Ludwell DennyCHAPTER SEVEN
COLOMBIA probably will be the scene of the next international oil explosion. Grave international consequences are threatened by efforts of Anglo-Persian, a British Government company, to get a concession with canal rights flanking the Panaman defences of the United States.
All the elements of danger are there: alleged British Government defiance of the Monroe Doctrine Corollary, conflict between Standard and British companies, Nature blocking petroleum exploitation, primitive tribes suspicious of alien invasion, labour trouble, Mexicanized laws and regulations, disputed land and subsoil titles, foreign financial penetration and diplomatic intervention. On top of this explosive well sits Standard, intending by the grace of the State Department to remain there.
The United States looks to Colombia to take Mexicos place as the source of American petroleum reserves. Following the report of the Coolidge Conservation Commission on the coming shortage in the United States, the interest of Washington and New York in the Republic joining the Panama Canal has rapidly increased. British initial success in getting neighbouring Venezuelan fields intensifies the American drive on Colombia.
No one knows the extent of Colombias petroleum resources. Apparently they stretch hundreds of miles back through tropical jungle to the Andes. But there is no natural outlet. The Magdalena River, running through the oil country, is too shallow even at its mouth for sea-going tankers. This obstacle for several years retarded subsoil development. Then Standard (N.J.) rushed in where only giant capital can follow.
Roberto De Mares, a French engineer, later naturalized, obtained in 1905 a 50-year concession in the heart of the Carare country. The tract lacked definite boundaries. Standard in 1916 purchased his rights. The concession was supposed to embrace 3,000,000 acres, according to Standards publication, The Lamp, August 1926: The fact that the area when actually surveyed, some years later, only contained approximately 1,333,000 acres indicates the state of knowledge as to its size and content. It is safe to say that no accurate surveys of this area ... had previously been possible. ... Roads into the interior and camps were made by literally chopping them out of the tangled forest.
Standard operated through its subsidiaries, Tropical Oil and Andian National Corporation. Tropical started explorations at once. But annual production in the period of 1922-25 was held to about 500,000 barrels. In the latter year a young engineer, Mr. M.M. Stuckey, began for Andian the task of laying 360 miles of pipe-line through the jungle to Mamonal on the coast. In 11 months this feat was accomplished. With eight pumping stations in operation, the line carried 30,000 barrels of crude every 24 hours. In August 1927 a loop was completed and daily capacity increased to 50,000 barrels. The company built refineries, factories, harbours, boats, roads, railways, and cities. Within five years Standard had invested $60,000,000. When the pipe-line was completed in 1926 production multiplied 15-fold to 6,500,000 barrels. Production for 1927 was 15,000,000 barrels.123 Tropical early in 1928 had a larger daily output than any other one operating company in South America.
To construct the necessary pipe-line, Standard had acquired in 1923 a special concession from the Government. The company spent the large sum involved in construction only after assuring itself that the Bogota Government would pursue in the future a favourable legislative and administrative policy.
There could have been no utilization of one of Colombias greatest resources upon such a scale, if its potentialities had not been initially recognized by the Colombian Government and its development encouraged, said The Lamp in August 1926: Faith in the integrity of Colombian legislative and judicial enactment was the basis of the huge investments involved, and the observances of the agreements affecting alike the rights of the corporations and the Government and people of Colombia was necessary to the culmination of both plans [wells and pipe-lines]. ... Contributory to this development with its accompanying constructions of new railroads and highways will be the opening up to usefulness of an area as large as many European principalities and much more bounteous in response to human effort.
Other companies, American and British, have gone into the country. But lack of transport facilities prevents commercial production outside of Standards De Mares field.124 Among interested American corporations are Gulf (Mellon), Transcontinental, Texas, Magdalena Syndicate, Colombia Syndicate, Leonard, Bogota Syndicate, and Standard of California. The latters holdings are in addition to the Standard of New Jersey Tropical concession.
The chief conflict between American and British companies centres in and around the Barco concession area, far back in the interior against the Venezuelan frontier. General Virgilio Barco at the turn of this century happened to command Conservative troops which defeated the rebel army in Colombias civil war. He sought reward. In 1905 he received it in the form of 1,250,000 acres of jungle land. The General lacked capital to develop his domain. In 1916 he sold it to an American-British syndicate. The Americans held majority interest. Dutch-Shell was indirectly represented. But this syndicate could not solve the transport problem. There were two possible outlets, both expensive. One lay over the Andes; the other across the Venezuelan frontier to Lake Maracaibo and the sea. The first was rejected by engineers as too difficult and costly. The alternative route was blocked by a Colombian-Venezuelan boundary dispute. When this controversy was settled the syndicate was unable to make satisfactory pipe-line arrangements with the Caracas Government.
Then the issue of titles arose to plague the syndicate. Colombian titles are described by petroleum lawyers as the most involved titles of any oil country in the world. The Supreme Court decided the syndicates titles were invalid. Too many other persons, native and foreign, were interested in the Barco region.
As a result of these complications in 1926 Mr. Henry L. Doherty, chief American holder in the syndicate, arranged for the Gulf interests to obtain control through the Colombian Petroleum Corporation. Gulf has 75 per cent interest in this new company. The Caribbean Syndicate, with British and American-Doherty capital, retains 25 per cent.
