The Secretary of State to Minister Swenson
Washington, November 16, 1900.
Sir: I have to acknowledge the receipt of your No. 172 of the 20th of June last, enclosing a confidential note of the Danish Minister of Foreign Affairs, of the 18th of the same month, in relation to the project of convention heretofore submitted by this Government for the session of the Danish West Indies to the United States.
The willingness of Denmark to transfer the islands to the United States, if satisfactory terms could be agreed on, having previously been intimated, the Minister of Foreign Affairs states that his Government would consider itself justfied in making the cession only in case it felt an assurance that the islands and their inhabitants would gain an advantage by the transaction: that it must adhere to this position, especially as no vote of the inhabitants is to be taken: and consequently that certain modifications of the project of convention must be presupposed as a basis of negotiation. Should these modifications be made, it is declared that the new project will be conscientiously considered as a basis on which the two Governments may treat.
Fully appreciating the motive avowed by the Danish Government, and sharing its wishes for the welfare and prosperity of the islands and their inhabitants, this Government has carefully considered the proposed modifications, with a view to meet them in such a manner as to lead to a mutually satisfactory result.
The desired modifications which are four in number may be discussed seriatim.
1. The project heretofore submitted provides (Article III) that Danish subjects inhabiting the islands may, in case they remain there
preserve their allegiance to the Crown of Denmark by making, within two years from the date of the exchange of ratifications of this convention, a declaration of their intention to preserve such allegiance, in default of which declaration they shall be held to have renounced it and to have elected allegiance to the United States.
The Danish Government asks that the inhabitants of the islands who do not within the designated term elect to remain Danish subjects “shall obtain, as soon as the cession shall have been effected, the rights enjoyed by American citizens.”
It is believed that the wishes of the Danish Government may be fully met by so amending Article III as to make the clause in question read as follows:
In case they remain in the islands, they may preserve their allegiance to the Crown of Denmark by making within two years from the date of the exchange of the ratifications of this convention a declaration of their intention to preserve such allegiance, in default of which declaration they shall be held to have renounced it, and to have elected allegiance to the United States.
2. The second modification desired by Denmark is that it shall be provided that the islands shall be exempt from customs duties in their relations with the United States, or that they shall have at least the same advantages as were recently accorded to Porto Rico.
This modification if embodied in the treaty would limit and direct the legislative discretion of the Congress, which it is not practical to do. In point of fact, the ceded Danish islands would necessarily [Page 475] share in the administrative scheme of Porto Rico, to which they are adjacent, and it is not supposable that the Congress in legislating for their governance would impose unfavorable conditions upon them. Another reason for omitting a conventional stipulation in this regard is that the question of the commercial relations of our lately acquired islands to the Union as well as the citizenship of their inhabitants remains to be passed upon by the Supreme Court of the United States and the decision of that tribunal would be final and conclusive as to both legislative and administrative discretion.
3. The third modification relates to the amount of the pecuniary compensation desired by Denmark for the cession. The note states that Denmark desires only enough to reimburse the Treasury for sums with interest, advanced to the colonial treasury, to the commune of St. Croix, and to the stock company called The Sugar Factories of St. Croix, and to capitalize pensions which, in consequence of the cession, would have to be paid to the functionaries of the islands. It is said:
Such reimbursement would require a compensation of $4,000,000: and it is doubtful if the Government can obtain the assent of the Rigsdag to the convention if the purchasing price is fixed at only $3,500,000. In any case such assent cannot be secured unless an absolute guarantee can be given that the Danish Treasury will be liable for no obligations after the cession has been made.
The statement made in the last sentence will be considered in connection with the fourth modification, and we may now examine the grounds on which a pecuniary compensation of four million dollars is understood to be suggested.
As the Department is advised, the sums, with interest, described as advanced to the colonial treasury, to the commune of St. Croix, and to the stock company called The Sugar Factories of St. Croix, amounted at a recent date to 12,094,582.27 crowns, or, a Danish crown being equivalent to about 27 cents, to $3,030,000 approximately. But of this amount which is more than three fourths of the maximum compensation suggested, more than two thirds appear to be composed of three items, as follows: An item of 7,924,915.43 crowns, or about $1,982,000, described as moneys due the Danish Treasury from the West India colonial funds, an item of 567,366.72 crowns, with accumulated interest amounting to 340,419.90 crowns representing moneys lent by the Danish Treasury to St. Croix, and an item of 472,060 crowns, representing circulating West India credit bills. It is, moreover, understood that of late years the annual deficit has been about $140,000, with an annaul accumulation of interest of more than $5,000.
The three items above described, which aggregate 9,304,762.05 crowns, equivalent to about $2,300,000, or considerably more than half the suggested maximum apparently represent merely sums which Denmark, as the sovereign of the islands, has been obliged to expend in their government, in consequence of a deficiency of colonial revenues; sums which, save in the sense of domestic bookkeeping, do not in any manner constitute a debt, or, with the possible exception of the comparatively small item of West India credit bills, involve any future liability. This being so, those items seem for the most part to bear no relation to the amount of compensation to be paid, unless as an argument for reducing it, for the cause of their existence being a deficiency of colonial revenue, it is obvious that they [Page 476] denote an apparent decrease in the value of the islands, and that, if adopted as the basis of compensation, they must, while steadily draining the Danish Treasury, soon render a cession of the islands impossible.
