852.75 National Telephone
Co./9–1944
The Ambassador in Spain (Hayes) to the Secretary of State
No. 3102
Madrid, September 19,
1944.
[Received September 28.]
Subject: Compañía Telefónica Nacional de España
Sir: With further reference to my despatch
No. 2999, September 1, 1944,61 on the above subject, I have the honor to
enclose herewith a copy of a memorandum of the substance of my
conversation with the Chief of the Spanish State on September 11,
1944.
The day following that conversation the Vice President of the
International Telephone and Telegraph Corporation received
notification from the Subsecretary of the Presidency of the
Government to the effect that the Presidency of the Government can
not entertain the claims which are presented in the name of a
foreign company in view of the fact that the right of representation
of the general interests of the Compañía Telefónica Nacional de
España before the Spanish State corresponds to that Company.
I immediately sent a personal note to the Minister for Foreign
Affairs recalling assurances given to me by General Franco and
expressing my belief that this notification must have been sent by
inadvertence. I pointed out that the promise of fair treatment to
the American interests in the Compañía Telefónica Nacional de España
could only be carried out by fair treatment to that company. I
requested the Minister to bring this notification to the attention
of General Franco. I have received no reply to this note as yet.
In acknowledging receipt of the notification, Mr. Caldwell, Vice
President of the International Telephone and Telegraph Corporation
is reminding the Presidency that the Compañía Telefónica Nacional de
España is the product of the intervention of foreign capital which
still holds a controlling interest, and of foreign management, and
that the denial of the Presidency to admit that the American
interest in the company may address an appeal to the Spanish
Government for action to remedy a condition which is injurious to
that interest makes it necessary for the International Telephone and
Telegraph Corporation to have recourse to the United States
Government for protection of its interests.
Respectfully yours,
[Page 432]
[Enclosure—Extracts]
Memorandum of Conversation, by the Ambassador
in Spain (Hayes)
In the course of my conversation with General Franco at the Prado
on Monday, September 11, which covered a number of matters which
are embodied in another Memorandum of Conversation, I stated
that I should like to bring up two specific matters which were
at issue between our Governments and which, I trusted, might
speedily be settled to the satisfaction of both.
. . . . . . .
The other specific matter I wished to bring up, I said, had to do
with the Telephone Company in which there was a very large and
important American financial interest which my Government
intended to protect. Despite the fact that I had called this to
the attention of the Foreign Office in a formal Note as long ago
as early February, and despite a succession of Notes ever since
that time, no reply whatsoever had been forthcoming from the
Spanish Government. I thought this not only discourteous but
suspiciously indicative of unfair and unjust treatment of
American interests. The IT&T had invested a large amount of
American capital in providing Spain with a modern and efficient
telephone system under a solemn contract concluded between the
Company and the Spanish Government of the time of Primo de
Rivera.62 This contract had been scrupulously
lived up to by the Company, but in the last years had been
violated in a number of respects by the Government as set forth
in a memorandum of last February. It seemed obvious to me that
the terms of the contract should be carried out and that if any
modification of the contract was desired it should be arrived at
by mutual agreement and not by unilateral action on the part of
the Spanish Government.
The Caudillo said he had given much attention to this matter of
the Telephone Company and it was not as simple as I implied. The
contract was not between the IT&T, a foreign Corporation,
and the Spanish Government, but between a Spanish company and
the Spanish Government with a provision in the contract to the
effect that the laws of the State had precedence over the terms
of the contract. It was therefore a matter of domestic policy
and not a question at issue between two governments or even
between the Spanish Government and a foreign corporation.