Under Mellon-Gulf management the old barriers raised by the Colombian and Venezuelan Governments suddenly seemed to disappear. Mr. Doherty had tried for years to make headway with the Caracas Government without success. Within less than two months after the family of the United States Secretary of the Treasury acquired control of the Barco fields, Venezuela agreed to permit a pipe-line across its territory. Now there are intimations that the Colombian Supreme Court may reverse itself, making the concession titles valid when expediency permits.
Out of this involved situation Dutch-Shell emerges. The Deterding trust is connected with Caribbean Syndicate, holding minority interest in the Barco tract. Through Equatorial Oil, Dutch-Shell is getting another foothold in that region. Other British companies there include Lobitos and Coastal Oilfields.
But the most active is the British Government company, Anglo-Persian. An Anglo-Persian exploration party recently marched with a miniature army of mercenaries into the district of an hostile Indian tribe. After a battle the British retreated. Whether they got the geological data they sought is not known. But, it is reported, in their retreat they spread the news that they were American oil men. Since then it is not safe for a Yankee to venture within that tribes territory. Such amenities of competition, however, are not a British monopoly. Dutch-Shell and Anglo-Persian men have worse things to say about the Americans and the Washington Government. Lord Cowdray of Mexican fame was prevented by the State Department from getting a Colombia concession, according to the British.
The British have also claimed that not long ago after a corporation of British capitalists had spent several millions on property in Colombia, the United States Government intervened and compelled the abrogation of the concessions on the ground that it was contrary to the Monroe Doctrine, Dr. John Ise recorded in 1926.125
But that incident is now overshadowed by a similar controversy, which is apt to influence Anglo-American relations in that country for many years.
Henry Irving Frederick Yates landed in Colombia early in 1927. He began at once to make history. This gentleman is a Briton by nationality, a colonel by title, an agent of the British Governments Anglo-Persian Oil Company by vocation. He arrived with a diplomatic passport, and the prestige and immunity which that gives. His way had been prepared by the British Legation at Bogota. He negotiated with Colombian officials. The daring Colonel proposed that the Colombian Government grant to the British Government company a 50-year monopoly concession for the vast area of national lands adjoining Panama and dominating the Canal approaches.126 Minister of Industry Montalvo, the President, and Cabinet agreed. But certain Americans, whose business it is to know what foreign agents do in the Panama Canal region, promptly learned of the secret agreement.
What was the United States Government to do? Ordinarily its formal protest under the Monroe Doctrine would be quick and sharp. But this situation was not so simple. In the process of protecting that same Monroe Doctrine and its Coolidge Corollary, the United States at that time was threatening Mexico, allegedly violating Panamas sovereignty with a military treaty rejected by the National Assembly, and pacifying Nicaragua with battleships and marines.127 Washingtons exercise of these duties had been misunderstood throughout Latin America. Anti-Yankee sentiment was running high, especially in the South American Republic next to the Panama Canal. President Coolidge had justified his Nicaraguan intervention by a declaration of special interests. Colombians were asking: Will our country be next? Colombian leaders were sending protests to President Mendez, warning against American financial and economic penetration as the first step in the invasion of their countrys sovereignty.128 Clearly it was no time for the State Department to protest to Colombia, even under the Monroe Doctrine.
Open opposition to the British Governments scheme to acquire territory flanking the Panama Canal was left, therefore, to certain Colombians whose own interests were also jeopardized. They protested on the ground that the Colombian Constitution and laws prohibited a foreign government from acquiring, directly or indirectly, such rights.
Popular sentiment soon forced the Bogota Government, led by the British Colonel, to a strategic retreat. The Colonel belatedly chose a line of action which such a strategist might have been expected to hit upon at the beginning of his campaign. He decided he was not an agent of the British Government company after all. He became plain Henry Irving Frederick Yates. He agreed that this was no sort of concession to be given to a foreign government. But that it should be given to Mr. Yates as an individual obviously was an entirely different matter. The Bogota Government was quick to discern the reason of this logic. It thought, however, that others might be less logical. In order to meet any possible objections it reduced the concession area to 6,000,000 acresalong the Panaman border.
But the objections continued. The strategist decided to leave the country. He departed as plain Mr. Yates, but allegedly with a diplomatic passport and with his records and luggage under immunity and seal of the British Government. The British Minister continues negotiations for the concession.
Colombian opposition to the proposed Yates-Montalvo concession is led by Dr. Laureno Gomez, former Minister of Public Works. The reserve of Uraba, which Law 72 established for the Republic of Colombia and incorporated in its patrimony, becomes [under the contract] a reserve of the British Government or of its oil operators, according to an exposé by Dr. Gomez in the Bogota El Tiempo, October 18, 1927: There is something offensive to Colombian good sense in the manner in which Yates wanted to get the concession for the new canal.
The text of the amended contract is long and involved, many of the major points being obscured in technicalities. Extracts given below are from the English text appearing in OShaughnessys South American Oil Reports, December 1927, which officials consider reliable. The Opposition argument is inserted in parentheses after clauses of the contract:
Clause 1. The Government, exercising the authority vested in it by Article 4, paragraph B, of Law 72 of 1925, undertakes the official exploitation of the national petroleum reserves, and for such purpose it charges exclusively the Administrator [i.e., Henry Irving Frederick Yates] with the complete geological examination, exploration and exploitation of the reserved zone comprised within the following boundaries: ... [Authors summary: On the north the entire Colombian-Panama frontier, and the shore of the Gulf of Uraba and Caribbean to Punta Arboletes; thence south to the headwaters of the Rio Sinu; west to the Rio Atrato; south along the Rio Atrato to the Rio Bojaya, and south-west to the Pacific; thence northward up the Pacific coast to Panama.]
