjan, Georgia and Armenia for Batoum and Tiflis. While in Tiflis, the contract mentioned above was signed. On August 12th, the American destroyer returned to Batoum for Mr. Day and he proceeded to Constantinople with an initial deposit of gold to be expended by him as Trustee for these countries. A sum equivalent to Five Hundred Thousand Dollars in gold was brought to Constantinople, where it is deposited in the Imperial Ottoman Bank in his name as Trustee, to be used as a revolving fund for the purchase of supplies for these countries.

A partial list of the commodities offered and to be offered for sale by Mr. Day, Trustee, include four hundred thousand poods of Caucasian tobacco, one million poods of coal equal in quality to A No. 1 American Pocahontas, eight hundred thousand poods of licorice root, (on which one million dollars will be put up as a guaranty for delivery), one million poods of kerosene and important stocks of mazoot, machine oil, lubricating oil and spindle oil from Baku.

I beg to report further that I have been informed by reliable sources that the manganese rights at Poti, near Batoum, have been offered to the Germans. At the present time this concession is in Berlin. It is not believed, however, by local people that these rights will be acquired by the Germans. There are approximately three hundred thousand tons of ore now on the ground at Poti which will run better than 48% manganese.

In addition to having at his disposal Five Hundred Thousand Dollars, a credit of One Million Dollars has been opened at Batoum subject to his order. All of this money is to be used for the purchase of necessities and machinery, or articles of prime necessity. (See my letter dated March 11, 1921,89 giving details of new import program of the Soviets.). One shipload of flour has been bought on the local market and is being sent to Batoum this afternoon. Two additional shiploads will be shipped next week. Negotiations are being entered into at the present moment by Mr. Day for the purchase of agricultural machinery, reapers, harrows, etc., etc. There is a stock of American agricultural implements in Constantinople which will be the first considered.

I desire to make clear Mr. Day’s position. First, as an American citizen, he is acting fiscal agent and to all intents and purposes, an official of the three republics of Azerbaidjan, Georgia and Armenia. As a representative of these countries, he is in sole charge of disposing [Page 782] of all the stocks of raw material in the Caucasus. As an American citizen, a private individual Mr. Day has obtained these rights not for any one corporation or group, but while acting as a real government official of the countries named above, he hopes that all trade relations in these countries will be handled by American concerns. As the President of the American Foreign Trade Corporation, Mr. Day does not enter into the matter one way or the other. He may, however, as “Trustee”, accept the proposals of the American Foreign Trade Corporation just as he would those from any other individual or corporation. I desire to state that in consideration for his services as Trustee and fiscal agent for Azerbaidjan, Georgia and Armenia, Mr. Day is receiving no compensation but is acting as if he were a public-spirited government official of these countries.

The conclusion of the contract between Mr. Day and the Union for Foreign Trade of Azerbaidjan, Georgia and Armenia marks an important epoque in American foreign trade. It places the United States in a preferred position; it is the beginning of the end of Italian commercial domination in the Caucasus, and is the strangulation of British influences. These statements are true, subject to the successful working out of the details of the contract, dependent upon financial support.

That the leaders of Bolshevism have seen their inability to maintain a Soviet Government in Russia as long as they continue their extreme policies of confiscation of private property, suppression of the freedom of the press and the principle of governing by small groups of individuals for their own benefits and not for the common welfare of the people, has been the belief of many for several months. It has been a matter of common knowledge that the extreme policies of Lenin and Trotsky were gradually being replaced by more liberal ones. One of the first instances of the Moscow Government’s change in heart was its attitude toward the republics of Azerbaidjan, Georgia and Armenia. These three republics were all recognized autonomous states which accepted a form of Soviet Communist Administration, and while amenable to the jurisdiction of Moscow, there was little confiscation of private property and practically no reign of terror such as prevailed in other parts of the old Russian Empire, upon the acceptance of the Soviet regime by them. Each of these three republics when originally founded, attempted to organize themselves along the lines of the United States of America, adopting the principle of government by, of and for the people. These three republics have never been classed as part of Bolshevik Russia, but fall into a separate category of independent, autonomous republics which have been recognized by world powers as such, each of whom have [has] adopted a Soviet form of government.

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Recently, the autonomous Soviet Communist republics of Azerbaidjan, Georgia, and Armenia, formed a Union for Foreign Trade. This was undoubtedly worked out and done with the consent of the Bolshevik Government in Moscow and probably upon the advice of Mr. Krassin. The move is undoubtedly a political one which they expect to further through commercial relations with the outside world.

Apparently, the Bolsheviks, seeing the failure of their present policies, have decided on another plan, namely, the establishment of autonomous Soviet Communist republics which permit free trade. The Union for Foreign Trade in the Caucasus is an experiment, and if successful in opening trade relations with the outside world, I am reliably and confidentially informed that on the Black Sea there will be within the next six months, seven similar autonomous independent states. All of these will be linked together in a manner similar to the Confederation of the colonies of the United States of America before the adoption of our Constitution. The first new autonomous state that will be formed will be Novorossisk. Mr. Day has been offered all concession there and has been requested to act for this proposed new state in the same capacity as he is at present for the States of Azerbaidjan, Georgia and Armenia. The proposed plans contemplate the independent states of the Crimea,—Rostov, Odessa, Nikolaev and others. Mr. Day believes that if the proper financial and governmental support is given him in America, that South Russia and the Caucasus will, in time, because of these trade relations, the investment of American capital and the control of the Baku and Grozny oil fields, the mineral resources of the Caucasus, the coal deposits of the Crimea and Novorossisk and other undeveloped resources in South Russia, become practically an American colony.

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