Doc. No. 29 (E).
Memorandum on the Economic and Financial Provisions Relating to Ceded Territories (Annex 3)
1. Paragraph 1 of Annex 3 establishes that the Successor State shall receive, without payment Italian State and parastatal property within ceded territories. It should be remarked that this provision is not in keeping with the principles of international law and with the rules applied in international treaties.
As regards State properties, Italy should be granted the right to have their value credited, and to establish the procedure for their evaluation if the two Governments do not succeed in reaching an agreement on this point.
With particular regard to the territories ceded by Italy on the Eastern frontier, the precedent of the St. Germain Treaty should be recalled. [Page 204] In Article 208 of the Treaty, Italy was debited with the value of all State property existing in the annexed area and wrote it down as reparations.
As regards the extension of this obligation to parastatal property, it must be stressed that this is contrary to international usage: the Versailles Treaty provided for the cession of property situated in ceded territories (and even this cession was not without payment), but of State property only.
Moreover, the definition of parastatal property contained in paragraph 1 is so extensive that property of an undeniably private character can easily be included in it.
While there is no objection to the cession of property of local authorities, who, residing in the ceded territory, must of course retain the property necessary to carry out their function; and while the former property of the Fascist party and its auxiliary organisations has, according to Italian legislation, become State property and need not be mentioned here; it is, on the other hand, inadmissible to consider State or parastatal property the property of “public institutions” (a category not easy to define) and, still less, the property of “publicly owned Companies and Associations”.
In fact, in the case of companies carrying on business or industrial activities, exploiting mines, etc., the fact that the State facilitates their formation by subscribing all or part of their capital, does not modify the nature of the Company which must still be classed according to its aims and activities and not according to the nature of its shareholders.
State investments in companies of a strictly business nature may be a deviation from normal State activities and a sign of the unwarranted interference of the State in the economic life in recent years. But in view of its form (participation in limited companies or associations) State intervention must be considered a purely transitory phenomenon, which consents at a later stage to abolish this interference, and does not alter the nature of the economic organ under consideration. Such intervention, therefore, does not authorise the classing under public institutions of economic bodies having a strictly private nature.
For all the above reasons, the suppression of the words “without payment” and “parastatal”, as well as the entire second part of the paragraph is proposed.
2. No remarks are called for concerning the system laid down in Paragraph 2 for the conversion of currency. It would be necessary, however, to complete this provision with guarantees ensuring that the currency withdrawn cannot be put into circulation again. It is proposed that this operation take place before Italian Government representatives, and that the notes withdrawn be destroyed in their presence.
3. Paragraph 3 of Annex 3 provides for the assumption by the [Page 205] Successor State of a part of the Italian public debt. There is no difficulty in accepting the British proposal, also supported by the United States Delegation, although the principle it is based on, means a heavier burden for Italy than is customary to adopt in similar cases.
It should be remarked, moreover, that the proposals of the French and Russian Delegations could not possibly be applied as no public debts have been specifically incurred in Italy for construction of public works in ceded territories.
Furthermore, the guarantees mentioned under No. 2 above should also be inserted in Paragraph 3, namely, when the Successor State proceeds to replace the bond certificates of the public debt it assumes in obligation, the withdrawal and destruction of the former Italian bonds should take place in the presence of representatives of the Italian State.
4. While accepting the clause under No. 5, the suppression is requested of the French Delegation’s proposal according to which the Successor State would be entitled to appropriate, free of charge, property, rights and interests of Italian concessionary companies or public utility services such as water, gas, electricity and transport, situated in ceded territories. This clause is in contrast with the principles generally adopted in the case of cession of territories, principles on which the measures in Annex 3, concerning property, are based.
Should the French proposal be accepted, owners of property in ceded territories might be subject to measures of expropriation based on accidental grounds, such as the nature or destination of the territory, and this in open contrast with the general guarantees, duly provided by the other paragraphs of the Annex, for the protection of property rights.
In any case, according to the laws and usage of most States, concessionaries of public utility services, though subject to special provision, do not lose their private character.
It would be advisable to add to Paragraph 5 of the Annex a third subparagraph as proposed by the United States Delegation (supported by the British) in order to avoid doubts as to its meaning and consequent disputes in the future.
5. The words “within the limits” should be removed from the second subparagraph of paragraph 6 which provides for the removal of property to Italy. These words, taken literally, might give rise to the interpretation that the Successor State can restrict the guarantees granted in the first subparagraph of paragraph 6.
6. Concerning paragraph 7, it should be remarked that the additional proposal made by the French Delegation would restrict and, in certain cases, annul the faculty of removing property, rightly granted by the proposal of the United States and Great Britain to companies having their siège social in ceded territories.
[Page 206]7. Concerning the proposal contained in paragraph 10 (supported by the British and American Delegations subject to drafting, and considered superfluous by the U.S.S.R. Delegation) the following remarks are in order: This proposal asserts that a new agreement shall be negotiated between the Company, the States concerned and the Committee of Bondholders of the Company, but, on the other hand, the proposal limits to such an extent the contents of this new agreement as to hamper its conclusion; all the more so in view of the financial charges that would arise for the Signatory States.
Apart from this, it is essential that the Peace Treaty pledge the Signatory States to see that the Company fulfils its general tasks, namely: to promote the coordination of the tariff policies of the States operating the railways running to Trieste, as well as all other measures for the increase of the traffic of this important port.
It is therefore proposed that the provision under discussion be modified as follows: “A new agreement shall be negotiated between the Danube-Sava-Adriatic Railway Company, the Governments concerned and the Committee of Bondholders of the Company. This agreement will take into account the changes which have followed on the redistribution of the lines over the territories of various States. It will likewise ensure satisfactory servicing of the bonds and develop the functions of public interest exercised by the Company so as to obtain close co-operation among the States in promoting traffic.
8. Owing to the complexity of the matters dealt with in Annex 3 and the ensuing possibility of controversy, some form of arbitration should be provided. A Commission of Arbitration composed of three members might be established, two members being appointed by the parties concerned and the third by mutual agreement or, failing this, by the President of the International Court of Justice.
9. The Italian Delegation agrees to the proposal of the United States suggesting that Annex 3 should not be applied to the Free Territory of Trieste, for which special provision should be made.
10. As the remarks contained in this Memorandum concern most of the provisions in Annex 3, a draft of the amended text is attached.