(Gomezs criticism: It was proposed to sustain in Law 72 of 1925, which prohibits the Government from celebrating any contract for the exploitation of hydrocarbons in the Uraba region, that the Government should not contract within these same limits of prohibition, an Immeasurable concession.)
Clause 2. The Administrator obligates himself to represent the Government in all the transactions which it may be necessary to make for the development of the present contract. ...
(Gomezs criticism: In this, which is essentially a concession contract, the absurdity is solemnized in that the one representing the side opposite or opposed to the Government may be at the same time the representative of the Government.)
Clause 6. The capital invested in the expenses necessary for the installations and operations comprised in this contract shall be furnished by the Administrator, and shall be amortized in the manner stipulated in the seventh clause. ...
Clause 7. The Government shall retain for itself 20 per cent of the gross products which the Administrator may extract from the deposits or pools. It shall give the Administrator another 20 per cent of such products in payment for his services of management and administration, and it sets aside the remaining 60 per cent for the expenses which may be incurred by the operation of the enterprise and the amortization of the capital invested therein. The Administrator may freely invest the last mentioned 60 units in the expenses caused by the operation of the enterprise and by the amortization of the capital. In case the Administrator succeeds in securing the normal operation of the enterprise and the corresponding amortization of the capital with less than the 60 units to which this clause refers, he may, for himself and as a greater remuneration, retain the balance of such 60 units which may remain. ... [Authors summary: If gross production exceeds 1,000,000 barrels monthly, the Governments share rises gradually to 25 per cent.]
(Gomezs criticism: This clause does nothing except to annul and to make ridiculous the existing law in order to favor Colonel Yates. The 20 per cent of participation to the Government is established as a minimum in Law 120. This contract only seeks to reduce that participation of the Government. According to the law cited, in addition to the 20 per cent, any contractor in that region must pay the ordinary imposts. These are forgiven Yates. He will not pay duty in the custom house. It is known that the Tropical [Standard Oil] has paid into the public treasury a sum in excess of $2,500,000 on this account. Yates will not pay either the territorial tax of 10 cents per hectare, which, on the 2,500.000 hectares for 50 years, amounts to $12,500,000. He will be relieved from paying in the same way the territorial impost of two pesos per hectare in the zones that surround the wells and along the pipe-lines. That amount cannot be calculated in advance, but it can be very large. And the petroleum utilized in the exploration and exploitation, which also represents a considerable sum since it is known that the Tropical has occasionally utilized in these necessities up to 50 per cent, is for him also excluded. The 20 per cent of the Government, then, stands considerably reduced.)
Clause 8. ... Whenever the monthly production of petroleum reaches 1,000,000 barrels, the Administrator shall establish a refinery in Colombia, in order to refine therein, at least, the crude petroleum sufficient to satisfy the gasoline requirements of the country. The Administrator may not sell, for internal consumption, in the places of exploitation or in his refinery, the crude petroleum and the refined products thereof, at prices exceeding those at which this product may be had in London or New York, at the option of the Government. ...
Clause 13. ... Whenever, for the purposes of the official exploitation to which this contract refers, it is necessary to establish telephonic, telegraphic or radio-telegraphic communications, or to construct railways or other means of communication of analogous or of greater importance, they may be constructed by virtue of a separate contract, the cost thereof to be charged by the Administrator to the 60 per cent treated in the seventh clause hereof. The Administrator shall also have the right to use a zone 60 metres in width on the lands belonging to the Nation, as a right of way for the petroleum pipe-lines, casing and means of transportation, and to occupy the surface thereof which may be necessary for the construction; and he may without cost, and exclusively, in that which may be necessary for the explorations and exploitations, employ the hydraulic and electric power and the construction and the combustible materials to be found on the nationally-owned lands situated within the bounds specified in the first clause of this contract. ...
(Gomezs criticism: This clause is of exceptional gravity. The difference attracts attention as between that established when they treat of constructing pipe-lines, ports and docks which require authorization on the part of the Government and the construction of telephones, telegraphs, railroads, or other similar ways of transportation of major importance in which it is not established that authorization is necessary. The fact of enumerating them separately implies that this authorization is not previously necessary because it is considered to be conceded by the contract itself. With regard to these works it says that they will be able to be done by separate contract. Here Clause 2 commences to function. The contractor [Yates] representative of the Government for all the operations which should be carried out in the development of this contract, will be able to make the separate contract in the name of the Government with the entity that may suit him, for the construction of railroads or the opening of the inter-oceanic canal. And he will be able to do it behind the back and without consent of the Government, for such a deduction is reached from the literal tenor of Clauses 13 and 2. There is something offensive to Colombian good sense in the manner in which Yates wanted to get the concession for the new canal. The contractor [Yates] is enabled to contract separately for the construction of the canal, without the necessity of a permit and without advice to the Government.)
Clause 15. ... The Administrator ... submits to the laws and jurisdiction of the tribunals of Colombia, as provided in Article 42 of the fiscal code, which reads: Contracts made in Colombia with foreign persons are subject to Colombian law and to the jurisdiction of the national tribunals. In all contracts of this nature, it must be set forth that the foreigner renounces the right of making diplomatic claims in that which pertains to the duties and rights arising from the contract, saving the case of a denial of justice....
