883.812/3–1049
Memorandum by Mr. Carroll F. Conover, Economic Assistant at the Embassy in Egypt to the Counselor of Embassy for Economic Affairs (Howard)1
Subject: Suez Canal Agreement with Egyptian Government
The morning papers carried stories announcing the signing of an agreement between the Suez Canal Co. and the Egyptian Government, and the supposed text of the agreement. I had a long talk with M. Daynac just now (he is No. 2 man in the Canal Co. in Cairo), and he says the company is very pleased with the outcome of the negotiations. The papers do not give the full text of the new agreement, and he has promised to send me the full text tomorrow, when copies of the actual signed papers will be ready.
The Company feels that the Egyptian Government by entering into this agreement (which they state has every chance of being approved by Parliament and the King, and thus becoming law) has recognized the special and international character of the company, its freedom from existing or future Egyptian legislation, which may run contrary to the new agreement, and in general has assured the company of a sound and unchanging policy during the life of its concession. While the agreement does not specifically state that the company is not subject to legislation, such as the Company law, yet by setting up operational standards which are in disagreement with that law, the Government has actually agreed that the company is outside the law. The new agreement, as far as the Company Law is concerned, calls for the Canal Co. to reach in 20 years (end of its concession) the same proportions of Egyptian employees that are required in 3 years under the [Page 196] Company Law. It is worthy of note, that the agreement does not call for changes in the existing proportion of Egyptian workers, but rather requires that in future certain percentages of new employees will be Egyptian.
The agreement to pay the Government 7% of total [gross] profits, in place of the fixed sums which were formerly required, will add some 500,000 LE per year to the sums the Company must pay the Government. However, M. Daynac states that this is no serious loss, as the Company will save close to this sum, through, savings made possible under certain of the clauses and agreements regarding the handling of labor questions. The clause granting free transit rights to ships of under 300 tons capacity (ocean going ships are all over 300 tons) is actually a concession to Egyptian coast-wise trade, and a great talking point for the Government, but the revenue received from such trade has been very small, less than 1/10 of 1%, and is no great loss to the company. A clause in an annex to the agreement, limits this right strictly to coast-wise trade, and does not permit a small Egyptian ship (under 300 tons) to take cargo that may arrive at Suez, for example, carry it through the canal free, and load it on a ship at Port Said bound for a foreign destination.
At the present time the Canal Company has a board of 32 directors. Two of these are Egyptian. Under the Company Law 40% of the board must be Egyptian before the end of three years (1951). The agreement calls for
| 1949 | Present | Egyptian | directors | 2 to fill existing vacancies |
| 1949 | New | ” | ” | 2 present French vacancies |
| ? | New | ” | ” | 1 next English vacancy |
| 1959 | New | ” | ” | 1 next vacancy |
| 1964 | New | ” | ” | 1 next vacancy |
Thus within 15–20 years the company will have 7 Egyptian directors—25% of total, as against the 40% at end of 1951 as called for under the Company Law.
The conversation turned to the future of the canal. I asked if M. Daynac thought that the Company would be able to negotiate an extension of their concession after present expiration date. He said the question has been talked over during the discussions with the Government. Under the present regulations of the Company, stockholders rights end with the present concession. It might be simpler to form a new company with the right to operate the canal attributed to it by the Egyptian Government. Present Egyptian thinking did not seriously contemplate the Egyptian Government itself operating the canal. The Government officials agreed with the Canal directors that the strictly international character of the canal, which was never [Page 197] questioned during the last two wars (German ships were perfectly free to use the Canal) has undoubtedly been the decisive factor in keeping Egypt out of the wars. Under a purely Egyptian Government operation such neutrality would be impossible, and a new operating company, if formed, might well be international in character and commitments.
M. Daynac also remarked “Allah had been good to the Company” adding that if Nokrashi Pasha had lived the present agreement would never have been reached, and that also the Palestine War results had done a great deal to bring the Government to a more conciliatory frame of mind.2
[Here follows a postscript concerning the writing of the Convention in French rather than in Arabic]
- Transmitted to the Department by the Embassy in Cairo in despatch 238, March 10.↩
- Cairo, on March 3, advised that a tentative Convention had been reached that same day (despatch 214A, 883.812/3–349). Despatch 238, March 10, and despatch 266, March 19, transmitted copies of the formal Convention and annexes, signed on March 7 at Cairo by Mamdouh Riaz, Egyptian Minister of Commerce and Industry, and by François Charles-Roux, President of La Compagnie Universelle du Canal Maritime de Suez (883.812/3–1049, /3–1949). Cairo concluded, in despatch 238, that the Convention might be “construed according to the interests of the parties in two ways. The Government may claim that the requirement that the agreement be ratified by Parliament is a recognition of the existence of its sovereign control over the whole matter. The Company may on the other hand claim that the solution has merely followed the precedent of a general discussion and agreement and exchange of letters as in the case of the 1936–1937 negotiations; and that the acceptance by the Government of a basis for the fixing of the proportion of foreign employés, well under the requirements of the Company law, is in itself a recognition of the special position of independence enjoyed by the company.”↩