Foreign Relations of the United States, 1969–1976, Volume E–11, Part 1, Documents on Mexico; Central America; and the Caribbean, 1973–1976

369. Telegram 214581 From the Department of State to the Embassy in Guyana¹

Washington, September 28, 1974, 0036Z.

214581. Subject: Bauxite Levy Ref: Georgetown 1721, Georgetown 1733.

1. Under the condition imposed by the bauxite levy bill a situation of confrontation between the GOG and Reynolds in ten days appears almost inevitable. Request you see Burnham at the earliest opportunity to discuss the following points:

A) the USG is deeply disappointed in GOG decision to proceed with legislation that unilaterally imposed bauxite production levy. This is particularly so in view of the many consultations we have had with him on this subject over the past several years—consultations in which the USG urged moderation and made every effort to head off the very situation we now confront. Considering the officially announced intention to nationalize Reynolds’s Guyanese operations before the end of the year, the USG must consider a tax imposed in the context of nationalization as designed to reduce the compensation that will be due to Reynolds upon nationalization. We can not accept the view that the tax issue is one that can be settled apart from the question of compensation. While the GOG has the right to nationalize Reynolds, international law places upon the GOG the obligation to provide Reynolds with prompt, adequate, and effective compensation. Should the new bauxite tax influence the adequacy of compensation paid, applicable U.S. legislation and policy must be considered, and the good relations that our two governments have enjoyed may be affected.

B) The USG firmly believes that a negotiated mutually acceptable solution is in the best interest of all parties concerned. We are especially concerned that a unilateral action, such as the passage of tax legislation, creates an atmosphere not conducive to continued talks. We strongly urge that the GOG take such steps as are necessary to allow good faith negotiations to continue. Should it be felt that negotiations are no longer fruitful, then submission of dispute to a neutral dispute settlement mechanism such as arbitration should be undertaken.

C) As the GOG is aware, there is OPIC insurance of Reynolds. The investment guarantee agreement entered into between our two governments on August 18, 1965 provides that should the United States make payment to any insurer under a guaranty issued pursuant to that agreement, the United States shall become subrogated to the investor’s rights. If negotiations are not fruitful, the United States may submit a claim which it believes presents a question of public international law to an arbitral tribunal for a settlement based on the applicable principles of international law. Thus, the USG has the right to pursue resolution of the matter of compensation by arbitration. However, we would hope that a just settlement now of all outstanding issues between the GOG and Reynolds would obviate the necessity for international arbitration between USG and GOG in the future.

D) Sanctions imposed by the bauxite levy bill in event that Reynolds fails to meet deadline for payment of half the production levy make a negotiated settlement especially difficult. The threat of arrest of the local manager or principal officers of Reynolds creates an impossible negotiating climate. Therefore, the USG urges the GOG to make assurances that these harsh provisions, the effect of which is to impede settlement of the dispute, will not be implemented. FYI: from information available here, Ramphal appears to be correct that most of the details of the GOG bill were lifted virtually verbatim from the Jamaican law. End FYI.

E) We wish to know GOG intentions with regard to nationalization and to further talks with Reynolds; in particular whether GOG will extend invitation under conditions that assure company representatives will not be arrested or otherwise mistreated.

F) The USG renews its offer of good offices to help bring about a mutually acceptable solution to the matter.

2. FYI: Meeting in the Department with Reynolds officers is scheduled for October 1; while company has not yet decided its reaction to new law, we anticipate that company will refuse to pay levy. End FYI.

Kissinger

1. Summary: The Department instructed the Ambassador to inform Burnham that the United States was deeply disappointed with the Guyanese Government’s decision to impose a bauxite production levy even as it moved towards the nationalization of Reynolds’s assets in Guyana. The Department stated its hope that the Guyanese Government and Reynolds would be able to negotiate an agreement on compensation for the company’s assets in Guyana.

   Source: National Archives, RG 59, Central Foreign Policy File, D740273–0971. Confidential; Niact Immediate; Exdis. Drafted by Stebbing, Bond, and Norton; cleared by Burke and Hunt; and approved by Boeker. In telegram 1721 from Georgetown, September 25, the Embassy reported on the Guyanese legislature’s imposition of a levy on bauxite. (Ibid., D740270–0836) Telegram 1733 from Georgetown is dated September 26. (Ibid., D740272–0126) On September 26, Shlaudeman informed Guyanese Ambassador Talbot of the Department’s concern over the levy. (Telegram 212890 to Georgetown, September 26; ibid., D740272–0202) In response to Krebs’s démarche, Burnham rejected any link between the bauxite levy and the projected nationalization of Reynolds’s holdings, and stated he saw no reason that the dispute over the levy should harm overall bilateral relations. (Telegram 1745 from Georgetown, September 28; ibid., D740274–1094)