Clause 16. If, for the execution of this contract, it should be necessary for the Administrator to organize any corporation or corporations, company or companies, he may do so, always provided that they be of Colombian nationality and domicile, and that no interest whatsoever be held therein by any government other than the Government of the Republic of Colombia. The Administrator shall present to the Government, for its approval, the articles of incorporation and the instruments of amendment of such companies, and the Government give them or deny them approval, or necessary corrections, within a term of 60 days. The Administrator may not transfer the rights deriving from this contract to foreign governments or entities depending therefrom, nor may he admit them as partners, stockholders or co-tenants, under penalty of the forfeiture of this contract ipso facto. ...
(Gomezs criticism: What is meant by this prohibition when it is known that Colonel Yates is the agent of the Anglo-Persian Oil Company, an official concern controlled by the British Government which names directly its functionaries and administrators? As to the prohibition against the transfer of shares without the consent of the Government, with regard to which the Honourable Minister [Montalvo] attaches so much glory, it is nothing more than supreme simplicity and an utter failure to recognize the rules and universal methods under which great companies are managed. Perhaps the Honourable Minister is ignorant of the current and daily use of the institution known as a Voting Trust, by means of which the control of any company is changed without the necessity of transferring shares and which is done in a manner admitted and accepted in the commercial world.)
Clause 17. The present contract shall endure for a term of 50 years to be computed from the date of its signature. (Gomezs criticism: No one, whether he be a national or a foreigner, can, according to our laws, obtain a petroleum contract for more than 20 years.)
Clause 18. The obligations of the Administrator shall remain in suspense should any fortuitous event or case of force majeure arise. Such suspension shall endure all such time as the impediment lasts and three months thereafter. ... [Authors note: This would cover a revolution, or occupation of the territory by the United States in some possible Panama Canal defence contingency. Former Secretary of State Robert Lansing used this force majeure argument in defending the Sinclair Oil Company case when the Russian Government cancelled the Saghalin concession on grounds of non-exploitation. Mr. Lansing argued that Japanese military occupation of the territory prevented Sinclair from complying with the contract terms.]
Clause 22. During the life of this contract the Government shall not enter into any other contract with any person other than the Administrator, for the exploration and exploitation of deposits or pools of hydrocarbons in the zone to which Clause 1 refers. ...
Clause 24. The Government may at any time, with the approval of Congress, directly undertake the exploitation placed in charge of the Administrator by this contract, paying the latter or whomsoever may represent his interests: a. The capital,with legal interest,which can be proved to have been invested for the account of the Government by reason of this contract, and which have not been covered by the surplus treated in Clause 7, after deducting the expenses of administration and operation of the enterprise in accordance with the terms of this contract. ...
(Gomezs criticism: We now arrive at Clause 24, vertex, crown and climax of the conflicts between laws and the absurdities of this contract. The Government, says the clause, will be enabled to take over the concession at any time whatever, but it will have to pay first the capital invested and not amortizedwith that illusory and arbitrary amortization which was previously spoken ofand then the indemnity for unearned possible profits fixed by arbiters. By indicating impossible conditions they have managed to annul the faculty of the Government for recovering the concession or of declaring its cancellation.)
The Bogota Governments act in negotiating the Yates-Montalvo concession and attempt to put the contract into effect over the protest of Congress is tremendously significant. Perhaps no more daring gesture against the United States assumed authority over the Caribbean has ever been made by a South American government. What is behind this, and where will it lead? That is what Washington is wondering.
Is this Colombias revenge for the alleged theft of her Panaman province by the United States in 1903? Washington knows that wound has not healed, despite American payment of the monetary claim. But Washington has not supposed that the Bogota Government seeks retaliation, if such is the case. Senator William E. Borah, now chairman of the Foreign Relations Committee, in his unsuccessful opposition to the $25,000,000 payment treaty,129 characterized that settlement as an effort at purchasing the friendship of Colombia. In his Senate speech of April 14, 1921, Mr. Borah pointed out:
Colombia, as we all know, has always assumed to treat any such suggestion as an insult. ... For 17 years this controversy has been going on. It was initiated in the claim upon the part of Colombia that the United States Government had violated international law, that its President usurping power had oppressed a helpless people or a weaker people, and that we had aided and abetted in the tearing asunder of the Colombian Republic. The Senator did not quote the famous explanations made in 1911 by Mr. Roosevelt, which are so frequently repeated in BogotaI took the Canal Zone and let the Congress debate, and, while the debate goes on, the Canal does also. ... I was prepared, if necessary, to submit to Congress a recommendation that we should proceed with the work in spite of Colombias opposition.130 It was freely charged that oil interests were partly responsible for the Harding Administration putting through the payment treaty.131
Perhaps the Colombian Governments share in formulating the Yates contract can be understood, but what about the British Government? This is not a question which Washington officials discuss before the public. Assuming that some responsible officials in London see the international menace of their Governments ownership of Anglo-Persian, perhaps they were not originally aware of that companys clumsy and provocative acts in Colombia. If that is the explanation, why does the British Legation in Bogota continue its efforts to get the concession in Mr. Yatess name? Admittingwhat no one believesthat the British Government and Anglo-Persian have no further stake in the concession, what gain to Mr. Yates or any British citizen can compensate for the cost the London Government must pay in international distrust? These are some of Washingtons unanswered questions.
These questions are barbed by reports of some American oil men to Washington that their survey showed no petroleum in the concession areawhich may or may not prove true. They believe the concession unimportant to any British companyif oil is the only motive.
