352.1153 St 2/19
The Chargé in Spain (Blair) to the Secretary of State
[Received January 12, 1928.]
Sir: I have the honor to refer to the Embassy’s strictly confidential despatch No. 704 of December 20th last, in regard to the procedure of seizures by the Petroleum Monopoly in Spain, and to submit a further report on this subject. In the Embassy’s telegram No. 144 of December 27th, 11 a.m.,48 and in the Embassy’s strictly confidential despatch No. 713 of December 26th, a full report was made of the interviews with General Primo de Rivera, and Señor Calvo Sotelo, the Finance Minister, which took place on Monday, December 26th, [Page 725] and it hardly seems necessary to make further reference to these interviews at the present time.
Representatives of the Spanish Government, acting on behalf of the Petroleum Monopoly have continued making arbitrary seizures of both Spanish and foreign owned property, and as previously reported, the last seizures have been carried out without any notice to the Company affected in many cases. In the next few days, I understand that practically all the property used in the petroleum business in Spain is to be seized on behalf of the Monopoly, and apart from vague statements which appear in the press in regard to the work of valuation commissions, the present situation is that property is being seized without any valuation or compensation, or any hope of payment or compensation in the near future.
The whole policy now adopted savors of panic action, and it is obvious that both the Government and the Petroleum Monopoly are ill prepared to conduct the business which they are forcibly expropriating.
Supplies are being purchased in a rather haphazard and piece-meal way, wherever available, and according to the Embassy’s information, the supplies are of an inferior quality, and in many cases would be unsaleable in the open market.
In regard to the seizures which have been carried out in the last week, I enclose herewith the Spanish text, together with an English translation thereof, of a communication to Babel and Nervion Company (the Standard Oil of New Jersey subsidiary) which provides for the arbitrary seizure of a number of the Company’s plants. In this order, no mention is made of certain tank cars and other equipment of the Company, but in my interview with the Finance Minister above mentioned, I was informed that all the industrial property of the Company would be taken over before the first of January.
During the past week, I have been able to obtain legal opinions arranged for by two of the Companies involved in difficulties with the Spanish Government’s Monopoly policy, in regard to legal rights of the Companies under previously existing legislation. These opinions were prepared by Señor de la Cierva, one of the greatest legal authorities in Spain, who is now a member of the Committee on Constitutional Law in the National Assembly. Curiously enough, Mr. de la Cierva, in spite of his well known opposition to the Government’s policy in many directions, notably in regard to the Petroleum Monopoly, still remains on good terms with General Primo de Rivera, and the deduction of many people is that Primo does not wish to break with a person of such considerable influence. From the opinions above referred to, the Department will note that Señor de la Cierva condemns the procedure followed by the Petroleum Monopoly in no uncertain terms, and one of the most interesting [Page 726] points in both opinions is the fact that this eminent legal authority considers that there are ample precedents in Spanish law which enable the Companies to claim compensation for good will (currently known in Spain as “valor comercial”). I am enclosing herewith four copies of the Spanish text, and seven copies of the English translation of the opinion given by Señor de la Cierva to the Sociedad Española de Compras y Fletamentos (also the Standard Oil of New Jersey subsidiary).49 Owing to the shortage of personnel, the English translation of this long document was made with considerable difficulty, but I believe it will be of great interest to the Department, as it shows the precedents for claiming compensation for long established businesses, which are now being arbitrarily seized by the Petroleum Monopoly. … the Vacuum Oil, rather than lose the sale of its trade marked products in the Spanish market, has decided to work with the Petroleum Monopoly. This Company well realises that having given up any legal rights which it may have, at the time of the constitution of the Monopoly, its future position in Spain is somewhat uncertain, but it apparently is willing to take the risk, rather than sacrifice the value of its business as a going concern, which it fears may not be compensated for.
I have as yet been unable to obtain the exact terms of the special regulations which are to govern the sale of lubricating oils in Spain under the Monopoly. I believe, however, that the Vacuum Oil arrangement is to be along the following lines: (1) The Company will maintain its distributing business in Spain as at present constituted. (2) It will give its orders for its various products to the Petroleum Monopoly, which agrees to pass these orders on to the Vacuum Oil Company in the United States. (3) When the products arrive in Spain, they will pass through the Monopoly organization, but will be delivered to the Vacuum Oil Company for distribution, more or less along the lines heretofore followed, subject however to heavily increased taxes.
The substance of the agreement seems to be that the Vacuum is only going to be allowed to make a very small margin of profit, the Monopoly taking the cream of the business, which the Company now obtains. The Company, however, seems to feel that one quarter of a loaf is better than none, and is willing to make great sacrifices to maintain the market for its trade marked products.
Up to the present time, there has been no change in the policy of the Standard and Shell interests, which refuse to supply the Monopoly, and which take the position that all they now desire is reasonable [Page 727] compensation for their property and long established business, and then retire from the Spanish market.
When considered in the light of the Embassy’s despatch No. 713 of December 26th, giving the substance of the recent conversation with General Primo de Rivera and the Finance Minister, it is obvious that the legal opinions above referred to have hardly more than an academic value, as the policy of the Spanish dictatorship takes little or no account of previously existing Constitution, Civil Code, or even of previous Royal Decrees. In the course of the conversation with the Minister of Finance, reference was made to the Royal Decree of October 17th, which provides for the arbitrary seizure of property, and the Minister stated that this Decree superseded all others, notably, the Decree of June 28th, which preserved a semblance of legality, to cover the Monopoly’s proceedings. Under the circumstances, all foreign interests now established in Spain are at the mercy of the latest Royal Decree, and as in practice ordinary courts of justice are powerless to intervene, there seems no way of obtaining fair treatment for any foreign interest involved in difficulties with the Spanish Government other than by direct diplomatic intervention.
A case in point has just arisen, which well proves the impotency of the Spanish judicial system, although both in theory and in fact it is still in operation. The Babel and Nervion Company has obtained a court decision to the effect that certain monies deposited as guarantee for customs duties should be returned to them. The Company has repeatedly addressed petitions asking that the sum involved, some 350,000 pesetas be returned in accordance with the court’s decision, but the Ministry of Finance simply ignores the Company’s request. The same Company likewise has an unpaid claim for some 500,000 pesetas, which has to do with the exaction of over-payment of customs duties by the Spanish Treasury. The Company’s claim for this latter amount was placed before the Department in the Embassy’s despatch No. 404 of June 21st, 1927,50 and in subsequent despatches on this subject.
Under the circumstances above set forth, and in view of the fact that the Minister of Finance told me in the course of my interview above mentioned, that he would be glad to take up informally any difficulties which arose in regard to the claims of Companies for compensation, I intend to ask the Minister to give his consideration to the request of the Company for repayment of the sums involved, as above outlined.
I have [etc.]