352.1153 St 2/50
The Chargé in Spain ( Blair ) to the Secretary of State
[Received February 29.]
Sir: I have the honor to refer to the Department’s telegram No. 14, of February first, 2 p.m., in which I was instructed to proceed to Paris and London for consultation with the respective Embassies in regard to the expropriation of American owned property by the Spanish Oil Monopoly.
In accordance with this instruction, I left Madrid Friday morning February 3rd, reaching Paris on Saturday, and took the matter up immediately with the Ambassador. Mr. Herrick, after familiarizing himself with the general lines of the controversy, placed the matter in the hands of Mr. George Gordon,17 and I then went over with him very carefully the Department’s instructions and the Embassy’s despatches.
As reported in the Embassy’s telegraphic despatch No. 20 of February 3rd last, 2 p.m.,18 I took with me the complete files of the correspondence relating to the Petroleum Monopoly, and I also left with the Paris and London Embassies a complete file of the Department’s and Embassy’s telegrams in regard to the Petroleum Monopoly, and a copy of the French Embassy’s Note of January 30th, 1928 to the Spanish Minister of State, copies of which were forwarded to the Department with the Embassy’s despatch No. 770 of February 3rd last.18
On Sunday, February 5th, I went to London and on Monday discussed the whole matter at considerable length with the Ambassador. Mr. Houghton considered it advisable for me to postpone my departure for Paris until Tuesday in order to endeavor to obtain unofficially if possible, certain information in regard to the attitude of the British Foreign Office. In view of the Department’s instructions, no reference to my mission was made either to the British Embassy in Madrid or to the Foreign Office in London. The Ambassador, however, was able to discuss the matter informally with the French Ambassador in London before my departure and during the course of Monday and Tuesday, I was able to obtain confidential information to the effect that the Shell Petroleum interests were bringing strong pressure to bear on the Foreign Office in order to obtain a firmer attitude in regard to the protection of British interests in Spain.
Before leaving London on Tuesday, February 7th, the Ambassador showed me the draft of a telegram which he was sending to the [Page 848] Department in which he requested instructions in regard to any representations which the Department might desire to make to the British Foreign Office.19
In Paris, I again discussed the matter with Mr. Gordon and later we both went over the various points involved with Mr. Henry Bedford, the European representative, and Mr. Chester Swayne, the General Counsel of the Standard Oil Company of New Jersey. Mr. Swayne is returning to the United States on February 15th, and told me that he would discuss the matter with the Department when he goes to Washington towards the end of this month.
Apart from the general question of principle involved by the expropriation of property in Spain on behalf of the Petroleum Monopoly, we discussed at considerable length the latest developments in the situation which are reported briefly in the Embassy’s telegram No. 25 of February 13th, 3 p.m. Before I left Madrid on February 3rd, the various interests involved, representing American, British and French capital, had about decided to withdraw their representatives from the Central Valuation Board, which has been constituted in Madrid in accordance with the Royal Decree of June 28th, 1927 because this Board (referred to currently here as a Jury or Jurado) had arbitrarily assumed the functions of both judge and jury and had definitely refused to act in the arbitral capacity provided for in the above mentioned Royal Decree.
As the Department will doubtless recall, this Central Valuation Board or Commission is composed of three Government representatives, one representative of the expropriating Monopoly and one of the interests to be expropriated.
The Local Valuation Boards, seven in number, had already turned in their recommendation of valuation for their respective districts, and these awards in many cases placed a valuation on the property which to a certain extent approximated the Companies book values, although all question of the business taken as a going concern, trade marks, and other intangible values were ignored. As previously reported, when these awards were placed before the Central Commission, the Government representatives refused to discuss any technical details, and simply stated in substance that they were there to protect the interests of the Treasury and not to administer justice. Under the circumstances, the interests involved considered that they could only compromise their position by taking part in such arbitrary procedures, and the Babel and Nervion Company (the Standard Oil Company of New Jersey subsidiary) made a formal communication to the Minister of Finance dated February 4th, 1928 (copies and translation of which were forwarded with the Embassy’s despatch No. 770 of [Page 849] February 3rd last)20 setting forth the reasons which guided the Company in its decision to withdraw its representative from the Central Board.
As stated in the Embassy’s telegram No. 25 of February 13th, 3 p.m., the Minister of Finance has replied to the Company’s letter of protest above referred to under date of February 10th, 1928, informing the Companies that should they fail to be represented in the Central Commission in accordance with the Royal Decree-Laws establishing the Monopoly, that [sic] the valuation would simply be determined without their presence. I am enclosing herewith copies of the Spanish original together with an English translation of the letter of the Minister of Finance20 and this letter well illustrates the arbitrary and high-handed procedure which is being followed by the Spanish Government. As a further illustration of the procedure, I am enclosing herewith the Spanish text and English translation thereof of the Procès-Verbal20 affecting the interests of the Shell subsidiary, the Petrolifera Española, which appeared before the Valuation Commission on February 10th. As above stated the Shell interests have decided to withdraw from further participation in the proceedings.
I discussed the position yesterday with the French Ambassador before telegraphing the Department, and he entirely concurs in the decision of the companies to withdraw their representatives under the circumstances. He has, however, sent Mr. Juge, his Commercial Attache, to Paris to review the whole position and particularly the latest developments above referred to, with the Foreign Office there. I shall promptly advise the Department by telegram of any further action that the French Government may take.
The British Embassy here has not communicated with this Embassy during my absence, but I hope that in view of the latest attack which has now been made on British interests, the British Government may at last decide to move in the matter, and I shall promptly advise the Department of any developments.
I have been informed by Mr. Westcott, the managing director of the Shell interests (the Petrolifera Española), that he now has reason to believe that the British Foreign Office, urged on by the representations of the Shell directors in London, is likely to take a stronger attitude as it is now confronted with a definite case which deprives British interests of obtaining justice. In the course of a conversation yesterday, Mr. Westcott remarked that he thought that the Foreign Office had not moved before more strongly because it was well aware of the absence of any real justice in Spain under the present regime, and that it had waited for an overt act showing the bad faith of the Government before applying strong diplomatic [Page 850] pressure, as this was the only method which might possibly obtain justice in the end.
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The Shell interests are the newest and most modern in Spain as the Shell organized its Spanish subsidiary about 1920 and almost all of their plants are new. The total value claimed by the Shell for both physical and intangible assets is about fifty million pesetas. This is the only important British interest in the petroleum industry represented in Spain, although several other smaller British companies sell lubricating oil.
Babel and Nervion and the Sociedad de Compras y Fletamentos are the Standard Oil of New Jersey subsidiaries. Babel and Nervion considers the value of its tangible and intangible assets to be thirty five million pesetas, and the Sociedad de Compras y Fletamentos considers its value to be eighteen million pesetas. The former company is 80% owned by the Standard Oil Company of New Jersey, and the latter some 49%. The other shareholders in these companies are largely French.
Two other French interests, Deutsch and Desmarais Frères, have a book value of approximately twenty five and thirty five million pesetas respectively. The Porto Pi Company which has been distributing Soviet oil in Spain (and doing about 10% of the gasoline trade) is owned in about equal shares by French and Spanish interests. This company intended to claim a valuation of about twenty five million pesetas but I have been informed that no such amount of capital has ever really been invested in its business.
From the above, the Department will observe that the British interests are far from being predominant in Spain and as a matter of fact, up to very recently the Standard Oil of New Jersey, through its directly owned subsidiaries, and several allied French and Spanish small organizations did almost 60% of the gasoline and kerosene business in Spain.
I have [etc.]