The Chargé in Spain (Whitehouse) to the Secretary of State

No. 1146

Sir: I have the honor to refer to the Embassy’s despatch No. 1137 of January 26, 1929,7 having to do with the petroleum monopoly, and to transmit herewith for the Department’s consideration the Spanish text with English translation of a communication which has just been received from the Foreign Office7 in reply to the Embassy’s note of December 3 [2], 1928.7a

As the Department will see, the copy of the note of January 16, 1929, to the French Ambassador7 which forms part of the above referred to Foreign Office communication to this Embassy, is an effort on the part of the Spanish Government to deny the right of the French companies to appeal to arbitration.

The French Ambassador, however, was quite unwilling to accept this refusal of the Spanish Government as final, and on receipt of the note took occasion to discuss it at length with General Primo de Rivera. He told General Primo de Rivera that the note obviously avoided the main point to be arbitrated which had nothing to do with vital Spanish interests, as it was only a question of paying for property which the Spanish Government had illegally seized. He said that it was absurd to state that any question of arbitrating the principle of the monopoly was involved because neither the French nor any other Government had raised the question of the right of the Spanish Government to establish a monopoly. The only question at issue and one which, notwithstanding the Spanish denial, was entirely within the scope of the 1904 arbitration treaty, was the question of more adequate compensation for property which had been seized on behalf of the monopoly.

In regard to the contention in the latter part of the Spanish note of January 16, 1929, that an 8% allowance for good will and going concern value was more than sufficient, the French Ambassador replied that Primo had promised equality of treatment to all interests involved; that Spanish interests had received monopoly shares selling at about a 50% premium in payment for their properties, and that leaving entirely aside the general question of whether an 8% allowance for good will and going concern value of the expropriated petroleum interests was or was not fair, the fact remained that foreign interests whose property had been expropriated were the victims of discriminatory treatment to the extent of the difference between the 8% good will allotted to them and the actual selling price of the monopoly shares (now quoted at 147).

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General Primo de Rivera again avoided the real issue and at once said that as the monopoly was of a national character, foreigners could not be paid in or hold shares, and added that an additional issue of share capital would bring about a great decrease in the present selling price.

To this argument the French Ambassador replied that the interests he represented had no desire whatever to receive shares, but that they simply wished for substantial equality of treatment with Spanish interests, and he added that his Government must insist on this point. General Primo de Rivera replied that it would be impossible to admit compensation on such a scale because, leaving aside French and American interests, it would be necessary to make a further heavy payment to the Shell Company (which has now accepted some 30,000,000 pesetas as compensation, stating that it reserved the right to claim equality of treatment if other interests received further compensation.) The French Ambassador said that this was a concern of the Spanish, not of the French Government; that he would submit the Spanish refusal to accept arbitration to his Government, but that he felt sure that his Government would not be willing to admit for a moment either the validity or the fairness of the position taken up by the Spanish Government. He added that it would be much simpler for the Spanish Government to make a reasonable offer of compensation to the interests involved; that this would be a relatively small matter to the Spanish Government, and that many future difficulties would thus be avoided.

General Primo de Rivera (suddenly passing over the refusal to arbitrate and to grant additional compensation as set forth in the note above referred to) replied that he would again take the matter up with the Finance Minister to see if the Government could find means to give some additional compensation along the lines insisted on by the French Government.

The French Ambassador informs me that he is now awaiting additional instructions from Paris on the basis of the Spanish note, and in a recent conversation stated that his Commercial Attaché is now in Paris discussing further means of action with the Foreign Office. He still believes that by continued pressure the Spanish Government may be induced to give more favorable treatment to the interests involved.

I understand that American interests have been somewhat worried by the recent fall in the Spanish exchange due to the abortive military revolts that have recently taken place in Spain, and that they fear compensation may thus be jeopardized. I do not believe that too much importance should be given to these factors, because in the first place seditions or revolutionary movements in Spain do not have as an object any upsetting of the country’s existing [Page 773] economic system, and, moreover, the Spanish Government having paid the valuation awarded to the Shell interests at the fixed rate of 29.23 pesetas to the pound sterling, and having repeatedly promised equality of treatment to all foreign interests, could hardly do less than give similar terms to French and American interests.

While exchange has declined about 5%, it has already shown a tendency to rally and I do not see any reason to anticipate a severe decline, which would make it difficult for the Spanish Government to obtain the comparatively small sums of money (about 10,000,000 dollars) necessary, to pay off the French and American interests on the basis of their present valuations at the rate given to the Shell Company.

I believe the Spanish Government would be only too glad to pay off the French and American interests immediately should they be willing to accept payment on the terms given to the Shell, which were as above stated, finally accepted under protest on the basis of the Spanish Government’s valuation of its properties. The only question now at stake is whether the unpaid interests prefer to temporize, hoping thereby to obtain additional compensation or whether they consider it more expedient to accept the terms now offered them by the Spanish Government.

I have [etc.]

Sheldon Whitehouse
  1. Not printed.
  2. Not printed.
  3. Quoted in telegram No. 100, December 6, 1928, Foreign Relations, 1928, vol. iii, p. 877.
  4. Not printed.