The American judgment that there is little or no oil in the proposed British concession area south of the Panaman border coincides with the American judgment that there is no gold in the British gold concession between the Colombian border and the Panama Canal. The Panama Corporation, a British syndicate promoted by the Earl of Cavan and Sir Alfred Mond, in 1925 obtained from the Panaman Government a 10-year monopoly gold concession.132 Mr. Richard O. Marsh, explorer and discoverer of the white Indians, filed charges with the State Department against Great Britain. Mr. Marsh alleged that the British Government through this concession obtained important naval bases in Panama, the right to police territory near the Canal and exclusive rights to the potential Panaman rubber desired by Americans to block British world rubber monopoly.133 Anti-British sentiment was revived in the United States as a result of these charges and sensational press stories.
The Senate passed a Borah resolution directing the Secretary of War to advise the Senate of all facts and circumstances relative to concessions secured by the British Government in the Republic of Panama.134 Investigation failed to substantiate the extreme charges. The concession covers 1,150 square miles in Veraguas province, the El Remance mines in that province and the Darien tract of 3,400 square miles in south Panama. The corporation has exclusive rights for 10 years to prospect for gold, and thereafter to work its mines as perpetual owner. All mines within the area to which it establishes claim and actually operates are tax-exempt. The corporation has use of national communications and waterways. The Panaman Government receives a two per cent royalty of gross receipts from mines after one year of operation. The area covers harbours but no major ports. Concession lands are in no case closer to the Canal than 100 miles. Though the military guard is paid by the corporation it is appointed by the Government. There are other Panaman lands as well adapted to rubber cultivation. The British Government has no apparent holding in the company.
There remain, however, several questions concerning this concession which trouble some Washington officials. First, there is believed to be not sufficient gold in that region to explain under ordinary circumstances the organization of a $10,000,000 corporation. Secondly, the concession promoters are men who are, or have been, British Government officials. Sir Alfred Mond, former Cabinet Minister, is head of the English Chemical Trust. Mr. Andrew Percy Bennett is former British Minister to Costa Rica, Venezuela and Panama. But the most important person, from the American point of view, is the chairman, Mr. Duncan Elliot Alves. Mr. Alves will be remembered as head of British Controlled Oilfields, organized under British Government control for the avowed purpose of obtaining Latin Americas resources to be held for exclusive British Government service in time of need. Mr. Marshs idea that the London Government could establish naval bases in this concession area near the Panama Canal, without being observed and stopped by the United States, is naive. Military and naval men think about all the British Government can obtain from this concession, if it so desires, is a very thorough knowledge of this rather inaccessible region, which would be of value in event of war between the two countries.
Mr. Alvess record with the British Controlled Oilfields and his association with this extensive and apparently valueless tract near the Panama Canal, however, increases the mystery in Washingtons mind. That mystery deepens when a British Government company attempts to get possession of another large neighbouring territory across the border in Colombia.
The United States Government is especially sensitive to any act in Panama or the Canal region, which suggests that a foreign Power is interested. Washington has refused repeatedly to permit foreign commercial aircraft corporations to operate in the Canal Zone.135 Establishment of air bases by Colonel Yates, as permitted by the proposed Colombian concession, would disturb greatly the American military and naval strategists. Washingtons suspicion regarding holdings of foreign Powers extends a long distance from the Panama Canal itself. When a Japanese syndicate was reported seeking to acquire the Magdalena concession in Mexico, the State Department announced it would view with grave concern the actual or potential possession of a harbour or any other place by any non-American government in an area which might threaten the defences and communications of the United States. This was the attitude of the Senate in the Lodge resolution.136 Transfer of the Magdalena concession to the Japanese company, according to the Department, would be quite certain to be interpreted in some quarters in a manner to cause a great outcry and such a result would be so obvious a cause of regret to the Government of the United States that it would appear unnecessary further to comment on the disposition of the Federal Government.
Yatess proposed concession in Colombia would give to the British hundreds of miles nearer the Panama Canal than Magdalena Bay, the actual and potential possession of a harbour or any other place, which Washington declares a matter of grave concern.
The merest hint of such a British interoceanic canal as permitted by the Yates concession is considered a threat to basic United States commercial and naval policies. Under no conceivable circumstances will Washington permit construction of any canal connecting the Caribbean and Pacific which is not under absolute United States control. This fixed policy resulted in United States acquisition by the Wilson Administration of exclusive perpetual rights to build such a Nicaraguan canal. The amount paid was $3,000,000. That action was taken because other foreign Powers desired canal rights. Not until several years later was it apparent that the United States could well use for commercial and naval purposes two canals. Protection of these Nicaraguan canal rights, and supplemental naval base rights at Corn Islands and Fonseca Bay, was given by President Coolidge in his special message to Congress as a major reason for military intervention in that country in 1927.137 Congress in 1928 considered bills for survey and immediate construction of such a canal.138
Political conditions in Panama also partly explain Washingtons sensitiveness to the Yates contract. While the Colonel and the British Minister in Bogota were trying to obtain territory flanking the Panama Canal, the Panamans themselves were protesting the United States claim to complete sovereignty over the Canal Zone. The Panamans were not only disputing this delicate issue in secret with Washington, they were challenging the United States claims before the League of Nations. Senor Morales, Panaman Minister of Finance and Geneva delegate, said in an address to the League Assembly:
It is, however, a serious question in reply to which no compromise is possible between the two Governments, because it cannot be settled unless one of the participants changes its view wholly and completely and adopts the others views. The United States maintains that Panama has transferred its right of sovereignty over the Canal Zone, while Panama maintains that it has only granted such rights and authority as they would possess if they were, in fact, the sovereign Power, for the specific purpose of constructing, maintaining, operating, sanitating, and protecting the Canal.139
Refusal of the Panaman Assembly to ratify the United States treaty, and the prospect of continuance indefinitely of that dispute, heightens Washingtons concern over complications or possible foreign intervention in the Canal region as implied in the Yates contract.
