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THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT

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Printed for the Cabinet. March 1949

CONFIDENTIAL

C.P. (49) 64

11th March, 1949

CABINET

Copy No. 31

THE SUEZ CANAL

MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS LOm

MY colleagues may like to have the following information regarding the negotiations between the Egyptian Government and the Suez Canal Company which began on 7th January and were concluded by the signature of an Agreement on 7th March. This Agreement, the full text of which is not yet available, is subject to ratification by the Egyptian Parliament and to the approval of the Annual General Meeting of the Shareholders of the Suez Canal Company.

2. The Company embarked on the negotiations because they feared that, if they did not settle outstanding matters of dispute between themselves and the Egyptian Government, the latter would carry out their threat to apply the Egyptian Companies' Law of 1947, by virtue of which Egyptian representation on the Board of the Company would be increased to 40 per cent. of the total number of directors.

3. The negotiations covered a wide range of subjects, but from the point of view of His Majesty's Government three only were of importance. These

were :—

(a) The Egyptian Government's claim for preferential treatment for

Egyptian shipping or goods passing through the Canal.

(b) Egyptian representation on the Board of the Company.

(0)

The Egyptian Government's share in the profits of the Company.

4. The first two questions were of particular importance in that they had a bearing on the future of the Canal when the Concession comes to an end in 1968. To admit any Egyptian claim to preferential treatment on the Canal would have been contrary to the principle of equal rights for all nations, implicit in the Suez Canal Convention of 1888. It is important that this principle should be preserved after the Concession comes to an end, irrespective of whatever other arrangements are made for the administration of the Canal and the passage of shipping through it. The Egyptian Government's claim, therefore, was strongly resisted by the British Government Directors on the Board and the former finally agreed to drop it. It is possible that they may seek to revive it in some form when the Montreux Convention safeguarding foreign rights in Egypt lapses in October this year, but for the time being the principle of equality of treatment for all shipping passing through the Canal is being preserved.

5. On the question of Egyptian representation on the Canal Company's Board, the British Government Directors took the view that for the Canal Company to have accepted the Egyptian claim to twelve seats out of the thirty-two on the Board would have been tantamount to accepting the application of the Egyptian Companies' Law to the Suez Canal Company and would, furthermore, have strengthened the Egyptian position on the Board to an extent which might have enabled the Egyptian Government in 1968 to insist that the future of the Canal after that date should be a matter which concerned the Feyptian Govern- ment alone. The Egyptian Government pressed the question of the directorships

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at the last moment, but finally accepted a compromise giving them three more seats between 1949 and 1954 and two further seats between 1954 and 1988, making a total of eight b1968, when the Concession ends. Page 379

6. On the third question, that of the Egyptian Government's share in the Company's profits, His Majesty's Government took the view that, provided their interests as the largest shareholder were looked after; this was substantially a matter for the Company to decide. The arrangement by which the Egyptian Government is to receive 7 per cent. of the gross annual profits of the Company will yield the Egyptian Government about £E.800,000 per annum and is acceptable to the Treasury.

7. The agreement which has now been reached represents a considerable increase in Egyptian interest in the affairs of the Company, but this has neither been at the expense of British shipping interests nor to the prejudice of the international character of the Canal. The negotiations have also provided an opportunity for the British Government Directors to increase their influence, which formerly counted for little in the Committee of Management. For this His Majesty's Government have good reason to be grateful to Sir Francis Wylie, who has acquired a remarkable mastery of the Canal Company's business in the short time he has been a British Government Director and has shown great skill in dealing with the French officials and Directors of the Company and latterly with the Egyptian Government.

E. B.

Foreign Office, S.W. 1,

11th March, 1949.

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