The Minister in Portugal ( Dearing ) to the Secretary of State

No. 2903

Sir: In confirmation and in supplementation of my telegram No. 39 of November 29, 5 P.M., I have the honor to report that some days ago Mr. James, Director of the Vacuum Oil Company’s Branch in Portugal, came to me with the information that representatives of the Atlantic Refining Company were busily engaged at the Ministry [Page 771] of Finance in an endeavor to arrange for the incorporation, under the title of Companhia Industrial Luso-Americana, of a company to take over a monopolistic concession for the manufacture of petroleum derivatives which was granted as long ago as 1909. The Vacuum Company has always taken the stand that this concession was a mere favor to political adherents accorded in order to enable them to extort money from the Vacuum Company and it has refused to allow itself to be worried thereby, apparently wisely, as no Portuguese interests have yet been able to accomplish anything under the concession. Now, however, when another powerful American company has entered the field, the situation is quite different and the Vacuum and Shell Companies fear that they will be forced out of the country, as the local company will be able to undersell them in the ratio of 1.60 to 2.20. Mr. James also said that the Atlantic Refining Company representatives were making undue use of a letter of introduction from me. To this, I replied that I was certainly not favoring one American Company against another and that I had given the Atlantic Refining people no letter which I would not give to any other American concern.

On November 29, 1929, Mr. Sellers, Manager of the Vacuum Oil Company, called upon me in a state of real alarm. He said that, in order to protect his Company, he had urged at the very beginning that it erect at least a small refinery at Oporto, but that the New York Office had scouted the idea that any harm could come from a concession economically unsound. Mr. Sellers expressed the opinion that the Atlantic Refining Company had gone so far as to contract for machinery, equipment and all other necessities and that a part thereof might even have been shipped. He had seen Mr. Salazar, Minister of Finance, twice and said that Mr. Salazar was impressed by the fact that the grant of the concession would result in a loss to Portugal of about 30,000,000 escudos per annum in customs revenue, would throw out of employment more than one thousand Portuguese and would destroy an enterprise representing invested interests of some 100,000,000 escudos. He added, however, that Mr. Salazar was non-committal. This circumstance is worthy of note, inasmuch as it is known that Mr. Salazar and the Portuguese in general favor the fostering of Portuguese industries. Quite possibly they feel that they will be able to recoup from other sources whatever losses may be suffered in customs revenue.

I was particularly struck by Mr. Seller’s statement that Mr. Salazar had showed no little resentment over the efforts of the Congress of the United States to increase the rates of duty on lace and cork. According to Mr. Sellers, Mr. Salazar had said that the proposed rate of duty on lace would adversely affect the industry in Madeira to such an extent that, in order to keep the industry alive, [Page 772] the Government would be forced to forego the revenues derived therefrom through the existing export tax. It seems that nothing was said in elaboration of the complaint regarding the proposed increase of the duty on cork, but this is evidently a sore point in view of the paramount importance of the cork industry to Portugal and of the fact that the recent Presidential visit to Spain appears to have been conceived largely for the purpose of improving the cork situation in so far as Spain and Portugal are concerned.

I explained to Mr. Sellers that, while I would do everything possible to protect the interests of the Vacuum Oil Company as far as the Portuguese Company was concerned, the American backing of that Company complicated and rendered delicate the situation. I urged him, as a condition precedent to my taking action, fully to lay the case before the Department of State with a view to my being suitably instructed. This, Mr. Sellers said he would do.

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I have [etc.]

Fred Morris Dearing