Besides, the contract had been a particularly iniquitous one. It
was, so far as the Spanish Government was concerned, largely a
personal act of General Primo de Rivera, who had been a good
general and had done much for Spain, but who had been
[Page 433]
easily duped on
economic matters. There had been a terrible outcry from the
Spanish public about the terms of the contract, and it was the
“scandal of the Telefónica” which was the major factor in
bringing about the downfall of Primo de Rivera and eventually of
the Monarchy. Indeed the chief hue and cry against the contract
had been raised by the Republicans and Leftist elements in
general so that, under the Republic, a serious attempt had been
made to nationalize the Spanish telephone system. This had been
halted through a kind of informal compromise whereby the status quo would continue indefinitely
without the State’s recognizing the validity of the contract. I
should bear in mind that the contract had never been passed
upon, much less accepted, by the Cortes either under the
Monarchy or under the Republic. All that the Spanish Government
was now doing was to continue the status
quo much as it had been under the Republic. He
recognized that there was a considerable American investment in
the Telefónica. He wanted it treated fairly and justly and had
no idea of effecting any confiscation.
I said that the Government had recently expressed a desire to buy
the holdings of IT&T in the Spanish Telephone Company but
the Government spokesman seemed to wish to buy them at a figure
which would entail at least partial confiscation and money
losses for American investors. The Company was willing to treat
of a sale if the Government would make a firm and formal written
offer and then give some individual or committee full powers to
carry on the subsequent negotiation. The Caudillo said the
Spanish Government had no thought what soever of buying up the
holdings of American investors. He himself was extremely glad
that American capital had been invested in Spain and he hoped it
would remain invested here. The Government had thought of buying
up 51% of the stock in the Company but it was not by any means
finally committed to that. In any event, he would be insistent
that foreign capital invested in Spain was well and justly
treated and that a fair return was made to the investors. He and
his Government were determined on fair and honest financial
dealings. He could assure me that no American investor would
suffer.
I said that raised still another point which didn’t have any
connection at all that I could see with questions in dispute
about the contract or about the possible purchase of holdings of
the IT&T. It was the point that there was now a big backlog
of credits and blocked balances held by the IT&T in pesetas
which had not been transferred into dollars for the American
investors. Hence the latter for some years had not been in
receipt of any return on their investment. I said there was no
dispute regarding the amount of these credits and balances
between the Company and the Spanish authorities. Everybody
agreed on the amount. Moreover, Spain had resources that enabled
it to make the needful transfer from pesetas into dollars and I
[Page 434]
could not see why
such action should not immediately be taken regardless of the
debates about other matters connected with the Telephone
Company. It was only fair and just to the American capital
invested in an important and essential Spanish public utility.
The Caudillo said there was a great deal of doubt in his mind
whether Spain in the immediate future could transfer the full
amount of the credits and blocked balances. Consequently, some
further negotiation would be necessary to determine the exact
amount which Spain, through its resources, could actually
transfer now. He intended, however, that Spain should meet its
obligations.
I said there was one great difficulty about this whole telephone
complex, and that was the lack of any agency authorized and
empowered to deal with the Company. All sorts of delaying and
frequently contradictory proposals came from this or that member
of the Government; sometimes from the Ministry of Industry and
Commerce, sometimes from the Ministry of the Treasury, sometimes
from elsewhere. It seemed to me obvious that American capital
had been invested in the Company on the understanding that the
original contract was a valid one, that consequently, in the
interest of the American investors, the contract should be
respected and observed until such time as, through appropriate
negotiation, a new contract might be made. Moreover,
authoritative negotiation seemed necessary for any sale of stock
from American to Spanish holders and, according to what he had
just said, negotiation might be necessary to determine what
amount of the credits and blocked balances would be immediately
transferred from pesetas to dollars. Absolutely essential,
however, to all such negotiations was the designation by the
Caudillo of a person or a committee with authority and full
power to negotiate on behalf of the Spanish Government. The
Caudillo said this last suggestion was an excellent one and he
would take immediate steps to see that such a negotiating
commission was set up and that it deals promptly and in a
businesslike way with the Company. He would reaffirm his purpose
of respecting fully American investments in Spain and the
interests of the United States here.