The whole amount due from The Sugar Factories of St. Croix, which is understood to be a private company conducting a central factory for the grinding of cane, is said to be 2,789,820.22 crowns. For this amount the Danish Government appears to hold securities, which would, it is assumed, if this Government’ should take upon itself any liability in the matter, be transferred to the United States.
The amount required for the capitalization of pensions has been placed at 4,662,000 crowns. This is, however, only a rough estimate, and it is probable that the amount is to a considerable extent within the control of the Danish Government. In the draft of budget for the municipality of St. Thomas and St. John for the year ending March 31, 1900, the total amount for pensions is $10,350.78, and, in the draft of budget for St. Croix $7,127.25. The amount for all the islands therefore was $17,478.03. This would represent, at a rate of interest as low as three per cent, a capital of about $582,601, so that, if 4,662,000 crowns were allowed on the score of pensions, almost an equal additional capital would be afforded for new pensions, even at the rate of three per cent. But with French three and a half per cents selling barely above par, and German Imperial threes at 86, three per cent is a very low rate to assume as the basis of capitalization.
4. The fourth modification relates to the proposal of the United States for the cession of an unencumbered sovereignty. The project submitted by this Government provided (Article I) that the sovereignty of Denmark should be ceded
free and unincumbered by any grants, conditions, privileges or franchises in any way affecting or limiting the exercise of such sovereignty.
The note of the Minister of Foreign Affairs states that there are a number of such encumbrances in the islands, and particularly a monopoly exercised by the St. Thomas Floating Dock Company, a concession granted to a telegraph company, and a guarantee by the colonial treasury of a certain rate of interest to the stockholders of The Sugar Factories; that the King’s Government cannot divest the possessors of these rights without a violation of law, and that the United States would have to pledge itself to indemnify the Danish Treasury in respect of claims which might be made against it by parties considering themselves damaged by the cession in their “rights of monopoly, privileges, concessions, the above mentioned guarantee or similar claims.” The note also states that more detailed information on these matters will be furnished, if it be desired. Such information will be desired, if the United States should consent particularly to assume any obligation of the class in question, but it may be expedient without further delay to examine the subject in the light of information already furnished.
By the drafts of budget for the year ending March 31, 1899, and your No. 148 of February 22, 1900, it appears that the telegraph company referred to is the West India and Panama Telegraph Company, Limited. It appears that the original concession was made on February 12, 1869, and that a subsidy has lately been granted to the [Page 477] company for five years, till January 1, 1905, of $3,000 a year from the treasury of St. Thomas and St. John, and $1,000 a year from the treasury of St. Croix; in all, $4,000 annually for the term specified.
The St. Thomas Floating Dock Company obtained March 12, 1897, a grant for twenty-one years of a monopoly which gives it the right during that term to make charges and regulations in its business, but apparently entails no expense upon the government.
The guarantee of interest on the securities of The Sugar Factories of St. Croix is stated to have been given under the law of February 25, 1876, and the ordinance of June 16 of the same year. It seems that the Danish Government holds a mortgage on the property of the company to the amount of 1,414,784.57 crowns, and has guaranteed interest at the rate of five per cent on bonds to the amount of 1,070,000 crowns, and on preference shares to the amount of 345,000 crowns. The amount which the Government is required to expend under this guarantee apparently varies with the surplus earnings of the company overrunning expenses. The amount in the drafts of budget for 1899–1900 was $45,275.98. The surplus earnings of the company from 1877 to 1897, seems to have varied all the way from $1073.20 (1880–1881) to $94,243.13 (1883–1884) a year, the usual surplus being nearer the former sum than the latter. For 1896–1897, the last year for which figures have been given, it was $20,257.55. It appears therefore that the guarantee in question involves a real and substantial pecuniary liability.
In view of this liability and of the subsidy pledged to the telegraph company, and in view also of the fact that the greater part of the maximum pecuniary compensation suggested by Denmark represents an item which so far as it has any relation to the subject, bears an inverse ratio to the value of the islands, this Government, whose offer of $3,500,000 presupposed the transfer of a free and unencumbered sovereignty, is of opinion that, if it should assume the obligations which the Danish Government has specified, it should not pay that Government more than $3,250,000 in cash, and it is also of opinion that, if it should expressly assume those obligations, which, as they are the only ones that Denmark has mentioned, presumably are all that exist, it should not suggest the setting up of groundless demands, to the annoyance of both Governments by inserting in the treaty a general and indefinite engagement to indemnify Denmark against the claims of those who may imagine themselves to have been damaged by the cession. And it is to be understood that the offer of $3,000,000 is made on the assumption that the obligations in question will not upon investigation prove to be more onerous than they now appear to be. On the other hand the United States would undertake to pay, for a cession unencumbered by pecuniary obligations, the sum of $3,750,000.
A draft of a convention, in which the former alternative is embodied, is herewith enclosed.8 It may readily be so altered as to give effect instead to the second alternative, of a larger cash payment for a sovereignty free from pecuniary obligations, should Denmark prefer that plan.
[Page 478]You are directed immediately to present the whole subject to the Danish Government in the sense of this instruction, and to report fully your proceedings, together with all the pertinent information that you may be able to obtain.
I am [etc.]
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