This United States policy is well known to the London Foreign Office. Therefore the British expected Washington to protest to the Colombian Government against the concession. In Bogota it was predicted that the United States would protest, and that this would induce the Colombian Congress to ratify the British contract to spite the United States. But Washington for once postponed an opportunity to flaunt its hated interpretation of the Monroe Doctrine in the face of a Caribbean country. Rumours that such a protest had been made were sufficient to start an indignant anti-Yankee press campaign in Bogota. This was deflated by official denials.
Yates-Montalvo strategy was thus forced back to the local issue. Native opposition from the beginning had been aroused chiefly by the Governments usurpation of power.
The President and Cabinet had tried to give away a right of which Congress alone could legally dispose. There was no way out then for the British and the Government except to put through Congress legislation empowering the Executive to grant such concessions. A measure known as the Sanchez bill was written by Minister Montalvo, and introduced in Congress in the summer of 1927. Its passage was blocked.
The British then fell into the trap set for, but avoided by, Washington. Downing Street intervened. This incident was described by the Bogota press, according to an American agency dispatch of October 23, as follows:
El Tiempo announces that the British Minister sent a note to the Government demanding extension of the session of Congress while discussion of indemnification of $12,000,000 for expropriation of a British companys mines of Supia and Marmato is pending, assuring that the Foreign Office would compromise for $6,000,000 provided the Yates contract is approved. El Tiempo adds the Foreign Minister read the British note in secret session of the Senate, where it caused great indignation, the Senate deciding to protest it and to reject the settlement, which will be arranged by the Government administratively.
From the American point of view Great Britains resort to strong-arm methods and the consequent anti-British reaction in Colombia has probably prevented for many months any Congressional action on the contract. The British and the Bogota Government, unwilling to admit defeat, introduced in place of the Sanchez measure an Emergency Petroleum bill with a similar rider empowering the Executive to dispose of national lands to concessionaires. This rider was defeated by Congress.
Under the amended Emergency Petroleum law (Law No. 84), the Yates contract must be suspended pending its acceptance by Congress or passage of a new law empowering the Executive to grant the concession. But the new law apparently permits Yates to begin exploration whenever the Executive desires. The law, as passed on November 17, 1927, and promulgated five days later, provides:
Article 3. Until a new law, amending present legislation on hydrocarbons, shall be in effect, the proposals and contracts referring to the hydrocarbons treated by Article 1 hereof, that are pending in the office of the Minister of Industries, or of the Council of Ministers, the Council of State, the Finance Board, or the Congress (in the case of the last mentioned, if not specifically approved by it), shall be held in suspense; however, exploration may be carried out under the conditions that the Government may stipulate.
While Washington was worrying over international implications of the British concession and provisions of the Sanchez bill making the contract effective, American oil interests were concerned with restrictive provisions of the bill affecting them and their industry. They were convinced that no oil was to be found in the Yates region and were mildly interested in alleged political and naval intrigues of the British Government. But they were ready to fight against the Colombian Governments new policy of Mexicanization.
This nationalization policy was embodied in the Sanchez bill as prepared by Minister Montalvo. Though debate on the bill was not completed when the 1927 Congress adjourned, necessitating passage of a less drastic Emergency Petroleum law, the Government is expected to try to enact the Sanchez bill in 1928. The bill and the policy behind it are criticized by American oil interests and some Colombians as unconstitutional and confiscatory.
Under the proposed law the Government Executive could challenge titles effectively, withhold drilling permits, supervise exploitation, exact a 20 per cent production royalty, and restrict to 15,000 hectares a companys holdings in any one provinceexcepting only so-called national companies such as the projected British monopoly concession organization, which might exploit 100,000 hectares in each zone. The Executive, instead of Congress, would dispose of national lands. A translation of the proposed Sanchez law may be found in the October 1927 issue of OShaughnessys South American Oil Reports, from which the following excerpts are taken:
Article 1. The petroleum industry in Colombia is national, and therefore is declared to be a public utility. Its national character manifests itself not only by the administration, direct or delegated, of the exploration and exploitation of oil lands, but also through the intervention and the paramount inspection that inheres to the Government in every act which has relation to such industry.
Article 2. Explorations and exploitations of oil lands with regard to which the previous article treats may not be made without the previous permission of the national Government, whether the lands in question be the property of the national or not.
Article 3. For explorations on national lands the permit shall be evidenced by contract entered into for that purpose.
Article 4. For explorations in privately-owned lands, the basic title to which antedates October 18, 1873, the permit shall be given in writing and shall be issued against the undertaking on the part of the land-owner to furnish to the Government all data concerning the land to be explored, properly documented, and of the progress and results of the explorations. ...
Article 5. The permit for exploitations in national lands shall be evidenced by the contract to be entered into for that purpose in accordance with the laws governing the matter, provided that it has been approved by the Council of Ministers, the Council of State, and the Treasury Board.
