The Chargé in Venezuela (Engert) to the Secretary of State

No. 1860

Sir: Referring to the Legation’s telegram No. 36 of May 13, 1929, and in continuation of its despatch No. 1539 of April 19, 1928,4 I now have the honor to report on the recent developments in the matter of the application of the All America Cables, Inc., for the right to operate a cable to Venezuela.

As the Department was informed, the concession of the French cable company, the Compagnie Française des Cables Télégraphiques (formerly known as “Société Française des Télégraphes Sous–Marins”) [Page 855] expired on May 11, 1929. In anticipation of this event the French company, as long ago as March 10, 1938 [1928?], applied to the Venezuelan Government for permission to continue to operate its then existing system after the termination of its contract, and also to lay a cable from Curacao to Maracaibo.

To this petition the French company received no reply, and as it assumed that its request had been complicated by its desire to establish the new line between Curaçao and Maracaibo, it suggested to the Venezuelan Government on July 1, 1928, that the two requests be considered separately and that it be advised as soon as possible whether it could continue operating its existing system.

Under date of October 19, 1928, the then Minister of Fomento, Doctor Antonio Alamo, finally replied stating that the Federal Executive would be disposed to allow the French company to continue to operate provided it agreed to pay to the Venezuelan Government a tax equivalent to 12% of its gross revenues from its offices in Venezuela.

In the meantime, on August 8, 1928, All America Cables, Inc., had submitted to the Minister of Fomento a petition for permission to establish its own cable service in Venezuela, with offices at Caracas, La Guaira, and Maracaibo. The company offered to lay modern improved cables, capable of handling telephone traffic as well as telegraphic service. No reply was ever received to this proposal and, as far as the Legation is aware, the local representative of the company made no effort to keep the matter actively before the Venezuelan Government.

Towards the end of December 1928 All America Cables and the French company signed an agreement in Paris by which the former was, after April 1, 1929, to be given the control and operation of the French cables between New York, the West Indies (exclusive of Martinique and Guadaloupe) and Venezuela for the joint account of both companies. In order to operate the cables in the name of the All America it was necessary to secure the consent of the governments of the countries served by these cables. This permission was granted by all countries concerned except Venezuela.

When All America found that it was unable to get any action, either on its offer of August 1928 to install its own cables or on the transfer of the French cables, it sent out one of its Vice Presidents, Mr. F. A. Pirie—a step which should have been taken many months earlier. Mr. Pirie arrived in Caracas on February 27, 1929, with Mr. John K. Roosevelt, and immediately got in touch with representatives of the Venezuelan Government and of the French company. He explained to the Venezuelan Government that in order to carry [Page 856] out the agreement between the two cable companies it was necessary that the Government grant the following rights:

The right of the French company to operate after May 11, 1929, and to lay a cable to Maracaibo.
The right of All America Cables to take over the control and operation of the French cables, and to establish its own cable lines to Venezuela.

On March 5, 1929, the French company—after consultation with Mr. Pirie—replied to the communication from the Minister of Fomento of October 19, 1928 (see p. 2, above) and formally agreed to pay the 12% tax asked for and requested the Government to issue the necessary permit to operate after May 11, 1929, under the provisions of the Cable Law. Again no reply was received.

All America then learned through its lawyers that the principal difficulty was the matter of taxation. It was stated that although the Venezuelan Government had been disposed to permit the French company to operate its present system on the 12% basis, it did not wish to grant any rights to the All America on the same basis, for the reason that the American company not only proposed to improve the service but also intended to operate in Maracaibo and to establish its own cables as well. All of which, it was pointed out, would probably cause serious losses to the Radio operated by the Government.

All America thereupon offered to pay a tax equivalent to 20% of its gross revenue in its offices in Venezuela, but the Government suggested 25%. All America then tried to compromise and offered to pay a fixed tax of 60 centimos per word on all full paid traffic from Venezuela, which would amount to 23% of the company’s revenue according to the proposed new basic rate. To this the Minister of Fomento replied that as 60 centimos amounted to only 18¾% of the present rate he did not consider it sufficient.

As the presidential term of General Gomez was then about to expire I suggested to Mr. Pirie that it would be well if he were on record in writing with regard to some of the points that had formed the subject of his negotiations. He therefore addressed a communication to the Minister of Fomento on April 17, 1929, both on behalf of All America Cables and on behalf of the French company, in which he confirmed the various petitions and agreed to pay to the Government a tax of 20% of its gross revenue in Venezuela, provided the Government accorded the various rights which had been requested. (See p. 3, above.)

On April 19, 1929, the Venezuelan Government went out of office and a new Cabinet was appointed. … Doctor José Ignacio Cárdenas became the new Minister of Fomento. … A few days after he took [Page 857] office the attorneys of All America wrote to him, calling his attention to the pending matters and requesting an interview for Mr. Pirie. On April 24 Doctor Cárdenas replied that he would communicate with the company as soon as he was ready to discuss their case. The request for an interview was ignored, and although some four weeks have elapsed since then Mr. Pirie has not yet seen the Minister.

As far as the Legation is able to judge it appears to be Doctor Cárdenas’ idea that—if All America is permitted to operate at all, which is by no means certain—the American company should pay 20% or 25% even while merely continuing to operate the old French concession. All America, on the other hand, is trying to point out that the mere continued operation of the present French system and the petitions submitted by the American concern were two separate and distinct matters. While the Venezuelan Government had fixed a tax of 12% for the former, which had been accepted by the French company, All America Cables would be willing to pay the higher tax of 20% for the continued operation of the French cables only on condition that the Government grant at the same time the American company’s request to establish its own cable lines and to lay a new cable from Curasao to Maracaibo.

As intimated in the Legation’s cablegram No. 36 of May 13, 1929, I fear a deadlock has been reached and it may be necessary for this Legation to show an interest in the negotiations. In view of the Department’s telegram No. 16 of May 17, 5 p.m., I shall seek an early opportunity to mention the matter informally to Doctor Cárdenas and—if Mr. Pirie desires me to do so—to arrange an interview for him with that Minister.

In the meantime, the French cable company is continuing to operate in accordance with the provisions of the Cable Law of 1927 and subject to the 12% tax as fixed by the Government and accepted by the company, although the Venezuelan Government never specifically authorized it to continue operations. The French company has also announced the following new rates, as from May 12, 1929, for messages from Caracas to the United States, which show a slight reduction in the rates reported in the Legation’s despatch No. 1495 of March 2, 1928:4a

New York Bs. 3.20 per word
East of the Mississippi 3.60
West of the Mississippi 3.80
(One Bolívar equals c. 19 cents U. S. Cy.)

Deferred and government messages pay 50% of the above rates.

I have [etc.]

C. Van H. Engert
  1. Despatch not printed.
  2. Not printed.