352.1153 St 2/25
The Chargé in Spain (Blair) to the Secretary of State
[Received January 30.]
Sir: I have the honor to refer to the Embassy’s despatch No. 719 of January 4th, 1928, and to submit a further report on recent developments in connection with the establishment of the Petroleum Monopoly in Spain.
As mentioned in this despatch, I telegraphed to the Department in the Embassy’s No. 1 of January 5th, 11 a.m., the summary of the Note from the Spanish Foreign Office of December 28th 1927, and in this telegram, I requested authority to answer the Spanish Note along the lines indicated in the telegram, as I feared that failing a refutation of the statements contained in the Note, the Spanish Government might believe that the Department considered its explanations of the present abnormal situation as satisfactory.
[Page 836]On January 7th, I received the Department’s confidential telegraphic instruction No. 3 of January 6th, 6 p.m., and as I well realise the importance of the principles at stake in regard to the protection of property, I heartily concur in the Department’s decision to await the receipt of the definite text of the Spanish Note before making a definite reply. In the meantime, however, in view of the fact that the Spanish Government had up to this time taken no action to give effect to its promises in regard to valuation and compensation of seized properties, I was very appreciative of the Department’s authorization to let the Spanish Government know that the Department was following the situation very closely, and that notwithstanding the Spanish Note above mentioned, the Department’s point of view in regard to the procedure followed by the Petroleum Monopoly was unchanged.
Fortunately, an occasion presented itself to convey this information to General Primo without having to make a formal request, as he asked me to see him in regard to another matter which is referred to in the Embassy’s telegram No. 3 of January 10th, 10 a.m.8 The interview took place on Monday afternoon, January 9th, and after discussing the matter above referred to, I communicated to General Primo de Rivera the substance of the second part of the Department’s telegram above referred to (No. 3, January 6th, 6 p.m.). General Primo de Rivera seemed to be in a conciliatory frame of mind, and a long discussion of the whole question of the procedure of the Petroleum Monopoly followed. As a rule, it is very difficult to discuss technical subjects with the President, because as often reported before, he is never familiar with the technical points involved. But on this occasion, I was able to bring to his attention informally a number of points which I do not believe had been brought to his attention before. As I informed the Department telegraphically on January 10th, I believe that the interview has been extremely useful from the point of view of obtaining fair compensation for the interests involved, and also from the point of view of making him realize more accurately the viewpoint of the American Government in regard to seizures of property without due process of law.
I believe it will be of interest to the Department to have a brief summary of the conversation which took place, which is as follows:
After referring to the Spanish Note of December 28th, 1927, which I said was being considered by the Department, I stated that the Note made no specific reference to the principal point at issue, namely, when and how compensation was to be paid. I said that the Spanish Civil Code, which was in force when the Companies entered Spain, provided for valuation and compensation before seizure, and that for this reason, as I had pointed out before, the American Government [Page 837] was increasingly concerned in regard to the arbitrary seizures which had recently taken place. Primo avoided the issue as to whether the Royal Decrees of June 28th and October 17th, 1927 annul previously existing constitutional and Civil Code dispositions, but seemed to be uneasy, realizing that he was on rather dangerous ground. He made the general statement, which he never fails to use in any conversation, that the State had the right of Eminent Domain over private property, and that all states exercised this. I said that there was no question of disputing this latter point, but that, in the particular case under discussion, property rights had been over-ridden and that American interests which had established themselves in Spain under previously existing law were now being driven out of business suddenly and without previous valuation or compensation, which, according to the recognized principles of law, they had every right to expect.
Primo then made the somewhat irrelevant and disingenuous statement that in this case the valuations could not have been made before the seizures, as it was necessary, in the interest of the State, to make the Monopoly effective as soon as possible. I said that I could not understand why this was true, and that it seemed to me that the normal way to proceed would have been for the State to acquire the properties, either by purchase or by condemnation proceedings, in accordance with the law, and that the properties expropriated could have then been turned over to the Monopoly. At this time, he was obviously worried, and being either unwilling or unable to make a definite reply, he made several notes, and said that he would take this phase of the matter up with the Finance Minister.