Article 6. The Government is prohibited from making contracts for petroleum exploitation with foreign individuals or foreign companies except in the cases provided for in Article 11 of the National Constitution.
Article 7. For exploitations in privately-owned lands, whose basic title antedates October 18, 1873, the Government may (i.e., in its discretion) grant a permit, provided that there be delivered to the Government a copy of the respective title of ownership ... and either the contract which has been entered into ... or the program of exploitation. ...
Article 8. In the contracts which the owners of lands with titles anterior to October 18, 1873, make with private parties for petroleum exploitations, the contracting parties shall recognize in favour of the State 20 per cent of the gross products of such exploitations, which the State shall collect in such form as the State may deem most convenient for the public interests. ...
Article 10. The Government shall proceed as soon as possible to build, for account of the nation, a refinery to treat the petroleum which belongs to it in the exploitations of the Tropical Oil Company derived from its royalty therein, to which it is entitled in accordance with the contract now in force with said company. ...
Article 13. Application for explorations and exploitations pending in the Ministry of Industries are declared in suspense while the Government is acquiring an exact knowledge of the petroleum wealth of the country.
Article 14. Applications for lease contracts now pending even though they have been accepted by the Ministry do not constitute any vested rights in the applicants. ...
Article 16. The Government is empowered to form companies for the development of national lands and to engage in explorations for petroleum, but only with native or naturalized citizens or with domestic corporations or foreign corporations nationalized in accordance with the laws of the Republic. ...
Article 18. Lands wherein Government exploitations are to be established, whether by administration or by delegation to one or more companies wherein the State is a stockholder, may have a continuous extension up to 100,000 hectares in each exploitation zone. ...
Article 20. Contracts of joint venture (los contractos de compania), which the Government enters into pursuant to the present law, require for their validity the approval of the Council of Ministers, of His Excellency the President of the Republic, and of the Treasury Board, in addition to the revision which the Council of State shall make with reference to the legality of the contract. ...
Article 22. Only in those cases of exploitation delegated to companies wherein the State is a stockholder, may an individual or corporation acquire exploitation rights in lots larger than 15,000 hectares in a single department or intendencia. In all other cases, no lease contracts covering extensions greater than 15,000 hectares in a single department or intendencia shall be recognized nor shall transfers tending to accumulate in one single person or corporation greater extensions be permitted. ...
When the Sanchez measure was postponed by Congress for future debate in 1928, the emergency bill was introduced and became a law. The latter incorporated the Governments nationalization policy but did not carry details so far as the original bill. This law (No. 84), as translated by the State Department, February 15, 1928, provides:
Article 1. The Nation reserves ownership of and the right privately to exploit the accumulations of hydrocarbons which may exist in public lands, or those owned by it under any title. This provision shall also be applied to such hydrocarbons as may exist in lands upon which have been granted concessions, leases or permits for exploration or exploitation, and which, for any reason, shall have reentered or shall re-enter the possession of the Nation. Note: In event that the Government should avail of the legal authorizations now in effect, for private exploitation of the petroliferous accumulations referred to by this Article, it shall submit the respective contracts to the approval of Congress.
Oil companies are required by Article 2 to submit to the Minister of Industries within six months the documents evidencing ownership of the lands in which such exploitation is being carried out, and the lease contracts, or contracts of any other sort, entered into with the owners of such lands, should the owners themselves not be carrying on the exploration. The penalty for non-compliance is not forfeiture but a fine of 200 to 1,000 pesos for each month of delay.
Executive Regulation No. 150 of January 28, 1928, putting Law No. 84 in operation, is even more severe. It provides that foreign owners must file proof of title before March 5, 1928. As a penalty for non-compliance the Government is empowered to seize property and equipment and cancel drilling permits. Though the American companies refuse to comply, the Minister of Interior in May 1928 had not yet seized properties. Before the time limit for filing expired, the companies entered suit in the Supreme Court challenging the law and regulation. Their argument is stated by OShaughnessys South American Oil Reports, March 1928, as follows:
This regulation requires that lawful owners of oil rights on lands, titles to which antedate October 1873, submit before March 5, 1928, proof of title (with surveyors maps, geological reports, etc., etc.), in form and substance satisfactory to the Minister of Industries in order to secure necessary drilling permit. If American oil companies fail to comply with this illegal and arbitrary regulation, the Minister of Industries is authorized to declare their oil rights to 6e the property of the Nation, to stop work and seize their maps, geological data, drilling equipment, buildings, etc., and to fine or even imprison their agents.
Any such action by the Minister, of course, would be confiscation of the property of foreigners without due process of law, and without compensation. The theoretical remedy open to American oil companies to contest the Ministers right to such procedure is in fact no remedy at all, as it would require from three to six years to secure an adjudication of the issue, and in the meantime, American oil companies would have been deprived of their property and would have suffered irreparable loss.
Perhaps the most objectionable provision in the Regulation No. 150, from a practical operating standpoint, is the right conferred on the Minister of Industries to permit or deny in his legally uncontrolled discretion, American oil companies to drill lands on which they own the oil rights. It is by this device, borrowed from Mexico, that the Minister hopes to supremely control the oil development of Colombia. The parallel of Colombias attitude with that of Mexico is inescapable. The attempt is to declare all privately-owned oil rights the property of the Nation, and to force lawful owners to agree to conditions of development different and less advantageous to them than the laws, under which such property was acquired, accorded to them.
