The Secretary of State to the Chargé in Great Britain (Atherton)

No. 1011

Sir: Reference is made to the Embassy’s despatch No. 2122 of July 18, 1931, enclosing a copy of a communication from the Foreign Office regarding the question of oil concessions in Iraq.

It is noted that in the opinion of the Foreign Office the provisions of Article 11 of the Anglo-Iraq Treaty of October 10, 1922, and paragraph (1) of the Protocol attached to the Tripartite Convention of January 9, 1930, “do not require that every concession shall, before being granted, be put up to public tender, but only that in all matters relating to the grant of concessions, the decision of the Iraq Government must be based upon the best interests of Iraq, to the exclusion of all considerations of nationality”.

The Department does not consider it necessary to enter into a formal discussion of this statement with the Foreign Office, since it is possible that it may be susceptible of an interpretation substantially acceptable to both Governments. However, in order to obviate the possibility of any future misunderstanding, it is considered desirable that you seek an early occasion to present informally to the Foreign Office the following views of the Department on certain aspects of the question. [Page 609]It is suggested that these views might appropriately be presented in the form of a letter to Mr. Oliphant as a reply to his communication of July 17, 1931, addressed to the Counselor of the Embassy.

In the first place, this Government would not wish to insist that each and every concession for the development of natural resources in Iraq must, before being granted, be put up to public tender. Thus, it is recognized that it would be proper for the Iraq Government to grant a concession for the exploitation of certain of the natural resources of Iraq to native inhabitants of the country, who were technically and financially in a position to operate it, without calling for bids from nationals of the United States or from other foreign nationals. In a case of this kind it would of course be understood that the concession was actually for the exclusive benefit of the native inhabitants of Iraq and that it would not be turned over to the nationals of a foreign country.

Again, in the case of small local concessions of minor importance it is recognized that it might be uneconomic and impracticable to call for tenders when such a course would involve an undue delay in the development of an essential project or excessive expense or inconvenience in delation to the scope and importance of the project. A certain reasonable latitude may be permissible in cases of the character mentioned in order to secure the promotion of enterprises which are clearly for the benefit of the native inhabitants of Iraq.

In the opinion of this Government, however, cases of this character are the rare exception to the general rule which appears clearly to require that no concession for the development of the natural resources of Iraq shall be granted to any foreign (i. e. non Iraqi) national, unless the nationals of the United States are given a reasonable opportunity to compete therefor. Such reasonable opportunity can in practice be afforded only if all projects for the development of the natural resources of Iraq are opened to competitive offer, which usually means an invitation to public tender. This Government considers, therefore, that the failure of the Iraq Government to observe a suitable procedure which definitely assures competitive opportunity, except in the case of special circumstances such as those discussed above, would ipso facto constitute a case of discrimination in violation of the pertinent provisions of the Tripartite Convention of January 9, 1930, and of the Protocol attached thereto.

The Department will look forward with interest to receiving a report of the informal representations which you undertake at the Foreign Office in accordance with these instructions.

Very truly yours,

For the Secretary of State:
W. R. Castle, Jr.