When I referred to the increasing concern with which my Government viewed the disregard of property rights by the Spanish Government, Primo denied that this was the case, and stated categorically that property rights in Spain would be protected, but that in this particular instance the matter was of supreme importance to protect the national interests, and that exceptional measures were justified. Almost in the same sentence, he observed that the Prohibition Law in the United States had forcibly driven many foreigners out of business, but I at once countered this argument by saying that I could not see the connection between the two cases. I said that the Prohibition Law had used the police power of the State on a moral issue, that there had been no question of the United States taking over and running the liquor business for profit, in the way that the Spanish Government was now taking over and expected to run the petroleum business, and, moreover, that the interests involved had had very long warning that the Prohibition Law might be enacted, and that this had certainly not been the case with the Spanish petroleum regulations. I pointed out that, in the present [Page 838] case, the companies engaged in the petroleum business were being driven out of Spain with hardly any warning, that they had come to Spain in good faith, and that it certainly did not seem fair to ruin their business without adequate compensation.
Primo then said that certain foreign companies, notably Babel and Nervion, had, always maintained that they had made very small profits in Spain, and that, apart from their actual installations, the value of these businesses as going concerns would be small. I then pointed out that Babel and Nervion was bought out after the war by the Standard Oil Company of New Jersey, the latter acquiring the majority of the shares which had formerly been held by French and Spanish citizens. The Standard Oil Company bought into this business, knowing that it had a ninety-nine year charter granted in 1918, and when the Standard Oil Company paid for it, it paid not only the book value of the company’s property, but a very substantial amount for the value of the business as a going concern. I said that the fact that the industry had not made money for the first few years had no bearing, because no industry invested money without the hope of profit and that they had every reason to believe that sooner or later fair profit would be obtained on their investment. I said that the Company had spent an enormous amount of money in advertising and building up the business in Spain and that it seemed unfair not to recognize this. Primo replied and said that assets of the latter kind would be paid for by the Monopoly.
It seemed inadvisable to press him on this point, but I had the distinct impression that he has retreated from his original stand in regard to only making payment for tangible property. All through the interview he made notes in pencil on the various points raised, and I have a distinct impression that the conversation briefly summarized above has been the most useful which has taken place in regard to making Primo realize the necessity and indeed the advisability from the Spanish point of view of granting fair compensation. He said that he would give instructions to have the valuations speeded up, that he would see that great generosity in regard to interpretation of value would be given, and that it was his desire to bring the whole matter to a satisfactory conclusion as soon as possible. I said that his assurances were gratifying and that I would immediately report them to my Government.
As we got up to go, Primo reiterated a former statement to the effect that he feared that the companies would never be satisfied, no matter what treatment was given to them, as they were opposed to the Spanish Government’s Monopoly policy. I said that I thought it would be very unfortunate from every point of view if industries were expelled from Spain feeling that they had been unjustly dealt with, and that, as far as American interests were concerned, the companies were perfectly [Page 839] willing to accept reasonable compensation. He said that injustice was very far from his desire, and once again promised that when the final question of valuation came before the Council of Ministers, he would insist on generous treatment. I thanked him and said that, as I understood it, the companies involved asked for strict justice and the fair application of Spanish law as it existed and was interpreted when they came to Spain, and they did not ask for generosity as an act of grace.
The above conversation was conducted in a very friendly spirit, and indeed, the surprising feature of it was the fact that the President seemed quite willing to discuss very controversial matters which formerly he had always avoided. The points regarding the good faith of the companies in coming into Spain under pre-existing law and the desirability of giving them fair treatment seemed to have made a decided impression on the President, and I believe, moreover, that the interview has been successful in regard to the probability of the recognition by the Spanish Government of the value of the expropriated enterprises taken as going concerns.
Since the definite expropriation of all the property of the companies on January 1st, there has been no change in the general situation. In Madrid, supplies of petroleum products seem to be normal. Reports from the provinces would seem to indicate that there is an acute shortage in certain parts of Spain. Government communiqués continue to make light of all technical difficulties of organization and supplies, but current report is to the effect that things are not running smoothly in the Monopoly, and that acute difference[s] of opinion in regard to the policy have already arisen.
General Primo de Rivera stated recently that several American Companies had already taken contracts from the Monopoly. As far as I have been able to find out here, he refers to the fact that the Vacuum Oil Company and the Atlantic Refining Company have already expressed their willingness to supply lubricating oil in Spain under the Monopoly regulations. A rumor is afloat to the effect that the Atlantic Refining Company has already made an offer to the Monopoly to supply it with gasoline and crude oil, but so far it is impossible to obtain confirmation of this information.
I have [etc.]
- Not printed.↩