Another provision of Law No. 84 puts the Government into the refining business. This is aimed directly at Standard, which operates at Barranca-Bermeja the only refinery in the country. That installation handles 6,000 barrels a day. It is a small plant, designed to meet local needs.
Under the De Mares concession contract the Government receives from Standard a 10 per cent royalty, to be paid either in crude oil or in cash. Hitherto the Government has been satisfied with money payments, receiving about $1,500,000 in 1927. Under the new law the Bogota Cabinet proposes to take the Standard royalty in oil, to be refined in its own plant. This refinery and its product will compete with the Rockefeller monopoly. Because of tax and other handicaps the company cannot compete successfully with a State product, at least for a while.
It is argued, however, that the Government through graft and lack of experience will fail in business. This conviction did not prevent Standard from trying to eliminate the refinery provision from the bill. Standard pointed out that even a small refinery would cost not less than $2,500,000, which the impoverished Bogota Government could not afford to lose. The Government is willing to take the chance, apparently determined to obtain the profit now made by Standard on Government royalty oil and to force the American plant out of business.
In embarking on this manufacturing venture, the Government was also empowered in 1927 to take over the Carttagena harbour concession. That concession was purchased from British interests by Standard in 1921 and would not ordinarily expire until 1944. The company is constructing at La Machina, the Cartagena wharf, a storage tank of 80,000 gallons capacity. This tank will not be seized under the new law.
Taxes levied on the two Standard companies were also in 1927 increased from three to eight per cent.
In retaliation against Mexicanization of Colombian oil, American companies have decided upon a quasi-boycott of Colombia. Standard of New Jersey, with its large investments sunk in the Tropical wells, Andian pipe-lines and tanks, of course, will carry on. But other subsidiaries, with undeveloped lands, will resort to a watchful waiting policy. Gulf interests will delay exploitation of the disputed Barco concession and the trans-Venezuelan pipe-line. The Texas Company options on tracts aggregating 2,000,000 acres will not be taken up at once. These tactics are based on the premise that Colombia is entirely dependent upon large-scale capital for development of its subsoil riches. With Russian production mounting rapidly, new gushers flowing in the Mosul fields and a friendly Government in the neighbouring competing fields of Venezuela, Colombia is not in a position to drive a hard bargain with the American companies, according to the latter. Whether the British will join with the Americans in a temporary united front to enforce such a boycott is another question. Attempted Anglo-American co-operation in boycotting or sabotaging Russian and Mexican oil has not been such as to alarm the Colombians.
The Washington Government in handling political aspects of the Colombian problem is following a similar policy. Having succeeded through action of the Colombian Congress in blocking the Yates contract temporarily, Washington feels it can afford to act less abruptly in dealing with Colombias restrictive oil legislation than it did in protesting Mexican lawsunless, of course, it is faced with an overt act of property seizure. A more propitious moment for protest may come after the present cycle of anti-Yankee sentiment in Latin America occasioned by the Nicaraguan and Panaman disputes, it is hoped.
Washington, in the main, counts on the American economic and financial hold upon Colombia to check that countrys tendency to go Mexican.140 The official Colombian Review of the Bogota Government stated in September 1927: The ambitious [railway and general construction] program on which Colombia is now embarking has been made possible by reorganization of her finances under the plan of the [United States] Kemmerer Commission. In 1926-27 Colombia borrowed $81,500,000 from the United States. At the close of that period Mr. Albert E. Ellis, Assistant Trade Commissioner, cabled the Washington Government from Bogota that the Treasury deficit was over $8,000,000. There followed in April 1928 an additional New York loan of $35,000,000. Colombia probably is in too deep as a debtor to ignore or to defy United States policy successfully.
In reacting against this alleged bondage to the United States, the Colombian Government apparently has decided the only escape is to play Great Britain against the United States, encouraging the two Powers to weaken each other. During congressional debate on the emergency petroleum bill, Representative Uribe Afanador and other opponents of the measure were charged by Minister Montalvo with acting for American companies. The Minister in turn was charged with representing the interests of Colonel Yates and the British.
Little Colombian encouragement is required to stimulate Anglo-American conflict, already growing elsewhere in the world. But Colombians should realize that the battle ground of giants is no healthy place to be.
123. Ibid.. Feb. 21, 1928. Cf., Appendix A.
124. Tulsa Oil and Gas Journal, Dec. 29, 1927, p. 47.
125. Ise, supra, p. 466.
126. Tulsa Oil and Gas Journal, Dec. 29, 1927, p. 247.
127. Cf., Chap. IV.
128. New York, OShaughnessys South American Oil Reports, June 1927.
129. State Department, Foreign Relations, 1924, p. 163.
130. Nearing and Freeman, supra, p, 83, Washington Post, March 24, 1911.
131. New York Times, March 14, 1921.
132. Text in Panaman Gaceta Oficial, March 26, 1925.
133. Cf., New York World, April 5, June 4, 1926.
134. New York Times, June 6, 1926.
135. Cf., New York Times, No,. 18, 19, 1927, and New York Herald Tribune, Nov. 27, 1927, for dispute over Colombian-German Scadta Air Line application for Panama bases.
136. Cf. Moon, supra, pp. 413-414.
137. 69th Congress, 2nd Session, House Document No. 633.
138. New York Times, March 29, 1928.
139. League of Nations, Minutes of Eighth Ordinary Session of the Assembly, 11th Plenary Meeting, Sept. 10, 1927.
140. Cf., Robert W. Dunn, American Foreign Investments, p. 74. 1926.